BOP Program Statement 8532.08 § 7

with timely payments in 5 CFR Part 1315. Timely payments are

defined as:

# payments not made late (after the due date or discount

date) and

# payments not made early (more than seven days before

the due date).

All FPI Business Offices must adhere to guidelines established in

5 CFR Part 1315 when making payments. The guidelines specify:

# the type of documents required for payment to vendors,

# calculation of due dates,

# interest penalties,

# rebates, and

# taking discounts.

Parameters established within FPI’s automated financial

management system used by all FPI locations incorporate these

guidelines.

a. Basic Payment Documents. In accordance with the prompt

payment guidelines, the following basic documentation must

support all payments FPI makes:

(1) “original” vendor invoice - document from a vendor

requesting payment for goods and/or services,

(2) receiving report or services received stamp -

certification that goods and/or services were received, and;

(3) purchase order - certified procurement document

authorizing the purchase of supplies and/or services.

The payment voucher is assembled after receipt of all basic

documentation. In addition, the applicable staff member must

sign the receiving report (if applicable) and purchase order

until notified by management of electronic signature authority.

b. Administrative Changes. The approving official may adjust

the invoice amount when it exceeds the price quoted on the

contract. However, this deduction cannot exceed $100 and the

vendor must be notified via a debit memorandum, when the payment

is made.

If the invoice amount exceeds $100 and can not be substantiated

the purchase order must be amended prior to payment. If not, the

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invoice is improper and must be returned promptly to the vendor.

In addition, adjustments may not be made for unaccounted line

item freight charges and credit card settlements.

The sub-certifier must initial all administrative changes to

the invoice amount indicating review and approval of the

deduction.

c. Due Dates. In accordance with the prompt payment

guidelines the payment due date is 30 days from the latter of:

(1) the date the invoice is received, or

(2) the date goods and/or services are received and

accepted, unless otherwise specified in the contract.

d. Discounts. Discounts reduce costs associated with the

purchasing goods or services. A Contracting Officer may

negotiate a discount with the vendor or the vendor may offer a

discount for payment within a specified time frame (i.e. 2%,

net 10). However, discounts may only be taken if:

(1) the vendor offers the discount on the invoice or it is

stated in the contract,

(2) it is economically justified, and

(3) after acceptance has occurred.

The Department of Treasury developed and published a formula in

the Treasury Financial Manual, 1 TFM 8040.30, which must be used

to determine if a discount should be taken. The results of this

calculation is compared with the Current Value of Funds Rate

(CVFR). Therefore, discounts can be taken only if the discount

terms used in the formula result in an effective annual interest

rate equal to or greater than the CVFR. The published formula to

use to calculate discounts is:

Conversion Formula

Discount % X 360 (Always) = Effective

100% - Discount % Number of days - Number of days Annual

in Payment Left in Discount Discount

Period Period Rate

Example: Date Invoice Received: May 1

Date Goods Received: May 5 (4 days after invoice)

Invoice Discount Terms: 2%/10, net 30

CVFR: 5%

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.02 X 360 = .306 or 31%

1.00 - .02 30 - (10-4)

*Note: The agency had 10 days to take the discount;

four days has elapsed between receipt of the

invoice and goods. Therefore, the difference

between these dates is used in the formula.

In this scenario the effective annual discount rate (31%)

exceeds the CVFR (5%). Therefore the discount should be taken

and the payment made accordingly.

The Business Manager and FMB Accounts Payable Supervisor or

designee must ensure discounts are taken appropriately for

discounts vendors offer. The discount period starts the day

after the date the vendor placed on the invoice or the “if paid

by date.” If the vendor fails to note a date on the invoice, the

date received and date stamped by the payment office are to be

used. The payment will be made as close to the discount date as

possible, but not later than the discount date.

If a Contracting Officer negotiates a discount, the Material

Management Branch (MMB) will enter the discount terms into the

integrated system. However, if the discount is offered on the

invoice, the Data Entry Operator (DEO) will enter the discount’s

terms when the invoice is entered into the integrated payment

system.

Under no circumstance should a discount be taken after the

discount period has ended. However, if a discount is taken after

the discount period has ended and the discount is not repaid

prior to the payment due date, interest penalties will accrue on

the unpaid amount.

e. Credit Card Rebates. Payments for credit card purchases

under $2,500 may be made without documentation that items have

been received. However, due to system configuration, locations

must enter a receiving report for processing payment(s) for

credit card purchases. In addition, the payment cannot be made

more than 30 days after receiving a proper invoice.

Payments for invoices over $2,500 must be paid 30 days after

receiving a proper invoice or date specified in the contract,

unless a rebate is offered for payment in full prior to

verification that goods and/or services have been received.

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If a rebate is offered for the early payment of credit card

purchases exceeding $2,500, the Business Manager, Accountant, or

designee must compute a cost analysis to determine if the early

payment would benefit the government. The cost analysis would

require a simple computation using the CVFR, and the interest

rate the government would have earned had the payment not been

made early. The CVFR is published annually in the Federal

Register and is disseminated to field locations by FMB. The

computation’s result is compared to the daily basis points the

credit card issuer offered.

The following formula published in 5 CFR Part 1315 must be used

to calculate the basis for the government.

