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United States General Accounting Office
GAO:
Office of the General Counsel:
January 2004:
Principles of Federal Appropriations Law:
Third Edition:
Volume II:
This volume supersedes the Volume II, Second Edition of the Principles
of Federal Appropriations Law, 1992.
On August 6, 2010, the web versions of the Third Edition of the
Principles of Federal Appropriations Law, Volumes I, II and III, were
reposted to include updated active electronic links to GAO decisions.
Additionally, the Third Edition's web based Index/Table of Authorities
(Index/T0A) was replaced by an Index/TOA that incorporated information
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Abbreviations:
APA: Administrative Procedure Act:
BLM: Bureau of Land Management:
CDA: Contract Disputes Act of 1978:
CCC: Commodity Credit Corporation:
C.F.R.: Code of Federal Regulations:
EAJA: Equal Access to Justice Act:
EEOC: Equal Employment Opportunity Commission:
FAR: Federal Acquisition Regulation:
FY: Fiscal Year:
GAO: Government Accountability Office:
GSA: General Services Administration:
HUD: Department of Housing and Urban Development:
IRS: Internal Revenue Service:
NRC: Nuclear Regulatory Commission:
OMB: Office of Management and Budget:
SBA: Small Business Administration:
TFM: Treasury Financial Manual:
U.S.C.: United States Code:
URA: Uniform Relocation Assistance and Real Property Acquisition
Policies Act:
[End of section]
Foreword:
This is Volume II of Principles of Federal Appropriations Law, third
edition. As we explained in the Foreword to the third edition of
Volume I, publication of this volume continues our process of revising
and updating the second edition of the "Red Book" and reissuing it in
what will ultimately be a 3-volume looseleaf set with cumulative
annual updates. This volume and all other volumes of Principles,
including the annual updates, are available on GAO's Web site
[hyperlink, http://www.gao.gov] under "Legal Products." The annual
updates are only available online. The online updated versions contain
hyperlinks to the GAO material cited. Check the GAO Web site for other
interesting information, for example, materials from our annual
Appropriations Law Forum.
Our objective in Principles is to present a basic reference work
covering those areas of law in which the Comptroller General issues
decisions, using text discussion with specific legal authorities to
illustrate the principles discussed, their application, and
exceptions. As we noted in our first volume, Principles should be used
as a general guide and starting point, not as a substitute for
original legal research. We measure our success in this endeavor by
Principles' day-to-day utility to its federal and nonfederal audience.
In this regard, we appreciate the many comments and suggestions we
have received to date, and hope that our publication will continue to
serve as a useful reference.
Signed by:
Anthony H. Gamboa:
General Counsel:
February 2006:
[End of Foreword]
Detailed Table of Contents: Volume II: Chapters 6-11:
Chapter 6 Availability of Appropriations: Amount:
A. Introduction:
B. Types of Appropriation Language:
1. Lump-Sum Appropriations:
a. Effect of Budget Estimates:
b. Restrictions in Legislative History:
c. "Zero Funding" Under a Lump-Sum Appropriation:
2. Line-Item Appropriations and Earmarks:
C. The Antideficiency Act:
1. Introduction and Overview:
2. Obligation/Expenditure in Excess or Advance of Appropriations:
a. Exhaustion of an Appropriation:
(1) Making further payments:
(2) Limitations on contractor recovery:
b. Contracts or Other Obligations in Excess or Advance of
Appropriations:
(1) Proper recording of obligations:
(2) Obligation in excess of appropriations:
(3) Variable quantity contracts:
(4) Multiyear or "continuing" contracts:
c. Indemnification:
(1) Prohibition against unlimited liability:
(2) When indemnification may be permissible:
(3) Statutorily authorized indemnification:
d. Specific Appropriation Limitations/Purpose Violations:
e. Amount of Available Appropriation or Fund:
f. Intent/Factors beyond Agency Control:
g. Exceptions:
(1) Contract authority:
(2) Other obligations "authorized by law":
3. Voluntary Services Prohibition:
a. Introduction:
b. Appointment without Compensation and Waiver of Salary:
(1) The rules—general discussion:
(2) Student interns:
(3) Program beneficiaries:
(4) Applicability to legislative and judicial branches:
c. Other Voluntary Services:
d. Exceptions:
(1) Safety of human life:
(2) Protection of property:
(3) Recent developments:
e. Voluntary Creditors:
4. Apportionment of Appropriations:
a. Statutory Requirement for Apportionment:
b. Establishing Reserves:
c. Method of Apportionment:
d. Control of Apportionments:
e. Apportionments Requiring Deficiency Estimate:
f. Exemptions from Apportionment Requirement:
g. Administrative Division of Apportionments:
h. Expenditures in Excess of Apportionment:
5. Penalties and Reporting Requirements:
a. Administrative and Penal Sanctions:
b. Reporting Requirements:
6. Funding Gaps:
D. Supplemental and Deficiency Appropriations:
E. Augmentation of Appropriations:
1. The Augmentation Concept:
2. Disposition of Moneys Received: Repayments and Miscellaneous
Receipts:
a. General Principles:
(1) The "miscellaneous receipts" statute:
(2) Exceptions:
(3) Timing of deposits:
(4) Money received (or not received) "for the Government":
b. Contract Matters:
(1) Excess reprocurement costs:
(2) Other damage claims:
(3) Refunds and credits:
(4) "No-cost" contracts:
c. Damage to Government Property and Other Tort Liability:
d. Fees and Commissions:
e. Economy Act:
f. Setoff:
g. Revolving Funds:
h. Trust Funds:
i. Fines and Penalties:
j. Miscellaneous Cases: Money to Treasury:
k Miscellaneous Cases: Money Retained by Agency:
L Money Erroneously Deposited as Miscellaneous Receipts:
3. Gifts and Donations to the Government:
a Donations to the Government:
b. Donations to Individual Employees:
(1) Contributions to salary or expenses:
(2) Travel-related promotional items:
4. Other Augmentation Principles and Cases:
Chapter 7: Obligation of Appropriations:
A. Introduction: Nature of an Obligation:
B. Criteria for Recording Obligations (31 U.S.C. § 1501):
1. Section 1501(a)(1): Contracts:
a. Binding Agreement:
b. Contract "in Writing":
c. Requirement of Specificity:
d. Invalid Award/Unauthorized Commitment:
e. Variations in Quantity to Be Furnished:
f. Amount to Be Recorded:
g. Administrative Approval of Payment:
h. Miscellaneous Contractual Obligations:
i. Interagency Transactions:
(1) Economy Act agreements:
(2) Non-Economy Act agreements:
(3) "Binding agreement" requirement:
(4) Orders from stock:
(5) Project orders:
2. Section 1501(a)(2): Loans:
3. Section 1501(a)(3): Interagency Orders Required by Law:
4. Section 1501(a)(4): Orders without Advertising:
5. Section 1501(a)(5): Grants and Subsidies:
a Grants:
b. Subsidies:
6. Section 1501(a)(6): Pending Litigation:
7. Section 1501(a)(7): Employment and Travel:
a Wages, Salaries, Annual Leave:
b. Compensation Plans in Foreign Countries:
c. Training:
d. Uniform Allowance:
e. Travel Expenses:
f. State Department: Travel Outside Continental United States:
g. Employee Transfer/Relocation Costs:
8. Section 1501(a)(8): Public Utilities:
9. Section 1501(a)(9): Other Legal Liabilities:
C. Contingent Liabilities:
D. Reporting Requirements:
E. Deobligation:
Chapter 8: Continuing Resolutions:
A. Introduction:
1. Definition and General Description:
2. Use of Appropriation Warrants:
B. Rate for Operations:
1. Current Rate:
2. Rate Not Exceeding Current Rate:
3. Spending Pattern under Continuing Resolution:
a. Pattern of Obligation:
b. Apportionment:
4. Liquidation of Contract Authority:
5. Rate for Operations Exceeds Final Appropriation:
C. Projects or Activities:
D. Relationship to other Legislation:
1. Not Otherwise Provided For:
2. Status of Bill or Budget Estimate Used as Reference:
3. More Restrictive Authority:
4. Lack of Authorizing Legislation:
E. Duration:
1. Duration of Continuing Resolution:
2. Duration of Appropriations:
3. Impoundment:
Chapter 9: Liability and Relief of Accountable Officers:
A. Introduction:
B. General Principles:
1. The Concepts of Liability and Relief:
a. Liability:
b. Surety Bonding:
c. Relief:
2. Who Is an Accountable Officer?
a. Certifying Officers:
b. Disbursing Officers:
c. Cashiers:
d. Collecting Officers:
e. Other Agents and Custodians:
3. Funds to Which Accountability Attaches:
a. Appropriated Funds:
(1) Imprest funds:
(2) Flash rolls:
(3) Travel advances:
b. Receipts:
c. Funds Held in Trust:
d. Items Which Are the Equivalent of Cash:
4. What Kinds of Events Produce Liability?
5. Amount of Liability:
6. Effect of Criminal Prosecution:
a. Acquittal:
b. Order of Restitution:
C. Physical Loss or Deficiency:
1. Statutory Provisions:
a. Civilian Agencies:
b. Military Disbursing Officers:
2. Who Can Grant Relief?
a. 31 U.S.C. § 3527(a):
b. 31 U.S.C. § 3527(b):
c. Role of Administrative Determinations:
3. Standards for Granting Relief:
a. Standard of Negligence:
b. Presumption of Negligence/Burden of Proof:
c. Actual Negligence:
d. Proximate Cause:
e. Unexplained Loss or Shortage:
f. Compliance with Regulations:
g. Losses in Shipment:
h. Fire, Natural Disaster:
i. Loss by Theft:
(1) Burglary: forced entry:
(2) Robbery:
(3) Riot, public disturbance:
(4) Evidence less than certain:
(5) Embezzlement:
j. Agency Security:
k. Extenuating Circumstances:
D. Illegal or Improper Payment:
1. Disbursement and Accountability:
a. Statutory Framework: Disbursement Under Executive Order No. 166:
b. Automated Payment Systems:
c. Statistical Sampling:
d. Provisional Vouchers and Related Matters:
e. Facsimile Signatures and Electronic Certification:
f. GAO Audit Exceptions:
2. Certifying Officers:
a. Duties and Liability:
b. Applicability of 31 U.S.C. § 3528:
c. Relief:
3. Disbursing Officers:
a. Standards of Liability and Relief:
b. Some Specific Applications:
(1) Fraudulent travel claims:
(2) Other cash payments fraudulently obtained:
(3) Military separation vouchers:
(4) Assignment of contract payments:
(5) Improper purpose/payment beyond scope of legal authority:
4. Check Losses:
a Check Cashing Operations:
b. Duplicate Check Losses:
c. Errors in Check Issuance Process:
5. Statute of Limitations:
E. Other Relief Statutes:
1. Statutes Requiring Affirmative Action:
a. United States Court of Federal Claims:
b. The Legislative and Judicial Branches:
c. Savings Bond Redemption Losses:
2. Statutes Providing "Automatic" Relief:
a. Waiver of Indebtedness:
b. Compromise of Indebtedness:
c. Foreign Exchange Transactions:
d. Check Forgery Insurance Fund:
e. Secretary of the Treasury:
f. Other Statutes:
F. Procedures:
1. Reporting of Irregularities:
2. Obtaining Relief:
3. De Minimis Rule: Payments of $100 or Less:
4. Relief versus Grievance Procedures:
G. Collection Action:
1. Against Recipient:
2. Against Accountable Officer:
H. Restitution, Reimbursement, and Restoration:
1. Restitution and Reimbursement:
2. Restoration:
a. Adjustment Incident to Granting of Relief:
b. Other Situations:
Chapter 10: Federal Assistance: Grants and Cooperative Agreements:
A. Introduction:
B. Grants versus Procurement Contracts:
1. Judicial and GAO Decisions on the Nature of Grants:
a. Contractual Aspects of Grants:
b. Differences between Grants and Contracts:
c. Grants as "Hybrids":
2. The Federal Grant and Cooperative Agreement Act:
a. Purposes and Provisions of the Act:
b. Agency Implementation of the Act:
c. Decisions Interpreting the Act:
3. Competition for Discretionary Grant Awards:
C. Some Basic Concepts:
1. The Grant as an Exercise of Congressional Spending Power:
a. Constitutionality of Grant Conditions:
(1) Conditions must be in pursuit of the general welfare and related
to the purpose of the expenditure:
(2) Conditions must be unambiguous:
(3) Conditions must be otherwise constitutional:
b. Effect of Grant Conditions:
2. Availability of Appropriations:
a. Purpose:
b. Time:
c. Amount:
3. Agency Regulations:
a. General principles:
b. Office of Management and Budget Circulars and the "Common Rules":
c. The Federal Financial Assistance Management Improvement Act:
d. The "Cognizant Agency" Concept:
4. Contracting by Grantees:
5. Liability for Acts of Grantees:
a. Liability to Grantee's Contractors:
b. Liability for Grantee Misconduct:
6. Types of Grants: Categorical versus Block:
7. The Single Audit Act:
D. Funds in Hands of Grantee: Status and Application of Appropriation
Restrictions:
E. Grant Funding:
1. Advances of Grant/Assistance Funds:
2. Cash Management of Grants:
a. General Rule on Interest on Grant Advances:
b. State Governments and Interest on Grant Advances:
(1) Intergovernmental Cooperation Act:
(2) Decisions under the Intergovernmental Cooperation Act:
c. Other Cash Management Requirements:
3. Program Income:
4. Cost-Sharing:
a. Local or Matching Share:
(1) General principles:
(2) Hard and soft matches:
(3) Matching one grant with funds from another:
(4) Relocation allowances:
(5) Payments by other than grantor agency:
b. Maintenance of Effort:
F. Obligation of Appropriations for Grants:
1. Requirement for Obligation:
2. Changes in Grants:
G. Grant Costs:
1. Allowable versus Unallowable Costs:
a. The Concept of Allowable Costs:
b. Grant Cost Cases:
(1) Scope of judicial review:
(2) Court case examples:
(3) GAO case examples:
c. Note on Accounting:
2. Pre-Award Costs (Retroactive Funding):
H. Recovery of Grantee Indebtedness:
1. Government's Duty to Recover:
2. Offset and Withholding of Claims Under Grants:
Chapter 11: Federal Assistance: Guaranteed and Insured Loans:
A. Introduction:
1. General Description:
2. Sources of Guarantee Authority:
B. Budgetary and Obligational Treatment:
1. Prior to Federal Credit Reform Act:
2. Federal Credit Reform Act of 1990:
a. Post-1991 Guarantee Commitments:
b. Pre-1992 Commitments:
c. Entitlement Programs:
d. Certain Insurance Programs:
C. Extension of Guarantees:
1. Coverage of Lenders (Initial and Subsequent):
a. Eligibility of Lender/Debt Instrument:
b. Substitution of Lender:
c Existence of Valid Guarantee:
d. Small Business Investment Companies:
e. The Federal Financing Bank:
2. Coverage of Borrowers:
a. Eligibility of Borrowers:
b. Substitution of Borrowers:
c. Loan Purpose:
d. Change in Loan Purpose:
3. Terms and Conditions of Guarantees:
a. Introduction:
b. Property Insurance Programs under the National Housing Act:
(1) Maximum amount of loan:
(2) Maximum loan maturity:
(3) Owner/lessee requirement:
(4) Execution of the note:
(5) Reporting requirement:
(6) Payment of premiums:
c. Small Business Administration Business Loan Program:
(1) Payment of guarantee fee:
(2) Notice of default:
D. Rights and Obligations of Government upon Default:
1. Nature of the Government's Obligation:
2. Scope of the Government's Guarantee:
3. Amount of Government's Liability:
4. Liability of the Borrower:
a. Veterans' Home Loan Guarantee Program:
(1) Loans closed prior to 1990:
(2) Loans closed after December 31, 1989:
b. Debt Collection Procedures:
5. Collateral Protection:
[End of Detailed Table of Contents]
Chapter 6: Availability of Appropriations: Amount:
A. Introduction:
The two preceding chapters have discussed the purposes for which
appropriated funds may be used and the time limits within which they
may be obligated and expended. This chapter will discuss the third
major concept of the "legal availability" of appropriations—
restrictions relating to amount. It is not enough to know what you can
spend appropriated funds for and when you can spend them. You also
must know how much you have available for a particular object.
In this respect, the legal restrictions on government expenditures are
different from those governing your spending as a private individual.
For example, as an individual, you can buy a house and finance it with
a mortgage that may run for 25 or 30 years. Since you do not have
enough money to cover your full legal obligation under the mortgage,
you sign the mortgage papers on the assumption that you will continue
to have an income adequate to cover the mortgage. If your income
diminishes substantially or, heaven forbid, disappears, and you are
unable to make the payments, you lose the house. A government agency
cannot operate this way. The main reason why is the Antideficiency
Act, discussed in section C of this chapter.
Under the Constitution, Congress makes the laws and provides the money
to implement them; the executive branch carries out the laws with the
money Congress provides. Under this system, Congress has the "final
word" as to how much money can be spent by a given agency or on a
given program. Congress may give the executive branch considerable
discretion concerning how to implement the laws and hence how to
obligate and expend funds appropriated, but it is ultimately up to
Congress to determine how much the executive branch can spend. In
applying these concepts to the day-to-day operations of the federal
government, it should be readily apparent that restrictions on
purpose, time, and amount are very closely related. Again, the
Antideficiency Act is one of the primary "enforcement devices." Its
importance is underscored by the fact that it is the only one of the
fiscal statutes to include both civil and criminal penalties for
violation.
To ensure that the Antideficiency Act's prohibition against
overobligating or overspending an appropriation remains meaningful,
agencies must be restricted to the appropriations Congress provides.
The rule prohibiting the unauthorized "augmentation" of
appropriations, covered in section E of this chapter, is thus a
crucial complement to the Antideficiency Act.
While Congress retains, as it must, ultimate control over how much an
agency can spend, it does not attempt to control the disposition of
every dollar. We began our general discussion of administrative
discretion in Chapter 3 by quoting Justice Holmes' statement that
"some play must be allowed to the joints if the machine is to work."
[Footnote 1] This is fully applicable to the expenditure of
appropriated funds. An agency's discretion under a lump-sum
appropriation is discussed in section F of this chapter.
Congress has been making appropriations since the beginning of the
Republic. In earlier times when the federal government was much
smaller and federal programs were (or at least seemed) much simpler,
very specific line-item appropriations were more common.[Footnote 2]
In recent decades, however, as the federal budget has grown in both
size and complexity, a lump-sum approach has become a virtual
necessity.[Footnote 3] For example, an appropriation act for an
establishment the size of the Defense Department structured solely on
a line-item basis would rival the telephone directory in bulk.
Over the course of this time, certain forms of appropriation language
have become standard. This section will point out the more commonly
used language with respect to amount.
A lump-sum appropriation is one that is made to cover a number of
specific programs, projects, or items. (The number may be as small as
two.) In contrast, a line-item appropriation is available only for the
specific object described.
Lump-sum appropriations come in many forms. Many smaller agencies
receive only a single appropriation, usually termed "Salaries and
Expenses" or "Operating Expenses." All of the agency's operations must
be funded from this single appropriation. Cabinet-level departments
and larger agencies receive several appropriations, often based on
broad object categories such as "operations and maintenance" or
"research and development." For purposes of this discussion, a lump-
sum appropriation is simply one that is available for more than one
specific object.
The amount of a lump-sum appropriation is not derived through
guesswork. It is the result of a lengthy budget and appropriation
process. The agency first submits its appropriation request to
Congress through the Office of Management and Budget, supported by
detailed budget justifications. Congress then reviews the request and
enacts an appropriation which may be more, less, or the same as the
amount requested. Variations from the amount requested are usually
explained in the appropriation act's legislative history, most often
in committee reports.[Footnote 4]
All of this leads logically to a question which can be phrased in
various ways: How much flexibility does an agency have in spending a
lump-sum appropriation? Is it legally bound by its original budget
estimate or by expressions of intent in legislative history? How is
the agency's legitimate need for administrative flexibility balanced
against the constitutional role of the Congress as controller of the
public purse?
The answer to these questions is one of the most important principles
of appropriations law. The rule, simply stated, is this: Restrictions
on a lump-sum appropriation contained in the agency's budget request
or in legislative history are not legally binding on the department or
agency unless they are carried into (specified in) the appropriation
act itself, or unless some other statute restricts the agency's
spending flexibility. This is an application of the fundamental
principle of statutory construction that legislative history is not
law and carries no legal significance unless "anchored in the text of
the statute." Shannon v. United States, 512 U.S. 573, 583 (1994).
[Footnote 5] Of course, the agency cannot exceed the total amount of
the lump-sum appropriation, and its spending must not violate other
applicable statutory restrictions.[Footnote 6] The rule applies
equally whether the legislative history is mere acquiescence in the
agency's budget request or an affirmative expression of intent.
The rule recognizes the agency's need for flexibility to meet changing
or unforeseen circumstances, yet preserves congressional control in
several ways. First, the rule merely says that the restrictions are
not legally binding. The practical wisdom of making the expenditure is
an entirely separate question. An agency that disregards the wishes of
its oversight or appropriations committees will most likely be called
upon to answer for its digressions before those committees next year.
An agency that fails to "keep faith" with the Congress may find its
next appropriation reduced or limited by line-item restrictions. As
Professor Schick put it:
"What gives the appropriations reports special force is not their
legal status but the fact that the next appropriations cycle is always
less than one year away. An agency that willfully violates report
language risks retribution the next time it asks for money. It may
find this year's report language relocated to the next appropriations
act, thereby giving it even less leeway than it had before. Or it may
find the next time that the appropriations committees' guidance is
more detailed and onerous or that its appropriation has been cut."
[Footnote 7]
That Congress is fully aware of these dynamics is evidenced by the
following statement from a 1973 House Appropriations Committee report:
"In a strictly legal sense, the Department of Defense could utilize
the funds appropriated for whatever programs were included under the
individual appropriation accounts, but the relationship with the
Congress demands that the detailed justifications which are presented
in support of budget requests be followed. To do otherwise would cause
Congress to lose confidence in the requests made and probably result
in reduced appropriations or line item appropriation bills."[Footnote
8]
Justice Souter made the same point, writing for the Court in Lincoln
v. Vigil, 508 U.S. 182 (1993):
"Congress may always circumscribe agency discretion to allocate
resources by putting restrictions in the operative statutes (though
not, as we have seen, just in the legislative history). And, of
course, we hardly need to note that an agency's decision to ignore
congressional expectations may expose it to grave political
consequences."
Id. at 193 (citations omitted).
Second, restrictions on an agency's spending flexibility exist through
the operation of other laws. For example, a "Salaries and Expenses"
appropriation may be a large lump sum, but much of it is in fact
nondiscretionary because the salaries and benefits (e.g., health
insurance and retirement contributions) of agency employees constitute
mandatory expenditures once fixed in accordance with the parameters
established by law.[Footnote 9] Third, reprogramming arrangements with
the various committees provide another safeguard against abuse.
[Footnote 10]
Finally, Congress always holds the ultimate trump card. It has the
power to make any restriction legally binding simply by including it
in the appropriation act.[Footnote 11] Thus, the treatment of lump-sum
appropriations may be regarded as yet another example of the efforts
of our legal and political systems to balance the conflicting
objectives of executive flexibility and congressional control.
[Footnote 12]
Two common examples of devices Congress uses when it wants to restrict
an agency's spending flexibility are line-item appropriations and
earmarks. Congress uses other tools as well. The following are just
two examples taken from the Consolidated Appropriations Resolution,
2003, Pub. L. No. 108-7, 117 Stat. 11 (Feb. 20, 2003), the omnibus
appropriation act for fiscal year 2003. The first is an example of a
notice requirement:
"Funds made available under this heading [Salaries and Expenses,
Department of Housing and Urban Development] shall only be allocated
in the manner specified in the report accompanying this Act unless the
Committees on Appropriations ... are notified of any changes in an
operating plan or reprogramming..."
117 Stat. 499. The second is a proviso that incorporates by reference
instructions found in a conference report:
"Provided, That notwithstanding any other provision of law, the Office
of Economic Adjustment... is authorized to make grants using funds
made available under the heading `Operation and Maintenance, Defense-
Wide' in accordance with the guidance provided in the Joint
Explanatory Statement of the Committee of Conference for the
Conference Report to accompany H.R. 5010... and these projects shall
hereafter be considered to be authorized by law."
117 Stat. 533.
The 1983 appropriation act for the Department of Housing and Urban
Development contained a restriction incorporating by reference budget
estimates that the Administration had provided:
"Where appropriations in titles I and II of this Act are expendable
for travel expenses and no specific limitation has been placed
thereon, the expenditures for such travel expenses may not exceed the
amounts set forth therefor in the budget estimates submitted for the
appropriations...."[Footnote 13]
A provision prohibiting the use of a construction appropriation to
start any new project for which an estimate was not included in the
President's budget submission is discussed in 34 Comp. Gen. 278 (1954).
Also, the availability of a lump-sum appropriation may be restricted
by provisions appearing in statutes other than appropriation acts,
such as authorization acts.[Footnote 14] For example, if an agency
receives a line-item authorization and a lump-sum appropriation
pursuant to the authorization, the line-item restrictions and earmarks
in the authorization act will apply just as if they appeared in the
appropriation act itself. The topic is discussed in more detail in
Chapter 2, section C.
a. Effect of Budget Estimates:
Perhaps the easiest case is the effect of the agency's own budget
estimate. The rule here was stated in 17 Comp. Gen. 147, 150 (1937) as
follows:
"The amounts of individual items in the estimates presented to the
Congress on the basis of which a lump-sum appropriation is enacted are
not binding on administrative officers unless carried into the
appropriation act itself."
See also Thompson v. Cherokee Nation of Oklahoma, 334 F.3d 1075, 1085-
86 (Fed. Cir. 2003), aff'd sub nom., 543 U.S._____, 125 S. Ct. 1172
(2005); B-63539, June 6, 1947; B-55277, Jan. 23, 1946; B-35335, July,
17, 1943; B-48120-0.M., Oct. 21, 1948. This is essentially the same
rule as applied to allocations of amounts in congressional committee
reports and other specifications in the legislative history concerning
the use of lump-sum appropriations, which, as discussed later in this
section, likewise have no legally binding effect unless tied to the
appropriation language itself.
It follows that the lack of a specific budget request will not
preclude an expenditure from a lump-sum appropriation which is
otherwise legally available for the item in question. E.g., B-278968,
May 28, 1998; 72 Comp. Gen. 317, 319 (1993); 71 Comp. Gen. 411, 413
(1992).[Footnote 15] To illustrate, the Administrative Office of the
U.S. Courts asked for a supplemental appropriation of $11,000 in 1962
for necessary salaries and expenses of the Judicial Conference in
revising and improving the federal rules of practice and procedure.
The House of Representatives did not allow the increase but the Senate
included the full amount. The bill went to conference but the
conference was delayed and the agency needed the money. The
Administrative Office then asked whether it could take the $11,000 out
of its regular 1962 appropriation even though it had not specifically
included this item in its 1962 budget request. Citing 17 Comp. Gen.
147, and noting that the study of the federal rules was a continuing
statutory function of the Judicial Conference, the Comptroller General
concluded as follows:
"In the absence of a specific limitation or prohibition in the
appropriation under consideration as to the amount which may be
expended for revising and improving the Federal Rules of practice and
procedure, you would not be legally bound by your budget estimates or
absence thereof.
"If the Congress desires to restrict the availability of a particular
appropriation to the several items and amounts thereof submitted in
the budget estimates, such control may be effected by limiting such
items in the appropriation act itself. Or, by a general provision of
law, the availability of appropriations could be limited to the items
and the amounts contained in the budget estimates. In the absence of
such limitations an agency's lump-sum appropriation is legally
available to carry out the functions of the agency."
B-149163, June 27, 1962. See also 20 Comp. Gen. 631 (1941); B-198234,
Mar. 25, 1981; B-69238, Sept. 23, 1948. The same principle would apply
where the budget request was for an amount less than the amount
appropriated, or for zero. 2 Comp. Gen. 517 (1923); B-126975, Feb. 12,
1958.
b. Restrictions in Legislative History:
Often issues are raised when there are changes to or restrictions on a
lump-sum appropriation imposed during the legislative process but not
in the legislation itself. The "leading case" in this area is 55 Comp.
Gen. 307 (1975), the so-called "LTV case." The Department of the Navy
had selected the McDonnell Douglas Corporation to develop a new
fighter aircraft. LTV Aerospace Corporation protested the selection,
arguing that the aircraft McDonnell Douglas proposed violated the 1975
Defense Department Appropriation Act. The appropriation in question
was a lump-sum appropriation of slightly over $3 billion under the
heading "Research, Development, Test, and Evaluation, Navy." This
appropriation covered a large number of projects, including the
fighter aircraft in question. The conference report on the
appropriation act had stated that $20 million was being provided for a
Navy combat fighter, but that "adaptation of the selected Air Force
Air Combat Fighter to be capable of carrier operations is the
prerequisite for use of the funds provided." The Navy conceded that
the McDonnell Douglas aircraft was not a derivative of the Air Force
fighter and that its selection was not in accord with the instructions
in the conference report. The issue, therefore, was whether the
conference report was legally binding on the Navy. In other words, did
the Navy act illegally by not choosing to follow the conference report?
The ensuing decision is GAO's most comprehensive statement on the
legal availability of lump-sum appropriations. Pertinent excerpts are
set forth below:
"Congress has recognized that in most instances it is desirable to
maintain executive flexibility to shift around funds within a
particular lump-sum appropriation account so that agencies can make
necessary adjustments for `unforeseen developments, changing
requirements,... and legislation enacted subsequent to
appropriations.' [Citation omitted.] This is not to say that Congress
does not expect that funds will be spent in accordance with budget
estimates or in accordance with restrictions detailed in Committee
reports. However, in order to preserve spending flexibility, it may
choose not to impose these particular restrictions as a matter of law,
but rather to leave it to the agencies to 'keep faith' with the
Congress....
"On the other hand, when Congress does not intend to permit agency
flexibility, but intends to impose a legally binding restriction on an
agency's use of funds, it does so by means of explicit statutory
language....
"Accordingly, it is our view that when Congress merely appropriates
lump-sum amounts without statutorily restricting what can be done with
those funds, a clear inference arises that it does not intend to
impose legally binding restrictions, and indicia in committee reports
and other legislative history as to how the funds should or are
expected to be spent do not establish any legal requirements on
Federal agencies....
"We further point out that Congress itself has often recognized the
reprogramming flexibility of executive agencies, and we think it is at
least implicit in such [recognition] that Congress is well aware that
agencies are not legally bound to follow what is expressed in
Committee reports when those expressions are not explicitly carried
over into the statutory language....
"We think it follows from the above discussion that, as a general
proposition, there is a distinction to be made between utilizing
legislative history for the purpose of illuminating the intent
underlying language used in a statute and resorting to that history
for the purpose of writing into the law that which is not there....
"As observed above, this does not mean agencies are free to
ignore clearly expressed legislative history applicable to the use of
appropriated funds. They ignore such expressions of intent at the
peril of strained relations with the Congress. The Executive branch...
has a practical duty to abide by such expressions. This duty, however,
must be understood to fall short of a statutory requirement giving
rise to a legal infraction where there is a failure to carry out that
duty."
55 Comp. Gen. at 318, 319, 321, 325. Accordingly, GAO concluded that
Navy's award did not violate the appropriation act and the contract
therefore was not illegal.
The same volume of the Decisions of the Comptroller General contains
another often-cited case, 55 Comp. Gen. 812 (1976), the Newport News
case. This case also involved the Navy. This time, Navy wanted to
exercise a contract option for construction of a nuclear powered
guided missile frigate, designated DLGN 41. The contractor, Newport
News Shipbuilding and Dry Dock Company, argued that exercising the
contract option would violate the Antideficiency Act by obligating
more money than Navy had in its appropriation.
The appropriation in question, the "Naval Vessels" appropriation,
provided a lump sum for vessels, much of which was earmarked,
including an earmark for DLGN: "For Naval vessels: for the Navy,
$3,156,400,000, of which sum $244,300,000 shall be used only for the
DLGN nuclear powered guided missile frigate program;..." The committee
reports on the appropriation act and the related authorization act
indicated that, out of the $244 million appropriated, $152 million was
for construction of the DLGN 41 and the remaining $92 million was for
long lead time activity on the DLGN 42. Clearly, if the $152 million
specified in the committee reports for the DLGN 41 was legally
binding, obligations resulting from exercise of the contract option
would exceed the available appropriation.
The Comptroller General applied the "LTV principle" and held that the
$152 million was not a legally binding limit on obligations for the
DLGN 41. As a matter of law, the entire $244 million was legally
available for the DLGN 41 because the appropriation act did not
include any restriction. Therefore, in evaluating potential violations
of the Antideficiency Act, the relevant appropriation amount is the
total amount of the lump-sum appropriation minus sums already
obligated, not the lower figure derived from the legislative history.
[Footnote 16] As the decision recognized, Congress could have imposed
a legally binding limit by the very simple device of appropriating a
specific amount only for the DLGN 41, appropriating a specific amount
only for the DLGN 42, or by incorporating the committee
reports in the appropriation language.
This decision illustrates another important point: The terms "lump-
sum" and "line-item" are relative concepts. The $244 million
appropriation in the Newport News case could be viewed as a line-item
appropriation in relation to the broader "Shipbuilding and Conversion"
category, but it was also a lump-sum appropriation in relation to the
two specific vessels included. This factual distinction does not
affect the applicable legal principle. As the decision explained:
"Contractor urges that LW is inapplicable here since LW involved a
lump-sum appropriation whereas the DLGN appropriation is a more
specific 'line item' appropriation. While we recognize the factual
distinction drawn by Contractor, we nevertheless believe that the
principles set forth in LTV are equally applicable and controlling
here.... Implicit in our holding in LW and in the other authorities
cited is the view that dollar amounts in appropriation acts are to be
interpreted differently from statutory words in general. This view, in
our opinion, pertains whether the dollar amount is a lump-sum
appropriation available for a large number of items, as in LTV, or, as
here, a more specific appropriation available for only two items."
55 Comp. Gen. at 821-22.
A precursor of LW and Newport News provides another interesting
illustration. In 1974, controversy and funding uncertainties
surrounded the Navy's "Project Sanguine," a communications system for
sending command and control messages to submerged submarines from a
single transmitting location in the United States. The Navy had
requested $16.6 million for Project Sanguine for Fiscal Year 1974. The
House deleted the request; the Senate restored it; the conference
committee compromised and approved $8.3 million. The Sanguine funds
were included in a $2.6 billion lump-sum Research and Development
appropriation. Navy spent more than $11 million for Project Sanguine
in Fiscal Year 1974. The question was whether Navy violated the
Antideficiency Act by spending more than the $8.3 million provided in
the conference report. GAO found that it did not, because the
conference committee's action was not specified in the appropriation
act and was therefore not legally binding. Significantly, the
appropriation act did include a proviso prohibiting use of the funds
for "full scale development" of Project Sanguine (not involved in the
$11 million expenditure), illustrating that Congress knows perfectly
well how to impose a legally binding restriction when it desires to do
so. GAO, Legality of the Navy's Expenditures for Project Sanguine
During Fiscal Year 1974, LCD-75-315 (Washington, D.C.: Jan. 20, 1975).
See also B-168482-0.M., Aug. 15, 1974.
Similarly, the Department of Health, Education, and Welfare received a
$12 billion lump-sum appropriation for public assistance in 1975.
Committee reports indicated that $9.2 million of this amount was being
provided for research and development activities of the Social and
Rehabilitation Service. Since this earmarking of the $9.2 million was
not carried into the appropriation act itself, it did not constitute a
statutory limit on the amount available for the program. B-164031.3,
Apr. 16, 1975.
GAO has applied the rule of the LTV and Newport News decisions in a
number of additional cases and reports, several of which involve
variations on the basic theme.[Footnote 17] One variation involves
something of a reverse LTV theme when agencies attempt to invoke
legislative history to supply a legal basis for their action that is
absent from the relevant statutory language. In B-278121, Nov. 7,
1997, the Library of Congress took the position that appropriation
language earmarking $9,619,000 for a particular purpose, to remain
available until expended, did not require the entire amount to be used
exclusively for that purpose. Rather, the Library maintained, the
figure constituted merely a "cap" or upper limit on the amount
available for the stated purpose. The Library pointed to the way in
which the conference committee described the figures relative to this
appropriation as implicitly supporting its position. GAO rejected the
Library's interpretation of the statutory language and, in particular,
its reliance on implications from the legislative history:
"Because the language of the law is clear, we have no basis to resort
to assumptions or inferences drawn from inexplicit statements
contained in the conference report. When the Congress appropriates
lump-sum amounts without statutorily restricting what can be done with
these funds, a clear inference arises that it does not intend to
impose legally binding restrictions, and indicia in committee reports
and other legislative history as to how the funds should or are
expected to be spent do not establish any legal requirements on
federal agencies. 55 Comp. Gen. 307, 319 (1975). Implicit within this
holding is the more basic proposition that an existing statutory
provision cannot be superseded or repealed by statements,
explanations, recommendations, or tables contained in committee
reports or in other legislative history. Id. In other words, if
explanations or other comments in committee reports do not create any
legally binding restrictions on an agency's discretionary authority to
spend a lump-sum appropriation as it chooses, such comments certainly
cannot supersede an existing statutory provision that establishes a
legally binding amount that the agency may dispose of as an available
appropriation."
B-278121, at 2 (emphasis supplied).
Similarly, the Comptroller General flatly rejected the notion that
otherwise illegal agency actions could be ratified and thereby
validated when the agency notified congressional committees of the
actions and the committees expressed no objection. See B-285725, Sept.
29, 2000; B-248284, Sept. 1, 1992. The decision in B-285725 observed:
"Nothing we reviewed clearly communicates to the Congress that the
District [of Columbia] was requesting that Congress ratify or
otherwise validate an unauthorized disbursement made by the District
in excess of an available appropriation let alone that the Congress
enact legislation that expressly or impliedly authorizes the otherwise
unauthorized action. While legislative history may be useful to
clarify an ambiguity in legislative language, one may not refer to the
legislative history to write into the law that which is not there. 55
Comp. Gen. 307, 325 (1975). The District would have us write into the
language of the law something that is not even mentioned in the
relevant committee reports."
The treatment of lump-sum appropriations as described above has been
considered by the courts as well as GAO, and they reached the same
result.[Footnote 18] The United States Court of Appeals for the
District of Columbia Circuit noted that lump-sum appropriations have a
"well understood meaning" and stated the rule as follows:
"A lump-sum appropriation leaves it to the recipient agency (as a
matter of law, at least) to distribute the funds among some or all of
the permissible objects as it sees fit."
International Union v. Donovan, 746 F.2d 855, 861 (D.C. Cir. 1984),
cert. denied, 474 U.S. 825 (1985). The court in that case refused to
impose a "reasonable distribution" requirement on the exercise of the
agency's discretion, and found that discretion unreviewable. Id. at
862-63. See also McCarey v. McNamara, 390 F.2d 601 (3rd Cir. 1968);
Blackhawk Heating & Plumbing Co. v. United States, 622 F.2d 539, 547
n.6 (Ct. Cl. 1980).
One court, at odds with the weight of authority, concluded that an
agency was required by 31 U.S.C. § 1301(a) (purpose statute) to spend
money in accordance with an earmark appearing only in legislative
history. Blue Ocean Preservation Society v. Watkins, 767 E Supp. 1518
(D. Haw. 1991).
The Supreme Court's 1993 decision in Lincoln v. Vigil, 508 U.S. 182,
put to rest any lingering uncertainty that might have existed on this
point. Writing for a unanimous Court, Justice Souter quoted the rule
stated in the LTV decision and described it as "a fundamental
principle of appropriations law." Id. at 192. Specifically, the Court
held that reprogrammings under lump-sum appropriations fall within the
Administrative Procedure Act's exemption for actions "committed to
agency discretion" (5 U.S.C. § 701(a)(2)) and, therefore, are not
subject to judicial review. The Court said that the Administrative
Procedure Act "makes clear that 'review is not to be had' in these
rare circumstances where the relevant statute 'is drawn so that a
court would have no meaningful standard against which to judge the
agency's exercise of discretion.'" Lincoln, 508 U.S. at 191.
Lincoln concerned a decision by the Indian Health Service to
discontinue a health program that had exclusively assisted Indian
children in the southwestern United States and to channel the funds
into a nationwide program for similar purposes. While the program had
been funded for some years under a lump-sum appropriation, it was
never mentioned in the language of the appropriation acts. The Court
stated in this regard:
"The allocation of funds from a lump-sum appropriation is...
traditionally regarded as committed to agency discretion. After all,
the very point of a lump-sum appropriation is to give an agency the
capacity to adapt to changing circumstances and meet its statutory
responsibilities in what it sees as the most effective or desirable
way.
"An agency's allocation of funds from a lump-sum appropriation
requires a complicated balancing of a number of factors which are
peculiarly within its expertise: whether its resources are best spent
on one program or another; whether it is likely to succeed in
fulfilling its statutory mandate; whether a particular program best
fits the agency's overall policies; and, indeed, whether the agency
has enough resources to fund a program at all.... The agency is far
better equipped than the courts to deal with the many variables
involved in the proper ordering of its priorities. Of course, an
agency is not free simply to disregard statutory responsibilities:
Congress may always circumscribe agency discretion to allocate
resources by putting restrictions in the operative statutes (though
not, as we have seen, just in the legislative history). And, of
course, we hardly need to note that an agency's decision to ignore
congressional expectations may expose it to grave political
consequences. But as long as the agency allocates funds from a lump-
sum appropriation to meet permissible statutory objectives, [5 U.S.C.]
§ 701(a)(2) gives the courts no leave to intrude."
508 U.S. at 192-93 (citations and internal quotations omitted).
The Court noted that while the agency had repeatedly informed Congress
about the program in question, "as we have explained, these
representations do not translate through the medium of legislative
history into legally binding obligations." Id. at 194. Subsequent
judicial decisions have, of course, followed this approach. E.g.,
State of California v. United States, 104 F.3d 1086,1093-94 (9th
Cir.), cert. denied, 522 U.S. 806 (1997); State of New Jersey v.
United States, 91 F.3d 463,470-71 (3rd Cir. 1996); Vizenor v. Babbitt,
927 E Supp. 1193 (D. Minn. 1996); Allred v. United States, 33 Fed. CL
349 (1995). But see Ramah Navajo School Board, Inc. v. Babbitt, 87
F.3d 1338 (D.C. Cir. 1996).[Footnote 19]
While Lincoln, LTV, and related decisions clearly affirm that agencies
have very broad legal discretion when allocating funds under lump-sum
appropriations, an important caveat must be noted: Such discretion
obviously does not extend to allowing an agency to avoid contractual
or other legal obligations imposed upon it. In other words, the agency
cannot reprogram funds otherwise available for payments under a
contract and then claim (at least successfully) that its hands are
tied from malting the contract payments. The Supreme Court's recent
decision in Cherokee Nation of Oklahoma v. Leavitt, 543 U.S. 631,125
S. Ct. 1172 (2005), illustrates this point.
Cherokee Nation of Oklahoma v. Leavitt addressed the Indian Health
Service's obligation to pay contract support costs under the Indian
Self-Determination and Education Assistance Act, as amended, 25 U.S.C.
§§ 450-450n.[Footnote 20] The Act requires the Secretary of Health and
Human Services,[Footnote 21] at the request of Indian tribes, to enter
into self-determination contracts whereby the tribes agree to
administer programs and provide services that would otherwise be the
responsibility of the federal government. See generally 25 U.S.C. §
450f. The federal government makes contract payments of not less than
the amounts the government would have incurred in administering the
programs directly, including, among other things, certain
administrative contract support costs. Id. § 450j-1(a). With respect
to contract funding, 25 U.S.C. § 450j-1(b) includes the following
proviso:
"Notwithstanding any other provision in this subchapter, the provision
of funds under this subchapter is subject to the availability of
appropriations and the Secretary is not required to reduce funding for
programs, projects, or activities serving a tribe to make funds
available to another tribe or tribal organization under this
subchapter."
The Cherokee Nation litigation grew out of the government's refusal to
pay the full support cost amounts claimed by the tribes under their
contracts for certain fiscal years. The government maintained that
appropriations for those fiscal years were insufficient to fund the
full amounts. The Court disagreed. The Court noted that the self-
determination contracts were no less legally binding than ordinary
procurement contracts. Cherokee Nation of Oklahoma v. Leavitt, 125 S.
Ct. at 1178-79. The contracts for the fiscal years in question were
funded from lump-sum appropriations to the Indian Health Service that,
the Court pointed out, far exceeded the total payments due under the
contracts and contained no restrictions on the amounts of such
payments. Id. at 1177. The Court then recited two basic propositions
asserted by the tribes that, it noted, the government had conceded.
The first was the "fundamental principle of appropriations law"
recognized in Lincoln that when Congress appropriates lump-sum amounts
unaccompanied by restrictions, a clear inference arises that it does
not intend to impose legally binding restrictions and committee
reports and other legislative history do not establish legally binding
requirements. Cherokee Nation of Oklahoma v. Leavitt, 125 S. Ct. at
1177. The second was that:
"as long as Congress has appropriated sufficient legally unrestricted
funds to pay the contracts at issue, the Government normally cannot
back out of a promise to pay on grounds of 'insufficient
appropriations,' even if the contract uses language such as 'subject
to the availability of appropriations,' and even if an agency's total
lump-sum appropriation is insufficient to pay all the contracts the
agency has made."
Id. In support of this proposition, the Court cited Ferris v. United
States, 27 Ct. Cl. 542 (1892), and Blackhawk Heating & Plumbing Co. v.
United States, 622 F.2d 539 (Ct. CL 1980). To the same effect, the
Court quoted the following statement from the government's brief on
the law applicable to ordinary procurement contracts:
"If the amount of an unrestricted appropriation is sufficient to fund
the contract, the contractor is entitled to payment even if the agency
has allocated the funds to another purpose or assumes other
obligations that exhaust the funds."
Cherokee Nation of Oklahoma v. Leavitt, 125 S. Ct. at 1179-80
(emphasis supplied).
The Court rejected the government's contentions that the provisos in
25 U.S.C. § 450j-1(b), quoted previously, precluded full payment under
the contracts. The Court observed that the first proviso making
funding "subject to the availability of appropriations" is frequently
used language that simply makes clear that contracts cannot become
binding in advance of appropriations or otherwise without regard to
the availability of appropriations. Cherokee Nation of Oklahoma v.
Leavitt, 125 S. Ct. at 1180-81. "Since Congress appropriated adequate
funds here," said the Court, the first proviso, "if interpreted as
ordinarily understood, would not help the Government." Id. at 1181.
The Court concluded that the second proviso, stating that the
government need not reduce funding benefiting other tribes in order to
fund self-determination contracts was likewise unavailing to the
government:
"The Government argues that these other funds, though legally
unrestricted (as far as the appropriations statutes' language is
concerned) were nonetheless unavailable to pay `contract support
costs' because the Government had to use those funds to satisfy a
critically important need, namely, to pay the costs of 'inherent
federal functions,' such as the cost of running the Indian Health
Service's central Washington office. This argument cannot help the
Government, however, for it amounts to no more than a claim that the
agency has allocated the funds to another purpose, albeit potentially
a very important purpose. If an important alternative need for funds
cannot rescue the Government from the binding effect of its promises
where ordinary procurement contracts are at issue, it cannot rescue
the Government here, for we can find nothing special in the statute's
language or in the contracts.
"We recognize that agencies may sometimes find that they must spend
unrestricted appropriated funds to satisfy needs they believe more
important than fulfilling a contractual obligation. But the law
normally expects the Government to avoid such situations, for example,
by refraining from making less essential contractual commitments; or
by asking Congress in advance to protect funds needed for more
essential purposes with statutory earmarks; or by seeking added
funding from Congress; or, if necessary, by using unrestricted funds
for the more essential purpose while leaving the contractor free to
pursue appropriate legal remedies arising because the Government broke
its contractual promise. The Government, without denying that this is
so as a general matter of procurement law, says nothing to convince us
that a different legal rule should apply here."
Id. at 1180 (citations omitted; emphasis supplied).[Footnote 22]
Finally, the Court declined to construe an appropriation act provision
enacted in a subsequent fiscal year as creating a statutory cap on
funding for the years covered by the litigation. This later-enacted
provision stated in part:
"Notwithstanding any other provision of law... amounts appropriated to
or earmarked in committee reports for the Indian Health Service...
[for] payments to tribes... for contract support costs... are the
total amounts available for fiscal years 1994 through 1998 for such
purposes."[Footnote 23]
The Court acknowledged that it was reasonable to interpret the
language as restricting payments for the prior years. However, it
opted not to do so since such an interpretation would treat the
language as retroactively repudiating a binding government contract
and thereby raising constitutional concerns. Cherokee Nation of
Oklahoma v. Leavitt, 125 S. Ct. at 1182. The Court also rejected the
government's contention that the language simply clarified that the
prior ambiguous appropriation language was not unrestricted,
concluding that there was nothing ambiguous about the prior language.
Id. Rather, the Court treated the later-enacted language as affecting
only unobligated carryover balances from the prior year appropriations.
c. "Zero Funding" Under a Lump-Sum Appropriation:
Does discretion under a lump-sum appropriation extend so far as to
permit an agency to "zero fund" a particular program? Although there
are few cases, the answer would appear, for the most part, to be yes,
as long as the program is not mandatory and the agency uses the funds
for other authorized purposes to avoid impoundment complications.
E.g., B-209680, Feb. 24, 1983 (agency could properly decide not to
fund a program where committee reports on appropriation stated that no
funds were being provided for that program, although agency would have
been equally free to fund the program under the lump-sum
appropriation); B-167656, June 18, 1971 (agency has discretion to
discontinue a function funded under a lump-sum appropriation to cope
with a shortfall in appropriations); 4B Op. Off. Legal Counsel 701,
704 n.7 (1980) (same point).
The more difficult question is whether the answer is the same where
there is no shortfall problem and where it is clear that Congress
wants the program funded. In International Union v. Donovan, 746 F.2d
855, 861 (D.C. Cir. 1984), cert. denied, 474 U.S. 825 (1985),
discussed previously, the court upheld an agency's decision to
allocate no funds to a program otherwise authorized for funding under
a lump-sum appropriation. Although there was in that case a
"congressional realization, if not a congressional intent, that
nothing would be expended" for the program in question, 746 F.2d at
859, it seems implicit from the court's discussion of applicable law
that the answer would have been the same if legislative history had
"directed" that the program be funded. The same result would seem to
follow from 55 Comp. Gen. 812 (1976), discussed above, holding that
the entire unobligated balance of a lump-sum appropriation should be
considered available for one of the objects included in the
appropriation, at least for purposes of assessing potential violations
of the Antideficiency Act.
In B-114833, July 21, 1978, the Department of Agriculture wanted to
use its 1978 lump-sum Resource Conservation and Development
appropriation to fund existing projects rather than starting any new
ones, even though the appropriations committee reports indicated that
the funds were for certain new projects. Since the language referring
to new projects was stated in committee reports but not in the statute
itself, the Department's proposed course of action was legally
permissible.
In a very early, 1922 decision, 1 Comp. Gen. 623 (1922), GAO seemed to
suggest that there are constraints on an agency's discretion. The
appropriation in question provided for "rent of offices of the
recorder of deeds, including services of cleaners as necessary, not to
exceed 30 cents per hour,... $6,000." The Comptroller General held
that the entire $6,000 could not be spent for rent. The decision stated:
"Since [the appropriation act] provides that the amount appropriated
shall cover both rent and cleaning services, it must be held that the
entire amount can not be used for rent alone.
"...The law leaves to the discretion of the commissioners the question
as to what portion of the amount appropriated shall be paid for rent
and what portion shall be paid for services of cleaners, but it does
not vest in the commissioners the discretion to determine that the
entire amount shall be paid for rent and that the cleaning services
shall be left unprovided for, or be provided for from other funds."
Id. at 624. As a practical matter it would not have been possible to
rent office space and totally eliminate cleaning services, and the use
of any other appropriation would have been clearly improper. A factor
which apparently influenced the decision was that the "regular office
force" was somehow being coerced to do the cleaning, and these were
employees paid from a separate appropriation. Id.
2. Line-Item Appropriations and Earmarks:
Congress may wish to specifically designate, or "earmark," part of a
more general lump-sum appropriation for a particular object, as either
a maximum, a minimum, or both.
An earmark refers to the portion of a lump-sum appropriation
designated for a particular purpose.[Footnote 24] The term earmark
often is used interchangeably with the term "line item." In
appropriations language, however, a line item is an appropriation that
is dedicated for a specific purpose, rather than an amount within a
lump-sum appropriation.[Footnote 25] The following example of
earmarking language in a lump-sum appropriation can be found in the
Consolidated Appropriations Act of 2004:
"For necessary administrative expenses of the domestic nutrition
assistance programs funded under this Act, $138,304,000, of which
$5,000,000 shall be available only for simplifying procedures,
reducing overhead costs,... and prosecution of fraud and other
violations of law..."[Footnote 26]
In this example, the $5 million is an earmark.
Often, cases interpreting earmarks turn on congressional intent. See,
e.g., B-285794, Dec. 5, 2000 (use of statutory interpretation to
determine whether the Community Development Block Grant (CDBG) heading
requiring competition for assistance "under this heading" applied to
an earmark within the CDBG lump-sum appropriation).
For simplicity of illustration, let us assume that we have a lump-sum
appropriation of $1 million for "general construction" and a
particular object within that appropriation is "renovation of office
space." If the appropriation specifies "not to exceed" $100,000 for
renovation of office space or "not more than" $100,000 for renovation
of office space, then $100,000 is the maximum available for renovation
of office space. 64 Comp. Gen. 263 (1985).[Footnote 27] A specifically
earmarked maximum may not be supplemented with funds from the general
appropriation.
Statutory authority to transfer funds between appropriations may
permit the augmentation of a "not to exceed" earmark in some cases. In
12 Comp. Gen. 168 (1932), it was held that general transfer authority
could be used to increase maximum earmarks for personal services,
subject to the percentage limitations specified in the transfer
statute because, in this case, the transfer authority was remedial
legislation designed to mitigate the impact of reduced appropriations.
The decision pointed out that if the personal services earmark had
been a separate line-item appropriation, the transfer authority would
clearly apply. Id. at 170. Somewhat similarly, in 36 Comp. Gen. 607
(1957), funds transferred to an operating appropriation from a civil
defense appropriation could be used to exceed an administrative
expense limitation in the operating appropriation. Congress had
imposed new civil defense functions but had neglected to adjust the
administrative expenses limitation. However, in 33 Comp. Gen. 214
(1953), the Comptroller General held that general transfer authority
could not be used to exceed a maximum earmark on an emergency
assistance program where it was clear that Congress, aware of the
emergency, intended that the program be funded only from the earmark.
See also 18 Comp. Gen. 211 (1938). As in many cases, these decisions
turned on congressional intent.
Under a "not to exceed" earmark, the agency is not required to spend
the entire amount on the object specified. See, e.g., Brown v.
Ruckelshaus, 364 F. Supp. 258, 266 (C.D. Cal. 1973) ("the phrase 'not
to exceed' connotes limitation, not disbursement"). If, in our
hypothetical, the entire $100,000 is not used for renovation of office
space, unobligated balances may—within the time limits for obligation—
be applied to other unrestricted objects of the appropriation. B-
290659, July 24, 2002; 31 Comp. Gen. 578, 579 (1952); 15 Comp. Dec.
660 (1909); B-4568, June 27, 1939.
If later in the fiscal year a supplemental appropriation is made for
"renovation of office space," the funds provided in the supplemental
may not be used to increase the $100,000 maximum for general
construction unless the supplemental appropriation act so specifies.
See section D of this chapter for a further discussion of supplemental
appropriations.
An earmark that authorizes an agency to use a lump-sum appropriation
for "not more than" a certain dollar amount has the same effect as a
"not to exceed" earmark. For example, when the Department of State
received a lump-sum appropriation for "International Organizations and
Programs" authorizing it to make "not more than" $34 million of that
lump sum available for the United Nations Population Fund (UNFPA), the
Comptroller General concluded:
"While the appropriation limits the State Department's use of the lump-
sum appropriation for 'International Organizations and Programs' for
UNFPA to no more than $34 million, it does not require by law that any
amounts be used for UNFPA."
B-290659, July 24, 2002. In this case, the State Department could use
the funds for UNFPA only after the Department ensured that UNFPA
practices satisfied three statutory conditions, one of which was that
UNFPA would not fund abortions. Pub. L. No. 107-115, § 576, 115 Stat.
2118, 2168 (Jan. 10, 2002). The Department had delayed obligating
funds for UNFPA pending an analysis of a report of a team reviewing
UNFPA's involvement in Chinese family planning practices, including
the funding of abortions.[Footnote 28]
Words like "not more than" or "not to exceed" are not the only ways to
establish a maximum limitation. If the appropriation includes a
specific amount for a particular object (such as "for renovation of
office space, $100,000"), then the appropriation establishes a maximum
that may not be exceeded. 36 Comp. Gen. 526 (1957); 19 Comp. Gen. 892
(1940); 16 Comp. Gen. 282 (1936).
