Fiscal Law Briefing

1. Fiscal Law Briefing DRAFT12/18/02

2. Background • Fiscal law is the body of law that governs the availability and use of federal funds and accountability for federal financial management. • Only Congress has the ability to appropriate funds to be spent by federal agencies. • Congress imposes limitations on federal financial managers that limits spending and dictates financial control through: • Contract Law • Procurement Official Authorities - • Federal Acquisition Regulations - • Financial Management Law • Appropriation Law - Purposes for which the money is spent, Period of availability for obligation, and Maximum amount an agency may spend on particular elements of a program • Anti-Deficiency Act – Limitation on apportionment, obligation, and expenditure • Disbursement and Collection – Authorizing, certifying, and disbursing Officer delegations, collection and deposit of public monies • Financial Management Accountability – accounting, reporting, audit, and internal control

3. Financial Statement Audits BPA Act 1950 B&A Act 1921 JFMIP Regs GMRA FAIR PCBC CMIA GPRA EDI A-76 EFT CFO Act FASAB Standards KlingerCohen The Problem The Federal Government’s financial management process has been built on a patchwork of “Fiscal Laws” that have been enacted since the formation of the nation. • Like snowflakes, these Fiscal Laws have fallen and have built upon one another to form an ineffective foundation upon which modern technology cannot be built and related advantages cannot be achieved

4. Management Direction Pete Aldridge, USD (AT&L) Wednesday, August 15, 2001 • “… the real problem is, and that is if you look at the tooth-to-tail ratio in the department, we have far more tail than we do tooth. The overhead structure is out of balance with the procurement structure and the force structure. And that the challenge within the departments is to go after those overhead activities that they would find to be marginal and to reallocate those resources back to procurement and the things they need for readiness.” • The following is an excerpt from the Quadrennial Defense Review Report. • Although directed at the Force, the goal equally applies to the transformation of the Defense Finance and Accounting Service • To achieve these operational goals, the Defense Department must transform military training. Three basic tenets describe the changes the Department will implement to transform training in parallel with the transformation of its missions and forces: • Use distributed learning technologies to reengineer individual training and job performance.

5. Assumptions Impacts on Federal Agencies • Current fiscal law represents a set of cumbersome laws, regulations, and policies that are perceived by federal agencies as excessively: • Complicated • Legislated • Regulated • Audited • Ambiguous • A “wall-to-wall” review of fiscal law has not occurred

6. Challenge Addressing Fiscal Law Impediments in DoD • Altering the perception of and making improvements to the current DoD fiscal environment requires assembling the justification necessary to prompt reform, through: • Regulation changes • Process improvements • Statutory changes • DoD IG Audits • Limited integration of DoD financial systems create and perpetuate inefficiencies • Six year backlog of contract closure actions • DFAS has 148 debt collection cases worth $12.6 million • GAO • Contractors refunded $488 million in overpaymentsin FY 2001 • DoD business practicesremain ineffective

7. Solution Rebuild the Fiscal Law foundation – Enact New Legislation that supports a modern financial management structure: • Based upon modern technology and following a rapid prototype methodology in knowledge center - change management philosophy and process approach. • Designed by people who have the expertise, experience, and understand the federal financial management process and the politics. • Managed by communicating goals and objectives, establishing key factors for measuring success, and empowering people to do what needs to be done. Establish a Vision of the DoD financial management environment that represents: • A “Virtual” efficient and effective DoD workplace – reduced overhead burden. • E-Government – Electronic Commerce - Internet based. • Enterprise-wide - commercial operated and managed • Entrepreneurial based and utilizing commercial banking and financial institution services & practices. • DoD secured, regulated, audited, and analyzed.

