Color of Money 101 PEO SYSCOM COMMANDERS’ CONFERENCE Siobhan Tack DAU BCEFM Department Chair, C&NE Region Siobhan.tack@dau.mil 703-805-4449

The Budget Process #1 Identify the Requirement #2 Develop A Cost Estimate #3 Apply Appropriations and Funding Policies #4 Budget using PPBS #5 Congress Appropriates through the Enactment Process #6 Get to Work during the Execution Process

Lesson Overview Appropriation Categories Funding Policies Congressional Budget Enactment Process Budget Execution Process

Major Appropriation Categories APPN CAT FUNDING POLICY SCOPE Incremental 2 years Full 3 years (5 years) Annual 1 year RDT & E PROC (SCN) O & M MILPER MILCON RDT&E Activities & Expenses End items >= $100K system unit cost, All Centrally managed items, Initial Spares, Labor for certain production-related functions (e.g., item assembly, quality assurance) Replenishment Spares, Fuel, Civilian Salaries, Construction Projects < $750K, Travel, Non-centrally managed end items < $100K system unit cost Military Personnel Expenses Construction Projects >= $750K INCREMENTAL FULL Full 5 years *Funding policies as they relate to Appropriations is ELO An appropriation is “provision of legal authority by an act of the Congress that permits Federal Agencies to incur obligations and to make payments out of the Treasury for specified purposes.” -- provides Budget Authority Congress annually approves numerous appropriations (about 60) for Defense. Each category at left is a roll-up of all similar appropriations of a specific type (e.g, RDT&E for all components & agencies). The scope of each appropriation category is shown in the second column. Tie appropriations to program phases (CE, PDRR, EMD, Prod/Fielding/O&S) Note LRIP can be funded with either R&D or Procurement depending on use for testing. - Have students provide some examples of appropriation use. - Current Minor Construction threshold is $500K; Current Investment/Expense criteria threshold is $100K for purchase of things - PMs don’t directly manage MILPERS & MILCON - Refs: AR 37-100, Navcompt Vol 7, AFR 65 series - DoD 7000.14-R states (para 010201D.3) that “cost of civilian personnel compensation and other direct expenses incurred in support of procurement and/or production programs by departmental HQ staff, contracting offices, contract audit offices, system project offices, and acquisition managers are EXPENSES. Procurement and/or production direct support costs such as production testing, quality assurance, production engineering, and equipment assembly, whether performed under contract or by in-house personnel funded on a reimbursable basis are INVESTMENTS.” TRANSITION: Let’s now look at each of the funding policies. ANNUAL ANNUAL FULL

Multiyear Procurement (MYP) Exception to Full Funding Policy Commitment to buy a specific quantity of useable end items of a weapon system over a specified number of years (normally, maximum of five years) Annual Appropriation by Congress for same specified number of years Purpose: - Reduce program cost growth - Counteract adverse effects of the annual budget and procurement process - Bring stability to acquisition process

Advance Procurement Long Lead Items Exception to Full Funding Policy Contained in Acquisition Strategy Approved in Milestone Decision Separate initial contract Finances Long Lead (Recurring) Components To protect production schedule To maintain a critical skill in the workforce Generally, Budget Authority requested / granted one Fiscal Year in advance of the related end item contract Shown as a separate line item on the budget request.

Congressional Budget Process Enactment Process Budget Resolution Authorization Bill Appropriations Bill

Congressional Enactment Timetable JAN FEB MAR APR MAY JUN JUL AUG SEP OCT 1 15 15 10 30 PRES BUDGET “TARGET” FISCAL YEAR CBO REPORT COMMITTEE INPUTS HRNGS Marks FLOOR HOUSE Budget Resolution BUDGET RESOLUTION Conf ^ SENATE HRNGS Marks FLOOR Authorization Act HASC HRNGS MARK-UP FLOOR FLOOR HOUSE AUTHORIZATIONS Conf SENATE SASC HRNGS MARK-UP FLOOR FLOOR ^ HOUSE HAC HRNGS MARK-UP FLOOR FLOOR Appropriations Act APPROPRIATIONS Conf SENATE SAC HRNGS MARK-UP FLOOR FLOOR ^

