NCMA BOSTON CHAPTER’S MARCH WORKSHOP MARCH 10, 2010 FISCAL LAW – POTENTIALLY YOUR WORSE NIGHTMARE

1. NCMA BOSTON CHAPTER’S MARCH WORKSHOPMARCH 10, 2010FISCAL LAW – POTENTIALLY YOUR WORSE NIGHTMARE Presented by: Bunnie Pasternak, CFCM, CPCM, Fellow National Board of Director Peter Camp, Esq., ESC/JAA

2. DISCLAIMER THE VIEWS EXPRESSED IN THIS PRESENTATION ARE THOSE OF THE INSTRUCTORS 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. DoD Inspector General Reports on Potential Antideficiency Act Violations Resulting from DoD Purchases Made Through Non-DoD Agencies (FY 2004-07) • Over the last 4 years, the DoD Office of Inspector General issued 10 reports addressing FY 2004 through FY 2007 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 six non-DoD agencies purchasing goods and services on behalf of DoD. • The non-DoD agencies processed approximately 91,000 purchases from FY 2004 through FY 2007, valued at approximately $12.0 billion. • At these agencies, the DoD IG reviewed 658 purchases valued at approximately $1.3 billion. (DoD IG Report No D-2008-082, April 25, 2008, Executive Summary, Background, p. i)

6. WHAT'S THE LAW?

7. 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

8. 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)

9. 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.

10. AUTHORIZATIONS VERSUS APPROPRIATIONS

11. 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

12. 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))

13. 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

14. 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

15. 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 A COMPARISON

16. 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

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

18. 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).)

19. 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

20. 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.

21. 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

22. THE COLORS OF MONEY?

23. 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 • “Appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law.” (31 USC 1301) • PROBABLY THE MOST IMPORTANT RESTRICTION ON SPENDING -- WHERE MORE THAN 90% OF ALL FISCAL LAW VIOLATIONS OCCUR B-248284.2, 1 Sep 92, to Gen. Counsel, USIA

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 B-114841, 9 Feb 77, Installment Payments for Real Property

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

33. TIME“BONA 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. 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

35. EXPENSE V. INVESTMENT

36. 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

37. 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

38. 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

39. 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, GAO, AND THE CONGRESS (GOVERNING POLICY - DOD FMR, VOLUME 2A, CHAPTER 1)

40. CROSSING FISCAL YEARS . . . • ORDINARILY O&M FUNDS ARE NOT ALLOWED TO CROSS FISCAL YEARS • A SERVICE CONTRACT THAT IS FUNDED WITH ANNUAL APPROPRIATIONS MAY NOT CROSS FISCAL YEARS (FAR 32.703-3) • DoD HAS AN EXCEPTION BY STATUTE THAT ALLOWS A CONTRACTING OFFICER TO • ENTER INTO A CONTRACT, EXERCISE AN OPTION, OR PLACE AN ORDER UNDER A CONTRACT FOR SEVERABLE SERVICES • FOR A PERIOD THAT BEGINS IN ONE FISCAL YEAR AND ENDS IN THE NEXT FISCAL YEAR, IF THE PERIOD OF THE CONTRACT AWARDED, OPTION EXERCISED, OR ORDER PLACED • DOES NOT EXCEED 1 YEAR, AND • CURRENT YEAR FUNDS ARE USED TO FULLY FUND THE SEVERABLE SERVICES ACROSS FISCAL YEARS. (See 10 USC 2410A, DFARS 232.703-3)

41. Severable or Non-Severable? B-259274, 22 May 96, Funding of Maintenance Contract Extending Beyond Fiscal Year

42. RDT&EAPPROPRIATION SPECIFIC POLICY • INCREMENTAL FUNDING • FUND ONLY WHAT CAN BE EXECUTED IN THE FIRST YEAR • INCLUDE ONLY THOSE COSTS IN THE BUDGET REQUEST EXPECTED TO BE INCURRED/ PERFORMED FOR THAT FISCAL YEAR OR 12 MONTH PERIOD FOR SEVERABLE SERVICES • CLAUSES TO BE USED • COST CONTRACTS – LIMITATION OF FUNDS (LOF)(FAR 52.232.22) • FFP CONTRACTS – LIMITATION OF GOVERNMENT’S OBLIGATION (LOGO)(DFARS 252.232-7007)

