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NCMA BOSTON MARCH WORKSHOP March 16, 2011

NCMA BOSTON MARCH WORKSHOP March 16, 2011. Presented by: Maj Frank Hollifield, ESC/JAS Mr. Peter Camp, ESC/JAS. FISCAL LAW – POTENTIALLY YOUR WORSE NIGHTMARE. AWARD. DISCLAIMER.

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NCMA BOSTON MARCH WORKSHOP March 16, 2011

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  1. NCMA BOSTON MARCH WORKSHOPMarch 16, 2011 Presented by: Maj Frank Hollifield, ESC/JAS Mr. Peter Camp, ESC/JAS FISCAL LAW – POTENTIALLY YOUR WORSE NIGHTMARE AWARD

  2. DISCLAIMER THE VIEWS EXPRESSED IN THIS PRESENTATION ARE THOSE OF THE PRESENTERS AND MAY NOT REFLECT THE OFFICIAL POLICY OR POSITION OF THE DEPARTMENT OF DEFENSE OR THE UNITED STATES AIR FORCE

  3. AGENDA • WHY DOES IT MATTER TO YOU? • WHAT’S THE LAW? • AUTHORIZATIONS VS. APPROPRIATIONS • WHAT ABOUT THE COLORS OF MONEY? • THE BASIC RULES • THE PITFALLS OF FISCAL LAW • PURPOSE, TIME, AND AMOUNT (PTA) • THE ANTI-DEFICIENCY ACT (ADA) • SUMMARY • BACK-UP CHARTS

  4. WHY DOES IT MATTER TO YOU?

  5. Anti-Deficiency Act (ADA) Violations are reported to the President. Responsible parties are identified by name. This is enough to ruin anyone’s day.

  6. DoD Inspector General Reports on Potential Antideficiency Act Violations Resulting from DoD Purchases Made Through Non-DoD Agencies (FY 2004-09) • Over the last 6 years, the DoD Office of Inspector General issued 16 reports addressing FY 2004 through FY 2009 DoD purchases through non-DoD agencies. • These reports address whether the funding policies, procedures, and internal controls of each activity selected for review were in place, compliant, and properly administered. • Overall, the DoD IG reviewed seven non-DoD agencies purchasing goods and services on behalf of DoD. • The non-DoD agencies processed approximately 98,750 purchases from FY 2004 through FY 2007, valued at approximately $15.6 billion. • At these agencies, the DoD IG reviewed 869 purchases valued at approximately $1.9 billion. (DoD IG Memorandum for Under Secretaries of the Navy, Army, and Air Force, September 28, 2010; DoD IG Report No D-2008-082, April 25, 2008, Executive Summary, Background, p. i)

  7. WHAT'S THE LAW?

  8. THE POWER OF THE PURSE • “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by law . . . “ • Constitution, Article I, section 9, clause 7

  9. FISCAL LAW IS COMPRISED OF • THE LAWS AND POLICY GOVERNING THE EXECUTION OF APPROPRIATIONS • US CONSTITUTION • UNITED STATES CODE • PUBLIC LAWS • REGULATIONS • DOD POLICY (DOD 7000.14-R) • SERVICE POLICY (i.e., AFI 65-601) • FAR, DFARS AND SERVICE SUPPLEMENTS (i.e., 32.7, 37.106, 204.7107, 232.7, e.g., AF FARS 5332.7) • OPINIONS (COMPTROLLER GENERAL AND FEDERAL COURTS)

  10. FAR 32.702 POLICY BEFORE EXECUTING ANY CONTRACT, THE CONTRACTING OFFICER SHALL OBTAIN WRITTEN ASSURANCE FROM RESPONSIBLE FISCAL AUTHORITY THAT ADEQUATE FUNDS ARE AVAILABLE (FORM 9, AFMC 36) NO OFFICER OR EMPLOYEE OF THE GOVERNMENT MAY CREATE OR AUTHORIZE AN OBLIGATION IN EXCESS OF THE FUNDS AVAILABLE, OR IN ADVANCE OF APPROPRIATIONS (ANTI-DEFICIENCY ACT 31 USC 1341), UNLESS OTHERWISE AUTHORIZED BY LAW.

