United States General Accounting Office Washington, D.C. 20548 Accounting and Information Management Division B-277089 July 21, 1997 The Honorable Charles E. Grassley United States Senate Subject: Financial Management: DOD Progsess Pavment Distribution Procedures Dear Senator Grassley: The Department of Defense (DOD) has long recognized that distributing and accounting for contract progress payments are major contributors to its problems in accurately accounting for disbursements. Over the past several years, a number of different methods have been used within the Department to distribute and account for progress payments when more than one I appropriation is used to fund a contract. A distribution method is necessary because contractors are not required to identify the funding appropriations when submitting progress payment requests. On April 22, 1997, we briefed your office on selected DOD progress payment accounting methods which are being used, or have been used over the past several years, to distribute progress payments. Subsequent to the briefing, your office requested an illustration of the differences between and results of each of the progress payment accounting methods discussed during the briefing. Defense Finance and Accounting Service (DFAS) officials have stated that the DOD Financial Management Regulation 7000.14R, Volume 10, Contract Pavment Policv and Procedures, issued in February 1996, provides the only currently sanctioned DOD policy governing progress payment distribution. It provides standard progress payment accounting policies for distributing progress payments and requires DFAS centers to issue additional guidance prescribing detailed implementing procedures. CURRENT DISTRIEWTION METHODS TO ACCOUNT FOR PROGRESSPAYMENTS DFAS officials stated that the DOD Financial Management Regulation 7000.14R, Volume 10, defines two basic methods for distributing progress payments: GAO/AIMD-97-10’7R DOD Progress Payments Et-277089 (1) specific instructions as requested and directed in a contract and (2) proration using obligation balances as the basis (commonly referred to as the Automatic Payment of Invoices (API) method). In addition, according to the officials, an October 3, 1995, policy memorandum issued by DFAS-Columbus is to be followed when payments are rejected for automatic allocation and staff have to resort to manually allocating progress payments among the funding appropriations. This represents a third method. Selected details on each of these distribution methods follow. Contract specific payment instructions require progress payments to be distributed in accordance with instructions provided by individual contracts. The Mechanization of Contract Administration Services (MOWS) API procedure establishes a payment distribution procedure based on the weighted value of the contract’s total obligations. This procedure was implemented in 1982 and adopted by DFAS-Columbus as part of the consolidation of DOD’s &axe and accounting functions. The API method is used today for approximately 80 percent of the progress payments processed by DFAS-Columbus. DFASCohunbus October 3, 1995, policy memorandum prescribes manual progress payment distribution processes that allocate payments in alphabetic order based on accounting classification reference numbers’ (ACRN). This memorandum establishes DFAS-Columbus payment distribution procedures consistent with the DOD Comptroller’s September 28, 1995, directive.’ While not a prorated distribution as required by Volume 10 of the Financial Management Regulation, DFAS officials have stated the overall policy prescribed in Volume 10 is supplemented by the October 3, 1995, policy memorandum which allows an expedient, but less precise allocation method, in order to facilitate timely payments to contractors. F’inally, our work in the disbursement area has identified other accounting methods used by DFAS-Columbus personnel to distribute progress payments. ‘ACRNs are a two-character code assigned to each unique accounting line in a contract. DOD uses accounting lines to accumulate appropriation, budget, and management information for contract obligations and payments. “On September 28, 1995, the DOD Comptroller issued a memorandum directing a change to DFAS’s progress payment allocation method. The change required that DFAS initially attempt to allocate progress payments to all contract ACRN’s on a prorata basis using total contract obligations. If prevalidation processes rejected the payment, the change mandated a manual allocation in “ACRN sequence based on the progress payment rate.” 2 GAO/AIMD-97-107R DOD Progress Payments B-277089 One such method is exemplified in enclosure V. In addition, when recording the payment transaction in the official accounting records, accounting station personnel have used other methods, which may change the original distribution made by DFAS-Columbus.3 OTHER PAYMENT DISTRIEXJTION METHODS In addition to the four methods