Appeals To Congressional Marks General Rules Between Congress And DoD Each phase (i.e., Authorization and Appropriation) is separate Appeal to next Committee of that phase considering the budget request (e.g., appeal to the SASC, SAC and/or the appropriate conference committee) Appeal to amount closest to President’s Budget Acceptable to appeal language and production quantities as well as dollar amounts

Continuing Resolution If Congress fails to pass appropriations bills prior to 1 October, it may pass a joint Continuing Resolution which must be signed by the President Continuing Resolution Authority is stopgap spending authority allowing the federal government to continue operating Allows obligation of funds at the “current rate of operations” usually based on one of these levels: ____________________________________ New Start programs and expansion of current program scope NOT PERMITTED Normal rate based on last year’s appropriation Normal rate based on lowest Congressional mark

Apportionment Process Provides Budget Authority Congress CRA Fully Fund Quarterly Fund Impoundment: Deferral Rescission Apportionment OMB Withhold General Reductions Release OSD Comptroller Allocation Service Comptroller Sub-Allocation/ Allotment MAJCOM/PEO Comptroller PMO Program Management Office

Taxes Reduction = 12.1 % of Amount Appropriated Impact of General Reductions on An Acquisition Program Joint Direct Attack Munition (JDAM) Program FY 98 Appropriation (RDT&E) $24.70 M FFRDC $ 0.00 M Consultant 0.37 M Budget Cap 0.14 M National Missile Defense 0.31 M Small Business Innovative Research 2.03 M ASK: How many work on programs with RDT&E funding? JDAM is an air launched missile -- our example deals with its RDT&E funding They started with 24.7M FFRDCs: (e.g. MITRE, Aerospace, Center for Naval Analysis) Congress wanted to reduce money going to FFRDCs, so directed DoD to cut $71.8 M from programs getting assistance from Centers -- but can see that JDAM didn’t get hit Consultants: Congress wanted to reduce consultants as well, so directed a reduction to O&M, RDT&E and Procurement accounts for programs using consultants. Budget Cap: To meet defense budget cap, Congress directed DoD to reduce all RDT&E and Procurement funds in programs by 1.5 percent. This is called a pro-rata cut -- by law, every program takes a hit. May hear it called “peanut butter spread” National Missile Defense: Congress wanted to increase NMD funding by $474 M so it had to come from other RDT&E programs. Inflation: CBO said that OMB’s assumed rate of inflation during the fiscal year was too high, so chop Even with all that, the cut’s not too bad, less than $1M -- but what’s missing? What tax does every RDT&E program have to pay every year? Small Business Innovative Research (SBIR): WHAM! Congress told us to fund SBIR but didn’t appropriate funds; In FY98 it was a $550M bill, so OSD took 1.4% from most RD (Remedy by using SBIR -- get more than your money’s worth.) ASK: Who initiated all these taxes -- was it OSD? Congress wrote it into the approp MORAL: Don’t count on getting your whole amt -- Plan on taxes every year (10%) Inflation Reduction 0.13 M Total General Reductions $ 2.98 M Remainder $21.72 M Taxes Reduction = 12.1 % of Amount Appropriated

Apportionment Process Provides Budget Authority Congress CRA Fully Fund Quarterly Fund Impoundment: Deferral Rescission Apportionment OMB OSD Comptroller Withhold GR Release Allocation Service Comptroller Withhold GR/Corporate Bills Sub-Allocation/ Allotment MAJCOM/PEO Comptroller Withhold GR/CB PMO Program Management Office Execution GR=General Reductions

Budget Execution Commitment Congress US Treasury OMB DFAS DFAS Region Finance Center US Treasury OMB DFAS Disbursing / Finance Office OSD Comptroller Service Comptroller PCO Procuring Contract Officer ACO Administrative Contract Officer MAJCOM/PEO Comptroller Commitment C-Color Y-Year A-Amount PMO Program Management Office Contractor

Budget Execution Obligation Congress US Treasury OMB DFAS DFAS Region Finance Center US Treasury OMB DFAS Disbursing / Finance Office OSD Comptroller Service Comptroller PCO Procuring Contract Officer ACO Administrative Contract Officer MAJCOM/PEO Comptroller Obligation PMO Program Management Office Contractor

Budget Execution Invoice Invoice Congress US Treasury OMB DFAS DFAS Region Finance Center US Treasury OMB DFAS Disbursing / Finance Office OSD Comptroller Service Comptroller Invoice PCO Procuring Contract Officer ACO Administrative Contract Officer MAJCOM/PEO Comptroller Invoice PMO Program Management Office Contractor Starts work Incurs cost

