Small Contractors More Likely To Be Paid Late The Defense Department is more likely to be late with payments to small businesses because it gives top priority to large, complex contracts, the Government Accountability Office found. In an audit of nine of DOD’s 20 vendor pay locations, GAO found payments were late on 10% of all invoices but on about 14.5% of small business invoices. At the Pensacola, FL, office, nearly two-thirds of small business payments were late in fiscal 2004. DOD officials said their “cash management practices place a lower priority on the payment of smaller, less complex invoices – like those typically submitted by small business contractors.” Although DOD policy allows small disadvantaged businesses to be paid early, GAO found the vendor pay locations could not implement the policy because their forms do not identify SDBs. The auditors said DOD’s payment system is still “paper-driven” and hampered by stovepiped information systems that cannot communicate with each other. They found the department’s Wide Area Work Flow, a Web-based tool to process payment documents electronically, is not being widely used. “As a result, DOD’s vendor payment sites continue to process mostly paper payment documents, which can often result in redundant data entry; misplaced documents; and, ultimately, payment delays,” the report said. Auditors interviewed executives of 17 small firms that had repeatedly received late payments. Fourteen of them said they were forced to obtain a line of credit to meet cash-flow needs. Three of the owners said their cash-flow crunch was so severe that they feared being forced to shut down. Ten of the 17 companies said DOD often did not pay interest on late payments, as required by the Prompt Payment Act. Even when interest was paid, the government’s rate was 4.25% last year, less than the cost of a line of credit. One moving and storage company said the Army was late with 361 payments during the year. An 8(a) environmental cleanup company was owed $755,000 in overdue payments on the day the auditors visited. Most of the business owners said they had to submit invoices several times before the Defense Finance and Accounting Service acknowledged receiving them, starting the clock on the prompt payment process. GAO said late payments could be reduced if more military installations and contractors used the Wide Area Work Flow tool. Officials at the payment centers estimated that only about 20% of contractor invoices were submitted through WAWF and an even smaller percentage of DOD payment documents moved through the system. But the officials said WAWF is already slow and might not be able to handle a larger volume. GAO recommended management improvements in WAWF and DOD said it is moving in that direction. Control of the system has been handed over to the department’s Business Transformation Agency. DOD said that office will “address the strategic direction” of the program. The auditors found the Defense Finance and Accounting Service’s contract pay site in Columbus, OH, paid 98% of its bills on time. That office handles large, complex contracts that typically have a DFAS official stationed at the contractor’s site to expedite payments. The report is GAO-06-358 at www.gao.gov.