discussed above, your office also asked us to demonstrate the results of applying the following two progress payment distribution methods which have also been used. Air Force Regulation 177-120, Accounting and Finance Central Procurement Transactions,4 requires distribution to the oldest fiscal year funds first. Although not specifically noted as superseded in the Financial Management Regulation, DFAS officials told us that Air Force Regulation 177-120 was superseded by the Financial Management Regulation and is no longer to be used as guidance in distributing and accounting for progress payments. DFAS-Columbus Desk Procedure 302, Manual Distribution, was finalized on March 16, 1992, and applied the same methodology as the API procedures described above for those progress payments rejected from , the automated process. A September 28, 1995, DOD Comptroller memorandum directed this policy to be discontinued because it created an excessive number of prevalidation requests and disrupted payments. 31nDecember 1993, we reported that for fiscal year 1992, 17 percent of the Army’s disbursements made by offices other than the Army office responsible for controlling the funds were charged to a different appropriation when the responsible funding organizations matched them to the obligations (GAO/AIMD- 9412, December 22, 1993). We have not reviewed Air Force or Navy disbursements to determine if similar accounting practices exist, nor have we updated the Army information since the completion of the fiscal year 1992 review. ?he Army and Navy also had separate regulations governing progress payment accounting on their respective contracts. Information on these regulations is not provided since your staff specifically requested details on the method prescribed under Air Force Regulation 177-120. 3 GAO/AIMD-97-107R DOD Progress Payments B-277089 APPLICATION OF PAYMENT DISTRIBUTION METHODS Table i summarizes the effect of applying each of the above-mentioned progress payment distribution methods to the same progress payment request of $1,525,000. Even though for one of the methods illustrated we applied an Air Force method to the Army progress payment request, the illustrations aptly demonstrate the payment distribution differences resulting from the use of various progress payment accounting methods. The amount distributed to the two appropriations” varied from nothing to the entire payment, depending on the method used. Table 1: Promess Pavment Distribution Using Various DOD and Militarv Service Retiatzons and Procedures Fiscal Year 1995 Fiscal Year 1994 Other Other Procurement, Procurement, AMY Method Armv FMR methods Current methods: L a a Contract specific instructions API $782.736.75 $742,263.25 Supplemental instructions: DFAS-Columbus 10/3/95 memo $1,525,000.00 $0.00 Other obligation based methods: Other obligation based proratio& $782,782.50 $742,217.50 Other methods Air Force regulation $0.00 $1,525,000.00 DFAS-Columbus desk procedure $782,736.75 $742,263.25 “The progress payment dollar amount drstributed to each appropriation would vary based upon the specific amounts stated IO the contract or the payment request. bathedollar difference between the API method and the other obligation-based method mll Increase as more dellvenes occur under the contract, resultmg in a decrease n the unllquidated obltgation balances. Source: GAO analysts based on DOD policies and regulations “The request selected pertains to a contract involving only two ACRNS and was selected for illustrative purposed only. Contracts involving 10 or more ACRNs account for 77 percent of the dollar value of DFAS-Columbus contracts. 4 GAO/AIMD-97-107R DOD Progress Payments <. I - ,’ i’ B-277089 Our work was perform ed in accordance witi generally accepted governm ent auditing standards between M arch 1997 and M ay 1997. Our scope and m ethodology is in enclosure I. Enclosure II provides m ore detailed inform ation on progress paym ent requirem ents and other contract inform ation pertinent to illustrating the results of the progress paym ent distribution m ethods. Enclosures III through VU illustrate the paym ent distribution results of applying five of the six m ethodologies. The sixth m ethod, contract specific paym ent instructions, is not illustrated because the amount applied to contract ACRNs would be determ ined based upon unique inform ation provided on a paym ent request. AGENCY C O M M E N T S AND OTJREVALUATION In written com m ents on a draft of this letter (see enclosure VIII), DOD stated that DFAS-Columbus has one policy governing the distribution of progress paym ents, supplem ented by a policy m emorandum that is used when paym ents are rejected from the MOCAS API process. DOD stated that this policy allows two distribution m ethods: (1) specific distribution as directed in the contract or (2) proration using obligation balances, which it refers to as API. Our work has shown that distribution m ethods, other than the two