  11. AUTHORIZATIONS VERSUS APPROPRIATIONS

  12. CONGRESSIONAL AUTHORIZATION • Authorization is the legal authority to carry out a program. • Authorizations generally start with the Congressional Committee with cognizance over the subject matter, e.g. House Armed Services Committee, Senate Armed Services Committee (HASC, SASC). These are standing Committees. • An authorization does not provide budget authority

  13. WHAT IS BUDGET AUTHORITY? “. . . [A]uthority provided by law to enter into obligations which will result in immediate or future outlay involving government funds. . . .” (2 USC Section 622(2))

  14. CONGRESSIONAL APPROPRIATION • An act of Congress that permits a federal agency to incur obligations and to make payments out of the Treasury for a specified purpose. • House Appropriations Committee, Senate Appropriations Committee (HAC, SAC). These are standing committees and they are “Spending Committees” • An Appropriation Act is the most common form of budget authority

  15. Budget Committees: • Sets overall budget ceilings • Authorization Committees: • Provide Authority to Accomplish Certain Programs • Specifies Program Levels • Manpower Programs • Number of Aircraft, etc. • Handles Policy Matters Opens the checking account • Appropriations Committee: • Authorizes use of funds to Accomplish Programs. • Provides Funding (Budget Authority) Puts money into the checking account

  16. A COMPARISON Authorizations • Provides permission and direction on how to spend funds • Policy oriented • Separate bills written in House and Senate • Generally permanent law • The Authorization Act does not provide budget authority Appropriations • Provides budget authority or permission to draw funds from the US Treasury • Budget oriented • Bill traditionally originates in House • Senate modifies House bill • Generally one-year law

  17. THE PROCESS OF ENACTMENT FEB MAR APR MAY JUN JUL AUG SEPT OCT CBO Concurrent Budget Report Resolution National Defense joint Congress Authorization authorizations process conference Act DoD joint Appropriations appropriations process conference Act President (OMB) National Apportionment Budget Department Of Defense DoD Testimony & Appeals Allotment Budget Military Departments Service Budget Budgets Execution

  18. Treasury Dept OMB Budget Authority Authorization Appropriation OSD Service (Air Force) PEO/MAJCOM (AFMC) Program Managers/Units

  19. THE OFFICE OF MANAGEMENT AND BUDGETAPPORTIONS • OMB apportions amounts available for obligation, including budgetary reserves established pursuant to law, in an appropriation or fund account. • An Apportionment divides amounts available for obligations by specific time periods (quarters or years), activities, projects, objects, or a combination of these. (Definitions extracted from A Glossary of Terms Used in the Federal Budget Process, GAO, Revised January, 1993 and Cornelius E. Tierney, Federal Accounting Handbook: Policies, Standards, Procedures, Practices, Wiley (2000).)

  20. OSD ALLOCATES • An allocation is the amount of budget authority transferred from one agency, bureau, or account that is set aside in a transfer appropriation account to carry out the purpose of the parent appropriation or fund. • DOD funds the Services through the Office of Secretary of Defense’s Comptroller Office

  21. SERVICES ALLOT • The Services and their MAJCOMs generally allot funds, following specific procedures that each Agency establishes within the general requirements stated in applicable OMB Circulars • An authorization by either the agency head or another authorized employee to his/her subordinates to incur obligations within a specified amount. • The amount allotted by an agency cannot exceed the amount apportioned by the OMB.

  22. REMEMBER! • THE ESTABLISHED RULE IS • EXPENDITURES OF PUBLIC FUNDS IS PROPER ONLY WHEN AUTHORIZED BY CONGRESS • NOT THAT PUBLIC FUNDS MAY BE EXPENDED UNLESS PROHIBITED BY CONGRESS • VERY DIFFERENT FROM INTERPRETING THE FAR

  23. THE COLORS OF MONEY?

  24. The of Money COLOR

  25. THE BASIC RULES

  26. PURPOSE TIME AND AMOUNT (PTA)

  27. PURPOSE, TIME, AMOUNT • APPROPRIATIONS PROVIDE AUTHORITY TO INCUR OBLIGATIONS AND TO MAKE DISBURSEMENTS FOR THE PURPOSES, DURING THE TIME LIMITS AND UP TO THE AMOUNT LIMITATIONS SPECIFIED IN THE APPROPRIATION ACT. (TITLE 31 OF THE UNITED STATES CODE (USC))

  28. LIMITATIONS ON THE USE OF APPROPRIATED FUNDS • THE THREE MAIN ELEMENTS OF FISCAL LAW: • AN AGENCY MAY OBLIGATE AND EXPEND APPROPRIATIONS ONLY FOR A PROPER PURPOSE • AN AGENCY MAY OBLIGATE ONLY WITHIN THE TIME LIMITS APPLICABLE TO THE APPROPRIATION • AN AGENCY MUST OBLIGATE FUNDS ONLY WITHN THE AMOUNTS APPROPRIATED BY CONGRESS AND FORMALLY DISTRIBUTED TO THE AGENCY. (Title 31 of the United States Code (USC)