Formula: CVFR/360*100 = Basis Points

Example: Daily basis offered by card holder - 1.5

CVFR - 5%

Calculation: 5/360*100 = 1.4 (rounded)

Results: The payment should be made as soon as

possible since 1.5 is greater than 1.4.

However, if the rates were reversed the

payment would be made on the prompt

payment date.

If the basis points the card issuer offered is greater than the

results obtained from the computation, savings to the government

are maximized and payment should be made at the earliest possible

date. However, if the basis points the card issuer offered is

less than the results obtained from the computation, the

government will minimize costs by paying on the prompt payment

due date or the date specified in the contract.

f. Late Payment Interest Penalties. In accordance with

provisions established in 5 CFR Part 1315, all payments not made

by the payment due date are subject to assessment of an interest

penalty, including vouchers with discounts. The temporary

unavailability of funds does not relieve the obligation to pay

late payment interest penalties or additional penalties.

Late payment interest penalties will be paid regardless whether

the vendor requests them. Any adjustments to the amount due

because of an erroneous interest calculations can be made up to

one year.

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The integrated payment system will age all payables depending

on the due date established in the system. The system will

calculate the amount of interest due for payments not made prior

to the 31 day and will generate an arrears letter.st

g. Interest Calculation. Interest is calculated and is

accrued daily from the day after the payment due date until the

payment is made. The interest is calculated on a 30 day basis

for any unpaid balance. Subsequent interest penalties will

accrue and will be added to the principal and interest penalties

until paid.

The prevailing interest rate in effect on the day after the due

date is to be used in calculating interest and will be based on a

360 day year. This rate is published semi-annually (January and

June) of each year and will be updated in the integrated payment

system by the Financial Manager or designee.

The following calculations are to be used to compute late

payment interest penalties:

Calculation:

Step one - Multiply the Dollar amount owed to vendor by the

applicable interest rate = X

Step two - Divide X by 360 (always) = Y

Step three - Multiply Y by the number days payment is late =

interest penalty

Initial Scenario:

Invoice amount: $10,325

Applicable interest rate: 8.125%

Number of days late: 14 days

Example 1 - initial interest calculation:

Step one - 10,325 * 8.125% = 838.91

Step two - 838.91 / 360 = 2.33

Step three - 2.33 * 14 = 32.62 (Interest Payable)

Required Payment: $10,357.62

Example 2 - 1 30 days principle and interest unpaid:st

Step one - 10,357.62 * 8.125 = 841.56

Step two - 841.56 / 360 = 2.34

Step three - 2.34 * 30 = 70.20 (Interest Payable)

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Required Payment: $10,427.82

Example 3 - 1 30 days paid principle only:st

Step one - 32.62 * 8.125 = 2.65

Step two - 2.65 / 360 = .007

Step three - .007 or * 30 = .22 (Interest Payable)

Payment Required: $32.84

In addition, if a discount is taken after the discount date

interest will accrue beginning on the day after the specified

discount date on the amount of the discount taken until paid.

Scenario

Invoice Amount: $10,000

Discount Amount: $1,000

Discount Period: 1 - 10 May

Payment Date: 25 May

Amount Paid: $9,000

Applicable Interest Rate: 8.125%

Number of days after disc: 15 days

Example 4 - discount taken after discount date:

Step one - 1,000 * 8.125 = 81.25

Step two - 81.25 / 360 = .23

Step three - .23 * 15 = 3.45 (Interest Payable)

h. Discontinuance of Accrual of Interest Penalties. Interest

penalties under prompt payment guidelines will not continue to

accrue:

T after the date a claim has been filed for penalties

under the Contract Disputes Act of 1978 or

T for more than one year

i. Interest Penalties Not Due. Interest penalties under the

prompt payment guidelines will not be paid if:

T the interest penalty is less than one dollar;

T the payment is delayed because of a dispute about the

payment amount or issues about contract terms;

T it is an advance payment; or

T the bank fails to credit a vendor’s account by the due

date.

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j. Additional Penalties for Late Payments. FPI is required to

pay an additional penalty if the original late payment penalty

that is owed to a vendor has not been paid within 10 days after

the principal.

However, the vendor must request the additional penalty in

writing via mail, facsimile, or electronic mail. The Business

Office must receive the request no more than 40 days after the

payment date. In addition, the written request must include:

T request for payment of overdue late payment interest

penalty and additional penalty;

T a copy of the invoice on which the late payment

interest was due but not paid and a statement

indicating the date the principal was received; and

T an invoice in the amount of the request (an invoice is

required due to system configuration).

The additional penalty must equal one hundred percent of the

original late payment interest penalty (i.e. if the late payment

interest penalty was $35, the additional penalty would be $35).

However, the amount of the additional penalty may never be less

than $25 nor more than $5,000.

Upon receiving a request from a vendor for interest and

additional penalties, the Business Manager or designee must

prepare a voucher including a copy of:

T the original payment voucher,

T vendors request,

T invoice, and

T any pertinent back up documentation.

k. Utility Payments. Utility payments to include telephone

services at all FPI locations are subject to the Prompt Payment

Act’s provisions. If a rate for late payment is established by

local authorities (i.e. tariff), then this rate must be used.

However, if a rate has not been established, this PS’ provisions

will apply. In addition, the Prompt Payment Act’s provisions

will be referenced throughout this PS as it pertains to the

applicable subject matter.