described by DOD, such as the one described in enclosure V, have also been used by DOD since DOD regulation 7000.14R Financial M anagem ent Regulation, Volum e 10, was issued. The Com ptroller stated that he will soon require contracting officers or contract adminiskation officers to provide DFAS with specific progress paym ent distribution instructions on all new contracts. The distributions are to reflect the contract line item level costs incurred by the contractor. However, it should be noted that because existing contracts authorizing the use of progress paym ents are generally long-term in nature, we believe it is likely to be a num ber of years before such a policy applied to new contracts will be a predom inant progress paym ent distribution m ethod. GAO/AIMD-97-107R DOD Progress Payments h We are sending copies of this letter to the Chairmen and Ranking Minority Member of the Senate Committee on Armed Services, the House Committee on National Security, the Senate Committee on Governmental Al&ins, the House Committee on Government Reform and Oversight, the House Subcommittee on Government Management, Information, and Technology, the Senate Committee on Appropriations, and the House Committee on Appropriations. We are also sending copies of this letter to the Director of the Office of Management and Budget, the Under Secretary of Defense, Comptroller, the Director, Defense F’inance and Accounting Service, and other interested parties. Copies will be made available to others upon request. If you or your staff have any questions or we can be of further assistance, please contact me at (202) 512-9095. Sincerely yours, Q$G44+~ I&a G. Jacobson Director, Defense Audits Enclosures 6 GAO/AfMD-97-107R DOD Progress Paymen:’ * ’ ENCLOSURE I ENCLOSURE I SCOPE AND METHODOLOGY To illustrate the differing results obtained when applying the six progress payment distribution methodologies discussed in the letter, we used the same actual progress payment request. An actual payment request processed by DFASColumbus was selected. The request, for $1,525,000,pertained to an Army contract including two ACRNs representing two merent appropriations-Fiscal Year 1994 Other Procurement, Army, and Fiscal Year 1995 Other Procurement, Army. We did not audit the validity of the progress payment request. We did not illustrate all progress payment distribution methodologies which DOD is using, or has used, over the past several years. Instead, we illustrated only selected methodologies used since the issuance of the DOD Inspector General’s report on the Titan IV program.’ For example, we have not illustrated Army and Navy regulations governing progress payment accounting. a We performed our work from March 1997 through May 1997 in accordance with generally accepted government auditing standards. DOD provided written comments on a draft&of this letter. These comments are presented and evaluated in the “Agency Comments and Our Evaluation” section and are reprinted in enclosure VIII. ‘Titan IV Program (DOD Inspector GeneraI report 92-064, March 31, 1992). 7 GA0/..4IhfD-97-107RDOD Progress Payments ENCLOSURE II ENCLOWRE II CONTRACT INFORMATION APPLICABLE TO EACH METHOD OF DISTRIBUTING PROGRESS PAYMENTS The following information is applicable to aII distribution ikstrauons. Table II.1: Contract ACRNs and Balances Per MOCAS Unliquidated Obligation Work-in-process obligation ACRN Balance balance balance AAa $14,652,354.07 $2,721,585.58 $8,470,314-l 9 I AB’ 13.894.788.00 4.267.197.54 10.280.188.00 ‘ACRN AA represents Fy 1995 Other Procurement, Army Appropnation. ‘ACRN AB represents Fy 1994 Other Procurement, Army Appropriatron. Source: GAO anelys~s based on DOD data I Seventy-five percent of the amount of each requested progress payment is actually paid. The approved progress payment of $1,525,000.00 to be processed under this contract is the 10th request received. No specific payment distribution instt-uctions have been provided. (See figure II.1.) 8 G.~O/AIMD-9i-1O7RDOD Progress Payments . ENCLOSURE II Figure II.1: Proaess Pavment Reauest SECXON #3 COMFUTATION OF i.ltdl7.S FOR OUlSTANOlNG PROGRESS PAYMENTS Nama and TlIh or conuanor Rapmsantatnfo SlgmnO %s Form: Richard C. ha. Oiioz of Admmsmmon ‘SiiNB Source: DOD 9 GAO/AIMD-97-107RDOD Progress Payments ‘- i ENCLOSURE III ENCLOSURE III DFAS-COLUMBUS AUTOMATIC PAYMENT OF INVOICE DFAS-Columbus uses the MOCAS API module to process payment requests. This method, implemented in 1982, is still in use today for approximately 80 percent of the progress payments processed by DFAS-Columbus. API distributes the payment to all available funds on the contract based on the weighted value of the total obligations for each ACRN. Progress payment distributions under API are done automatically after DFAS-Columbus personnel input information from hard copy progress payment requests, Steps taken to compute and distribute the progress payment are shown in table III.1. Table IlI.1: API Progress Pavment Distribution Procedures I step Step objective Actions taken to accomplishstep 1 Review each progress Review progress payment request and payment request and assign ADPE number. asslgn a batch number and Automated Data Processing Equipment (ADPE) number (internally aenerated trackina number). 