Another device Congress has used to designate earmarks as maximum
limitations is the following general provision:
"Whenever in this Act, an amount is specified within an appropriation
for particular purposes or objects of expenditure, such amount, unless
otherwise specified, shall be considered as the maximum amount that
may be expended for said purpose or object rather than an amount set
apart exclusively therefor." (Emphasis added.)[Footnote 29]
By virtue of the "unless otherwise specified" clause, the provision
does not apply to amounts within an appropriation which have their own
specific earmarking "words of limitation," such as "exclusively." 31
Comp. Gen. 578 (1952).
If a lump-sum appropriation includes several particular objects and
provides further that the appropriation "is to be accounted for as one
fund" or "shall constitute one fund," then the individual amounts are
not limitations, the only limitation being that the total amount of
the lump-sum appropriation cannot be exceeded. However, individual
items within that lump-sum appropriation that include the "not to
exceed" language will still constitute maximum limitations. 22 Comp.
Dec. 461 (1916); 3 Comp. Dec. 604 (1897); A-79741, Aug. 7, 1936. The
"one fund" language is generally used when Congress authorizes an
agency to transfer unexpended balances of prior appropriations to a
current appropriation. For example, the Energy and Water Development
Appropriations Act for 2002 states that:
"The unexpended balances of prior appropriations provided for
activities in the Act may be transferred to appropriation accounts for
such activities established pursuant to the title. Balances so
transferred may be merged with funds in the applicable established
accounts and thereafter may be accounted for as one fund for the same
period as originally enacted."[Footnote 30]
If Congress wishes to specify a minimum for the particular object but
not a maximum, the appropriation act may provide "General construction,
$1 million, of which not less than $100,000 shall be available for
renovation of office space." B-137353, Dec. 3, 1959. See also 64 Comp.
Gen. 388 (1985); B-131935, Mar. 17, 1986. If the phrase "not less
than" is used, in contrast with the "not to exceed" language, portions
of the $100,000 not obligated for renovation of office space may not
be applied to the other objects of the appropriation. 64 Comp. Gen. at
394-95; B-128943, Sept. 27, 1956.
Another phrase Congress often uses to earmark a portion of a lump-sum
appropriation is "shall be available." There are variations. For
example, our hypothetical $1 million "renovation of office space"
appropriation may provide that, out of the $1 million, $100,000 "shall
be available" or "shall be available only" or "shall be available
exclusively" for renovation of office space. Still another variation
is "$1 million, including $100,000 for renovation of office space."
If the "shall be available" phrase is combined with the maximum or
minimum language noted above ("not to exceed," "not less than," etc.),
then the above rules apply and the phrase "shall be available" adds
little. See, e.g., B-137353, Dec. 3, 1959. However, if the earmarking
phrase "shall be available" is used without the "not to exceed" or
"not less than" modifiers, the rules are not quite as firm.
Cases interpreting the "shall be available" and "shall be available
only" earmarks are somewhat less than consistent. The earlier
decisions proclaimed "shall be available" to constitute a maximum but
not a minimum (B-5526, Sept. 14, 1939), although it could be a minimum
if Congress clearly expressed that intent (B-128943, Sept. 27, 1956).
Later cases held the earmark to constitute both a maximum and a
minimum which could neither be augmented nor diverted to other objects
within the appropriation. B-137353, Dec. 3, 1959; B-137353-0.M., Oct.
14, 1958. Another early decision held summarily that "shall be
available only" results in a maximum which cannot be augmented. 18
Comp. Gen. 1013 (1939). Later decisions, however, have expressed the
view that the effect of "shall be available only"—whether it is a
maximum or a minimum—depends on the underlying congressional intent.
53 Comp. Gen. 695 (1974); B-142190, Mar. 23, 1960. Applying this test,
the earmark in 53 Comp. Gen. 695 was found to be a maximum; similar
language had been found a minimum in B-142190, which could be exceeded.
If the phrase "shall be available" may be said to contain an element
of ambiguity, addition of the word "only" does not produce a plain
meaning. The Claims Court, reviewing an authorization earmark for a
Navy project known as RACER, commented:
"It is not apparent from the language of the authorization ($45
million 'is available only for') that Congress necessarily mandated
the Navy to spend all $45 million on the RACER system. Rather,
Congress may have merely intended to preclude the Navy from spending
that $45 million on any other activities, i.e., the money would be
forfeited if not spent on the RACER system."
Solar Turbines, Inc. v. United States, 23 Cl. Ct. 142, 158 (1991).
Use of the word "exclusively" is somewhat more precise. The earmark
"shall be available exclusively" is both a maximum which cannot be
augmented from the general appropriation, and a minimum which cannot
be diverted to other objects within the appropriation. B-102971, Aug.
24, 1951. Once again, however, clearly expressed congressional intent
can produce a different result. B-113272-0.M., May 21, 1953; B-111392-
0.M., Oct. 17, 1952 (earmark held to be a minimum only in both cases).
Similarly, the term "including" has been held to establish both a
maximum and a minimum. A-99732, Jan. 13, 1939. As such, it cannot be
augmented from a more general appropriation (19 Comp. Gen. 892
(1940)), nor can it be diverted to other uses within the appropriation
(67 Comp. Gen. 401 (1988)).
To sum up, the most effective way to establish a maximum (but not
minimum) earmark is by the words "not to exceed" or "not more than."
The words "not less than" most effectively establish a minimum (but
not maximum). These are all phrases with well-settled plain meanings.
The "shall be available" family of earmarking language presumptively
"fences in" the earmarked sum (both maximum and minimum), but is more
subject to variation based upon underlying congressional intent.
Our discussion thus far has centered on the use of earmarking language
to prescribe the amount available for a particular object. Earmarking
language also may be used to vary the period of availability for
obligation.
An earmarked amount within a lump-sum appropriation that is available
without fiscal year limitation is neither a maximum nor a minimum if
the funds have not been designated for a specific purpose. The earmark
addresses only the time availability of the earmarked amount. For
example, in the Legislative Branch Appropriations Act for 2004, the
Salaries, Officers and Employees appropriations lump-sum account
contained the following language:
"For compensation and expenses of officers and employees, as
authorized by law, $156,896,000, including:... for salaries and
expenses of the Office of the Chief Administrative Officer,
$111,141,000, of which $8,400,000 shall remain available until
expended..."[Footnote 31]
In this instance, the earmark extended the time period availability of
$8,400,000 of the $111,141,000 appropriated for salaries and expenses
but did not prescribe the amount available for a particular object.
In a 1997 decision, GAO determined that an earmark extending the time
period also constituted a minimum for the purpose for which it was
earmarked. B-278121, Nov. 7, 1997 (nondecision letter). The Library of
Congress Salaries and Expenses lump-sum appropriation stated as
follows:
"For necessary expenses of the Library of Congress not otherwise
provided for... $227,016,000... Provided further, That of the total
amount appropriated, $9,619,000 is to remain available until expended
for acquisition of books, periodicals, newspapers, and all other
materials including subscriptions for bibliographic services for the
Library...[Footnote 32]
GAO determined that the Library of Congress was required to make the
entire $9,619,000 available for acquisition of books and materials,
even if this required reducing other expenditures within the lump-sum
appropriation.[Footnote 33]
Finally, earmarking language may be found in authorization acts as
well as appropriation acts. The same meanings apply. Several of the
cases cited above involve authorization acts. See, e.g., 64 Comp. Gen.
388 (1985); B-131935, Mar. 17, 1986.
C. The Antideficiency Act:
1. Introduction and Overview:
The Antideficiency Act is one of the major laws in the statutory
scheme by which Congress exercises its constitutional control of the
public purse. It has been termed "the cornerstone of Congressional
efforts to bind the Executive branch of government to the limits on
expenditure of appropriated funds."[Footnote 34]
As with the series of funding statutes as a whole, the Antideficiency
Act did not hatch fully developed but evolved over a period of time in
response to various abuses. As we noted in Chapter 1, as late as the
post-Civil War period, it was not uncommon for agencies to incur
obligations in excess, or in advance, of appropriations. Perhaps most
egregious of all, some agencies would spend their entire
appropriations during the first few months of the fiscal year,
continue to incur obligations, and then return to Congress for
appropriations to fund these "coercive deficiencies.[Footnote 35]
These were obligations to others who had fulfilled their part of the
bargain with the United States and who now had at least a moral—and in
some cases also a legal—right to be paid. Congress felt it had no
choice but to fulfill these commitments, but the frequency of
deficiency appropriations played havoc with the United States budget.
The congressional response to abuses of this nature was the
Antideficiency Act. Its history is summarized in the following
paragraphs:[Footnote 36]
"Control in the execution of the Government's budgetary and financial
programs is based on the provisions of section 3679 of the Revised
Statutes, as amended..., commonly referred to as the Antideficiency
Act. As the name... implies, one of the principal purposes of the
legislation was to provide effective control over the use of
appropriations so as to prevent the incurring of obligations at a rate
which will lead to deficiency (or supplemental) appropriations and to
fix responsibility on those officials of Government who incur
deficiencies or obligate appropriations without proper authorization
or at an excessive rate.
"The original section 3679... was derived from legislation enacted in
1870 [16 Stat. 251] and was designed solely to prevent expenditures in
excess of amounts appropriated. In 1905 [33 Stat. 1257] and 1906 [34
Stat. 48], section 3679... was amended to provide specific
prohibitions regarding the obligation of appropriations and required
that certain types of appropriations be so apportioned over a fiscal
year as to `prevent expenditures in one portion of the year which may
necessitate deficiency or additional appropriations to complete the
service of the fiscal year for which said appropriations are made.'
Under the amended section, the authority to make, waive, or modify
apportionments was vested in the head of the department or agency
concerned. By Executive Order 6166 of June 10, 1933, this authority
was transferred to the Director of the [Office of Management and
Budget]....
"During and following World War II, with the expansion of Government
functions and the increase in size and complexities of budgetary and
operational problems, situations arose highlighting the need for more
effective control and conservation of funds. In order to effectively
cope with these conditions it was necessary to seek legislation
clarifying certain technical aspects of section 3679 of the Revised
Statutes, and strengthening the apportionment procedures, particularly
as regards to agency control systems. Section 1211 of the General
Appropriation Act, 1951 [64 Stat. 765], amended section 3679... to
provide a basis for more effective control and economical use of
appropriations. Following a recommendation of the second Hoover
Commission that agency allotment systems should be simplified,
Congress passed legislation in 1956 [70 Stat. 783] further amending
section 3679 to provide that each agency work toward the objective of
financing each operating unit, at the highest practical level, from
not more than one administrative subdivision for each appropriation or
fund affecting such unit. In 1957 [71 Stat. 440] section 3679 was
further amended, adding a prohibition against the requesting of
apportionments or reapportionments which indicate the necessity for a
deficiency or supplemental estimate except on the determination of the
agency head that such action is within the exceptions expressly set
out in the law. The revised Antideficiency Act serves as the primary
foundation for the Government's administrative control of funds
systems."
In its current form, the law prohibits:
* Making or authorizing an expenditure from, or creating or
authorizing an obligation under, any appropriation or fund in excess
of the amount available in the appropriation or fund unless authorized
by law. 31 U.S.C. § 1341(a)(1)(A).
* Involving the government in any contract or other obligation for the
payment of money for any purpose in advance of appropriations made for
such purpose, unless the contract or obligation is authorized by law.
31 U.S.C. § 1341(a)(1)(B).
* Accepting voluntary services for the United States, or employing
personal services in excess of that authorized by law, except in cases
of emergency involving the safety of human life or the protection of
property. 31 U.S.C. § 1342.
* Making obligations or expenditures in excess of an apportionment or
reapportionment, or in excess of the amount permitted by agency
regulations. 31 U.S.C. § 1517(a).[Footnote 37]
Subsequent sections of this chapter will explore these concepts in
detail. However, the fiscal principles inherent in the Antideficiency
Act are really quite simple. Government officials may not make
payments or commit the United States to make payments at some future
time for goods or services unless there is enough money in the "bank"
to cover the cost in full. The "bank," of course, is the available
appropriation.
The combined effect of the Antideficiency Act, in conjunction with the
other funding statutes discussed throughout this publication, was
summarized in a 1962 decision. The summary has been quoted in numerous
later Antideficiency Act cases and bears repeating here:
"These statutes evidence a plain intent on the part of the Congress to
prohibit executive officers, unless otherwise authorized by law, from
making contracts involving the Government in obligations for
expenditures or liabilities beyond those contemplated and authorized
for the period of availability of and within the amount of the
appropriation under which they are made; to keep all the departments
of the Government, in the matter of incurring obligations for
expenditures, within the limits and purposes of appropriations
annually provided for conducting their lawful functions, and to
prohibit any officer or employee of the Government from involving the
Government in any contract or other obligation for the payment of
money for any purpose, in advance of appropriations made for such
purpose; and to restrict the use of annual appropriations to
expenditures required for the service of the particular fiscal year
for which they are made."
42 Comp. Gen. 272, 275 (1962).
To the extent it is possible to summarize appropriations law in a
single paragraph, this is it. Viewed in the aggregate, the
Antideficiency Act and related funding statutes "[restrict] in every
possible way the expenditures and expenses and liabilities of the
government, so far as executive offices are concerned, to the specific
appropriations for each fiscal year." Wilder's Case, 16 Ct. CL 528,
543 (1880).
2. Obligation/Expenditure in Excess or Advance of Appropriations:
The key provision of the Antideficiency Act is 31 U.S.C. § 1341(a)(1):
[Footnote 38]
"(a)(1) An officer or employee of the United States Government or of
the District of Columbia government may not:
"(A) make or authorize an expenditure or obligation exceeding an
amount available in an appropriation or fund for the expenditure or
obligation; or;
"(B) involve either government in a contract or obligation for the
payment of money before an appropriation is made unless authorized by
law."
Not only is section 1341(a)(1) the key provision of the Act, it was
originally the only provision, the others being added to ensure
enforcement of the basic prohibitions of section 1341.
The law is not limited to the executive branch, but applies to any
"officer or employee of the United States Government" and thus extends
to all branches. Examples of legislative branch applications are B-
303964, Feb. 3, 2005 (Capitol Police use of the Legislative Branch
Emergency Response Fund); B-303961, Dec. 6, 2004 (Architect of the
Capitol); B-107279, Jan. 9, 1952 (Office of Legislative Counsel, House
of Representatives); B-78217, July 21, 1948 (appropriations to Senate
for expenses of Office of Vice President); 27 Op. Att'y Gen. 584
(1909) (Government Printing Office). Within the judicial branch, it
applies to the Administrative Office of the United States Courts.
E.g., 50 Comp. Gen. 589 (1971). However, whether a federal judge is an
officer or employee for purposes of 31 U.S.C. § 1341(a)(1) appears to
remain an open question, at least in some contexts. See Armster v.
United States District Court, 792 F.2d 1423, 1427 n.7 (9th Cir. 1986)
(the Seventh Amendment of the Constitution prohibits suspension of
civil jury trials for lack of funds, whether or not a judge is
considered an employee or officer under the Antideficiency Act). The
Antideficiency Act also applies to officers of the District of
Columbia Courts. B-284566, Apr. 3, 2000.
Some government corporations are also classified as agencies of the
United States Government, and to the extent they operate with funds
which are regarded as appropriated funds, they too are subject to 31
U.S.C. § 1341(a)(1). E.g., B-223857, Feb. 27, 1987 (Commodity Credit
Corporation); B-135075-0.M., Feb. 14, 1975 (Inter-American
Foundation). It follows that section 1341(a)(1) does not apply to a
government corporation that is not an agency of the United States
Government. E.g., B-175155-0.M., July 26, 1976 (Amtrak). These
principles are, of course, subject to variation if and to the extent
provided in the relevant organic legislation.
There are two distinct prohibitions in section 1341(a)(1). Unless
otherwise authorized by law, no officer or employee of the United
States may (1) make any expenditure or incur an obligation in excess
of available appropriations, or (2) make an expenditure or incur an
obligation in advance of appropriations.
The distinction between obligating in excess of an appropriation and
obligating in advance of an appropriation is clear in the majority of
cases, but can occasionally become blurred. For example, an agency
which tries to meet a current shortfall by "borrowing" from (i.e.,
obligating against) the unenacted appropriation for the next fiscal
year is clearly obligating in advance of an appropriation. E.g., B-
236667, Jan. 26, 1990. However, it is also obligating in excess of the
currently available appropriation. Since both are equally illegal,
determining precisely which subsection of event, the point to be
stressed here is that the law is violated not just when there are
insufficient funds in an account when a payment becomes due. The very
act of obligating the United States to make a payment when the
necessary funds are not already in the account is also a violation of
31 U.S.C. § 1341(a). E.g., B-300480, Apr. 9, 2003.
In B-290600, July 10, 2002, both the Office of Management and Budget
(OMB) and the Airline Transportation Stabilization Board (ATSB)
violated the Antideficiency Act when OMB apportioned, and ATSB
obligated an appropriation, in advance of, and thus in excess of, its
availability. The Air Transportation Safety and System Stabilization
Act authorized the President to issue up to $10 billion in loan
guarantees, and to provide the subsidy amounts necessary for such
guarantees,[Footnote 39] to assist air carriers who incurred losses
resulting from the September 11, 2001, terrorist attacks on the United
States. Pub. L. No. 107-42, title I, § 101(a)(1), 115 Stat. 230 (Sept.
22, 2001). Congress established the ATSB to review and decide on
applications for these loan guarantees. The budget authority for the
guarantees was available only "to the extent that a request, that
includes designation of such amount as an emergency requirement ... is
transmitted by the President to Congress." Id. at § 101(b). The
President had not submitted such a request at the time OMB apportioned
the funds to ATSB and the ATSB obligated the funds; therefore, both
OMB and ATSB made funds available in advance of their availability,
violating the Antideficiency Act. See section C of this chapter for a
discussion of the apportionment process.
Note that 31 U.S.C. § 1341(a) refers to overobligating and
overspending the amount available in an "appropriation or fund." The
phrase "appropriation or fund" refers to appropriation and fund
accounts. An appropriation account is the basic unit of an
appropriation generally reflecting each unnumbered paragraph in an
appropriation act. Fund accounts include general fund accounts,
intragovernmental fund accounts, special fund accounts, and trust fund
accounts.[Footnote 40] See, e.g., 72 Comp. Gen. 59 (1992) (Corps of
Engineers was prohibited by the Antideficiency Act from overobligating
its Civil Works Revolving Fund's available budget authority).
Thus, for example, the Antideficiency Act applies to Indian trust
funds managed by the Bureau of Indian Affairs However, the investment
of these funds in certificates of deposit with federally insured banks
under authority of 25 U.S.C. § 162a does not, in GAO's opinion,
constitute an obligation or expenditure for purposes of 31 U.S.C. §
1341. Accordingly, overinvested trust funds do not violate the
Antideficiency Act unless the overinvested funds, or any attributable
interest income, are obligated or expended by the Bureau. B-207047-
0.M., June 17, 1983. Cf. B-303413, Nov. 8, 2004 (the Federal
Communications Commission's (FCC) regulatory action to provide
spectrum rights through a license modification instead of an auction
did not violate section 1341; spectrum licenses that impose costs and
expenses on the licensee do not constitute an obligation and
expenditure of the FCC). GAO also views the Antideficiency Act as
applicable to presidential and vice-presidential "unvouchered
expenditure" accounts. B-239854, June 21, 1990 (internal memorandum).
a. Exhaustion of an Appropriation:
When we talk about an appropriation being "exhausted," we are really
alluding to any of several different but related situations:
* Depletion of appropriation account (i.e., fully obligated and/or
expended).
* Similar depletion of a maximum amount specifically earmarked in a
lump-sum appropriation.[Footnote 41]
* Depletion of an amount subject to a monetary ceiling imposed by some
other statute (usually, but not always, the relevant program
legislation).
(1) Making further payments:
In simple terms, once an appropriation is exhausted, the making of any
further payments, apart from using expired balances to liquidate or
make adjustments to valid obligations recorded against that
appropriation, violates 31 U.S.C. § 1341. When the appropriation is
fully expended, no further payments may be made in any case. If an
agency finds itself in this position, unless it has transfer authority
or other clear statutory basis for making further payments, it has
little choice but to seek a deficiency[Footnote 42] or supplemental
appropriation from Congress, and to adjust or curtail operations as
may be necessary. E.g., B-285725, Sept. 29, 2000; 61 Comp. Gen. 661
(1982); 38 Comp. Gen. 501 (1959). For example, when the Corporation
for National and Community Service obligated funds in excess of the
amount available to it in the National Service Trust, the Corporation
suspended participant enrollment in the AmeriCorps program and
requested a deficiency appropriation from Congress.[Footnote 43]
In many ways, the prohibitions in the Adequacy of Appropriations Act,
41 U.S.C. § 11, parallel those of 31 U.S.C. § 1341(a). The Adequacy of
Appropriations Act states in part that:
"No contract or purchase on behalf of the United States shall be made,
unless the same is authorized by law or is under an appropriation
adequate to its fulfillment, except in the Department of Defense and
in the Department of Transportation with respect to the Coast Guard
when it is not operating as a service in the Navy, for clothing,
subsistence, forage, fuel, quarters, transportation, or medical and
hospital supplies, which, however, shall not exceed the necessities of
the current year."
41 U.S.C. § 11(a). For example, a contract in excess of the available
appropriation violates both statutes. E.g., 9 Comp. Dec. 423 (1903).
However, a contract in compliance with 41 U.S.C. § 11 can still result
in a violation of the Antideficiency Act. Assessment of Antideficiency
Act violations is not frozen at the point when the obligation is
incurred. Even if the initial obligation was well within available
funds, the Antideficiency Act can still be violated if upward
adjustments cause the obligation to exceed available funds. E.g., 55
Comp. Gen. 812, 826 (1976).
What one authority termed the "granddaddy of all violations[Footnote
44] occurred when the Navy overobligated and overspent nearly $110
million from its "Military Personnel, Navy" appropriation during the
years 1969-1972. GAO summarized the violation in a letter report, B-
177631, June 7, 1973. While there may have been some concealment, GAO
concluded that the violation was not the result of some evil scheme;
rather, the "basic cause of the violation was the separation of the
authority to create obligations from the responsibility to control
them." The authority to create obligations had been decentralized
while control was centralized in the Bureau of Naval Personnel.
Granddaddy was soon to lose his place of honor on the totem pole.
Around November of 1975, the Department of the Army discovered that,
for a variety of reasons, it had overobligated four procurement
appropriations in the aggregate amount of more than $160 million and
consequently had to halt payments to some 900 contractors. The Army
requested the Comptroller General's advice on a number of potential
courses of action it was considering. The resulting decision was 55
Comp. Gen. 768 (1976). The Army recognized its duty to mitigate the
Antideficiency Act violation.[Footnote 45] It was clear that without a
deficiency appropriation, all the contractors could not be paid. One
option—to use current appropriations to pay the deficiencies—had to be
rejected because there is no authority to apply current funds to pay
off debts incurred in a previous year. Id. at 773. An option GAO
endorsed was to reduce the amount of the deficiencies by terminating
some of the contracts for convenience, although the termination costs
would still have to come from a deficiency appropriation unless there
was enough left in the appropriation accounts to cover them. Id.
(2) Limitations on contractor recovery:
If the Antideficiency Act prohibits any further payments when the
appropriation is exhausted, where does this leave the contractor? Is
the contractor expected to know how and at what rate the agency is
spending its money? There is a small body of judicial case law which
discusses the effect of the exhaustion of appropriations on government
obligations. The fate of the contractor seems to depend on the type of
appropriation involved and the presence or absence of notice, actual
or constructive, to the contractor on the limitations of the
appropriation.
Where a contractor is but one party out of several to be paid from a
general appropriation, the contractor is under no obligation to know
the status or condition of the appropriation account on the
government's books. If the appropriation becomes exhausted, the
Antideficiency Act may prevent the agency from making any further
payments, but valid obligations will remain enforceable in the courts.
For example, in Ferris v. United States, 27 Ct. Cl. 542 (1892), the
plaintiff had a contract with the government to dredge a channel in
the Delaware River. The Corps of Engineers made him stop work halfway
through the job because it had run out of money. In discussing the
contractor's rights in a breach of contract suit, the court said:
"A contractor who is one of several persons to be paid out of an
appropriation is not chargeable with knowledge of its administration,
nor can his legal rights be affected or impaired by its
maladministration or by its diversion, whether legal or illegal, to
other objects. An appropriation per se merely imposes limitations upon
the Government's own agents; it is a definite amount of money
entrusted to them for distribution; but its insufficiency does not pay
the Government's debts, nor cancel its obligations, nor defeat the
rights of other parties."
Id. at 546.
The rationale for this rule is that "a contractor cannot justly be
expected to keep track of appropriations where he is but one of
several being paid from the fund." Ross Construction Corp. v. United
States, 392 F.2d 984, 987 (Ct. Cl. 1968). Other illustrative cases are
Dougherty ex rel. Slavens v. United States, 18 Ct. Cl. 496 (1883), and
Joplin v. United States, 89 Ct. Cl. 345 (1939). The Antideficiency Act
may "apply to the official, but [does] not affect the rights in this
court of the citizen honestly contracting with the Government."
Dougherty, 18 Ct. Cl. at 503. Thus, it is settled that contractors
paid from a general appropriation are not barred from recovering for
breach of contract even though the appropriation is exhausted.
However, under a specific line-item appropriation, the answer is
different. The contractor in this situation is deemed to have notice
of the limits on the spending power of the government official with
whom he contracts. A contract under these circumstances is valid only
up to the amount of the available appropriation Exhaustion of the
appropriation will generally bar any further recovery beyond that
limit. E.g., Sutton v. United States, 256 U.S. 575 (1921); Hooe v.
United States, 218 U.S. 322 (1910); Shipman v. United States, 18 Ct.
Cl. 138 (1883); Dougherty, 18 Ct. Cl. at 503.
The distinction between the Ferris and Sutton lines of cases follows
logically from the old maxim that ignorance of the law is no excuse.
If Congress appropriates a specific dollar amount for a particular
contract, that amount is specified in the appropriation act and the
contractor is deemed to know it. It is certainly not difficult to
locate. If, on the other hand, a contract is but one activity under a
larger appropriation, it is not reasonable to expect the contractor to
know how much of that appropriation remains available for it at any
given time. A requirement to obtain this information would place an
unreasonable burden on the contractor, not to mention a nuisance for
the government as well.
In two cases in the 1960s, the Court of Claims permitted recovery on
contractor claims in excess of a specific monetary ceiling. See
Anthony P Miller, Inc. v. United States, 348 F.2d 475 (Ct. Cl. 1965)
(claim by Capehart Housing Act contractor); Ross Construction Corp. v.
United States, 392 F.2d 984 (Ct. Cl. 1968) (claim by contractor for
"off-site" construction ancillary to Capehart Act housing). The court
distinguished between matters not the fault or responsibility of the
contractor (for example, defective plans or specifications or changed
conditions under the "changed conditions" clause), in which case above-
ceiling claims are allowable, and excess costs resulting from what it
termed "simple extras," in which case they are not. Without attempting
to detail the fairly complex Capehart legislation here, we note merely
that Ross is more closely analogous to the Ferris situation (392 F.2d
at 986), while Anthony P Miller is more closely analogous to the
Sutton situation (392 F.2d at 987). The extent to which the approach
reflected in these cases will be applied to the more traditional form
of exhaustion of appropriations remains to be developed, although the
Ross court intimated that it saw no real distinction for these
purposes between a specific appropriation and a specific monetary
ceiling imposed by other legislation (id.).
b. Contracts or Other Obligations in Excess or Advance of
Appropriations:
It is easy enough to say that the Antideficiency Act prohibits you
from obligating a million dollars when you have only half a million
left in the account, or that it prohibits you from entering into a
contract in September purporting to obligate funds for the next fiscal
year that have not yet been appropriated. Many of the situations that
actually arise from day to day, however, are not quite that simple. A
useful starting point is the relationship of the Antideficiency Act to
the recording of obligations under 31 U.S.C. § 1501.
(1) Proper recording of obligations:
Proper recording practices are essential to sound funds control. An
amount of recorded obligations in excess of the available
appropriation is prima facie evidence of a violation of the
Antideficiency Act, but is not conclusive. B-134474-0.M., Dec. 18,
1957.[Footnote 46]
An example of this is B-300480, Apr. 9, 2003, in which the Corporation
for National and Community Services failed to recognize and record
obligations for national service educational benefits of AmeriCorps
participants when it incurred that obligation. In that case, the
Corporation made grant awards to state corporations, who, in turn,
made subgrants to nonprofit entities, who enrolled participants. In
its grant awards to the state corporations, the Corporation approved
the enrollment of a specified number of new program participants.
Because the Corporation in the grant agreement had committed to a
specified number of new participants, the Corporation incurred an
obligation for the participants' educational benefits at that time;
without further action by the Corporation, the Corporation was legally
required to pay education benefits of all participants, up to the
number the Corporation had specified in the grant agreement, if the
grantee and subgrantee, who needed no further approval from the
Corporation, enrolled that number of new participants, and if they
satisfied the criteria for benefits. The Corporation's failure to
recognize and record its obligation did not ameliorate its violation
of the Act. See also B-300480.2, June 6, 2003.
Also, in many situations, the amount of the government's liability is
not definitely fixed at the time the obligation is incurred. An
example is a contract with price escalation provisions. A violation
would occur if sufficient budget authority is not available when an
agency must adjust a recorded obligation. See, e.g., B-240264, Feb. 7,
1994 (an agency would incur an Antideficiency Act violation if it must
adjust an obligation for an incrementally funded contract to fully
reflect the extent of the bona fide need contracted for and sufficient
appropriations are not available to support the adjustment).
This is illustrated in B-289209, May 31, 2002. After holding that the
Coast Guard had wrongly used no-year funds from the Oil Spill
Liability Trust Fund for administrative expenses, GAO concluded that
the agency should adjust its accounting records by deobligating the
incorrectly charged expenses and charging them instead to the proper
appropriation. GAO advised the Coast Guard that these adjustments
could result in a violation of the Antideficiency Act to the extent
that there was insufficient budget authority, and that the agency
should report any deficiency in accordance with the Antideficiency Act.
The incurring of an obligation in excess or advance of appropriations
violates the Act, and this is not affected by the agency's failure to
record the obligation. E.g., 71 Comp. Gen. 502, 509 (1992); 65 Comp.
Gen. 4, 9 (1985); 62 Comp. Gen. 692, 700 (1983); 55 Comp. Gen. 812,
824 (1976); B-245856.7, Aug. 11, 1992.
(2) Obligation in excess of appropriations:
Incurring an obligation in excess of the available appropriation
violates 31 U.S.C. § 1341(a)(1).[Footnote 47] As the Comptroller of
the Treasury advised an agency head many years ago, "your authority in
the matter was strictly limited by the amount of the appropriation;
otherwise there would be no limit to your power to incur expenses for
the service of a particular fiscal year." 9 Comp. Dec. 423, 425
(1903). If you want higher authority, the Supreme Court has stated
that, absent statutory authorization, "it is clear that the head of
the department cannot involve the government in an obligation to pay
any thing in excess of the appropriation." Bradley v. United States,
98 U.S. 104, 114 (1878).
To take a fairly simple illustration, the statute was violated by an
agency's acceptance of an offer to install automatic telephone
equipment for $40,000 when the unobligated balance in the relevant
appropriation was only $20,000. 35 Comp. Gen. 356 (1955).
In a 1969 case, the Air Force wanted to purchase computer equipment
but did not have sufficient funds available. It attempted an
arrangement whereby it made an initial down payment, with the balance
of the purchase price to be paid in installments over a period of
years, the contract to continue unless the government took affirmative
action to terminate. This was nothing more than a sale on credit, and
since the contract constituted an obligation in excess of available
funds, it violated the Antideficiency Act. 48 Comp. Gen. 494 (1969).
(3) Variable quantity contracts:
A leading case discussing the Antideficiency Act ramifications of
"variable quantity" contracts (requirements contracts, indefinite
quantity contracts, and similar arrangements) is 42 Comp. Gen. 272
(1962).[Footnote 48] That decision considered a 3-year contract the
Air Force had awarded to a firm to provide any service or maintenance
work necessary for government aircraft landing on Wake Island. GAO
questioned the legality of entering into a contract of more than 1
year since the Air Force had only a 1-year appropriation available.
The Air Force argued that it was a "requirements" contract, that no
obligation would arise unless or until some maintenance work was
ordered, and that the only obligation was a negative one—not to buy
service from anyone else but the contractor should the services be
needed. GAO disagreed. The services covered were "automatic incidents
of the use of the air field." There was no place for a true
administrative determination that the services were or were not
needed. There was no true "contingency" as the services would almost
certainly be needed if the base were to remain operational.
Accordingly, the contract was not a true requirements contract but
amounted to a firm obligation for the needs of future years, and was
therefore an unauthorized multiyear contract. As such, it violated the
Antideficiency Act. The solution was to contract on an annual basis
with renewal options from year to year, and, if that did not meet the
Air Force's needs, then ask Congress for multiyear procurement
authority.[Footnote 49]
The Wake Island decision noted that the contract contained no
provision permitting the Air Force to reduce or eliminate requirements
short of a termination for convenience. Id. at 277. If the contract
had included such a provision—and in the unlikely event that, given
the nature of the contract, such a provision could have been
meaningful—a somewhat different analysis might have resulted. Compare,
for example, the situation in 55 Comp. Gen. 812 (1976). The exercise
of a contract option required the Navy to furnish various items of
government-furnished property (GFP), but another contract clause
authorized the Navy to unilaterally delete items of GFP. If the entire
quantity of GFP had to be treated as a firm obligation at the time the
option was exercised, the obligation would have exceeded available
appropriations, resulting in an Antideficiency Act violation. However,
since the Navy was not absolutely obligated to furnish all the GFP
items at the time the option was exercised, the Navy could avert a
violation if it were able to delete enough GFP to stay within the
available appropriation; if it found that it could not do so, the
violation would then exist.[Footnote 50] See also B-134474-0.M., Dec.
18, 1957.
In 47 Comp. Gen. 155 (1967), GAO considered an Air Force contract for
mobile generator sets which specified minimum and maximum quantities
to be purchased over a 12-month period. Since the contract committed
the Air Force to purchase only the minimum quantity, it was necessary
to obligate only sufficient funds to cover that minimum. See also B-
287619, July 5, 2001. Subsequent orders for additional quantities up
to the maximum were not legally objectionable as long as the Air Force
had sufficient funds to cover the cost when it placed those orders.
See also 19 Comp. Gen. 980 (1940). The fact that the Air Force, at the
time it entered into the contract, did not have sufficient funds
available to cover the maximum quantity was, for Antideficiency Act
purposes, irrelevant. The decision distinguished the Wake Island case
on the basis that nothing in the mobile generator contract purported
to commit the Air Force to obtain any requirements over and above the
specified minimum from the contractor.
In 63 Comp. Gen. 129 (1983), GAO found no Antideficiency Act problems
with a General Services Administration "Multiple Award Schedule"
contract under which no minimum purchases were guaranteed and no
binding obligation would arise unless and until a using agency made an
administrative determination that it had a requirement for a scheduled
item.
Regardless of whether we are dealing with a requirements contract,
indefinite quantity contract, or some variation, two points apply as
far as the Antideficiency Act is concerned:
* Whether or not there is a violation at the time the contract is
entered into depends on exactly what the government is obligated to do
under the contract.
* Even if there is no violation at the time the contract is entered
into, a violation may occur later if the government subsequently
incurs an obligation under the contract in excess of available funds,
for example, by electing to order a maximum quantity without
sufficient funds to cover the quantity ordered.
A conceptually related situation is a contract that gives the
government the option of two performances at different prices. The
government can enter into such a contract without violating the
Antideficiency Act as long as it has sufficient appropriations
available at the time the contract is entered into to pay the lesser
amount. For example, the Defense Production Act of 1950 authorizes the
President to contract for synthetic fuels, but the contract must give
the President the option to refuse delivery and instead pay the
contractor the amount by which the contract price exceeds the
prevalent market price at the time of the delivery. Such a contract
would not violate the Antideficiency Act at the time it is entered
into as long as sufficient appropriations are available to pay any
anticipated difference between the contract price and the estimated
market price at the time of performance. 60 Comp. Gen. 86 (1980). Of
course, the government could choose not to accept delivery unless
there were sufficient appropriations available at that time to cover
the full cost of the fuel under the contract.
An agreement to pay "special termination" costs under an incrementally
funded contract creates a firm obligation, not a contingent liability,
to pay the contractor because the contracting agency remains liable
for the costs even if it decides not to fund the contract further. B-
238581, Oct. 31, 1990.
(4) Multiyear or "continuing" contracts:
A multiyear contract is a contract covering the needs or requirements
of more than one fiscal year. Our discussion here presupposes a
general familiarity with relevant portions of Chapter 5, primarily the
nature of a fixed-term appropriation and the bona fide needs rule as
it applies to multiyear contracts.
We start with some very basic propositions:
* A fixed-term appropriation (fiscal year or multiple year) may be
obligated only during its period of availability.
* A fixed-term appropriation may be validly obligated only for the
bona fide needs of that fixed term.
* The Antideficiency Act prohibits the making of contracts which
exceed currently available appropriations or which purport to obligate
appropriations not yet made.
As we have seen in Chapter 5, performance may extend into a subsequent
fiscal year in certain situations. Also, as long as a contract is
properly obligated against funds for the year in which it was made,
actual payment can extend into subsequent years. Apart from these
situations, and unless the agency either has specific multiyear
contracting authority (e.g., 62 Comp. Gen. 569 (1983)), is contracting
in compliance with the multiyear contracting provisions of the Federal
Acquisition Streamlining Act of 1994 (discussed below and in Chapter 5
in relation to the bona fide needs rule), or is operating under a no-
year appropriation (e.g., 43 Comp. Gen. 657 (1964)), the
Antideficiency Act, together with the bona fide needs rule, prohibits
contracts purporting to bind the government beyond the obligational
duration of the appropriation.[Footnote 51] This is because the
current appropriation is not available for future needs, and
appropriations for those future needs have not yet been made.
Citations to support this proposition are numerous.[Footnote 52] The
rule applies to any attempt to obligate the government beyond the end
of the fiscal year, even where the contract covers a period of only a
few months. 24 Comp. Gen. 195 (1944).
An understanding of the principles applicable to multiyear contracting
begins with a discussion of a 1926 decision of the United States
Supreme Court. An agency had entered into a long-term lease for office
space with 1-year (i.e., fiscal year) funds, but its contract
specifically provided that payment for periods after the first year
was subject to the availability of future appropriations. In Leiter v.
United States, 271 U.S. 204 (1926), the Supreme Court specifically
rejected that theory. The Court held that the lease was binding on the
government only for one fiscal year, and it ceased to exist at the end
of the fiscal year in which the obligation was incurred. It takes
affirmative action to bring the obligation back to life. The Court
stated its position as follows:
"It is not alleged or claimed that these leases were made under any
specific authority of law. And since at the time they were made there
was no appropriation available for the payment of rent after the first
fiscal year, it is clear that in so far as their terms extended beyond
that year they were in violation of the express provisions of the
[Antideficiency Act]; and, being to that extent executed without
authority of law, they created no binding obligation against the
United States after the first year. [Citations omitted.] A lease to
the Government for a term of years, when entered into under an
appropriation available for but one fiscal year, is binding on the
Government only for that year. [Citations omitted.] And it is plain
that, to make it binding for any subsequent year, it is necessary, not
only that an appropriation be made available for the payment of the
rent, but that the Government, by its duly authorized officers,
affirmatively continue the lease for such subsequent year; thereby, in
effect, by the adoption of the original lease, making a new lease
under the authority of such appropriation for the subsequent year."
Id. at 206-07.
The Federal Acquisition Streamlining Act of 1994 (FASA) supplied the
"specific authority of law" missing in Leiter to enable agencies to
enter into multiyear contracts using fiscal year funds.[Footnote 53]
The multiyear contracts provision, codified at 41 U.S.C. § 254c,
authorizes executive agencies, using fiscal year funds, to enter into
multiyear contracts (defined as contracts for more than 1 but not more
than 5 years) for the acquisition of property or services.
To take advantage of FASA, the agency must either (1) obligate the
full amount of the contract to the appropriation current at the time
it enters into the contract, or (2) obligate the costs of the first
year of the contract plus termination costs. Of course, if the agency
elects to obligate only the costs of the individual years for each
year of the contract, the agency needs to obligate the costs of each
such year against the appropriation current for that year. Contracts
relying on FASA must provide that the contract will be terminated if
funds are not made available for the continuation of the contract in
any fiscal year covered by the contract. Funds available for
termination costs remain available for such costs until the obligation
for termination costs has been satisfied. 41 U.S.C. § 254c(b).
Importantly, FASA does not apply to all contracts that are intended to
meet the needs of more than one fiscal year. Obviously, if multiple
year or no-year appropriations are legally available for the full
contract period, an agency need not rely on FASA. Also, certain
contract forms do not constitute multiyear contracts within the scope
of FASA. For example, in B-302358, Dec. 27, 2004, GAO determined that
a Bureau of Customs and Border Protection procurement constituted an
"indefinite-delivery, indefinite-quantity" (IDIQ) contract that was
not subject to FASA. The decision explained that, unlike a contract
covered by FASA, an IDIQ contract does not obligate the government
beyond its initial year. Rather, it obligates the government only to
order a minimum amount of supplies or services. The cost of that
minimum amount is recorded as an obligation against the appropriation
current when the contract is entered into.[Footnote 54]
Leiter provides the general framework governing the legality of
contracts carrying potential liabilities beyond the fiscal year
availability of the appropriations that funded them. While FASA
provides the necessary authority to avoid the Leiter problems, the
Leiter analysis remains relevant to the extent that FASA does not
apply. Thus, GAO decisions interpreting Leiter before enactment of
FASA still need to be considered. For example, GAO refused to approve
an automatic, annual renewal of a contract for repair and storage of
automotive equipment, even though the contract provided that the
government had a right to terminate. The reservation of a right to
terminate does not save the contract from the prohibition against
binding the government in advance of appropriations. 28 Comp. Gen. 553
(1949).
The Post Office wanted to enter into a contract for services and
storage of government-owned highway vehicles for periods up to 4 years
because it could obtain a more favorable flat rate per mile of
operations instead of an item by item charge required if the contract
was for 1 year only. GAO held that any contract for continuous
maintenance and storage of the vehicles would be prohibited by 31
U.S.C. § 1341 because it would obligate the government beyond the
extent of the existing appropriation. However, there would be no legal
objection to including a provision that gave the government an
affirmative option to renew the contract from year to year, not to
exceed 4 years as specified in the statute authorizing the Postmaster
to enter into these types of contracts. 29 Comp. Gen. 451 (1950).
[Footnote 55]
Where a contract gives the government a renewal option, it may not be
exercised until appropriations for the subsequent fiscal year actually
become available. 61 Comp. Gen. 184, 187 (1981). Under a 1-year
contract with renewal options, the fact that funds become available in
subsequent years does not place the government under an obligation to
exercise the renewal option. Government Systems Advisors, Inc. v.
United States, 13 Cl. Ct. 470 (1987), aff'd, 847 F.2d 811 (Fed. Cir.
1988).[Footnote 56]
Note that, in Leiter, the inclusion of a contract provision
conditioning the government's obligation on the subsequent
availability of funds was to no avail. In this regard, see also 67
Comp. Gen. 190, 194 (1988); 42 Comp. Gen. 272, 276 (1962); 36 Comp.
Gen. 683 (1957). If a "subject to availability" clause were sufficient
to permit multiyear contracting, the effect would be automatic
continuation from year to year unless the government terminated. If
funds were not available and the government nevertheless permitted or
acquiesced in the continuation of performance, the contractor would
obviously be performing in the expectation of being paid.[Footnote 57]
Apart from questions of legal liability, the failure by Congress to
appropriate the money might be viewed as a serious breach of faith.
Congress, as a practical if not a legal matter, would have little real
choice but to appropriate funds to pay the contractor. This is another
example of a type of "coercive deficiency" the Antideficiency Act was
intended to prohibit.[Footnote 58] Thus, it is not enough for the
government to retain the option to terminate at any time if sufficient
funds are not available. Under Leiter and its progeny, the contract
"dies" at the end of the fiscal year, and may be revived only by
affirmative action by the government. This "new" contract is then
chargeable to appropriations for the subsequent year.
Although today FASA and the Federal Acquisition Regulation recognize
"subject to availability" clauses, such a clause, by itself, is not
sufficient. FASA provides that a multiyear contract for purposes of
FASA:
"may provide that performance under the contract during the second and
subsequent years of the contract is contingent upon the appropriation
of funds and (if it does so provide) may provide for a cancellation
payment to be made to the contractor if such appropriations are not
made."
41 U.S.C. § 254c(d). If an agency decides to include a "subject to
availability" clause for the second and subsequent years, the agency
also has to provide for possible termination. Availability clauses are
required by the Federal Acquisition Regulation in several situations.
While the prescribed contract clauses vary in complexity, they all
have one thing in common—each requires the contracting officer to
specifically notify the contractor in writing that the contractor may
resume performance. For example: (1) contract actions initiated prior
to the availability of funds;[Footnote 59] (2) certain requirements
and indefinite-quantity contracts:[Footnote 60](3) fully funded cost-
reimbursement contracts;[Footnote 61] (4) facilities acquisition and
use;[Footnote 62] and (5) incrementally funded cost-reimbursement
contracts.[Footnote 63] See 48 C.F.R. subpt. 32.7. The objective of
these clauses is compliance with the Antideficiency Act and other
fiscal statutes. See ITT Federal Laboratories, ASBCA No. 12987, 69-2
BCA ¶ 7,849 (1969), rev'd and remanded on other grounds, ITT v. United
States, 453 F.2d 1283 (1972). What is not sufficient is a simple
"subject to availability" clause which would permit automatic
continuation subject to the government's right to terminate.
In B-259274, May 22, 1996, the Air Force exercised an option to a
severable service contract that extended the contract from September
1, 1994, to August 31, 1995, using fiscal year 1994 funds.[Footnote
64] However, the Air Force only had enough fiscal year 1994 budget
authority to finance 4 months of the option period, leaving the
remaining 8 months unfunded. The Air Force modified the agreement by
adding a clause stating that the government's obligation beyond
December 31, 1994, was subject to the availability of appropriations.
Significantly, however, the clause further stated that no legal
liability on the part of the government would arise for contract
performance beyond December 31, 1994, unless and until the contractor
received notice in writing from the Air Force contracting officer that
the contractor could continue work. GAO held that this clause
converted the government's obligation for the remaining 8 months to no
more than a negative obligation not to procure services elsewhere
should such services be needed. Since this contractual obligation
created no financial exposure on the part of the government, the Air
Force had not violated the Antideficiency Act.
It may be useful at this point to reiterate the basic principle that,
in the context of contractual obligations, compliance with the
Antideficiency Act is determined first on the basis of when an
obligation occurs, not when actual payment is scheduled to be made. In
the case of a contract with an option to renew, for example, as long
as sufficient funds are available to cover the initial contract, there
is no violation at the time the contract is made. No obligation
accrues for future option years unless and until the government
exercises its option.
Another issue to consider with respect to multiyear contracts is the
relationship between termination charges and the Antideficiency Act.
As a general proposition, the government has the right to terminate a
contract "for the convenience of the government" if that action is
determined to be in the government's best interests. The Federal
Acquisition Regulation prescribes the required contract clauses. 48
C.F.R. subpt. 49.5.[Footnote 65] Under a termination for convenience,
the contractor is entitled to be compensated, including a reasonable
profit, for the performed portion of the contract, but may not recover
anticipatory profits on the terminated portion. E.g.,
48 C.F.R. §§ 49.201, 49.202. Total recovery may not exceed the
contract price. Id. § 49.207.
In the typical contract covering the needs of only one fiscal year,
termination does not pose a problem. Under 48 C.F.R. § 49.207, the
contractor's recovery cannot exceed the contract price; thus, the
basic contract obligation will be sufficient to cover potential
termination costs. Under a contract with options to renew, however,
the situation may differ. A contractor who must incur substantial
capital costs at the outset has a legitimate concern over recovering
these costs if the government does not renew. A device sometimes used
to address this problem, albeit with limited success, is a clause
requiring the government to pay termination charges or "separate
charges" upon early termination. As discussed in Chapter 5, section
B.8.c, separate charges have been found to violate the bona fide needs
rule to the extent they do not reasonably relate to the value of
current fiscal year requirements. E.g., 36 Comp. Gen. 683 (1957),
affd, 37 Comp. Gen. 155 (1957).
Separate charges also have been held to violate the Antideficiency
Act. The leading case in this area is 56 Comp. Gen. 142 (1976), affil,
56 Comp. Gen. 505 (1977). The Burroughs Corporation protested the
award of a contract to the Honeywell Corporation to provide automatic
data processing (ADP) equipment to the Mine Enforcement and Safety
Administration. If all renewal options were exercised, the contract
would run for 60 months after equipment installation. The contract
included a "separate charges" provision under which, if the government
failed to exercise any renewal option or otherwise terminated prior to
the end of the 60-month systems life, the government would pay a
percentage of all future years' rentals based on Honeywell's "list
prices" at the time of failure to renew or of termination. This
provision violated the Antideficiency Act for two reasons. First, it
would amount to an obligation of fiscal year funds for the
requirements of future years. And second, it would commit the
government to indeterminate liability because the contractor could
raise its list or catalog prices at any time. The government had no
way of knowing the amount of its commitment. Similar cases involving
separate charges are 56 Comp. Gen. 167 (1976); B-216718.2, Nov. 14,
1984; and B-190659, Oct. 23, 1978.[Footnote 66]
The Burroughs decision also offers guidance on when separate charges
may be acceptable. One instance is where it is the only way the
government can obtain its needs. Cited in this regard was 8 Comp. Gen.
654 (1929), a case involving the installation of equipment and the
procurement of a water supply from a town. There, however, the town
was the only source of a water supply, a situation clearly
inapplicable to a competitive industry like ADP. 56 Comp. Gen. at 157.
In addition, separate charges are permissible if they, together with
payments already made, reasonably represent the value of requirements
actually performed. Thus, where the contractor has discounted its
price based on the government's stated intent to exercise all renewal
options, separate charges may be based on the "reasonable value (e.g.,
ADP schedule price) of the actually performed work at termination
based upon the shortened term." Id. at 158. However, termination
charges may not be inconsistent with the termination for convenience
clause remedy; for example, they may not exceed the value of the
contract or include costs not cognizable under a "T for C." Id. at 157.
Where termination charges are otherwise proper, the Antideficiency Act
also requires that the agency have sufficient funds available to pay
them if and when the contingency materializes. E.g., 62 Comp. Gen. 143
(1983); 8 Comp. Gen. 654, 657 (1929). See also Aerolease Long Beach v.
United States, 31 Fed. Cl. 342, 362 (1994), aff'd, 39 F.3d 1198 (Fed.
Cir. 1994) (agency complied with Antideficiency Act requirements by
including termination costs as current obligations). This requirement
is sometimes specified in multiyear contracting legislation. An
example is 40 U.S.C. § 322, the Information Technology Fund. In
operating the Fund, the General Services Administration is authorized
to enter into information technology multiyear contracts if "amounts
are available and adequate to pay the costs of the contract for the
first fiscal year and any costs of cancellation or termination." Id. §
322(e)(1)(A). Congress may also, of course, provide exceptions. E.g.,B-
174839, Mar. 20, 1984.
c. Indemnification:
Under an indemnification agreement, one party promises, in effect, to
cover another party's losses. It is no surprise that the government is
often asked to enter into indemnification agreements. The problem is
that such agreements create a risk that the government, at some point
in the future, may have to pay amounts in excess of available funds.
Consequently, with one very limited exception discussed below, GAO and
numerous courts have adhered to the rule that, absent express
statutory authority, the government may not enter into an agreement to
indemnify where the amount of the government's liability is
indefinite, indeterminate, or potentially unlimited.[Footnote 67] Such
an agreement would violate both the Antideficiency Act, 31 U.S.C. §
1341, and the Adequacy of Appropriations Act, 41 U.S.C. § 11, since it
can never be said that sufficient funds have been appropriated to
cover the government's indemnification exposure. As discussed in this
section, indemnity clauses have been upheld under certain conditions:
* where the potential liability of the government was limited to a
definite amount known at the time of the agreement, was within the
amount of available appropriations, and was not otherwise prohibited
by statute;
* where the indemnification agreement is a legitimate object of an
appropriation, the agreement specifically provides that the amount of
liability is limited to available appropriations, and there is no
implication that Congress will, at a later date, appropriate funds to
meet deficiencies; or;
* where Congress has specifically authorized the agency to indemnify.
Although a provision limiting liability to appropriations available at
the time a loss arises would prevent any overt Antideficiency Act or
Adequacy of Appropriations Act violation by removing the "unlimited
liability" objection, it could have disastrous fiscal consequences for
the agency as well as present other, practical problems. For example,
payment of an especially large indemnity obligation at the beginning
of a fiscal year could wipe out the entire unobligated balance of the
agency's appropriation for the rest of the fiscal year, forcing the
agency to seek a supplemental appropriation to finance basic program
activities. Conversely, if a liability arises toward the end of the
fiscal year it is quite possible that no unobligated balance would be
available for an indemnity payment, which means indemnification could
prove largely illusory from the standpoint of the contractor or other
"beneficiary."
Another practical problem concerns recording the obligations that may
arise under indemnity clauses. The indemnity is a potential liability
that may become an actual liability when some event outside of the
government's control is triggered, at which point the liability
becomes a recordable obligation. This creates a fiscal dilemma,
however. While the liability is not sufficiently definite at the time
the indemnity agreement is made to formally record an obligation, good
financial management requires that the agency recognize its contingent
liability.[Footnote 68] Although most of our cases do not directly
address this issue, the ones that do, discussed below, have
recommended either the obligation or administrative reservation
[Footnote 69] of sufficient funds to cover the potential liability.
Clearly, however, this could create a fiscal nightmare where an
estimate of potential liability could encompass the entire
appropriation for the agency for that fiscal year, and tying up that
entire sum would prevent the agency from meeting its mission.
What follows is a discussion of indemnification proposals in decisions
issued over the years. As you will see, we have struggled with the
practical problems posed by the inclusion of indemnity clauses in
government contracts and agreements. For the past several years it has
been our view that even if indemnification clauses are rewritten to
meet the minimum requirements of the Antideficiency Act or Adequacy of
Appropriations Act, there should be a clear governmentwide policy
restricting their use. Given the potential liability of the government
created by such clauses, exceptions to this policy should not be made
without express congressional acquiescence, as has been done whenever
Congress has decided that it was in the best interests of the
government to assume the risks of having to pay off on an indemnity
obligation. See, for example, 10 U.S.C. § 2354, 42 U.S.C. § 2210, and
other examples given below.
(1) Prohibition against unlimited liability:
As noted above, absent specific statutory authority, the government
generally may not enter into an indemnification agreement which would
impose an indefinite or potentially unlimited liability on the
government. In plain English, you cannot purport to bind the
government to unlimited liability. The rule is not some arcane GAO
concoction. The Court of Claims stated in California-Pacific Utilities
Co. v. United States, 194 Ct. Cl. 703, 715 (1971)):
"The United States Supreme Court, the Court of Claims, and the
Comptroller General have consistently held that absent an express
provision in an appropriation for reimbursement adequate to make such
payment, [the Antideficiency Act, 31 U.S.C. § 1341] proscribes
indemnification on the grounds that it would constitute the obligation
of funds not yet appropriated. [Citations omitted.]"
For example, in an early case, the Interior Department, as licensee,
entered into an agreement with the Southern Pacific Company under
which the Department was to lay telephone and telegraph wires on
property owned by the licensor in New Mexico. The agreement included a
provision that the Department was to indemnify the Company against any
liability resulting from the operation. Upon reviewing the indemnity
provision, the Comptroller General found that it purported to impose
indeterminate contingent liability on the government in violation of
Revised Statutes § 3732, the predecessor to the Adequacy of
Appropriations Act, 41 U.S.C. § 11. By including the indemnity
provision, the contracting officer had exceeded his authority, and the
provision was held void. 16 Comp. Gen. 803 (1937).
Similarly, an indefinite and unlimited indemnification provision in a
lease entered into by the General Services Administration without
statutory authority was held to impose no legal liability on the
government since it violated the provisions of 31 U.S.C. § 1341 and 41
U.S.C. § 11. 35 Comp. Gen. 85 (1955).