  29. PURPOSE • USMC (Albany, GA) contracts to build/install prefabricated building using procurement funds. • Improper use of procurement funds • Value exceeded Unspecified Minor MilCon (UMMC) threshold (10 USC 2805) • Should have used MilCon, Navy (MCN)—USMC lacked authority to obligate this fund. • ADA violation: improperly exceeded administrative subdivision ADA Report 10-09

  30. TIME • FUNDS ARE ONLY AVAILABLE FOR OBLIGATION DURING THE AVAILABILITY OF THE APPROPRIATION (10 USC 2306c) • DON’T OBLIGATE • BEFORE THE PRESIDENT SIGNS THE APPROPRIATIONS BILL, OR • AFTER THE AVAILABILITY PERIOD OF THE FUNDS

  31. APPROPRIATIONS ARE TIME BOUND

  32. PRIOR YEAR(S), CURRENT YEAR, BUDGET YEAR(S) AT ANY GIVEN TIME, SEVERAL FISCAL YEARS MAY BE UNDER CONSIDERATION:

  33. TIMEBONA FIDE NEEDS RULE • RULE: A FISCAL YEAR APPROPRIATION MAY BE OBLIGATED ONLY TO MEET • A LEGITIMATE, OR BONA FIDE, • NEED ARISING IN, OR IN SOME CASES ARISING PRIOR TO BUT CONTINUING TO EXIST IN, THE FISCAL YEAR • FOR WHICH THE APPROPRIATION WAS MADE. (31 U.S.C. 1502(A)) • ARE YOU OBLIGATING CURRENT DOLLARS FOR CURRENT NEEDS? • IF NOT, YOU MIGHT BE IN THE MIDDLE OF A NIGHTMARE

  34. TIMEBONA FIDE NEEDS RULE • Late FY 05 & 07: USMC Logistics Command C4 Division (Albany, GA!) contracts for IT training with establishing content, dates, or students. • Training provided in subsequent FY—violation of Bona Fide Needs Rule • ADA Violation: No proper funds available at time of obligation ADA Report 10-15

  35. BONA FIDE NEEDS RULELetter Contracts • Letter Contract entered into force: FY1 • Definitized in FY1: obligate FY1 funds • Definitized in FY2: obligate FY2 funds • Obligating Letter Contracts, B-197274 (Sep. 23, 1983)

  36. TIMEBONA FIDE NEEDS RULE • Lease termination clauses • “The real effect of termination liability is to obligate the Commission to purchase a certain quantity . . . During each of five successive years or to pay damages for its failure to do so. In other words, the termination charges represent a part of the future, as distinguished from current, deliveries and needs under the contract, and for that reason such charges are not based on a current fiscal year need.” 36 Comp. Gen. 683, 685 (1957)

  37. BONA FIDE NEEDS RULEOveruns/Underruns • Cost reimbursement contract/funding overruns: If the ceiling must be raised, it does not relate back and current funds must be used. B-219829 (Jul. 22, 1986) • Underruns after expiration of appropriation’s period of availability: using money resulting from the contract to order additional quantity exceeds the scope of the original contract. Only chargeable to funds current at the time of modification. B-207433 (Sep. 16, 1983)

  38. BONA FIDE NEEDS RULE Attack of the Zombie Clients • B-317413, National Science Foundation (Apr. 24, 2009) • Cost Reimb. K w/ LOF Clause • FY1: Sr. Scientist “directs” change in order of deliverables, resulting in cost overrun • FY2: Claim settled • GAO: Year of settlement (FY2) is proper appropriation—no obligation arose until US entered into settlement • But, a ratification of unauthorized commitment would have “related back” to the FY1 commitment

  39. AMOUNT • DON’T SPEND IN EXCESS OR IN ADVANCE OF AN APPROPRIATION • 31 USC 1341(a)(1)(a) • DON’T OBLIGATE IN EXCESS OF AN APPORTIONMENT OR ALLOCATION. • 31 USC 1517 • DON’T AUGMENT FROM OTHER SOURCES -MISCELLANEOUS RECEIPTS • 31 USC 3302(b) • DON’T ACCEPT VOLUNTARY/FREE SERVICES • 31 USC 1342

  40. AMOUNTNow for Something Really Scary!

  41. AMOUNT • Dep’t of Army, FY08 Mil Personnel, Appropriation, and the ADA, B-318724 (Jun. 22, 2010) • Budget Office: “3500” responsibility • Relied on estimates of PM obligations • Short by $200M • Transferred $ from Working Capital • GAO: exceeding “3500” appropriation by $87M = ADA Violation • “Lack of Budget Office-PM Communication” • DOD Comptroller Report (?)