10 GAO/AMD-9’i-107R DOD Progress Payments ENCLOSURE III ENCLOSURE III ” step Step objective Actions takento accomplishstep 2 Enter In MOCAS the Review the progress payment request (1) contract number, (2) and enter required data.a delivery order number, (3) “A” for U.S. funds or “B” for foreign military sales funds, (4) progress payment request number, (5) action code, (6) ADPE number, (7) contract dollar amount, (8) progress payment rate, (9) liquidation rate, (10) date of request, and (11) all information Included on lines 9 through 27 of the progress payment request form (SF 1443) submrtted by the contractor. 3 Calculate the amount MOCAS API process computes the amount of the progress payment to be drstnbuted and makes the to be distributed to distnbution.b each contract ACRN. ‘Figure HI.1 documents the data entered for the hstratwe progress payment request. *Figure III.2 documents the distribtion results for this illustrative progress payment request. Source: GAO analysts based on DOD pohcies and regulations. 11 GAO/AIMD-97-107RDOD Progress Payments ENCLOSUXE III ENCLOSURE III F’@ ,aure ml: Contract Administration Progress Pament ReDort Source: DOD GAO/AI&ID-97-107RDOD Progress Payments ENCLOSURE III ENCLOSURE III Fi,bure III.2 MOCAS Generated Subvoucher OR cbsn-aF**- 1,525,OOO.OO mm IQ MnCrJ - 1 D1(: - zi%& -@ROJ 55s IS14 782.736.75 01: 45s s14 742,263.25 01: - CONTRACT TOTAL 1,525,OClO.OO Source. DOD 13 GAO/AIMD-97-107R DOD Progress Payments ENCLOSURE IV ENCLOSURE IV DFAS-COLUMBUS OCTOBER 3.1995, POLICY MEMORANDUM A DFAS-Columbus policy memo, which has been in effect since October 3, 1995, requires manual payments to be distributed to funds cited on the payment request or in accordance with contract terms. If specific payment instructions are lacking, pavments are to be distributed in ACRN seauence based on alnhabetic order, i.e., AA will always be first if used in contracts. This change in the manual payment distribution method was based on a September 28, 1995, memo issued by the DOD Comptroller. MOWS’ automatic process (API) did not change as a result of this memorandum. Steps taken to compute and distribute the progress payment are shown in table IV.l. Table IV.1: DFAS-Columbus October 3. 1995. Policv Memorandum, Progress Pavment Distribution SW Step objective Actions taken to accomplish step 1 Deterrnrne contract Review the contract and payment request and specific pay determine if any specific payment Instructions instructions provided are provided. If provided, pay accordtng to for in the contract. those Instructions. If not provided, go to step 2. 2 Compute the amount of Multiply the unliquidated obligation(UL0) funds available from balance by the progress payment rate whrch to make thrs and determine the maximum allowable progress payment for amount for the work-in-process (WIP) line. each ACRN included Deduct the current WIP balance from in the contract. the maximum allowable amount for the WIP line and determine the amount of funds available from which to make the progress payment. 3 Place contract ACRNs in Review the MOCAS contingent llabillty record alphabetic sequence. to determine the ACRNs used on thrs contract. Rank the ACRNs in alphabetic sequence (AA will always be first). 14 GAOMMJI-97-107R DOD Progress Payments Step Step objective Actions taken to accomplish step 4 Determtne how much of Compare the amount of funds available on the progress payment the first ACRN (computed in step 3) to approved amount can the approved amount of the progress be distnbuted to ACRNs payment. Determine if the amount available on the contract. to make the progress payment exceeds the amount of the approved progress payment. If yes, distnbute the entire progress payment amount to the first ACRN. If no, distribute an amount equal to the maxtmum available amount to the next ACRN, and continue in this manner until the entrre progress payment amount is distributed. Source: GAO analysis based on DOD pohcres and regulatms. Applying the October 3, 1995, policy methodology to the illustrative progress payment request results in the following computations and appropriation distributions. Table IV.2: Illustrative ExamDIe of Distribution Results Under October 3. 1995, Policv Memorandum Fiscal Year 1995 Fiscal Year 1994 Other Procurement, Other Procurement, AMY AMY Total ULO balance $8,470,314.19 $10,280,188.00 $18.750.502.19 Multiplied by the progress payment rate -75 .75 Maximum WIP balance $6,352,735.64 $7,710,141.00 $14,062,876.64 Less current WIP balance 2.721.585.56 4.267.197.54 6.988.783.12 Available for WIP payment $3,631,150.06 $3,442,943.46 $7,074,093.52 Progress payment #l 0 distribution $1,525,000.00 $0 $1,525,000.00 Source: GAO analysts based on DOD polrcles and regulations. 