Apply Obligation Rules

Terminal Learning Objective Apply the general and specific rules of obligation to the posting of financial transactions to accounting records. Given a summary sheet containing DFAS-IN Regulation 37-1, DFAS-IN Manual 37-100-FY, DoDFMR Vol 3 and slides. With 80% accuracy, identify th e six stages of expenditure transactions and the 11 general rules of obligations; determine the specific rules of obligation. Action: Conditions: Standard:

Stages of a Transaction Authority Received Commitment Obligation Accrued Expenditure Expense Disbursement

Authority Received Authorization provided via a funding document (i.e. Funding Authorization or Allowance Document (FAD) or Resource Distribution Document (RDD)), which allows obligations to be incurred against the government.

Commitment An administrative reservation of funds which authorizes the creation of an obligation without further recourse to the Certifying Officer.

Obligation A legal reservation of funds for which the government is legally bound to pay a known or specified amount at a specified time.

Accrued Expenditure The actual or constructive receipt of goods and/or services, for which a valid obligation has been incurred. Establishes the Accounts Payable.

Expense The total value of goods and/or services consumed in accomplishment of the mission or task.

Disbursement A payment which satisfies a liability or claim against the government. Liquidates the Accounts Payable.

General Obligation Rules Specific Purpose. Bona fide for the current fiscal year (FY). Documentary evidence. Ensure availability of funds. Administrative lead time. Defaulted contracts. Charge immediately. Adjust promptly. Record at net (may record net of discount). Contingent liabilities. Simultaneous obligation and liquidation. Rules of Obligation Obligating Current Year Funds for Prior Year Needs. Do not obligate current year funds for the needs of a prior year. If a requisition was not submitted in the prior year to satisfy a need in that prior year, and the need continues to exist in the current year, obligate current year funds. Unrecorded Prior Year Obligations. If an obligation had been incurred in the prior year and the obligation can be lawfully funded from prior year funds, but the obligation was not recorded during the prior year; use prior year funds to record the obligation. Severable Service Contracts / Non-Severable Contracts / Travel Orders / Protests / Procurement of Information Technology / Supplies / Canceled Appropriations / U.S. Army Corps of Engineers (USACE) Contingencies / Obligations for Prompt Pay Interest

Specific Purpose Obligate funds only for the purposes for which they were appropriated. Supplies

Bona Fide Need Goods and/or services must meet a present need of the fiscal period for which the funds were appropriated by Congress.

Documentary Evidence Input into the accounting records will be made only when supported by valid documentary evidence. Documents: Travel Request/ Authorization. Government Bills of Lading (GBL). Purchase Request and Commitment (PRC). Purchase/Delivery Orders. Contracts. Supply Requests/Issues. Miscellaneous Obligation Documents.

Ensure Availability of Funds Before entering into a binding agreement on behalf of the government, the responsible official must ensure that funds are available. Commitment stage of accounting fund certification.

Administrative Lead Time Documents may be prepared ahead of Congressional appropriations. No goods or services will be accepted until funding authority has been received. Contingency Statement: “The government’s obligation hereunder is made contingent upon Congress enacting appropriations.” MAY 2002

Defaulted Contracts When a contract obligated with prior year funds has been defaulted by the contractor, a new contract may be issued citing prior year funds, provided the original scope of the contract has not changed.

Charge Immediately Once an obligation is incurred, it must be recorded (change) against the applicable appropriation, whether funds are available or not.

Adjust Promptly Many obligations are based on estimates. Differences based on more current financial data will be input promptly, upon receipt of documentary evidence.

Record at Net Obligations may be recorded at the gross amount of the contract, less any allowed discounts. Example: “2/10 net 30”

Commit for Contingent Liabilities A contingent liability (bonus) will be obligated only when it is actually earned by the vendor per the terms of the contract.

Simultaneous Commitment, Obligation, and Disbursement In some cases, the obligation will be recorded at the same time as the disbursement: Examples: Civilian Pay. Prompt Payment Interest Penalty. Transportation. Travel.

Commitment Item 1100 - Civilian Personnel Pay (Direct U.S. Hire). 1200 - Civilian Personnel Benefits. 2100 - Travel and Transportation of Persons. 2200 - Transportation of Things. 2300 - Rents, Communication, and Utilities. 2400 - Printing and Reproduction. 2500 - Other Contractual Services. 2600 - Supplies and Material. 3100 - Equipment. 4100 - TDY Travel Advance. 4300 - Interest and Dividends.

Personnel Pay & Compensation Commitment Items 1100 and 1200. Obligate in the month that services are received, whether or not paid.

Temporary Duty Travel (TDY) Commitment Items 21T1 and 21T2 Obligate no later than the month in which travel commences.

TDY Crossing FYs Per diem will be prorated between the different FYs. Travel by Privately Owned Vehicle (POV) will be charged against the appropriation that is current at the time of travel. Transportation requests are charged against the appropriation that is current at the time of issue.

Travel Advances Commitment Item 4110. A travel advance is never obligated.

