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The 3,009 invoices referred to in the portion of the table related to date of invoice involved total payments of $32,053,900. The 2,048 invoices referred to in the portion of the table related to date of acceptance involved total payments of $18,909,400. The number of invoices differs because in many cases date of acceptance could not be determined from available records and therefore those invoices were excluded from the analysis related to date of acceptance.

This number includes 176 cases valued at $233,100 in which a discount was taken. Excluding these cases leaves 706 invoices or 23 percent of the invoices and 58 percent of the dollar value that were paid within 15 days of the invoice date.

Mr. SCANTLEBURY. In general, Mr. Chairman, the picture that seems to be emerging is mixed. Although a great many payments appear to have been made in a timely manner, many have not.

Some of the basic statistics porvided in the table show 61 percent of the invoices, which accounted for 81 percent of the total dollar value of the invoices we reviewed, were paid within 30 days of the invoice date.

As I mentioned earlier the consensus of the contractors was that 30 days after invoice date is a reasonable period within which to be paid. On this basis 39 percent of the invoices and 19 percent of the dollar value of the invoices would be considered to have been paid late.

We believe there are two basic causes of late payments. The first is the lack of a consistent Federal criteria for determining when payment is due, and the second involves the untimely processing of all the required documents before a payment can be legally made.

Concerning this latter cause, we have found that the contractors as well as the Government have caused payment delays by not processing the necessary paperwork promptly and correctly.

In some cases we were able to identify reasons why payment should not have been expected within 30 days of invoice date. For the remaining cases that were not paid within 30 days of that date, we attempted to identify the primary cause of the delay.

In about 45 percent of these cases the primary cause for delay involved tardiness on the part of the Government in (1) formally acknowledging receipt or acceptance of the goods or services provided: or (2) furnishing the required documentation of receipt and acceptance to the payment center.

In about 22 percent of the cases, delays at the payment center seemed to be the major problem, while in about 9 percent of the cases the contracting office was the source of delay.

A variety of delays account for 11 percent of the cases. In 13 percent of the cases we were unable to identify a specific cause of the delay.

Mr. Chairman, to better illustrate how late payments occur, I would like to discuss several case histories of late payments that we prepared during our review.

The first example demonstrates how untimely action by the contractor, receiving activity and payment center resulted in a payment 340 days after the date of the invoice.

On April 29, 1975, a military installation purchased medical supplies costing $1.152 for use at the base hospital. The supplies were delivered and accepted on May 8. The payment center received a copy of the purchase order on May 13, but it did not get a copy of the receiving report until June 23, or 45 days after the supplies were accepted. But the payment center still did not have an invoice.

On August 21, the payment center sent a letter to the contractor requesting an invoice. On November 19, the invoice arrived at the payment center with a letter from the contractor stating the invoice had been erroneously submitted under a different purchase order.

A week later on November 26, the payment center requested that the contractor send a copy of the prepaid shipping bill, a document that is not required prior to payment for the supplies themselves.

On April 12, 1976, 5 months later, the payment center made the payment. The payment excluded the prepaid shipping bill since it had not

been received, nor had any other documents been added to the payment file since the invoice was received in November.

In summary: The contractor delayed forwarding the invoice for 204 days; the receiving activity took 45 days to forward the receiving report to the payment center; and the payment center delayed making the payment for the goods for 144 days while waiting for the prepaid shipping bill, even though all the documentation necessary to support the payment for the goods themselves had been available since November.

In another case, a computer leasing firm was paid $924 on March 5, 1976, for 11 invoices each of which represented a monthly fee of $84. The payment for these invoices ranged from 278 to 613 days after the dates of the invoices.

According to the payment center chief, the invoices were received at the payment center regularly each month, but they could not be paid because the center had not received copies of the current lease agreements.

The chief said that "we kept asking the contracting officer for copies of the agreement, but it was several months before we got them, and apparently the user activities did not pressure the contracting office into renewing the lease agreements on a timely basis."

The chief added that this situation has improved considerably since March 5, the date of the payment selected for review.

In another case, on June 24, 1976, a military installation paid a commercial laundry $41.11 for nine invoices ranging from $2.92 to $6.19 each. Three of these invoices remained unpaid for more than 300 days, while the remaining six remained unpaid for 43 to 182 days, respectively.

The reason these invoices were not paid was that the receiving activity had not "accepted" the invoices until June 16, 1976-8 days later the contractor was paid.

In another case, a civil agency awarded an $89,161 cost contract to a management consulting firm on June 29, 1974, for a 1-year study of the benefits of alternative information and referral services for the aged.

The final payment of $6,315 was made 9 months after the date of the invoice because it lacked a required approval.

The invoice was dated July 1, 1975, and was approved by the project officer on July 30, 1975. However, because the claim was for the final payment, the administrative contracting officer was also required to approve it.

