Identify Fiscal Law

Terminal Learning Objective Task: Identify Fiscal Law Principles Conditions: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, and discussion Standards: Analysis Includes: Types of appropriation Common Appropriations and Thresholds Antideficieny Act

Introduction The U.S. Constitution gives Congress the authority to raise revenue, borrow funds, and appropriate the proceeds for federal agencies. See U.S. Constitution, Art. 1, 8 and 9. In implementing these expressed constitutional powers, Congress strictly limits the obligation and expenditure of public funds by the Executive Branch. Congress regulates virtually all Executive Branch programs and activities through the appropriations process.

Historical Perspective For many years after the adoption of the Constitution, executive departments exerted little fiscal control over the monies appropriated to them. During these years, departments commonly obligated funds in advance of appropriations, commingled funds and used funds for purposes other than those for which they were appropriated, and obligated or expended funds early in the fiscal year and then sought deficiency appropriations to continue operations. Congress passed the Antideficiency Act (ADA) to curb the fiscal abuses that frequently created “coercive deficiencies” that required supplemental appropriations. The Act actually consists of several statutes that mandate administrative and criminal sanctions for the unlawful use of appropriated funds. See 31 U.S.C. §§ 1341, 1342, 1350, 1351, and 1511-1519.

Important Definitions Commitment - An administrative reservation of allotted funds, or of other funds, in anticipation of their obligation. Obligation - A definite act that creates a legal liability on the part of the government for the payment of goods and services ordered or received, or a legal duty on the part of the United States that could mature into a legal liability by virtue of actions on the part of the other party beyond the control of the United States.

Important Definitions Current Appropriation (obligate and disburse) - An appropriation that is still available for new obligations under the terms of the applicable appropriations act. 31 U.S.C. § 1502. Expired Appropriation (disburse) An appropriation whose period of availability has ended and is no longer available for new obligations. It retains its fiscal identity and is available to adjust and liquidate previously incurred obligations for five years. 31U.S.C. § 1553(a). Closed Appropriation - An appropriation that is no longer available for any purpose. An appropriation becomes "closed" five years after the end of its period of availability as defined by the applicable appropriations act. 31 U.S.C. § 1552(a).

Important Definitions Subject to the Availability of Funds - If the agency needs to enter into a contract before the proper funds become available, usually to ensure timely delivery of goods or services, they must execute contracts “subject to the availability of funds” (SAF). If a SAF clause is used, the Government shall not accept supplies or services until the contracting officer has given the contractor written notice that funds are available. FAR 32.703-2.

Authorization Act 1. An authorization act is a statute, passed annually by Congress, which authorizes the appropriation of funds for programs and activities. 2. An authorization act does not provide budget authority. That authority stems from the appropriations act. 3. Authorization acts frequently contain restrictions or limitations on the obligation of appropriated funds.

Appropriations Act 1. An appropriations act is the most common form of budget authority. 2. An appropriation is a statutory authorization “to incur obligations and make payments out of the Treasury for specified purposes.” The Army receives the bulk of its funds from two annual appropriations acts: a. The Department of Defense Appropriations Act; and b. The Military Construction Appropriations Act. 3. The making of an appropriation must be stated expressly. An appropriation may not be inferred or made by implication. Principles of Fed. Appropriations Law, Vol. I, p. 2-16, GAO-04-261SP (2006).

Authorization vs. Appropriation

Fiscal Framework

Fiscal Framework

Limitations with Appropriations General Limitations on Authority. The authority of executive agencies to spend appropriated funds is limited. 1. An agency may obligate and expend appropriations only for a proper purpose. 2. An agency may obligate only within the time limits applicable to the appropriation (e.g., O&M funds are available for obligation for one fiscal year). 3. An agency must obligate funds within the amounts appropriated by Congress and formally distributed to or by the agency.

Limitations on the Use of Appropriated Funds PURPOSE - The purpose of the obligation must be one for which the appropriation was made Necessary Expense Doctrine (Three Part Test) Purpose Statute TIME - The obligation must be incurred within the timeframe that the appropriation was made available for new obligations Expired Funds Bona Fide Need Rule

Limitations on the use of Appropriated Funds (Cont.) AMOUNT - An agency must obligate funds within the amounts appropriated by Congress and formally distributed to or by the agency. Obligating, expending, or authorizing an obligation or expenditure of funds in excess Incurring an obligation in advance of an appropriation Accepting voluntary services

Necessary Expense Doctrine (3-part Purpose Test) 1. The expenditure must be necessary and incident to the purposes of the appropriation. In other words, the expenditure must bear a logical relationship to the appropriation sought to be charged, and it must make a direct contribution to carryout out either a specific appropriation or an authorized agency function for which more general appropriations are available. 2. The expenditure must not be prohibited by law. 3. The expenditure must not be otherwise provided for; that is, it must not be an item that falls within the scope of some other, more specific appropriation or statutory funding scheme.