15 GAO/AIMD-97-107RDOD Progress Pa?;ments ” ’ 1%1 !a ^ < li - , .I - ,L. _ I,- ENCLOSURE V ENCLOSURE V * DOD REGULATION 7000.14R. VOLUME 10 OTHER DISTRIBUTION Volum e 10 of DOD Regulation 7000.14R, issued on February 8, 1996, requires progress paym ents to be distributed based upon the distribution identified in the contract. When the contract does not cite specific paym ent instructions and only one m ilitary service is involved in the contract, the paym ent is to be prorated against those ACRNs with sufficient unliquidated obligations using the obligations as the basis of the proration. However, when the contract is funded with appropriations from m ultiple m ilitary services, the regulation requires that paym ent be distributed to the m ilitary services with sufficient unhquidated obligations and then to the ACRNs within that n-Wary service. Once again, the obligation will be the basis for the proration. In com m enting on these exam ples, DFAS officials stated that using obligations as the basis when distributing progress paym ents is com m only referred to as the MOCAS API m ethod. However, DFAS-Columbus personnel use other obIigation based prorations. One such use of the regulation results in the steps shown in table V.l being taken to com pute and distribute the progress paym ent. Table V.l: DOD Remlation 7000.14R. Progress Pavment Distribution Procedures I step Step objective Actions taken to accomplish step 1 Determine if any contract Review the contract and payment request and specific pay instructions are determ rne if any spectfic payment rnstructions provided. are provrded. If provided, pay according to those Instructions. If not provided, go to step 2. 2 Determme which m ilitary Review the fundrng for the contract and assess services are funding the which m ilitary services have funds on the contract. contract. 3 Compute, by ACRN, the Multiply the ULO balance by the progress amount of funds available payment rate and determ ine the from which to make this maximum allowable amount for the W IP line. progress payment. Deduct the current W IP balance from the maximum allowable amount for the W IP line and determ ine the amount of funds available from which to make the progress payment . 16 GAOMMD-9%107R DOD Progress Payments ENCLOSURE V EXLOSC;REV Step Step objective Actions taken to accomplishstep i 4 Compute the distribution Total the values computed In step 3 above to percentage for each ACRN determine the total amount of funds avariable on the contract. from which to make the progress payment. Divrde each ACRN’s funds available for progress payments by the total computed and determine the distribution percentage for each ACRN. 5 Compute how much of Multiply the approved progress payment the progress payment amount by the percentage to be applied to each approved amount can ACRN and determrne the amount of the be drstributed to each payment to distribute to each ACRN. contract ACRN. Source: GAO analysts based on DOD policies and regulabons. .. Applying this methodology to the illustrative progress payment request results in the following computations and appropriation distributions. Table V.2: Illustrative ExamDIe of Other Distribution Results Under DOD Retiation 7000.14R Fiscal Year 19% Fiscal Year 1994 Other Procurement, Other Procurement, mY Am Total ULO balance $8,470,314-l 9 $10,280,188.00 $18,750,502.19 Multiplied by the progress payment rate -75 -75 Maximum WIP balance $6,352,735.64 $?,710,141.oo $14,062,876.64 Less current WIP balance 2.721.585.58 4.267.197.54 6.988.783.12 Available for WIP payment $3,631 ,150.06 $3,442,943.46 $7,074,093.52 Progress payment #I 0 distribution $782,782.50 $742.217.50 $1,525,000.00 Source: GAO analysis based on DOD pohc~es and regulations. 17 GAO/AIMD-97-10’7RDOD Progress Payments ,. ’ i 1 ENCLOSURE VI ENCLOSURE VI AIR FORCE REGUIATION 177-120 Air Force Regulation 177-120 required payments to be dis tributed to appropriations c ited on the contractor-prepared payment request. Under this regulation, if the payment request did not c ite specific funds , the oldes t fiscal vear funds were to be charged firs t using the following sequence of appropriation categories: (1) Air Force Research, Development, Test, and Evaluation (RDT&E)-Reimbursable Budget Authority (RBA) Budget Program Activity Code (BPAC), (2) Air Force RDT&E-Other Than RBA BPAC, (3) DOD RDT&E-Strategic Defense Initiative, (4) Air Force System Command O peration and Maintenance, (5) Air Force Procurement and Production appropriations , (6) Air Force W orking Capital Funds (Industrial Fund and Stoc k Fund), (7) Air Force O peration and Maintenance-Other Major Commands, (8) alI other funds , inc luding Army, Navy, and DOD. According to DFAS offic ials , this regulation is no longer to be used as guidance when dis tributing progress payments. Steps taken to compute and dis tribute the progress payment under this regulation are shown in table VI. 1. Table VU: Air Force Regulation 177-120 Progress Pavment Dis tibution Procedures s tep Step objective Actions taken to accomplish step 1 Determine if any contract Review the contract and payment request and specific pay instructions are determine if any specific payment tnstructions provided. are provided. If provided, pay according to those Instructions. If not provrded, go to step 2. 