Budget Execution Check Expenditure Congress US Treasury OMB DFAS DFAS Region Finance Center US Treasury OMB DFAS Disbursing / Finance Office OSD Comptroller Service Comptroller Check PCO Procuring Contract Officer ACO Administrative Contract Officer MAJCOM/PEO Comptroller Expenditure PMO Program Management Office Contractor

Budget Execution Expenditure Reporting System Congress US Treasury OMB DFAS Region Finance Center US Treasury OMB Expenditure Reporting System DFAS Disbursing / Finance Office OSD Comptroller Service Comptroller PCO Procuring Contract Officer ACO Administrative Contract Officer MAJCOM/PEO Comptroller PMO Program Management Office Contractor

Budget Execution Cash Outlay Congress US Treasury OMB DFAS DFAS Region Finance Center US Treasury OMB DFAS Disbursing / Finance Office OSD Comptroller Cash Service Comptroller Outlay PCO Procuring Contract Officer ACO Administrative Contract Officer MAJCOM/PEO Comptroller PMO Program Management Office Contractor

Budget Execution Congress OMB OSD Comptroller Service Comptroller 1115 Voucher Summary Congress DFAS Region Finance Center 14 Treasury Cash (Outlay) Check Voucher OMB Expenditure Reporting System 13 12 16 OSD Comptroller DFAS Disbursing / Finance Office Certification Service Comptroller Color Year Amount Certified Invoice / DD 250 Check / EFT (Expenditure) 3 10 2 Commitment Certified PR PCO Procuring Contract Officer Contract ACO Administrative Contract Officer MAJCOM/PEO Comptroller 4 7 Left Side is the Apportionment Process we just went over. Let’s look at how the PMO executes funds Funding Document (1) -- Remember we said commitment is in response to formal request from PMO - Could be PR, PO, MIPR (Direct Cite obl when on contract; Reimbursable obl immediately, but less control) - Example of Engineering Change Proposal (ECP) that will modify an existing contract Commitment (2, 3, 4) -- Comptroller above PMO level (MACOM, SYSCOM, MAJCOM or an intermediate level, e.g. Product Ctr) certifies that funds are available by checking three things: (ASK: Does anyone remember what they are? (FM-2)) Correct Appn (color), work is identified for the right fiscal year, and that there are enough funds (amount) to cover the anticipated obligation. Then commits the funds (ADMIN res of funds) and issues a certification to the PCO that funds are available. Obligation (5, 6, 7, 8) -- PCO signs the contract mod, obligating the funds. (LEGAL res of funds) Passes info on to DFAS and to the ACO, who exercises surveillance over the contractor (often at the plant). Also provides record of obligation back to the Comptroller. Invoice (9, 10) -- Contractor does the work and incurs cost. Then submits Invoice or other payment request (e.g. DD250) to the ACO. ACO certifies that the work was done and passes the invoice to DFAS. Check (11, 12) -- DFAS then sends a check to the contractor (ASK: this is called what?) Expenditure -- then reports expenditure to DFAS Regional. Expenditure Reporting (13, 14) -- DFAS Regional passes the expenditure info on to Treasury and back to the Comptrollers Cash (15, 16) -- After Treasury receives confirmation of the expenditure and the Contractor cashes the check (ASK: What’s it called when the check is cashed?) Outlay -- the first time real money changes hands -- up ‘til here it’s all been only promises, no cash. Comptrollers -- this is how they get their obl/exp info. They measure this info against each program’s spend plan to check performance. We’ll talk more about those spend plans later. ASK: How many have experienced delays in this system? Where can delays occur? TRANSITION: Because of the complexity of the process, mistakes are inevitable. Next we’ll talk about some laws which address some of the possible mistakes. 11 6 Record of Obligation Surveillance Invoice DD 250 Procurement Request Project Order MIPR - Reimbursable - Direct Cite 1 Negotiation Contract (Obligation) 8 9 15 PMO Program Management Office 5 Contractor

