Defense working capital fund pricing in the Defense Finance and Accounting Service
Subtitle: a useful, but limited, tool
By: Edward G. Keating, Ellen M. Pint, Christina Panis, Michael H. Powell, Sarah H. Bana
Publisher: RAND
Published: 2015
Place of publication: Santa Monica, CA
Language: eng
Number of pages: 45
ISBN-13: 9780833088697
Subjects: United States. Defense Finance and Accounting Service; Appropriations and expenditures; United States; Working capital; Accounting; Auditing; Armed Forces
Description: This report assesses the advantagess and disadvantages of continuing to fund the Defense Finance and Accounting Service (DFAS) using a Defense Working Capital Fund (DWCF) mechanism versus funding it through direct appropriations. Abetted by reduced prices made possible by using automated approaches, DFAS has successfully induced its clients to evolve toward less costly approaches for paying Department of Defense (DoD) contractors and personnel. DFAS has also implemented customer-specific pricing for several outputs, thereby rewarding customers who put fewer burdens on DFAS with reduced prices. However, under DoD policy, DFAS must set prices to recover its full costs of operations. As a result, its prices are almost certainly greater than the organization's marginal costs of performing services. This means that DFAS's costs do not fall commensurably with decreases in workload. Additionally, DWCF prices provide more incentives to DFAS customers than to DFAS itself. Customers are charged less when they adopt approaches that put less burden on DFAS. DFAS itself, however, remains a monopoly, so DWCF pricing, all by itself, does not provide any direct incentive for DFAS to reduce its costs. However, DFAS's constant dollar costs have fallen over time, even as overall DoD spending has increased. On balance, we do not recommend that DFAS return to being funded solely by direct appropriation. However, it may be beneficial to reform DFAS (and, more generally, DWCF) pricing to allow nonlinear approaches, such as quantity discounts and direct funding of fixed costs.
Notes: Includes bibliographical references(pages 41-45)