2 Determine If any Air Force Review the funding for the contract and assess RDT&E or D O D Strategic if any Air Force RDT&E or D O D Strategic Defense lnrtlative funds are Defense lmtiatives are avallable. available for the contract. 3 Compute the amount of Multiply the ULO balance by the progress funds available from which payment rate and determine the maximum to make this progress allowable amount for each ACRN W IP line. payment for each contract Deduct the ACRN’s current W IP balance ACRN. from the ACRN’s W IP line maxlmum allowable amount and determine the amount of funds available from which to make the progress payment. 4 Determine which ACRN Review contract funding information and represents the oldest fiscal determIne which ACRN represents the year funds. oldest fiscal year funds. 18 GAO/AIMD-97-107RD O D Progress Payments ENCLOSURE Vi EXCLOWRE 1-I Table 11.1,continued Step Step objective Actions taken to accomplish step 5 Determine how much of the Compare the amount of funds available approved progress payment for the oldest fiscal year appropnation amount can be distnbuted (computed In step 3) to the approved to the oldest fiscal year amount of the progress payment. funds. Determine if the amount available to make the progress payment exceeds the amount of the approved progress payment. If yes, distribute the entire progress payment amount to the ACRN. If no, distnbute an amount equal to the maximum available amount to the oldest appropriations, and continue in this manner until the entire progress payment amount is distnbuted. Source:GAO analysts based on DOD polmes and regulations. Applying the Air Force methodology to the illustrative progress payment request results in the following computations and appropriation distributions. Table VI.2: Illustrative ExamDIe of Distribution Results Under Air Force Regulation 177-120 Fiscal Year 1995 Fiscal Year 1994 Other Procurement, Other Procurement, ArmY Army Total ULO balance $8,470,314.19 $10,280,188.00 $18,750,502.19 Multiplied by the progress payment rate .75 -75 Maximum WIP balance $6,352,735&l $7,710,141.00 $14,062,876.64 Less current WIP balance 2.721.585.58 4.267.197.54 6.988.783.12 AvaIlable for WIP payment $3,631,150.06 $3,442,943.46 $7,074,093.52 Progress payment #10 distribution $0 $1.525,000.00 $1,525,000.00 Source: GAO analysts based on DOD pohes and regulabons 19 GAO/AIMD-97-107X DOD Progress Payments ENCLOSURE VII ENCLOSURE VII DFAS-COLUMBUS DESK PROCEDURE 302. X4N~~4.L DISTRIBLTTION DFAS-Columbus Desk Procedure 302 was in effect from March 16, 1992, to October 3, 1995, and recognized that ail payments should attempt to use the MOCAS API process. However, the procedure required that if MOCAS API could not be used, voucher examiners were to manually prepare the (1) Progress Payments Prorate Worksheets to determine if the progress payment could be made and the (2) Progress Payment Prorata forms to determine the amount of the progress payment to apply to each contract ACRN. This manual nrocess attempts to mirror that used bv the MOCAS API nrocess. Steps taken to compute and distribute the progress payment are shown in table VII.1 and demonstrated in detail in figures VII.1 and VII.2. Table VII-l: Desk Procedure 302. Manual Promess Pavment Distribution Procedures Step Step objective Actions taken to accomplish step 1 Enter MOCAS Review MOCAS Contmgent Liability Record and information pertaining record the required information on the Progress to (1) contract number, Payments Prorata Worksheet. (2) progress payment request number, (3) dollar amount of progress payment, (4) contract’liquidation rate, (5) servrce code for each ACRN (1=Army, 2=Air Force, 3=DLA, and 4=Navy), (6) each ACRN, (7) obligation dollar amount for each ACRN, (8) WIP outstanding dollar amount for each ACRN, and (9) ULO balance dollar amount for each ACRN to the Progress Payments Prorata Worksheet. 20 GAOiAtiMD-ST-1OTRDOD Progress Payments EXCLOSTRE t-II ENCLOSURE VII Step Step objective Actions taken to accomplishstep 2 Determine and record Multiply the ACRN ULO amount by on the Progress the liquidation rate. Subtract each Payments Prorata ACRN’s WIP outstanding dollar amount Worksheet the from each answer computed amounts of funds and determlne the available funds. avaiiable to make to the progress payment. 3 Sort ACRNs in Review the MOCAS contingent Ilability record ascending order to determine the ACRNs used on this contract. based upon the dollar Rank the ACRNs in descending order and amount of funds record the sequence of ACRNs on the available to make the Progress Payments Prorata Worksheet. progress payment. 