Bona Fide Needs Rule The Bona Fide Need. Government agencies may not purchase goods or services they do not require. However, they may use appropriated funds to fill actual requirements as specified by the purpose of an appropriation, or for purposes necessary and incident to that appropriation. The bona fide need is the point in time recognized as the moment when a government agency becomes authorized to obligate funds to acquire a particular good or service based on a currently existing requirement. Current year money for current year needs (Delivery Lead Time, Production Lead Time and Stock-Level Exceptions)

Bona Fide Needs Rule Services. General Rule: The Bona Fide Need for services does not arise until the services are rendered. The bona fide needs rule is applied differently depending on the nature of the service. There are two categories of service contracts: (1) Nonseverable service contracts; and (2) Severable service contracts. A service is non-severable if the service produces a single or unified outcome, product, or report that cannot be subdivided for separate performance in different fiscal years.

Bona Fide Needs Rule Non-severable service contracts. A service is non-severable if the service produces a single or unified outcome, product, or report that cannot be subdivided for separate performance in different fiscal years. (Training, Construction) The government must fund non-severable services contracts with dollars available for obligation at the time the contract is executed. Contract performance may cross fiscal years. Severable Services. A service is severable if it can be separated into components that independently meet a need of the government. The services are continuing and recurring in nature. Severable services thus follow the general service contract Bona Fide Needs Rule, and are the bona fide need of the fiscal year in which performed.

Common Types of Appropriations

Common Types of Appropriations (2020) Operation and Maintenance, Army (OMA/O&M); 1 year (2010) Military Personnel, Army (MPA); 1 Year (2031-2035) Other Procurement, Army (OPA); 3 years (2050) Military Construction Army (MILCON); 5 years (2040) Research, Development, Test & Evaluation (RDT&E); 2 years

Appropriation Thresholds Items <$250,000 (O&M) Items >$250,000 (OPA) Minor construction projects < $1,000,000 (O&M) Projects >$3,000,000 (MILCON)

Subdivision of Funds OMB formally subdivides funding to agencies through apportionment, allotment, or allocation Formal- Apportionments, allocations and allotments Informal- funding targets and allowances Fund Authorization Document If a formal subdivision is breached an ADA violation occurs.

Formal and Informal Subdivisions Allocation: - DOD Component to operating Agency (DoD to HQDA) Allotment: - Head of operating Agency to Head of organizational unit (HQDA to ACOM) Allowance: - administrative action allocating funds to subordinate activity (ACOM to Brigade) Target: - expenditure limit (Installation to agencies/activities)

Formal and Informal Subdivisions - Allocation - Allotment Informal - Allowance - Target - Advisory Guide Per se ADA violation Fund Authorization Document (FAD) Not per se ADA violation but… Fund Allowance System (FAS)

Flow of Funds

Flow of Funds

ADA Violations Officials may avoid ADA violations if: - Proper funds were available at the time of the erroneous obligation - Proper funds were available continuously from the time of the erroneous obligation - Proper funds were available for the agency to correct the erroneous obligation, i.e., ACOM or HQDA can cover it

Application

ADA Report (Cont.) The ARNG, through the Department of Defense, reported 35 Antideficiency Act (ADA) violations when it improperly obligated funds (1) from its OMNG account to develop video games and recruitment tools when it should have obligated funds from its Research, Development, Testing, and Evaluation account for that purpose; (2) to purchase recruitment and retention promotional items whose value per item exceeded the $50 statutory limit; (3) in advance of available appropriations and for severable services in excess of 12 months, and (4) in support of the Defense Business System development and modernization efforts prior to obtaining statutorily required approval from the appropriate authority.

ADA Report (Cont.) The Department of the Army (Army) reported a violation of the Antideficiency Act (ADA) regarding its obligation of Fiscal Year (FY) 2011 Operations and Maintenance Army (OMA) funds. The ADA occurred at Bagram Airfield (BAF), Afghanistan. The Army reported that this project was improperly funded with OMA funds, instead of Military Construction (MILCON) appropriations. The Army also determined that the obligations incurred for the project exceeded the statutory limit for OMA-financed military construction projects, and thus resulted in a violation of the ADA. Further, the Army reported that the use of OMA funds to finance the project was not consistent with the authorized purpose of the appropriation, and this resulted in an incurable violation.

Questionable Expenses Clothing Food Decorations Business Cards Entertainment Generally considered a personal Expense but there are some exceptions Unit T-shirts and Mementos are not funded with appropriated funds.

S8 Brigade Level Issues Government Purchase Card (GPC) – Thresholds Retention / Reenlistment Items Unit Coins – Annual threshold will be published Travel Purchases – not authorized, GTCC is only option

Check on Learning OPA, 3 years 1. What are 2035 funds and how long are they available? OPA, 3 years Appropriations are available only for ______________of an appropriation’s period of availability. the bonafide need Obligating, expending, or authorizing an obligation or expenditure of funds ___________ is an ADA violation. in excess

Terminal Learning Objective Task: Identify Fiscal Law Principles Conditions: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, and discussion Standards: Analysis Includes: Types of appropriation Common Appropriations and Thresholds Antideficieny Act