8. Envisioned Changes Legislative Change Examples • Anti-Deficiency Act • Problem - Fund managers can not pay vendors for purchases to required to perform work for working capital fund customers. • Solution - Modify over-expenditure requirement to allow “Working Capital Funds” to either 1) over-expend “fund balance with treasury” or authorize borrowing authority from treasury equal to agency accounts receivable balance. • Result – Vendors are: 1`) paid timely, 2) provided increased working capital liquidity, 3) reduced borrowing cost, and 4) either reduced product or service cost or profits to be reinvested or returned to stockholders to be reinvested or used. • Disbursing Officer Act, Executive Order 6166, Prompt Payment Act • Problem – Vendors invoices can not be paid except by authorized government disbursing officers & interest penalties are assessed for late payment (Prompt Payment Act) • Solution – Change Disbursing Officers Act, Executive Order 6166 & Prompt Payment Act to allow vendors to “Electronically PULL” payments from treasury general account equal to one months invoice for products or services and “post audit” paid invoice and adjust next month invoice for discrepancies, • Result - Vendors are: 1`) paid timely, 2) provided increased working capital liquidity, 3) reduced borrowing cost, and 4) either reduced product or service cost or profits to be reinvested or returned to stockholders to be reinvested or used and Government payment processing cost, invoice examination and disbursing costs are reduced.

9. Approach “Section 800” Model • Creation of an Advisory Panel to identify, justify, and recommend legal and structural changes to complex DoD issues • Consensus for change by utilizing appropriate subject matter and support resources • “Section 800” Panel focused on streamlining DoD procurement • Panel Membership: recognized public/private experts in the law • Final Report: Analysis of each law, including: • Legislative history • Description of current role of the statue • Recommendation to retain, repeal, or modify • “800” Panel Results • 600 statute changes/300 repeals • Enactment of FASA, FARA(Clinger-Cohen)

10. Approach Financial Management Advisory Group • Executive Sponsor – project champion • Appointed Advisory Panel • Membership Sources include: • Comptroller (Modernization, Audit, Budget, Policy) • DoD Financial Community (DFAS, DCMA, etc.) • Service Branches • DoD Agencies • General Counsel & Legislative Affairs • Private Sector Trade Associations • Other DoD/non-DoD members determined by Executive Sponsor • Change Management Center • Contractor support staff • DoD Technical Experts (current/retired) • Subject Matter Experts – private sector – former civilian agencies SES financial managers includes: • Department of the Treasury, Fiscal Assistant Secretary & Financial Management Service, Deputy Commissioner • Department, Agencies & Legislative CFOs & Deputy CFOs • GAO & FASAB Audit & Financial Management Directors

11. DoD Executive Sponsor Change Management Center Team Fiscal Law Advisory Panel Fiscal Law Subject Matter Experts Fiscal Law Legislative Changes Fiscal Law Contractor Support Project Organization Advisory Panel & Subject Matter Expert Approach for Fiscal Law Modernization

12. Project Activities & Timeframe Phase I – Scope Identification(01/1/03 – 06/30/03) • Identify issues for review – Subject Matter Expert Panel: • Contract Law • Financial Management Law • Appropriation Law • Anti-Deficiency • Disbursing & Collection • Financial Management Accountability • Conduct interviews to understand the current fiscal environment • DoD managers • Congressional staff, CBO, GAO, OMB, FASAB, & JFMIP • Private sector experts • Conduct research and analysis of applicable and most critical areas of statute, regulation and process • Define scope of analysis & Key Performance Indicators

13. Project Activities & Timeframe Phase II – Recommendation Development (7/1/03 – 12/31/03) • Establish Advisory Panel • Identify & Establish Congressional Champion • Establish Staff, SME, Technical Expert Working Groups • Review and validate project scope • Identify issues • Propose recommendations for change & performance results expected • Process or policy • Regulatory • Legislative • Effectiveness & Efficiency Improvements • Provide IPRs to Advisory Panel on Working Group progress • Finalize Working Group recommendations

14. Project Activities & Timeframe Phase III – Final Report & Action Model Implementation Plan (01/01/04 – 9/30/04) • Conduct Advisory Panel review • Prepare final report • Background • Analysis and justification • Recommendations • Outreach and Communications Plan • Draft Legislative/Regulatory Language • Implementation Plan • Submit recommendations for FY05 President’s Budget

15. Cost Support Services • Contractor Support • Subject Matter Experts • Technology Support • Internet Web Services • Project & Knowledge Management Software & Services • DOD Internal Support Services • Travel & Sundry • Total Cost

16. Next Steps Executive Sponsor Drives Change • Establish Executive Sponsor/CMC Partnership • Identify & Allocate Funding • Identify Scope • Identify DoD Technical Resources • Identify/Establish Advisory Panel

17. Fiscal Law BriefingConclusion DRAFT12/18/02