Fiscal Law Review
and
2012 Update
“I want to learn federal
Fiscal Law and I don't
care if it takes all
afternoon!”
14 March 2012
Presenters:
Maj Airon Mothershed,
ESC/JAS
Mr. Peter Camp, ESC/JAS
DISCLAIMER
THE VIEWS EXPRESSED IN THIS
PRESENTATION ARE THOSE OF THE
PRESENTERS AND MAY NOT REFLECT
THE OFFICIAL POLICY OR POSITION OF
THE DEPARTMENT OF DEFENSE OR THE
UNITED STATES AIR FORCE
2
Overview
• Fiscal Law’s Three Pillars
– Purpose
– Time
– Amount
• Exceptions
• Sanctions & the Antideficiency Act (ADA)
3
Purpose
4
Purpose: Sources of Law
• United States Constitution
• United States Code
• Authorization Acts
– Authorize Projects
– Authorize Appropriations
– Enact Permanent Legislation
• Appropriations Acts
5
Purpose: Where It All Begins
“No money shall be drawn
from the Treasury, but in
consequence of
appropriations made by
law…”
U.S. Const., Art I, Sec. 9, Cl. 7
Meaning: Only Congress can
determine the purposes for
which public funds may be
disbursed
6
The Purpose Statute
31 U.S.C. § 1301(a)
The Act of March 3, 1809, addressing
perceived abuses by the military
departments
Little Turtle
Maj Gen Arthur St. Clair
St. Clair’s Defeat, Northwest Indian War
Samuel Hodgdon
7
The Purpose Statute
31 U.S.C. § 1301(a)
“Appropriations shall be
applied only to the
objects for which the
appropriations were
made except as otherwise
provided by law.”
31 U.S.C. § 1301(a)
8
Purpose: “The Half Empty
Glass” Rule
“The established rule is
that the expenditure of
public funds is proper
only when established by
Congress, not that public
funds may be expended
unless prohibited by
Congress.”
U.S. v. MacCollom, 426 U.S. 317 (1976)
9
Purpose: “The Half Empty
Glass” Rule
“It is difficult to see how a
legislative prohibition
could be expressed in
stronger terms. The law
is plain and any disbursing
officer disregards it at his
peril.”
You don’t need to be a
pessimist to understand
fiscal law, but it helps.
4 Comp. Dec. 569, 570 (1898)
10
Purpose: Sources of Law
• United States Constitution
• United States Code
• Authorization Acts
– Authorize Projects
– Authorize Appropriations
– Enact Permanent Legislation
• Appropriations Acts
11
THE PROCESS OF ENACTMENT
FEB
CBO
Report
Congress
MAR
APR
MAY
JUN
Concurrent Budget
Resolution
authorizations process
Department
Of Defense
National
Budget
DoD
Budget
AUG
SEPT
OCT
National Defense
Authorization
Act
joint
conference
appropriations process
President
(OMB)
JUL
joint
conference
DoD
Appropriations
Act
Apportionment
Testimony & Appeals
Allocation
Military
Departments
Service
Budgets
Budget
Execution
Suballocation
Program Managers/Units
See DOD 7000.14-R (FMR), Vol .14
PEO/MAJCOM (AFMC)
12
Purpose: Sources of Law
Appropriations Act
– Appropriations Acts
– 31 U.S.C. § 1301 (d)
– Don’t Exceed Appropriations
Without Congress’ Express
Authority
– Other Public Laws
– Opinions
Appropriations for
DoD are
differentiated by
Service (Air Force,
Army, etc.) and
Component (Active,
Reserve, etc.) and
Purpose (O&M,
Personnel, etc.) –
Nearly 100 separate
appropriations in all!
13
Purpose
• Major Appropriations
– Personnel – pay and allowances, PCS, etc.
– O&M – operations and maintenance of installations,
day-to-day expenses of training exercises, deployments,
etc.
– Procurement – production and modification of missiles,
aircraft, etc.
– RDT&E – basic and applied scientific research, etc.
– MILCON – military construction
14
Purpose:
31 U.S.C. § 1301(a)
• Three-part test
– Particular statutory purpose or “Necessary Expense”
• Congress does not specify every item of expenditure
in an Appropriations Act.
• Agencies have “reasonable discretion”
• Expenditures must be “reasonably necessary” or
“contribute materially”
– Not prohibited by law
– Not otherwise provided for
15
Purpose
• Operation and Maintenance, Air Force [3400]
“For expenses, not otherwise provided for, necessary for
the operation and maintenance of the Air Force, as
authorized by law; and not to exceed $7,699,000 can be
used for emergencies and extraordinary expenses, to be
expended on the approval or authority of the Secretary of
the Air Force, and payments may be made on his certificate
of necessity for confidential military purposes,
$34,985,486,000.”