In 59 Comp. Gen. 369 (1980), the National Oceanic and Atmospheric
Administration (NOAA) desired to undertake a series of hurricane
seeding experiments off the coast of Australia in cooperation with its
Australian counterpart. The State Department, as negotiator, sought
GAO's opinion on an Australian proposal under which the United States
would agree to indemnify Australia against all damages arising from
the activities. State recognized that an unlimited agreement would
violate the Antideficiency Act and asked whether the proposal would be
acceptable if it specified that the government's liability would be
subject to the appropriation of funds by Congress for that purpose.
GAO expressed dissatisfaction with this proposal because, even though
it would impose no legal obligation unless or until funds are
appropriated, it would impose a moral obligation on the United States
to make good on its promise.[Footnote 70] There was a way out, however—
insurance. Ordinarily, appropriations are not available to acquire
insurance,[Footnote 71] but GAO concluded that the government's policy
of self-insurance did not apply here since the insurance would not be
for the purpose of protecting against a risk to which the United
States would be exposed but rather is the price exacted by Australia,
as the United States' partner in an international venture, to protect
Australia's interests. GAO said that NOAA could therefore purchase
private insurance, with the premiums to be shared by the government of
Australia, provided that the United States' liability under the
agreement was limited to its share of the insurance premiums. NOAA's
use of its appropriation for the United States' share of the insurance
premium would simply be a necessary expense of the project.
Another decision applying the general rule held that the Federal
Emergency Management Agency[Footnote 72] could not agree to provide
indeterminate indemnification to agents and brokers under the National
Flood Insurance Act. B-201394, Apr. 23, 1981. If the agency considered
indemnification necessary to the success of its program, it could
either insert a provision limiting the government's liability to
available appropriations or seek broader authority from Congress.
In B-201072, May 3, 1982, the Department of Health and Human Services
questioned the use of a contract clause entitled "Insurance—Liability
to Third Persons," found in the Federal Procurement Regulations
(predecessor to the Federal Acquisition Regulation). The clause
purported to permit federal agencies to agree to reimburse
contractors, without limit, for liabilities to third persons for
death, personal injury, or property damage, arising out of performance
of the contract and not compensated by insurance, whether or not
caused by the contractor's negligence. Since the clause purported to
commit the government to an indefinite liability which could exceed
available appropriations, the Comptroller General found it in
violation of the Antideficiency Act and the Adequacy of Appropriations
Act. This decision was affirmed upon reconsideration in 62 Comp. Gen.
361 (1983), one of GAO's more comprehensive discussions of the
indemnification problem.
For other cases applying or discussing the general rule, see B-260063,
June 30, 1995; 35 Comp. Gen. 85 (1955); 20 Comp. Gen. 95, 100 (1940);
7 Comp. Gen. 507 (1928); 15 Comp. Dec. 405 (1909); B-242146, Aug. 16,
1991; B-117057, Dec. 27, 1957; A-95749, Oct. 14, 1938; 8 Op. Off.
Legal Counsel 94 (1984); 2 Op. Off. Legal Counsel 219, 223-24 (1978).
A brief letter report making the same point is GAO, Agreements
Describing Liability in Undercover Operations Should Limit the
Government's Liability, GGD-83-53 (Washington, D.C.: Mar. 15, 1983).
In some of the earlier GAO cases-—for example, 7 Comp. Gen. 507 and 16
Comp. Gen. 803 (1937)-—the Comptroller General offered as further
support for the indemnification prohibition the then-existing
principle that the United States was not liable for the tortious
conduct of its employees. Of course, since the enactment of the
Federal Tort Claims Act in 1946,[Footnote 73] this is no longer true.
Thus, the reader should disregard any discussion of the government's
lack of tort liability appearing in the earlier cases. The thrust of
those cases, namely, the prohibition against open-ended liability,
remains valid.
The Comptroller General recognized a limited exception to the rule in
59 Comp. Gen. 705 (1980). In that decision, the Comptroller General
held that the General Services Administration could agree to certain
indemnity provisions in procuring public utility services for
government agencies under the Federal Property and Administrative
Services Act, 40 U.S.C. § 501. To apply the general rule against
indemnification in this situation, the Comptroller General suggested,
would constitute "an overly technical and literal reading of the Anti-
Deficiency Act." Id. at 707. The decision reasoned as follows:
"The procurement of goods or services from state-regulated utilities
which are virtually monopolies is unique in important ways. As a
practical matter, there is no other source for the needed goods or
services. Moreover, the tariff requirements, such as this
indemnification undertaking, are applicable generally to all of the
same class of customers of the utility, and are included in the tariff
only after administrative proceedings in which the government has the
opportunity to participate. The United States is not being singled out
for discriminatory treatment nor, presumably, can it complain that the
objectionable provision was imposed without notice and the opportunity
for a hearing.
"Under the circumstances, we have not objected in the past to the
procurement of power by GSA under tariffs containing the indemnity
clause and there is no reason to object to the purchase of power under
contracts containing essentially the same indemnity clause. As noted
already, this has of necessity been the practice in the past. The
possibility of liability under the clause is in our judgment remote.
In any event, we see little purpose to be served by a rule which
prevents the United States from procuring a vital commodity under the
same restrictions as other customers are subject to under the tariff
if the utility insists that the restrictions are non-negotiable.
However, because the possibility exists, however remote, that these
agreements could result in future liability in excess of available
appropriations, GSA should inform the Congress of the situation."
Id.
Subsequent decisions emphasize that the extent of the exception carved
out by 59 Comp. Gen. 705 is limited to its facts. See, e.g., B-260063,
June 30, 1995; 62 Comp. Gen. 361 (1983); B-242146, Aug. 16, 1991. In B-
197583, Jan. 19, 1981, GAO once again applied the general rule and
held that the Architect of the Capitol could not agree to indemnify
the Potomac Electric Power Company (PEPCO) for loss or damages
resulting from PEPCO's performance of tests on equipment installed in
government buildings or from certain other equipment owned by PEPCO
which could be installed in government buildings to monitor
electricity use for conservation purposes. GAO pointed to two
distinguishing factors that justified—and limited—the exception in 59
Comp. Gen. 705. First, in 59 Comp. Gen. 705, there was no other source
from which the government could obtain the needed utility services.
Here, the testing and monitoring could be performed by government
employees. The second factor is summarized in the following excerpt
from B-197583, Jan. 19, 1981:
"An even more important distinction, though, is that unlike the
situation in the GSA case [59 Comp. Gen. 705], the Architect has not
previously been accepting the testing services or using the impulse
device from PEPCO and has therefore not previously agreed to the
liability represented by the proposed indemnity agreements. In the GSA
case, GSA merely sought to enter a contract accepting the same service
and attendant liability, previously secured under a non-negotiable
tariff, at a rate more advantageous to the Government. Here, however,
the Government has other means available to provide the testing and
monitoring desired."
Thus, the case did not fall within the "narrow exception created by
the GSA decision," and the proposed indemnity agreement was improper.
More recent decisions likewise reaffirm the general rule against open-
ended indemnification agreements and reemphasize the limited
application of the exception in 59 Comp. Gen. 705. In B-242146, Aug.
16, 1991, GAO held that the United States Park Police could not
include in mutual assistance agreements with local law enforcement
agencies a clause that the United States would indemnify the latter
agencies against claims arising from police actions they took in
national parks. Citing 62 Comp. Gen. 361 (1983) and other cases, the
decision observed:
"This Office has long held that absent statutory authority, indemnity
provisions which subject the United States to indefinite or
potentially unlimited contingent liability contravene the
Antideficiency Act, 31 U.S.C. § 1341(a) ...since it can never be said
that sufficient funds have been appropriated to cover the contingency.
"Here, the potential liability of the Park Police is unknown because
the clause in question provides an indemnity for property damage and
personal injury. There is no possible way to know at the time the
[mutual assistance] memoranda are signed whether there are sufficient
funds in the appropriation to cover a liability or when it arises
under the indemnification clause because no one knows in advance how
much the liability may be." (Footnote omitted.)
The decision rejected the argument that 59 Comp. Gen. 705 supported
the indemnification clause in this case, stating:
"We were careful to point out in 62 Comp. Gen. at 364 ... that 59
Comp. Gen. 705 should not serve as a precedent. Indeed, except for 59
Comp. Gen. 705, the accounting officers of the Government have never
issued a decision sanctioning the incurring of an obligation for an
open-ended indemnity in the absence of statutory authority to the
contrary.' 62 Comp. Gen. 364-365."
In B-260063, June 30, 1995, GAO again distinguished 59 Comp. Gen. 705
in holding that a federal agency should not agree to indemnify a
utility company for providing electricity to one of the agency's
remote facilities. The decision pointed out that, unlike the situation
in 59 Comp. Gen. 705, the indemnity clause proposed here was not part
of a generally applicable tariff but would discriminate against the
agency.
As indicated previously, the general rule against open-ended indemnity
agreements has received consistent acceptance by the courts. Examples
of court cases endorsing the general rule against open-ended
indemnification are Frank v. United States, 797 F.2d 724, 727 (9th
Cir. 1986); Union Pacific Railroad Corp. v. United States, 52 Fed. Cl.
730, 732-735 (2002); Lopez v. Johns Manville, 649 F. Supp. 149 (WD.
Wash. 1986), aff'd on other grounds, 858 F.2d 712 (Fed. Cir. 1988); In
re All Asbestos Cases, 603 F. Supp. 599 (D. Hawaii 1984); Johns-
Manville Corp. v. United States, 12 Cl. Ct. 1 (1987). Several of these
are asbestos cases in which the courts rejected claims of an implied
agreement to indemnify. In Johns-Manville Corp., the court stated:
"Contractual agreements that create contingent liabilities for the
Government serve to create obligations of funds just as much as do
agreements creating definite or certain liabilities. The contingent
nature of the liability created by an indemnity agreement does not so
lessen its effect on appropriations as to make it immune to the
limitations of [the Antideficiency Act]."
12 Cl. Ct. at 25.
In Hercules, Inc. v. United States, 516 U.S. 417 (1996), the Supreme
Court rejected the argument by a manufacturer of the Vietnam War-era
defoliant "Agent Orange" that it had an implied-in-fact contract with
the United States to indemnify it for tort damages arising from third-
party claims against it. The Court noted that an implied-in-fact
contract depends upon a meeting of the minds, and that such a meeting
of the minds was unlikely given the rule against open-ended indemnity
contracts:
"There is ... reason to think that a contracting officer would not
agree to the open-ended indemnification alleged here. The Anti-
Deficiency Act bars a federal employee or agency from entering into a
contract for future payment of money in advance of, or in excess of,
an existing appropriation. 31 U.S.C. § 1341. Ordinarily no federal
appropriation covers contractors' payments to third-party tort
claimants in these circumstances, and the Comptroller General has
repeatedly ruled that Government procurement agencies may not enter
into the type of open-ended indemnity for third-party liability that
petitioner Thompson claims to have implicitly received under the Agent
Orange contracts. We view the Anti-Deficiency Act, and the contracting
officer's presumed knowledge of its prohibition, as strong evidence
that the officer would not have provided, in fact, the contractual
indemnification [petitioner] claims."
516 U.S. at 426-427 (footnotes omitted).
The Court cited several instances in which Congress had enacted
statutory authorizations for indemnification, and noted that the
existence of these statutory authorizations further militated against
finding an implied contract to indemnify in this case:
"These statutes [authorizing indemnification], set out in meticulous
detail and each supported by a panoply of implementing regulations,
... would be entirely unnecessary if an implied agreement to indemnify
could arise from the circumstances of contracting. We will not
interpret the [Agent Orange] contracts so as to render these statutes
and regulations superfluous."
Id. at 429.[Footnote 74]
The Federal Circuit's recent decision in E.I. DuPont De Nemours &
Company, Inc. v. United States, 365 F.3d 1367 (Fed. Cir. 2004),
provides an interesting twist. The issue in that case was whether an
indemnity clause contained in a World War II-era contract required the
United States to reimburse the contractor for environmental cleanup
costs it incurred at the contract site as a result of liability
imposed on it under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (popularly known as "CERCLA"
or the "Superfund" law), 42 U.S.C. §§ 9601-9675.[Footnote 75] The
Court of Federal Claims had viewed the contract's indemnity clause as
extending to CERCLA liability, but concluded that the general rule
against open-ended indemnification applied to invalidate the clause
under the Antideficiency Act:
"Even though the Indemnification Clause was included in this contract
and it is quite reasonable to assume that both the contracting officer
and the contractor believed this Clause to place the risk of virtually
all liabilities on the government rather than the contractor, the
state of the law compels us to hold this clause to be void and
unenforceable....
"Although we are of the opinion that the current state of the law
compels the result expressed, this result is so totally at odds with
the agreement the parties clearly made concerning reimbursement and
indemnity, and plaintiff is so clearly entitled to the indemnity it
seeks under the plain language of the contract it had with the
government, made during truly emergency, wartime conditions, we
suggest that plaintiff may want to consider the avenue for potential
relief available in a Congressional Reference case pursuant to 28
U.S.C. §§ 1492 & 2509."
E.I. DuPont De Nemours & Company, Inc. v. United States, 54 Fed. Cl.
361, 372-373 (2002).
The Federal Circuit reversed in E.I. DuPont De Nemours & Company,
Inc., 365 F.3d 1367. The court did not question the general rule
against open-ended indemnity provisions; nor did it dispute the lower
court's conclusion that the indemnity clause in the DuPont contract
was originally invalid under that rule. However, the court concluded
that the government in effect ratified the clause through actions
taken under a subsequent statute—the Contract Settlement Act of 1944,
at 41 U.S.C. §§ 101, 120(a)—that did permit such indemnity provisions.
Thus, the court reasoned, the indemnity clause in this case satisfied
the "otherwise authorized by law" exception in the Antideficiency Act,
31 U.S.C. § 1341(a)(1)(B). E.I. DuPont De Nemours & Company, Inc., 365
F.3d at 1375-80.
Executive branch adjudicative bodies such as boards of contract
appeals and the Federal Labor Relations Authority have also applied
the general anti-indemnity rule. See Appeals of National Gypsum Co.,
ASBCA No. 53259, 03-1 B.C.A. ¶ 32,054 (2002) (indemnity provision of
World War II contract unenforceable because in violation of the
Antideficiency Act and the Executive Order under which the contract
was entered into); KMS Development Co. v. General Services
Administration, GSBCA No. 12584, 95-2 B.C.A. ¶ 27, 663 (1995) (no
implied-in-fact contract of indemnity since such a contract would be
ultra vires as a violation of the Antideficiency Act); National
Federation of Federal Employees and U.S. Department of the Interior,
35 F.L.R.A. 1034 (1990) (proposal to indemnify union against judgments
and litigation expenses resulting from drug testing program held
contrary to law and therefore nonnegotiable); American Federation of
State, County and Municipal Employees and U.S. Department of Justice,
42 F.L.R.A. 412, 515-17 (1991) (similar proposal for drug testing
indemnification).
In sum, the GAO decisions, court cases, and other administrative
decisions reflect a clear rule against open-ended indemnification
agreements (absent statutory authority). Indeed, the Supreme Court's
opinion in Hercules, Inc. v. United States, 516 U.S. 417 (1996),
discussed previously, commented upon the nearly uniform line of
Comptroller General decisions on this point, noting that 59 Comp. Gen.
705 stood as the "one peculiar exception." 516 U.S. at 428.
(2) When indemnification may be permissible:
Indemnification agreements may be proper if they are limited to
available appropriations and are otherwise authorized. Before ever
getting to the question of amount, for an indemnity agreement to be
permissible in the first place, it must be authorized either expressly
or under a necessary expense theory. 59 Comp. Gen. 369 (1980). The
determination as to whether an expense is necessary as incident to the
object of the applicable funding source is determined on a case-by-
case basis.[Footnote 76] Although GAO generally affords agencies broad
discretion in determining whether a specific expenditure is reasonably
related to the accomplishment of an authorized purpose, an agency's
discretion in such matters is not unlimited. 18 Comp. Gen. 285, 292
(1938). GAO has had occasion both to approve and to disapprove
contract indemnification provisions as necessary or incident to the
object of the applicable funding source. See, e.g., 63 Comp. Gen. 145,
150 (1984) (all but one indemnity provision in contracts for vessels
were approved as incidental expenses under the Navy's authorized
prepositioning ship chartering program); 59 Comp. Gen. 369
(disapproved—general statutory authority to carry out international
programs did not provide authority for the United States to agree to
provide complete indemnification of another country for all damages
resulting from an international weather modification project); 42
Comp. Gen. 708, 712 (1963) (approved—obligation of an agency for
damage or destruction that might arise under an indemnity clause in an
aircraft rental contract was a necessary expense incident to the
hiring of aircraft for which the agency's appropriation was expressly
available); B-201394, Apr. 23, 1981 (disapproved—no specific
appropriation was available to pay costs arising under a clause
indemnifying agents and brokers under the National Flood Insurance
program); B-137976, Dec. 4, 1958 (disapproved—an obligation arising
under an indemnity provision in an agency's agreement for training
with a nongovernment facility was not a necessary expense under the
statute authorizing such training agreements).
Once you cross the purpose hurdle—that is, once you determine that the
indemnification proposal you are considering is a legitimate object on
which to spend your appropriations—you are ready to grapple with the
unlimited liability issue.
One way to deal with this issue is to specifically limit the amount of
the liability assumed. Such a limitation of an indemnity agreement may
come about in either of two ways: it may follow necessarily from the
nature of the agreement itself or it may be expressly written into the
agreement, coupled with an appropriate obligation or administrative
reservation of funds. The latter alternative is the only acceptable
one where the government's liability would otherwise be potentially
unlimited.
For example, where the government rented buses to transport Selective
Service registrants for physical examination or induction, there was
no objection to the inclusion of an indemnity provision for damage to
the buses caused by the registrants. This was a standard provision in
the applicable motor carrier charter coach tariff. 48 Comp. Gen. 361
(1968). Potential liability was not indefinite since it was
necessarily limited to the value of the motor carrier's equipment.
Similarly, under a contract for the lease of aircraft, the Federal
Aviation Administration (FAA) could agree to indemnify the owner for
loss or damage to the aircraft in order to eliminate the need to
reimburse the owner for the cost of "hull insurance" and thereby
secure a lower rental rate. The liability could properly be viewed as
a necessary expense incident to hiring the aircraft, FAA had no-year
appropriations available to pay for any such liability, and, as in the
Selective Service case, the agreement was not indefinite because
maximum liability was measurable by the fair market value of the
aircraft. 42 Comp. Gen. 708 (1963). See also 22 Comp. Gen. 892 (1943)
(Maritime Commission could amend contract to agree to indemnify
contractor against liability to third parties, in lieu of reimbursing
contractor for cost of liability insurance premiums, to the extent of
available appropriations and provided liability was limited to the
amount of coverage of the discontinued insurance policies replaced by
the indemnity agreement).[Footnote 77]
In B-114860, Dec. 19, 1979, the Farmers Home Administration asked
whether it could purchase surety bonds or enter into an indemnity
agreement in order to obtain the release of deeds of trust for
borrowers in Colorado where the original promissory notes had been
lost while in the Administration's custody. Colorado law required one
or the other where the canceled original note could not be delivered
to the Colorado public trustee. GAO concluded that the indemnity
agreement was permissible as long as it was limited to an amount not
to exceed the original principal amount of the trust deed. The
decision further advised that the Administration should reserve
sufficient funds to cover its potential liability. The latter aspect
of the decision was reconsidered in B-198161, Nov. 25, 1980. Reviewing
the particular circumstances involved, GAO was unable to foresee
situations in which the government might be required to indemnify the
public trustee, and accordingly advised the Administration that the
reservation of funds would not be necessary. While reservation of the
funds may not have been necessary, GAO did state: "Although the
liability which arises from an indemnity agreement to secure the
release of a trust deed may be contingent, the maximum cost of
liquidating that liability would normally be a recordable expense
limited by the administration's annual budget authority."
In 63 Comp. Gen. 145 (1984), certain indemnification provisions in a
ship-chartering agreement were found not to impose indefinite or
potentially unlimited contingent liability because liability could be
avoided by certain separate actions solely under the government's
control.
In cases like the Selective Service bus case (48 Comp. Gen. 361) and
the FAA aircraft case (42 Comp. Gen. 708), even though the
government's potential liability is limited and determinable, this
fact alone does not guarantee that the agency will have sufficient
funds available should the contingency ripen into an obligation. This
concern is met in one of two ways. The first is either to obligate or
to reserve administratively sufficient funds to cover the potential
liability, although this point has not been completely explored in
past decisions. In particular cases, reservation may be determined
unnecessary, as in B-198161, Nov. 25, 1980, discussed above. Also,
naturally, a specific directive from Congress will render reservation
of funds unnecessary. See B-159141, Aug. 18, 1967 (reservation of
termination costs for supersonic aircraft contract). The second way is
for the agreement to expressly limit the government's liability to
appropriations available at the time of the loss with no implication
that Congress will appropriate funds to make up any deficiency.
This second device—the express limitation of the government's
liability to available appropriations—is sufficient to cure an
otherwise fatally defective (i.e., unlimited) indemnity proposal. For
example, the government may in limited circumstances assume the risk
of loss to contractor-owned property. While the maximum potential
liability would be determinable, it could be very large and the
administrative reservation of funds is not feasible. Thus, without
some form of limitation, such an agreement could result in obligations
in excess of available appropriations. The rules concerning the
government's assumption of risk on property owned by contractors and
used in the performance of their contracts are set forth in 54 Comp.
Gen. 824 (1975), modifying B-168106, July 3, 1974. The rules are
summarized below:[Footnote 78]
* If administratively determined to be in the best interest of the
government, the government may assume the risk for contractor-owned
property which is used solely in the performance of government
contracts.
* The government may not assume the risk for contractor-owned property
which is used solely for nongovernment work. If the property is used
for both government and nongovernment work and the nongovernment
portion is separable, the government may not assume the risk relating
to the nongovernment work.
* Where the amount of a contractor's commercial work is so
insignificant when compared to the amount of the contractor's
government work that the government is effectively bearing the entire
risk of loss by in essence paying the full insurance premiums, the
government may assume the risk if administratively determined to be in
the best interest of the government.
Any agreement for the assumption of risk by the government under the
above rules must contain a clause to clearly provide that, in the
event the government has to pay for losses, payments may not exceed
appropriations available at the time of the losses, and that nothing
in the contract may be considered as implying that Congress will at a
later date appropriate funds sufficient to meet deficiencies. 54 Comp.
Gen. at 827.
A somewhat different situation was discussed in 60 Comp. Gen. 584
(1981), involving an "installment purchase plan" for automatic data
processing equipment. Under the plan, the General Services
Administration would make monthly payments until the entire purchase
price was paid, at which time GSA would acquire unencumbered ownership
of the equipment. GSM obligation was conditioned on its exercising an
option at the end of each fiscal year to continue payments for the
next year. The contract contained a risk of loss provision under which
GSA would be required to pay the full price for any equipment lost or
damaged during the term of the contract. GAO concluded that the
equipment should be treated as contractor-owned property for purposes
of the risk of loss provision, and that the provision would be
improper unless one of the following conditions were met:
* The contract includes the clause specified in 54 Comp. Gen. 824
limiting GSA's liability to appropriations available at the time of
the loss and expressly precluding any inference that Congress would
appropriate sufficient funds to meet any deficiency; or;
* If the contract does not include these restrictions, then GSA must
obligate sufficient funds to cover its possible liability under the
risk of loss provision.
If neither of these conditions is met, the assumption of risk clause
could violate the Antideficiency Act by creating an obligation in
excess of available appropriations if any equipment is lost or damaged
during the term of the contract.
In 1982, the Defense Department and the state of New York entered into
a contract for New York to provide certain support functions for the
1980 Winter Olympic Games at Lake Placid. The contract provided for
federal reimbursement of any disability benefits which New York might
be required to pay in case of death or injury of persons participating
in the operation. The contract specified that the government's
liability could not exceed appropriations for assistance to the Games
available at the time of a disabling event, and that the contract did
not imply that Congress would appropriate funds sufficient to meet any
deficiencies. Since these provisions satisfied the test of 54 Comp.
Gen. 824, the indemnity agreement was not legally objectionable. B-
202518, Jan. 8, 1982. Under this type of arrangement, GAO noted that
an estimated amount should have been recorded as an obligation when
the agency was notified that a disabling event had occurred. However,
no violation of the Antideficiency Act actually occurred in this case
because sufficient funds remained available for obligation at the time
New York filed its claim for indemnification under the contract.
Also, the decision in the National Flood Insurance Act case mentioned
above (B-201394, Apr. 23, 1981) noted that the defect could have been
cured by inserting a clause along the lines of the clause in 54 Comp.
Gen. 824. The same point was made in B-201072, May 3, 1982, also
discussed earlier. See also National Railroad Passenger Corp. v.
United States, 3 CL Ct. 516, 521 (1983) (indemnification agreement
between the Federal Railroad Administration and Amtrak did not violate
Antideficiency Act where liability was limited to amount of
appropriation).
However, as noted in the introduction to this section, over the years
GAO has expressed the view that indemnity agreements, even with
limiting language, should not be entered into without congressional
approval in view of their potentially disruptive fiscal consequences
to the agency.[Footnote 79] 63 Comp. Gen. 145, 147 (1984); 62 Comp.
Gen. 361, 368 (1983); B-242146, Aug. 16, 1991. If an agency thinks
that indemnification agreements in a particular context are
sufficiently in the government's interest, the preferable approach is
for the agency to go to Congress and seek specific statutory
authority. See B-201394, Apr. 23, 1981.
As discussed below, Congress has seen fit to enact legislation
authorizing indemnification agreements when warranted by the
circumstances. In 1986, the Chairman of the Subcommittee on Nuclear
Regulation, Senate Committee on Environment and Public Works, in
connection with proposed Price-Anderson Act amendments the committee
was considering, asked GAO to identify possible funding options for a
statutory indemnification provision. GAO's response, B-197742, Aug. 1,
1986, listed several options and noted the benefits and drawbacks of
each from the perspective of congressional flexibility. The options
ranged from creating a statutory entitlement with a permanent
indefinite appropriation for payment (indemnity guaranteed but no
congressional flexibility), to making payment fully dependent on the
appropriations process (full congressional flexibility but no
guarantee of payment). In between were various other devices such as
contract authority, use of contract provisions such as those in 54
Comp. Gen. 824, and various forms of limited funding
authority.[Footnote 80]
The discussion in B-197742 highlights the essence of the
indemnification funding problem:
"An indemnity statute should generally include two features—the
indemnification provisions and a funding mechanism. Indemnification
provisions can range from a legally binding guarantee to a mere
authorization. Funding mechanisms can similarly vary in terms of the
degree of congressional control and flexibility retained. It is
impossible to maximize both the assurance of payment and congressional
flexibility. Either objective is enhanced only at the expense of the
other....
"If payment is to be assured, Congress must yield control over
funding, either in whole or up to specified ceilings .... Conversely,
if Congress is to retain funding control, payment cannot be assured in
any legally binding form and the indemnification becomes less than an
entitlement."
B-197742 at 9, 11.
(3) Statutorily authorized indemnification:
When we first stated the anti-indemnity rule at the outset of this
discussion, we noted that the rule applies in the absence of express
statutory authority to the contrary. Naturally, an indemnification
agreement, however open-ended it may be, will be "legal" if it is
expressly authorized by statute.
One statutory exception to the indemnification rules exists for
certain defense-related contracts by virtue of 50 U.S.C. § 1431, often
referred to by its Public Law designation, Public Law 85-804.[Footnote
81[ The statute evolved from a temporary wartime measure, section 201
of the First War Powers Act, 1941, ch. 493, 55 Stat. 838, 839 (Dec.
18, 1941). The implementing details on indemnification are found in
Executive Order No. 10789, as amended,[Footnote 82] and Federal
Acquisition Regulation (FAR), 48 C.F.R. part 50 (2005). For example,
while the decision to indemnify under Public Law 85-804 is
discretionary, B-287121, Mar. 20, 2001, such discretion must be
exercised by the agency head and cannot be delegated. B-257139, Aug.
30, 1994, citing FAR, 48 C.F.R. § 50.201(d).
Other examples of statutory exceptions are:
* section 4 of the Price-Anderson Act, 42 U.S.C. § 2210, which
provides contract authority permitting, among other things,
indemnification agreements with Nuclear Regulatory Commission
licensees and Department of Energy contractors to pay claims resulting
from nuclear accidents;
* section 119 of the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. § 9619, which authorizes
indemnification of certain Superfund cleanup contractors against
negligence (but not gross negligence or intentional misconduct);
* section 308 of the National Aeronautics and Space Act, 42 U.S.C. §
2458b, which authorizes the Administrator of the National Aeronautics
and Space Administration (NASA) to indemnify users of NASA space
vehicles against third party claims that are not covered by insurance;
* section 2354 of title 10, United States Code, which authorizes the
military departments to indemnify research and development contractors
against liability not covered by insurance; and;
* section 7423(2) of title 26, United States Code, which authorizes
indemnification of federal employees for damages awarded in suits
involving their performance of duties under the Internal Revenue Code.
Congress also may enact legislation to provide indemnification for a
specific or one-time event. For example, Congress specifically
indemnified the manufacturers, distributors, and those who
administered the swine flu vaccine purchased and used as part of the
National Swine Flu Immunization Program of 1976 against liability for
other than their own negligence to persons alleging personal injury or
death arising out of the administration of such vaccine. Pub. L. No.
94-380, 90 Stat. 1113 (Aug. 12, 1976).
d. Specific Appropriation Limitations/Purpose Violations:
In Chapter 4 we covered in some detail 31 U.S.C. § 1301(a), which
prohibits the use of appropriations for purposes other than those for
which they were appropriated. As seen in that chapter, violations of
purpose availability can arise in a wide variety of contexts—charging
an obligation or expenditure to the wrong appropriation, making an
obligation or expenditure for an unauthorized purpose, violating a
statutory prohibition or restriction, etc. The question we explore in
this section is the relationship of purpose availability to the
Antideficiency Act. In other words, when and to what extent does a
purpose violation also violate the Antideficiency Act?
Why does it matter whether you have violated one statute or two
statutes? One reason is that, if the second statute is the
Antideficiency Act, there are statutory reporting requirements and
potential penalties to consider in addition to any administrative
sanctions that agencies may impose through internal processes for
violations of section 1301 alone.
A useful starting point is the following excerpt from 63 Comp. Gen.
422, 424 (1984):
"Not every violation of 31 U.S.C. § 1301(a) also constitutes a
violation of the Antideficiency Act.... Even though an expenditure may
have been charged to an improper source, the Antideficiency Act's
prohibition against incurring obligations in excess or in advance of
available appropriations is not also violated unless no other funds
were available for that expenditure. Where, however, no other funds
were authorized to be used for the purpose in question (or where those
authorized were already obligated), both 31 U.S.C. § 1301(a) and §
1341(a) have been violated. In addition, we would consider an
Antideficiency Act violation to have occurred where an expenditure was
improperly charged and the appropriate fund source, although available
at the time, was subsequently obligated, malting readjustment of
accounts impossible."
First, suppose an agency charges an obligation or expenditure to the
wrong appropriation account, either charging the wrong appropriation
for the same time period, or charging the wrong fiscal year. The above
passage from 63 Comp. Gen. 422 provides the answer—if the
appropriation that should have been charged in the first place has
sufficient available funds to enable the adjustment of accounts, there
is no Antideficiency Act violation. The decision in 73 Comp. Gen. 259
(1994) illustrates this point. In that case, an agency had erroneously
charged a furniture order to the wrong appropriation account, but had
sufficient funds in the proper account to support an adjustment
correcting the error. Thus, GAO concluded, there was no violation of
the Antideficiency Act. Id. at 261. On the other hand, a violation
exists if the proper account does not have enough money to permit the
adjustment, and this includes cases where sufficient funds existed at
the time of the error but have since been obligated or expended. See
also 70 Comp. Gen. 592 (1991); B-222048, Feb. 10, 1987; B-95136, Aug.
8, 1979.
Other cases illustrating or applying this principle are 57 Comp. Gen.
459 (1978) (grant funds charged to wrong fiscal year); B-224702, Aug.
5, 1987 (contract modifications charged to expired accounts rather
than current appropriations); and B-208697, Sept. 28, 1983 (items
charged to General Services Administration Working Capital Fund which
should have been charged to other operating appropriations). Actually,
the concept of "curing" a violation by malting an appropriate
adjustment of accounts is not new See, e.g., 16 Comp. Dec. 750 (1910);
4 Comp. Dec. 314, 317 (1897). The Armed Services Board of Contract
Appeals also has followed this principle. New England Tank Industries
of New Hampshire, Inc., ASBCA No. 26474, 88-1 BCA ¶ 20,395 (1987).
[Footnote 83]
The next situation to consider is an obligation or expenditure in
excess of a statutory ceiling. This may be an earmarked maximum in a
more general appropriation or a monetary ceiling imposed by some other
legislation. An obligation or expenditure in excess of the ceiling
violates 31 U.S.C. § 1341(a). See, for example, the following:
* Monetary ceilings on minor military construction (10 U.S.C. § 2805):
63 Comp. Gen. 422 (1984); GAO, Continuing Inadequate Control Over
Programming and Financing of Construction, B-133316 (Washington, D.C.:
July 23, 1964); Review of Programming and Financing of Selected
Facilities Constructed at Army, Navy, and Air Force Installations, B-
133316 (Washington, D.C.: Jan. 24, 1961).[Footnote 84]
* Monetary ceiling on lease payments for family housing units in
foreign countries (10 U.S.C. § 2828(e)): 66 Comp. Gen. 176 (1986); B-
227527, B-227325, Oct. 21, 1987 (nondecision letter); GAO, Leased
Military Housing Costs in Europe Can Be Reduced by Improving
Acquisition Practices and Using Purchase Contracts, GAO/NSIAD-85-113
(Washington, D.C.: July 24, 1985), at 7-8.
* Ceiling in supplemental appropriation: B-204270, Oct. 13, 1981
(dollar limit on Standard Level User Charge payable by agency to
General Services Administration).[Footnote 85]
* Ceiling in authorizing legislation: 64 Comp. Gen. 282 (1985) (dollar
limit on two Small Business Administration direct loan programs).
In a statutory ceiling case, the account adjustment concept described
above may or may not come into play. If the ceiling represents a limit
on the amount available for a particular object, then there generally
will be no other funds available for that object and hence no
"correct" funding source from which to reimburse the account charged.
If, however, the ceiling represents only a limit on the amount
available from a particular appropriation and not an absolute limit on
expenditures for the object, as in the minor military construction
cases, for example, then it may be possible to cure violations by an
appropriate adjustment. 63 Comp. Gen. at 424.
The final situation is an obligation or expenditure for an object that
is prohibited or simply unauthorized. In 60 Comp. Gen. 440 (1981), a
proviso in the Customs Service's 1980 appropriation expressly
prohibited the use of the appropriation for administrative expenses to
pay any employee overtime pay in an amount in excess of $20,000. By
allowing employees to earn overtime pay in excess of that amount, the
Customs Service violated 31 U.S.C. § 1341. The Comptroller General
explained the violation as follows:
"When an appropriation act specifies that an agency's appropriation is
not available for a designated purpose, and the agency has no other
funds available for that purpose, any officer of the agency who
authorizes an obligation or expenditure of agency funds for that
purpose violates the Antideficiency Act. Since the Congress has not
appropriated funds for the designated purpose, the obligation may be
viewed either as being in excess of the amount (zero) available for
that purpose or as in advance of appropriations made for that purpose.
In either case the Antideficiency Act is violated."
Id. at 441.
In B-201260, Sept. 11, 1984, the Comptroller General advised that
expenditures in contravention of the Boland Amendment would violate
the Antideficiency Act (although none were found in that case). The
Boland Amendment, an appropriation rider, provided that "[n]one of the
funds provided in this Act may be used" for certain activities in
Central America. In B-229732, Dec. 22, 1988, GAO found the
Antideficiency Act violated when the Department of Housing and Urban
Development used its funds for commercial trade promotion activities
in the Soviet Union, an activity beyond its statutory authority.
Similarly, a nonreimbursable interagency detail of an employee,
contrary to a specific statutory prohibition, produced a violation in
B-247348, June 22, 1992 (letter to Public Printer). All three cases
also involved purpose violations and are consistent with 60 Comp. Gen.
440, the rationale being that expenditures would be in excess of
available appropriations, which were zero.[Footnote 86]
More recent GAO decisions likewise consistently apply the principle
that the use of appropriated funds for unauthorized or prohibited
purposes violates the Antideficiency Act (absent an alternative
funding source) since zero funds are available for that purpose. B-
302710, May 19, 2004 (use of funds in violation of statutory
prohibition against publicity or propaganda); B-300325, Dec. 13, 2002
(appropriations used for unauthorized technical assistance purposes);
B-300192, Nov. 13, 2002 (violation of appropriation rider prohibiting
use of funds to implement an Office of Management and Budget
memorandum); B-290005, July 1, 2002 (appropriation used to procure
unauthorized legal services); 71 Comp. Gen. 402, 406 (1992)
(unauthorized use of Training and Employment Services appropriation);
B-246304, July 31, 1992 (potential violation of appropriation act "Buy
American" provision); B-248284, Sept. 1, 1992 (nondecision letter)
(reprogramming of funds to an unauthorized purpose).
One court reached a result that appears to interpret the
Antideficiency Act somewhat differently. In Southern Packaging and
Storage Co. v. United States, 588 E Supp. 532 (D.S.C. 1984), the court
found that the Defense Department had purchased certain combat meal
products ("MRE") in violation of a "Buy American" appropriation rider,
which provided that "no part of any appropriation contained in this
Act ... shall be available" to procure items not grown or produced in
the United States. The court rejected the contention that the
violation also contravened the Antideficiency Act, stating:
"There is no evidence in this case to show that [the Defense Personnel
Supply Center] authorized expenditures beyond the amount appropriated
by Congress for the procurement of the MRE rations and the component
foods thereof."
Id. at 550.
Given the sparse discussion in the decision, the fact that Congress
does not make specific appropriations for MRE rations, and the fact
that the Antideficiency Act regulates both obligations and
expenditures in excess of available authority, it is difficult to
discern precisely how the Southern Packaging court would apply the
Antideficiency Act. In any event, we have found no subsequent judicial
or administrative decision that cites this aspect of the Southern
Packaging opinion.
e. Amount of Available Appropriation or Fund:
Questions occasionally arise over precisely what assets an agency may
count for purposes of determining the amount of available resources
against which it may incur obligations.
The starting point, of course, is the unobligated balance of the
relevant appropriation. In section F of this chapter, we discuss the
rule that subdivisions of a lump-sum appropriation appearing in
legislative history are not legally binding on the agency. They are
binding only if carried into the appropriation act itself, or are made
binding by some other statute. Thus, the entire unobligated balance of
an unrestricted lump-sum appropriation is available for Antideficiency
Act purposes. 55 Comp. Gen. 812 (1976).
Where an agency is authorized to retain certain receipts or
collections for credit to an appropriation or fund under that agency's
control, those receipts are treated the same as direct appropriations
for purposes of obligation and the Antideficiency Act, subject to any
applicable statutory restrictions. E.g., 71 Comp. Gen. 224 (1992)
(National Technical Information Service may use subscription payments
to defray its operating expenses but, under governing legislation, may
use customer advances only for costs directly related to firm orders).
In addition, certain other assets may be "counted" as available budget
authority, that is, obligated against. For example, OMB Circular No. A-
11 includes certain spending authority from offsetting collections as
a form of "budget authority."[Footnote 87] See also B-134474-0.M.,
Dec. 18, 1957. This does not mean anticipated receipts from
transactions that have not yet occurred or orders that have not yet
been placed. Thus, the Library of Congress could not retain in a
revolving fund advances from federal agencies in excess of amounts
needed to cover current orders in anticipation of applying the excess
amounts to future orders. B-288142, Sept. 6, 2001. Obligations cannot
be charged against anticipated proceeds from an anticipated sale of
property. See, e.g., B-209758, Sept. 29, 1983 (nondecision memorandum)
(sale of assets seized from embezzler). Thus, the Customs Service
violated the Antideficiency Act by obligating against anticipated
receipts from future sales of seized property unless it had sufficient
funds available from other sources to cover the obligation. B-237135,
Dec. 21, 1989. Similarly, the Comptroller General found that the Air
Force violated the Antideficiency Act by overobligating its Industrial
Fund based on estimated or anticipated customer orders. See GAO, The
Air Force Has Incurred Numerous Overobligations in its Industrial
Fund, AFMD-81-53 (Washington, D.C.: Aug. 14, 1981); 62 Comp. Gen. 143,
147 (1983). Even where receivables are properly included as budgetary
resources, an agency may not incur obligations against receipts
expected to be received after the end of the current fiscal year
without specific statutory authority. 51 Comp. Gen. 598, 605 (1972).
In 60 Comp. Gen. 520 (1981), GAO considered whether the General
Services Administration (GSA) could obligate against the value of
inventory in the General Supply Fund. GSA buys furniture and other
equipment for other agencies through the General Supply Fund, a
revolving fund established by statute. Agencies pay GSA either in
advance or by reimbursement. For reasons of economy, GSA normally
makes consolidated and bulk purchases of commonly used items. Concern
over the application of the Antideficiency Act arose when, for several
reasons, the Fund began experiencing cash flow problems. To help
remedy its "cash flow" problems GSA wanted to consider the amount of
available budget authority to include inventory as well as cash assets
and advances.
The Comptroller General held that inventory in the General Supply Fund
did not constitute a budgetary resource against which obligations
could be incurred. The items in the inventory had already been
purchased and could not be counted again as a new budgetary resource.
Thus, for Antideficiency Act purposes, GSA could not incur obligations
using the value of inventory as an available "budgetary resource."
Supplemental appropriations requested but not yet enacted obviously
may not be counted as a budgetary resource. B-230117-0.M., Feb. 8,
1989.
f. Intent/Factors beyond Agency Control:
A violation of the Antideficiency Act does not depend on intent or
lack of good faith on the part of contracting or other officials who
obligate or pay in advance or in excess of appropriations. Although
these factors may influence the applicable penalty, they do not affect
the basic determination of whether a violation has occurred. 64 Comp.
Gen. 282, 289 (1985). The Comptroller General once expressed the
principle in the following passage which, although stated in a
slightly different context, is equally applicable here:
"Where a payment is prohibited by law, the utmost good faith on the
part of the officer, either in ignorance of the facts or in disregard
of the facts, in purporting to authorize the incurring of an
obligation the payment of which is so prohibited, cannot take the case
out of the statute, otherwise the purported good faith of an officer
could be used to nullify the law."
A-86742, June 17, 1937.
To illustrate, a contracting officer at the United States Mission to
the North Atlantic Treaty Organization accepted an offer for
installation of automatic telephone equipment at twice the amount of
the unobligated balance remaining in the applicable account. The
Department of State explained that the contracting officer had
misinterpreted GAO regulations and implementing State Department
procedures. But for this misinterpretation, additional funds could
have been placed in the account. State therefore felt that the
transaction should not be considered in violation of the Act. GAO did
not agree and held that the overobligation must be immediately
reported as required by 31 U.S.C. § 1517(b). The official's state of
mind was not relevant in deciding whether a violation had occurred. 35
Comp. Gen. 356 (1955).
An overobligation may result from external factors beyond the agency's
control. Whether this will produce an Antideficiency Act violation
depends on the particular circumstances. In 58 Comp. Gen. 46 (1978),
the Army asked whether it could make payments to a contractor under a
contract requiring payment in local (foreign) currency where the
original dollar obligation was well within applicable funding
limitations but, due to subsequent exchange rate fluctuations, payment
would exceed those limitations. The Army argued that a payment under
these circumstances should not be considered a violation of the Act
because currency fluctuations are totally beyond the control of the
contracting officer or any other agency official. GAO disagreed. The
fact that the contracting officer was a victim of circumstances does
not make a payment in excess of available appropriations any less
illegal. (It is, of course, as with state of mind, relevant in
assessing penalties for the violation.) See also 38 Comp. Gen. 501
(1959) (severe adverse weather conditions or prolonged employee
strikes generally are not sufficient to justify overobligation by
former Post Office Department, but facts in a particular case could
justify deficiency apportionment).
In apparent contrast, the Comptroller General stated in 62 Comp. Gen.
692, 700 (1983) that an overobligation resulting from a judicial award
of attorney's fees under 28 U.S.C. § 2412(d), the Equal Access to
Justice Act, would not violate the Antideficiency Act. See also 63
Comp. Gen. 308, 312 (1984) (judgments or board of contract appeals
awards under Contract Disputes Act, same answer); B-227527, B-227325,
Oct. 21, 1987 (nondecision letter) (amounts awarded by court judgment
not counted in determining whether statutory ceiling on lease payments
has been exceeded and Antideficiency Act thereby violated).
The distinction is based on the extent to which the agency can act to
avoid the overobligation even though it is imposed by some external
force beyond its control. Thus, the currency fluctuation decision
stated:
"When a contracting officer finds that the dollars required to
continue or make final payment on a contract will exceed a statutory
limitation he may terminate the contract, provided the termination
costs will not exceed the statutory limitations. Alternatively, the
contracting officer may issue a stop work order and the agency may ask
Congress for a deficiency appropriation citing the currency
fluctuation as the reason for its request."
58 Comp. Gen. at 48. Similarly, the Postmaster General could curtail
operations if necessary. 38 Comp. Gen. 501, 504 (1959). See also 66
Comp. Gen. 176 (1986) (Antideficiency Act would not preclude Air Force
from entering into lease for overseas family housing without provision
limiting annual payments to statutory ceiling, even though certain
costs could conceivably escalate above ceiling, where good faith cost
estimates were well below ceiling and lease included termination for
convenience clause). Where the agency could have acted to avert the
overobligation but did not, there will be a violation. In contrast, in
the case of a payment ordered by a court, comparable options (apart
from seeking a deficiency appropriation) are not available.
(Curtailing activities after the overobligation has occurred to avoid
compounding the violation is a separate question.)
g. Exceptions:
The Antideficiency Act by its own terms recognizes that Congress can
and may grant exceptions. 31 U.S.C. § 1341(a). The statute prohibits
contracts or other obligations in advance or excess of available
appropriations, "unless authorized by law." This is nothing more than
the recognition that Congress can authorize exceptions to the statutes
it enacts.
(1) Contract authority:
At the outset, it is necessary to distinguish between "contract
authority" and the "authority to enter into contracts." A contract is
simply a legal device employed by two or more parties to create
binding and legally enforceable obligations in furtherance of some
objective. The federal government uses contracts every day to procure
a wide variety of goods and services. An agency does not need specific
statutory authority to enter into contracts. It has long been
established that a government agency has the inherent authority to
enter into binding contracts in the execution of its duties. Van
Brocklin v. Tennessee, 117 U.S. 151, 154 (1886); United States v.
Maurice, 26 F. Case 1211, 1216-17 (No. 15,747) (C.C.D. Va. 1823). It
should be apparent that these contracts, "authorized by law" though
they may be, are not sufficient to constitute exceptions to the
Antideficiency Act, else the Act would be meaningless.
For purposes of the Antideficiency Act exception, a contract
authorized by law requires not only authority to enter into a
contract, but authority to do so without regard to the availability of
appropriations. While the former may be inherent, the latter must be
conferred by statute. The most common example of this is "contract
authority" as that term is defined and described in Chapter 2—
statutory authority to enter into binding contracts without the funds
adequate to make payments under them.
In some cases, the "exception" language will be unmistakably explicit.
An example is the Price-Anderson Act, which provides authority to
"make contracts in advance of appropriations and incur obligations
without regard to" the Antideficiency Act. 42 U.S.C. § 2210(j). Other
examples of clear authority, although perhaps not as explicit as the
Price-Anderson Act, are discussed in 27 Comp. Gen. 452 (1948) (long-
term operating-differential subsidy agreements under the Merchant
Marine Act); B-211190, Apr. 5, 1983 (contracts with states under the
Federal Boat Safety Act); B-164497.3, June 6, 1979 (certain provisions
of the Federal-Aid Highway Act of 1973); and B-168313, Nov. 21, 1969
(interest subsidy agreements with educations institutions under the
Housing Act of 1950).
In an earlier case involving contract authority, GAO insisted that the
Corps of Engineers had to include a "no liability unless funds are
later made available" clause for any work done in excess of available
funds. 2 Comp. Gen. 477 (1923). The Corps later had trouble with this
clause because a Court of Claims decision, C.H. Leavell & Co. v.
United States, 530 F.2d 878 (Ct. Cl. 1976), allowed the contractor an
equitable adjustment for suspension of work due to a delay in enacting
an appropriation to pay him, notwithstanding the "availability of
funds" clause. In 56 Comp. Gen. 437 (1977), GAO overruled 2 Comp. Gen.
477, deciding that section 10 of the River and Harbor Act of 1922, 33
U.S.C. § 621, by expressly authorizing the Corps to enter into large
multiyear civil works projects without seeking a full appropriation in
the first year, constituted the necessary exception to the
Antideficiency Act and a "funds available" clause was not necessary.
This applies as well to contracts financed from the Corps' Civil Works
Revolving Fund. B-242974.6, Nov. 26, 1991 (internal memorandum). The
rationale of 56 Comp. Gen. 437 also has been applied to long-term fuel
storage facilities contracts authorized by 10 U.S.C. § 2388. New
England Tank Industries of New Hampshire, Inc., ASBCA No. 26474, 88-1
BCA ¶ 20,395 (1987), vacated on other grounds, New England Tank
Industries of New Hampshire v. United States, 861 F.2d 685 (Fed. Cir.
1988).
In 28 Comp. Gen. 163 (1948), the Comptroller General considered
whether the Commissioner of Reclamation had budget authority to enter
into certain contracts in advance of appropriations (contract
authority). Congress had authorized the contract authority in an
appropriation act but made it subject to a monetary ceiling. Since the
contract authority was explicit, with no language making it contingent
on appropriations being made at some later date, the Comptroller
General concluded that the statute authorized the Commissioner to
enter into a firm and binding contract.
The Bureau of Mines was authorized to enter into a contract (in
advance of the appropriation) to construct and equip an anthracite
research laboratory. The Bureau asked the General Services
Administration (GSA) to enter into the contract on its behalf pursuant
to section 103 of the Federal Property and Administrative Services Act
of 1949, ch. 288, 63 Stat. 377, 380 (June 30, 1949), which provided
that "funds appropriated to ...other Federal agencies for the
foregoing purposes [execution of contracts and supervision of
construction] shall be available for transfer to and expenditure by
the [GSA]." GAO held that the Bureau's contract authority provided a
sufficient legal basis for GSA to enter into contracts for
construction of the laboratory pursuant to section 103. 29 Comp. Gen.
504 (1950).[Footnote 88]
A somewhat different kind of contract authority is found in 41 U.S.C.
§ 11, the so-called Adequacy of Appropriations Act. An exception to
the requirement to have adequate appropriations—or any appropriation
at all—is made for procurements by the military departments for
"clothing, subsistence, forage, fuel, quarters, transportation, or
medical and hospital supplies, which, however, shall not exceed the
necessities of the current year." By administrative interpretation,
the Defense Department has limited this authority to emergency
circumstances where immediate action is necessary. Department of
Defense Financial Management Regulation 7000.14-R, vol. 3, ch. 12, ¶
120201 (Jan. 31, 2001).
It should again be emphasized that to constitute an exception to 31
U.S.C. § 1341(a), the "contract authority" must be specific authority
to incur the obligation in excess or advance of appropriations, not
merely the general authority any agency has to enter into contracts to
carry out its functions. Also, an appropriation obviously is needed to
liquidate the contract obligation.
Congress may grant authority to contract beyond the fiscal year in
terms which amount to considerably less than the type of contract
authority described above. An example is 43 U.S.C. § 388, which
authorizes the Secretary of the Interior to enter into certain
contracts relating to reclamation projects "which may cover such
periods of time as the Secretary may consider necessary but in which
the liability of the United States shall be contingent upon
appropriations being made therefore." See PCL Construction Services,
Inc. v. United States, 41 Fed. Cl. 242, 257 (1998), aff'd, 96 Fed.
Appx. 672 (Fed. Cir. 2004) (pursuant to 43 U.S.C. § 388, firm fixed-
price contract awarded by the Bureau of Reclamation to construct a
visitors center and parking structure at Hoover Dam could be
incrementally funded without violating the Antideficiency Act). While
this provision has been referred to as an exception to the
Antideficiency Act (B-72020, Jan. 9, 1948), it authorizes only
"contingent contracts" under which there is no legal obligation to pay
unless and until appropriations are provided. 28 Comp. Gen. 163
(1948). A similar example, discussed in B-239435, Aug. 24, 1990, is 38
U.S.C. § 230(c) (Supp. II 1990) (subsequently recodified at 38 U.S.C.
§ 316) which authorized the Department of Veterans Affairs to enter
into certain leases for periods of up to 35 years but further provided
that the government's obligation to make payments was "subject to the
availability of appropriations for that purpose." For another example,
see B-248647.2, Apr. 24, 1995, which discussed the Federal Triangle
Development Act, 40 U.S.C. §§ 1101-1109. This act directed GSA to
enter into a long-term lease and required the lease agreement to
recognize that GSA could obligate funds for lease payments only on an
annual basis. 40 U.S.C. § 1105. Therefore, the GSA multiyear lease
agreement at issue was specifically "authorized by law" and did not
violate the Antideficiency Act. B-248647.2 at fn. 3.
(2) Other obligations "authorized by law:"
The "authorized by law" exception in 31 U.S.C. § 1341(a) applies to
noncontractual obligations as well as to contracts. The basic approach
is the same. The statutory authority must be more than just authority
to undertake the particular activity. For example, statutory authority
to acquire land and to pay for it from a specified fund is not an
exception to the Antideficiency Act. 15 Comp. Gen. 662 (1921). It
merely authorizes acquisitions to the extent of funds available in the
specified source at the time of purchase. Id. Similarly, the authority
to conduct hearings, without more, does not confer authority to do so
without regard to available appropriations. 16 Comp. Dec. 750 (1910).
Provisions in the District of Columbia Code requiring Saint
Elizabeth's Hospital to treat all patients who meet admission
eligibility requirements were held not to authorize the Hospital to
operate beyond the level of its appropriations. If mandatory
expenditures, together with nonmandatory expenditures, would cause a
deficiency, the Hospital would have to reduce nonmandatory
expenditures. 61 Comp. Gen. 661 (1982).
Congress may expressly state that an agency may obligate in excess of
the amounts appropriated, or it may implicitly authorize an agency to
do so by virtue of a law that necessarily requires such obligations.
See B-262069, Aug. 1, 1995. Several cases have considered the effect
of various statutory salary or compensation increases. If a statutory
increase is mandatory and does not vest discretion in an
administrative office to determine the amount, or if it gives some
administrative body discretion to determine the amount, payment of
which then becomes mandatory, the obligation is deemed "authorized by
law" for Antideficiency Act purposes. See, e.g., 39 Comp. Gen. 422
(1959) (salary increases for Wage Board employees); B-168796, Feb. 2,
1970 (mandatory statutory increase in retired pay for Tax Court
judges); B-107279, Jan. 9, 1952 (mandatory increases for certain
legislative personnel). GAO has not treated the granting of increases
retroactively to correct past administrative errors as creating the
same type of exception. See 24 Comp. Gen. 676 (1945). Increases which
are discretionary do not permit the incurring of obligations in excess
or advance of appropriations. 31 Comp. Gen. 238 (1951) (discretionary
pension increases); 28 Comp. Gen. 300 (1948).[Footnote 89]
Some other examples of obligations authorized by law for
Antideficiency Act purposes are:
* Defense Health Program obligations for medical services. B-287619,
July 5, 2001.
* Mandatory pilot program in Vermont under Farms for the Future Act of
1990 (loan guarantees and interest assistance). B-244093, July 19,
1991.
* Mandatory transfer from one appropriation account to another where
"donor" account contained insufficient unobligated funds. 38 Comp.
Gen. 93 (1958).
* Provision in Criminal Justice Act of 1964 imposing unequivocal
legislative directive for commencement of certain programs which would
necessarily involve creation of financial obligations. B-156932, Aug.
17, 1965.
* Provision in District of Columbia Criminal Justice Act of 1974
(CJA), as amended, malting attorney representation in CJA cases a
mandatory expense. B-283599, Sept. 15, 1999. See also B-284566, Apr.
3, 2000.
* Statute authorizing Interstate Commerce Commission to order a
substitute rail carrier to serve shippers abandoned by their primary
carrier in emergency situations, and to reimburse certain costs of the
substitute carrier. B-196132, Oct. 11, 1979.
What are perhaps the outer limits of the "authorized by law" exception
are illustrated in B-159141, Aug. 18, 1967. The Federal Aviation
Administration (FAA) had entered into long-term, incrementally funded
contracts for the development of a civil supersonic aircraft (SST). To
ensure compliance with the Antideficiency Act, the FAA each year
budgeted for, and obligated, sufficient funds to cover potential
termination liability. The appropriations committees became concerned
that unnecessarily large amounts were being tied up this way,
especially in light of the highly remote possibility that the SST
contracts would be terminated. In considering the FAA's 1968
appropriation, the House Appropriations Committee reduced the FAA's
request by the amount of the termination reserve, and in its report
directed the FAA not to obligate for potential termination costs. The
Comptroller General advised that if the Senate Appropriations
Committee did the same thing—a specific reduction tied to the amount
requested for the reserve, coupled with clear direction in the
legislative history—then an overobligation resulting from a
termination would be regarded as authorized by law and not in
violation of the Antideficiency Act.
