Fiscal Law ACQ 370 What is Fiscal Law

Fiscal Law ACQ 370

What is Fiscal Law? U. S. Constitution “Congress shall have the power to lay and collect Taxes, Duties, Imports, and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States. . ” -- U. S. CONST. , art. I, § 8, cl. 1 2

What is Fiscal Law? U. S. Constitution “No Money shall be drawn from the Treasury but in Consequence of an Appropriation made by Law…. ” -- U. S. CONST. , art. I, § 9, cl. 7 3

What is Fiscal Law? The established rule is that the expenditure of public funds is proper only when authorized by Congress, not that public funds may be expended unless prohibited by Congress. -- United States v. Mac. Collom, 426 U. S. 317 (1976) 4

What is Fiscal Law? U. S. Constitution Congress (Power of the Purse) PURPOSE Necessary Expense TIME AMOUNT Bona Fide Needs Antideficiency Act 31 U. S. C. 1301(a) 31 U. S. C. 1552, 1344 31 U. S. C. 1341 -44, 1511 -17 5

PURPOSE 6

Purpose 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 7

Purpose Types of Appropriations • Do. D has about 100 different appropriations for different purposes • Major Do. D Appropriations • • • Military Personnel Ammunition Procurement Other Procurement Research, Development, Test and Evaluation Military Construction Operations and Maintenance 8

Purpose Do. D Comptroller Feb 2016

Purpose Major Appropriation Categories Category Funding Policy Obligation Period INCREMENTAL 2 years FULL 3 years Replenishment Spares, Fuel, Civilian Salaries, Construction Projects <=$1 M, Travel, Noncentrally managed end items <=$100 K system unit cost ANNUAL 1 year MILPER Military Personnel Expenses ANNUAL 1 year MILCON Unspecified Minor >$1 M to $3 M Specified >$3 M FULL 5 years RDT&E Procurement O&M Scope of Work Effort RDT&E Activities and Expenses End items >= $250 K system unit cost, All Centrally managed items, Initial Spares, Labor for certain production-related functions (e. g. , item assembly, quality assurance) 10

Purpose Necessary Expense Doctrine Three-part test: • Must be for a particular statutory purpose or necessary and incident to execution of the general purpose of the appropriation • Expenditure must not be prohibited by law • Expenditure must not fall within the scope of some other appropriation 11

Purpose Necessary Expense Doctrine Necessary? Necessary and Incident? • Is it logically related to the appropriation’s purpose? • Will it make a direct contribution to carrying out an authorized function? • • • Food Clothing Bottled Water Entertainment Gifts

Purpose Prohibitions: FY 2015 National Defense Appropriations Act: SEC. 1033 Prohibition on the use of funds for the transfer or release of individuals detained at United States Naval Station, Guantanamo Bay, Cuba. Within Title 10, United States Code: …Funds appropriated to the Department of Defense may not be used to equip, operate, or maintain a golf course… 13 13

Purpose “Otherwise provided for” • If two or more appropriations are available, you must use the more specific of the two • If neither is more specific, the agency chooses, but is then bound by that choice 14

Purpose All Do. D costs are classified as either expense or investment Expense Investment • Costs incurred to operate and maintain the organization (O&M funding) • Costs resulting in the acquisition of, or an addition to, end items (Procurement funding) • Services, supplies consumed in current period, civilian labor, equipment rental, fuel, equipment maintenance, utilities, etc. • The costs benefit future periods and generally are of a long-term character, such as real property and personal property 15

Purpose Expense or Investment? • Operation and Maintenance and Military Personnel appropriations are considered expenses • Procurement and Military Construction appropriations are considered investments • Research, Development, Test and Evaluation, Base Realignment and Closure (BRAC), and Family Housing appropriations include both expenses and investments DOD Financial Management Regulation, Vol 2, Ch. 1 para 010201(C)(3) 16

Purpose Expense/Investment Threshold The 2014 Defense appropriation bill: Section 8030 provides authority to use operation and maintenance appropriations to purchase items having an investment item unit cost of not more than $250, 000 • Expense/Investment threshold: $250, 000 • Systems (what is the primary function)? 17

Time 18

Time “Congress has the right to limit its appropriations to particular times as well as to particular objects, and when it has clearly done so, its will expressed in the law should be implicitly followed. ” --1870 Attorney General opinion 19

Time Basic Limitations: • Funds must be obligated during their period of availability And • The obligation must be for a bona fide need of that period “Current year funds for current year needs” 20

Time Period of Availability • If not specified otherwise, funds are available for obligation for one fiscal year • Operation and Maintenance • Military Personnel • Some typical multiple year funds • RDT&E – 2 years • Procurement – 3 years • Military Construction – 5 years 21

Time Availability of Funds Current Years + Expired Years = Availability of Funds for Obligation and Expenditure 22