4 Record on the Progress Copy and record the required Information to Payment Prorata form the Progress Payment Prorata form.b from Progress Payments l Prorata Worksheet the following information: (I) contract number, (2) progress payment request number, (3) service codes of ACRNs in ascending order, (4) each ACRN in ascending order, and (5) each ACRN’s dollar amount of obligations. 5 Compute and record to Total the obligation dollar amounts recorded in the Progress Payment column 3 and record the computed amount Prorata form the on column 4, line 1. Subtract column 3, line 1 obligation balance for from column 4, line 1 and enter this amount each ACRN on the on column 4, line 2. Continue this process contract. until column 3 and column 4 equal each other.b I 21 GAO/AMD-9’i-1O7RDOD Progress Payments ENCLOSURE VII EXCLOSURE VII Step Step objective Actions taken to accomplishstep 6 Compute and record on Divrde each ACRN’s obligation amount by the Progress Payment each ACRN’s obligation balance and determlne Prorata form the pro rate the pro rate percent. Record the pro rate percent percent amount for each amount In column 5.’ ACRN. 7 Record on the Progress Review the Progress Payments Prorata Payment Prorata form Worksheet and enter the amounts In the dollar amount of funds column 7 to column 6 on the Progress available to make progress Payment Prorata form.’ payment. 8 Determine the dollar Review the progress payment request to determlne amount of the progress the approved progress payment amount and enter payment approved this amount.b . balance for the first ACRN listed on the Progress Payment Prorata form. 9 Compute the amount of Multiply the approved balance in column 7, line the progress payment to 1 by the pro rate percent in column 5, line 1 to be prorated to the first determine the amount to be prorated to ACRN listed on the the first ACRN? Progress Payment Prorata form. 10 Determine the dollar Compare the amount of funds remaining to amount of the progress pay progress payments Sor the second ACRN payment approved to the amount of the prorated progress payment balance for the computed in step 9 and determine which is second ACRN listed smaller. Record the smaller amount on the Progress In column 8, line 1 of the Progress Payment Prorata Payment Prorata form. Subtract the amount form. of the progress payment dtstributed to the first ACRN on the Progress Payment Prorata form from the progress payment approved balance on column 7, line 1 and record this amount In column 7, line 2.b 22 GAO/AIMD-97-107RDOD Progress Paynlenrs EXLOSURE VII EXCLOSFRE 1-H Step Step objective Actions taken to accomplish step 11 Determine the dollar amount Repeat steps 9 and 10 until columns 7, 8, of the progress payment and 9 are complete for all ACRNS.~ approved balance for all remaining ACRNs on the contract. ?igure VII.1 documents the data entered for the Wszaave progress payment request bFigure W 2 documents the mfomation recorded for the Gmranve progress payment request Source GAO anaiyss based on DOD potiaes and regulations. 23 GAO/.AIMD-97-10’ -i, * 1 ‘,: ; ENCLOSURE VTI Figure m .1: Proszress Pavments Prorata Worksheet ExamtAe MULTI ACRNS-ONE SERVIC Source: GAO analysis based on DOD policies and regulations. F&u-e V5.2: Prom ess Pament Prorata Form Exanm le PlIN/SPIIN PROGRESS PAYMENT PRORATA PPR 7 I I a I 9 PROGRESS 1 1 PRO RATED 1 AMOUNT 1 I I I I I scuroe: ( A0 analysis based on DOD policies and regulations. 24 GAO/AIMD-97-107RDOD Progress Payments I- E N C L O S U R EV III E N C L O S U R EV III C O M M E N T SF R O M T H E D E P A R T M E N T O F D E F E N S E UNDER SECRETARY OF DEFENSE 1100 DEFENSE PENTAGON WASHINGTON. DC 20301-1100 Mr. G e n eL. D o d a r o AssiitautC o m p trollerG e n e r a l Accounting a n dInformationM a n a g e m eDivision nt U.S.G e n e r aAccounting l office W a s b i n g t OD%C 2 0 5 4 8 D&UMLDOdXO: l3i.s is theD e p a n m e noft Defenser e s p o n stoe the G e n e r aAccounting l O ffice ( G A O ) draftrepot&T?INANcIALMANA~ D O DprogressP a y m e nDistribution t procedures,” d a t e dJ u n e6 , 1 9 9 7( G A OC o d e9 1 8 9 W O S DC a s e1380). TheDepartmentappreciatesthechangesmadetotheoriginaldmftconcemingthe p r o c a M s miiizedin m a l d n gprogresspayments.However,the charto n p a g e4 a n ds o m eof the asmiatedl a n g u a gmight e l e a dthe r e a d e to r concludetbatthe Departmentfollows m o r epolicies thanone.For the record,I wantto m a k ethe followingpoints: T h eDefenseFinancea n dAccountingService( D F A S )paysall progress paymentsin a m a n n estipulated r in contractsor as direct& by specialp a y m e ninstmcdons t fkomcontmctiug officets.T h eD F A Susesthe p a y m e npt r o c e d u r ediscus& s b e l o wonly if therea r en o specific a m tractp a y m e nprodsions t or lnstmctions.T h e D F A SC o h t m b u Center s h a souly o n eoverall policythatgovernsh o w p r o g m s payments s a r er ~ 