3. Voluntary Services Prohibition:
a. Introduction:
We previously discussed the Antideficiency Act prohibitions contained
in section 1341 of title 31, United States Code. The next section of the
Antideficiency Act is 31 U.S.C. § 1342:
"An officer or employee of the United States Government or of the
District of Columbia government may not accept voluntary services for
either government or employ personal services exceeding that
authorized by law except for emergencies involving the safety of human
life or the protection of property...."
This provision first appeared, in almost identical form, in a
deficiency appropriation act enacted in 1884.[Footnote 90] Although
the original prohibition read "hereafter, no department or officer of
the United States shall accept ...," it was included in an
appropriation for the then Indian Office of the Interior Department,
and the Court of Claims held that it was applicable only to the Indian
Office. Glavey v. United States, 35 Ct. Cl. 242, 256 (1900), rev'd on
other grounds, 182 U.S. 595 (1901). The Comptroller of the Treasury
continued to apply it across the board. See, e.g., 9 Comp. Dec. 181
(1902). In any event, the applicability of the 1884 statute soon
became moot because Congress reenacted it as part of the
Antideficiency Act in 1905[Footnote 91] and again in 1906.[Footnote 92]
Prior to the 1982 recodification of title 31, section 1342 was
subsection (b) of the Antideficiency Act, while the basic prohibitions
of section 1341, previously discussed, constituted subsection (a). The
proximity of the two provisions in the United States Code reflects
their relationship, as section 1342 supplements and is a logical
extension of section 1341. If an agency cannot directly obligate in
excess or advance of its appropriations, it should not be able to
accomplish the same thing indirectly by accepting ostensibly
"voluntary" services and then presenting Congress with the bill, in
the hope that Congress will recognize a "moral obligation" to pay for
the benefits conferred—another example of the so-called "coercive
deficiency.[Footnote 93] In this connection, the chairman of the House
committee responsible for what became the 1906 reenactment of the
voluntary services prohibition stated:
"It is a hard matter to deal with. We give to Departments what we
think is ample, but they come back with a deficiency. Under the law
they can [not] make these deficiencies, and Congress can refuse to
allow them; but after they are made it is very hard to refuse to allow
them ...."[Footnote 94]
In addition, as we have noted previously, the Antideficiency Act was
intended to keep an agency's level of operations within the amounts
Congress appropriates for that purpose. The unrestricted ability to
use voluntary services would permit circumvention of that objective.
Thus, without section 1342, section 1341 could not be fully effective.
Note that 31 U.S.C. § 1342 contains two distinct although closely
related prohibitions: It bans, first, the acceptance of any type of
voluntary services for the United States, and second, the employment
of personal services "exceeding that authorized by law."
b. Appointment without Compensation and Waiver of Salary:
(1) The rules—general discussion:
One of the evils that the "personal services" prohibition was designed
to correct was a practice existing in 1884, whereby lower-grade
government employees were being asked to "volunteer" their services
for overtime periods in excess of the periods allowed by law. This
enabled the agency to economize at the employees' expense but
nevertheless generated claims by the employees.[Footnote 95]
Currently, 31 U.S.C. § 1342 serves a number of other purposes and is
relevant in a number of contexts involving services by government
employees or services which would otherwise have to be performed by
government employees. For example, one court suggested that 31 U.S.C.
§ 1342 also is based in part on the principle that only public
officials should be allowed to perform governmental functions. See
Suss v. American Society for the Prevention of Cruelty to Animals, 823
F. Supp. 181, 189 (S.D.N.Y. 1993) ("The risks of abuse of power by
private parties exercising functions involving [the] exercise of
sovereign compulsion is one reason for the limitations imposed by
federal law on the use of volunteers in implementing public sector
programs."). However, as mentioned previously, the fundamental
purposes embodied in section 1342 are to preserve the integrity of the
appropriations process by avoiding "coercive deficiencies" and
augmentations.
One of the earliest questions to arise under 31 U.S.C. § 1342—and an
issue that has generated many cases—was whether a government officer
or employee, or an individual about to be appointed to a government
position, could voluntarily work for nothing or for a reduced salary.
Initially, the Comptroller of the Treasury ducked the question on the
grounds that it did not involve a payment from the Treasury, and
suggested that the question was appropriate to take to the Attorney
General. 19 Comp. Dec. 160, 163 (1912).
The very next year, the Attorney General tackled the question when
asked whether a retired Army officer could be employed as
superintendent of an Indian school without additional compensation. In
what has become the leading case construing 31 U.S.C. § 1342, the
Attorney General replied that the appointment would not violate the
voluntary services prohibition. 30 Op. Att'y Gen. 51 (1913). In
reaching this conclusion, the Attorney General drew a distinction that
the Comptroller of the Treasury thereafter adopted, and that GAO and
the Justice Department continue to follow to this day—the distinction
between "voluntary services" and "gratuitous services." The key
passages from the Attorney General's opinion are set forth below:
"It seems plain that the words 'voluntary service' were not intended
to be synonymous with 'gratuitous service' and were not intended to
cover services rendered in an official capacity under regular
appointment to an office otherwise permitted by law to be non-
salaried. In their ordinary and normal meaning these words refer to
service intruded by a private person as a 'volunteer' and not rendered
pursuant to any prior contract or obligation .... It would be
stretching the language a good deal to extend it so far as to prohibit
official services without compensation in those instances in which
Congress has not required even a minimum salary for the office.
"The context corroborates the view that the ordinary meaning of
'voluntary services' was intended. The very next words 'or employ
personal service in excess of that authorized by law' deal with
contractual services, thus making a balance between 'acceptance' of
'voluntary service' (i.e., the cases where there is no prior contract)
and `employment' of 'personal service' (i.e., the cases where there is
such prior contract, though unauthorized by law).
"Thus it is evident that the evil at which Congress was aiming was not
appointment or employment for authorized services without
compensation, but the acceptance of unauthorized services not intended
or agreed to be gratuitous and therefore likely to afford a basis for
a future claim upon Congress...."
Id. at 52-53, 55.
The Comptroller of the Treasury agreed with this interpretation:
"[The statute] was intended to guard against claims for compensation.
A service offered clearly and distinctly as gratuitous with a proper
record made of that fact does not violate this statute against
acceptance of voluntary service. An appointment to serve without
compensation which is accepted and properly recorded is not a
violation of [31 U.S.C. § 1342], and is valid if otherwise lawful."
27 Comp. Dec. 131, 132-33 (1920).
Two main rules emerge from 30 Op. Att'y Gen. 51 and its progeny.
First, if compensation for a position is fixed by law, an appointee
may not agree to serve without compensation or to waive that
compensation in whole or in part. Id. at 56. This portion of the
opinion did not break any new ground. The courts had already held,
based on public policy, that compensation fixed by law could not be
waived.[Footnote 96] Second, and this is really just a corollary to
the rule just stated, if the level of compensation is discretionary,
or if the relevant statute prescribes only a maximum (but not a
minimum), the compensation can be set at zero, and an appointment
without compensation or a waiver, entire or partial, is permissible.
Id.; 27 Comp. Dec. at 133.
Both GAO and the Justice Department have had frequent occasion to
address these issues, and there are numerous decisions illustrating
and applying the rules.[Footnote 97]
In a 1988 opinion, the Justice Department's Office of Legal Counsel
considered whether the Iran-Contra Independent Counsel could appoint
Professor Laurence Tribe as Special Counsel under an agreement to
serve without compensation. Applying the rules set forth in 30 Op.
Att'y Gen. 51, the Office of Legal Counsel concluded that the
appointment would not contravene the Antideficiency Act since the
statute governing the appointment set a maximum salary but no minimum.
Memorandum Opinion for the Acting Associate Attorney General,
Independent Counsel's Authority to Accept Voluntary Services—
Appointment of Laurence H. Tribe, OLC Opinion, May 19, 1988.
Similarly, the Comptroller General held in 58 Comp. Gen. 383 (1979)
that members of the United States Metric Board could waive their
salaries since the relevant statute merely prescribed a maximum rate
of pay. In addition, since the Board had statutory authority to accept
gifts, a member who chose to do so could accept compensation and then
return it to the Board as a gift. Both cases make the point that
compensation is not "fixed by law" for purposes of the "no waiver"
rule where the statute merely sets a maximum limit for the salary.
A good illustration of the kind of situation 31 U.S.C. § 1342 is
designed to prevent is 54 Comp. Gen. 393 (1974). Members of the
Commission on Marihuana and Drug Abuse had, apparently at the
chairman's urging, agreed to waive their statutory entitlement to $100
per day while engaged in Commission business. The year after the
Commission ceased to exist, one of the former members changed his mind
and filed a claim for a portion of the compensation he would have
received but for the waiver. Since the $100 per day had been a
statutory entitlement, the purported waiver was invalid and the former
commissioner was entitled to be paid. Similar claims by any or all of
the other former members would also have to be allowed. If
insufficient funds remained in the Commission's now-expired
appropriation, a deficiency appropriation would be necessary.
A few earlier cases deal with fact situations similar to that
considered in 30 Op. Att'y Gen. 51—the acceptance by someone already
on the federal payroll of additional duties without additional
compensation. In 23 Comp. Gen. 272 (1943), for example, GAO concluded
that a retired Army officer could serve, without additional
compensation, as a courier for the State Department. The voluntary
services prohibition, said the decision, does not preclude "the
assignment of persons holding office under the Government to the
performance of additional duties or the duties of another position
without additional compensation." Id. at 274. Another World War II era
decision held that American Red Cross Volunteer Nurses' Aides who also
happened to be full-time federal employees could perform volunteer
nursing services at Veterans Administration hospitals. 23 Comp. Gen.
900 (1944).
One thing the various cases discussed above have in common is that
they involve the appointment of an individual to an official
government position, permanent or temporary. Services rendered prior
to appointment are considered purely voluntary and, by virtue of 31
U.S.C. § 1342, cannot be compensated. Lee v. United States, 45 Ct. Cl.
57, 62 (1910); B-181934, Oct. 7, 1974.[Footnote 98] It also follows
that post-retirement services, apart from appointment as a reemployed
annuitant, are not compensable. 65 Comp. Gen. 21 (1985). In that case,
an alleged agreement to the contrary by the individual's supervisor
was held unauthorized and therefore invalid.
It also has been held that experts and consultants employed under
authority of 5 U.S.C. § 3109 (the basic governmentwide authority for
procuring expert and consultant services) may serve without
compensation without violating the Antideficiency Act as long as it is
clearly understood and agreed that no compensation is expected.
27 Comp. Gen. 194 (1947); 6 Op. Off. Legal Counsel 160 (1982). Cf. B-
185952, Aug. 18, 1976 (uncompensated participation in pre-bid
conference, on-site inspection, and bid opening by contractor engineer
who had prepared specifications regarded as "technical violation" of
31 U.S.C. § 1342).
Several of the decisions note the requirement for a written record of
the agreement to serve without compensation. Proper documentation is
important for evidentiary purposes should a claim subsequently be
attempted. E.g., 27 Comp. Gen. at 195; 26 Comp. Gen. 956, 958 (1947);
27 Comp. Dec. 131, 132-33 (1920); 2 Op. Off. Legal Counsel 322, 323
(1977). Specifically, the decisions state that the individuals should
acknowledge in writing and in advance that they will receive no
compensation and that they should explicitly waive any and all claims
against the government on account of their service.
The rule that compensation fixed by statute may not be waived does not
apply if the waiver or appointment without compensation is itself
authorized by statute. The Comptroller General stated the principle as
follows in 27 Comp. Gen. at 195:
"Even where the compensation for a particular position is fixed by or
pursuant to law, the occupant of the position may waive his ordinary
right to the compensation fixed for the position and thereafter
forever be estopped from claiming and receiving the salary previously
waived, if there be some applicable provision of law authorizing the
acceptance of services without compensation." (Emphasis in original.)
As noted above, the decision in 27 Comp. Gen. 194 cited as the
provision authorizing the acceptance of services without compensation
in that case what is now section 3109(b) of title 5, United States
Code. Under section 3109(b), agencies may, when authorized by an
appropriation or other act, procure the services of experts or
consultants for up to 1 year without regard to other provisions of
title 5 governing appointment and compensation. This authority is
subject to a maximum rate of compensation in some cases, but there is
no minimum rate.
In B-139261, June 26, 1959, GAO reiterated the above principle, and
gave several additional examples of statutes sufficient for this
purpose. The examples included the following statutory provisions that
remain essentially the same in substance as they were in 1959:
* section 204(b) of title 29, United States Code, which authorizes the
Administrator of the Labor Department's Wage and Hour Division to
utilize voluntary and uncompensated services;
* section 401(7) of title 39, United States Code, which authorizes the
Postal Service to accept gifts or donations of services or property;
and;
* section 210(b) of title 47, United States Code, which states that no
provision of law shall be construed to prohibit common carriers from
rendering free service to any agency of the government in connection
with preparation for the national defense, subject to rules prescribed
by the Federal Communications Commission.
At this point a 1978 case, 57 Comp. Gen. 423, should be noted. The
decision held that a statute authorizing the Agency for International
Development (MD) to accept gifts of "services of any kind" (22 U.S.C.
§ 2395(d)) did not permit waiver of salary by MD employees whose
compensation was fixed by statute. Section 2395(d) is very similar to
one of the examples given in B-139261, June 26, 1959, discussed above,
of statutes that would authorize the acceptance of voluntary services.
See 39 U.S.C. § 401(7). However, 57 Comp. Gen. 423 is distinguishable
from B-139261, 27 Comp. Gen. 194, and the other voluntary services
cases discussed previously. The question in 57 Comp. Gen. 423 was
whether MD could invoke its gift-acceptance authority to justify
paying regular federal employees less than the salaries prescribed by
law. The decision held that it did not:
"Section 2395(d) ... authorizes the acceptance of gifts. Therefore, MD
may accept services from private sources either gratuitously or at a
fraction of their value. However, section 2395(d) does not authorize
individuals to be appointed to regular positions having compensation
rates fixed by or pursuant to statute at rates less than those
specified. It, therefore, differs from the statute, which was the
subject of 27 Comp. Gen. 194, supra, and accordingly is not a
provision of law authorizing employees whose compensation is fixed by
or pursuant to statute to waive any part of such compensation."
57 Comp. Gen. at 424-25.[Footnote 99]
As noted earlier, 27 Comp. Gen. 194 concerned temporary experts or
consultants. B-139261 concerned civilian volunteers who sought to
provide services for an Air Force reserve center. Likewise, the other
statutory examples cited in B-139261 clearly were aimed at individuals
other than regular federal employees. Thus, 57 Comp. Gen. 423 appears
to represent the sensible caveat that general statutory authorities to
accept voluntary services or "gifts" of services do not supersede
statutes providing for the compensation of federal employees and
cannot be invoked to avoid the consequences of those statutes.
The rules for waiver of salary or appointment without compensation may
be summarized as follows:
* If compensation is not fixed by statute, that is, if it is fixed
administratively or if the statute merely prescribes a maximum but no
minimum, it may be waived as long as the waiver qualifies as
"gratuitous." There should be an advance written agreement waiving all
claims.
* If compensation is fixed by statute, it may not be waived, the
voluntary versus gratuitous distinction notwithstanding, without
specific statutory authority. This authority generally may take the
form of authority to accept donations of services or to employ persons
without compensation.
* If the employing agency has statutory authority to accept gifts, the
employee can accept the compensation and return it to the agency as a
gift. Even if the agency has no such authority, the employee can still
accept the compensation and donate it to the United States Treasury.
(2) Student interns:
In 26 Comp. Gen. 956 (1947), the then Civil Service Commission asked
whether an agency could accept the uncompensated services of college
students as part of a college's internship program. The students
"would be assigned to productive work, that is, to the regular work of
the agency in a position which would ordinarily fall in the
competitive civil service." The answer was no. Since the students
would be used in positions the compensation for which was fixed by
law, and since compensation fixed by law cannot be waived, the
proposal would require legislative authority.
Thirty years later, the Justice Department's Office of Legal Counsel
considered another internship program and provided similar advice.
Without statutory authority, uncompensated student services that
furthered the agency's mission, that is, "productive work," could not
be accepted. 2 Op. Off. Legal Counsel 185 (1978).
In view of the long-standing rule, supported by decisions of the
Supreme Court,[Footnote 100] prohibiting the waiver of compensation
for positions required by law to be salaried, GAO and Justice had
little choice but to respond as they did. Clearly, however, this
answer had its downside. It meant that uncompensated student interns
could be used only for essentially "make-work" tasks, a benefit to
neither the students nor the agencies.
The solution, apparent from both cases, was legislative authority,
which Congress provided later in 1978 by the enactment of 5 U.S.C. §
3111. The statute authorizes agencies, subject to regulations of the
Office of Personnel Management, to accept the uncompensated services
of high school and college students, "notwithstanding section 1342 of
title 31," if the services are part of an agency program designed to
provide educational experience for the student, if the student's
educational institution gives permission, and if the services will not
be used to displace any employee. 5 U.S.C. § 3111(b).
A paper entitled A Part-Time Clerkship Program in Federal Courts for
Law Students by the Honorable Jack B. Weinstein and William B.
Bonvillian, written in 1975 and printed at 68 F.R.D. 265, considered
the use of law students as part-time law clerks, without pay, to
mostly supplement the work of the regular law clerks in furtherance of
the official duties of the courts. Based on the statute's legislative
history and 30 Op. Att'y Gen. 51 (1913), previously discussed, Judge
Weinstein concluded that the program did not violate the
Antideficiency Act. Although this aspect of the issue is not
explicitly discussed in the paper, it appears that the compensation of
regular law clerks is fixed administratively. See 28 U.S.C. §
604(a)(5). In any event, the Administrative Office of the United
States Courts was given authority in 1978 to "accept and utilize
voluntary and incompensated (gratuitous) services." 28 U.S.C. §
604(a)(17).
(3) Program beneficiaries:
Programs are enacted from time to time to provide job training
assistance to various classes of individuals. The training is
intended, among other things, to enable participants to enter the
labor market at a higher level of skill. Questions have arisen under
programs of this nature as to the authority of federal agencies to
serve as employers.
A 1944 case, 24 Comp. Gen. 314, considered a vocational rehabilitation
program for disabled war veterans. GAO concluded that 31 U.S.C. § 1342
did not preclude federal agencies from providing on-the-job training,
without payment of salary, to program participants. The decision is
further discussed in 26 Comp. Gen. 956, 959 (1947).
In 51 Comp. Gen. 152 (1971), GAO concluded that 31 U.S.C. § 1342
precluded federal agencies from accepting work by persons hired by
local governments for public service employment under the Emergency
Employment Act of 1971.[Footnote 101] Four years later, GAO modified
the 1971 decision, holding that a federal agency could provide work
without payment of compensation to (i.e., accept the free services of)
trainees sponsored and paid by nonfederal organizations from federal
grant funds under the Comprehensive Employment and Training Act of
1973.[Footnote 102]
54 Comp. Gen. 560 (1975). The decision stated:
"Considering that the services in question will arise out of a program
initiated by the Federal Government, it would be anomalous to conclude
that such services are proscribed as being voluntary within the
meaning of 31 U.S.C. § [1342]. That is to say, it is our opinion that
the utilization of enrollees or trainees by a Federal agency under the
circumstances here involved need not be considered the acceptance of
'voluntary services' within the meaning of that phrase as used in 31
U.S.C. § [1342]."
Id. at 561.
In B-211079.2, Jan. 2, 1987, the relevant program legislation
expressly authorized program participants to perform work for federal
agencies "notwithstanding section 1342 of title 31." The decision
suggests that the statutory authority was necessary not because of the
Antideficiency Act but to avoid an impermissible augmentation of
appropriations. It is in any event consistent in result with 24 Comp.
Gen. 314 and 54 Comp. Gen. 560. The relationship between voluntary
service and the augmentation concept is explored later in this chapter
in our discussion of augmentation of appropriations.
(4) Applicability to legislative and judicial branches:
The applicability of 31 U.S.C. § 1342 to the legislative and judicial
branches of the federal government does not appear to have been
seriously questioned.
The salary of a Member of Congress is fixed by statute and therefore
cannot be waived without specific statutory authority. B-159835, Apr.
22, 1975; B-123424, Mar. 7, 1975; B-123424, Apr. 15, 1955; A-8427,
Mar. 19, 1925; B-206396.2, Nov. 15, 1988 (nondecision letter).
However, as each of these cases points out, nothing prevents a Senator
or Representative from accepting the salary and then, as several have
done, donate part or all of it back to the United States Treasury.
In 1977, GAO was asked by a congressional committee chairman whether
section 1342 applies to Members of Congress who use volunteers to
perform official office functions. GAO responded, first, that section
1342 seems clearly to apply to the legislative branch. GAO then
summarized the rules for appointment without compensation and advised
that, to the extent that a particular employee's salary could be fixed
administratively by the Member in any amount he or she chooses to set,
that employee's salary could be fixed at zero. This once again was
essentially an application of the rules set down decades earlier in 30
Op. Att'y Gen. 51 (1913) and 27 Comp. Dec. 131 (1920). See also B-
69907, Feb. 11, 1977.
The salary of a federal judge is also "fixed by law"—even more so
because of the constitutional prohibition against diminishing the
compensation of a federal judge while in office. U.S. Const. art III,
§ 1. A case applying the standard "no waiver" rules to a federal judge
is B-157469, July 24, 1974.
c. Other Voluntary Services:
Before entering the mainstream of the modern case law, two very early
decisions should be noted. In 12 Comp. Dec. 244 (1905), the
Comptroller of the Treasury held that an offer by a meat-packing firm
to pay the salaries of Department of Agriculture employees to conduct
a pre-export pork inspection could not be accepted because of the
voluntary services prohibition.[Footnote 103] Similar cases have since
come up, but they have been decided under the augmentation theory
without reference to 31 U.S.C. § 1342. See 59 Comp. Gen. 294 (1980)
and 2 Comp. Gen. 775 (1923), discussed later in section E of this
chapter.
To restate, apart from the 1905 decision, which has not been followed
since, the voluntary services prohibition has not been applied to
donations of money. In another 1905 decision, a vendor asked
permission to install an appliance on Navy property for trial purposes
at no expense to the government. Presumably, if the Navy liked the
appliance, it would then buy it. The Comptroller of the Treasury
pointed out an easily overlooked phrase in the voluntary service
prohibition—the services that are prohibited are voluntary services
"for the United States." Here, temporary installation by the vendor
for trial purposes amounted to service for his own benefit and on his
own behalf, "as an incident to or necessary concomitant of a proper
exhibition of his appliance for sale." Therefore, the Navy could grant
permission without violating the Antideficiency Act as long as the
vendor agreed to remove the appliance at his own expense if the Navy
chose not to buy it. 11 Comp. Dec. 622 (1905). This case has not been
cited since.
For the most part, the subsequent cases have been resolved by applying
the "voluntary versus gratuitous" distinction first enunciated by the
Attorney General in 1913 in 30 Op. Att'y Gen. 51, discussed above. The
underlying philosophy is perhaps best conveyed in the following
statement by the Justice Department's Office of Legal Counsel:
"Although the interpretation of § [1342] has not been entirely
consistent over the years, the weight of authority does support the
view that the section was intended to eliminate subsequent claims
against the United States for compensation of the 'volunteer,' rather
than to deprive the government of the benefit of truly gratuitous
services."
6 Op. Off. Legal Counsel 160, 162 (1982).
In an early formulation that has often been quoted since, the
Comptroller General noted that:
"The voluntary service referred to in [31 U.S.C. § 1342] is not
necessarily synonymous with gratuitous service, but contemplates
service furnished on the initiative of the party rendering the same
without request from, or agreement with, the United States therefor.
Services furnished pursuant to a formal contract are not voluntary
within the meaning of said section."
7 Comp. Gen. 810, 811 (1928).
In 7 Comp. Gen. 810, a contractor had agreed to prepare stenographic
transcripts of Federal Trade Commission public proceedings and to
furnish copies to the Commission without cost, in exchange for the
exclusive right to report the proceedings and to sell transcripts to
the public. The decision noted that consideration under a contract
does not have to be monetary consideration, and held that the contract
in question was supported by sufficient legal consideration. While the
case is thus arguably not a true "voluntary services" case, it has
often been cited since, not so much for the actual holding but for the
above-quoted statement of the rule.
For example, in B-13378, Nov. 20, 1940, the Comptroller General held
that the Secretary of Commerce could accept gratuitous services from a
private agency, created by various social science associations, which
had offered to assist in the preparation of official monographs
analyzing census data. The services were to be rendered under a
cooperative agreement which specified that they would be free of cost
to the government. The Commerce Department agreed to furnish space and
equipment, but the monographs would not otherwise have been prepared.
Applying the same approach, GAO found no violation of 31 U.S.C. § 1342
for the Commerce Department to accept services by the Business
Advisory Council, which were agreed in advance to be gratuitous. B-
125406, Nov. 4, 1955. Likewise, the Commission on Federal Paperwork
could accept free services from the private sector as long as they
were agreed in advance to be gratuitous. B-182087-0.M., Nov. 26, 1975.
In a 1982 decision, the American Association of Retired Persons wanted
to volunteer services to assist in crime prevention activities
(distribute literature, give lectures, etc.) on Army installations.
GAO found no Antideficiency Act problem as long as the services were
agreed in advance, and so documented, as gratuitous. B-204326, July
26, 1982.
In B-177836, Apr. 24, 1973, the Army had entered into a contract with
a landowner under which it acquired the right to remove trees and
other shrubs from portions of the landowner's property incident to an
easement. A subsequent purchaser of the property complained that some
tree stumps had not been removed, and the Army proceeded to contract
to have the work done. The landowner then submitted a claim for
certain costs he had incurred incident to some preliminary work he had
done prior to the Army's contract. Since the landowner's actions had
been purely voluntary and had been taken without the knowledge or
consent of the government, 31 U.S.C. § 1342 prohibited payment.
In 7 Comp. Gen. 167 (1927), a customs official had stored, in his own
private boathouse, a boat which had been seized for smuggling whiskey.
The customs official later filed a claim for storage charges. Noting
that "the United States did not expressly or impliedly request the use
of the premises and therefore did not by implication promise to pay
therefor," GAO concluded that the storage had been purely a voluntary
service, payment for which would violate 31 U.S.C. § 1342.
As if to prove the adage that there is nothing new under the sun, GAO
considered another storage case over 50 years later, B-194294, July
12, 1979. There, an Agriculture Department employee had an accident
while driving a government-owned vehicle assigned to him for his work.
A Department official ordered the damaged vehicle towed to the
employee's driveway, to be held there until it could be sold. Since
the government did have a role in the employee's assumption of
responsibility for the wreck, GAO found no violation of 31 U.S.C. §
1342 and allowed the employee's claim for reasonable storage charges
on a quantum meruit basis.[Footnote 104]
Section 1342 covers any type of service which has the effect of
creating a legal or moral obligation to pay the person rendering the
service. Naturally, this includes government contractors. See PCL
Construction Services, Inc. v. United States, 41 Fed. CL 242, 257-260
(1998), quoting with approval from the second edition of Principles of
Federal Appropriations Law on this point. The prohibition includes
arrangements in which government contracting officers solicit or
permit—tacitly or otherwise—a contractor to continue performance on a
"temporarily unfunded" basis while the agency, which has exhausted its
appropriations and cannot pay the contractor immediately, seeks
additional appropriations. This was one of the options considered in
55 Comp. Gen. 768 (1976), discussed previously in connection with 31
U.S.C. § 1341(a). The Army proposed a contract modification which
would explicitly recognize the government's obligation to pay for any
work performed under the contract, possibly including reasonable
interest, subject to subsequent availability of funds. The government
would use its best efforts to obtain a deficiency appropriation.
Certificates to this effect would be issued to the contractor,
including a statement that any additional work performed would be done
at the contractor's own risk. In return, the contractor would be asked
to defer any action for breach of contract.
GAO found this proposal "of dubious validity at best." Although the
certificate given to the contractor would say that continued
performance was at the contractor's own risk, it was clear that both
parties expected the contract to continue. The government expected to
accept the benefits of the contractor's performance and the contractor
expected to be paid--eventually-—for it. This is certainly not an
example of a clear written understanding that work for the government
is to be performed gratuitously. Also, the proposal to pay interest
was improper as it would compound the Antideficiency Act violation.
Although 55 Comp. Gen. 768 does not specifically discuss 31 U.S.C. §
1342, the relationship should be apparent.
GAO's opinion in B-302811, July 12, 2004, provides a recent example of
an appropriate "gratuitous services" type contract that did not run
afoul of the 31 U.S.C. § 1342 prohibition against voluntary services.
This decision concerned the General Services Administration's (GSA)
proposed National Brokers Contract, under which GSA would award four
real estate brokers exclusive rights to represent the United States
with respect to all GSA real property leases. The brokers would be
required to provide a range of services commonly offered in commercial
leasing transactions such as assisting federal agencies in developing
their space requirements, surveying the rental market, and negotiating
and preparing leases. The proposal took the form of a "no-cost"
contract in which GSA would make no payments to the brokers for their
services. Rather, the brokers would collect commissions from the
landlords who leased property to the federal agencies. In approving
the legality of this proposed arrangement, the decision observed:
"Because the contract was constructed as a no cost contract, GSA will
have no financial liability to brokers, and brokers will have no
expectation of a payment from GSA. The acceptance of services without
payment pursuant to a valid, binding no-cost contract does not augment
an agency's appropriation nor does it violate the voluntary services
prohibition. Although the brokers contract clearly expects that
brokers will be remunerated by commissions from landlords, as is a
common practice in the real estate industry, GSA does not require
landlords to pay commissions. If a landlord were to fail to pay a
broker, the broker would have no claim against GSA."
Id. at 7.[Footnote 105]
d. Exceptions:
Two kinds of exceptions to 31 U.S.C. § 1342 have already been
discussed—where acceptance of services without compensation is
specifically authorized by law, and where the government and the
volunteer have a written agreement that the services are to be
rendered gratuitously with no expectation of future payment.
There is a third exception, written into the statute itself:
"emergencies involving the safety of human life or the protection of
property." The cases dealing with this statutory exception have arisen
in a variety of contexts and are discussed below, along with recent
developments.
(1) Safety of human life:
In order to invoke this exception, the services provided to protect
human life must have been rendered in a true emergency situation. What
constitutes an emergency was discussed in several early decisions.
In 12 Comp. Dec. 155 (1905), a municipal health officer disinfected
several government buildings to prevent the further spread of
diphtheria. Several cases of diphtheria had already occurred at the
government compound, including four that resulted in deaths. The
Comptroller of the Treasury found that the services had been rendered
in an emergency involving the loss of human life, and held accordingly
that the doctor could be reimbursed for the cost of materials used and
the fair value of his services.
In another case, the S.S. Rexmore, a British vessel, deviated from its
course to London to answer a call for help from an Army transport ship
carrying over 1,000 troops. The ship had sprung a leak and appeared to
be in danger of sinking. The Comptroller General allowed a claim for
the vessel's actual operating costs plus lost profits attributable to
the services performed. The Rexmore had rendered a tangible service to
save the lives of the people aboard the Army transport, as well as the
transport vessel itself. 2 Comp. Gen. 799 (1923).
On the other hand, GAO denied payment to a man who was boating in the
Florida Keys and saw a Navy seaplane make a forced landing. He offered
to tow the aircraft over two miles to the nearest island, and did so.
His claim for expenses was denied. The aircraft had landed intact and
the pilot was in no immediate danger. Rendering service to overcome
mere inconvenience or even to avoid a potential future emergency is
not enough to overcome the statutory prohibition. 10 Comp. Gen. 248
(1930).
(2) Protection of property:
The main thing to remember here is that the property must be either
government-owned property or property for which the government has
some responsibility. The standard was established by the Comptroller
of the Treasury in 9 Comp. Dec. 182, 185 (1902) as follows:
"I think it is clear that the statute does not contemplate property in
which the Government has no immediate interest or concern; but I do
not think it was intended to apply exclusively to property owned by
the Government.
The term 'property' is used in the statute without any qualifying
words, but it is used in connection with the rendition of services for
the Government. The implication is, therefore, clear that the property
in contemplation is property in which the Government has an immediate
interest or in connection with which it has some duty to perform."
In the cited decision, an individual had gathered up mail scattered in
a train wreck and delivered it to a nearby town. The government did
not "own" the mail but had a responsibility to deliver it. Therefore,
the services came within the statutory exception and the individual
could be paid for the value of his services.
Applying the approach of 9 Comp. Dec. 182, the Comptroller General
held in B-152554, Feb. 24, 1975, that section 1342 did not permit the
Agency for International Development to make expenditures in excess of
available funds for disaster relief in foreign countries. A case
clearly within the exception is 3 Comp. Gen. 979 (1924), allowing
reimbursement to a municipality which had rendered firefighting
assistance to prevent the destruction of federal property where the
federal property was not within the territory for which the municipal
fire department was responsible.
An exception was also recognized in 53 Comp. Gen. 71 (1973), where a
government employee brought in food for other government employees in
circumstances which would justify a determination that the expenditure
was incidental to the protection of government property in an extreme
emergency. In this case, the General Services Administration had to
assemble and maintain for 5 days a cadre of approximately 175 special
police in connection with the unauthorized occupation of a Bureau of
Indian Affairs building. The police officers were required to perform
tours of duty that sometimes extended to 24 hours. They were kept at
the ready to reoccupy the building and they were not permitted to
leave the marshaling area because of the imminence of court orders and
administrative directives.
(3) Recent developments:
During the past two decades, cases addressing the "emergencies
involving the safety of human life or the protection of property"
exception to 31 U.S.C. § 1342 have arisen primarily in the context of
"funding gaps" where an agency is faced with an appropriations lapse
(or potential lapse) usually at the outset of a fiscal year. These
cases are discussed in detail in section C.6 of this chapter. However,
several points from that discussion are also relevant here. Most
notably, in 1990, Congress amended 31 U.S.C. § 1342 by adding the
following language:
"As used in this section, the term 'emergencies involving the safety
of human life or the protection of property' does not include ongoing,
regular functions of government the suspension of which would not
imminently threaten the safety of human life or the protection of
property."[Footnote 106]
Two recent GAO decisions have considered the emergency exception to 31
U.S.C. § 1342 (including its 1990 amendment) in a context other than a
funding gap. The question in B-262069, Aug. 1, 1995, was whether the
District of Columbia could exceed its appropriation for certain
programs, including Aid to Families with Dependent Children and
Medicaid, without violating the Antideficiency Act. The main issue in
that decision was whether the "unless authorized by law exception" to
the Antideficiency Act in 31 U.S.C. § 1341(a)(1)(A) applied. GAO held
that it did not. The decision also noted the existence of the
emergencies exception to 31 U.S.C. § 1342, but held that it was
likewise inapplicable:
"An 'emergency' under section 1342 'does not include ongoing, regular
functions of government the suspension of which would not imminently
threaten the safety of human life or the protection of property.' We
are not presently aware of any facts or circumstances that would make
this limited exception available to the District. See, 5 Op.
O.L.C. 1, 7-11 (1981)."
B-262069 at 3, fn. 1.
The decision in B-262069 addressed a hypothetical situation; the
District had not actually exceeded its appropriation there.
Unfortunately, a subsequent opinion, B-285725, Sept. 29, 2000,
involved the real thing. In that case, the District of Columbia Health
and Hospitals Public Benefit Corporation (PBC) had incurred
obligations and made payments in excess of its appropriations. The PBC
maintained that the emergency exception to 31 U.S.C. § 1342 as
construed by the Attorney General applied; thus, there was no
violation. GAO disagreed:
"The funding gap situations discussed by the Attorney General arise
typically at the beginning of a fiscal year because of the absence or
expiration of budget authority under circumstances that are beyond an
agency's control. In the present situation, the exhaustion of
appropriations occurred during the fiscal year because of a rate of
operations and obligations in excess of available resources. Viewed in
this light, PBC's failure to regulate its activities and spending so
as to operate within its available budget resources is not the type of
'emergency' covered either by the Attorney General's earlier opinions
or 31 U.S.C. § 1342."
B-285725, Enclosure at 9.
The opinion acknowledged that PBC's ongoing functions of operating a
hospital and clinics involved the provision of services essential to
the protection of human life. However, the opinion observed that PBC,
like many federal agencies engaged in protecting human life and
safety, requested and received appropriations to cover these
functions. It added:
"Once the Congress enacts appropriation[s], it is incumbent on the PBC
(and similarly situated federal agencies) to manage its resources to
stay within the authorized level. Nothing in the District's Submission
demonstrates that the PBC's exhaustion of appropriations prior to the
end of the fiscal year was caused by some unanticipated event or
events (e.g., mass injuries resulting from hurricane, flood or other
natural disasters) requiring PBC to provide services for the
protection of life beyond the level it should have reasonably been
expected to anticipate when it prepared its budget."
Id. By way of summary, the opinion observed:
"While the failure of Congress to enact appropriations at the
beginning of the fiscal year may qualify as an emergency event for
purposes of section 1342, it would be a novel proposition, one that we
are unwilling to endorse, to conclude that an agency's failure to
manage and live within the resources provided for an activity involved
in protecting human life permits it to incur obligations in excess of
amounts provided. Nothing that we have been provided warrants the
conclusion that the overobligations resulted from an unanticipated
emergency rather than from the PBC's failure to manage and live within
its budgetary resources during the fiscal year."[Footnote 107]
B-285725 at 3.
In essence, B-285725 held that the emergencies exception to 31 U.S.C.
§ 1342 does not apply where an agency exceeds its appropriations—at
least absent events beyond the agency's control that the agency (and
presumably the Congress) could not have foreseen in determining the
agency's funding levels.
In two opinions to the United States Marshals Service (USMS) in 1999
and 2000, the Office of Legal Counsel addressed a potential exhaustion
of USMS appropriations, which never materialized: Memorandum Opinion
for the General Counsel, United States Marshals Service, USMS
Obligation To Take Steps To Avoid Anticipated Appropriations
Deficiency, OLC Opinion, May 11, 1999, and Memorandum Opinion for the
General Counsel, United States Marshals Service, Continuation of
Federal Prisoner Detention Efforts in the Face of a USMS
Appropriations Deficiency, OLC Opinion, Apr. 5, 2000. The opinions
dealt with a potential exhaustion of appropriations for USMS prisoner-
detention functions, but did not describe the circumstances giving
rise to the potential exhaustion. While these opinions recognized the
"affirmative obligation" on the part of agencies to manage available
appropriations in order to avoid deficiencies, they did not address
the important distinction between an exhaustion of appropriations (or
funding gap) resulting from unforeseen circumstances and an exhaustion
of appropriations resulting from the agency's failure to manage its
operations within the limits of enacted appropriations. We would
disagree with the Office of Legal Counsel opinions to the extent they
could be read to suggest that regardless of the reasons for the
exhaustion of appropriations, whenever an agency like USMS, whose
statutory mission involves the protection of life and property, runs
out of money, it has open-ended authority to continue to incur
obligations under the Antideficiency Act's emergencies exception.
[Footnote 108] This is exactly the "coercive deficiency" that the
Congress legislated against in enacting the Antideficiency Act.
[Footnote 109] See B-285725, Sept. 29, 2000. The Antideficiency Act
was intended to keep agency operations at a level within the amounts
that Congress appropriates for that purpose. If an agency concludes
that it needs more funds than Congress has appropriated for a fiscal
year, the agency should ask Congress to enact a supplemental
appropriation; it should not continue operations without regard to the
Antideficiency Act.
e. Voluntary Creditors:
A related line of decisions are the so-called "voluntary creditor"
cases. A voluntary creditor is an individual, government or private,
who pays what he or she perceives to be a government obligation from
personal funds. The rule is that the voluntary creditor cannot be
reimbursed, although there are significant exceptions. For the most
part, the decisions have not related the voluntary creditor
prohibition to the Antideficiency Act, with the exception of one very
early case (17 Comp. Dec. 353 (1910)) and two more recent ones (53
Comp. Gen. 71 (1973) and 42 Comp. Gen. 149 (1962)). The voluntary
creditor cases are discussed in detail in Chapter 12, section C.4.c in
volume III of the second edition of Principles of Federal
Appropriations Law, dealing with claims against the United States.
4. Apportionment of Appropriations:
Because of the apportionment and related provisions of the
Antideficiency Act, 31 U.S.C. §§ 1511-1519, an agency generally does
not have the full amount of its appropriations available to it at the
beginning of the fiscal year. Apportionment is an administrative
process by which, as its name suggests, appropriated funds are
distributed to agencies in portions over the period of their
availability. The Office of Management and Budget (OMB) apportions
funds for executive branch agencies. 31 U.S.C. § 1513(b); Exec. Order
No. 6166, § 16 (June 10, 1933), at 5 U.S.C. § 901 note. Appropriations
for legislative branch agencies, the judicial branch, the District of
Columbia, and the International Trade Commission are apportioned by
officials having administrative control of those funds. 31 U.S.C. §
1513(a). In addition to apportionment, appropriations are subject to
further administrative subdivision by the heads of the agencies to
which the appropriations are made. 31 U.S.C. § 1514.
Section 1517(a) of title 31 prohibits officers and employees of the
federal and District of Columbia governments from making or
authorizing an expenditure or obligation that exceeds an apportionment
or the amount permitted under certain other subdivisions of
appropriated funds. Agencies must report violations of section 1517(a)
to the Congress and the President. Those who violate section 1517(a)
are subject to administrative discipline as well as criminal penalties
in the case of willful violations. See 31 U.S.C. §§ 1517(b), 1518, and
1519.
a. Statutory Requirement for Apportionment:
Subsection (a) of section 1512 establishes the basic requirement for
the apportionment of appropriations:
"(a) Except as provided in this subchapter, an appropriation available
for obligation for a definite period shall be apportioned to prevent
obligation or expenditure at a rate that would indicate a necessity
for a deficiency or supplemental appropriation for the period. An
appropriation for an indefinite period and authority to make
obligations by contract before appropriations shall be apportioned to
achieve the most effective and economical use. An apportionment may be
reapportioned under this section."
Although apportionment was first required legislatively in 1905,
[Footnote 110] the current form of the statute derives from a revision
enacted in 1950 in section 1211 of the General Appropriation Act,
1951.[Footnote 111] The 1950 revision was part of an overall effort by
Congress to amplify and enforce the basic restrictions against
incurring deficiencies in violation of the Antideficiency Act, 31
U.S.C. § 1341.
Section 1512(a) requires that all appropriations be administratively
apportioned so as to ensure their obligation and expenditure at a
controlled rate which will prevent deficiencies from arising before
the end of a fiscal year. Although section 1512 does not tell you who
is to make the apportionment, section 1513 names the President as the
apportioning official for most executive branch agencies. The
President delegated the function to the Director of the Bureau of the
Budget in 1933,[Footnote 112] and it now reposes in the successor to
that office, the Director of the Office of Management and Budget
(OMB).[Footnote 113] Legislative and judicial branch appropriations
are apportioned by officials in those branches. 31 U.S.C. § 1513(a).
The term "apportionment" may be defined as follows:
"The action by which [the apportioning official] distributes amounts
available for obligation, including budgetary reserves established
pursuant to law, in an appropriation or fund account. An apportionment
divides amounts available for obligation by specific time periods
(usually quarters), activities, projects, objects, or a combination
thereof. The amounts so apportioned limit the amount of obligations
that may be incurred. An apportionment may be further subdivided by an
agency into allotments, suballotments, and allocations. In
apportioning any account, some funds may be reserved to provide for
contingencies or to effect savings made possible pursuant to the
Antideficiency Act. Funds apportioned to establish a reserve must be
proposed for deferral or rescission pursuant to the Impoundment
Control Act of 1974 (2 U.S.C. §§ 681-688).
"The apportionment process is intended to (1) prevent the obligation
of amounts available within an appropriation or fund account in a
manner that would require deficiency or supplemental appropriations
and (2) achieve the most effective and economical use of amounts made
available for obligation.[Footnote 114]
Apportionment is required not only to prevent the need for deficiency
or supplemental appropriations, but also to ensure that there is no
drastic curtailment of the activity for which the appropriation is
made. 36 Comp. Gen. 699 (1957). See also 38 Comp. Gen. 501 (1959). In
other words, the apportionment requirement is designed to prevent an
agency from spending its entire appropriation before the end of the
fiscal year and then putting Congress in a position in which it must
either enact an additional appropriation or allow the entire activity
to come to a halt. 64 Comp.
Gen. 728, 735 (1985). See also Memorandum Opinion for the General
Counsel, United States Marshals Service, USMS Obligation To Take Steps
To Avoid Anticipated Appropriations Deficiency, OLC Opinion, May 11,
1999 (opining that 31 U.S.C. § 1512(a) imposes "an affirmative
obligation" on federal agencies to take steps to use their available
funds in a way that will avoid the need for a deficiency or
supplemental appropriations, citing 64 Comp. Gen. 728 and 36 Comp.
Gen. 699). In 36 Comp. Gen. 699, Post Office funds had been
reapportioned in such a way that the fourth quarter funds were
substantially less than those for the third quarter. The Comptroller
General stated:
"A drastic curtailment toward the close of a fiscal year of operations
carried on under a fiscal year appropriation is a prima facie
indication of a failure to so apportion an appropriation 'as to
prevent obligation or expenditure thereof in a manner which would
indicate a necessity for deficiency or supplemental appropriations for
such period.' In our view, this is the very situation the amendment of
the law in 1950 was intended to remedy."
36 Comp. Gen. at 703. See also 64 Comp. Gen. 728, 735-36 (1985).
However, the mere fact that an agency faces a severe lack of funds and
needs to curtail services late in a fiscal year does not necessarily
mean that the apportioning authority has violated 31 U.S.C. § 1512(a).
Programmatic factors that could not reasonably be foreseen at the time
of an apportionment or reapportionment may affect the pattern or pace
of spending over the course of the year. Also, as discussed hereafter
in section C.4.e, the statute itself permits apportionments indicating
the need for a deficiency or supplemental appropriation in certain
limited circumstances.
A 1979 decision involved the Department of Agriculture's Food Stamp
Program. The program was subject to certain spending ceilings which it
seemed certain, given the rate at which the Department was incurring
expenditures, that the Department was going to exceed. The Department
feared that, if it was bound by a formula in a different section of
its authorizing act to pay the mandated amount to each eligible
recipient, it would have to stop the whole program when the funds were
exhausted. Based on both the Antideficiency Act and the program
legislation, GAO concluded that there had to be an immediate pro rata
reduction for all participants. Discontinuance of the program when the
funds ran out would violate the purpose of the apportionment
requirement. A-51604, Mar. 28, 1979.
This is not to say that every subactivity or project must be carried
out for the full fiscal year, on a reduced basis, if necessary.
Section 1512(a) applies to amounts made available in an appropriation
or fund. Where, for example, the then Veterans Administration (VA)
nursing home program was funded from moneys made available in a
general, lump-sum VA medical care appropriation, the agency was free
to discontinue the nursing home program and reprogram the balance of
its funds to other programs also funded under that heading. B-167656,
June 18, 1971. (The result would be different if the nursing home
program had received a line-item appropriation.)
The general rule against apportionments that indicate the need for a
deficiency or supplemental appropriation does not preclude an agency
from requesting an apportionment of all or most of its existing
appropriations at the same time that it is seeking a supplemental so
long as the agency has in place a plan that would enable it to
function through the end of the fiscal year should Congress not enact
the supplemental. 64 Comp. Gen. 728, 735 (1985). See also B-255529,
Jan. 10, 1994. In 64 Comp. Gen. 728, the former Interstate Commerce
Commission (ICC) had requested an apportionment of the full annual
amount available to it under a continuing resolution at the outset of
fiscal year 1985. At the same time, the ICC voted to seek a
supplemental appropriation in order to avoid severe staffing cuts that
would have been required without it. The Comptroller General held that
the apportionment was not improper:
"As we have indicated, at the recommendation of its Managing Director
the ICC adopted an operating plan for fiscal year 1985 which included
a request for a supplemental appropriation. However, part of that
operating plan was an emergency plan which would enable the ICC to
operate for the entire fiscal year even without a supplemental. Under
the plan, if the Congress did not enact a supplemental appropriation
by the end of March, the Commission was to furlough all its employees
for 1 day per week for the remainder of the year. This would allow the
Commission to operate through the end of the fiscal year within the
$48 million already appropriated. In fact a supplemental was not
passed by the end of March and the furlough was implemented....
"The actions taken by the ICC ...demonstrate that from the time at
which the Congress and the President approved legislation reducing
ICC's funding below the requested level, every decision related to
expenditures was made to avoid violation of the Antideficiency Act."
64 Comp. Gen. at 735.
The requirement to apportion applies not only to 1-year appropriations
and other appropriations limited to a fixed period of time, but also
to "no-year" money and even to contract authority (authority to
contract in advance of appropriations). 31 U.S.C. §§ 1511(a), 1512(a).
In the case of indefinite appropriations and contract authority, the
requirement states only that the apportionment is to be made in such a
way as "to achieve the most effective and economical use" of the
budget authority. Id. § 1512(a).
Prior to the 1982 recodification of title 31 of the United States
Code, the apportionment requirement applied explicitly to government
corporations which are instrumentalities of the United States.
[Footnote 115] While the applicability of the requirement has not
changed, the recodification dropped the explicit language, viewing it
as covered by the broad definition of "executive agency" in 31 U.S.C.
§ 102.[Footnote 116] The authority of some government corporations to
determine the necessity of their expenditures and the manner in which
they shall be incurred is not sufficient to exempt a corporation from
the apportionment requirement. 43 Comp. Gen. 759 (1964).
The apportionment process provides a set of administrative controls
over the use of appropriations in addition to those Congress has
imposed through the appropriations act itself. The apportionment
process cannot alter or otherwise affect the operation of statutory
requirements concerning the availability or use of appropriated funds.
In this regard, OMB's guidance on apportionments states:
"... The apportionment of funds should not be used as a means of
resolving any question dealing with the legality of using funds for
the purposes for which they are appropriated. Any questions as to the
legality of using funds for a particular purpose must be resolved
through legal channels."
OMB Circ. No. A-11, pt. 4, § 120.17.[Footnote 117]
Furthermore, an apportioning official cannot apportion funds in
advance of their availability for obligation or expenditure. In B-
290600, July 10, 2002, OMB had apportioned certain budget authority
for loan guarantees to the Air Transportation Stabilization Board
pursuant to the Board's request. The statute enacting this budget
authority had conditioned its availability such that the budget
authority "shall be available only to the extent that a request...
that includes designation of such amount as an emergency
requirement... is transmitted by the President to Congress." The
President had not transmitted this designation at the time of the
apportionment. Therefore, GAO concluded that OMB and the Board had
violated the Antideficiency Act. OMB and the Board recognized the
violation and had already taken steps to avoid a recurrence.
b. Establishing Reserves:
Section 1512(c) of 31 U.S.C. provides as follows:
"(c)(1) In apportioning or reapportioning an appropriation, a reserve
may be established only:
"(A) to provide for contingencies;
"(B) to achieve savings made possible by or through changes in
requirements or greater efficiency of operations; or;
"(C) as specifically provided by law.
"(2) A reserve established under this subsection may be changed as
necessary to carry out the scope and objectives of the appropriation
concerned. When an official designated in section 1513 of this title
to make apportionments decides that an amount reserved will not be
required to carry out the objectives and scope of the appropriation
concerned, the official shall recommend the rescission of the amount
in the way provided in chapter 11 of this title for appropriation
requests. Reserves established under this section shall be reported to
Congress as provided in the Impoundment Control Act of 1974 (2 U.S.C.
681 et seq.)."
Section 1512(c) seeks to limit the circumstances in which the full
appropriation is not apportioned or utilized and a reserve fund is
established. Under this provision, the apportioning official is
authorized to establish reserves only to provide for contingencies or
to effect savings, unless the reserve is specifically authorized by
statute.
At one time, this section was a battleground between the executive and
legislative branches. The executive branch had relied on this portion
of the Antideficiency Act to impound funds for general fiscal or
economic policy reasons such as containment of federal spending and
executive judgment of the relative merits, effectiveness, and
desirability of competing federal programs (often referred to as
"policy impoundments"). See 54 Comp. Gen. 453, 458 (1974); B-135564,
July 26, 1973.
Prior to 1974, the predecessor of 31 U.S.C. § 1512(c) contained rather
expansive language to the effect that a reserve fund could be
established pursuant to "other developments subsequent to the date on
which [the] appropriation was made available." 31 U.S.C. § 665(c)(2)
(1970 ed.).
Despite this expansive language, the Comptroller General's position
had been that the authority to establish reserves under the
Antideficiency Act was limited to providing for contingencies or
effecting savings which are in furtherance of, or at least consistent
with, the purposes of an appropriation. B-130515, July 10, 1973. The
Comptroller General did not interpret the law as authorizing a reserve
of funds (i.e., an impoundment) based upon general economic, fiscal,
or policy considerations that were extraneous to the individual
appropriation or were in derogation of the appropriation's purpose. B-
125187, Sept. 11, 1973; B-130515, July 10, 1973. See also State
Highway Commission of Missouri v. Volpe, 479 F.2d 1099, 1118 (8th Cir.
1973), which held that the right to reserve funds in order to "effect
savings" or due to "subsequent events," etc., must be considered in
the context of the applicable appropriation statute.
The Impoundment Control Act of 1974[Footnote 118] amended section
1512(c) by eliminating the "other developments" clause and by
prohibiting the establishment of appropriation reserves except as
provided under the Antideficiency Act for contingencies or savings, or
as provided in other specific statutory authority. The intent was to
preclude reliance on section 1512(c) as authority for "policy
impoundments." City of New Haven v. United States, 809 F.2d 900, 906
(D.C. Cir. 1987); 54 Comp. Gen. 453 (1974); B-148898-0.M., Aug. 28,
1974.
The executive branch, however, continued to defer for policy reasons,
arguing that section 1013 of the Impoundment Control Act provided
authority, independent of the Antideficiency Act, to withhold funds
from obligation temporarily for fiscal policy reasons. GAO agreed that
this interpretation was consistent with the language of the
Impoundment Control Act and with the statutory scheme, pointing out
that Congress had reserved the power under the Impoundment Control Act
to disapprove any deferral, particularly deferrals for fiscal policy
reasons, as a counterweight to the President's power to defer. 54
Comp. Gen. at 455. At that time, the Impoundment Control Act provided
for disapproval using a one-house veto. This counterweight vanished
when the Supreme Court held one-house legislative veto provisions
unconstitutional. Immigration & Naturalization Service v. Chadha, 462
U.S. 919 (1983). Accordingly, in a decision issued on January 20,
1987, the U.S. Court of Appeals for the District of Columbia
invalidated section 1013, which was the sole general legislative
authority for policy deferrals.[Footnote 119] City of New Haven, 809
F.2d at 902, 905-09. In September of 1987, Congress reenacted section
1013(b) of the Impoundment Control Act, 2 U.S.C. § 684(b), without the
unconstitutional legislative veto provision and reiterated that the
same limits on appropriation reserves that appear in 31 U.S.C. §
1512(c) are the sole justifications for deferrals. See Pub. L. No. 100-
119, § 206, 101 Stat. 754, 785 (Sept. 29, 1987). See Chapter 1,
section D.3.b for a general discussion of impoundments and the
Impoundment Control Act.
The Comptroller General discussed examples of permissible (i.e.,
nonpolicy) reserves in 51 Comp. Gen. 598 (1972) and 51 Comp. Gen. 251
(1971). The first decision concerned the provisions of a long-term
charter of several tankers for the Navy. The contract contained
options to renew the charter for periods of 15 years. In the event
that the Navy declined to renew the charter short of a full 15-year
period, the vessels were to be sold by a Board of Trustees, acting for
the owners and bondholders. Any shortfall in the proceeds over the
termination value was to be unconditionally guaranteed by the Navy.
GAO held that it would not violate the Antideficiency Act to cover
this contingent liability by setting up a reserve. 51 Comp. Gen. 598
(1972). In 51 Comp. Gen. 251 (1971), GAO said that it was permissible
to provide in regulations for a clause to be inserted in future
contracts for payment of interest on delayed payments of a
contractor's claim. Reserving sufficient funds from the appropriation
used to support the contract to cover these potential interest costs
would protect against potential Antideficiency Act violations.
