Thursday, April 14, 2016

Owe Money to DFAS? Consider Installment Payments

From time to time, contractors, especially small contractors, find themselves in situations where they owe a significant amount of money back to the Government. Perhaps they were billing at provisional indirect billing rates that were higher than their final rates. Perhaps a contracting officer found unallowable costs in their billings. Or, maybe there was a billing error that resulted in an overpayment. The prospect of paying back the Government can hit a small contractor very hard because of cash flow concerns. Sometimes these contractors are under capitalized. Sometimes these firms forego salaries to their owners to help keep the company afloat or to invest in new capital equipment. If you find yourself in such a situation, don't despair. There is hope.

The DoD (Department of Defense) Financial Management Regulation, Volume 10, Chapter 18 may provide some relief. When a debtor to the U.S. Government can establish sufficient justification, a series of installment payments may be approved by DFAS (Defense Finance and Accounting Services) to liquidate the debt within a reasonable time frame.

When contractors anticipate having financial difficulty repaying the debt, the contractor may approach DFAS for a repayment installment plan. Prior to approving the installment agreement, DFAS may request the contracting officer to perform a financial capability audit taking into consideration the proposed installment payments to ensure that the contractor has the financial capability to repay the installments.

Here's the process set up by DFAS:

  1. The contractor submits a request to DFAS for an installment agreement on debt owed of $50 thousand or more.
  2. DFAS provides the contractor with a proposed monthly payment amount.
  3. DFAS informs the contractor of a pending audit and request the contractor to provide its financial statements for the past three years and a twelve month cash flow forecast reflecting the proposed monthly installment amount.
  4. DFAS submits a request for a financial capability audit to the contracting officer. The contracting officer may decide to perform the financial capability audit in-house or request a more formal audit from DCAA (Defense Contract Audit Agency).
  5. DFAS uses the information from the financial capability audit to make a determination whether the proposed installment agreement amount is acceptable.
  6. DFAS coordinates their decision on the installment agreement with the contractor.

Tomorrow we will discuss the four possible outcomes of a financial capability audit.Two are good and two, not so good.

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