– Pub. L. No. 112-74, Title II
16
Purpose
• General Provisions (Title VIII)
• Using funds made available by this Act or any other Act, the
Secretary of the Air Force, pursuant to a determination under
section 2690 of title 10, United States code, may implement
cost-effective agreements for required heating facility
modernization in the Kaiserslautern Military Community in the
[FRG]: Provided, That in the City of Kaiserslautern and at the
Rhine Ordnance Barracks area, such agreements will include the
use of United States anthracite as the base load energy for
municipal district heat to the United States Defense
installations….
– Pub. L. No. 112-74 § 8054
17
Purpose:
Continuing Resolutions
• Legislation that permits continuing operations
in absence of an Appropriation Act
• Generally at current or lower rate
• General provisions of prior year apply
• No new programs may start
18
Purpose:
Augmentation
• Generally, it is impermissible to augment an appropriation
– By paying out of the wrong appropriation
– Miscellaneous Receipts violation
• “Except as provided in section 3718(b) [ ] of this title, an
official or agent of the Government receiving money for
the Government from any source shall deposit the money
in the Treasury as soon as practicable without deduction
for any charge or claim.” 31 U.S.C. § 3302(b)
– Accepting voluntary services without statutory
authority
• Obtain agreement (no cost) in writing – in advance!
19
Purpose: Investment/Expense
Threshold
• Expenses are costs of resources consumed in
operating and maintaining DoD
– Normally financed with O&M funds
• Investments are acquisitions of DoD capital assets
– Normally financed with Procurement funds
• System cost >= $250,000 (Current threshold)
• Computer buys need careful scrutiny
20
Purpose & Construction
• Construction vs. Repair
– Repair = O&M funds
– Minor Construction
• <= $750,000 O&M (or <= $1.5M if to correct a deficiency that threatens
life, health or safety) per 10 U.S.C. 2805(c).
– Unspecified Minor Military Construction
• <= $2.0M (or <= $3M if to correct a deficiency which threatens life, health
or safety) per 10 U.S.C. 2805(a)
• Secretarial approval
• Congressional notification (wait 21 days (14 days if the notice is submitted
electronically))
– Specified Military Construction
– No Project Splitting!
21
Purpose: Recent Cases
• Election Assistance Commission (EAC) – Obligation of Fiscal Year
2004 Req’ts Payments Appropriations, B-318831, Apr. 28, 2010
– EAC violated the purpose statute when it obligated funds for certain grant
expenditures to an appropriation that was available only for requirements
payments to states
– Plain language of the statute was clear
– GAO held that agencies must comply with the plain meaning in their
appropriations
• Architect of the Capitol (AOC) – Availability of Funds for Battery
Recharging Stations for POVs, B-320116, Sept. 15, 2010
– AOC asked GAO to make a decision as to whether appropriated funds could be
used to purchase recharging stations for privately owned hybrid or electric
vehicles
– GAO: employees’ commuting expenses are “personal expenses.” The
recharging stations are commuting expenses. Absent special statutory
authority, may not be purchased with appropriated funds.
22
Purpose: Recent Cases
• U.S. Dept. of the Navy v. Federal Labor Relations Authority, DC
Circuit No. 10-1304, January 13, 2012
– For years, Naval Station Newport, RI, purchased bottled water for its federal
employees with appropriated funds because of lead piping in some water
fountains
– By 2005, the Navy replaced all of the water fountains, bottled water was no
longer necessary. Navy stopped providing it
– The Labor Union argues free water bottles = employee benefit arising from
custom or practice of that workplace
– Arbitration: Arbitrator & FLRA agree with Union, Navy appeals The Navy
appealed to the U.S. Court of Appeals
– Court of Appeals:: appropriated funds may be used only for “necessary”
expenses and bottled water was not a necessary expense.
23
Time
24
Time
• Most appropriations have a period of availability
– Specified time available for obligation
• May not obligate before appropriation and receipt
• Must be obligated before they expire
• Exceptions are rare (statutory)
– Once obligated, disbursement may be made before or
after expired, but before closed
– Appropriations close five years after they expire
• There is no longer an M account
25
Time & Availability
• Congress determines the period of availability for each
appropriation
• Generally
– O&M – 1 year
– Personnel – 1 year
– RDT&E – 2 years
– Procurement – 3 years
– MILCON – 5 years
26
Time & Obligation
• “Obligation means a legally binding agreement that
will result in outlays, immediately or in the future.