In 1981, the Community Services Administration established a reserve
as a cushion against Antideficiency Act violations while the agency
was terminating its operations. Grantees argued that the reserve
improperly reduced amounts available for discretionary grants. In
Rogers v. United States, 14 Cl. Ct. 39, 46-47 (1987), aff'd, 801 F.2d
729 (Fed. Cir. 1988), cert. denied, 490 U.S. 1034 (1989), the court
held that a reasonable reserve for contingencies was properly within
the agency's discretion.
c. Method of Apportionment:
The remaining portions of 31 U.S.C. § 1512 are subsections (b) and
(d), set forth below:
"(b)(1) An appropriation subject to apportionment is apportioned by:
"(A) months, calendar quarters, operating seasons, or other time
periods;
"(B) activities, functions, projects, or objects; or;
"(C) a combination of the ways referred to in clauses (A) and (B) of
this paragraph.
"(d) An apportionment or reapportionment shall be reviewed at least 4
times a year by the official designated in section 1513 of this title
to make apportionments."
Subsection (b) and (d) are largely technical, implementing the basic
apportionment requirement of 31 U.S.C. § 1512(a). Section 1512(b)
makes it clear that apportionments need not be made strictly on a
monthly, quarterly, or other fixed time basis, nor must they be for
equal amounts in each time period. The apportioning officer is free to
take into account the "activities, functions, projects, or objects" of
the program being funded and the usual pattern of spending for such
programs in deciding how to apportion the funds. Absent some statutory
provision to the contrary, OMB's determination is controlling. Thus,
in Maryland Department of Human Resources v. United States Department
of Health & Human Services, 854 F.2d 40 (4th Cir. 1988), the court
upheld OMB's quarterly apportionment of social services block grant
funds, rejecting the state's contention that it should receive its
entire annual allotment at the beginning of the fiscal year. Section
1512(d) requires a minimum of four reviews each year to enable the
apportioning officer to make reapportionments or other adjustments as
necessary.
Conversely, OMB may decide to apportion all or most of an available
appropriation at the outset of a fiscal year. In B-255529, Jan. 10,
1994, GAO held that OMB's apportionments at the beginning of the
fiscal year of the full amounts available for two State Department
appropriation ("Contributions to International Organizations" and
"Contributions for International Peacekeeping Activities") constituted
an appropriate exercise of OMB's discretion. Quoting from an earlier
opinion, B-152554, Feb. 17, 1972, the decision then observed that the
amounts to be apportioned depended on the needs of the programs as
determined by OMB:
"It must be recognized that, with respect to a number of programs,
particularly where grant or other assistance funds are involved, a
large portion of the funds normally are obligated during the early
part of the fiscal year. The pattern of obligations is much different
than where, for example, an appropriation is primarily available for
salaries and administrative expenses. In such case the expenditures
would be comparatively constant throughout the year. The pattern of
obligations, however, is primarily an administrative matter ... [for
resolution through] the apportionment process."
The decision pointed out that, according to the State Department,
payments under the Contributions to International Organizations
account traditionally were made in the first quarter of the fiscal
year. Payments under the Peacekeeping account usually occurred as
bills were received and funds were available, but the Department
advised GAO that there was a large backlog of bills at the time funds
became available, thereby justifying immediate apportionment of the
entire annual appropriation.[Footnote 120]
d. Control of Apportionments:
Section 1513 of title 31, United States Code, specifies the
authorities and timetables for making the apportionments or
reapportionments of appropriations required by section 1512. Section
1513(a) applies to appropriations of the legislative and judicial
branches of the federal government, as well as appropriations of the
International Trade Commission and the District of Columbia
government.[Footnote 121] It assigns authority to apportion to the
"official having administrative control" of the appropriation.
[Footnote 122] Apportionment must be made 30 days before the start of
the fiscal year for which the appropriation is made, or within 30 days
after the enactment of the appropriation, whichever is later. The
apportionment must be in writing.
Section 1513(b) deals with apportionments for the executive branch.
The President is designated as the apportioning authority. As we have
seen, the function has been delegated to the Director, Office of
Management and Budget (OMB).[Footnote 123] The Director of OMB has up
to 20 days before the start of the fiscal year or 30 days after
enactment of the appropriation act, whichever is later, to make the
actual apportionment and notify the agency of the action taken. 31
U.S.C. § 1513(b)(2). Again, the apportionments must be in writing.
Although primary responsibility for a violation of section 1512 lies
with the Director of OMB, the head of the agency concerned also may be
found responsible if he or she fails to send the Director accurate
information on which to base an apportionment.
In B-163628, Jan. 4, 1974, GAO responded to a question from the
chairman of a congressional committee about the power of OMB to
apportion the funds of independent regulatory agencies, such as the
Securities and Exchange Commission (SEC). The Comptroller General
agreed with the chairman that independent agencies should generally be
free from executive control or interference. The response then stated:
"The apportionment power may not lawfully be used as a form of
executive control or influence over agency functions. Rather, it may
only be exercised by OMB in the manner and for the purposes prescribed
in 31 U.S.C. § [1512]—i.e., to prevent obligation or expenditure in a
manner which would give rise to a need for deficiency or supplemental
appropriations, to achieve the most effective and economical use of
appropriations and to establish reserves either to provide for
contingencies or to effect savings which are in furtherance of or at
least consistent with, the purposes of an appropriation.
"As thus limited, the apportionment process serves a necessary
purpose—-the promotion of economy and efficiency in the use of
appropriations.
"Since a useful purpose is served by OMB's proper exercise of the
apportionment power, we do not believe that the potential for abuse of
the power is sufficient to justify removing it from OMB."
Thus, the appropriations of independent regulatory agencies like the
Securities and Exchange Commission (SEC) are subject to apportionment
by OMB, but OMB may not lawfully use its apportionment power to
compromise the independence of those agencies.
The Impoundment Control Act may permit OMB, in effect, to delay the
apportionment deadlines prescribed in 31 U.S.C. § 1513(b). For
example, when the President sends a rescission message to Congress,
the budget authority proposed to be rescinded may be withheld for up
to 45 days pending congressional action on a rescission bill. 2 U.S.C.
§§ 682(3), 683(b). In B-115398.33, Aug. 12, 1976, GAO responded to a
congressional request to review a situation in which an apportionment
had been withheld for more than 30 days after enactment of the
appropriation act. The President had planned to submit a rescission
message for some of the funds but was late in drafting and
transmitting his message. If the full amount contained in the
rescission message could be withheld for the entire 45-day period, and
Congress ultimately declined to enact the full rescission, release of
the funds for obligation would occur only a few days before the budget
authority expired. The Comptroller General suggested that, where
Congress has completed action on a rescission bill rescinding only a
part of the amount proposed, OMB should immediately apportion the
amounts not included in the rescission bill without awaiting the
expiration of the 45-day period. See also B-115398.33, Mar. 5, 1976.
e. Apportionments Requiring Deficiency Estimate:
In our discussion of the basic requirement for apportionment, we quoted
31 U.S.C. § 1512(a) to the effect that appropriations must be
apportioned "to prevent obligation or expenditure at a rate that would
indicate a necessity for a deficiency or supplemental appropriation."
The requirement that appropriations be apportioned so as to avoid the
need for deficiency or supplemental appropriations is fleshed out in
31 U.S.C. § 1515 (formerly subsection (e) of the Antideficiency Act):
"(a) An appropriation required to be apportioned under section 1512 of
this title may be apportioned on a basis that indicates the need for a
deficiency or supplemental appropriation to the extent necessary to
permit payment of such pay increases as may be granted pursuant to law
to civilian officers and employees (including prevailing rate
employees whose pay is fixed and adjusted under subchapter IV of
chapter 53 of title 5) and to retired and active military personnel.
"(b)(1) Except as provided in subsection (a) of this section, an
official may make, and the head of an executive agency may request, an
apportionment under section 1512 of this title that would indicate a
necessity for a deficiency or supplemental appropriation only when the
official or agency head decides that the action is required because of:
"(A) a law enacted after submission to Congress of the estimates for
an appropriation that requires an expenditure beyond administrative
control; or;
"(B) an emergency involving the safety of human life, the protection
of property, or the immediate welfare of individuals when an
appropriation that would allow the United States Government to pay, or
contribute to, amounts required to be paid to individuals in specific
amounts fixed by law or under formulas prescribed by law, is
insufficient.
"(2) If an official making an apportionment decides that an
apportionment would indicate a necessity for a deficiency or
supplemental appropriation, the official shall submit immediately a
detailed report of the facts to Congress. The report shall be referred
to in submitting a proposed deficiency or supplemental appropriation."
Section 1515 thus provides certain exceptions to the requirement of
section 1512(a) that apportionments be made in such manner as to
assure that the funds will last throughout the fiscal year and there
will be no necessity for a deficiency appropriation. Under subsection
1515(a), deficiency apportionments are permissible if necessary to pay
salary increases granted pursuant to law to federal civilian and
military personnel. Under subsection 1515(b), apportionments can be
made in an unbalanced manner (e.g., an entire appropriation could be
obligated by the end of the second quarter) if the apportioning
officer determines that (1) a law enacted subsequent to the
transmission of budget estimates for the appropriation requires
expenditures beyond administrative control, or (2) there is an
emergency involving safety of human life, protection of property, or
immediate welfare of individuals in cases where an appropriation for
mandatory payments to those individuals is insufficient.
Prior to 1957, what is now subsection 1515(b) prohibited only the
making of an apportionment indicating the need for a deficiency or
supplemental appropriation, so the only person who could violate this
subsection was the Director of OMB. An amendment in 1957 made it
equally a violation for an agency to request such an apportionment.
See 38 Comp. Gen. 501 (1959). The exception in subsection
1515(b)(1)(A) for expenditures "beyond administrative control"
required by a statute enacted after submission of the budget estimate
may be illustrated by statutory increases in compensation, although
many of the cases would now be covered by subsection (a). We noted
several of the cases in our consideration of when an obligation or
expenditure is "authorized by law" for purposes of 31 U.S.C. §
1341.[Footnote 124] Those cases established the rule that a mandatory
increase is regarded as "authorized by law" so as to permit
overobligation, whereas a discretionary increase is not. The same rule
applies in determining when an expenditure is "beyond administrative
control" for purposes of 31 U.S.C. § 1515(b). Thus, statutory pay
increases for Wage Board employees granted pursuant to a wage survey
meet the test. 39 Comp. Gen. 422 (1959); 38 Comp. Gen. 538, 542
(1959). See also 45 Comp. Gen. 584, 587 (1966) (severance pay in
fiscal year 1966).[Footnote 125] Discretionary increases, just as they
are not "authorized by law" for purposes of 31 U.S.C. § 1341, are not
"beyond administrative control" for purposes of section 1515(b). 44
Comp. Gen. 89 (1964) (salary increases to Central Intelligence Agency
employees); 31 Comp. Gen. 238 (1951) (pension increases to retired
District of Columbia police and firefighters).
The Wage Board exception was separately codified in 1957 and now
appears at 31 U.S.C. § 1515(a), quoted above. Subsection 1515(a)
reached its present form in 1987 when Congress expanded it to include
pay increases granted pursuant to law to non-Wage Board civilian
officers and employees and to retired and active military personnel.
[Footnote 126]
The "emergency" exceptions in subsection 1515(b)(1)(B) have not been
discussed in GAO decisions, although a 1989 internal memorandum
suggested that the exception would apply to Forest Service
appropriations for fighting forest fires. B-230117-0.M., Feb. 8, 1989.
The exceptions for safety of human life and protection of property
appear to be patterned after identical exceptions in 31 U.S.C. § 1342
(acceptance of voluntary services), so the case law under that section
would likely be relevant for construing the scope of the exceptions
under section 1515(b). See 43 Op. Att'y Gen. 293, 5 Op. Off. Legal
Counsel 1, 9-10 (1981) ("as provisions containing the same language,
enacted at the same time, and aimed at related purposes, the emergency
provisions or sections 1342 and 1515(b)(1)(B) "should be deemed in
pari materia and given a like construction"); Memorandum for the
General Counsel, United States Marshals Service, Continuation of
Federal Prisoner Detention Efforts in the Face of a USMS Appropriation
Deficiency, OLC Opinion, Apr. 5, 2000 ("we think it clear that, if an
agency's functions fall within § 1342's exception for emergency
situations, the standard for the 'emergency' exception under
§ [1515(b)(1)(B)] also will be met"). See also Memorandum for the
Director, Office of Management and Budget, Government Operations in
the Event of a Lapse in Appropriations, OLC Opinion, Aug. 16, 1995, at
7, fn. 6.
It is less obvious that the converse would necessarily be true—that
is, that an "emergency" for purposes of subsection 1515(b)(1)(B)
automatically qualifies as an "emergency" for purposes of section
1342. As we pointed out in discussing section 1342, this section was
amended in 1990 to add the following language:
"As used in this section, the term 'emergencies involving the safety
of human life or the protection of property' does not include ongoing,
regular functions of government the suspension of which would not
imminently threaten the safety of human life or the protection of
property."
Such language was not added to subsection 1515(b)(1)(B). Thus, on its
face, subsection 1515(b)(1)(B) may embody at least a slightly more
flexible standard of "emergency" than section 1342, although we have
found no cases addressing this point.
Importantly, the exceptions in 31 U.S.C. § 1515(b) are exceptions only
to the prohibition against malting or requesting apportionments
requiring deficiency estimates; they are not exceptions to the basic
prohibitions in 31 U.S.C. § 1341 against obligating or spending in
excess or advance of appropriations. The point was discussed at some
length in B-167034, Sept. 1, 1976. Legislation had been proposed in
the Senate to repeal 41 U.S.C. § 11 (the Adequacy of Appropriations
Act),[Footnote 127] which prohibits the malting of a contract, not
otherwise authorized by law, unless there is an appropriation
"adequate to its fulfillment," except in the case of contracts made by
a military department for "clothing, subsistence, forage, fuel,
quarters, transportation, or medical and hospital supplies." The
question was whether, if 41 U.S.C. § 11 were repealed, the military
departments would have essentially the same authority under section
1515(b).
The Defense Department expressed the view that section 1515(b) would
not be an adequate substitute for the 41 U.S.C. § 11 exception which
allows the incurring of obligations for limited purposes even though
the applicable appropriation is insufficient to cover the expenses at
the time the commitment is made. Defense commented as follows:
"The authority to apportion funds on a deficiency basis in [31 U.S.C.
§ 1515(b)] does not, as alleged, provide authority to incur a
deficiency. It merely authorizes obligating funds at a deficiency rate
under certain circumstances, e.g., a $2,000,000 appropriation can be
obligated in its entirety at the end of the third quarter, but it does
not provide authority to obligate one dollar more than $2,000,000."
Letter from the Deputy Secretary of Defense to the Chairman, House
Armed Services Committee, Apr. 2, 1976 (quoted in B-167034, Sept. 1,
1976).
The Comptroller General agreed with the Deputy Secretary, stating:
"[Section 1515(b)] in no way authorizes an agency of the Government
actually to incur obligations in excess of the total amount of money
appropriated for a period. It only provides an exception to the
general apportionment rule set out in [31 U.S.C. § 1512(a)] that an
appropriation be allocated so as to insure that it is not exhausted
prematurely. [Section 1515(b)] says nothing about increasing the total
amount of the appropriation itself or authorizing the incurring of
obligations in excess of the total amount appropriated. On the
contrary, as noted above, apportionment only involves the subdivision of
appropriations already enacted by Congress. It necessarily follows
that the sum of the parts, as apportioned, could not exceed the total
amount of the appropriations being apportioned.
"Any deficiency that an agency incurs where obligations exceed total
amounts appropriated, including a deficiency that arises in a
situation where it was determined that one of the exceptions set forth
in [section 1515(b)] was applicable, would constitute a violation of
31 U.S.C. § [1341(a)] ...."
B-167034, Sept. 1, 1976.
f. Exemptions from Apportionment Requirement:
A number of exemptions from the apportionment requirement, formerly
found in subsection (f) of the Antideficiency Act, are now gathered in
31 U.S.C. § 1516:
"An official designated in section 1513 of this title to make
apportionments may exempt from apportionment:
"(1) a trust fund or working fund if an expenditure from the fund has
no significant effect on the financial operations of the United States
Government;
"(2) a working capital fund or a revolving fund established for
intragovernmental operations;
"(3) receipts from industrial and power operations available under
law; and;
"(4) appropriations made specifically for:
"(A) interest on, or retirement of, the public debt;
"(B) payment of claims, judgments, refunds, and drawbacks;
"(C) items the President decides are of a confidential nature;
"(D) payment under a law requiring payment of the total amount of the
appropriation to a designated payee; and;
"(E) grants to the States under the Social Security Act (42 U.S.C. 301
et seq.)."
Section 1516 is largely self-explanatory and the various enumerated
exceptions appear to be readily understood. Note that the statute does
not make the exemptions mandatory. It merely authorizes them, within
the discretion of the apportioning authority (OMB). OMB's implementing
instructions, OMB Circular No. A-11, Preparation, Submission, and
Execution of the Budget, part 4, § 120 (June 21, 2005), have not
adopted all of the exemptions permitted under the statute. For
example, the Circular's list of funds exempted from apportionment
pursuant to 31 U.S.C. § 1516 does not include trust funds or
intragovernmental revolving funds. See OMB Cir. No. A-11, at § 120.7.
In addition, 10 U.S.C. § 2201(a) authorizes the President to exempt
appropriations for military functions of the Defense Department from
apportionment upon determining "such action to be necessary in the
interest of national defense."
Another exemption, this one mandatory, is contained in 31 U.S.C.
§ 1511(b)(3): appropriations for "the Senate, the House of
Representatives, a committee of Congress, a member, officer, employee,
or office of either House of Congress, or the Office of the Architect
of the Capitol or an officer or employee of that Office" are exempt
from the apportionment requirement. The remainder of the legislative
branch along with the judicial branch are subject to apportionment.
See 31 U.S.C. § 1513(a).
g. Administrative Division of Apportionments:
Thus far, we have reviewed the provisions of the Antideficiency Act
directed at the appropriation level and the apportionment level. The
law also addresses agency subdivisions.
The first provision to note is 31 U.S.C. § 1513(d):
"An appropriation apportioned under this subchapter may
be divided and subdivided administratively within the limits of the
apportionment."
Thus, administrative subdivisions are expressly authorized. The
precise pattern of subdivisions will vary based on the nature and
scope of activities funded under the apportionment and, to some
extent, agency preference. The levels of subdivision below the
apportionment level are, in descending order, allotment, suballotment,
and allocation. See OMB Circular No. A-11, Preparation, Submission,
and Execution of the Budget, § 20.3 (June 21, 2005), which notes under
its definition of apportionment: "An apportionment may be further
subdivided by an agency into allotments, suballotments, and
allocations." As we will see later in our discussion of 31 U.S.C. §
1517(a), there are definite Antideficiency Act implications flowing
from how an agency structures its fund control system.
The next relevant statute is 31 U.S.C. § 1514:[Footnote 128]
"(a) The official having administrative control of an
appropriation available to the legislative branch, the judicial
branch, the United States International Trade Commission, or the
District of Columbia government, and, subject to the approval of the
President, the head of each executive agency (except the Commission)
shall prescribe by regulation a system of administrative control not
inconsistent with accounting procedures prescribed under law. The
system shall be designed to:
"(1) restrict obligations or expenditures from each appropriation to
the amount of apportionments or reapportionments of the appropriation;
and;
"(2) enable the official or the head of the executive agency to fix
responsibility for an obligation or expenditure exceeding an
apportionment or reapportionment.
"(b) To have a simplified system for administratively dividing
appropriations, the head of each executive agency (except the
Commission) shall work toward the objective of financing each
operating unit, at the highest practical level, from not more than one
administrative division for each appropriation affecting the unit."
Section 1514 is designed to ensure that the agencies in each branch of
the government keep their obligations and expenditures within the
bounds of each apportionment or reapportionment. The official in each
agency who has administrative control of the apportioned funds is
required to set up, by regulation, a system of administrative controls
to implement this objective. The system must be consistent with any
accounting procedures prescribed by or pursuant to law, and must be
designed to (1) prevent obligations and expenditures in excess of
apportionments or reapportionments, and (2) fix responsibility for any
obligation or expenditure in excess of an apportionment or
reapportionment.[Footnote 129] Agency fund control regulations in the
executive branch must be approved by OMB. See OMB Cir. No. A-11, pt.
4, § 150.7.
Subsection (b) of 31 U.S.C. § 1514 was added in 1956[Footnote 130] and
was intended to simplify agency allotment systems. Prior to 1956, it
was not uncommon for agencies to divide and subdivide their
apportionments into numerous "pockets" of obligational authority
called "allowances." Obligating or spending more than the amount of
each allowance was a violation of the Antideficiency Act as it then
existed. The Second Hoover Commission (Commission on Organization of
the Executive Branch of the Government) had recommended simplification
in 1955. The Senate and House Committees on Government Operations
agreed. Both committees reported as follows:
"The making of numerous allotments which are further divided and
suballotted to lower levels leads to much confusion and inflexibility
in the financial control of appropriations or funds as well as
numerous minor violations of [the Antideficiency Act]."
S. Rep. No. 84-2265, at 9 (1956); H.R. Rep. No. 84-2734, at 7 (1956).
The result was what is now 31 U.S.C. § 1514(b).[Footnote 131]
As noted, one of the objectives of 31 U.S.C. § 1514 is to enable the
agency head to fix responsibility for obligations or expenditures in
excess of apportionments. The statute encourages agencies to fix
responsibility at the highest practical level, but does not otherwise
prescribe precisely how this is to be done. Apart from subsection (b),
the substance of section 1514 derives from a 1950 amendment to the
Antideficiency Act.[Footnote 132] In testimony on that legislation,
the Director of the then Bureau of the Budget stated:
"At the present time, theoretically, I presume the agency head is
about the only one that you could really hold responsible for
exceeding [an] apportionment. The revised section provides for going
down the line to the person who creates the obligation against the
fund and fixes the responsibility on the bureau head or the division
head, if he is the one who creates the obligation."[Footnote 133]
Thus, depending on the agency regulations and the level at which
administrative responsibility is fixed, the violating individual could
be the person in charge of a major agency bureau or operating unit, or
it could be a contracting officer or finance officer.
Identifying the person responsible for a violation will be easy in
probably the majority of cases. However, where there are many
individuals involved in a complex transaction, and particularly where
the actions producing the violation occurred over a long period of
time, pinpointing responsibility can be much more difficult. Hopkins
and Nutt, in their study of the Antideficiency Act, present the
following as a sensible approach:
"Generally, [the individual to be held responsible] will be the
highest ranking official in the decision-making process who had
knowledge, either actual or constructive, of (1) precisely what
actions were taken and (2) the impropriety or at least
questionableness of such actions. There will be officials who had
knowledge of either factor. But the person in the best and perhaps
only position to prevent the ultimate error—and thus the one who must
be held accountable—is the highest one who is aware of both.[Footnote
134]
Thus, Hopkins and Nutt conclude, where multiple individuals are
involved in a violation, the individual to be held responsible "must
not be too remote from the cause of the violation and must be in a
position to have prevented the violation from occurring."[Footnote 135]
h. Expenditures in Excess of Apportionment:
The former subsection (h) of the Antideficiency Act, now 31 U.S.C. §
1517(a), provides:
"(a) An officer or employee of the United States Government or of the
District of Columbia government may not make or authorize an
expenditure or obligation exceeding:
"(1) an apportionment; or;
"(2) the amount permitted by regulations prescribed under section
1514(a) of this title."
Section 1517(a) must be read in conjunction with sections 1341, 1512,
and 1514, previously discussed.
Subsection 1517(a)(1) prohibits obligations or expenditures in excess
of an apportionment. Thus, an agency must observe the limits of its
apportionments just as it must observe the limits of its
appropriations. It follows that an agency cannot obligate or expend
appropriations before they have been apportioned. Thus, GAO stated in
B-290600, July 10, 2002:
"The Antideficiency Act prohibits ... the making or the authorizing of
obligations or expenditures in advance of, or in excess of, available
appropriations. 31 U.S.C. § 1341. An agency may obligate an
appropriation only after OMB has apportioned it to the agency."
Since the Antideficiency Act requires an apportionment before an
agency can obligate the appropriation, 31 U.S.C. § 1512(a), an
obligation in advance of an apportionment violates the Act. See B-
255529, Jan. 10, 1994. In other words, if zero has been apportioned,
zero is available for obligation or expenditure.[Footnote 136] When an
agency anticipates a need to obligate appropriations upon their
enactment, it may request (but not receive) an apportionment before a
regular appropriation or continuing resolution has been enacted.
Typically, for regular appropriation acts, agencies submit their
apportionment requests to OMB by August 21 or within 10 calendar days
after enactment of the appropriation, whichever is later. See OMB
Circular No. A-11, Preparation, Submission, and Execution of the
Budget, § 120.30 (June 21, 2005). OMB permits agencies to submit
requests on the day Congress completes action on the appropriation
bill. Id. § 120.34. OMB encourages agencies to begin their preparation
of apportionment requests as soon as the House and Senate have reached
agreement on funding levels (id. § 120.30) and to discuss the proposed
request with OMB representatives (id. § 120.34). OMB will entertain
expedited requests and, for emergency funding needs, may approve the
apportionment request by telephone or fax Id. For continuing
resolutions, OMB typically expedites the process by malting
"automatic" apportionments under continuing resolutions. See B-255529,
Jan. 10, 1994; OMB Cir. No. A-11, § 123.5.
Under some circumstances, an agency may have a legal duty to seek an
additional apportionment from OMB. Blackhawk Heating & Plumbing Co. v.
United States, 622 F.2d 539, 552 n.9 (Ct. Cl. 1980); Berends v. Butz,
357 E Supp. 143, 155-56 (D. Minn. 1973). In Berends v. Butz, the
Secretary of Agriculture had terminated an emergency farm loan
program, allegedly due to a shortage of funds. The court found the
termination improper and directed reinstatement of the program. Since
the shortage of funds related to the amount apportioned and not the
amount available under the appropriation, the court found that the
Secretary had a duty to request an additional apportionment in order
to continue implementing the program. The case does not address the
nature and extent of any duty OMB might have in response to such a
request.
Subsection 1517(a)(2) makes it a violation to obligate or expend in
excess of an administrative subdivision of an apportionment to the
extent provided in the agency's fund control regulations prescribed
under section 1514. The importance of 31 U.S.C. § 1514 becomes much
clearer when it is read in conjunction with 31 U.S.C. § 1517(a)(2).
Section 1514 does not prescribe the level of fiscal responsibility for
violations below the apportionment level. It merely recommends that
the agency set the level at the highest practical point and suggests
no more than one subdivision below the apportionment level. The agency
thus, under the statute, has a measure of discretion. If it chooses to
elevate overobligations or overexpenditures of lower-tier subdivisions
to the level of Antideficiency Act violations, it is free to do so in
its fund control regulations.
At this point, it is important to return to OMB Circular No. A-11.
Since agency fund control regulations must be approved by OMB (id. §
150.7), OMB has a role in determining what levels of administrative
subdivision should constitute Antideficiency Act violations. Under OMB
Circular No. A-11, § 145.2, overobligation or overexpenditure of an
allotment or suballotment are always violations. Overobligation or
overexpenditure of other administrative subdivisions are violations
only if and to the extent specified in the agency's fund control
regulations. See 31 U.S.C. §§ 1514(a), 1517(a)(2).
In 37 Comp. Gen. 220 (1957), GAO considered proposed fund control
regulations of the Public Housing Administration. The regulations
provided for allotments as the first subdivision below the
apportionment level. They then authorized the further subdivision of
allotments into "allowances," but retained responsibility at the
allotment level. The "allowances" were intended as a means of meeting
operational needs rather than an apportionment control device. GAO
advised that this proposed structure conformed to the purposes of 31
U.S.C. § 1514, particularly in light of the 1956 addition of section
1514(b), and that expenditures in excess of an "allowance" would not
constitute Antideficiency Act violations.
For further illustration, see 35 Comp. Gen. 356 (1955) (overobligation
of allotment stemming from misinterpretation of regulations); B-95136,
Aug. 8, 1979 (overobligation of regional allotments would constitute
reportable violation unless sufficient unobligated balance existed at
central account level to adjust the allotments); B-179849, Dec. 31,
1974 (overobligation of allotment held a violation of section 1517(a)
where agency regulations specified that allotment process was the
"principal means whereby responsibility is fixed for the conduct of
program activities within the funds available"); B-114841.2-0.M., Jan.
23, 1986 (no violation in exceeding allotment subdivisions termed
"work plans"); B-242974.6, Nov. 26, 1991 (nondecision memorandum)
(under Defense Department regulations, overobligations of
administrative subdivisions of funds that are exempt from
apportionment do not constitute Antideficiency Act violations.).
5. Penalties and Reporting Requirements:
a. Administrative and Penal Sanctions:
Violations of the Antideficiency Act are subject to sanctions of two
types, administrative and penal. The Antideficiency Act is the only
one of the title 31, United States Code, fiscal statutes to prescribe
penalties of both types, a fact which says something about
congressional perception of the Act's importance.
An officer or employee who violates 31 U.S.C. § 1341(a)
(obligate/expend in excess or advance of appropriation), section 1342
(voluntary services prohibition), or section 1517(a) (obligate/expend
in excess of an apportionment or administrative subdivision as
specified by regulation) "shall be subject to appropriate
administrative discipline including, when circumstances warrant,
suspension from duty without pay or removal from office." 31 U.S.C. §§
1349(a), 1518. For a case in which an official was reduced in grade
and reassigned to other duties, see Duggar v. Thomas, 550 F. Supp. 498
(D.D.C. 1982) (upholding the agency's action against a charge of
discrimination).
In addition, an officer or employee who "knowingly and willfully"
violates any of the three provisions cited above "shall be fined not
more than $5,000, imprisoned for not more than 2 years, or both." 31
U.S.C. §§ 1350, 1519. As far as GAO is aware, it appears that no
officer or employee has ever been prosecuted, much less convicted, for
a violation of the Antideficiency Act as of this writing. The knowing
and willful failure to record an overobligation in order to conceal an
Antideficiency Act violation is also a criminal offense. See 71 Comp.
Gen. 502, 509-10 (1992) (discussing several relevant criminal
provisions in title 18, United States Code).
Earlier in this chapter, we pointed out that factors such as the
absence of bad faith or the lack of intent to commit a violation are
irrelevant for purposes of determining whether a violation has
occurred. However, intent is relevant in evaluating the assessment of
penalties. Note that the criminal penalties are linked to a
determination that the law was "knowingly and willfully" violated, but
the administrative sanction provisions do not contain similar
language. Thus, intent or state of mind may (and probably should) be
taken into consideration when evaluating potential administrative
sanctions (whether to assess them and, if so, what type), but must be
taken into consideration in determining applicability of the criminal
sanctions. Understandably, the provisions for fines and/or jail are
intended to be reserved for particularly flagrant violations.
Finally, the administrative and penal sanctions apply only to
violations of the three provisions cited-31 U.S.C. §§ 1341(a), 1342,
and 1517(a). They do not, for example, apply to violations of 31
U.S.C. § 1512 (requiring that all appropriations be administratively
apportioned so as to ensure obligation and expenditure at a controlled
rate which will prevent deficiencies from arising before the end of a
fiscal year). 36 Comp. Gen. 699 (1957).
b. Reporting Requirements:
Once it is determined that there has been a violation of 31 U.S.C. §
1341(a), 1342, or 1517(a), the agency head "shall report immediately
to the President and Congress all relevant facts and a statement of
actions taken." 31 U.S.C. §§ 1351, 1517(b). Further instructions on
preparing the reports may be found in OMB Circular No. A-11,
Preparation, Submission, and Execution of the Budget, § 145 (June 21,
2005). The reports are to be signed by the agency head. Id. § 145.7.
The report to the President is to be forwarded through the Director of
OMB. Id.
In the Consolidated Appropriations Act, 2005, Congress amended the
Antideficiency Act to add that the heads of executive branch agencies
and the Mayor of the District of Columbia shall also transmit "[a]
copy of each report ... to the Comptroller General on the same date
the report is transmitted to the President and Congress."[Footnote 137]
The report is to include all pertinent facts and a statement of all
actions taken to address and correct the Antideficiency Act violation
(any administrative discipline imposed, referral to the Justice
Department where appropriate, new safeguards imposed, etc.). An agency
also should include a request for a supplemental or deficiency
appropriation when needed. It is also understood that the agency will
do everything it can lawfully do to correct or mitigate the financial
effects of the violation. For example, when the Fish and Wildlife
Service improperly entered into contracts for legal services, we
explained that there were a number of ways the Department of Interior
could correct the Service's Antideficiency Act violations if unable to
obtain a deficiency appropriation of the budget authority needed to
cover amounts the Service paid to these contractors, including
ratifying the contracts and covering their costs out of unobligated
balances of the applicable fiscal year appropriation, or paying the
contractors on a quantum meruit basis[Footnote 138] out of unobligated
balances. B-290005, July 1, 2002. See also B-255831, July 7, 1995; 55
Comp. Gen. 768, 772 (1976); B-223857, Feb. 27, 1987; B-114841.2-0.M.,
Jan. 23, 1986. In view of the explicit provisions of 31 U.S.C. § 1351,
there is no private right of action for declaratory, mandatory, or
injunctive relief under the Antideficiency Act. Thurston v. United
States, 696 E Supp. 680 (D.D.C. 1988).
Factors such as mistake, inadvertence, lack of intent, or the minor
nature of a violation do not affect the duty to report. For example,
the Office of Management and Budget (OMB) and the Air Transportation
Stabilization Board (ATSB) were required to report an Antideficiency
Act violation when, as discussed in section C.2 above, OMB erroneously
apportioned, and ATSB erroneously obligated, funds to cover the
subsidy cost of a loan guarantee prior to the availability of budget
authority. B-290600, July 10, 2001. Of course, if the agency feels
there are extenuating circumstances, it is entirely appropriate to
include them in the report. 35 Comp. Gen. 356 (1955).
What if GAO uncovers a violation but the agency thinks GAO is wrong?
The agency must still make the required reports, and must include an
explanation of its disagreement. OMB Cir. No. A-11, § 145. See also
GAO, Anti-Deficiency Act: Agriculture's Food and Nutrition Service
Violates the Anti-Deficiency Act, GAO/AFMD-87-20 (Washington, D.C.:
Mar. 17, 1987).
6. Funding Gaps:
The term "funding gap" refers to a period of time between the
expiration of an appropriation and the enactment of a new one. A
funding gap is one of the most difficult fiscal problems a federal
agency may have to face. As our discussion here will demonstrate, the
case law reflects an attempt to forge a workable solution to a bad
situation.
Funding gaps occur most commonly at the end of a fiscal year when new
appropriations, or a continuing resolution, have not yet been enacted.
In this context, a gap may affect only a few agencies (if, for
example, only one appropriation act remains unenacted as of October
1), or the entire federal government. A funding gap may also occur if
a particular appropriation becomes exhausted before the end of the
fiscal year, in which event it may affect only a single agency or a
single program, depending on the scope of the appropriation. In the
latter case the lack of funds occurs as a consequence of unforeseen
circumstances beyond the agency's control as opposed to the exhaustion
of appropriations as a result of poor management.
Funding gaps occur for a variety of reasons. For one thing, the
complexity of the budget and appropriations process makes it difficult
at best for Congress and the President to get everything done on time.
Add to this the enormity of some programs and the need to address
budget deficits, and the scope of the problem becomes more apparent.
Also, funding gaps are perhaps an inevitable reflection of the
political process.
As GAO has pointed out, funding gaps, actual or threatened, are both
disruptive and costly.[Footnote 139] They also produce difficult legal
problems under the Antideficiency Act. The basic question, easy to
state but not quite as easy to answer, is—what is an agency permitted
or required to do when faced with a funding gap? Can it continue with
"business as usual," must it lock up and go home, or is there some
acceptable middle ground?
In 1980, a congressional subcommittee asked GAO whether agency heads
could legally permit employees to come to work when the applicable
appropriation for salaries had expired and Congress had not yet
enacted either a regular appropriation or a continuing resolution for
the next fiscal year. The Comptroller General replied in B-197841,
Mar. 3, 1980, that 31 U.S.C. §§ 1341(a) and 1342 were both violated if
agency employees reported for work under those circumstances.
Permitting the employees to come to work would result in an obligation
to pay salary for the time worked, an obligation in advance of
appropriations in violation of section 1341(a). With respect to
section 1342, no one was suggesting that the employees were offering
to work gratuitously, even assuming they could lawfully do so, which
for the most part they cannot. The fact that employees were willing to
take the risk that the necessary appropriation would eventually be
enacted did not avoid the violation. Clearly, the employees still
expected to be paid eventually. "During a period of expired
appropriations," the Comptroller General stated, "the only way the
head of an agency can avoid violating the Antideficiency Act is to
suspend the operations of the agency and instruct employees not to
report to work until an appropriation is enacted." B-197841, at 3.
Notwithstanding the literal effect of the Antideficiency Act, however,
the Comptroller General went on to observe in B-197841, "[W]e do not
believe that the Congress intends that federal agencies be closed
during periods of expired appropriations." In this regard, the opinion
pointed out that at the beginning of fiscal year 1980, GAO had
prepared an internal memorandum to address its own operations in the
event of a funding gap. The memorandum said, in effect, that employees
could continue to come to work, but that operations would have to be
severely restricted. No new obligations could be incurred for
contracts or small purchases of any kind, and of course the employees
could not actually be paid until appropriations were enacted. The
opinion further noted that the then chairman of the Senate
Appropriations Committee had placed the 1980 GAO memorandum in the
Congressional Record, and had described it as providing "common sense
guidelines."[Footnote 140] The opinion also pointed to the fact that
when Congress enacted appropriations following a funding gap, it
generally made the appropriations retroactive to the beginning of the
fiscal year and included language ratifying obligations incurred
during the funding gap.
"It thus appears," the opinion concluded, "that the Congress expects
that the various agencies of the Government will continue to operate
and incur obligations during a period of expired appropriations."
Nevertheless, the opinion conceded that this approach would "legally
produce widespread violations of the Antideficiency Act." B-197841, at
4. Therefore, the opinion reiterated GAO's support at that time for
legislation then pending that would provide permanent statutory
authority to continue the pay of federal employees during funding
gaps. Id.[Footnote 141]
Less than two months after GAO issued B-197841, the Attorney General
issued his opinion to the President. The Attorney General essentially
agreed with GAO's analysis that permitting employees to work during a
funding gap would violate the Antideficiency Act, but concluded
further that the approach outlined in the GAO internal memorandum went
beyond what the Act permitted. 43 Op. Att'y Gen. 224, 4A Op. Off.
Legal Counsel 16 (1980). The opinion stated:
"There is nothing in the language of the Antideficiency Act or in its
long history from which any exception to its terms during a period of
lapsed appropriations may be inferred....
"First of all ..., on a lapse in appropriations, federal agencies may
incur no obligations that cannot lawfully be funded from prior
appropriations unless such obligations are otherwise authorized by
law. There are no exceptions to this rule under current law, even
where obligations incurred earlier would avoid greater costs to the
agencies should appropriations later be enacted.
"Second, the Department of Justice will take actions to enforce the
criminal provisions of the Act in appropriate cases in the future when
violations of the Antideficiency Act are alleged. This does not mean
that departments and agencies, upon a lapse in appropriations, will be
unable logistically to terminate functions in an orderly way....
Authority may be inferred from the Antideficiency Act itself for
federal officers to incur those minimal obligations necessary to
closing their agencies."
4A Op. Off. Legal Counsel at 19, 20.
This opinion stands for the proposition that agencies had little
choice but to lock up and go home. A second opinion, 43 Op. Att'y Gen.
293, 5 Op. Off. Legal Counsel 1 (1981), went into much more detail on
possible exceptions and should be read in conjunction with the 1980
opinion.
As set forth in the 1981 Attorney General opinion, the exceptions fall
into two broad categories. The first category is obligations
"authorized by law." Within this category, there are four types of
exceptions:
* Activities funded with appropriations that do not expire at the end of
the fiscal year, that is, multiple year and no-year appropriations.
[Footnote 142]
* Activities authorized by statutes that expressly permit obligations
in advance of appropriations, such as contract authority (see section
C.2.g of this chapter).
* Activities "authorized by necessary implication from the specific
terms of duties that have been imposed on, or of authorities that have
been invested in, the agency." To take the example given in the
opinion, there will be cases where benefit payments under an
entitlement program are funded from other than 1-year appropriations
(e.g., a trust fund), but the salaries of personnel who administer the
program are funded by 1-year money. As long as money for the benefit
payments remains available, administration of the program is, by
necessary implication, "authorized by law," unless the entitlement
legislation or its legislative history provides otherwise or Congress
takes affirmative measures to suspend or terminate the program.
* Obligations "necessarily incident to presidential initiatives
undertaken within his constitutional powers," for example, the power
to grant pardons and reprieves. This same rationale would apply to
legislative branch agencies that incur obligations "necessary to
assist the Congress in the performance of its constitutional duties."
B-241911, Oct. 23, 1990 (nondecision letter).
The second broad category reflected the exceptions authorized under 31
U.S.C. § 1342—emergencies involving the safety of human life or the
protection of property (see also the discussion of this provision in
section C.3.d of this chapter). The Attorney General suggested the
following rules for interpreting the scope of this exception:
"First, there must be some reasonable and articulable connection
between the function to be performed and the safety of human life or
the protection of property. Second, there must be some reasonable
likelihood that the safety of human life or the protection of property
would be compromised, in some degree, by delay in the performance of
the function in question."
5 Op. Off. Legal Counsel at 8.
The Attorney General then cited the identical exception language in
the deficiency apportionment prohibition of 31 U.S.C. § 1515, and
noted that the Office of Management and Budget followed a similar
approach in granting deficiency apportionments over the
years.[Footnote 143] Given the wide variations in agency activities,
it would not be feasible to attempt an advance listing of functions or
activities that might qualify under this exception. Accordingly, the
Attorney General made the following recommendation:
"To erect the most solid foundation for the Executive Branch's
practice in this regard, I would recommend that, in preparing
contingency plans for periods of lapsed appropriations, each
government department or agency provide for the Director of the Office
of Management and Budget some written description, that could be
transmitted to Congress, of what the head of the agency, assisted by
its general counsel, considers to be the agency's emergency functions."
5 Op. Off. Legal Counsel at 11.
Lest this approach be taken too far, Congress added the following
sentence to 31 U.S.C. § 1342:
"As used in this section, the term 'emergencies involving the safety
of human life or the protection of property' does not include ongoing,
regular functions of government the suspension of which would not
imminently threaten the safety of human life or the protection of
property."
Omnibus Budget Reconciliation Act of 1990, Pub. L. No. 101-508, §
13213(b), 104 Stat. 1388, 1388-621 (Nov. 5, 1990).
The conference report on the 1990 legislation explained the intent:
"The conference report also makes conforming changes to title 31 of
the United States Code to make clear that... ongoing, regular
operations of the Government cannot be sustained in the absence of
appropriations, except in limited circumstances. These changes guard
against what the conferees believe might be an overly broad
interpretation of an opinion of the Attorney General issued on January
16, 1981, regarding the authority for the continuance of Government
functions during the temporary lapse of appropriations, and affirm
that the constitutional power of the purse resides with Congress."
H.R. Conf. Rep. No. 101-964, at 1170 (1990).
The Ninth Circuit Court of Appeals added to the list of exceptions,
holding the suspension of the civil jury trial system for lack of
funds unconstitutional. Armster v. United States District Court, 792
F.2d 1423 (9th Cir. 1986). Faced with the potential exhaustion of
appropriations for juror fees, the Administrative Office of the United
States Courts, at the direction of the Judicial Conference of the
United States, had sent a memorandum to all district court judges
advising that civil jury trials would have to be suspended until more
money was available.[Footnote 144] Basing its holding on the
Constitution and expressly declining to rule on the Antideficiency
Act, the court held that a suspension for more than a "most minimal"
time violated the seventh amendment. Id. at 1430. See also Hobson v.
Brennan, 637 E Supp. 173 (D.D.C. 1986). The court said that "we do not
hold that the Anti-Deficiency Act requires the result suggested by the
Administrative Office. If it did, its commands would, of course, have
to yield to those of the Constitution."[Footnote 145] Armster, 792
F.2d at 1430 n.13.
Since the appropriation was not yet actually exhausted, and since
there was still ample time for Congress to provide additional funds,
the court noted that its decision did not amount to ordering Congress
to appropriate money. The court noted, but did not address, the far
more difficult question of what would happen if the appropriation
became exhausted and Congress refused to appropriate additional funds.
Armster, 792 F.2d at 1430-31 and 1431 n.14.
This, then, is the basic framework. There are a number of exceptions
to the Antideficiency Act which would permit certain activities to
continue during a funding gap. For activities not covered by any of
the exceptions, however, the agency must proceed with prompt and
orderly termination or violate the Act and risk invocation of the
criminal sanctions. A very brief restatement may be found in 6 Op.
Off. Legal Counsel 555 (1982).
Within this framework, GAO and the Justice Department addressed a
number of specific problems agencies encountered in coming to grips
with funding gaps during the 1980s and early 1990s. For example,
toward the end of fiscal year 1982, the President vetoed a
supplemental appropriations bill. As a result, the Defense Department
did not have sufficient funds to meet the military payroll. The total
payroll obligation consisted of (1) the take-home pay of the
individuals, and (2) various items the employing agency was required
to withhold and transfer to someone else, such as federal income tax
and Social Security contributions. The Treasury Department published a
change to its regulations permitting a temporary deferral of the due
date for payment of the withheld items, and the Defense Department,
relying on the "safety of human life or protection of property"
exception, used the funds it had available to pay military personnel
their full take-home pay. The Attorney General upheld the legality of
this action. 43 Op. Att'y Gen. 369, 6 Op. Off. Legal Counsel 27
(1982). The Comptroller General agreed, but questioned the blanket
assumption that all military personnel fit within the exception. B-
208985, Oct. 29, 1982; B-208951, Oct. 5, 1982. The extent to which
this device might be available to civilian agencies would depend on
(1) Treasury's willingness to grant a similar deferral, and (2) the
extent to which the agency could legitimately invoke the emergency
exception.
Additional cases dealing with funding gap problems are:
* Salaries of commissioners of Copyright Royalty Tribunal attach by
virtue of their status as officers without regard to availability of
funds. Salary obligation is therefore viewed as "authorized by law"
for purposes of Antideficiency Act, and commissioners could be
retroactively compensated for periods worked without pay during a
funding gap. 61 Comp. Gen. 586 (1982).
* Richmond district office of Internal Revenue Service shut down for
half a day in October 1986 due to a funding gap. Subsequent
legislation authorized retroactive compensation of employees affected.
GAO concluded that the legislation applied to intermittent as well as
regular full-time employees, and held that the intermittent employees
could be compensated in the form of administrative leave for time lost
during the half-day furlough. B-233656, June 19, 1989.
* Witness who had been ordered to appear in federal court was stranded
without money to return home when court did not convene due to funding
gap. Cash disbursement to permit witness to return home or secure
overnight lodging was held permissible since hardship circumstances
indicated reasonable likelihood that safety of witness would be
jeopardized. 5 Op. Off. Legal Counsel 429 (1981).
There are also a few cases addressing actions an agency has taken to
forestall the effects of a funding gap. In 62 Comp. Gen. 1 (1982), the
Merit Systems Protection Board, faced with a substantial cut in its
appropriation, placed most of its employees on half-time, half-pay
status in an attempt to stretch its appropriation through the end of
the fiscal year. A subsequent supplemental appropriation provided the
necessary operating funds. GAO advised that it was within the Board's
discretion, assuming the availability of sufficient funds, to grant
retroactive administrative leave to the employees who had been
affected by the partial shutdown.
GAO reviewed another furlough plan in 64 Comp. Gen. 728 (1985). The
Interstate Commerce Commission had determined that if it continued its
normal rate of operations, it would exhaust its appropriation six
weeks before the end of the fiscal year. To prevent this from
happening, it furloughed its employees for one day per week. GAO found
that the Commission's actions were in compliance with the
Antideficiency Act. While the ICC was thus able to continue essential
services, the price was financial hardship for its employees, plus
"serious backlogs, missed deadlines and reduced efficiency." Id. at
732.
During the 1980s and early 1990s, GAO also issued several reports on
funding gaps. The first was Funding Gaps Jeopardize Federal Government
Operations, PAD-81-31 (Washington, D.C.: Mar. 3, 1981). In that
report, GAO noted the costly and disruptive effects of funding gaps,
and recommended the enactment of permanent legislation to permit
federal agencies to incur obligations, but not disburse funds, during
a funding gap. In the second report, Continuing Resolutions and an
Assessment of Automatic Funding Approaches, GAO/AFMD-86-16
(Washington, D.C.: Jan. 29, 1986), GAO compared several possible
options but this time made no specific recommendation. The Office of
Management and Budget had pointed out, and GAO agreed, that automatic
funding legislation could have the undesirable effects of (1) reducing
pressure on Congress to make timely funding decisions, and (2)
permitting major portions of the government to operate for extended
periods without action by either House of Congress or the President.
The ideal solution, both agencies agreed, is the timely enactment of
the regular appropriation bills.
In Managing the Cost of Government: Proposals for Reforming Federal
Budgeting Practices, GAO/AFMD-90-1 (Washington, D.C.: Oct. 1, 1989) at
28-29, GAO reiterated its support for the concept of an automatic
continuing resolution in a form that does not reduce the incentive to
complete action on the regular appropriation bills. A 1991 GAO report
analyzed the impact of a funding gap which occurred over the 1990
Columbus Day weekend and again renewed the recommendation for
permanent legislation to, at a minimum, allow agencies to incur
obligations to compensate employees during temporary funding gaps but
not pay them until enactment of the appropriation. Government
Shutdown: Permanent Funding Lapse Legislation Needed, GAO/GGD-91-76
(Washington, D.C.: June 6, 1991). The report stated:
"In our opinion, shutting down the government during temporary funding
gaps is an inappropriate way to encourage compromise on the budget.
Beyond being counterproductive from a financial standpoint, a shutdown
disrupts government services. In addition, forcing agency managers to
choose who will and will not be furloughed during these temporary
funding lapses severely tests agency management's ability to treat its
employees fairly."
Id. at 9.
The history of funding gaps over recent decades reveals several
distinct phases, which were captured in an analysis by a Congressional
Research Service report to Congress entitled Preventing Federal
Government Shutdowns: Proposals for an Automatic Continuing Resolution,
No. RL30339 (Washington, D.C.: May 19, 2000) (hereafter "CRS Report").
The first phase, covering fiscal years 1977 through 1980, was a period
in which agencies reacted to funding gaps along the lines suggested in
GAO's opinion in B-197841, Mar. 3, 1980, described previously, by
curtailing operations but not shutting down. During this period, there
were 6 funding gaps that lasted from 8 to 17 days. See the CRS Report
at 4, Table 1. The second phase, covering fiscal years 1981 through
1995, occurred under the stricter approach to funding gaps reflected
in the Attorney General opinions described above. As the CRS Report
notes, funding gaps during this period were less frequent and shorter.
There were 11 funding gaps in all over this period, many of which took
place over weekends. None lasted more than 3 days. Id.
The string of shorter funding gaps came to an abrupt halt in fiscal
year 1996. As CRS reported, the unusually difficult and acrimonious
budget negotiations for that year led to two funding gaps: the first
was 5 days and the second, the longest in history, lasted for 21 days.
Id. at 3, 5. Both of these funding gaps resulted in widespread
shutdowns of government operations. During the first funding gap, an
estimated 800,000 federal employees were furloughed. During the
second, about 284,000 employees were furloughed and another 475,000
continued to work in a nonpay status under the emergency exception to
the Antideficiency Act.[Footnote 146]
Not surprisingly, the events of 1995-1996 spawned additional legal
opinions from the Office of Legal Counsel. These opinions essentially
followed the legal framework described previously and did not break
much new ground. However, they do illustrate the scope and application
of the Antideficiency Act in different funding gap contexts. See,
e.g., Memorandum for the Attorney General, Effect of Appropriations
for Other Agencies and Branches on the Authority To Continue
Department of Justice Functions During the Lapse in the Department's
Appropriations, OLC Opinion, Dec. 13, 1995 (if a suspension of the
Justice Department's functions during the period of anticipated
funding lapse would prevent or significantly damage the execution of
those functions, the Department's functions and activities may
continue); Memorandum for the Attorney General, Participation in
Congressional Hearings During An Appropriations Lapse, OLC Opinion,
Nov. 16, 1995 (Justice Department officials may testify at
congressional hearings during a lapse in funding for the Department);
Memorandum for the Counsel to the President, Authority To Employ the
Services of White House Office Employees During An Appropriations
Lapse, OLC Opinion, Sept. 13, 1995 (outlined the authorities that
permitted White House employees to continue to work, but not actually
be paid, during a funding gap); Memorandum for the Director of the
Office of Management and Budget, Government Operations in the Event of
a Lapse in Appropriations, OLC Opinion, Aug. 16, 1995 (reinforced the
Justice Department's existing narrow interpretation that the emergency
exception applied only in the case of an imminent threat or set of
circumstances requiring immediate action).[Footnote 147]
The 1995-1996 funding gaps also produced at least one lawsuit,
although it did not reach a final decision on the merits. In American
Federation of Government Employees v. Rivlin, Civ. A. No. 95-2115
(EGS) (D.D.C. Nov. 17, 1995), the plaintiffs sought a temporary
restraining order to prevent the executive branch from requiring
federal employees who had been designated "emergency" personnel to
work during the funding gap. They contended that forcing employees to
work without pay violated several personnel statutes and also
constituted a misapplication of 31 U.S.C. § 1342 since many of the
employees did not meet the emergency criteria under section 1342. The
court denied the requested relief, observing:
"The court is not convinced at this juncture that plaintiffs will
either suffer irreparable harm in the event a temporary restraining
order is not issued or that the interests of the public will be best
served by the issuance of a temporary restraining order. Plaintiffs
essentially concede that if the court were to issue a TRO, the
government would indeed be shut down, because the Executive Branch
could not require its employees to work without compensation. Although
undoubtedly the public has an interest in having the budget impasse
resolved and indeed has an interest in the outcome of this judicial
proceeding, one could easily imagine the chaos that would be attendant
to a complete governmental shutdown. It is inconceivable, by any
stretch of the imagination, that the best interests of the public at
large would somehow be served by the creation of that chaos."
American Federation of Government Employees, slip. op. at 4.
The court further observed that it was "purely speculative" whether
any employees would actually go without pay since Congress had always
appropriated funds to compensate employees for services rendered
during a government shutdown. Id. The lawsuit was eventually dismissed
as moot following resolution of the budget impasse. American
Federation of Government Employees v. Rivlin, 995 F. Supp. 165 (D.D.C.
1998).
The current phase in the history of funding gaps commenced on the
heels of the 1995-1996 government shutdowns and has featured, thus
far, the total absence of funding gaps. While there have been delays
in the enactment of regular appropriations, there has been no funding
gap since 1996.
Of course, the potential for future funding gaps still exists and
proposals for legislation to cushion their impact have been raised
again in recent years. However, such proposals have met with little
enthusiasm. GAO was more cautionary in its most recent comments on
this subject. See GAO, Budget Process: Considerations for Updating the
Budget Enforcement Act, GAO-01-991T (Washington, D.C.: July 19, 2001),
at 12:
"The periodic experience of government `shutdowns'—or partial
shutdowns when appropriations bills have not been enacted—has led to
proposals for an automatic continuing resolution. The automatic
continuing resolution, however, is an idea for which the details are
critically important. Depending on the detailed structure of such a
continuing resolution, the incentive for policymakers—some in the
Congress and the President—to negotiate seriously and reach agreement
may be lessened."
For example, GAO pointed out that some negotiators might find the
"default position" specified in an automatic continuing resolution to be
preferable to proposals on the table.
Likewise, several efforts to enact an automatic continuing resolution
in recent years have been unsuccessful. In 1997, President Clinton
vetoed a supplemental appropriations bill that contained such a
provision. In 2000, the House of Representatives rejected such a
proposal in a floor vote.[Footnote 148]
D. Supplemental and Deficiency Appropriations:
A supplemental appropriation may be defined as "an act appropriating
funds in addition to those already enacted in an annual appropriation
act." GAO, A Glossary of Terms Used in the Federal Budget Process, GA0-
05-734SP (Washington, D.C.: September 2005) (Glossary), at 93. The
Glossary adds that:
"Supplemental appropriations provide additional budget authority
usually in cases where the need for funds is too urgent to be
postponed until enactment of the regular appropriation bill.
Supplementals may sometimes include items not appropriated in the
regular bills for lack of timely authorizations."
Id.
The Glossary, at 43, defines a deficiency appropriation as "[a]n
appropriation made to pay obligations for which sufficient funds are
not available."