4 s u p p l e m e n t ebyd a policy m e m o r a n d u m thatis u s e dw h e npaymentshil theA u tomaticp a y m e nof t Invoices(API) process. T h e D o D F ~ M a n a g e m e n tRegulation(DoD~)7ooO.14R, issuedFebruary 1 9 9 6is , theg o v e m i n gpolicythat p r o w standard distributionguidelinesfor theailocationof progress payments.T h eD o D F M R replacesp a y m e ngt u i d a n cpreviouslye existingu n d e rvarious D O Dregulations, orders,or policies.T h e D o D F M R cumxtly & l o w s for two m e thodsof distnbution:(1) specificitemizationasrequested a n ddirectedin the contractor (2) proration usingobligationbalances ( c o m m o n l yreferredto as theA H m e thod).O n l y o n em e thodis u s e do n a u invoxep e rcotmac~Also, the D F A S C o l u m b u Center s issueda n intensivepolicy m e m o r a n d uomn October3,1995,which delineates p r o c e d u r etos distributem a n u aprogress l payments b a s e do n a directivep m s c r & d by theD O DC o m p trollerin a S e p tember 28.1995, memorandum. A furtherelaboration of theF M R ’s two m e thodsis as follows: l ContractSoecificInstruction T h eD O DF M R requiresp a y m e nallocation t in a c c o r d a n cwith e msnuctions providedwithin the mdividuaicontracts.O ften,d u eto the potentialfor canceling fundsu n d e rpublicL a w 1 0 1 - 5 1 0contmct , specificinsttucuonssimilarto thosec o n t a m ein d 25 G A O IA IM D - 9 7 - 1 0 7 D F iO D Progress P a y m e n t s ENCLOSURE VIII the now expiredAir ForceRegulation177-120,Accounting and FinanceCenttal procurement Transactions.am containedin selectedcommas. Theseinstructions may requirepayment distributionto the oldestfscai year funds first. This method is used approximately15 percent of the time. l AutomaticPavmentof Invoices MPQ. If no spe&c instructions are includedin the contract the Her rquires payment based upon the API process. This processestablishesa payment distributionpro&me that usesthe weightedvalue of the conttact’s obligation balancesto determinepaymentdistribution. This automatedmethodis in use today for approxunately 80 percentof the progmsspaymentsproces& by the DFAS Columbus Center. Also. asnotedabove,this overall policy is supplementedby an October3,1995. DFAS Cohunbuspolicy memorandum.The memomnclumprescribespayment distributionin “ACRN alphabeticorde? when speci5i.cpayment allocation instructions were not providedin the contract, whenpaymentsare not systemicallyemitled via the API process.or when a m-questfor authorizationto pay is denieddtukg the preva&lation pmcess. This guidancewas initiated due to in&n&ant dollaramountsbeingallocatedbytheApI~whichdegmdedpayment timdins when paymentswere subjectedto the prevalidationprocess. I will issue,shortly,guidancerqdring the conuacting officer or contractadministration office to provideDFAS specik instructionson how to distribute each progress payment The disttibutionsam to reflect the conttact line item level costsincurred by the contractor. These dlsuibutionswill be requhedfor all progmsspaymentsquested under new contracts. When dlsassing progms payments,it is important that they be distinguishedfrom deliverypayments.Progresspaymentsare contract5nancing paymentsthat are applicableonly to tied price contracts.progresspaymentsdo not representpaymentsfor work or servicesthat havebeencompletedor delivered. progresspaymentsrepresentSnancing to contractorsbasedon costsincurredand the contmctorremainsliable for the Enancinguntil the items specifiedin the contractare delivered The use of progresspaymentson large contracts is authorizedby law for all FederalAgenciesbecausethis processproducesthe lowest overall cost to the government. Contractorspay higher interestratesthan the Tressmy and those interest rateswould be included in contractprices. When the cormactordelivers the items or services specifiedin the contract,the applicableoutstandingprogresspaymentsamount is deductedfrom the price of the delivered itemsbeforethe paymentis made. (918912) 26 GAO/AMID-97-107l? DOD Progress Payments Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and Mastercard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 2534066, or TDD (301) 413-0006. Each day, GAO issues a list of newly available reports and testimony. To receive facsimile copies of the da.ily list or any list from the past 30 days, please call (202) 512-6000 using a touchtone phone. A recorded menu will provide information on how to obtain these lists. For information on how to access GAO reports on the INTERNET, send an e-mail message with “info” in the body to: info&vww.gao.gov or visit GAO’s World Wide Web Home Page at: http://www.gao.gov United States General Accounting Office Washington, D.C. 20548-0001 I Permit No. GlOO 0flicia.l Business PenaIty for Private Use $300 Address Correction Requested
Financial Management: DOD Progress Payment Distribution Procedures
Published by the Government Accountability Office on 1997-07-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)