Challenges in Defense Working Capital Fund Pricing

Analysis of the Defense Finance and Accounting Service

by Edward G. Keating, Susan M. Gates, Christopher Paul, Aimee Bower, Leah Brooks, Jennifer E. Pace

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The Defense Finance and Accounting Service (DFAS) provides finance and accounting services to customers within the Department of Defense. The authors examine the DFAS’s pricing structure and its impact on customer demand for DFAS services, the agency’s workload, and equity in pricing. The authors found that the one-price-for-all finance output pricing, which does not vary with the workload burden that customers place on the DFAS, creates cross-customer subsidization, suggesting a need for nonlinear, customer-specific pricing. In addition, the authors examine whether any negative effects have arisen from the switch in October 1999 from unit billing to hourly billing for DFAS accounting work. They found no significant evidence that DFAS altered its behavior after the switch to take advantage of the hourly billing structure.

The research described in this report was prepared for the Defense Finance and Accounting Service. The research was conducted in RAND's National Defense Research Institute, a federally funded research and development center.

This report is part of the RAND Corporation monograph report series. The monograph/report was a product of the RAND Corporation from 1993 to 2003. RAND monograph/reports presented major research findings that addressed the challenges facing the public and private sectors. They included executive summaries, technical documentation, and synthesis pieces.

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