There is an important distinction between supplemental appropriations
and deficiency appropriations. A supplemental appropriation
"supplements the original appropriation," 4 Comp. Dec. 61 (1897); that
is, it provides additional appropriations to cover additional
obligations to meet needs identified by the executive branch and
concurred in by Congress in advance of the obligational event. A
deficiency appropriation is an appropriation made to pay obligations
for which sufficient funds were not available at the time the
obligations were incurred. 27 Comp. Gen. 96 (1947); 25 Comp. Gen. 601,
604 (1946); 4 Comp. Dec. 61, 62 (1897). The need for deficiency
appropriations often results from violations of the Antideficiency
Act, and they can be made in the same fiscal year as the overobligated
appropriation or in a later year. Notwithstanding the distinctions
between supplemental and deficiency appropriations, Congress often
will use supplemental appropriations bills as the legislative vehicle
for enacting deficiency appropriations, just as Congress may use a
supplemental appropriations bill as the legislative vehicle to enact
new appropriations in addition to those supplementing appropriations
already enacted.
Because a supplemental appropriation "supplements the original
appropriation," it "partakes of its nature, and is subject to the same
limitations as to the expenses for which it can be used as attach by
law to the original appropriation" unless otherwise provided. 4 Comp.
Dec. 61. See also 27 Comp. Gen. 96 (1947); 25 Comp. Gen. 601 (1946);
20 Comp. Gen. 769 (1941). This means that a supplemental appropriation
is subject to the purpose and time limitations, plus any other
applicable restrictions, of the appropriation being supplemented.
Thus, an appropriation made to supplement the regular annual
appropriation of a given fiscal year is available beyond the
expiration of that fiscal year only to liquidate obligations incurred
within the fiscal year. The unobligated balance of a supplemental
appropriation will expire at the end of the fiscal year in the same
manner as the regular annual appropriation. See 27 Comp. Gen. 96; 4
Comp. Dec. 61; 3 Comp. Dec. 72 (1896). Of course, Congress can enact a
supplemental appropriation, just like any other appropriation, to be
available until expended (no-year). E.g., 36 Comp. Gen. 526 (1957); B-
72020, Jan. 9, 1948.
Unless otherwise provided, a restriction contained in an annual
appropriation act will apply to funds provided in a supplemental
appropriation act even though the restriction is not repeated in the
supplemental. For example, a restriction in a foreign assistance
appropriation act prohibiting the use of funds for assistance to
certain countries would apply equally to funds provided in a
supplemental appropriation for foreign assistance for the same fiscal
year. B-158575, Feb. 24, 1966. Similarly, a provision in an annual
appropriation act that "no part of any appropriation for the Bureau of
Reclamation contained in this Act shall be used for the salaries and
expenses" (emphasis added) of certain officials who were not qualified
engineers would apply as well to Bureau funds appropriated in
supplemental appropriation acts for the same fiscal year, so long as
the supplemental appropriation adds funds to amounts already enacted
in the regular appropriation, but not to any new appropriations
enacted in the supplemental appropriation act. B-86056, May 11, 1949.
The rule applies to supplemental authorizations as well as
supplemental appropriations. B-106323, Nov. 27, 1951. If a
supplemental appropriation act includes a new appropriation which is
separate and distinct from the appropriations being supplemented,
restrictions contained in the original appropriation act will not
apply to the new appropriation unless specifically provided. Id. The
fiscal year limitations of the original appropriation, however, would
still apply.
The rule that supplemental appropriations are subject to restrictions
contained in the regular appropriation act being supplemented applies
equally to specific dollar limitations. Thus, if a regular annual
appropriation act specifies a maximum limitation for a particular
object, either by using the words "not to exceed" or otherwise, a more
general supplemental appropriation for the same fiscal year does not
authorize an increase in that limitation. 19 Comp. Gen. 324 (1939); 4
Comp. Gen. 642 (1925); B-71583, Feb. 20, 1948; B-66030, May 9, 1947.
Naturally, this principle will not apply if the supplemental
appropriation specifically provides for the object in question. 19
Comp. Gen. 832 (1940).
New restrictions appearing in a supplemental appropriation act may or
may not reach back and apply to balances remaining in the original
annual appropriation, depending on the precise statutory language
used. Thus, without more, a restriction in a supplemental applicable
by its terms to "this appropriation" would apply only to the
supplemental funds. B-31546, Jan. 12, 1943. See also 31 Comp. Gen. 543
(1952).
At one time, supplemental appropriation acts specified that the funds
were for the same objects and subject to the same limitations as the
appropriations being supplemented. The then Bureau of the Budget
wanted to delete this language pursuant to its mandate to eliminate
unnecessary words in appropriations.[Footnote 149] The Comptroller
General agreed that the language was unnecessary, pointing out that
these conditions would apply even without being explicitly stated in
the supplemental appropriation acts themselves. B-13900, Dec. 17, 1940.
In addition to supplementing prior appropriations, a supplemental
appropriation act may make entirely new appropriations and enact new
legislative provisions which are separate and distinct from those made
by an earlier appropriation act. Where a supplemental appropriation
act contains new legislation, whether permanent or temporary, the new
legislation will take effect on the date the supplemental is enacted
absent a clear intent to make it retroactive. 20 Comp. Gen. 769
(1941). In the cited decision, a supplemental appropriation enacted
late in fiscal year 1941 for the first time permitted payment of
transportation expenses of certain military dependents. The provision
was held effective on the date of enactment of the supplemental act
and not on the first day of fiscal year 1941.
A supplemental appropriation also may add funds to a lump-sum
appropriation for a new object. If the original appropriation was not
available for that object, then the supplemental amounts to a new
appropriation that is, in effect, distinct from the lump-sum
appropriation. For example, a fiscal year 1957 supplemental
appropriation for the Maritime Administration provided $18 million for
a nuclear-powered merchant ship under the heading "ship construction."
Funds for the nuclear-powered ship had been sought under the regular
"ship construction" lump-sum appropriation for fiscal year 1957, but
had been denied. Under the circumstances, the Comptroller General
found that the supplemental appropriation amounted to a specifically
earmarked maximum for the vessel, and that the agency could not exceed
the $18 million by using funds from the regular appropriation. 36
Comp. Gen. 526 (1957).
E. Augmentation of Appropriations:
1. The Augmentation Concept:
As a general proposition, an agency may not augment its appropriations
from outside sources without specific statutory authority. When
Congress makes an appropriation, it also is establishing an authorized
program level. In other words, it is telling the agency that it cannot
operate beyond the level that it can finance under its appropriation.
To permit an agency to operate beyond this level with funds derived
from some other source without specific congressional sanction would
amount to a usurpation of the congressional prerogative. Restated, the
objective of the rule against augmentation of appropriations is to
prevent a government agency from undercutting the congressional power
of the purse by circuitously exceeding the amount Congress has
appropriated for that activity. As one recent decision put it:
"When Congress establishes a new program or activity, it also must
decide how to finance it. Typically it does this by appropriating
funds from the U.S. Treasury. In addition to providing necessary
funds, a congressional appropriation establishes a maximum authorized
program level, meaning that an agency cannot, absent statutory
authorization, operate beyond the level that can be paid for by its
appropriations. An agency may not circumvent these limitations by
augmenting its appropriations from sources outside the government. One
of the objectives of these limitations is to prevent agencies from
avoiding or usurping Congress' power of the purse."
B-300248, Jan. 15, 2004 (citations omitted).
There is no statute which, in those precise terms, prohibits the
augmentation of appropriated funds. The concept does nevertheless have
an adequate statutory basis, although it must be derived from several
separate enactments. Specifically:
* 31 U.S.C. § 3302(b), the "miscellaneous receipts" statute.
* 31 U.S.C. § 1301(a), restricting the use of appropriated funds to
their intended purposes. Early Comptroller of the Treasury decisions
often based the augmentation prohibition on the combined effect of 31
U.S.C. §§ 3302(b) and 1301(a). See, e.g., 17 Comp. Dec. 712 (1911); 9
Comp. Dec. 174 (1902).
* 18 U.S.C. § 209, which prohibits the payment of, contribution to, or
supplementation of the salary of a government officer or employee as
compensation for his or her official duties from any source other than
the government of the United States.
The augmentation concept manifests itself in a wide variety of
contexts. One application is the prohibition against transfers between
appropriations without specific statutory authority. An unauthorized
transfer is an improper augmentation of the receiving appropriation.
E.g., 23 Comp. Gen. 694 (1944); B-206668, Mar. 15, 1982. In B-206668,
a department received a General Administration appropriation plus
separate appropriations for the administration of its component
bureaus. The unauthorized transfer of funds from the bureau
appropriations to the General Administration appropriation was held to
be an improper augmentation of the latter appropriation. Likewise, the
Department of Labor illegally augmented its departmental management
account by "pooling" funds from component appropriations in order to
purchase computer equipment where the costs borne by the components
far exceeded the value of the equipment they received. 70 Comp. Gen.
592 (1991). The Comptroller General rejected the Department's
characterization of this transaction as a "reprogramming," viewing it
instead as an unauthorized transfer among appropriations.
As with the transfer prohibition itself, however, the augmentation
rule has no application at the agency allotment level within the same
appropriation account. 70 Comp. Gen. 601 (1991). It also should be
apparent that the augmentation rule is related to the concept of
purpose availability. A very early case pointed out that charging a
general appropriation when a specific appropriation is exhausted not
only violates 31 U.S.C. § 1301(a) by using the general appropriation
for an unauthorized purpose, but also improperly augments the specific
appropriation. [1] Bowler, First Comp. Dec. 257, 258 (1894). However,
the augmentation rule is most closely related to the subject of this
chapter—availability as to amount—because it has the effect of
restricting executive spending to the amounts appropriated by
Congress. In this respect, it is a logical, perhaps indispensable,
complement to the Antideficiency Act.
For the most part, although the cases are not entirely consistent, GAO
has distinguished between receipts of money and receipts of services,
dealing with the former under the augmentation rule and the latter
under the voluntary services prohibition (31 U.S.C. § 1342).[Footnote
150] For example, in B-13378, Nov. 20, 1940, a private organization
was willing to donate either funds or services. Since the agency
lacked statutory authority to accept gifts, acceptance of a cash
donation would improperly augment its appropriations. Acceptance of
services was distinguished, however, and addressed in relation to the
limits on acceptance of voluntary services set forth in 31 U.S.C. §
1342. GAO drew the same distinction in B-125406, Nov. 4, 1955. See
also B-287738, May 16, 2002, distinguishing between agency acceptance
of money as compensation for damage to government property, which
would constitute an augmentation if retained in agency appropriations,
and acceptance of actual repairs to the property, which would be
permissible.[Footnote 151]
In apparent conflict with these cases, however, is B-211079.2, Jan. 2,
1987, which stated that, without statutory authority, an agency would
improperly augment its appropriations by accepting the uncompensated
services of "workfare" participants to do work which would normally be
done by the agency with its own personnel and funds. Logic would seem
to support the formulation in B-211079.2. Certainly, if I wash your
car without charge or if I give you money to have it washed, the
result is the same—the car gets washed and your own money is free to
be used for something else. Be that as it may, the majority of the
cases support limiting the augmentation rule to the receipt of money.
In the final analysis, the distinction probably makes little practical
difference. In view of 31 U.S.C. § 1342, limiting the augmentation
rule to the receipt of funds does not mean that the rule can be
negated by the unrestricted acceptance of services.[Footnote 152]
In a 1991 case, 70 Comp. Gen. 597, GAO concluded that the then
Interstate Commerce Commission (ICC) would not improperly augment its
appropriations by permitting private carriers to install computer
equipment at the ICC headquarters, to facilitate access to
electronically filed rate tariffs. Installation was viewed as a
reasonable exercise of the ICC's statutory authority to prescribe the
form and manner of tariff filing by those over whom the agency has
regulatory authority. Somewhat similar in concept to the workfare
case, however, the decision suggests that use of the equipment for
other purposes, such as word processing by ICC staff, would be an
improper augmentation, and advised the ICC to establish controls to
prevent this. See also B-277521, July 31, 1997 (granting the Radio and
TV Correspondents Association a permit to locate equipment in the
Capitol in order to broadcast events would not constitute an
augmentation of congressional appropriations since the equipment is
not for official business use of the government).
2. Disposition of Moneys Received: Repayments and Miscellaneous
Receipts:
a. General Principles:
(1) The "miscellaneous receipts" statute:
A very important statute in the overall scheme of government fiscal
operations is 31 U.S.C. § 3302(b), known as the "miscellaneous
receipts" statute. Originally enacted on March 3, 1849 (ch. 110, 9
Stat. 398), 31 U.S.C. § 3302(b) states:
"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."[Footnote 153]
Penalties for violating 31 U.S.C. § 3302(b) are found in 31 U.S.C. §
3302(d), and include the possibility of removal from office. In
addition, if funds which should have been deposited in the Treasury
(but were not) are lost or stolen, the official may be personally
liable. E.g., 20 Op. Att'y Gen. 24 (1891) (liability would attach
where funds, which disbursing agent had placed in bank which was not
an authorized depositary, were lost due to bank failure).
"It is difficult to see," said an early decision, "how a legislative
prohibition could be more clearly expressed." 10 Comp. Gen. 382, 384
(1931). Simply stated, any money an agency receives for the government
from a source outside of the agency must be deposited into the
Treasury. This means deposited into the general fund ("miscellaneous
receipts") of the Treasury,not into the agency's own appropriations,
even though the agency's appropriations may be technically still "in
the Treasury" until the agency actually spends them.[Footnote 154] The
Comptroller of the Treasury explained the distinction in the following
terms:
"It [31 U.S.C. § 3302(b)] could hardly be made more comprehensive as
to the moneys that are meant and these moneys are required to be paid
'into the Treasury.' This does not mean that the moneys are to be
added to a fund that has been appropriated from the Treasury and may
be in the Treasury or outside. [Emphasis in original.] It seems to me
that it can only mean that they shall go into the general fund of the
Treasury which is subject to any disposition which Congress might
choose to make of it. This has been the holding of the accounting
officers for many years ... [citations omitted]. If Congress intended
that these moneys should be returned to the appropriation from which a
similar amount had once been expended it could have been readily so
stated, and it was not."
22 Comp. Dec. 379, 381 (1916). See also 5 Comp. Gen. 289 (1925).
The term "miscellaneous receipts" does not refer to any single account
in the Treasury. Rather, it refers to a number of receipt accounts
under the heading "General Fund." These are all listed in the Treasury
Department's Federal Account Symbols and Titles Book, recently revised
according to the Treasury Financial Manual Announcement No. A-2005-04,
May 2005. The revised version can be accessed at [hyperlink,
http://www.fmstreas.gov/fastbook] (last visited September 15, 2005).
In addition to 31 U.S.C. § 3302(b), several other statutes require
that moneys received in various specific contexts be deposited as
miscellaneous receipts.[Footnote 155] Examples are:
* 7 U.S.C. §§ 384, 2241, 2246, 2247 (proceeds from sale of various
products by Secretary of Agriculture);
* 16 U.S.C. § 499 (revenue from the national forests, such as timber
sales and proceeds from hunting, fishing, and camping permits, subject
to the deductions specified in 16 U.S.C. §§ 500 and 501);
* 19 U.S.C. § 527 (customs fines, penalties, and forfeitures);
* 40 U.S.C. § 571 (proceeds from the transfer of excess property or
the sale of surplus public property, except as otherwise provided in
subchapter IV of chapter 5 of title 40).[Footnote 156]
Although it is preferable, it is not necessary that the statute use
the words "miscellaneous receipts." A statute requiring the deposit of
funds "into the Treasury of the United States" will be construed as
meaning the general fund of the Treasury. 27 Comp. Dec. 1003 (1921).
To understand the significance of 31 U.S.C. § 3302(b) and related
statutes, it is necessary to recall the provision in article I,
section 9, clause 7 of the U.S. Constitution, the so-called
"Appropriations Clause," directing that "No Money shall be drawn from
the Treasury but in Consequence of Appropriations made by Law." Once
money is deposited into a "miscellaneous receipts" account, it takes
an appropriation to get it out. E.g., 3 Comp. Gen. 296 (1923); 2 Comp.
Gen. 599, 600 (1923); 13 Comp. Dec. 700, 703 (1907). Thus, the effect
of 31 U.S.C. § 3302(b) is to ensure that the executive branch remains
dependent upon the congressional appropriation process. Viewed from
this perspective, 31 U.S.C. § 3302(b) emerges as another element in
the statutory pattern by which Congress retains control of the public
purse under the separation of powers doctrine. See B-302825, Dec. 22,
2004; B-303413, Nov. 8, 2004, at 9; B-287738, May 16, 2002; 51 Comp.
Gen. 506, 507 (1972); 11 Comp. Gen. 281, 283 (1932). See also 10 Comp.
Gen. 382, 383 (1931) (the intent is that "all the public moneys shall
go into the Treasury; appropriations then follow").
As the court observed in Scheduled Airlines Traffic Offices v.
Department of Defense, 87 F.3d 1356, 1361 (D.C. Cir. 1996), the
miscellaneous receipts statute "derives from and safeguards a
principle fundamental to our constitutional structure, the separation-
of-powers precept embedded in the Appropriations Clause" (U.S. Const.
art I, § 9, cl. 7). See also Kate Stith, Congress' Power of the Purse,
97 Yale L. J. 1343 (1988). Professor Stith notes that the
miscellaneous receipts statute "articulates the Principle of the
Public Fisc: All monies of the federal government must be claimed as
public revenues, subject to public control through constitutional
processes." Id. at 1364. This is indeed an important role for a
statute that she describes as having such an "unfortunately bland and
unrevealing name." Id. at 1365.
Accordingly, for an agency to retain and credit to its own
appropriation moneys which it should have deposited into the general
fund of the Treasury is an improper augmentation of the agency's
appropriation. This applies even though the appropriation is a no-year
appropriation. 46 Comp. Gen. 31 (1966). (No-year status relates to
duration, not amount.)
Receipts in the form of "monetary credits" are treated for deposit and
augmentation purposes the same as cash. 28 Comp. Gen. 38 (1948) (use
by government of monetary credits received as payment for sale of
excess electric power held unauthorized unless agency transfers
corresponding amount from its appropriated funds to miscellaneous
receipts). This will not apply, however, where it is clear that the
appropriation or other legislation involved contemplates a different
treatment. B-125127, Feb. 14, 1956 (transfer to miscellaneous receipts
not required where settlement of accounts was to be made on "net
balance" basis). See also B-283731, Dec. 21, 1999 (Defense Department
has specific statutory authority to accept credits under contracts for
travel-related services); 62 Comp. Gen. 70, 74-75 (1982) (credit
procedure which would differ from treatment of cash receipts
recognized in legislative history). When an agency is entitled to
retain a fund in its appropriations (see section E.2.a, below), it may
accept the refund in the form of a credit against future payments due
to the party owing the refund instead of requiring the party to issue
a separate refund check. 72 Comp. Gen. 63, 64 (1992).
(2) Exceptions:
Exceptions to the miscellaneous receipts requirement fall into two
broad categories, statutory and nonstatutory:
* An agency may retain moneys it receives if it has statutory
authority to do so. In other words, 31 U.S.C. § 3302(b) will not apply
if there is specific statutory authority for the agency to retain the
funds. E.g., 72 Comp. Gen. 164, 165-66 (1993) and cases cited.
[Footnote 157]
* Receipts that qualify as "repayments" to an appropriation may be
retained to the credit of that appropriation and are not required to
be deposited into the General Fund. B-302366, July 12, 2004; 6 Comp.
Gen. 337 (1926); 5 Comp. Gen. 734, 736 (1926); B-138942-0.M., Aug. 26,
1976.
Repayments falling within the above nonstatutory exception may be
further defined in terms of two general classes, reimbursements and
refunds, as follows:
* Reimbursements are sums received as a result of commodities sold or
services furnished either to the public or to another government
account, which are authorized by law to be credited directly to a
specific appropriation.
* Refunds are repayments for excess payments and are to be credited to
the appropriation or fund accounts from which the excess payments were
made. They must be directly related to previously recorded
expenditures and are reductions of those expenditures. Refunds to
appropriations represent amounts collected from outside sources for
payments made in error, overpayments, or adjustments for previous
amounts disbursed.
See, e.g., 62 Comp. Gen. 70, 73 (1982); see also, GAO, Policy and
Procedures Manual for the Guidance of Federal Agencies, title 7, § 5.4
(Washington, D.C.: May 18, 1993).
As used in the above definitions, the term "reimbursement" generally
refers to situations in which retention by the agency is authorized by
statute. The term "refund" embraces a category of mostly nonstatutory
exceptions in which the receipt is directly related to, and is a
direct reduction of, a previously recorded expenditure. Thus, the
recovery of an erroneous payment or overpayment which was erroneous at
the time it was made qualifies as a refund to the appropriation
originally charged. E.g., B-139348, May 12, 1959 (utility overcharge
refund); B-138942-0.M., Aug. 26, 1976 (collections resulting from
disallowances by GAO under the "Fly America Act"). Also, the return of
an authorized advance, such as a travel advance, is a refund.
At this point, an important distinction must be made. Moneys collected
to reimburse the government for expenditures previously made are not
automatically the same as "adjustments for previous amounts
disbursed." Reimbursements must generally, absent statutory authority
to the contrary, be deposited as miscellaneous receipts. The mere fact
that the reimbursement is related to the prior expenditure—although
this is an indispensable element of an authorized refund—is not in
itself sufficient to remove the transaction from the scope of 31
U.S.C. § 3302(b). See, e.g., 16 Comp. Gen. 195 (1936); 24 Comp. Dec.
694 (1918); 22 Comp. Dec. 253 (1915); B-45198, Oct. 27, 1944. The
controlling principles were stated as follows in two early decisions:
"The question as to whether moneys collected to reimburse the
Government for expenditures previously made should be used to
reimburse the appropriations from which the expenditures were made or
should be covered into the general fund of the Treasury has often been
before the accounting officers of the Treasury and this office, and it
has been uniformly held that in the absence of an express provision in
the statute to the contrary, such funds should be covered in as
miscellaneous receipts."
5 Comp. Gen. 289, 290 (1925).
"On the other hand, if the collection involves a refund or repayment
of moneys paid from an appropriation in excess of what was actually
due such refund has been held to be properly for credit to the
appropriation originally charged ...."
5 Comp. Gen. 734, 736 (1926).
The key language in the above passage is "in excess of what was
actually due." Apart from the more obvious situations—refunds of
overpayments, erroneous payments, unused portions of authorized
advances—the type of situation contemplated by the "adjustments for
previous amounts disbursed" portion of the definition is illustrated
by 23 Comp. Gen. 652 (1944). The Agriculture Department was authorized
to enter into cooperative agreements with states for soil conservation
projects. Some states were prohibited by state law from making
advances and were limited to making reimbursements after the work was
performed. In these cases, Agriculture initially put up the state's
share and was later reimbursed. The Comptroller General held that
Agriculture could credit the reimbursements to the appropriation
charged for the project. The distinction between this type of
situation and the simpler "related to a previous expenditure"
situation in which the money must go to miscellaneous receipts lies in
the nature of the agency's obligation. Here, Agriculture was not
required to contribute the state's share; it could simply have
foregone the projects in those states which could not advance the
funds. This is different from a situation in which the agency is
required to make a given expenditure in any event, subject to later
reimbursement. In 23 Comp. Gen. 652, the agency made payments larger
than it was required to make, knowing that the "excess" of what it
paid over what it had to pay would (or at least was required to) be
returned. See also 64 Comp. Gen. 431 (1985); 61 Comp. Gen. 537 (1982);
B-69813, Dec. 8, 1947; B-220911.2-0.M., Apr. 13, 1988. For more recent
decisions dealing with an agency's authority to retain "excess"
payments, see B-271127.2, Jan. 30, 1997; 73 Comp. Gen. 321 (1994).
The rationale for crediting refunds to an appropriation account is to
enable the account to be made whole for the overpayment that gave rise
to the refund. As a recent decision pointed out, the refund exception
to the general requirement of section 3302(b) "simply restores to the
appropriation amounts that should not have been paid from the
appropriation." B-302366, July 12, 2004. It follows that the exception
does not permit crediting refunds to appropriations in amounts greater
than the overpayment. The decision in B-302366 illustrates this point.
In that case, a Department of Energy contractor turned over to the
department a refund it had received from the State of Washington for
taxes which the contractor had previously paid and for which it had
been reimbursed by the department. Along with the tax refund, the
contractor also turned over to the department an additional amount it
had received from the state as interest on the refunded taxes. GAO
agreed with the department that the tax refund itself could be
credited to the appropriation originally used to reimburse the
contractor for the tax payment. However, the decision held that the
additional amount representing interest could not be credited to the
appropriation but must be returned to the Treasury as miscellaneous
receipts pursuant to 31 U.S.C. § 3302(b):
"The nonstatutory refund exception ... does not allow the department
to retain the interest paid by the state. Because the nonstatutory
exception operates simply and solely to restore to an appropriation
amounts that should not have been paid from the appropriation,
crediting an amount in excess of that paid from the appropriation
would improperly augment the appropriation."
In this regard, the decision rejected the department's suggestion that
the interest payment could be regarded as merely restoring the
appropriation to an amount adjusted for inflation. The decision noted
that Congress does not appropriate on a net present value basis.
Likewise, GAO has held that agencies may retain and credit to their
appropriations refunds in the form of recoveries under the False
Claims Act (31 U.S.C. § 3729) to the extent that they represent
compensatory damages to reimburse erroneous payments, but not
"exemplary" damages in the nature of penalties. B-281064, Feb. 14,
2000; 69 Comp. Gen. 260 (1990).
For other examples of refunds that may be retained to the credit of an
appropriation, see 65 Comp. Gen. 600 (1986) (rebates from Travel
Management Center contractors); 62 Comp. Gen. 70 (1982) (partial
repayment of contribution to International Natural Rubber Organization
occasioned by addition of new members); B-139348, May 12, 1959 (refund
of overcharge by public utility); and B-209650-0.M., July 20, 1983
(same).
It should be noted that crediting refunds to agency appropriations is
permissive, not mandatory. Thus, the Comptroller General advised the
General Services Administration that rebates received from travel
management contractors could be deposited to the general fund of the
Treasury if the small amounts involved did not justify the cost of
processing these payments to the credit of the agency appropriation
accounts that "earned" them. 73 Comp. Gen. 210 (1994). The Comptroller
General also approved crediting de minimis ($100 or less) rebates to
currently available accounts rather than the prior year accounts that
earned them. 72 Comp. Gen. 63 (1992). However, the Comptroller General
refused to extend this de minimis exception to rebates that could
aggregate $1,000 or more.
72 Comp. Gen. 109 (1993).
A repayment is credited to the appropriation initially charged with
the related expenditure, whether current or expired. If the
appropriation is still current, then the funds remain available for
further obligation within the time and purpose limits of the
appropriation. However, if the appropriation has expired for
obligational purposes (but has not yet been closed), the repayment
must be credited to the expired account, not to current funds. See 23
Comp. Gen. 648 (1944); 6 Comp. Gen. 337 (1926); B-138942-0.M., Aug.
26, 1976. If the repayment relates to an expired appropriation,
crediting the repayment to current funds is an improper augmentation
of the current appropriation unless authorized by statute. B-114088,
Apr. 29, 1953. These same principles apply to a refund in the form of
a credit, such as a credit for utility overcharges. B-139348, May 12,
1959; B-209650-0.M., July 20, 1983.[Footnote 158] Cf. B-260063, June
30, 1995, fn. 3 (there is no authority for an agency to hold refunds
of erroneous payments in an interest bearing account pending final
payment to a contractor since such refunds should be credited to the
appropriation account initially charged with the erroneous payment).
Once an appropriation account has been closed in accordance with 31
U.S.C. §§ 1552(a) or 1555, repayments must be deposited as
miscellaneous receipts regardless of how they would have been treated
prior to closing. 31 U.S.C. § 1552(b). See also B-260993, June 26,
1996; B-257905, Dec. 26, 1995; 73 Comp. Gen. 210, 211 (1994).
Where funds are authorized to be credited to an appropriation,
restrictions on the basic appropriation apply to the credits as well
as to the amount originally appropriated. A-95083, June 18, 1938.
The fact that some particular reimbursement is authorized or even
required by law is not, standing alone, sufficient to overcome 31
U.S.C. § 3302(b). E.g., 67 Comp. Gen. 443 (1988); 22 Comp. Dec. 60
(1915); 1 Comp. Dec. 568 (1895). The accounting for that reimbursement—
whether it may be retained by the agency and, if so, how it is to be
credited—will depend on the terms of the statute. Some statutes, for
example, permit reimbursements to be credited to current
appropriations regardless of which appropriation "earned" the
reimbursement. See, e.g., 10 U.S.C. § 2208(g); 10 U.S.C. § 2210(a)(1);
22 U.S.C. § 2392(c); 22 U.S.C. § 2509(g). As a general proposition,
however, this practice, GAO has pointed out, diminishes congressional
control.[Footnote 159]
As might be expected, there have been a great many decisions involving
the miscellaneous receipts requirement. It is virtually impossible to
draw further generalizations from the decisions other than to restate
the basic rule: An agency must deposit into the General Fund of the
Treasury any funds it receives from sources outside of the agency
unless the receipt constitutes an authorized repayment or unless the
agency has statutory authority to retain the funds for credit to its
own appropriations.
(3) Timing of deposits:
As to the timing of the deposit in the Treasury, 31 U.S.C. § 3302(b)
says merely "as soon as practicable." There is another statute,
however, now found at 31 U.S.C. § 3302(c), which provides in relevant
part:
"(1) A person having custody or possession of public money, including
a disbursing official having public money not for current expenditure,
shall deposit the money without delay in the Treasury or with a
depositary designated by the Secretary of the Treasury under law.
Except as provided in paragraph (2), money required to be deposited
pursuant to this subsection shall be deposited not later than the
third day after the custodian receives the money....
"(2) The Secretary of the Treasury may by regulation prescribe that a
person having custody or possession of money required by this
subsection to be deposited shall deposit such money during a period of
time that is greater or lesser than the period of time specified by
the second sentence of paragraph (1)."
This statute, formerly designated as Revised Statutes § 3621,
originated on March 3, 1857 (ch. 114, 11 Stat. 249). It was amended on
May 28, 1896 (ch. 252, § 5, 29 Stat. 179), to specify a deadline of 30
days. The time limit was reduced to 3 days by section 2652(b)(1) of
the Deficit Reduction Act of 1984, Pub. L. No. 98-369, thy. B. title
VI, 98 Stat. 494, 1152 (July 18, 1984).
A Treasury Department regulation urges agencies to "achieve same day
deposit of money." When same day deposit is not cost-effective or is
impracticable, the regulation generally requires next-day deposit. 31
C.F.R. § 206.5 (2005).[Footnote 160]
As a general proposition, section 3302(c) and the Treasury regulations
place an outer limit on what is practicable under section 3302(b). 11
Comp. Gen. 281, 283-84 (1932); 10 Comp. Gen. 382, 385 (1931). The
deadline applies to all receipts, including those to be credited to an
appropriation account (which, of course, is "in the Treasury"), not
just those for deposit as miscellaneous receipts. E.g., 10 Comp. Gen.
382.
The deposit timing requirements of 31 U.S.C. § 3302(c) and the
implementing Treasury regulations apply as well when public moneys are
held by nonfederal custodians. Thus, GAO found that these requirements
were violated where the Department of Veterans Affairs (VA) allowed
contractors to hold payments it collected on VA loans in an interest-
bearing account for 30 days or more before transferring the payments
to the Treasury. See GAO, Internal Controls: VA Lacked Accountability
Over Its Direct Loan and Loan Sale Activities, GAO/AIMD-99-24
(Washington, D.C.: Mar. 24, 1999), at 16-18.
(4) Money received (or not received) "for the Government:"
As originally enacted, 31 U.S.C. § 3302(b) required deposit into the
Treasury of moneys received "for the use of the United States.
[Footnote 161] The 1982 codification of title 31 changed this language
to moneys received "for the Government."[Footnote 162] The meaning, of
course, is the same. There is no distinction between money received
for the use of the United States and money received for the use of a
particular agency; such a distinction would largely nullify the statute.
Although the concept of money received "for the use of the United
States" or "for the Government" does not lend itself to precise
definition, both the Comptroller General and the courts have applied
this concept broadly, consistent with the key role and purpose of
section 3302(b), in preserving Congress's constitutional power of the
purse. For example, as one recent decision observed:
"The miscellaneous receipts statute ... requires that money received
for the use of the United States be deposited in the Treasury unless
otherwise authorized by law. Court cases and decisions of this Office
make clear that an agency cannot avoid the miscellaneous receipts
statute simply by changing the form of its transactions to avoid the
receipt of money otherwise owed to it."
B-303413, Nov. 8, 2004. See also B-300826, Mar. 3, 2005, at 6, noting
that an agency cannot avoid section 3302(b) by authorizing a
contractor to charge fees to outside parties and keep the payments in
order to offset costs that would otherwise be borne by agency
appropriations.
Neither of the above-cited decisions actually involved transactions
that violated section 3302(b). However, another recent Comptroller
General opinion held that a fee arrangement between the Small Business
Administration (SBA) and a contractor did violate 31 U.S.C. § 3302(b)
and constituted an improper augmentation of SBA's appropriations. B-
300248, Jan. 15, 2004.[Footnote 163] This case concerned SBA's
"Preferred Lender Program" (PLP). Lenders in this program, so-called
"PLP lenders," had authority to make loans without prior SBA approval;
however, the law specifically required SBA to conduct assessments of
these lenders at least annually. SBA contracted with a firm to assist
in conducting the required assessments. Under the contract,
assessments were conducted by a review team consisting of an SBA
employee and one or more employees of the contractor. The SBA
employees, of course, were paid from agency appropriations. However,
the contractor was compensated from fees that SBA imposed on the PLP
lenders and that the lenders paid directly to the contractor.
SBA maintained that the fee proceeds did not constitute "money for the
Government" within the application of 31 U.S.C. § 3302(b) since they
were paid directly to the contractor as compensation for the
contractor's work. The agency also argued that "no-cost" contracts
such as this were largely beyond the reach of the augmentation rule or
section 3302(b). The Comptroller General rejected these arguments,
holding that SBA had "effectively retained and used the fees without
specific authorization" and that the agency's "constructive
disposition" of the fees violated section 3302(b). In essence, the
opinion reasoned that the fee arrangement amounted to shifting to PFP
lenders an expense imposed upon SBA incident to carrying out its
statutory duties that should be borne by the agency's appropriations:
"SBA's position ... is in conflict with our prior decisions and not
supported by the courts. A government official or agent is deemed to
receive money for the government under the Miscellaneous Receipts
Statute if the money is to be used to bear the expenses of the
government or pay the government obligations.... SBA's functions
clearly include conducting oversight of PLP lenders, whether the
review is conducted by SBA's own employees or with the assistance of a
contractor. These functions are among the purposes for which Congress
appropriates funds to SBA ... Thus the fees paid by PLP lenders
represent expenses SBA would have to pay from its appropriations
regardless of whether the expenses were for actions performed by SBA
employees or by a contractor's employees. SBA has devised an
arrangement by which another party incurs these expenses, in effect
using the PLP review fees to substitute for appropriated funds in
paying the cost of the PLP reviews."
B-300248 at 7.
The courts also have given broad application to the section 3302(b)
concept of money received "for the Government." In Reeve Aleutian
Airways, Inc. v. Rice, 789 F. Supp. 417 (D.D.C. 1992), the Air Force
had awarded a contract to a commercial air carrier (MarkAir) to
provide passenger and cargo service to a remote base in the Aleutian
Islands. The carrier's revenue would be derived almost entirely from
fares either purchased directly or reimbursed by the United States
(military personnel, their dependents, and government contractor
employees). The contract granted the carrier landing rights and ground
support at the base, and the contractor agreed to return a specified
portion of its receipts as a "concession fee," to be deposited in the
base morale, welfare, and recreation fund. In upholding a disappointed
bidder's challenge to the award, the court stated:
"The so-called concession fees to be paid by MarkAir were `public
monies' both in the sense that they would be paid by MarkAir
exclusively to purchase the use of property of the United States and
in the sense that the funds were or were derived directly from public
sources—United States taxpayers and the creditors of the United States
who have lent it funds to cover expenses which exceed its revenue.
Obviously, innovation consistent with the law should be encouraged but
this transaction so plainly violates the express terms of 31 U.S.C. §
3302(b) ... that it should be nipped in the bud."
Reeve Aleutian Airways, 789 F. Supp. at 421.
Since there was no authority to divert the funds from the Treasury to
the welfare fund, and since the diversion would actually increase the
cost to the government, the court found the contract award to be
arbitrary and capricious and declared the contract "null, void and of
no force and effect." Id. at 423.
In a case it regarded as "virtually identical" to Reeve Aleutian
Airways, the United States Court of Appeals for the District of
Columbia held that a Department of Defense contract solicitation
requiring payment of the portion of concession fees derived from
unofficial travel to a morale fund rather than to the Treasury
violated 31 U.S.C. § 3302(b). Scheduled Airlines Traffic Offices, Inc.
v. Department of Defense, 87 F.3d 1356, 1363 (D.C. Cir. 1996).
[Footnote 164] The court stated:
"Mindful of both the plain language of the Miscellaneous Receipts
statute and its underlying purpose to preserve congressional control
of the appropriations power, we have no doubt that concession fees for
unofficial travel constitute 'money for the Government' within the
meaning of the statute. Travel agents pay the fees pursuant to
contracts awarded by agencies of the United States, doing so in
consideration for government resources—the right to occupy agency
office space, to utilize government services associated with that
space, and to serve as the exclusive on-site travel agent."
Id. at 1362. The court was not persuaded by the argument that the
required payments to the morale fund did not violate 31 U.S.C. §
3302(b) since they were attributable entirely to commissions on
unofficial travel purchased with private funds:
"This argument is inconsistent with the statute's
unequivocal language. Government officials must deposit in the
Treasury 'money for the Government from any source.' 31 U.S.C. §
3302(b) (emphasis added). The original source of the money—whether
from private parties or the government—is thus irrelevant."
Id.[Footnote 165]
In two decisions, GAO found that the Environmental Protection Agency
(EPA) and the Federal Election Commission did not violate the
miscellaneous receipts statute when they engaged contractors to
respond to public requests for information and to charge, and retain,
fees for the service. In B-166506, Oct. 20, 1975, the Environmental
Protection Agency (EPA) had a number of contracts with private firms
for the processing, storage, and retrieval of various kinds of
recorded environmental information. Much of this information was of
value to private parties and available under the Freedom of
Information Act (FOIA), 5 U.S.C. § 552. Fees collected by an agency
under FOIA must be deposited as miscellaneous receipts. Here, however,
EPA proposed advising requesting parties to deal directly with the
contractors, who would charge and retain fees for providing the data,
although the requestors would retain the right to deal with EPA. GAO
approved the proposal, concluding that fees charged by the contractors
in these circumstances did not constitute money received for the
government.
The EPA decision viewed the contract arrangement as an alternative to
the FOIA process for satisfying information requests and reasoned that
the contractors acted as "independent entrepreneurs" rather than as
agents of EPA in providing such information. The decision cautioned,
however, that the fees charged and retained by the contractors could
not exceed the fees which EPA could charge if it provided the services
directly. Thus, the fees could include the direct costs of document
search and duplication, but not costs associated with developing the
information. In 61 Comp. Gen. 285 (1982), GAO provided similar advice
to the Federal Election Commission in connection with requests from
the public for microfilm copies of its reports, citing B-166506, Oct.
20, 1975.
It may be hard to reconcile the EPA and Federal Election Commission
decisions with more recent decisions, and they should be approached
with caution. The contractor fee arrangements in both of these cases
clearly had at least the indirect effect of relieving the agencies of
expenses incident to the performance of their statutory obligations
that otherwise would have been paid from their appropriations.
In a recent decision, GAO considered whether an agency improperly
avoided the miscellaneous receipts statute by structuring a regulatory
action so that money would not be owed to the government. B-303413,
Nov. 8, 2004. The Federal Communications Commission proposed to
provide spectrum rights to a private company through a "license
modification" in which the company would not pay the government for the
spectrum but would pay certain costs incurred by it and other spectrum
users. If the Federal Communications Act of 1934, as amended, at 47
U.S.C. § 309(j), required the Commission to license the spectrum
through auction instead of a license modification, then the
Commission's proposed regulatory action would improperly avoid the
government's receipt of money otherwise owed to it and thus would
violate the miscellaneous receipts statute. GAO found the Commission's
proposed regulatory action to be within the scope of its authority
under the Federal Communications Act, at 47 U.S.C. § 316(a)(1), and
concluded that the license modification did not violate the
miscellaneous receipts statute.
Both the Comptroller General and the courts have on occasion held that
certain receipts of money did not constitute the receipt of moneys
within the scope of 31 U.S.C. § 3302(b). In B-205901, May 19, 1982, a
railroad had furnished 15,000 gallons of fuel to the Federal Bureau of
Investigation (FBI) for use in an undercover investigation of thefts
of diesel fuel from the railroad. The railroad and FBI agreed that the
fuel or the proceeds from its sale would be returned upon completion
of the investigation. In view of 31 U.S.C. § 3302(b), the FBI then
asked whether money generated from the sale of the fuel had to be
deposited in the Treasury as miscellaneous receipts. In one sense, it
could be argued that the money was received "for the use of the United
States," in that the FBI planned to use it as evidence. However, the
Comptroller General pointed out, this is not the kind of receipt
contemplated by 31 U.S.C. § 3302(b). The decision concluded that
"funds are received for the use of the United States only if they are
to be used to bear the expenses of the Government or to pay the
obligations of the United States." Therefore, there was no legal
barrier to returning the funds to the railroad.
In another case, GAO held that misconduct fines levied on Job Corps
participants by the Labor Department need not be treated as money
received for the Government for purposes of 31 U.S.C. § 3302(b). The
governing legislation specifically authorized "reductions of
allowances" as a disciplinary measure. Labor felt that, in some cases,
immediate collection of a cash fine from the individual's pocket would
be more effective. Finding a legislative intent to confer broad
discretion in matters of enrollee discipline, GAO agreed that the cash
fines could be regarded as a form of disciplinary allowance reduction,
and accordingly credited to Job Corps appropriations. B-130515, Aug.
18, 1970. GAO followed the same approach in a similar question several
years later in 65 Comp. Gen. 666, 671 (1986). The two Job Corps
decisions relied heavily on the language of the program statute
involved in those cases and appear to have little, if any, application
beyond that statute.
In 64 Comp. Gen. 217 (1985), a food service concession contract
required the contractor to reserve a percentage of income to be used
for the replacement of government-owned equipment. The reserve was
found not to constitute money for the Government within the meaning of
31 U.S.C. § 3302(b). GAO distinguished an earlier decision, 35 Comp.
Gen. 113 (1955), on the basis that the reserve here constituted "a
mere bookkeeping entry" whereas the proposal in the 1955 case would
have required the actual transfer of funds to a bank account. 64 Comp.
Gen. at 219.
In Thomas v. Network Solutions, Inc., 176 F.3d 500 (D.C. Cir. 1999),
cert. denied, 528 U.S. 1115 (2000), the court concluded that fees
charged by a party to a cooperative agreement did not constitute money
for the government and thus were not subject to deposit into the
Treasury under 31 U.S.C. § 3302(b). In Thomas, the National Science
Foundation (NSF) entered into a cooperative agreement with Network
Solutions to register Internet domain names and provide related
services to the registrants. In return, Network Solutions was
permitted to charge registrants a fee and to retain the fee as payment
for its services. The plaintiff domain registrants challenged the
legality of the registration fees. Relying in part on the above-cited
Comptroller General decisions dealing with EPA and the Federal
Election Commission, the plaintiffs asserted, among other things, that
the fees exceeded the amount that NSF itself could have imposed under
the user charges statute, 31 U.S.C. § 9701, had the agency provided
domain registration services directly. The court rejected this
argument and distinguished the Comptroller General decisions on the
basis that Network Solutions was not assisting NSF in performing a
statutory duty imposed upon it. Since Congress did not require NSF or
any other federal agency to register Internet domain names, the
registration was not a government service. Thus, neither 31 U.S.C. §
9701 nor 31 U.S.C. § 3302(b) applied. Thomas, 176 F.3d at 510-12.
Finally, several of the trust fund cases discussed hereafter in
section E.2.h of this chapter also address the money received "for the
Government" concept. As explained in section E.2.h, the general rule
is that funds properly received by an agency in a trust capacity are
not subject to section 3302(b); however, there are exceptions and
limits to this general rule.
b. Contract Matters:
(1) Excess reprocurement costs:
We use the term "excess reprocurement costs" here to include two
factually different but conceptually related situations:
* Original contractor defaults. Agency still needs the work done and
contracts with someone else to complete the work, almost invariably at
a cost higher than the original contract price. Original contractor is
liable to the government for these "excess reprocurement costs."
* Defective work by original contractor. Agency incurs additional
expense to correct defective work. Contractor is liable for the amount
of this additional expense.
Disposition of amounts recovered in these situations has generated
numerous cases. Generally, the answer depends on the timing of the
recovery in relation to the agency's reprocurement or corrective
action and the status of the applicable appropriation. The objective
is to avoid the depletion of currently available appropriations to get
what the government was supposed to get under the original obligation.
The rules were summarized, and the case law reviewed, in 65 Comp. Gen.
838 (1986).
The rules are as follows:
* If, at the time of the recovery from the original contractor, the
agency has not yet incurred the additional expense, the agency may
retain the amount recovered to the extent necessary to fund the
reprocurement or corrective measures. The collection is credited to
the appropriation obligated for the original contract, without regard
to the status of that appropriation. Even if that appropriation has
expired and is generally no longer available for obligation, it
usually can still be used to fund the reprocurement or corrective
measures under the "replacement contract" theory until it closes.
[Footnote 166]
* If, at the time of recovery from the original contractor, the agency
has already incurred the additional reprocurement or corrective
expense, the agency may retain the recovery for credit to the
applicable appropriation, to the extent necessary to reimburse itself,
if that appropriation is still available for obligation.
* If the appropriation has expired and is no longer available for
obligation, the recovery should go to miscellaneous receipts.
[Footnote 167]
These rules apply equally to default and defective work situations but
vary with the type and status of the appropriation involved. If the
appropriation used to fund the original contract is a no year
appropriation, the recovery may be credited to that appropriation
regardless of whether the agency has or has not yet actually incurred
the additional costs. If the appropriation is an annual or multiple
year appropriation and the agency has not yet incurred the additional
costs as of the time of recovery, the agency may credit the collection
to the appropriation regardless of whether it is still current or
expired up until the time the account closes. In the case of an annual
or multiple year appropriation, where the agency has already incurred
the reprocurement or corrective costs as of the time of recovery, the
agency may retain the recovery if the appropriation is still available
for obligation, but not if it has expired. (Where the excess costs
have already been incurred and the appropriation has expired at the
time of recovery, it is too late to avoid a depletion of currently
available funds.)
Prior to 1983, essentially two separate lines of cases dealt with
defective work and default. The defective work cases had always
applied the above principles, although not necessarily in those terms.
Some illustrative cases are summarized below:
* Supplies delivered by a contractor were found upon inspection to be
unsatisfactory for use, that is, not in accordance with the terms of
the contract. A refund by the contractor could be credited to the
appropriation originally charged, on the theory that the payment was
improperly made from the appropriation in the first instance. The
appropriation involved was an annual appropriation, and the corrective
costs had not been paid as of the time of the recovery 8 Comp.
Gen. 103 (1928).
* An amount recovered from a contractor's surety because the work
failed to meet specifications, after the contractor had received final
payment, was regarded as in the nature of a reduction in contract
price representing the value of unfinished work, and therefore
amounted to the recovery of an unauthorized overpayment. It could thus
be deposited in the appropriation charged with the contract and
expended for completion of the work. The appropriation involved was a
no-year appropriation. 34 Comp. Gen. 577 (1955).
* Recovery for defective work could be credited to an expired annual
appropriation. Because the corrective work had not yet been
undertaken, the funds would remain available for that corrective work
under the "replacement contract" theory. 44 Comp. Gen. 623 (1965).
In default cases, however, the decisions had consistently held for
several decades that excess reprocurement costs recovered from
defaulting contractors had to be deposited as miscellaneous receipts.
[Footnote 168]
The two lines of cases met in a 1983 decision, 62 Comp. Gen. 678. That
decision recognized that there was no real reason to distinguish
between default and defective work for purposes of accounting for
recoveries. The rules should be the same in both situations.
Accordingly, 62 Comp. Gen. 678 modified the prior default cases and
held, in effect, that the rules previously applied in the defective
work cases should be applied in the future to all excess reprocurement
cost cases "without reference to the event that gave rise to the need
for the replacement contract—that is, whether occasioned by a default
or by defective workmanship." Id. at 681. The decision further held
that the Bureau of Prisons could retain damages recovered from a
contractor charged with defective work, for credit to the
appropriation which had been used to replace the defective work.
The 1983 decision added another new element: Where the recovery, by
virtue of factors such as inflation or underbidding, exceeds the
amount paid to the original contractor, any amounts recovered over and
above what is actually necessary to fund the reprocurement or
corrective work (or to reimburse the appropriation charged with that
work, if it is still currently available) must be deposited in the
Treasury as miscellaneous receipts. Authority to retain funds enables
the agency to get what it originally bargained for, not to make a
"profit" on the transaction. 62 Comp. Gen. at 683.
Logically, the proceeds of a forfeited performance bond should be
available to the contracting agency if and to the extent necessary to
fund a replacement contract to complete the work of the original
contract, and this was the holding in 64 Comp. Gen. 625 (1985).
In 65 Comp. Gen. 838 (1986), GAO reviewed the evolution of the case
law on excess reprocurement costs, restated the rules, and pointed out
that in no case had GAO approved agency retention of recovered funds
where the reprocurement or corrective costs "had already been paid
from an appropriation which, at the time of the recovery, was no
longer available for obligation." Id. at 841 n.5.
Before leaving the subject, it may be helpful to again summarize the
rules in a slightly different manner. Considering the status and the
timing of agency action, in the following five categories, an agency
may retain amounts recovered to the extent necessary to fund the
reprocurement or corrective work, or to reimburse itself for costs
already incurred:
* No-year appropriation where recovery was made before agency incurs
additional costs.
* No-year appropriation where additional costs were incurred prior to
recovery.
* Annual or multiple year appropriation where recovery is made before
the agency incurs additional costs and the appropriation is still
current at time of recovery.
* Annual or multiple year appropriation where additional costs were
incurred prior to recovery and the appropriation is still current at
time of recovery.
* Annual or multiple year appropriation where recovery is made before
the agency incurs additional costs and the appropriation expired at
time of recovery.
Finally, the recovery goes to the Treasury as miscellaneous receipts
when an agency has annual or multiple year appropriations where
additional costs were incurred prior to recovery and the appropriation
had expired at time of recovery.
(2) Other damage claims:
One form of other damage claims is liquidated damages. Liquidated
damages constitute a specific amount of money stipulated in advance by
the contracting parties as the measure of damages for certain breaches
of the contract, such as failure to meet applicable performance
deadlines. See B-148493, Mar. 25, 1963. See also 44 Comp. Gen. 623
(1965). The traditional rule for liquidated damages is that they may
be credited to the appropriation originally charged in circumstances
similar to those applicable to excess reprocurement costs, as
discussed above. 44 Comp. Gen. 623; 23 Comp. Gen. 365 (1943); 9 Comp.
Gen. 398 (1930); 18 Comp. Dec. 430 (1911). See also B-237421, Sept.
11, 1991. The rationale for retaining liquidated damages in the
appropriation account rather than depositing them in the Treasury as
miscellaneous receipts is that liquidated damages effect an authorized
reduction in the price of the individual contract concerned, and also
that this would make the damages available for return to the
contractor should the liability subsequently be relieved. B-242274,
Aug. 27, 1991. However, where this rationale does not apply—for
example, in a case where the contractor did nothing and therefore
earned nothing and remission of liquidated damages under 41 U.S.C. §
256a[Footnote 169] had been denied—the liquidated damages should be
deposited in the Treasury as miscellaneous receipts. 46 Comp. Gen. 554
(1966). Likewise, as in B-242274, Aug. 27, 1991, liquidated damages
cannot be retained and used to fund reprocurements that do not
constitute "replacement contracts" for the contract that gave rise to
the liquidated damages.
In some liquidated damage situations, the agency will not have
incurred any additional reprocurement or corrective costs. This might
happen in a case where an agency received liquidated damages for delay
in performance but the contractor's performance, though late, was
otherwise satisfactory. In other cases, however, the agency will incur
additional costs. In the situation described in 46 Comp. Gen. 554, for
example, the agency would presumably need to reprocure, in which event
it could retain the liquidated damages in accordance with the rules
for excess reprocurement costs just discussed. 64 Comp. Gen. 625
(1985) (modifying 46 Comp. Gen. 554 to that extent). Consistent with
these rules, liquidated damages credited to an expired appropriation
may not be used for work which is not part of a legitimate replacement
contract. B-242274, Aug. 27, 1991.
(3) Refunds and credits:
As discussed previously, the general rule is that refunds, which
include returns of erroneous or excess contract payments as well as
adjustments to previous contract payments, represent an exception to
the miscellaneous receipts deposit requirement of 31 U.S.C. § 3302(b)
and are to be credited to the appropriation or fund accounts from
which the original payments were made.[Footnote 170] Thus, refunds
received by the government under a price redetermination clause may be
credited to the appropriation from which the contract was funded. 33
Comp. Gen. 176 (1953). Contra 24 Comp. Gen. 847, 851 (1945).[Footnote
171]
Refunds received by the government under a warranty clause may be
considered as an adjustment in the contract price and therefore
credited to the appropriation originally charged under the contract.
34 Comp. Gen. 145 (1954). The same result applies where the warranty
refund is in the form of a replacement purchase credit. 27 Comp. Gen.
384 (1948). (These cases are conceptually related to the "defective
work" cases discussed earlier, and the result follows logically from
the result in those cases.)
Not all contract adjustments qualify as "refunds" for purposes of the
section 3302(b) exception. In B-265727, July 19, 1996, the Securities
and Exchange Commission (SEC) asked whether it could reduce its
obligation of appropriated funds for its building lease to reflect the
reduced rent SEC paid as a result of a sublease. Under the arrangement
in question, an SEC employee group subleased parking in the building
from the SEC but paid the landlord directly for this sublease. SEC
deducted these payments under the sublease from its own lease
payments. Relying on the two cases cited above-34 Comp. Gen. 145 and
27 Comp. Gen. 384—SEC argued that the sublease payment was a "refund"
that it could use to reduce the rental payments from its
appropriations. GAO rejected this argument, holding that SEC's use of
amounts paid by the sublessee to reduce the obligation created by
SEC's own lease with the landlord constituted an improper augmentation
of its appropriations. The decision stated:
"In situations where we treated a contract adjustment or price
renegotiation as a refund that could be credited to an appropriation
like those cited by the SEC ... the 'refund' reflected a change in the
amount the government owed its contractor based on the contractor's
performance or a change in the government's requirements."
It went on to point out that neither of these factors was present in
the SEC case.
A different type of credit was discussed in 53 Comp. Gen. 872 (1974).
Prospective timber sale purchasers were to be required to make certain
property surveys, the cost of which would be credited against the sale
price. Forest Service appropriations had previously financed the
surveys. GAO viewed the proposal as an unauthorized augmentation of
those appropriations. Similarly, the Department of Agriculture could
not apply savings in the form of credits accrued under a contract for
the handling of food stamp sales receipts to offset the cost of a
separate data collection contract, even though both contracts were
necessary to the same program objective. A-51604, May 31, 1977.
Credits in the form of rebates may be credited to agency accounts
where they meet the criteria for refunds, that is, they represent
adjustments to previous expenditures from those accounts and thus
serve to make the accounts whole. In 65 Comp. Gen. 600 (1986), GAO
held that agencies could credit rebates of travel agent commissions to
the appropriations charged with the costs of federal employee travel
that included those commissions. See also 73 Comp. Gen. 210 (1994); 72
Comp. Gen. 109 (1993); 72 Comp. Gen. 63 (1992). On the other hand,
rebates that do not meet these criteria must be deposited into the
Treasury pursuant to 31 U.S.C. § 3302(b) unless the agency has
specific statutory authority to retain them. Thus, in a 1996 decision,
GAO observed that energy efficiency rebates received by the SEC from a
local utility company did not meet the criteria for refunds. B-265734,
Feb. 13, 1996, at fn. 1. Nevertheless, GAO held that, because SEC had
the necessary specific statutory authority,[Footnote 172] it could
credit half of an energy efficiency rebate to the accounts that funded
its energy and water conservation activities.
Recoveries of amounts paid under fraudulent contracts constitute
"refunds" that may be deposited to the credit of the appropriation
charged with the payments until the appropriation account is closed.
Once the account is closed, the recoveries should be deposited to the
general fund of the Treasury to the credit of the appropriate receipt
account. B-257905, Dec. 26, 1995.
If a contract requires the government to pay a deposit on containers
and provides for a refund by the contractor of the deposit upon return
of the empty containers by the government, the refund may be credited
to the appropriation from which the deposit was paid. B-8121, Jan. 30,
1940. However, if the contract establishes a time limit for the
government to return the empty containers and provides further that
thereafter title to the containers shall be deemed to pass to the
government, a refund received from the contractor after expiration of
the time limit is treated as a sale of surplus property and must be
deposited as miscellaneous receipts. 23 Comp. Gen. 462 (1943).