43. PROCUREMENT APPROPRIATION SPECIFIC POLICY • FULL FUNDING AN END ITEM IS FULLY FUNDED WHEN IT MEETS THE FOLLOWING CRITERIA: • FUNDS ARE PROGRAMMED, BUDGETED AND APPROVED TO COVER THE TOTAL ESTIMATED COST OF THE CONTRACT QUANITY OF END ITEMS AT THE TIME OF CONTRACT AWARD • THE ITEM MUST BE A COMPLETE, USABLE END ITEM • NO FUTURE-YEAR APPROPRIATION IS REQUIRED FOR DELIVERY OF THE END ITEM AUTHORIZED AND APPROVED BY CONGRESS • YOU CAN’T BUY AN END ITEM WITH TWO (OR MORE) DIFFERENT YEARS OF MONEY

44. FULL FUNDING EXCEPTIONS • ADVANCE PROCUREMENT • ALLOWS PROGRAMS TO ORDER ITEMS THAT HAVE A LONG LEAD IN ADVANCE OF ORDERING THE COMPLETE, USABLE END ITEM. • ADVANCE ECONOMIC ORDER QUANTITY (EOQ) PROCUREMENT • THIS APPLIES TO MULTI-YEAR PROCUREMENTS WHEN IT IS ADVANTAGEOUS TO THE GOVERNMENT TO BUY A LARGE QUANTITIES OF ITEMS UP-FRONT. CONGRESSIONAL AUTHORIZATION IS REQUIRED PRIOR TO EXECUTING ONE OF THESE EXCEPTIONS

45. THE ANTI-DEFICIENCY ACT (ADA)

46. WHAT IS THE ADA? • THE PRIMARY “ENFORCEMENT DEVICE” TO ENSURE CONGRESS’ POWER TO DETERMINE HOW MUCH MONEY CAN BE SPENT BY A GIVEN AGENCY OR PROGRAM • CODIFIED IN THREE MAJOR STATUTES • 31 U.S.C. § 1341 LIMITATIONS ON EXPENDING AND OBLIGATING AMOUNTS [“ANTI-DEFICIENCY ACT”] • 31 U.S.C. § 1342 LIMITATION ON VOLUNTARY SERVICES • 31 USC § 1517 PROHIBITED OBLIGATIONS AND EXPENDITURES (AFI 65-608, Chapter “Antideficiency Act Violations”)

47. WHAT CONSTITUTES AN ADA VIOLATION? • VIOLATION OF THE BONA-FIDE NEED RULE • WRONG FISCAL YEAR VIOLATED – 31 U.S.C. 1502(a) • MAY LEAD TO AN ADA VIOLATION • VIOLATION OF THE PURPOSE STATUTE • OBLIGATION CHARGED AGAINST INAPPROPRIATE ACCOUNT – 31 U.S.C. 1301 • MAY LEAD TO AN ADA VIOLATION • OBLIGATE/EXPEND IN EXCESS OF OR IN ADVANCE OF AN APPROPRIATION – 31 U.S.C. 1341(a) • AUTOMATIC ADA VIOLATION • OBLIGATE/EXPEND IN EXCESS OF AN APPORTIONMENT OR AN ADMINISTRATIVE SUBDIVISION – 31 U.S.C. 1517 (a) • AUTOMATIC ADA VIOLATION

48. RAMIFICATIONS OF ADA VIOLATION • CRIMINAL PENALTIES (MONETARY FINE AND IMPRISONMENT) • DISCIPLINARY SANCTIONS THAT ATTACH TO GOVERNMENT CIVILIAN AND MILITARY PERSONNEL WHO VIOLATE THE ADA • A DOD CIVILIAN OR MILITARY MEMBER MAY BE HELD PERSONALLY LIABLE FOR THE RECOUPMENT OF FUNDS DEPENDING ON THE SERVICE – THERE MIGHT BE AN EXPANSIVE VIEW OF THE RANGE OF RESPONSIBILITY FOR ADA VIOLATIONS

49. TOP ADA CAUSES • MAJOR CATEGORIES OF VIOLATIONS: • EXCEED MINOR CONSTRUCTION ADMINISTRATIVE LIMIT • EXCEED FUNDS AVAILABLE • USE O&M TO ACQUIRE EQUIPMENT ITEMS THAT EXCEED THE DESIGNATED AMOUNT FOR MANDATORY USE OF PROCUREMENT FUNDS (EXPENSE VERSUS INVESTMENT THRESHOLD) • OBLIGATE IN ADVANCE OF FUNDS BEING AVAILABLE