  42. The Working Capital Fundis not a Time Machine* • B-319349, USCP (Jun. 4, 2010) • FY07: SWO rescinded; for future costs, USCP advances $6.8M expired FY 03 annual funds to a DOT “no-year” WCF KO • FY09: DOT obligates the funds. GAO: the advanced funds don’t become “no-year” *Unless otherwise specifically provided by law

  43. EXPENSE V. INVESTMENT

  44. EXPENSE VS. INVESTMENT • EXPENSE (O&M) VERSUS INVESTMENTS (PROCUREMENT) • BASIC DISTINCTION BETWEEN EXPENSE AND INVESTMENT COSTS: • EXPENSES ARE COSTS INCURRED TO OPERATE & MAINTAIN THE ORGANIZATION, SUCH AS PERSONAL SERVICES, SUPPLIES, AND UTILITIES • INVESTMENTS ARE COSTS RESULTING IN THE ACQUISITION OF, OR AN ADDITION TO, END ITEMS See DOD Financial Management Regulation, Vol. 2A, Ch. 1, para. 010201

  45. EXPENSE VS. INVESTMENT • BASIC EXPENSE COST DETERMINATION GUIDELINES/CRITERIA: • COSTS OF RESOURCES CONSUMED IN OPERATING AND MAINTAINING. • WHEN COSTS GENERALLY CONSIDERED EXPENSES ARE INCLUDED IN THE PRODUCTION OR CONSTRUCTION OF AN INVESTMENT ITEM, THEY SHALL BE CLASSIFIED AS INVESTMENT COSTS • EXPENSE EXAMPLES: • LABOR OF CIVILIAN, MILITARY, OR CONTRACTOR PERSONNEL • RENTAL CHARGES FOR EQUIPMENT AND FACILITIES • FOOD, CLOTHING, AND FUEL • SUPPLIES AND MATERIALS DESIGNATED FOR SUPPLY MANAGEMENT OF THE DEFENSE WORKING CAPITAL FUNDS • MAINTENANCE, REPAIR, OVERHAUL, REWORK OF EQUIPMENT

  46. EXPENSE VS. INVESTMENT (Cont’d) • BASIC INVESTMENT COST DETERMINATION GUIDELINES/CRITERIA: • COSTS TO ACQUIRE CAPITAL ASSETS, SUCH AS REAL PROPERTY AND EQUIPMENT • INVESTMENT EXAMPLES: • ITEMS OF EQUIPMENT, INCLUDING ASSEMBLIES, AMMUNITION AND EXPLOSIVES, MODIFICATION KITS, SPARES AND REPAIR PARTS NOT MANAGED BY THE DEFENSE WORKING CAPITAL FUNDS • EQUIPMENT ITEMS NOT SUBJECT TO CENTRALIZED ITEM MANAGEMENT AND ASSET CONTROL, AND HAVING A SYSTEM UNIT COST EQUAL TO OR GREATER THAN THE CURRENTLY APPROVED EXPENSE AND INVESTMENT DOLLAR THRESHOLD • FOR DoD: THRESHOLD IS CURRENTLY $250,000; FOR EVERYONE ELSE IT IS $100,000 • CONSTRUCTION TO INCLUDE THE COST OF LAND ANDRIGHTS THEREIN; INCLUDES REAL PROPERTY EQUIPMENT INSTALLED AND MADE AN INTEGRAL PART OF SUCH FACILITIES, RELATED SITE PREPARATION, AND OTHER LAND IMPROVEMENTS

  47. EXPENSE VS. INVESTMENT (Cont’d) • KNOWING THE DIFFERENCE IS CRITICAL TO THE PROPER EXECUTION OF INVESTMENT APPROPRIATIONS, BECAUSE –- • IT ENSURES COMPLIANCE WITH REGULATORY AND POLICY DIRECTION, AS DISCHARGED BY CONGRESSIONAL, GAO, OMB, AND OSD COMPTROLLER GUIDANCE INSTRUMENTS, AND • AVOIDS INFRACTIONS, WHICH ARE REPORTABLE TO OSD, CONGRESS, AND THE PRESIDENT (GOVERNING POLICY - DOD FMR, VOLUME 2A, CHAPTER 1)

  48. EXPENSE VS. INVESTMENTIt’s Not Just for Buildings! • NGA MIPR to fund recapitalization of net-enabled portal. • Budget analyst certifies $8.6 M FY’03 O&M funds available for project. • Hardware; software; commercial imagery • A classic Investment • Correct funds were Procurement • DOD IG Audit uncovers; No proper funds remain to correct—ADA Violation ADA Report 10-04

  49. A Few Words AboutProject Splitting • 10-03 DISA (SAFB) • 10-05 USA O&M for MILCON • 10-07 USA O&M for MILCON • 10-10 USA O&M for MILCON

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