(4) "No-cost" contracts:
The federal government sometimes enters into so-called "no-cost"
contracts to obtain services. Typically, the contractor receives no
compensation from the government. B-300248, Jan. 15, 2004. In 63 Comp.
Gen. 459 (1984), GAO considered whether the Federal Communications
Commission could accept offers from industry trade show promoters of
"rent-free" exhibition space and "other free services" intended to
entice the Commission to participate in industry trade shows. The
Commission's participation in a trade show entailed erecting an
exhibition booth and placing staff members and equipment there for the
duration of the show in order to educate the public and respond to
questions about the Commission and its activities. Id. at 459-60. The
Commission felt that it could not afford to rent space from the
promoters; the promoters, realizing that the Commission's presence at
their show would be a "drawing card," offered the Commission rent-free
space, as well as free electricity and other services necessary to
support the Commission's display. Id. GAO found a "mutually beneficial
arrangement" between the Commission and the promoters, although it did
not refer to the mutually beneficial arrangement as a no-cost contract:
"It is to the advantage of the promoters to solicit the Commission's
participation and to waive the usual fees. [At the same time,]
acceptance of the free space and services affords [the Commission]
with an additional opportunity to inform the public ... at no
increased cost to the agency."
Id.
Several recent GAO decisions have addressed no-cost contracts in
relation to the miscellaneous receipts statue, 31 U.S.C. § 3302(b). As
a study of these decisions will show, an agency considering a no-cost
contract should approach the proposed contract with a great deal of
care lest the agency find that it has incurred a constructive
augmentation.
In one case, a no-cost contract arrangement was specifically
authorized by law and thus obviously did not violate section 3302(b).
See B-283731, Dec. 21, 1999 (no-cost contract for travel services
authorized by 10 U.S.C. § 2646). In two related decisions, GAO also
held that the General Services Administration's proposed no-cost
national real estate brokers contract would not violate section
3302(b). B-302811, July 12, 2004; B-291947, Aug. 15, 2003. Under the
proposed contract, real estate brokers would provide lease acquisition
and related services to federal agencies without cost to the
government. Rather, consistent with industry practice, their
compensation would take the form of commissions paid by the lessors.
In affirming the legality of this arrangement, the decision in B-
302811 observed:
"Because the contract was constructed as a no cost contract, GSA will
have no financial liability to brokers, and brokers will have no
expectation of a payment from GSA. The acceptance of services without
payment pursuant to a valid, binding no-cost contract does not augment
an agency's appropriation nor does it violate the voluntary services
prohibition. Although the brokers contract clearly expects that
brokers will be remunerated by commissions from landlords, as is a
common practice in the real estate industry, GSA does not require
landlords to pay commissions. If a landlord were to fail to pay a
broker, the broker would have no claim against GSA."
However, the fact that an agency makes no direct payment for
contractor services does not necessarily mean that arrangement
constitutes a no-cost contract with no implications under 31 U.S.C. §
3302(b). In B-300248, Jan. 15, 2004, discussed at length in section
E.2 of this chapter, the contractor was compensated from fees that the
Small Business Administration (SBA) imposed on lenders and that the
lenders paid directly to the contractor. The opinion rejected SBA's
argument that the "no-cost" nature of the contract took it outside the
application of the normal augmentation and miscellaneous receipts
principles:
"SBA's assertion regarding no-cost contracts ... is misplaced.
Although we have observed that no-cost contracts do not per se violate
the prohibition against augmentation, we have neither applied nor
endorsed the principle that an agency may avoid the prohibition merely
by requiring third parties to pay for an agency's contractual
commitment."
GAO's opinion in B-302811, July 12, 2004, elaborated on the
distinction between the SBA contract, which was found to be a
"constructive augmentation" in violation of section 3302(b), and the
GSA contract, which did not constitute an illegal augmentation:
"The important difference between the GSA and SBA contracts is that
under GSA's contract with brokers, brokers offer their services
without any expectation of payment from GSA, whereas under SBA's
contract, the contractor offered its services only after SBA agreed to
impose a fee on its preferred lenders to cover the contractor's costs
and to require the lenders to pay that fee to the contractor."
c. Damage to Government Property and Other Tort Liability:
As a general proposition, amounts recovered by the government for loss
or damage to government property cannot be credited to the
appropriation available to repair or replace the property, but must be
deposited in the Treasury as miscellaneous receipts. B-287738, May 16,
2002 (damage to government buildings); 64 Comp. Gen. 431 (1985)
(damage to government motor vehicle); 26 Comp. Gen. 618 (1947)
(recovery from insurance company for damage to government vehicle); 3
Comp. Gen. 808 (1924) (loss of Coast Guard vessel resulting from
collision).[Footnote 173] While the recovery may well be "related" to
a prior expenditure for repair of the property, it does not constitute
a refund in the form of an "adjustment" of a previous disbursement
that would qualify for crediting to agency accounts. 64 Comp. Gen.
431, 433 (1985).
There are statutory exceptions to this general proposition. One
involves property purchased and maintained by the General Services
Administration from the General Supply Fund, a revolving fund
established by 40 U.S.C. § 321. By virtue of 40 U.S.C. § 321(b)(2),
recoveries for loss or damage to General Supply Fund property are
credited to the General Supply Fund. This includes recoveries from
other federal agencies for damage to GSA motor pool vehicles. 59 Comp.
Gen. 515 (1980).
Another is 16 U.S.C. § 579c, which authorizes the Forest Service to
retain the proceeds of bond forfeitures resulting from failure to
complete performance under a permit or timber sale contract, and money
received from a judgment, compromise, or settlement of a government
claim for present or potential damage to lands or improvements under
the administration of the Forest Service. If the receipt exceeds the
amount necessary to complete the required work or make the needed
repairs, the excess must be transferred to miscellaneous receipts.
This provision is discussed in 67 Comp. Gen. 276 (1988), holding that
the proceeds of a bond forfeiture could be used to reimburse a general
Forest Service appropriation which had been charged with the cost of
repairs.
In addition, where an agency has statutory authority to retain income
derived from the use or sale of certain property, and the governing
legislation evinces an intent for the particular program or activity
to be self-sustaining, the agency may also retain recoveries for loss
or damage to that property 27 Comp. Gen. 352 (1947) (recovery from
party responsible for loss or damage); 24 Comp. Gen. 847 (1945)
(recovery from insurer); 22 Comp. Gen. 1133 (1943) (same).
There is also a nonstatutory exception to the general proposition.
Where a private party responsible for loss or damage to government
property agrees to replace it in kind or to have it repaired to the
satisfaction of the proper government officials and to make payment
directly to the party making the repairs, the arrangement is
permissible and the agency is not required to transfer an amount equal
to the cost of the repair or replacement to miscellaneous receipts.
[Footnote 174] This principle was first recognized in 14 Comp. Dec.
310 (1907) and has been followed, either explicitly or implicitly,
ever since. E.g., B-287738, May 16, 2002; 67 Comp. Gen. 510 (1988); B-
87636, Aug. 4, 1949; B-128209-0.M., July 12, 1956. The exception
applies even though the money would have to go to miscellaneous
receipts if the responsible party paid it directly to the government.
67 Comp. Gen. at 511; B-87636, Aug. 4, 1949. For an apparent
"exception to the exception" based on the specific legislation
involved, see 28 Comp. Gen. 476 (1949).
Logically, the nonstatutory exception in 14 Comp. Dec. 310 appears
difficult to support. It is, in fact, an extremely rare instance in
which decisions have sanctioned doing indirectly something that cannot
be done directly. Be that as it may, the exception has been followed
since 1907 and appears firmly entrenched. Thus, in B-128209-0.M., July
12, 1956, GAO addressed the relationship between 14 Comp. Dec. 310 and
28 Comp. Gen. 476, stating that "14 Comp. Dec. 310 has been followed
for almost 50 years and we have never expressed disagreement with the
conclusion reached therein." The exception does not disturb the rule
itself; it is "nothing more than an exception that may be advantageous
if the timing of repair and payment can be made to coincide." 64 Comp.
Gen. 431, 433 (1985).
Compensation paid by an insurance company for damage to government
property caused by a contractor may not be used to augment the
agency's appropriation used for the contract. Therefore, absent
specific statutory authority, the moneys, whether paid to the
government or to the contractor, are for deposit into the Treasury as
miscellaneous receipts. B-287738, May 16, 2002; 67 Comp. Gen. 129
(1987); 48 Comp. Gen. 209 (1968). The retention of insurance proceeds
was also at issue in B-93322, Apr. 19, 1950, an apparent exception
based on the particular circumstances involved. In that case, the
General Services Administration had entered into a contract for
renovation of the Executive Mansion. The contract required the
contractor to carry adequate fire and hazard insurance. The renovation
project had been undertaken under a specific appropriation which was
enough for the initial cost but would not have been sufficient for
repairs in the event of a fire or other hazard. Since the renovation
was a "particular job of a temporary nature," and since a contrary
result would defeat the purpose of the appropriation, the Comptroller
General held that insurance proceeds received if a covered risk
occurred could be retained and used for the cost of repairs. Id. at 4.
[Footnote 175]
The rule that recoveries for loss or damage to government property
must be deposited as miscellaneous receipts applies equally to
recoveries from common carriers for government property lost or
damaged in transit. 46 Comp. Gen. 31 (1966); 28 Comp. Gen. 666 (1949);
22 Comp. Dec. 703 (1916); 22 Comp. Dec. 379 (1916). There is a narrow
exception in cases where the freight bill on the shipment of the
property lost or damaged equals or exceeds the amounts paid for
repairs and both are payable from the same appropriation, in which
event the bill is reduced and the amount deducted to cover the cost of
repairs is allowed to remain to the credit of the appropriation. 21
Comp. Dec. 632 (1915), as amplified by 8 Comp. Gen. 615 (1929) and 28
Comp. Gen. 666 (1949). The rule and exception are discussed in 46
Comp. Gen. 31 and in B-4494, Sept. 19, 1939. Also, as with receipts in
general, the miscellaneous receipts requirement does not apply if the
appropriation or fund involved is made reimbursable by statute.
46 Comp. Gen. at 33-34.
In 50 Comp. Gen. 545 (1971), the Comptroller General held that the
requirement to deposit as miscellaneous receipts recoveries from
carriers for property lost or damaged in transit does not apply to
operating funds of the National Credit Union Administration. The
decision noted that, under 12 U.S.C. § 1755, the Administration's
funds consist entirely of fees and assessments collected from member
credit unions and do not include any general revenue appropriations.
Thus, the recoveries should go to the source that bore the costs of
the transactions that gave rise to them.
What happens when one federal agency damages the property of another
agency? Under the so-called "interdepartmental waiver doctrine," the
general rule is that funds available to the agency causing the damage
may not be used to pay claims for damages by the agency whose property
suffered the damage. 65 Comp. Gen. 910, 911 (1986); 46 Comp. Gen. 586,
587 (1966). The interdepartmental waiver doctrine is based primarily
on the concept that property of the various agencies is not the
property of separate entities but rather of the government as a single
entity, and there can be no reimbursement by the government for
damages to or loss of its own property. B-302962, June 10, 2005; 46
Comp. Gen. at 586, 587. However, as GAO pointed out in B-302962, this
general rule also has a well-established exception:
"The interdepartmental waiver doctrine does not apply... where an
agency has statutory authority to retain income derived from the use
or sale of certain property, and the governing legislation shows an
intent for the particular program or activity to be self-sustaining.
24 Comp. Gen. 847 (1945). Thus, where an agency operation is financed
through reimbursements or a revolving fund, the prohibition does not
apply. 65 Comp. Gen. 910 (1986). See also 3 Comp. Gen. 74, 75 (1923).
In such cases, the agency should recover amounts sufficient to cover
loss or damage to property financed by the reimbursements or revolving
fund, regardless of whether that damage is caused by another federal
agency or a private party, and deposit those funds into the revolving
fund. See 65 Comp. Gen. 910. The rationale for this exception is that
the revolving fund, established to operate like a self-sustaining
business, should not bear the cost for 'other than objects for which
the fund was created.' Id."
The decision in B-302962 held that the exception to the
interdepartmental waiver doctrine applied in the case of damage to
facilities of the National Archives and Records Administration whose
operations were financed by a revolving fund. Thus, the Administration
should collect from other federal agencies, their contractors, or the
Administration's own contractors, as the case may be, amounts
sufficient to repair damages they caused to the Administration's
facilities and deposit those amounts into the revolving fund.
While the preceding cases involved loss or damage to property, the
United States may also recover amounts resulting from tortious injury
to persons, for example, under the so-called Federal Medical Care
Recovery Act, 42 U.S.C. § 2651. See, e.g., 57 Comp. Gen. 781 (1978).
Such recoveries, absent express congressional authorization, must be
deposited in the Treasury as miscellaneous receipts. 52 Comp. Gen. 125
(1972). Because of a statutory exception to the miscellaneous receipts
statute, the Department of Veterans Affairs may retain recoveries
under the Federal Medical Care Recovery Act to the extent of medical
care or services furnished under chapter 17 of title 38, United States
Code. The recoveries may be deposited into the Department of Veterans
Affairs Medical Care Collections Fund. Memorandum Opinion for the
Assistant Attorney General, Civil Division, Miscellaneous Receipts Act
Exception for Veterans' Health Care Recoveries, OLC Opinion, Dec. 3,
1998 (construing 38 U.S.C. § 1729A).
A case involving the Military Personnel and Civilian Employees Claims
Act of 1964, 31 U.S.C. § 3721, provides a good illustration of an
adjustment to a prior disbursement, that is, an authorized refund
which the agency may retain for credit to the disbursing
appropriation. The statute authorizes agencies to pay claims by their
employees for personal property lost or damaged incident to service.
In cases where there may be third-party liability (e.g., an insurer or
carrier), the agency has a choice. It may pay the entire amount of the
employee's claim and be subrogated to the employee's claim against the
third party, or it may require the employee to pursue the third-party
claim first. If the agency chooses the former option, it may retain
any third-party recoveries for credit to the appropriation used to pay
the claim. 61 Comp. Gen. 537 (1982). An agency adopting the former
policy, the decision stated,
"will be making payments in some cases that are, strictly speaking,
higher than are required. In such cases, it is entirely legitimate to
treat a third-party recovery as a reduction in the amount previously
disbursed rather than as an augmentation of the agency's
appropriation."
Id. at 540.
A comparison of 61 Comp. Gen. 537 to the Federal Medical Care Recovery
Act case discussed above, 52 Comp. Gen. 125 (1972), illustrates the
distinction previously discussed with respect to applying the
definition of "refund"-61 Comp. Gen. 537 is an example of an
adjustment to an amount previously disbursed; 52 Comp. Gen. 125
illustrates a collection which must go to miscellaneous receipts even
though it is "related" to a prior expenditure.
d. Fees and Commissions:
Federal agencies must have statutory authority both (1) to charge fees
for their programs and activities in the first instance and (2), even
if they have fee-charging authority, to retain in their appropriations
and use the amounts collected. See, e.g., B-300826, Mar. 3, 2005; B-
300248, Jan. 15, 2004. Thus, fees and commissions paid either to the
government itself or to a government employee for activities relating
to official duties must be deposited in the Treasury as miscellaneous
receipts, absent statutory authority to the contrary.
In the case of fees paid directly to the government, the result is a
simple application of 31 U.S.C. § 3302(b). Thus, the following items
must be deposited as miscellaneous receipts:
* Commissions from the use of pay telephones in government buildings.
59 Comp. Gen. 213 (1980); 44 Comp. Gen. 449 (1965); 23 Comp. Gen. 873
(1944); 14 Comp. Gen. 203 (1934); 5 Comp. Gen. 354 (1925); B-4906,
Oct. 11, 1951.
* Fees and related reimbursable incidental expenses paid to the
Department of Agriculture in connection with the investigation of and
issuance of certifications of quality on certain farm products. 2
Comp. Gen. 677 (1923).
* Fees collected under the Freedom of Information Act. 4B Op. Off.
Legal Counsel 684, 687 (1980).
* Fees for copying and shipping documents by the Office of Federal
Housing Enterprise Oversight as part of discovery in administrative
proceedings before that agency. B-302825, Dec. 22, 2004.
Of course, if and to the extent expressly authorized by statute an
agency may retain fees and use them to offset operating costs. See,
e.g., 2 U.S.C. § 68-7(b) (fees and other charges collected for
services provided by the Senate Office of Public Records); 7 U.S.C. §
7333(k)(3) (fees for certain services collected by the Commodity
Credit Corporation); 28 U.S.C. § 1921(e) (fees collected by the United
States Marshals Service for service of civil process and judicial
execution seizures and sales, to the extent provided in advance in
appropriation acts); 28 U.S.C. § 1931 (specified portions of filing
fees paid to the clerk of court). The relevant legislation will
determine precisely what may be retained. E.g., 34 Comp. Gen. 58
(1954).
Training fees illustrate both the general rule and statutory
exceptions. Under the Government Employees Training Act, an agency may
extend its training programs to employees of other federal agencies on
a reimbursable or nonreimbursable basis. 5 U.S.C. § 4104. The agency,
unless it receives appropriations for interagency training, may retain
the fees. B-241269, Feb. 28, 1991 (nondecision letter). Similarly, an
agency may admit state and local government employees to its training
programs and may charge a fee or waive it in whole or in part. 42
U.S.C. § 4742(a). Under 42 U.S.C. § 4742(b), the agency that provided
the training is authorized to credit its appropriation for
reimbursement of fees received. The agency may also admit private
persons to its training programs on a space-available and fee basis,
but, unless it has statutory authority to the contrary, the agency
must deposit the fees as miscellaneous receipts. B-271894, July 24,
1997; 65 Comp. Gen. 666 (1986); 42 Comp. Gen. 673 (1963); B-241269,
Feb. 28, 1991; B-190244, Nov. 28, 1977.
Parking fees assessed by federal agencies under the authority of 40
U.S.C. § 586 are to be credited to the appropriation or fund
originally charged for providing the service. However, any amounts
collected in excess of the actual cost of providing the service must
be deposited as miscellaneous receipts. 55 Comp. Gen. 897 (1976).
Statutes other than 40 U.S.C. § 586 may authorize parking fees, in
which event the terms of the particular statute must be examined. For
example, parking fees at Department of Veterans Affairs medical
facilities are addressed in 38 U.S.C. § 8109. Originally, the fees had
to go to miscellaneous receipts under 31 U.S.C. § 3302(b). 45 Comp.
Gen. 27 (1965). However, 38 U.S.C. § 8109 was amended, and the fees
now go into a revolving fund.
Income derived from the installation and operation of vending machines
on government-owned or controlled property is generally for deposit as
miscellaneous receipts. 32 Comp. Gen. 124 (1952); A-44022, Aug. 14,
1944. There are, however, two major exceptions. First, if an employee
association with administrative approval makes a contractual
arrangement with the vendor, the employee group may retain the income.
32 Comp. Gen. 282 (1952); B-112840, Feb. 2, 1953. Second, under the
Randolph-Sheppard Act, 20 U.S.C. § 107d-3, vending machine income in
certain cases must go to blind licensee-operators or state agencies
for the blind. See B-238937, Mar. 22, 1991; B-199132, Sept. 10, 1980
(nondecision letters).
Donations, which are voluntary, and fees and assessments, which are
not, require different dispositions of amounts collected.[Footnote
176] Statutory authority to accept gifts and donations does not
include fees and assessments exacted involuntarily. 25 Comp. Gen. 637,
639 (1946); B-195492, Mar. 18, 1980; B-225834.2-0.M., Apr. 11, 1988.
However, on occasion, GAO has held that gift-acceptance authorities
extended to certain payments that were not wholly gratuitous or purely
voluntary. See B-286182, Jan. 11, 2001 (statutory authority of the
District of Columbia courts to accept gifts permits acceptance of
services provided as part of an administrative settlement in a rate
case); B-232482, June 4, 1990 (not improper for Commerce Department to
treat certain registration fees as "contributions" within scope of 22
U.S.C. § 2455(f)). For a discussion of the difference between the
statutory authority to accept donations and the authority to charge
fees to cover the costs of services provided, see B-272254, Mar. 5,
1997.
Fees paid to individual employees require a two-step analysis. The
first step is the principle that the earnings of a government employee
in excess of the regular compensation gained in the course of or in
connection with his or her services belong to the government. See,
e.g., 62 Comp. Gen. 39, 40 (1982) and cases cited (military member
must remit to the government fee for service on state jury while he
was not in leave status). The second step is the application of 31
U.S.C. § 3302(b). Using this analysis, GAO has held that agencies must
deposit such fees as miscellaneous receipts in the following instances:
* An honorarium paid to an Army officer for lecturing at a university
in his capacity as an officer of the United States. 37 Comp. Gen. 29
(1957).
* Fees collected from private individuals by government employees for
their services as notaries public. 16 Comp. Gen. 306 (1936).
* Witness fees and any allowances for travel and subsistence, over and
above actual expenses, paid to federal employees for testifying in
certain state court proceedings. 36 Comp. Gen. 591, 592 (1957);
23 Comp. Gen. 628 (1944); 15 Comp. Gen. 196 (1935); B-160343, Nov. 23,
1966.
Applying the same analysis, a proposal under which a nonprofit
corporation funded entirely by private industry would pay monthly
"bonuses" to Army enlistees to encourage enlistment and satisfactory
service, even if otherwise proper, could not be implemented without
specific statutory authority, because the payments could not be
retained by the enlistees but would have to be deposited in the
Treasury under 31 U.S.C. § 3302(b). B-200013, Apr. 15, 1981.
e. Economy Act:
The Economy Act, 31 U.S.C. §§ 1535 and 1536, authorizes the inter- and
intradepartmental furnishing of materials or performance of work or
services on a reimbursable basis.[Footnote 177] It is a statutory
exception to the miscellaneous receipts statute, 31 U.S.C. § 3302(b),
authorizing a performing agency to credit reimbursements to the
appropriation or fund charged in executing its performance.[Footnote
178] Crediting Economy Act reimbursements to agency appropriations is
not mandatory. The performing agency may, at its discretion, deposit
reimbursements for both direct and indirect costs in the Treasury as
miscellaneous receipts. 57 Comp. Gen. 674, 685 (1978), modifying 56
Comp. Gen. 275 (1977). There is one area in which the performing
agency has no discretion. Reimbursements may not be credited to an
appropriation against which no charges have been made in executing the
order.[Footnote 179] This would constitute an improper augmentation of
the credited appropriation(s). As noted in section E.4 of this
chapter, this also applies to appropriations available in different
time periods. See B-288142, Sept. 6, 2001. Such reimbursements must
therefore be deposited into the General Fund as miscellaneous
receipts. An example would be crediting reimbursement for depreciation
to an appropriation that did not bear any costs of the transaction. If
the appropriation that bore the costs is no longer available, the
reimbursement for depreciation must be deposited into the Treasury as
miscellaneous receipts. 57 Comp. Gen. at 685-86. An agency must
deobligate funds at the end of their availability period to the extent
that obligations for Economy Act work exceed costs incurred for that
work. 31 U.S.C. § 1535(d). See B-286929, Apr. 25, 2001; 39 Comp. Gen.
317, 319 (1959); 34 Comp. Gen. 418, 421-22 (1955). Likewise, where
performance of an Economy Act order extends beyond a fiscal year and
is funded by more than one fiscal year appropriation, the
reimbursement must be split between the two appropriations based on
the work actually performed by each. B-301561, June 14, 2004
(nondecision letter).
Reimbursement under the Economy Act is to be made on the basis of
"actual cost" as determined by the performing agency. 31 U.S.C. §
1535(b). Advance payments based on estimated costs are authorized, but
the final payment amount must be adjusted to account for actual costs.
31 U.S.C. § 1535(b), (d); B-282601, Sept. 27, 1999; B-260993, June 26,
1996. See also GAO, DFOH Financial Management, GAO/AIMD-96-167R
(Washington, D.C.: Sept. 30, 1996). While agencies have some
flexibility in determining costs, their determinations must be
reasonable in order to avoid an augmentation. B-257823, Jan. 22, 1998;
B-250377, Jan. 28, 1993.[Footnote 180] In reviewing cost issues under
the Economy Act, GAO's role is to assess the general accuracy and
reasonableness of a performing agency's charges, not to "recompute"
those charges. B-257823, Jan. 22, 1998.
Failure to obtain reimbursement for all required costs in a
reimbursable Economy Act transaction improperly augments the
appropriations of the ordering agency. 57 Comp. Gen. 674, 682 (1978).
Thus, an ordering agency must reimburse all appropriate costs incurred
by the performing agency even if they exceed those agreed upon so long
as the ordering agency received the benefit of the added costs. B-
260993, June 26, 1996. The ordering agency's obligation to reimburse
such additional costs remains even if those costs are not identified
until years later and after the appropriation of the ordering agency
originally charged for the transaction has closed. In this event, the
additional costs are payable from the ordering agency's current
appropriations for the same general purpose. B-260993, June 26, 1996.
By the same token, the performing agency must return to the ordering
agency advance payments that exceeded actual costs. 72 Comp. Gen. 120
(1993).
On occasion, the costs may be so out of proportion as to undercut the
legitimacy of a purported Economy Act transaction altogether. In 70
Comp. Gen. 592 (1991), the Labor Department cited the Economy Act as
authority to combine funds from a number of different departmental
appropriation accounts for component agencies in order to purchase
computer equipment for a department-wide network. However, the value
of equipment provided to the various components under this arrangement
did not match their contributions. For example, one component paid
about four times more than the value of the equipment it received.
Accordingly, the Comptroller General held that this arrangement was
not a legitimate Economy Act transaction or reprogramming. Rather, it
constituted an unauthorized transfer of appropriations that resulted
in a subsidy to, and thus an improper augmentation of, the
department's central management account. 70 Comp. Gen. at 594-96.
Finally, the general authority of the Economy Act cannot be used to
overcome 31 U.S.C. § 3302(b) if the transaction in question is
governed by a more specific statutory authority. In B-241269, Feb. 28,
1991, the Treasury Department's Financial Management Service asked
whether it could invoke the Economy Act to retain reimbursements for
training it provided to employees of other federal and state agencies
as well as a few nongovernmental participants. GAO responded that the
reimbursements were governed not by the Economy Act but by other
statutory authorities dealing specifically with federal training
programs. These statutory authorities allowed the agency that provided
training to credit its appropriations for reimbursements on behalf of
federal and other governmental participants. However, since the
statutes did not cover nongovernmental trainees, they could not
provide an exception from section 3302 that applied to them. Thus, the
fees paid by nongovernmental participants must be deposited into the
General Fund of the Treasury as miscellaneous receipts.[Footnote 181]
The Comptroller General has applied Economy Act cost-reimbursement
principles by analogy to interagency transactions conducted under
other statutory authority requiring reimbursement where that authority
does not otherwise specify the basis for reimbursement. See 72 Comp.
Gen. 159 (1993). Cf. B-276509, Aug. 28, 1998 (implicitly following
Economy Act principles). However, rules that are unique to the Economy
Act, such as the deobligation requirement of 31 U.S.C. § 1535(d), do
not apply to interagency transactions carried out under other
statutory authorities. B-302760, May 17, 2004.
f. Setoff:
Collections by setoff may be factually distinguishable from direct
collections, but the effect on the appropriation is the same. If
crediting an agency appropriation with a direct collection in a
particular instance would result in an improper augmentation, then
retaining an amount collected by setoff would equally constitute an
improper augmentation. Thus, setoffs must be treated the same as
direct collections. If an agency could retain a direct collection in a
given situation, it can retain the setoff. However, if a direct
collection would have to go to miscellaneous receipts, the setoff also
has to go to miscellaneous receipts. In this latter situation, the
agency must take the amount of the setoff from its own appropriation
and transfer it to the General Fund of the Treasury. E.g., 2 Comp.
Gen. 599 (1923); 20 Comp. Dec. 349 (1913).
A hypothetical situation will illustrate. Suppose a contractor
negligently damages a piece of government equipment and becomes liable
to the government in the amount of $500. Suppose further that an
employee of the contracting agency, in a separate transaction,
negligently damages property of the contractor. The contractor files a
claim under the Federal Tort Claims Act and the agency settles the
claim for $600. Neither party disputes the validity or amount of
either claim. The agency sets the contract debt off against the tort
claim and makes a net payment to the contractor of $100. However, if
the agency stops here and if it lacks specific statutory authority to
retain offsets, it has augmented its appropriation to the tune of
$500. If the tort claim had never occurred and the agency collected
the $500 from the contractor, the $500 would have to go to
miscellaneous receipts (see "Contract Matters," above). Conversely, if
the contract claim did not exist, the agency would end up paying $600
on the tort claim. Now, combining both claims, if both were paid
without setoff, the net result would be that the agency is out $600.
The setoff cannot operate to put the agency's appropriation in a
better position than it would have been in had the agency and
contractor simply exchanged checks. Thus, in addition to paying the
contractor $100, the agency must deposit $500 from its own
appropriation into the Treasury as miscellaneous receipts.
A different type of "setoff" occurs under the Back Pay Act, 5 U.S.C. §
5596. When an agency pays an employee back pay under the Back Pay Act,
it must deduct amounts the employee earned through other employment
during the time period in question. The agency simply pays the net
amount. There is no requirement to transfer the amount of the
deduction for outside earnings to miscellaneous receipts. 31 Comp.
Gen. 318 (1952). The deduction for outside earnings is not really a
collection; it is merely part of the statutory formula for determining
the amount of the payment.
g. Revolving Funds:
A major exception to the requirements of 31 U.S.C. § 3302(b) is the
revolving fund.[Footnote 182] For most revolving funds, receipts are
credited directly to the fund and are available, without further
appropriation by Congress, for expenditures to carry out the purposes
of the fund. An agency must have statutory authority to establish a
revolving fund. The enabling statute will specify the receipts that
may be credited to the fund and the purposes for which they may be
expended. An example is the General Services Administration's "General
Supply Fund," noted above under "Damage to Government Property."
Receipts that are properly for deposit to a revolving fund are,
obviously, exempt from the miscellaneous receipts requirement of
section 3302(b). E.g., B-271894, July 24, 1997 (explaining when a
revolving fund may retain receipts and when it must deposit receipts
into the Treasury as miscellaneous receipts).
However, the existence of a revolving fund does not automatically
signal that 31 U.S.C. § 3302(b) will never apply. Thus, where the
statute establishing the fund does not authorize the crediting of
receipts of a given type into the fund, those receipts must be
deposited in the Treasury as miscellaneous receipts. To credit those
receipts to the revolving fund would augment the revolving fund. See,
e.g., B-302825, Dec. 22, 2004 (the Office of Federal Housing
Enterprise Oversight had authority to collect and deposit into its
Oversight Fund annual assessments from the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation; its
authority to conduct administrative and enforcement actions did not
permit it to retain copying fees charged for document discovery). See
also 69 Comp. Gen. 260 (1990); 40 Comp. Gen. 356 (1960); 23 Comp. Gen.
986 (1944); 20 Comp. Gen. 280 (1940).
Augmentation of a revolving fund may occur in other ways, depending on
the nature of the fund and the terms of the governing legislation:
* While the Bureau of Land Management has authority to retain funds
collected as a result of coal trespasses on federal lands, to use
those funds to repair damage to the specific lands involved in the
trespass, and, within the Bureau's discretion, to refund any excess,
the Bureau may not retain an excess of collections over repair costs
which the Bureau determines is inappropriate to refund. To retain such
amounts in the revolving fund to be used for other purposes would
augment the revolving fund. The Bureau must deposit this amount in the
Treasury as miscellaneous receipts. B-204874, July 28, 1982.
* The Corps of Engineers provides construction contract supervision
and administrative services to other agencies and has a revolving fund
(the supervision and administration, or S&A, revolving fund) that it
uses to cover its S&A costs. The Corps changes its customer agencies a
flat rate for this service so that, over time, its S&A revolving fund
will break even. Where the Air Force (a customer agency) received an
amount from an Air Force contractor for additional expenses incurred
by the government as a result of the contractor's defective
workmanship, the Corps could cover into its S&A revolving fund only
that portion representing S&A costs that the Corps had actually
charged the Air Force, regardless of the amount collected from the
contractor. 65 Comp. Gen. 838 (1986). To avoid augmenting its S&A
revolving fund, the Corps had to deposit amounts in excess of that
portion into miscellaneous receipts. Id. See also B-237421, Sept. 11,
1991.
* Although the Corps of Engineers may choose to offer training to
nongovernmental personnel on a limited space-available basis, such
training is not within the scope of the Corps' revolving fund for
furnishing facilities and services for other government agencies.
Therefore, any fees it receives for training nongovernmental personnel
must be deposited to the Treasury under 31 U.S.C. § 3302(b) rather
than being credited to Corps' revolving fund. B-271894, July 24, 1997.
* The Tennessee Valley Authority (TVA) cannot credit to its revolving
fund double and treble damages recovered under the False Claims Act.
Since these damages are in the nature of penalties rather than
compensation for actual losses, TVA must deposit them to the Treasury
as miscellaneous receipts. TVA has no authority to augment its
revolving fund with proceeds that exceed costs it has incurred and
that are unrelated to its commercial and proprietary activities. B-
281064, Feb. 14, 2000.
Legislation that merely authorizes, or even requires, that certain
expenditures be reimbursed is not sufficient to create a revolving
fund. Reimbursements must be deposited as miscellaneous receipts
unless the statute specifically authorizes retention by the agency. 67
Comp. Gen. 443 (1988); 22 Comp. Dec. 60 (1915); 1 Comp. Dec. 568
(1895).
h. Trust Funds:
Moneys properly received by a federal agency in a trust capacity are
not subject to 31 U.S.C. § 3302(b) and thus do not have to be
deposited in the Treasury as miscellaneous receipts, unless otherwise
required.[Footnote 183] B-303413, Nov. 8, 2004; 60 Comp. Gen. 15, 26
(1980); 27 Comp. Gen. 641 (1948). Other authorities supporting this
general proposition are Emery v. United States, 186 F.2d 900, 902 (9th
Cir.), cert. denied, 341 U.S. 925 (1951) (money paid to the United
States under court order as refund of overcharges by persons who had
violated rent control legislation was held in trust for tenants and
could be disbursed to them without need for appropriation); Varney v.
Warehime, 147 F.2d 238, 245 (6th Cir.), cert. denied, 325 U.S. 882
(1945) (assessments levied against milk handlers to defray certain
wartime expenses were trust funds and did not have to be covered into
the Treasury); 62 Comp. Gen. 245, 251-52 (1983) (proceeds from sale of
certain excess stockpile materials where federal agency was acting on
behalf of foreign government); B-223146, Oct. 7, 1986 (moneys received
by Pension Benefit Guaranty Corporation when acting in its trustee
capacity); B-23647, Feb. 16, 1942 (taxes and fines collected in
foreign territories occupied by American armed forces).
In addition, receipts generated by activities financed with trust
funds are generally credited to the trust fund and not deposited as
miscellaneous receipts. United States v. Sinnott, 26 E 84 (D. Ore.
1886) (proceeds from sale of lumber made at Indian sawmill were to be
applied for benefit of Indians and were not subject to 31 U.S.C. §
3302(b)); B-166059, July 10, 1969 (recovery for damage to property
purchased with trust funds). See also 50 Comp. Gen. 545, 547 (1971).
In 51 Comp. Gen. 506 (1972), GAO advised the Smithsonian Institution
that receipts generated by various activities at the National Zoo need
not be deposited as miscellaneous receipts. The Smithsonian is
financed in part by trust funds and in part by appropriated funds.
In a 1991 case, an agency had discovered a $10,000 bank account
belonging to an employee morale club which had become defunct. No
documentation of the club's creation or dissolution could be located.
Thus, if the club had ever provided for the disposition of its funds,
it could no longer be established. Clearly, the money was not received
for the use of the government for purposes of 31 U.S.C. § 3302(b). It
was equally clear that the money could not be credited to the agency's
appropriations. GAO advised that the money could be turned over to a
successor employee morale organization to be used for its intended
purposes. If no successor organization stepped forward, the funds
would have to be deposited in a Treasury trust account in accordance
with 31 U.S.C. § 1322. B-241744, May 31, 1991 (nondecision letter).
There are limits on the extent to which trust funds can legitimately
avoid the application of 31 U.S.C. § 3302(b). The Justice Department's
Office of Legal Counsel has cautioned against carrying the trust
theory too far in the case of trusts created by executive action
rather than statute. For example, the United States and the
Commonwealth of Virginia sued a transportation company for causing an
oil spill in the Chesapeake Bay. A settlement was proposed under which
the defendant would donate money to a private waterfowl preservation
organization The Justice Department's Office of Legal Counsel found
that the proposal would contravene 31 U.S.C. § 3302(b). 4B Op. Off.
Legal Counsel 684 (1980). The opinion did not question that section
3302(b) could be overcome by a statutorily created trust or in other
circumstances where money is "given to the government which is not
available to the United States for disposition on its own behalf." Id.
at 687. However, it listed the following weaknesses in a nonstatutory
trust argument:
"(1) that trusts created by nonstatutory executive action could indeed
be used to circumvent legislative prerogatives in the appropriations
area; (2) that to some extent all money held in the Treasury ... is
received 'in trust' for the citizenry and (3) that Congress has
created or recognized trust funds explicitly in numerous cases and
implicitly in others, but it has neglected to do so in this context."
Id. at 687-68 (footnotes omitted).
The opinion also noted that the applicability of section 3302(b) was
not affected simply because the government did not physically receive
any funds. Rather, "constructive receipt" of funds is sufficient to
trigger the statute:
"In our view, the fact that no cash actually touches the palm of a
federal official is irrelevant for purposes of § [3302(b)], if a
federal agency could have accepted possession and retains discretion
to direct the use of the money. The doctrine of constructive receipt
will ignore the form of a transaction in order to get to its
substance.... Since we believe that money available to the United
States and directed to another recipient is constructively 'received'
for purposes of § [3302(b)], we conclude that the proposed settlement
is barred by that statute."
Id. at 688.
There was a solution in that case, however. Since the United States
had not suffered any monetary loss, it was not required to seek
damages. The proposed contribution by the defendant could be
attributed to the co-plaintiff, Virginia, which of course was not
subject to 31 U.S.C. § 3302(b). Id.[Footnote 184]
Along the lines of the Office of Legal Counsel opinion discussed
above, the court in Motor Coach Industries, Inc. v. Dole, 725 F.2d 958
(4th Cir. 1984), rejected a nonstatutory trust arrangement developed
by the Federal Aviation Administration (FAA) in order to finance
increased surface transportation to Dulles International Airport. FAA
agreed to waive landing fees it charged airlines using Dulles if they
agreed to establish and contribute to an "Air Carriers Trust Fund,"
which would be used to purchase additional ground transport buses to
serve Dulles. The court observed:
"The trust arrangement both undermined the integrity of the
congressional appropriation process and ignored substantive duties
under the procurement statutes. Viewed realistically, the Trust was an
attempt by the FAA to divert funds from their intended destination—the
United States Treasury. Although the purpose for which the FAA sought
the funds was laudable, its methods certainly cannot be praised. Were
the contract between the Trust and [the transport company] left
intact, the agency's end-run around the normal appropriation channels
would have been successful, enabling it effectively to supplement its
budget by $3 million without congressional action."
725 F.2d at 968 (footnote omitted).
i. Fines and Penalties:
Generally speaking, moneys collected as a fine or penalty must be
deposited in the Treasury as miscellaneous receipts pursuant to 31
U.S.C. § 3302(b). E.g., B-281064, Feb. 14, 2000 (double or treble
damages under the False Claims Act, which constitute "exemplary" or
punitive rather than compensatory damages); 70 Comp. Gen. 17 (1990)
(civil penalties assessed against Nuclear Regulatory Commission
licensees); 69 Comp. Gen. 260 (1990) (penalties—as opposed to the
recovery of actual losses—under the False Claims Act); 47 Comp. Gen.
674 (1968) (dishonored checks); B-235577.2-0.M., Nov. 9, 1989 (civil
penalties under Food Stamp Act).
In B-210210, Sept. 14, 1983, the Comptroller General held that the
Commodity Futures Trading Commission lacked authority to enter into a
settlement agreement under which a party charged with violation of the
Commodity Exchange Act would donate funds to an educational
institution with no relationship to the violation. The decision
pointed out that monetary penalties imposed by the Commission were
subject to deposit into the Treasury under 31 U.S.C. § 3302(b) and
rejected the Commission's characterization of the donation as a
"voluntary contribution" as opposed to a "penalty:"
"Despite the statement that the donations would not supplant the
Commission's regular practice of imposing monetary penalties as part
of a settlement, it is difficult to distinguish the proposed donations
from money penalties. The money would be donated as a result of an
enforcement action and in consideration of not imposing some further
sanction or penalty. It is difficult for us to conceive of a situation
under the proposed plan where one making the payment would not
consider the payment a penalty."
Another case concluded that, without statutory authority, permitting a
party who owes a penalty to contribute to a research project in lieu
of paying the penalty amounts to a circumvention of 31 U.S.C. §
3302(b) and improperly augments the agency's research appropriations.
70 Comp. Gen. 17 (1990). A case saying essentially the same thing in
the context of Clean Air Act violations is B-247155, July 7, 1992,
aff'd on reconsideration, B-247155.2, Mar. 1, 1993.
GAO considered similar issues in several cases involving consent
orders between the Department of Energy and oil companies charged with
violation of federal oil price and allocation regulations. The
Department has limited authority to use recovered overcharge funds for
restitution purposes, and in fact has a duty to attempt restitution.
However, to the extent this cannot reasonably be accomplished or funds
remain after restitution efforts have been exhausted, the funds may
not be used for energy-related programs with no restitution nexus but
must be deposited in the Treasury pursuant to 31 U.S.C. § 3302(b). 62
Comp. Gen. 379 (1983); 60 Comp. Gen. 15 (1980). It is equally
unauthorized to give the funds to charity or to use them to augment
appropriations for administering the overcharge refund program. B-
200170, Apr. 1, 1981.
To the same effect is United States v. Smithfield Foods, Inc., 982 E
Supp. 373 (E.D. Va. 1997). Smithfield was assessed a civil penalty of
over $12 million for violating the Clean Water Act. The trial judge
initially ordered the government to submit a proposal for "allocation"
of the penalty with an emphasis on directing all or part of the
penalty toward restoration of the Chesapeake Bay and its tributaries.
The Government responded that, since the Clean Water Act did not
specify an alternative disposition, the penalty must be paid into the
Treasury pursuant to 31 U.S.C. § 3302(b). The court "regretfully
agree[d]" that the penalty proceeds could not be directed toward local
environmental projects. Smithfield Foods, 982 E Supp. at 375.
j. Miscellaneous Cases: Money to Treasury:
In addition to the categories discussed above, there have been
numerous other decisions involving the disposition of receipts in
various contexts. Some cases in which the Comptroller General held
that receipts of a particular type must be deposited in the Treasury
as miscellaneous receipts under 31 U.S.C. § 3302(b) or related
statutes are set forth below.
* Costs awarded to the United States by a court under 28 U.S.C. §
2412. 47 Comp. Gen. 70 (1967).
* Interest earned on grant advances by grantees other than states.
E.g., 69 Comp. Gen. 660 (1990).
* Interest earned by grantees on unauthorized loans of grant funds. 71
Comp. Gen. 387 (1992).
* Interest improperly earned on federal grant funds by various agencies
of the District of Columbia government. B-283834, Feb. 24, 2000.
* Reimbursements received for child care services provided by federal
agencies for their employees under authority of 40 U.S.C. § 590. 67
Comp. Gen. 443, 448-49 (1988).
* Receipts generated by undercover operations by law enforcement
agencies. 67 Comp. Gen. 353 (1988); 4B Op. Off. Legal Counsel 684, 686
(1980). In GAO's opinion, however, short-term operations (a card game
or dice game, for example) may be treated as single transactions. 67
Comp. Gen. 353, clarifying B-201751, Feb. 17, 1981. Thus, 31 U.S.C. §
3302(b) need not be read as requiring an undercover agent
participating in a card game to leave the table to make a
miscellaneous receipts deposit after every winning hand. If, however,
the agent ends up with winnings at the end of the game, the money
cannot be used to offset expenses of the operation.[Footnote 185]
Related cases are 5 Comp. Gen. 289 (1925) and 3 Comp. Gen. 911 (1924)
(moneys used to purchase evidence for use in criminal prosecutions and
recovered when no longer needed for that purpose must be deposited as
miscellaneous receipts).
* Proceeds from silver and gold sold as excess property by the
Interior Department as successor to the American Revolutionary
Bicentennial Administration. (The silver and gold had been obtained by
melting down unsold commemorative medals which had been struck by the
Treasury Department for sale by the American Revolutionary
Bicentennial Administration.) B-200962, May 26, 1981.
* Income derived from oil and gas leases on "acquired lands" (as
distinguished from "public domain lands") of the United States used
for military purposes. B-203504, July 22, 1981.
k. Miscellaneous Cases: Money Retained by Agency:
Most cases in which an agency may credit receipts to its own
appropriation or fund involve the areas previously discussed:
authorized repayments, Economy Act transactions, revolving funds, or
the other specific situations noted. There is another group of cases,
not susceptible to further generalization, in which an agency simply
has specific statutory authority to retain certain receipts. Examples
are:
* Forest Service may retain moneys paid by permittees on national
forest lands representing their pro rata share under cooperative
agreements for the operation and maintenance of waste disposal systems
under the Granger-Thye Act, 16 U.S.C. § 572 (1970). 55 Comp. Gen. 1142
(1976).
* Customs Service may, under 19 U.S.C. § 1524, retain charges
collected from airlines for preclearance of passengers and baggage at
airports in Canada, for credit to the appropriation originally charged
with providing the service. 48 Comp. Gen. 24 (1968).
* Overseas Private Investment Corporation may retain interest on loans
of excess foreign currencies made under the Foreign Assistance Act of
1961, as amended, 22 U.S.C. § 2196. 52 Comp. Gen. 54 (1972).
* The African Development Foundation, by virtue of its statutory gift-
acceptance authority, may retain funds it receives from certain
African governments in order to supplement its grants. B-300218, Mar.
17, 2003.
* Payroll deductions for government-furnished quarters under 5 U.S.C.
§ 5911 are retained in the appropriation(s) or fund(s) from which the
employee's salary is paid. 59 Comp. Gen. 235 (1980), as modified by 60
Comp. Gen. 659 (1981). However, if the employee pays directly rather
than by payroll deduction, the direct payments must go to
miscellaneous receipts unless the agency has specific statutory
authority to retain them. 59 Comp. Gen. at 236.[Footnote 186]
* Under the Mineral Lands Leasing Act of 1920, 30 U.S.C. § 191,
receipts from the sale or lease of public lands are distributed in the
manner specified in the statute. This was held to include the proceeds
of bid deposits forfeited by successful mineral lease bidders who fail
to execute the lease. 65 Comp. Gen. 570 (1986).
* By virtue of provisions in the Job Training Partnership Act[Footnote
187] and annual appropriation acts, certain receipts generated by Job
Corps Centers may be retained for credit to the Labor Department
appropriation from which the Centers are funded. 65 Comp. Gen. 666
(1986).
* Legislation establishing the Commission on the Bicentennial of the
United States Constitution authorized the Commission to retain
revenues derived from its licensing activities but did not address
sales revenues. Sales revenues, therefore, had to be deposited as
miscellaneous receipts. B-228777, Aug. 26, 1988.
In the occasional case, the authority may be less than specific. In B-
114860, Mar. 20, 1975, for example, based on the broad authority of
the National Housing Act, GAO advised that the Department of Housing
and Urban Development could require security deposits from tenants in
HUD-owned multifamily projects. Consistent with practice in the
private sector, the deposit would be considered the property of the
tenant and held in an escrow account, to be either returned to the
tenant upon completion of the lease or forfeited to the government in
cases of breach.
A final case we will note is 24 Comp. Gen. 514 (1945), an exception
stemming from the particular funding arrangement involved rather than
a specific statute. The case dealt with certain government
corporations that did not receive annual appropriations but instead
received annual authorizations for expenditures from their capital
funds for administrative expenses. An appropriation act had imposed a
limit on certain communication expenditures and provided that savings
resulting from the limit "shall not be diverted to other use but shall
be covered into the Treasury as miscellaneous receipts." The
Comptroller General construed this as meaning returned to the source
from which made available. In the case of the corporations in
question, this meant that the savings could be returned to their
capital funds.
l. Money Erroneously Deposited as Miscellaneous Receipts:
The various accounts that comprise the heading "miscellaneous
receipts" are just that—they are receipt accounts, not expenditure or
appropriation accounts. As noted earlier, by virtue of the
Constitution, once money is deposited into miscellaneous receipts, it
takes an appropriation to get it back out. What, therefore, can be
done if an agency deposits some money into miscellaneous receipts by
mistake?
This question really involves two separate situations. In the first
situation, an agency receives funds which it is authorized, under the
principles discussed above, to credit to its own appropriation or
fund, but erroneously deposits them as miscellaneous receipts. The
decisions have always recognized that the agency can make an
appropriate adjustment to correct the error. In an early case, the
Interior Department sold some property and deposited the proceeds as
miscellaneous receipts when in fact it was statutorily authorized to
credit the proceeds to its reclamation fund. The Interior Department
then requested a transfer of the funds back to the reclamation fund,
and the Secretary of the Treasury asked the Comptroller of the
Treasury if it was authorized. Of course it was, replied the
Comptroller:
"This is not taking money out of the Treasury in violation of
paragraph 7, section 9, Article I of the Constitution ....
"The proceeds of the sale ... have been appropriated by law. Taking it
from the Treasury and placing it to the credit in the Treasury of the
appropriation to which it belongs violates neither the Constitution
nor any other law, but simply corrects an error by which it was placed
to the unappropriated surplus instead of to the appropriation to which
it belongs."
12 Comp. Dec. 733, 735 (1906).
This concept has consistently been followed. See 45 Comp. Gen. 724
(1966); 3 Comp. Gen. 762 (1924); 2 Comp. Gen. 599 (1923). Cf. B-
275490, Dec. 5, 1996.[Footnote 188] The concept also has been applied
to permit correction of some errors in accounts that had been closed
and their balances canceled pursuant to 31 U.S.C. §§ 1552 or 1555. See
72 Comp. Gen. 343 (1993). This decision held that, while canceled
balances cannot be restored for purposes of recording obligations or
malting disbursements, bookkeeping records of closed accounts can be
adjusted to correct obvious accounting errors. The decision was
prompted by the Defense Department's request that the Treasury
Department reopen some of its accounts in order to record
disbursements against those accounts for payments that, according to
Defense, had been made from those accounts before cancellation but had
not been properly charged against the accounts. The decision
emphasized that:
"Treasury's authority to correct the accounts relates only to obvious
clerical errors such as misplaced decimals, transposed digits, or
transcribing errors that result in inadvertent cancellations of budget
authority, and is not meant to serve as a palliative for deficiencies
in DOD's accounting systems."
72 Comp. Gen. at 346.
A subsequent decision again stressed that while patently erroneous
appropriation transactions can and often must be corrected, the
authority to make corrections "extends only to clerical and
administrative errors, not all misjudgments and miscalculations by
government officials." B-286661, Jan. 19, 2001, at fn. 5.
In the second situation, a private party pays money to a federal
agency, the agency deposits it as miscellaneous receipts, and it is
subsequently determined that the party is entitled to a refund. Here,
in contrast to the first situation, an appropriation is necessary to
get the money out. E.g., 3 Comp. Gen. 296 (1923).
There is a permanent indefinite appropriation for refunding
collections "erroneously received and covered" that are not properly
chargeable to any other appropriation. 31 U.S.C. § 1322(b)(2). The
availability of this appropriation depends on exactly where the
receipts were deposited. If the amount subject to refund was credited
to some specific appropriation account, the refund is chargeable to
the same account. If, however, the receipt was deposited in the
general fund as miscellaneous receipts, then the appropriation made by
31 U.S.C. § 1322(b)(2) is available for the refund, provided that the
amount in question was "erroneously received and covered." B-257131,
May 30, 1995; 71 Comp. Gen. 464 (1992); 61 Comp. Gen. 224 (1982); 55
Comp. Gen. 625 (1976); 17 Comp. Gen. 859 (1938). Also, the 31 U.S.C. §
1322(b) appropriation is not available as a source for adjusting an
erroneous intra-governmental transfer between two appropriation
accounts since such an adjustment does not involve a "refund" of funds
"erroneously received" by the government. B-286661, Jan. 19, 2001, at
fn. 6.
Examples of cases in which use of the "Moneys Erroneously Received and
Covered" appropriation was found authorized are 71 Comp. Gen. 464
(1992) (refund to investment company of late filing fee upon issuance
of order by Securities and Exchange Commission exempting company from
filing deadline for fiscal year in question); 63 Comp. Gen. 189 (1984)
(Department of Energy deposited overcharge recoveries from oil
companies into general fund instead of first attempting to use them to
make restitution refunds); B-217595, Apr. 2, 1986 (interest
collections subsequently determined to have been erroneous).
One case, 53 Comp. Gen. 580 (1974), combined elements of both
situations. The Army Corps of Engineers had been authorized to issue
discharge permits under the Refuse Act Permit Program. The program was
statutorily transferred in 1972 to the Environmental Protection
Agency. Under the user charge statute, 31 U.S.C. § 9701, both the
Corps and EPA had charged applicants a fee. In some cases, the fees
had been deposited as miscellaneous receipts before the applications
were processed. The legislation that transferred the program to EPA
also provided that EPA could authorize states to issue the permits.
However, there was no provision that authorized EPA to transfer to the
states any fees already paid. Thus, some applicants found that they
had paid a fee to the Corps or EPA, received nothing for it, and were
now being charged a second fee by the state for the same application.
EPA felt that the original fees should be refunded. So did the
applicants.
GAO noted that the user charge statute contemplates that the federal
agency will furnish something in exchange for the fee. Since this had
not been done, the fees could be viewed as having been erroneously
deposited in the general fund. However, the fees had not been
erroneously received—the Corps and EPA had been entirely correct in
charging the fees in the first place-—so the appropriation made by 31
U.S.C. § 1322(b)(2) could not be used. There was a way out, but the
refunds would require a two-step process. The Corps and EPA should
have deposited the fees in a trust account[Footnote 189] and kept them
there until the applications were processed, at which time depositing
as miscellaneous receipts would have been proper. Thus, EPA could
first transfer the funds from the general fund to its suspense account
as the correction of an error, and then make the refunds directly from
the suspense account.
In cases where the "Moneys Erroneously Received and Covered"
appropriation is otherwise available, it is available without regard
to whether the original payment was made under protest. 55 Comp. Gen.
243 (1975).
The appropriation made by 31 U.S.C. § 1322(b)(2) for Refund of Moneys
Erroneously Received and Covered is available only to refund amounts
actually received and deposited. If a given refund bears interest, for
example, a refund claim approved by a contracting officer under the
Contract Disputes Act, the interest portion must be charged to the
contracting agency's operating appropriations for the fiscal year in
which the award is made. B-217595, Apr. 2, 1986.
If an agency collects money from someone to whom it owes a refund from
a prior transaction, it should not simply deposit the net amount. The
correct procedure is to deposit the new receipt into the general fund
(assuming that is the proper receptacle), and then make the refund
using the "Moneys Erroneously Received and Covered" appropriation. B-
19882, Oct. 28, 1941; A-96279, Sept. 15, 1938. However, GAO has
approved offsetting a refund against future amounts due from the same
party in cases where there is a continuing relationship, but suggested
that the party be given the choice. B-217595, Apr. 2, 1986, at 4.
Clearly, if the receipt cannot be regarded as erroneous, 31 U.S.C.
§ 1322(b)(2) is not available. E.g., Lee v. United States, 33 Fed. CL
374 (1995); 53 Comp. Gen. 580 (1974); B-146111, July 6, 1961. Citing
several of the Comptroller General decisions discussed previously, the
court in Lee held that a filing fee appropriately paid by a litigant
and deposited into the Treasury was not subject to refund under
section 1322(b)(2). Lee, 33 Fed. Cl. at 381-84. Also, the "Moneys
Erroneously Received and Covered" appropriation is available only
where the amount to be refunded was deposited into the general fund.
E.g., 11 Comp. Dec. 300 (1904). If a refund is due of moneys deposited
somewhere other than the general fund, some other basis must be sought.
Republic National Bank of Miami v. United States, 506 U.S. 80 (1992),
and the varied opinions of the Justices it spawned, illustrate how
perplexing the issues can be when it comes to retrieving from the
Treasury funds that should not have been deposited there. Republic
National Bank was an "in rem" forfeiture action against property (a
house) that the government alleged had been purchased with income from
illegal drug trafficking. The bank intervened, claiming to be an
innocent owner of the property by virtue of its mortgage interest.
With the consent of the bank, the property was sold and the proceeds
were held by the U.S. marshal pending the outcome of the litigation.