Time Availability of Funds Current Years Uses: • Any regular obligation of funds • New work, in-scope adjustments/ settlements • Available for expenditure Constraints: • Proper use of funds –Full/incremental –Purpose/amount –Bona Fide Need Expired Years Uses: • Settlements of previous obligations • Adjustments to in-scope efforts • Available for expenditure Constraints: • Proper use of funds • No new work • No increase in scope or quantity Cancelled Years After 5 th year of Expired Phase funds are cancelled • No longer available for settlements or adjustments (obligations) • No longer for expenditures • Unliquidated funds returned to US Treasury • Unpaid bills expended from current year funds 23

Time Bona Fide Needs Rule The balance of an appropriation or fund limited for obligation to a definite period 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 and obligated consistent with section 1501 of this title. 31 U. S. C. § 1502(a) 24

Time Bona Fide Needs Rule When is it needed? • Differs depending upon the type of requirement • • Supplies Services Training Construction • Exceptions to every rule 25

Time Bona Fide Need: Supplies • General rule • Supplies are the bona fide need of the period in which they will be used • Exceptions • Lead Time exception • Stock Level exception 26

Time Bona Fide Need: Supplies Exceptions Production or Delivery Lead Time • We really need it now. But for reasons beyond our control, we can’t get it this FY • Time between contracting and delivery not excessive • Not standard commercial items readily available Stock Level • May use current year funds to replace stock used, even if you know it won’t be used until next FY • But only up to the normal stock level • No stockpiling 27

Time Bona Fide Need: Services • Services are the bona fide need of the FY in which we receive them • But are the services Severable or Nonseverable? • • • Office paint job? Mowing services? Survey? Vehicle repair? Vehicle maintenance? 28

Time Bona Fide Need: Services Nonseverable Services: Entire effort is the bona fide need of the FY of contract award Entire K funded with FY 18 funds OCT 1 Award Finish Dec 11, 2 X 17 Dec 10, 2 X 18 SEPT 30 29

Time Bona Fide Need: Services Severable services are the bona fide need of the FY in which services are performed FY 18 funds OCT 1 FY 19 Award Feb 1, 2 X 18 Finish Jan 31, 2 X 19 SEPT 30 30

Time Bona Fide Need: Services Exception: Up to 12 months of severable services starting any time FY 18 funds OCT 1 Award Feb 1, 2 X 18 SEPT Finish Jan 31, 2 X 19 30 Note: This only applies to 1 -year appropriations 31

Time Bona Fide Need: Training • General rule • A single training course is considered to be a nonseverable service • The training is a Bona Fide Need of the FY in which the training begins • Exception • Similar to Lead Time exception • It is a narrow exception 32

Time Bona Fide Need: Construction General rule • Construction is a bona fide need of the FY in which we need construction to begin • Exception • Contractor fails to begin by end of FY, but mitigating factors – When site made available – Weather conditions – Construction lead time 33

Time Bona Fide Need: Construction Maintenance and Repair • Current year funds may be used for projects near end of FY, as long as: – It is a Bona Fide Need of the current FY – Contract must specify that work must begin before January 1 st 34

Time Contract Modifications • Apply Bona Fide Needs rule • Is the modification a new requirement? • Is it a pre-existing liability? Is the modification within the scope of the original contract? 35

Time Protests • Protests generally stop contracting process • If protest crosses fiscal years while waiting for resolution – Funds available at time of protest remain available for 100 days after protest is resolved – Applies to all protests, any forum 36

Time Terminations Default Convenience Original (but now expired) funds remain available to reprocure if: Generally extinguishes use of expired prior year funds unless: • We still have that need • Reprocurement contract is similar in scope and size • We reprocure without delay • Original award was made in good faith but was legally improper, example: violates CICA (i. e. , Krygoski) • Need still exists • Re-procurement contract is similar in scope and size • Re-procure without delay

Amount 38

Amount Antideficiency Act Prohibits federal employees from making or authorizing an expenditure in excess of the amount available in the appropriation or fund unless authorized by law 39

Amount Antideficiency Act • Don’t obligate before funds have been appropriated for that purpose, unless otherwise allowed by law • Don’t accept voluntary services for the United States • Don’t make obligations or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted by agency regulations The ADA is not a single statute, but a combination of several 40

Amount Exceptions You can obligate in advance: – – Feed and Forage Act Certain activities during a funding gap Certain emergencies Certain multi-year contracts for continuing services that have substantial start-up costs 41

Amount Awarding Prior To Availability • The Subject to Availability clause • Does not let you obligate funds in advance of funds (the clause says that the Government has no obligation unless/until funds become available) 42

Amount Voluntary Services Can accept if: – Authorized by law, e. g. , soldier/family support activities – Emergencies or imminent threat to property – Gratuitous services with written agreement of no compensation 43

Amount Not an Antideficiency Act violation if proper funds: – Were available at time of obligation – Available at time of correction – Available continuously in-between 44

Sources Fiscal Law Deskbook https: //www. jagcnet. army. mil/Contract. Law. Doc. Lib Department of Defense Financial Management Regulation http: //comptroller. defense. gov/Financial. Management/Regulations. aspx Principles of Federal Appropriations Law (Red Book) http: //www. gao. gov/legal/red-book/current-edition 45