Special Report 01:   Prompt Payment of Accounts

Before the passage of the Prompt Payment of Accounts Act, 1997 (the Act), there were frequent complaints from individual suppliers and their representative organisations that many public sector bodies delayed payments for goods and services beyond reasonable limits, causing serious cash-flow problems for suppliers. With effect from 2 January 1998, the Act placed a legal obligation on public bodies to pay their bills on time. Where bodies fail to pay on time, they are required to compensate the suppliers affected by the delay, by paying interest on the outstanding amounts.

Under an EU directive to be translated into Irish law in 2002, the principle of prompt payment of bills will apply to both public bodies and private sector firms. The deadlines for payment will be tighter than under the current legislation.

This report was prepared to place relevant information about the payment performance of public bodies in the public domain, to draw attention to some difficulties which have arisen following implementation of the Act and to suggest remedial action where

Payment Performance

The Act places a clear onus on public bodies to pay their suppliers on time. Each invoice must be paid within the period stated in the related contract or, if a contract does not apply, within 45 days. Special provisions in the Act deal with delays which arise because of problems involving suppliers, such as incorrect invoices being issued or disputes about the goods or services supplied.

The evidence available from prompt payment audits, supported by opinions of supplier representative organisations, suggests that for the most part public sector bodies paid most of their bills on time in 1998. Some organisations, especially in the education
sector, need to improve their performance.

A total of ?173,000 in penalty interest was paid in 1998 as compensation to suppliers by 73 of the 93 public bodies reviewed for this report. It is likely that further interest was paid by bodies not included in the review. Such payments represent a loss which
could have been avoided if invoice handling and payment procedures had been managed more efficiently.

Implementation of the Act

Some public bodies were slow in adapting their payment systems and were unable to comply with the Act for all or part of 1998.

In 1997, the Department of Enterprise, Trade and Employment (DETE) issued an information booklet for public bodies about the implementation of the Act. A number of issues not dealt with in the booklet have since arisen. These include the payment of very small amounts of interest and the appropriate treatment of payments to foreign suppliers and between government departments. Legal advice has been received by DETE on each of these issues. It should swiftly take any steps needed to resolve
outstanding matters and publish revised guidance for public bodies on how such matters are to be handled.

Reporting of Payment Practices

The Act requires public bodies to publish a report each year about their payment practices. The report must be included in the annual report of the body concerned or, if no annual report is published, the payment practices report must be sent by the body to
DETE for transmission to the Oireachtas. These reporting arrangements are intended to provide members of the public, including potential suppliers, with information about payment practices in individual bodies.

There was an overall lack of completeness in DETE?s arrangements for obtaining payment practices reports. Moreover, there were significant delays in submitting the reports to DETE and in their presentation to the Oireachtas.

DETE issued guidelines outlining the minimum information to be contained in payment practices reports. Around one third of the 93 public bodies reviewed for this report failed to provide some or all of the information specified in the guidelines in their 1998 payment practices reports.

It is not easy for members of the public to access information about the payment performance of public sector bodies, since it is not obvious where or how payment practices reports are to be found. The range of information published in the reports could be expanded so that comparisons can be made between the performance of different bodies and sectors. Revised guidelines for  eporting should be issued by DETE, which should also consider taking steps to improve public access to relevant information about the payment practices in public bodies. It could, for example, consider issuing an annual report on the subject.

Audit Considerations

The Act requires the auditors of public sector bodies to report on whether or not the bodies concerned comply with the provisions of the Act. This role for auditors and the possibility of receiving an adverse audit report were designed to ensure bodies comply with the Act.

No provision was made in the Act for the publication of the prompt payment audit reports. DETE should consider issuing guidelines about the presentation of the audit reports, requiring them to be published with the relevant payment practices reports.