How can we get in TROUBLE? Budget Execution Apportionment Process Congress DFAS Region Finance Center US Treasury OMB DFAS Disbursing / Finance Office OSD Comptroller How can we get in TROUBLE? Service Comptroller PCO Procuring Contract Officer ACO Administrative Contract Officer MAJCOM/PEO Comptroller PMO Program Management Office Contractor Laws: - Misappropriation - Anti-Deficiency - Bona Fide Need

Execution Laws Misappropriation Act [Title 31, U.S. Code, S1301] Requires funds to be used only for the purposes and programs for which the appropriation was made. Anti-Deficiency Act [Title 31, U.S. Code, Sec 1341 & 1517 ] Prohibits making or authorizing an obligation in excess of the amount available. Forbids obligation to pay money from the US Treasury in advance of an appropriation. Requires agency to fix responsibility for violations of the Act. Bona Fide Need Rule: Requires funds to be used only for needs or services in the year of the appropriations obligation period.

Reprogramming Process of redirecting funds for purposes other than those contemplated at the time of appropriation. Reprogramming rules are based on agreements between DoD and Congress. DoD informs Congress of all Reprogramming via a semi-annual report. Types of Reprogramming actions: Internal Below Threshold Congressional Prior Approval

DoD Appropriation Structure Level of Control for “Below Threshold” Reprogramming Purposes Projects RDT&E Budget Activity Program Elements Procurement Budget Activity Line Item Sub Activity O&M Activity Group Budget Sub Activity MILPER Budget Activity Group Project MILCON Budget Activity Group For Below Threshold Reprogrammings, this chart shows you the level of control for the different approps Each appropriation is sudivided into Budget Activities, but they are defined somewhat differently in each approp You can see some examples of Budget Activities in the different appropriations in the next chart in your book The boxes show the level of control for below threshold reprogramming Use GPS BTR example ASK: Any idea why MILCON BTRs are controlled at such a low level? TRANSITION: Let’s look at the BTR thresholds _____________________________________________ RDT&E Appropriation: 3600F (RDT&E Air Force) Budget Activity: 03 - Advanced Technology Development Program Element: 0603205F- Flight Vehicle Technology Integration Procurement Appropriation: 2032A (Missile Procurement, Army) Budget Activity: 02 - Other Missiles Line Item: 003 - Hellfire System O&M Appropriation: 1804N (Operations & Maintenance, Navy) Budget Activity: 01 - Operating Forces Activity Group/Sub Activity Group: Air Operations / Base Support

Below Threshold Reprogramming APPRN MAX INTO MAX OUT LEVEL OF CONTROL OBL AVAIL Greater of -4M or -20% + 4M RDT & E PROGRAM ELEMENT 2 YEARS Greater of -10M or -20% +10M 3 YEARS ( 5 YEARS SCN) PROC LINE ITEM BUDGET ACTIVITY SOME BA 1 SUB-ACTIVITY LIMITATIONS ON DECREASES (OPERATING FORCES) None Unless Specified O & M +15M 1 YEAR +10M Not Specified MILPERS BUDGET ACTIVITY 1 YEAR Lesser of +2M or +25% Not Specified MILCON PROJECT 5 YEARS Reference Source: Memo Change (30 Oct 96) to DoD Financial Management Regulation , Volume 3

Congressional Prior Approval Applies to Actions Involving: General Transfer Authority (between appropriations) Major System Procurement Quantity Increases Congressional Special Interest Items Amounts exceeding specified thresholds within an appropriation Initiation of new programs or new starts within existing programs exceeding amounts Termination of programs meeting certain criteria Requires: Approval by USD (Comptroller) Approval by HAC / SAC and HASC / SASC Approval by House and Senate Committees on Intelligence (for intelligence assets)

Internal Reprogramming Applies To: - Reprogramming actions that do not involve changes from the purpose and amounts justified in budget presentations to Congress Requires: - Approval by the USD (Comptroller)

Appropriation Life - Example PROCUREMENT APPROPRIATION EXPIRED ACCOUNT FY 1 FUNDS CANCELLED FY 1 FY 2 FY 3 FY 4 FY 5 FY 6 FY 7 FY 8 FY 9 NEW OBLIGATIONS NO NEW OBLIGATIONS CURRENT APPROPRIATION OBLIGATION ADJUSTMENTS Limited to lesser of: EXPENDITURES - 1% of current appropriation ACCOUNTING IDENTITY - Unexpended balance of cancelled appn 94 95 96 97 98 99 00 01 02 . 00 01 02