Problem disbursements and unpaid bills on an active case

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1. Four ways a case goes wrong financially

Chapter 16 of the Security Assistance Management Manual deals with the financial faults that show up while a Foreign Military Sales case is active. Four recur. Two are accounting faults: payments that cannot be matched to an obligation, and records out of balance with authority (SAMM C16.2.6 and SAMM C16.2.7). The others are spending that runs ahead of authority, and bills the purchaser has not paid (SAMM C16.2.8 and SAMM C16.2.11). Each has its own owner and its own clock. The Financial Management Regulation’s side of the same controls is covered in year end, write-offs and the Antideficiency Act.

2. Problem disbursements

The manual defines a problem disbursement as a transaction reported to the Treasury’s fiscal service that cannot be matched, at the official accounting station, to the original obligation or receivable for liquidation (SAMM C16.2.6.1). The category covers unmatched disbursements, negative unliquidated obligations and in-transit disbursements.

The clock is set by Department policy (SAMM C16.2.6.2). The Defense Finance and Accounting Service (DFAS) and the activity that issued the contract or funding document have 120 days in total to research and correct an unmatched disbursement or negative unliquidated obligation. Where the issuing activity is co-located with its accounting office, the period is 90 days. In the first 60 days, the agencies research and record obligations where they hold the documents. If the issuing activity has not recorded the obligation within 120 days and DFAS holds a copy of the obligating document, DFAS must record it.

Two limits apply. The timeline does not apply to a negative unliquidated obligation caused by a contract overpayment; contract debts follow the Department’s debt rules and FAR subpart 32.6 (SAMM C16.2.6.2). And every problem disbursement must be cleared before closure, whatever the type of closure (SAMM C16.2.6.3).

3. Out of balance, and financially troubled

An adverse financial condition arises when obligational authority exceeds case or line values, when commitments or obligations exceed that authority, or when disbursements exceed obligations (SAMM C16.2.7). It also arises when expenditure authority is not requested before a payment. The implementing agency (IA) must resolve conditions below case level as soon as they are found. Two situations are exempt from reporting if put right within 60 days. The first is an obligation above the total estimated cost on the Letter of Offer and Acceptance, followed by a modification to the purchaser (SAMM C16.2.7.1). The second is an excess caused by duplicate, erroneous or inventory postings (SAMM C16.2.7.2). The manual adds that such conditions could still point to weak internal controls, and that administrative action may be needed to improve systems or prevent a repeat.

A financially troubled case is a narrower label (SAMM C16.2.8). It results when commitments, obligations or expenditures exceed the obligational authority issued. The IA must resolve the conditions behind it as soon as they are identified, using the guidance in the Case Reconciliation and Closure Guide.

4. Chasing unpaid bills

DFAS in Indianapolis has primary responsibility for reconciling financial requirements against total collections over the life of a case (SAMM C16.2.11). The follow-up depends on the size of the amount due. For payments of $1 million or more, written follow-up goes out 30 days after the due date, then again at 60 and 90 days if there is no response (SAMM C16.2.11.1). Case-level payments more than 90 days late are referred to the Defense Security Cooperation Agency (DSCA). For amounts under $1 million that would not significantly affect the purchaser’s trust fund balance, the first written follow-up comes at 60 days (SAMM C16.2.11.2).

Cases financed with Foreign Military Financing loans have their own sequence (SAMM C16.2.11.3). If payment has not arrived three weeks after the due date, DFAS consults the purchaser about any loan drawdown letters needed. For amounts still unpaid, DFAS writes to the purchaser listing the amount by case and asking for a drawdown letter or a cash payment, after coordinating the letter with DSCA. Amounts still unpaid 60 days after the due date go to DSCA’s comptroller directorate.

The manual notes that most collection problems come from late payment rather than default, and that collection generally takes 45 to 75 days after a billing statement is mailed (SAMM C9.11.8). Any payment not collected within 90 days of its due date is reported to DSCA at once for further collection action, including the third follow-up letter (SAMM C16.2.11.4). DFAS tells DSCA immediately if a referred payment then arrives. When every collection means is exhausted, DSCA may recommend action by the Office of the Secretary of Defense, refer the debt to the State Department for diplomatic assistance, or refer it to the Department of Justice (SAMM C9.11.8.2). DFAS keeps the account on its records throughout. How late payment and interest work from the purchaser’s side is covered in payment schedules, billing and late payment.

5. Writing off what cannot be resolved

A Defense Department component that finds unresolved reconciliation issues on a case may write off the imbalances within set limits (SAMM C16.2.16). For problem disbursements, the limit is $2,500 per transaction, within the Comptroller’s 90 to 120 day resolution timeline (SAMM C16.2.16.1). Larger ones go to the DSCA comptroller for resolution if they are still within the guide’s timelines.

For all other transaction types the limit is $200 per transaction (SAMM C16.2.16.2). The amount is charged to the administrative charge budget, under an object class for supply discrepancy reports charged to cases, to allow prompt reconciliation. When a write-off of this kind is used in preparing a case for closure, a comment on the closure certificate records it, and DFAS sends DSCA a quarterly summary.

Key terms

Problem disbursement	A payment that cannot be matched to its original obligation or receivable.
Resolution timeline	The 120 days, or 90 days where offices are co-located, allowed to research and correct a problem disbursement.
Adverse financial condition	An imbalance between authority, obligations and disbursements that must be reported unless exempt.
Financially troubled case	A case where commitments, obligations or expenditures exceed the authority issued.
Undercollected case	A case on which the purchaser has not paid what is due, followed up by DFAS on set dates.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

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