When you place an order, sign a contract, award a
grant, purchase a service, or take other actions
that require the Government to make payments to
the public or from one Government account to
another, you incur an obligation.”
– OMB Circular A-11 (2010), at ¶ 20.5(a)
27
Time and
the Bona Fide Need
• The balance of an appropriation limited for
obligation to a definite period of time is
available only for:
– payment of expenses properly incurred
– during the period of availability or
– to complete contracts properly made
within that period of availability
28
Time and
the Bona Fide Need
• May expend fiscal year funds only for the bona
fide needs of that same fiscal year.
– 31 U.S.C. § 1502(a)
• So, just what constitutes a bona fide need on 30
September?
29
Time and
the Bona Fide Need:
Recent Case
• U.S. Small Business Administration – Indefinite-Delivery Indefinite
Quantity Contract Guaranteed Minimum, B-321640, Sep. 19, 2011
– SBA had an IDIQ contract for computer hardware and software that the SBA
intended to purchase. The IDIQ contract provided for 1 base year and four 1year options.
– When initially executed, the contract provided for a $290,000 guaranteed
minimum for the base year (2009); this was later modified. The modification
increased the base year minimum to $1,315,000. SBA then obligated an
aggregate of $1,860,000 in FY 2010.
– Held: While an Agency may exercise its discretion in setting the guaranteed
minimum in an IDIQ contract, this discretion is not unlimited. The stated
minimum should not exceed the amount the Government is fairly certain to
order.
– GAO further determined: There was a violation. The totality of facts and
circumstances here suggested a bona fide need in these amounts (over $1
million each for 2009/2010) did not exist.
30
Time and
the Bona Fide Need
• The determination of a bona fide need
depends largely on the facts and
circumstances, such as –
– agency mission
– nature of the requirement
– types of services/supplies
– type of contract/agreement
– timing of contract/agreement
31
Time and
the Bona Fide Need:
Supply Contracts Spanning Fiscal Years
• If supplies cannot be acquired in the same
fiscal year in which a bona fide need for those
supplies arises, delivery in a subsequent fiscal
year is OK when:
– Time between contract execution and
recording the obligation and delivery is not
excessive, and
– Supplies are not standard commercial items
readily available elsewhere
32
Time and
the Bona Fide Need:
Services Contracts Spanning Fiscal Years
• Services – FY of performance
– Nonseverable services
– Statutory exception 10 U.S.C. § 2410a for
severable services which do not exceed one
year
• Allows us to break the fiscal year cycle
33
Time and
the Bona Fide Need:
Services Contracts Spanning Fiscal Years
Recent Case
•
National Labor Relations Board (NLRB) – Recording Obligations for Training and
Court Reporting, B-321296, Jul. 13, 2011
- 4QFY10: NLRB awarded 37 court reporting services contracts
- Including: 1 year base period 27 Sep 10 – 26 Sep 10 + 4 option periods
- T NLRB recorded obligations of $876,373.91 for the 37 contracts (NLRB’s
estimate of the year’s needs for court reporting services, based on prior years’
experience)
- Issue: Did NLRB properly record obligations where the amounts were based
upon an estimate of the total cost of services that NLRB would order during
the period of the contract?
- GAO Held: NLRB properly obligated the FY 2010 funds for the entire contract,
based on a reasonable estimate.
-
As performance continues, NLRB should deobligate amounts if it realizes that it
overestimated the quantity of services that it would order under the contracts, or
conversely, obligate additional funds if more services are anticipated
34
Amount
35
Amount
• May not make or authorize an obligation or
expenditure that exceeds an amount available in
an appropriation or fund
– 31 U.S.C. § 1341(a)(1)(A)
• Includes expired appropriations
• Statutory restriction or prohibition may make
amount available ZERO!
36
Amount
• Sec. 8035(a): “None of the funds appropriated in this Act
may be expended by an entity of the Department of
Defense unless the entity, in expending the funds, complies
with the Buy American Act….”
– Pub. L. No. 112-74
37
Amount
• May not make or authorize an obligation or
expenditure that exceeds an apportionment.
– 31 U.S.C. § 1517(a)(1)
• An apportionment is a distribution by OMB of
amounts available for specified time periods,
activities, projects or objects.
• This statute does not prohibit obligating in advance
of an apportionment. (But, do not obligate in
advance of the appropriation without authority….)