Permanent Change of Station (PCS) Travel Commitment Item 21P3 and 21P4 The gaining installation will incur all costs of PCS travel Obligate in month orders prepared PCS Travel Orders At the time permanent change of station orders are issued for civilian and military personnel, obligations must be recorded against current appropriations for all authorized reimbursable expenses incidental to relocation at the request of the USG and for transportation requests and bills of lading expected to be issued. The only exception is the obligation of costs for non-temporary contract commercial storage of household goods, which must be obligated either in the period in which the service is rendered or to the appropriation current at the contract award. Record an adjustment to the obligation based on the costs itemized on the traveler’s settlement voucher.

Transportation of Things Commitment Item 2200. Obligate in the month in which the carrier accepts the goods, as shown on the Government Bill of Lading (GBL).

Communication & Utilities Commitment Item 2330. Obligate the entire amount of the bill in the month in which the billing period ends, regardless of the fiscal year.

Contracts Requirements contracts: Commitment Items 2310, 2320, 2400, and 2500 Requirements contracts: Commit when accepted; Obligate when Delivery Orders are issued

Severable Contracts Continuing in nature. < 12 MONTHS: Examples: Rental/Lease Contracts, Janitorial Services < 12 MONTHS: Obligate current funds at time contract is signed for the amount of the contract. Crosses FY: Obligate current funds at time contract is awarded. Option years are treated as new contracts. > 12 MONTHS: Obligate with appropriations of the FYs in which the services are rendered. Exception: Obligate current funds when services are rendered in foreign countries where laws and customs require advance payments.

Non-Severable Contracts Single undertakings Partial Performance = No Benefit Obligate the full amount when the contract is signed Examples: Paving a Parking Lot Painting a Building

Purchase Orders < $100,000: Obligate upon issuance to the vendor. > $100,000: Obligate upon written acceptance from the vendor. Mr. Vendor A purchase order may create an obligation when issued in the amount stated. This occurs when the purchase order represents acceptance of a binding written offer of a vendor to sell specific goods or furnish specific services at a specific price, or the purchase order was prepared and issued in accordance with small purchase or other simplified acquisition procedures. B. A purchase order requiring acceptance by the vendor in order to form a binding contractual agreement must be recorded as an obligation in the amount specified in the order at the time of acceptance. Evidence of this acceptance must be retained in the files. If written acceptance is not required or provided, then commencement of performance constitutes acceptance by the vendor, and the amount of the order must be recorded as an obligation in accordance with DODFMR Volume 1, Chapters 4 and 7. Formation of the binding contractual agreement should occur during the period of availability of the appropriation cited on the purchase order. If contract formation occurs after expiration of the period of availability of funds cited on the purchase order, the obligation must be recorded against current funds, and the purchase order contract modified accordingly. Obligations for purchase orders are recorded based on the dollar amount of the purchase order. There are two rules that apply: RULE 1: The obligation for purchase orders less than or equal to $100,000 is recorded based upon issuance to the vendor. - Don’t wait for them to accept - small $ amount. RULE 2: The obligation for purchase orders greater than $100,000 is recorded when the purchase order is accepted by the vendor.

Obligating Contracts UPON VENDOR ACCEPTANCE FIXED/FIRM AMOUNT (Printing) BASIC UPON DELIVERY OF ORDER REQUIREMENTS Full amount of contract, not to exceed 12 months SEVERABLE (Rental) AMOUNT NON-SEVERABLE Full amount of contract UPON ISSUE TO VENDOR < OR = $100,000 PURCHASE ORDERS UPON VENDOR ACCEPTANCE > $100,000

Intra-Government Agreements TYPE: Project order or an Economy Act Order to another military department Order issued to another U.S. Government agency OBLIGATE: Amount of the order using funds current when the performing agency accepts it When received from the performing activity who accepts it (not when the MIPR is issued) Amount of the order using funds current when the order is issued

Obligation Rules Commitment Item s 2600 & 3100 Supplies (2600) and Equipment (3100): Installation activities buying through the Single Stock Fund (SSF) Commit & Obligate - upon submission of requisition

Obligation Rule Commitment Item 4300 Commitment Item 4300- Interest & Dividends. Obligate when purchase agreement/ invoice is paid. BYE!

Check on Learning What is Commitment Item 2330 used for? a. Communications and Utilities b. Total Printing and Reproduction c. Total Consulting and Other Services The following are types of Intra-Government Agreements except? a. Project or Economy Act b. Order issued to another U.S. Government Agency c. Order to a local government in theater 3. Installation activities buying through the Single Stock Fund (SSF) commit and obligate when? upon submission of requisition after the fact with proof of purchase upon receipt of the delivery order

Terminal Learning Objective Apply the general and specific rules of obligation to the posting of financial transactions to accounting records. Given a summary sheet containing DFAS-IN Regulation 37-1, DFAS-IN Manual 37-100-FY, DoDFMR Vol 3 and slides. With 80% accuracy, identify th e six stages of expenditure transactions and the 11 general rules of obligations; determine the specific rules of obligation. Action: Conditions: Standard: SHOW SLIDE 40 Summarize and Restate Terminal Learning Objective Add DoDFMR Vol 3