That approval was not received until April 2, 1976. The invoice was paid 10 days later.

DIFFERENCES AMONG AGENCIES

Although the payment centers we visited and the payments we reviewed were both selected on a basis that would produce results representative of government wide payment performance and not individual agency performance, we have included as attachment 2 to my statement a table which shows, by major Federal agency, the number of payment centers we visited and the number of invoices we reviewed as well as the number of invoices and dollar value of invoices paid more than 30 days after the invoice date.

While the data shown in the table may not be representative of an agency's overall performance, it does show that among the payments we reviewed there were considerable differences in timeliness of payments among agencies.

For example, at the one Department of Justice payment center we visited, we found that of 46 randomly selected invoices, only 3 had not been paid within 30 days of the date of invoice.

Similarly, we reviewed a total of 210 invoices paid by the Department of Agriculture at 5 payments centers and found only 17, or about 8 percent, to have not been paid within 30 days of invoice date.

Conversely, at the two General Services Administration payment centers we visited we reviewed a total of 168 invoices and found that 124 or about 74 percent had not been paid within 30 days of the invoice date.

We also looked at the timeliness criteria provided by the payment officials and found that there was considerable variance between agencies as well as among payment centers within the same agency.

We found the DOD centers to be far more consistent than their civil counterparts. For example, 84 percent of the 25 military payment centers included in our review cited similar timeliness criteria, while for civilian centers the figure was only 52 percent.

For example, at those civil agencies where our sample included at least two different payment centers, for example, Commerce, Transportation, and General Services Administration, we found that the agencies as well as payment centers within the agencies generally used different milestones and time frames to define timeliness.

Up to this point, Mr. Chairman, I have dealt with the measurement of timeliness based on the date of invoice.

Recognizing that a purchase order, vendor's invoice, and receiving report, must be executed before payment can be made, however, one gets a different picture of the payment performance of Federal agencies.

Our analysis shows that 82 percent of the invoices representing 94 percent of the dollar value of the invoices met the standard of being paid within 30 days of the date of acceptance of the item by the Government.

However, the fact remains that 18 percent of the invoices and 6 percent of the dollar value were paid late.

EARLY PAYMENTS

Our previous comments, Mr. Chairman, have focused on late payments and the reasons why these payments were delayed. I would now like to make a few comments on bills paid too early.

When the Government pays its bills too early it impacts on the cash management practices of the Treasury Department.

Federal disbursements are financed by tax receipts as well as Treasury borrowings. If the Federal Government delayed its disbursements, including payments to vendors, as long as possible without being late it would tend to minimize Treasury borrowings and the resultant interest cost.

In its money management study issued in January 1976, the joint financial management improvement program stated that good cash

management practices generally dictate that disbursements be made. when due and only when due.

This means that the Federal Government should pay its bills on the 30th day or so that payment will reach the person owed the money on the 30th day.

The joint program pointed out in their study that the arguments usually given for making disbursements earlier than the due date include the generation of goodwill with suppliers, thereby bringing about increased services, and the granting of offsetting price consideration by the supplier.

The data in attachment 1 to my statement can again be used to get some idea of the number and dollar amount of invoices paid early. If one used 15 days as the cut-off for early payments, we find that 882 invoices or 29 percent of the invoices were paid within 15 days of the date of invoice.

Excluding from these payments, cases in which a discount was taken results in 706 invoices, representing $18.7 million being paid early. This means that about 23 percent of the invoices representing 58 percent of the dollar amount of the invoices were paid early.

Mr. Chairman, these are the results of our review to date and the analysis of the data we have obtained.

In addition to continuing our analyses, to better determine what these results mean, we are currently considering a number of questions we hope to address in our report concerning how to improve the Federal payment posture.

For example, one area of consideration is what is the correct due date which Federal agencies should try to use as a target for paying

their bills.

Regardless of how timeliness should be judged on an overall basis, it seems safe to say that one rule will not fit all situations. Specific deviations from the generally accepted rule will probably need to be worked out regardless of what general rule is developed.

I should mention here that the Federal payment center personnel we interviewed generally believed that payment should be made within 10 days of the date that all documents required for payment are received at the payment center.

Mr. Chairman, another aspect of the timeliness question that should be addressed is how we can most effectively bring about whatever improvement is possible, regardless of whether on an overall basis we consider the existing performance to be good or bad.

As I am sure you are aware, Mr. Chairman, bills have been introduced in both the 94th Congress and this Congress that would establish a requirement for agencies to pay an interest charge on payments that are made late. Such a requirement might serve as an incentive to stimulating more timely payment. However, we are still assessing some of the difficulties involved, including that of determining the appropriate point after which interest should be charged.

In summary, Mr. Chairman, thus far we have found that the majority of Government contractors are satisfied with the timeliness with which they are paid. In addition, our analysis to date of the payments we reviewed tends to show that there is a basis in fact for the contractors' assessment.