See Slide 13
38
Amount
• May not make or authorize an obligation or
expenditure that exceeds a formal subdivision
established by regulations
– 31 U.S.C. § 1517(a)(2)
• Allocations and allotments are formal subdivisions
• Allowances are not formal
subdivisions
See Slide 13
39
Amount
• Open-ended indemnification provisions violate 31
U.S.C. § 1341
– What does your software license say???
– There are exceptions to this rule – but they are statutory!
• A judgment by a court or board of contract appeals in
excess of an appropriation or subdivision of funds is
not a violation
• Penalties for failure to exercise an option may be
violations
40
Exceptions
• Congress may authorize a contract in advance or in
excess of an appropriation
– Ex: 41 U.S.C. § 11 permits DoD to contract for clothing,
subsistence, etc. for the current fiscal year
– That is contract authority, not disbursement authority
41
Exceptions
• Contracts conditioned on the availability of funds
– Solicitation and contract include the clause FAR 52.23218, Availability of Funds
42
5 Easy Ways
to
Violate the ADA!
•
Violate the Bona Fide Need Rule
– Wrong Fiscal Year Violated – 31 U.S.C. 1502(a)
– May Lead To An ADA Violation
•
Violate 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)
•
Obligate/Expend in Excess of an Apportionment or an Administrative Subdivision – 31 U.S.C.
1517(a)
– Automatic ADA Violation
•
Accepting Voluntary Services or employing personal services not authorized by law, except in
cases of emergency involving the safety of human life or the protection of property—31 U.S.C.
Section 1342
– Automatic ADA Violation
– Lawful alternatives may exist--see Slide 19!
– Automatic ADA Violation
– E.g., DFARS Clause….
43
Sanctions
• Disciplinary Actions
– Military Members
• Administrative Counseling  Court-Martial
– Federal Employees
• Oral Admonishment  Removal (+ Prosecution)
– “The fact that a violation was not willfully and
knowingly committed does not, by itself, justify
the absence of disciplinary actions.” AFI 65-608,
¶ 2.11.1
44
Sanctions
• Class E felony (knowing/willful)
– $5,000 fine, confinement of up to 2 years, or
both
• 31 U.S.C. §§ 1350, 1519
– If you suspect a potential ADA violation, you
must report it to the Comptroller within 10
days. Knowing and willful concealment of a
violation is a crime!
• Reporting procedures may be found in AFI 65-608, ¶
3.3
45
Sanctions
• SecDef must report
violations to the
President (through
OMB) and to Congress
• This is not your 15
minutes of fame!
46
Summary
• Fiscal Law’s Three Pillars
– Purpose
– Time
– Amount
• Exceptions
• Sanctions
Questions?
47
Backup Slides
48
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
49
A COMPARISON
Appropriations
Authorizations
•
Provides permission
and direction on how
•
or permission to draw
funds from the US
to spend funds
•
Policy oriented
•
Separate bills written
in House and Senate
•
Generally permanent
law
Provides budget authority
Treasury
•
Budget oriented
•
Bill traditionally originates
in House
•
•
Senate modifies House bill
Generally one-year law
• The Authorization Act
does not provide
budget authority
50
APPROPRIATIONS ARE TIME BOUND
FY '06
O&M
3400
RDT&E
3600
FY '07
FY 08
FY '09
FY '10
FY '11 FY '12
FY '13
FY '14
FY '14
FY-15
PROCUREMENT
3080
MILPERS
3300
MILCON
3500
Current. Available for obligation.
Expired. It is available only for recording, adjusting, and .
liquidating obligations properly chargeable to that appropriation
Cancelled. Closed Appropriation. Not available for any purpose.
51
Severable or Non-Severable?
Services? Severable? Non-Severable?
e.g., Non-personal services, Advisory and Assistance Services (A&AS), Base
Services
Can the service be
Yes.  The service is
As a general rule,
separated into
“severable” 
severable services are
components that
the bona fide needs of
independently meet a
the fiscal year in which
separate need of the
performed. (Matter of
Government?
Incremental Funding of
Multiyear Contracts, B241415, 71 Comp. Gen
428 (1992)). Therefore,
funding of severable
service contracts
generally may not
cross fiscal years and
the Service should fund
the services with
current year dollars.
Does the service
Yes.  The service is
In consequence, the
produce a single or
“non-severable”.
Service must fund the
unified outcome,
entire effort with dollars
product or report that
that are current
cannot be subdivided
(available) for
for separate
obligation at the time
performance in
the contract is
different fiscal years?
executed. (DFAS-IN 371, tbl. 8-1)
52