The trial court rejected the bank's claim and ordered the sale
proceeds forfeited to the United States. The bank appealed; however,
when it did not seek to stay execution of the judgment the government
had the marshal deposit the sales proceeds into the Assets Forfeiture
Fund of the Treasury. Once this occurred, the government sought to
dismiss the appeal as moot. The government argued that since the
proceeds were now in the Treasury, they could not be withdrawn without
an appropriation and, thus, the courts could provide no remedy to the
bank.
When the case reached the Supreme Court, all of the Justices rejected
the government's argument and agreed that the bank could be paid if it
prevailed on the merits. However, they were deeply split as to the
rationale. Justice Blackmun, author of most of the Court's opinion in
Republic National Bank, characterized the government's position as
being that, by virtue of the Constitution's Appropriations Clause,
"absent an appropriation, any funds that find their way into a
Treasury account must remain there, regardless of their ownership."
506 U.S. at 89. Rejecting this position as producing "bizarre" and
"absurd" results, Justice Blackmun concluded that an appropriation was
not necessary. He reasoned that money involved in a pending in rem
forfeiture proceeding could not be regarded as "public funds" within
the scope of the Appropriations Clause where the very purpose of the
proceeding was to sort out their proper ownership. Furthermore, he
observed:
"Contrary to the Government's broad submission here, the Comptroller
General has long assumed that, in certain situations, an erroneous
deposit of funds into a Treasury account can be corrected without a
specific appropriation. See 53 Comp. Gen. 580 (1974); 45 Comp. Gen.
724 (1966); 3 Comp. Gen. 762 (1924); 12 Comp. Dec. 733, 735 (1906);
Principles of Federal Appropriations Law, at 5-79 to 5-81. Most of
these cases have arisen where money intended for one account was
accidentally deposited in another. It would be unrealistic, for
example, to require congressional authorization before a data
processor who misplaces a decimal point can 'undo' an inaccurate
transfer of Treasury funds. The Government's absolutist view of the
scope of the Appropriations Clause is inconsistent with these
commonsense understandings."
Republic National Bank, 506 U.S. at 92.
However, Chief Justice Rehnquist, joined by four other Justices, wrote
the opinion of the Court on this point. The Chief Justice expressed
"difficulty accepting the proposition that funds which have been
deposited into the Treasury are not public money, regardless of
whether the Government's ownership of those funds is disputed." Id. at
93. He added, "even if there are circumstances in which funds that
have been deposited into the Treasury may be returned absent an
appropriation, I believe it unnecessary to plow that uncharted ground
here." Id. at 95. Instead, he concluded that the judgment fund
appropriation under 31 U.S.C. § 1304 would be available to provide a
source of payment if the bank prevailed in the case.
Justice Blackmun had rejected the Chief Justice's judgment fund
rationale for two reasons. First, he viewed the judgment fund as being
limited to the payment of money judgments. Second, he pointed out that
the proceeds from the in rem action were not in the judgment fund.
Rather, they were in the Treasury Assets Forfeiture Fund. See Republic
National Bank, 506 U.S. at 91, fn. 6.[Footnote 190]
Finally, in their separate opinions, Justice White and Justice Stevens
both expressed displeasure over the need to address the Appropriations
Clause issue, indicating surprise that the Government would advance
"such a transparently fallacious position." See 506 U.S. at 97-99.
3. Gifts and Donations to the Government:
a. Donations to the Government:
It has long been recognized that the United States (as opposed to a
particular agency) may receive and accept gifts. No particular
statutory authority is necessary. As the Supreme Court has said:
"Uninterrupted usage from the foundation of the Government has
sanctioned it."
United States v. Burrtison, 339 U.S. 87, 90 (1950). The gifts may be
of real property or personal property, and they may be testamentary
(made by will) or inter vivos (made by persons who are not dead yet).
Monetary gifts to the United States go to the general fund of the
Treasury and present no augmentation problem since there is no
appropriation to augment.
However, as the Supreme Court held in the Burrtison case, a state may
prohibit testamentary gifts by its domiciliaries to the United States.
Also, a state may impose an inheritance tax on property bequeathed to
the United States. United States v. Perkins, 163 U.S. 625 (1896). The
tax is not regarded as a constitutionally impermissible tax on federal
property "since the tax is imposed upon the legacy before it reaches
the hands of the government. The legacy becomes the property of the
United States only after it has suffered a diminution to the amount of
the tax ...." Id. at 630.
While gifts to the United States do not require statutory authority,
gifts to an individual federal agency stand on a different footing.
The rule is that a government agency may not accept for its own use
(i.e., for retention by the agency or credit to its own
appropriations) gifts of money or other property in the absence of
specific statutory authority. 16 Comp. Gen. 911 (1937). As the
Comptroller General said in that decision, "[w]hen the Congress has
considered desirable the receipt of donations ... it has generally
made specific provision therefor ...." Id. at 912. See also B-286182,
Jan. 11, 2001; B-289903, Mar. 4, 2002 (nondecision letter).
Thus, acceptance of a gift of money or other property by an agency
lacking statutory authority to do so is an improper augmentation.
E.g., B-286182, Jan. 11, 2001 (District of Columbia Courts statutory
gift-acceptance authority permitted receipt of a private company's
contribution of telecommunications services and equipment). If an
agency does not have statutory authority to accept donations of money,
it must turn the money in to the Treasury as miscellaneous receipts.
E.g., B-139992, Aug. 31, 1959 (proceeds of life insurance policy
designating federal agency as beneficiary). Under the Federal Property
and Administrative Services Act of 1949, as amended, agencies without
gift retention authority must report gifts of property to the General
Services Administration (GSA) and the property is treated in
accordance with its regulations. See 40 U.S.C. § 121; 41 C.F.R. §§ 102-
36.410 and 102-36.415 (2005). Gifts from foreign governments or
entities must also be reported to GSA and treated in accordance with
41 C.F.R. § 102-36.420 and part 101-49.
For purposes of this discussion, the term "gifts" may be defined as
"gratuitous conveyances or transfers of ownership in property without
any consideration." B-286182, Jan. 11, 2001; 25 Comp. Gen. 637, 639
(1946); B-217909, Sept. 22, 1986. A receipt that does not meet this
definition does not become a gift merely because the agency
characterizes it as one. For example, a fee paid for the privilege of
filming a motion picture in a national park is not a gift and must be
deposited as miscellaneous receipts rather than in the agency's trust
fund. 25 Comp. Gen. 637. See also B-89294, Aug. 6, 1963. Similarly, a
reduction of accrued liability in fulfillment of a contractual
obligation is not a donation for purposes of a statute authorizing
appropriations to match "donations." B-183442, Oct. 21, 1975 (statute
indicated that only gifts may be matched and payment in satisfaction
of a contractual debt is not a gift). On the other hand, some payments
that are not wholly voluntary or gratuitous may occasionally qualify
for acceptance as gifts or contributions. See B-286182, Jan. 11, 2001
(District of Columbia Court System may accept and use a contribution
of telecommunication services and equipment from a telecommunication
company as part of a settlement agreement in a rate case); B-232482,
June 4, 1990 (payments of fees by nongovernment participants for
services provided as part of Department of Commerce-sponsored
international trade shows are considered "contributions" under
specific language in Commerce's appropriation act).
A number of departments and agencies have statutory authority to
accept gifts. A partial listing is contained in B-149711, Aug. 20,
1963 (although dated, B-149711 is still useful since there is no more
recent comprehensive compilation of these authorities). The statutory
authorizations contain varying degrees of specificity as to precisely
what may be accepted (money, property, services, etc.). For example,
the State Department's general gift statute, 22 U.S.C. § 2697,
authorizes the State Department to accept gifts of money or property,
real or personal, and, in the Secretary's discretion, conditional
gifts. A case discussing this statute is 67 Comp. Gen. 90 (1987)
(United States Information Agency may accept donations of radio
programs prepared by private syndicators for broadcast over Voice of
America facilities). Another is 70 Comp. Gen. 413 (1991) (United
States Information Agency may accept donations of foreign debt).
Authority to accept voluntary services does not include donations of
cash. A-86115, July 15, 1937; A-51627, Mar. 15, 1937. For a further
discussion of voluntary services, see section C.3 of this chapter.
The authority of the Defense Department to accept gifts is found in
several statutes. First, the Defense Department may accept
contributions of money or real or personal property "for use by the
Department of Defense" from any person, foreign government, or
international organization The money and proceeds from the sale of
property are credited to the Defense Cooperation Account in the
Treasury. The money is not automatically available to Defense, but is
available for obligation or expenditure only in the manner and to the
extent provided in appropriation acts. 10 U.S.C.
§ 2608. Second, the Department may accept services, supplies, real
property, or the use of real property under a mutual defense or
similar agreement or as reciprocal courtesies, from a foreign
government for the support of any element of United States armed
forces in that country. 10 U.S.C. § 2350g. These authorities formed
the basis for the United States to accept contributions from foreign
governments and others to defray the costs of the 1991 military
operations in the Persian Gulf. See GAO, Operations Desert
Shield/Storm: Foreign Government and Individual Contributions to the
Department of Defense, GAO/NSIAD-92-144 (Washington, D.C.: May 11,
1992). Other limited-purpose authorities available to the military are
found in 10 U.S.C. §§ 2601-2607.
We also should note a statute tailor-made for the philanthropist
desiring to make a donation for the express purpose of reducing the
national debt.
(Some people mistakenly think they already do this in April of each
year.) The Secretary of the Treasury may accept gifts of money,
obligations of the United States, or other intangible personal
property made for the express purpose of reducing the public debt.
Gifts of other real or personal property for the same purpose may be
made to the Administrator of the General Services Administration. 31
U.S.C. § 3113.
Assuming the existence of the requisite statutory authority, it is
quite easy to make a gift to the government. The essential elements of
a gift are donative intent, delivery, and acceptance. There are no
particular forms required. A simple letter to the appropriate agency
head transmitting the funds for the stated purpose will suffice. See B-
274855, Jan. 23, 1997; B-157469, July 24, 1974 (nondecision letter).
A 1980 GAO study found that, during fiscal year 1979, 41 government
agencies received a total of $21.6 million classified as gift revenue.
See GAO, Review of Federal Agencies' Gift Funds, FGMSD-80-77
(Washington, D.C.: Sept. 24, 1980). The report pointed out that the
use of gift funds dilutes congressional oversight because the funds do
not go through the appropriation process. The report recommended that
agencies be required to more fully disclose gift fund operations in
their budget submissions.
The issue raised in most gift cases is the purpose for which gift
funds may be used. This ultimately depends on the scope of the
agency's statutory authority and the terms of the gift. Gift funds are
accounted for as trust funds. They generally must be deposited in the
Treasury as trust funds under 31 U.S.C. § 1321(b), to be disbursed in
accordance with the terms of the trust. In 16 Comp. Gen. 650, 655
(1937), the Comptroller General stated:
"Where the Congress authorizes Federal officers to accept private
gifts or bequests for a specific purpose, often subject to certain
prescribed conditions as to administration, authority must of
necessity be reposed in the custodians of the trust fund to make
expenditures for administration in such a manner as to carry out the
purposes of the trust and to comply with the prescribed conditions
thereof without reference to general regulatory and prohibitory
statutes applicable to public funds."
While this passage correctly states the trust fund concept, agencies
have sometimes misconstrued it to mean that they have free and
unrestricted use of donated funds. This is not the case. On the one
hand, donated funds may not be subject to all of the restrictions
applicable to direct appropriations. Yet on the other hand, gift funds
constitute appropriated funds unless Congress provides otherwise
[Footnote 191] and they are still "public funds" in a very real sense.
As GAO stated in B-274855, Jan. 23, 1997:
"Funds available to agencies are considered appropriated, regardless
of their source, if they are made available for collection and
expenditure pursuant to specific statutory authority. See B-215042,
April 12, 1985. This means that although donated funds may not be
subject to all the restrictions applicable to direct appropriations,
they are still public funds. See B-197565, May 13, 1980."
Id. at 3. See also B-275669.2, July 30, 1997. Consequently, gift funds
can be used only in furtherance of authorized agency purposes and
incident to the terms of the trust. See B-300218, Mar. 17, 2003; B-
195492, Mar. 18, 1980.
An interesting illustration of this point occurred in B-16406, May 17,
1941. A citizen had bequeathed money in her will to a hospital. When
the will was made, the hospital belonged to the state of Louisiana. By
the time the will was probated, however, it had been acquired by the
United States. Louisiana was concerned that the bequest might, if
deposited in the United States Treasury, be diverted from the
decedent's intent. There was no need for concern, the Comptroller
General advised. The money would have to be deposited as trust funds
and would be available for expenditure only for the purposes specified
in the trust, that is, for the hospital.
In evaluating the propriety of a proposed use of gift funds, it is
first necessary to examine the precise terms of the statute
authorizing the agency to accept the gift. Limitations imposed by that
statute must be followed. Thus, under a statute which authorized the
Forest Service to accept donations "for the purpose of establishing or
operating any forest research facility," the Forest Service could not
turn over unconditional gift funds to a private foundation under a
cooperative agreement, with the foundation to invest the funds and use
the proceeds for purposes other than establishing or operating forest
research facilities. 55 Comp. Gen. 1059 (1976). See also B-198730,
Dec. 10, 1986 (funds donated to Library of Congress to further
purposes of Library's Center for the Book could not be used for
unrelated Library programs); 40 Op. Att'y Gen. 66 (1941) (Library of
Congress could not, without statutory authority, share income from
donated property with Smithsonian Institution).
Under a statute authorizing the Federal Board for Vocational Education
to accept donations to be used "in connection with the appropriations
hereby made or hereafter to be made, to defray the expenses of
providing and maintaining courses of vocational rehabilitation," the
funds could be used only to supplement the Board's regular
appropriations and could not be used for any expense not legally
payable from the regular appropriation. The statute here conferred no
discretion. 27 Comp. Dec. 1068 (1921).
If an agency is authorized to accept gifts, the funds may be used to
augment a "not to exceed" earmark applicable to that purpose. B-52501,
Nov. 9, 1945. (Although the statute involved in B-52501, the
predecessor of 10 U.S.C. § 2608 noted above, no longer exists, the
point of the decision is still valid.)
Once it is determined that the proposed use will not contravene the
terms of the agency's authorizing statute, the agency will have some
discretion under the trust fund concept. For example, donated funds
may be used for entertainment only if the entertainment will further a
valid function of the agency for which the donated funds were
provided, if the government could not accomplish the function as
effectively without the expenditure, and if the expenditure does not
violate any restrictions imposed by the donor on the use of the funds.
46 Comp. Gen. 379 (1966); B-195492, Mar. 18, 1980; B-170938, Oct. 30,
1972; B-142538, Feb. 8, 1961. See also B-152331, Nov. 19, 1975
(involving a trust fund which included both gift and non-gift funds).
It follows that donated funds may not be used for entertainment which
does not bear a legitimate relationship to official agency purposes.
61 Comp. Gen. 260 (1982), aff'd upon reconsideration, B-206173, Aug.
3, 1982 (donated funds improperly used for breakfast for Cabinet wives
and Secretary's holiday party).
The trust fund concept was also applied in 36 Comp. Gen. 771 (1957).
The Alexander Hamilton Bicentennial Commission had been given
statutory authority to accept gifts and wanted to use the donations to
award Alexander Hamilton Commemorative Scholarships. The Commission
was to have a brief existence and would not have sufficient time to
administer the scholarship awards. The Comptroller General held that
the Commission could, prior to the date of its expiration, transfer
the funds to a responsible private organization for the purpose of
enabling proper administration of the scholarship awards. The
distinction between this case and 55 Comp. Gen. 1059, mentioned above,
is that in 36 Comp. Gen. 771, the objective of transferring the funds
to a private organization was to better carry out an authorized
purpose. In 55 Comp. Gen. 1059, the objective was to enable the funds
to be used for unauthorized purposes.
Another case illustrating permissible administrative discretion under
the trust fund concept is B-131278, Sept. 9, 1957. A number of persons
had made donations to St. Elizabeth's Hospital to enable it to buy an
organ for its chapel. The donors (organ donors?) had made the gifts on
the condition that the Hospital purchase a high-quality (expensive)
organ. When the Hospital issued its invitation for bids on the organ,
the specifications were sufficiently restrictive so as to preclude
offers on lower quality organs. The decision found this to be entirely
within the Hospital's discretion in using the gift funds in accordance
with their terms.
As noted above, however, the agency's discretion in administering its
gift funds is not unlimited. Thus, for example, an agency may not use
gift funds for purely personal items such as greeting cards that do
not further agency purposes for which the gift funds were donated. 47
Comp. Gen. 314 (1967). See also B-195492, Mar. 18, 1980 (when an
agency uses trust funds for what appear to be personal purposes, it
has the burden of showing that this use furthers the trust purposes).
The particular statutory scheme will determine the extent to which
donated funds are subject to other laws governing the expenditure of
public funds. In two cases, for example, where a designated activity
was to be carried out solely or primarily with donated funds, GAO
found that the recipient agency could invest the gift funds in non-
Treasury interest-bearing accounts and was not required to comply with
the Federal Property and Administrative Services Act of 1949 (FPASA),
41 U.S.C. § 251-266, or the Federal Acquisition Regulation (FAR), 48
C.F.R. §§ 1.104 and 12.101. 68 Comp. Gen. 237 (1989) (Christopher
Columbus Quincentenary Jubilee Commission); B-211149, Dec. 12, 1985
(Holocaust Memorial Council). However, these cases were distinguished
in B-275669.2, July 30, 1997, in which GAO determined that the
American Battle Monuments Commission charged with establishing the
World War II memorial must use donated funds for contracts in
accordance with the FPASA and FAR since neither the authorizing
legislation nor the legislative history indicated an intention to
exempt the Commission from such requirements.
Gifts that would require the government to incur significant expenses
in future years present special issues. Although there are no recent
cases, indications are that the agency needs specific statutory
authority—not merely general authority to accept gifts—since the
agency's appropriations would not otherwise be available to make the
future expenditures. For example, an individual made a testamentary
gift to a United States naval hospital. The will provided that the
money was to be invested in the form of a memorial fund, with the
income to be used for specified purposes. The Comptroller General
objected to this, finding that the gift appeared to be conditional and
that "the United States would become, in effect, a trustee for
charitable uses, would never gain a legal title to the money, but
would have the burden and obligation of administering in perpetuity a
trust fund ...." 11 Comp. Gen. 355, 366 (1932). Also, absent specific
authorization by Congress, appropriations would not be available for
the expenses of administering the trust. Therefore, absent
congressional authorization to accept the donation "as made," it could
not be accepted either by the naval hospital, id., or by the Treasury
Department, A-40707, Dec. 15, 1936. See Story v. Snyder, 184 F.2d 454,
456 (D.C. Cir.), cert. denied, 340 U.S. 866 ((1950) ("gifts to the
United States which involve any duty, burden, or condition, or are
made dependent upon some future performance by the United States, are
not accepted by the Government unless by the express authority of
Congress"). See also 10 Comp. Gen. 395 (1931); 22 Comp. Dec. 465
(1916);[Footnote 192] 30 Op. Att'y Gen. 527 (1916). A few of the cases
(e.g., 10 Comp. Gen. 395 and 30 Op. Att'y Gen. 527) have tied the
result to the Antideficiency Act prohibition against incurring
obligations in advance of appropriations, reasoning that acceptance
would, in effect, create an unauthorized and unfunded contractual
commitment to incur future expenses. See 10 Comp. Gen. at 398.
A question that received little attention in the past is whether an
agency with statutory authority to accept gifts may use either
appropriated funds or donated funds to solicit the gifts. GAO found
that the Holocaust Memorial Council may use either appropriated or
donated funds to hire a fund-raiser, but the cases have little
precedential value since the legislation involved included specific
authority to solicit as well as accept donations. See B-211149, Dec.
12, 1985; B-211149, June 22, 1983.
An interesting, and hopefully unique, situation presented itself in B-
230727, Aug. 1, 1988. Congress had enacted legislation to establish a
Commission on Improving the Effectiveness of the United Nations, to be
funded solely from private contributions. Pub. L. No. 100-204, title
VII, pt. B, § 727, 101 Stat. 1331, 1394 (Dec. 22, 1987). The effective
date of the legislation was March 1, 1989. Unfortunately, the
legislation failed to provide a mechanism for anyone (Treasury
Department or General Services Administration, for example) to accept
and account for donations prior to the effective date, and the
Commission itself could not do so since it had no legal existence.
Thus, unless the statute were amended to authorize some other agency
to act on the Commission's behalf, potential donors could not make
contributions prior to the effective date since there was no one
authorized to accept them.
In 1995, GAO was asked whether, under the Public Health Service's gift
acceptance statute, 42 U.S.C. § 238(a), the National Institutes of
Health (NIH), a component of the Public Health Service, may use its
appropriated funds to apply for grants from nongovernmental sources, a
kind of solicitation of funds. GAO determined that, since NIH had the
authority to accept grants as conditional gifts under the statute, it
could use its appropriated funds to cover the costs incurred in
applying for such grants. B-255474, Apr. 3, 1995.
Finally, if an agency is authorized to accept gifts, it may also
accept a loan of equipment by a private party without charge to be
used in connection with particular government work. The agency's
appropriations for the work will be available for repairs to the
equipment, but only to the extent necessary for the continued use of
the equipment on the government work, and not after the government's
use has terminated. 20 Comp. Gen. 617 (1941). In one case, GAO
approved the loan of private property to a federal agency by one of
its employees, without charge and apparently without statutory
authority, where the agency administratively determined that the
equipment was necessary to the discharge of agency functions and the
loan was in the interest of the United States. 22 Comp. Gen. 153
(1942). The decision stressed, however, that the practice of borrowing
property should not be encouraged since it might give rise to claims
against the government or questions about favors received or expected
by the persons loaning the property. The decision seems to have been
based in part on wartime needs and its precedent value would therefore
seem minimal. See, e.g., B-168717, Feb. 18, 1970.
b. Donations to Individual Employees:
(1) Contributions to salary or expenses:
As a general proposition, unless authorized by statute, private
contributions to the salary or expenses of a federal employee are
improper. First, they may in some circumstances violate 18 U.S.C. §
209, which prohibits the supplementation of a government employee's
salary from private sources. "The evils of such, were it permitted,
are obvious." Exchange National Bank v. Abramson, 295 E Supp. 87, 90
(D. Minn. 1969). For purposes of 18 U.S.C. § 209, the proverb that it
is better to give than to receive does not work. Both the giving and
the receiving are criminal offenses under the statute. The employee
would presumably violate the law by receiving more than he or she is
entitled to receive under applicable statutes and regulations. 33 Op.
Att'y Gen. 273, 275 (1922) (object of the predecessor to 18 U.S.C. §
209 was that "no Government official or employee should serve two
masters to the prejudice of his unbiased devotion to the interests of
the United States"). For further discussion of section 209, see the
Memorandum Opinion for the General Counsel, Federal Bureau of
Investigation, Applicability of 18 U.S.C. § 209 to Acceptance by FBI
Employees of Benefits under the 'Make a Dream Come True" Program, OLC
Opinion, Oct. 28, 1997. See also the Office of Government Ethics,
Standards of Ethical Conduct for Employees of the Executive Branch,, 5
C.F.R. part 2635 (2005) (implementing 18 U.S.C. § 201), which prohibit
an employee from accepting gifts from persons whose interests may be
substantially affected by the employee.
Second, they are improper as unauthorized augmentations. To the extent
the private contribution replaces the employee's government salary, it
is a direct augmentation of the employing agency's appropriations. To
the extent the contribution supplements the government salary, it is
an augmentation in an indirect sense, the theory being that when
Congress appropriates money for an activity, all expenses of that
activity must be borne by that appropriation unless Congress
specifically provides otherwise.
An early case in point is 2 Comp. Gen. 775 (1923). The American
Jewelers' Protective Association offered to pay the salary and
expenses of a customs agent for one year on the condition that the
agent be assigned exclusively for that year to investigate jewelry
smuggling. The Comptroller General found the arrangement improper, for
the two reasons noted above. Whether the payments were to be made
directly to the employee or to the agency by way of reimbursement was
immaterial.
Most questions in this area involve schemes for private entities to
pay official travel expenses. From the sheer number of cases GAO has
considered, one cannot help feeling that the bureaucrat must indeed be
a beloved creature. A long series of decisions established the
proposition that donations from private sources for official travel to
conduct government business constituted an unlawful augmentation
unless the employing agency had statutory authority to accept gifts.
If the agency had such authority, the donation could be made to the
agency, not the individual employee, and the agency would then
reimburse the employee in accordance with applicable travel laws and
regulations, with the allowances reduced as appropriate in the case of
contributions in kind.[Footnote 193]
One problem with this system was the lack of uniformity in treatment,
varying with the agency's statutory authority. Congress addressed the
situation in the Ethics Reform Act of 1989, Pub. L. No. 101-194, §
302, 103 Stat. 1716, 1745 (Nov. 30, 1989), codified at 31 U.S.C. §
1353. Subsection (a) provides as follows:
"Notwithstanding any other provision of law, the Administrator of
General Services, in consultation with the Director of the Office of
Government Ethics, shall prescribe by regulation the conditions under
which an agency in the executive branch (including an independent
agency) may accept payment, or authorize an employee of such agency to
accept payment on the agency's behalf, from non-Federal sources for
travel, subsistence, and related expenses with respect to attendance
of the employee (or the spouse of such employee) at any meeting or
similar function relating to the official duties of the employee. Any
cash payment so accepted shall be credited to the appropriation
applicable to such expenses. In the case of a payment in kind so
accepted, a pro rata reduction shall be made in any entitlement of the
employee to payment from the Government for such expenses."
GSA's implementing regulations are found at 41 C.F.R. chapter 304
(2005). Thus, as long as acceptance complies with the statute and
regulations, there is no longer an augmentation problem. The existence
or lack of separate statutory authority to accept gifts is immaterial.
Another relevant statute, which seemingly overlaps 31 U.S.C. § 1353 to
some extent but was left untouched by it, is 5 U.S.C. § 4111, enacted
as part of the Government Employees Training Act, Pub. L. No. 85-507,
72 Stat. 327 (July 7, 1958). Under this provision, an employee may
accept (1) contributions and awards incident to training in
nongovernment facilities, and (2) payment of travel, subsistence, and
other expenses incident to attendance at meetings, but only if the
donor is a tax-exempt nonprofit organization. If an employee receives
a contribution in cash or in kind under this section, travel and
subsistence allowances are subject to an "appropriate reduction."
Section 4111 authorizes the employee to accept the donation. It does
not authorize the agency to accept the donation, credit it to its
appropriations, and then reimburse the employee. 55 Comp. Gen. 1293
(1976). An employee who receives an authorized donation after the
government has already paid the travel expenses cannot keep
everything. The employee must refund to the government the amount by
which his or her allowances would have been reduced had the donation
been received before the allowances were paid. The agency may then
credit this refund to its travel appropriation as an authorized
repayment. Id. at 1294-95. See also 41 C.F.R. § 304-9.5.
The statute requires an "appropriate reduction" in travel payments in
order to preclude the agency from paying for something that has
already been reimbursed by an authorized private organization. An
employee being reimbursed on an "actual expense" basis should not be
claiming items which would duplicate private reimbursements. Thus, the
agency is not required to reduce the actual expense entitlement by the
value of provided meals. 64 Comp. Gen. 185 (1985). However, the value
of subsistence items furnished in kind must be deducted where the
employee is being reimbursed on a per diem basis. Id. at 188; 49 Comp.
Gen. 572, 576 (1970).
The authority conferred by 5 U.S.C. § 4111 is expressly limited to
organizations exempt from taxation under section 501(c)(3) of the
Internal Revenue Code, 26 U.S.C. § 501(c)(3) (religious, charitable,
scientific, educational, etc.). It does not extend to organizations
which may be tax-exempt under other portions of section 501. B-225986,
Mar. 2, 1987. Also, it does not apply to an organization whose
application for exemption under section 501(c)(3) has not yet been
approved; subsequent approval is not retroactive for purposes of 5
U.S.C. § 4111. B-225264, Nov. 24, 1987 (nondecision letter).
Donations made under the express condition that they be used for some
unauthorized purpose should be returned to the donor. 47 Comp. Gen.
319 (1967).
(2) Travel-related promotional items:
Over the years, commercial airlines and others have devised a variety
of programs to reward frequent customers. Promotional materials
awarded to customers may take various forms—bonus trips, reduced-fare
coupons, cash, merchandise, credits toward future goods or services,
etc. Government employees traveling on government business are
eligible for these promotional items the same as anyone else.
Historically, statutes, regulations, and case law had maintained that
the government employee, with certain exceptions, could not keep such
promotional items. The fundamental principle underlying the prior
decisions and regulations in this area was that any benefit, cash
payment or otherwise, received by a government employee from private
sources incident to or resulting from the performance of official duty
was regarded as having been received on behalf of the government and
was the property of the government.[Footnote 194]
On December 28, 2001, the President signed into law a provision that
federal employees may retain travel-related promotional items for
personal use. Pub. L. No. 107-107, div. A, title XI, subtitle B, §
1116, 115 Stat. 1012, 1241 (Dec. 28, 2001), 5 U.S.C. § 5702 note. The
law specifically provides that a federal traveler who receives a
promotional item (such as frequent flyer miles, upgrades, or access to
carrier clubs or facilities) as a result of using travel or
transportation services obtained at federal government expense may
retain those items for personal use if the item is obtained under the
same terms as those offered to the general public and at no additional
cost to the government. The Federal Travel Regulation addresses
promotional items in 41 C.F.R. part 301-53 (2005).
4. Other Augmentation Principles and Cases:
As pointed out earlier in our introductory comments, the augmentation
theory is relevant in a wide variety of contexts. The most common
applications are the areas previously discussed—the spectrum of
situations involving the miscellaneous receipts statute and the
acceptance of gifts. This portion of the discussion will present a
sampling of cases to illustrate other applications of the theory.
Another way of stating the augmentation rule is that when Congress
appropriates funds for an activity, the appropriation represents a
limitation Congress has fixed for that activity, and all expenditures
for that activity must come from that appropriation absent express
authority to the contrary. Thus, a federal institution is normally not
eligible to receive grant funds from another federal institution. It
is not necessary for the grant statute to expressly exclude federal
institutions as eligible grantees; the rule will apply based on the
augmentation theory unless the grant statute expressly includes
federal institutions. 57 Comp. Gen. 662, 664 (1978); 23 Comp. Gen. 694
(1944); B-114868, Apr. 11, 1975.[Footnote 195]
The improper treatment of reimbursable transactions may result in an
augmentation. An example of this type of transaction is an order under
the Economy Act, 31 U.S.C. § 1535.[Footnote 196] Thus, if a given
reimbursement must be credited to the appropriation that "earned" it
(i.e., that financed the transaction), and that appropriation has
expired, crediting the reimbursement to current funds is an improper
augmentation. E.g., 72 Comp. Gen. 109, 110 (1993); B-242274, Aug. 27,
1991. However, a de minimis exception to this rule was recognized in
72 Comp. Gen. 63 (1992). This decision held that a refund of $100 or
less that related to an expired account could be treated as a credit
against a future invoice to the party owing the refund, and thus
applied to a current account since the cost of processing a separate
refund check would exceed the amount of the refund. The decision
reasoned that this approach would save the government money and have
an insignificant impact on the agency's account integrity. Id. at 64.
The decision in 72 Comp. Gen. 109 (1993), which was issued shortly
thereafter, underscored that this exception applied to de minimis
amounts of $100 or less and did not apply to refunds that regularly
exceeded $1,000. 72 Comp. Gen. at 110.
Some statutes give an agency the option of crediting reimbursements
either to current funds or to the appropriation that financed the
transaction. E.g., 10 U.S.C. §§ 2205 and 2210; 22 U.S.C. § 2392(c) and
(d).[Footnote 197] Even here, however, crediting a reimbursement to an
appropriation that bears no relationship to the transaction would be
an unauthorized augmentation. B-132900-0.M., Nov. 1, 1977.
Likewise, treating a transaction which should be reimbursed as
nonreimbursable may result in an improper augmentation. For example,
an agency receives appropriations to do its own work, not that of
another agency. Accordingly, as a general proposition,
interdepartmental loans of personnel on a nonreimbursable basis
improperly augment the appropriations of the receiving agency. 65
Comp. Gen. 635 (1986); 64 Comp. Gen. 370 (1985). Such nonreimbursable
loans also constitute a misuse of the detailing agency's appropriation
under 31 U.S.C. § 1301. B-247348, June 22, 1992.
Reimbursement by one agency to another in situations which are not the
proper subject of an Economy Act agreement or where reimbursement is
not otherwise statutorily authorized is improper for several reasons:
It is an unauthorized transfer of appropriations; it violates 31
U.S.C. § 1301(a) by using the reimbursing agency's appropriations for
other than their intended purpose; and it is an improper augmentation
of the appropriations of the agency receiving the reimbursement. (The
cases do not always cite all of these theories; they again illustrate
the close interrelationship of the various concepts discussed
throughout this publication.) The situation arises, for example, when
agencies attempt to use the Economy Act for a "service" that is a
normal part of the providing agency's mission and for which it
receives appropriations.
To illustrate, an agency acquiring land cannot reimburse the Justice
Department for the legal expenses incurred incident to the acquisition
because these are regular administrative expenses of the Justice
Department for which it receives appropriations. 16 Comp. Gen. 333
(1936). Similarly, an agency cannot reimburse the Treasury Department
for the administrative expenses incurred in making disbursements on
its account. 17 Comp. Gen. 728 (1938).
Federal agencies may not reimburse the Patent Office for services
performed in administering the patent and trademark laws since the
Patent Office is required by law to furnish these services and
receives appropriations for them. 33 Comp. Gen. 27 (1953). Nor may
they reimburse the Library of Congress for recording assignments of
copyrights to the United States. 31 Comp. Gen. 14 (1951). See also 40
Comp. Gen. 369 (1960) (Interior Department may not charge other
agencies for the cost of conducting hearings incident to the
validation of unpatented mining claims, although it may charge for
other services in connection with the validation which it is not
required to furnish); B-211953, Dec. 7, 1984 (General Services
Administration may not seek reimbursement for costs of storing records
which it is required by law to store and for which it receives
appropriations).
The Merit Systems Protection Board may not accept reimbursement from
other federal agencies for travel expenses of hearing officers to
hearing sites away from the Board's regular field offices. Holding the
hearings is not a service to the other agency, but is a Board function
for which it receives appropriations. The inadequacy of the Board's
appropriations to permit sufficient travel is legally irrelevant. 59
Comp. Gen. 415 (1980), affd upon reconsideration, 61 Comp. Gen. 419
(1982). Where an agency provides personnel to act as hearing officers
for another agency, it may be reimbursed if it is not required to
provide the officers (B-192875, Jan. 15, 1980) but may not be
reimbursed if it is required to provide them (32 Comp. Gen. 534
(1953)). Likewise, the Export-Import Bank cannot charge its customers
for travel expenses incurred by Bank employees in transacting their
business. B-277254, Mar. 5, 1997.
A client agency must bear from its own appropriations costs it incurs
in assisting the Justice Department to defend it in litigation. Such
support costs, which may include substantial temporary services
provided by the agency's staff lawyers and paralegals, cannot be
billed to Justice. 73 Comp. Gen. 90 (1994), citing 39 Comp. Gen. 643
(1960).
The decision in 70 Comp. Gen. 601 (1991) provides a variant on this
principle. That decision approved the Army Civilian Appellate Review
Agency's practice of obtaining reimbursement from other Army
components for costs it incurred in investigating grievances filed by
employees of the other components. For one thing, both the Review
Agency and the other components were funded from the same
appropriation in most instances; thus, there could be no augmentation.
However, even when different appropriations were involved, the other
component's appropriation could be charged pursuant to 31 U.S.C. §
1534. Indeed, the decision pointed out that such charges were
"precisely the kind of situation contemplated by section 1534" since
the Review Agency assisted the other components in satisfying their
obligation to provide a grievance resolution process for their
employees. 70 Comp. Gen. at 604.
Augmentation issues also can arise when an agency is trying to decide
which of its appropriations to use for a given object. In 68 Comp.
Gen. 337 (1989), for example, the Railroad Retirement Board wanted to
make performance awards to personnel in its Office of Inspector
General (IG), and was unsure whether to charge its appropriation for
the IG's office or its general appropriation. A reasonable argument
could be made to support either choice. Thus, the Board could make an
election as long as it remained consistent thereafter. Since there was
no indication that the IG appropriation was intended to be the
exclusive funding source for the performance awards, using the general
appropriation would not result in an improper augmentation of the IG
appropriation.[Footnote 198]
A somewhat analogous situation could arise if an agency agrees to
reduce or forgo receipts to which it is entitled, and the party owing
those receipts agrees in return to make some expenditure which would
otherwise have to be borne by a separate appropriation of the same
agency. GAO examined such a situation in B-77467, Nov. 8, 1950,
involving the leasing of lands under the Bankhead-Jones Farm Tenant
Act at reduced rentals on condition that the lessees in return perform
certain improvements to the land. There was no augmentation in that
case, however, since the statute expressly authorized the leasing with
or without consideration and on such terms as the Secretary of
Agriculture determined would best accomplish the purposes of the act.
The following cases illustrate other situations which GAO found would
result in unauthorized augmentations:
* The Customs Service may not charge the party-in-interest for travel
expenses of customs employees incurred incident to official duties
performed at night or on a Sunday or holiday. 43 Comp. Gen. 101
(1963); 3 Comp. Gen. 960 (1924). See also 22 Comp. Dec. 253
(1915).Department of Energy may not use overcharge refunds collected
from oil companies to pay the administrative expenses of its Office of
Hearings and Appeals. B-200170, Apr. 1, 1981.
* Proposal for airlines to reimburse Treasury to permit Customs
Service to hire additional staff to reduce clearance delays at Miami
airport was unauthorized in that it would augment appropriations made
by Congress for that service. 59 Comp. Gen. 294 (1980).
Chapter 6 Footnotes:
[1] Tyson & Brother United Theater Ticket Offices v. Banton, 273 U.S.
418 (1927) (Holmes, J., dissenting).
[2] For fiscal year 1905, for example, Congress appropriated to the
Department of Justice a specific line item of $3,000 for stationery.
Legislative, Executive and Judicial Appropriations Act, 1905, ch. 716,
33 Stat. 85, 134 (Mar. 18, 1904). For fiscal year 2005, Congress
appropriated to the Department of Justice a lump-sum appropriation of
$124,100,000 for administrative expenses. Departments of Commerce,
Justice, and State, the Judiciary, and Related Agencies Appropriations
Act, 2005, Pub. L. No. 108-447, div. B, title I, 118 Stat. 2809, 2853
(Dec. 8, 2004).
[3] As a result of appropriation account consolidation over the years,
200 accounts now cover 90 percent of all federal expenditures. Allen
Schick, The Federal Budget: Politics, Policy, and Process, 229 (2000).
[4] See Chapter 1, section D. See also GAO, A Glossary of Terms Used
in the Federal Budget Process, GAO-05-734SP (Washington, D.C.:
September 2005), Appendixes I and II, for an overview of the budget
and appropriations process.
[5] See Chapter 2, section D.6 for a general discussion of the uses
and limits of legislative history.
[6] For example, agencies and their employees are, of course, legally
bound by apportionments and subdivisions of lump-sum appropriations.
See 31 U.S.C. §§ 1517-1519. See also sections C.4 and C.5 of this
chapter for a discussion of these requirements.
[7] Allen Schick, The Federal Budget: Politics, Policy, and Process,
238 (2000). See also John C. Roberts, Are Congressional Committees
Constitutional?: Radical Textualism, Separation of Powers, and the
Enactment Process, 52 Case Western Reserve L. Rev. 489, 563-64 (2001).
[8] Report of the House Committee on Appropriations on the 1974
Defense Department appropriation bill, H.R. Rep. No. 93-662, at 16
(1973).
[9] Louis Fisher, Presidential Spending Power, 72 (1975).
[10] See Chapter 2, section B.3.b for an overview of reprogramming
concepts and practices, and Schick, supra, at 247-250.
[11] This assumes, of course, that Congress is acting within its
constitutional authority. See Chapter 1, section B for a general
discussion of Congress's constitutional authority to appropriate and
the limits on that authority. Legal Services Corp. v. Velasquez, 531
U.S. 533 (2001), provides an example of restrictive appropriation
language that was declared unconstitutional.
[12] The effort has not always been free from controversy. One
senator, concerned with what he felt was excessive flexibility in a
1935 appropriation, tried to make his point by suggesting the
following:
"Section 1. Congress hereby appropriates $4,880,000,000 to the
President of the United States to use as he pleases.
"Section 2. Anybody who does not like it is fined $1,000."
79 Cong. Rec. 2014 (1935) (remarks of Sen. Arthur Vandenberg), quoted
in Fisher, supra, at 62-63.
[13] Pub. L. No. 97-272, § 401, 96 Stat. 1160, 1178 (Sept. 30, 1982).
[14] A recent example is section 1004(d) of the Bob Stump National
Defense Authorization Act for Fiscal Year 2003, Pub. L. No. 107-314,
116 Stat. 2458, 2629-30 (Dec. 2, 2002), which imposes conditions on
the Department's spending for financial system improvements.
[15] On the other hand, inclusion of a budget estimate for a
particular purpose can strengthen the case that the appropriation is
available for that purpose. See B-285066.2, Aug. 9, 2000.
[16] Of course, all this meant was that there would be no
Antideficiency Act violation at the time the option was exercised. The
decision recognized that subsequent actions could still produce a
violation. 55 Comp. Gen. at 826.
[17] See B-285725, Sept. 29, 2000; B-278968, May 28, 1998; B-278121,
Nov. 7, 1997; B-277241, Oct. 21, 1997; B-271845, Aug. 23, 1996; 71
Comp. Gen. 411, 413 (1992); 64 Comp. Gen. 359 (1985); 59 Comp. Gen.
228 (1980);B-258000, Aug. 31, 1994; B-248284, Sept. 1, 1992; B-
247853.2, July 20, 1992; B-231711, Mar. 28, 1989; B-222853, Sept. 29,
1987; B-204449, Nov. 18, 1981; B-204270, Oct. 13, 1981; B-202992, May
15, 1981; B-157356, Aug. 17, 1978; B-159993, Sept. 1, 1977; B-163922,
Oct. 3, 1975; GAO, Internal Controls: Funding of International Defense
Research and Development Projects, GAO/NSIAD-91-27 (Washington, D.C.:
Oct. 30, 1990).
[18] The Justice Department's Office of Legal Counsel also reached the
same conclusion. See, e.g., Memorandum for the General Counsel, United
States Marshals Service, USMS Obligation to Take Steps To Avoid
Anticipated Appropriations Deficiency, OLC Opinion, May 11, 1999; 16
Op. Off. Legal Counsel 77 (1992); 4B Op. Off. Legal Counsel 702 (1980);
4B Op. Off. Legal Counsel 674 (1980).
[19] In Ramah, Congress had capped the amount appropriated for
contract support cost payments under the Indian Self-Determination and
Education Assistance Act, as amended, 25 U.S.C. §§ 450-450n, at less
than the total amount all recipients would have received if paid their
full allocations under the Act. The court rejected the government's
argument (and the lower court's conclusion) that Lincoln precluded
judicial review of the method the agency devised to distribute the
reduced allocations. Distinguishing Lincoln, the court held that the
Act provided sufficient law to apply in order to determine the
legality of the agency's distribution method. Indeed, the court
further held that the agency's distribution method violated the Act.
The Ramah decision is discussed further in Chapter 2, section C.2, and
Chapter 3, section C.5.
[20] In Cherokee Nation of Oklahoma v. Leavitt, the Court disposed of
three decisions from different appellate courts: Thompson v. Cherokee
Nation of Oklahoma, 334 F.3d 1075 (Fed. Cir. 2003), which the Court
affirmed, as well as Cherokee Nation of Oklahoma v. Thompson, 311 E3d
1054 (10th Cir. 2002), and Shoshone-Bannock Tribes of the Fort Hall
Reservation v. Thompson, 279 E3d 660 (9th Cir. 2002), both of which
the Court reversed. Ramah Navajo School Board, Inc. v. Babbitt, 87
F.3d 1338 (D.C. Cir. 1996), discussed previously, is another decision
on this subject.
[21] The Act also applies to the Secretary of the Interior and
programs administered by that department. However, the Cherokee Nation
of Oklahoma v. Leavitt case concerned self-determination contracts for
the provision of services by the Department of Health and Human
Services' Indian Health Service.
[22 The logical conclusion from the Court's finding that the Indian
Self-Determination Act contracts are no different from ordinary
procurement contracts is that the Indian Health Service, at the time
it entered into the contracts, should have recorded an obligation
against its appropriations for the full amount of the support costs to
which the Tribes were entitled.
[23] Section 314 of the Omnibus Consolidated and Emergency
Supplemental Appropriations Act, 1999, Pub. L. No. 105-277, 112 Stat.
2681, 2681-288 (Oct. 21, 1998).
[24] See GAO, A Glossary of Terms Used in the Federal Budget Process,
GAO-05-734SP (Washington, D.C.: September 2005), at 46-47.
[25] See Glossary, at 64.
[26] Pub. L. No. 108-199, div. A, title IV, 118 Stat. 3, 27 (Jan. 23,
2004).
[27] A "not to exceed" earmark was held not to constitute a maximum in
19 Comp. Gen. 61 (1939), where the earmarking language was
inconsistent with other language in the general appropriation. This
holding was based on an interpretation of the statute as a whole. See
section D of Chapter 2 for additional information on statutory
interpretation.
[28] While the Comptroller General concluded that the Department did
not have to use funds for UNFPA, he cautioned that whenever an agency
withholds fiscal year funds from obligation, it must release the funds
with sufficient time remaining in the fiscal year to obligate them
before the end of the fiscal year. B-290659, July 24, 2002.
[29] District of Columbia Appropriations Act, 2005, Pub. L. No. 108-
335, § 301, 118 Stat. 1322, 1399 (Oct. 18, 2004).
[30] Pub. L. No. 107-66, § 305, 115 Stat. 486, 509 (Nov. 12, 2001).
[31] Pub. L. No. 108-83, 117 Stat. 1007, 1015 (Sept. 30, 2003).
[32] Pub. L. No. 105-55, 111 Stat. 1177, 1191-92 (Oct. 7, 1997).
[33] But see B-231711, Mar. 28, 1989 (appropriation provision
earmarked portion of lump sum to remain available for an additional
fiscal year for a specific purpose, but was neither maximum nor
minimum limitation on amount available for particular object). While B-
231711 was not explicitly overruled by B-278121, Nov. 7, 1997, it has
little precedential value.
[34] Hopkins & Nutt, The Anti-Deficiency Act (Revised Statutes 3679)
and Funding Federal Contracts: An Analysis, 80 Mil. L. Rev. 51,56
(1978).
[35] Hopkins & Nutt, at 57-58; Louis Fisher, Presidential Spending
Power, 232 (1975).
[36] Senate Committee on Government Operations, Financial Management
in the Federal Government, S. Doc. No. 87-11, at 45-46 (1961). In the
Senate document, the Antideficiency Act is cited as "section 3679 of
the Revised Statutes," a designation that is now obsolete.
[37] See S. Doc. No. 87-11, at 48; B-131361, Apr. 12, 1957. Further
discussion of the Antideficiency Act from varying perspectives will be
found in the following sources: James A. Harley, Multiyear Contracts:
Pitfalls and Quandaries, 27 Public Contract L.J. 555 (1998); Col.
James W. McBride, Avoiding Antideficiency Act Violations on Fixed
Price Incentive Contracts (The Hunt for Red Ink), June Army Lawyer
(1994); Fenster & Volz, The Antideficiency Act: Constitutional Control
Gone Astray, 11 Public Contract L.J. 155 (1979); Rollee H. Efros,
Statutory Restrictions on Funding of Government Contracts, 10 Public
Contract L.J. 254 (1978); Hopkins & Nutt, The Anti-Deficiency Act
(Revised Statutes 3679) and Funding Federal Contracts: An Analysis, 80
Mil. L. Rev. 51 (1978); William J. Spriggs, The Anti-Deficiency Act
Comes to Life in U.S. Government Contracting, 10 National Contract
Management Journal 33 (1976-77); Col. John R. Frazier, Use of Annual
Funds with Conditional, Option, or Indefinite Delivery Contracts, 8
A.F. JAG L. Rev. 50 (1966).
[38] Prior to the 1982 recodification of title 31 of the United States
Code, the Antideficiency Act consisted of nine lettered subsections of
what was then 31 U.S.C. § 665. The recodification scattered the law
among several new sections. To better show the relationship of the
material, our organization in this chapter retains the sequence of the
former subsections.
[39] Pursuant to the Federal Credit Reform Act, agencies are required
to have budget authority in advance to cover the long-term costs
(i.e., subsidy costs) of direct loans and loan guarantees. 2 U.S.C. §
661c(b).
[40] See GAO, A Glossary of Terms Used in the Federal Budget Process,
GAO-05-734SP (Washington, D.C.: September 2005), at 3-5.
[41] See section B of this chapter for a discussion of earmarking.
[42] See 31 U.S.C. §§ 1552(a), 1553(a), 1554(a), and Chapter 5,
section D, for a discussion of expired and closed appropriation
accounts.
[43] GAO, Corporation for National and Community Service: Better
Internal Control and Revised Practices Would Improve the Management of
AmeriCorps and the National Service Trust, GAO-04-225 (Washington,
D.C.: Jan. 16, 2004).
[44] Louis Fisher, Presidential Spending Power, 236 (1975).
[45] "We believe it is obvious that, once an Antideficiency Act
violation has been discovered, the agency concerned must take all
reasonable steps to mitigate the effects of the violation insofar as
it remains executory." 55 Comp. Gen. at 772.
[46] GAO has cautioned, however, that an Antideficiency Act violation
should not be determined solely on the basis of year-end reports prior
to reconciliation and adjustment. B-114841.2-0.M., Jan. 23, 1986.
[47] Determining the amount of available budget authority against
which obligations may be incurred is covered later in this chapter in
section C.2.e under the heading "Amount of Available Appropriation or
Fund."
[48] We cover the obligational treatment of contracts of this type in
Chapter 7, section B.1.e, which should be read in conjunction with
this section.
[49] The authority was subsequently sought and granted. See 10 U.S.C.
§ 2306(g). For a discussion of multiyear contracting authority for
defense and civilian agencies, which authorize obligating annual funds
in advance of appropriations, see Chapter 5, section B.9.b.
[50] The rationale worked in that case because the Navy could stay
within the appropriation by deleting a relatively small percentage of
GFP. If the numbers had been different, such that the amount of GFP to
be deleted was so large as to effectively preclude contractor
performance, the analysis might well have been different. In a 1964
report, for example, GAO found the Antideficiency Act violated where
the Air Force, to keep within a "minor military construction" ceiling,
deleted needed plumbing, heating, and lighting from a building
alteration contract, resulting in an incomplete facility, and
subsequently charged the deleted items to Operation and Maintenance
appropriations. GAO, Continuing Inadequate Control over Programming
and Financing of Construction, B-133316 (Washington, D.C.: July 23,
1964), at 12-15.
[51] Every violation of the bona fide needs rule does not necessarily
violate the Antideficiency Act as well. Determinations must be made on
a case-by-case basis. 71 Comp. Gen. 428, 431 (1992); B-235086.2, Jan.
22, 1992 (nondecision letter).
[52] E.g., 67 Comp. Gen. 190 (1988); 66 Comp. Gen. 556 (1987); 61
Comp. Gen. 184, 187 (1981); 48 Comp. Gen. 471, 475 (1969); 42 Comp.
Gen. 272 (1962); 37 Comp. Gen. 60 (1957); 36 Comp. Gen. 683 (1957); 33
Comp. Gen. 90 (1953); 29 Comp. Gen. 91 (1949); 27 Op. Att'y Gen. 584
(1909).
[53] See also 10 U.S.C. §§ 2306b and 2306c, which provide similar
authority for defense agencies and the other agencies listed in 10
U.S.C. § 2302(1). FASA does not affect these authorities. 41 U.S.C. §
254c(e).
[54] See Chapter 7, section B.1.e for a further discussion of
recording obligations under IDIQ and similar contracts.
[55] Some additional cases are 67 Comp. Gen. 190 (1988); 66 Comp. Gen.
556 (1987); 42 Comp. Gen. 272, 276 (1962); 37 Comp. Gen. 155, 160
(1957); 37 Comp. Gen. 60, 62 (1957); 36 Comp. Gen. 683 (1957); 9 Comp.
Gen. 6 (1929); B-116427, Sept. 27, 1955. See also Cray Research v.
United States, 44 Fed. Cl. 327 (1999).
[56] The Claims Court based its conclusion in part on Leiter and the
Antideficiency Act; the Federal Circuit relied on the language of the
contract.
[57] The Federal Acquisition Regulation states that encouraging a
contractor to continue performance in the absence of funds violates
the Antideficiency Act. 48 C.F.R. § 32.704(c) (2005). In this regard,
section C.3 of this chapter discusses how the Antideficiency Act's
prohibition against acceptance of voluntary services, 31 U.S.C. §
1342, prohibits contracting officers from soliciting or permitting a
contractor to continue performance on a "temporarily unfunded" basis.
[58] See section C.1 of this chapter for a discussion of the coercive
deficiency concept.
[59] Availability of Funds, 48 C.F.R. § 52.232-18.
[60] Availability of Funds for the Next Fiscal Year 48 C.F.R. § 52.232-
19.
[61] Limitation of Cost, 48 C.F.R. § 52.232-20.
[62] Limitation of Cost (Facilities), 48 C.F.R. § 52.232-21.
[63] Limitation of Funds, 48 C.F.R. § 52.232-22.
[64] See section B.9.a of Chapter 5 for a discussion of severable
service contracts that cross fiscal years.
[65] Where a termination for convenience clause is required by
regulation, it will be read into the contract whether expressly
included or not. G.L. Christian & Associates v. United States, 312 E2d
418 and 320 E2d 345 (Ct. Cl.), cert. denied, 375 U.S. 954 (1963).
[66] The Burroughs case was decided before the enactment of the FASA
multiyear contracts provision. As discussed above, that provision now
enables agencies to enter into contracts like the one at issue in the
Burroughs case without running afoul of the Antideficiency Act as long
as they follow the terms of the statute by either obligating the full
contract amount against appropriations available at the time of the
contract or obligating the first year costs plus estimated termination
costs. With reference to termination costs, FASA requires the contract
to include a clause stating that the contract shall be terminated if
funds are not made available for its continuation in any fiscal year
and provides that amounts obligated for termination costs shall remain
available until the costs are paid. 41 U.S.C. § 254c(b).
[67] The prohibition against incurring indefinite liabilities is not
limited to indemnification agreements. It applies as well to types of
liabilities such as contract termination charges. The cases are
included in our preceding discussion of multiyear contracting. See
section C.2.b of this chapter.
[68] See section C.2.b of this chapter for a discussion of recording
obligations.
[69] See section C.4.b of this chapter for a discussion on
establishing reserves.
[70] This is still another example of a so-called "coercive
deficiency," particularly in light of the fact that the potential
claimant was another sovereign nation and failure to honor the
agreement would have international consequences. See section C.2.b of
this chapter for a discussion of the "coercive deficiency" concept.
[71] For further information on the government's policy regarding self-
insurance, see Chapter 4, section C.10.
[72] On March 1, 2003, the Federal Emergency Management Agency became
part of the U.S. Department of Homeland Security.
[73] The Act is now codified at 28 U.S.C. §§ 2671-2680.
[74] The Supreme Court's decision affirmed two Claims Court decisions
that had similarly cited the general rule against indemnification
agreements with respect to the Agent Orange contracts: Wm. T Thompson
Co. v. United States, 26 Cl. Ct. 17, 29 (1992); Hercules Inc. v.
United States, 25 Cl. Ct. 616 (1992).
[75] See Major Randall J. Bunn, Contractor Recovery for Current
Environmental Cleanup Costs Under World War H-Era Government
Indemnification Clauses, 41 Air Force L. Rev. 163 (1997), for an
extensive background discussion and analysis of the issues
addressed in the DuPont case. This article also discusses at length
the First War Powers Act and its successor, 50 U.S.C. § 1431 (Pub. L.
No. 85-804, § 1, 72 Stat. 972 (Aug. 28, 1958)), which are referenced
later in this section.
[76] See Chapter 4, section B for a discussion of the necessary
expense rule.
[77] The decision in 22 Comp. Gen. 892 is discussed in 62 Comp. Gen.
361, 362-63 (1983), and Johns-Manville Corp. v. United States, 12 Cl.
Ct. 1, 23 (1987). The Claims Court noted the "significant deficiency"
of 22 Comp. Gen. 892 in that it nowhere mentions the Antideficiency
Act.
[78] The decision in 54 Comp. Gen. 824 overruled a portion of 42 Comp.
Gen. 708 (the FAA aircraft lease case), discussed in the text, to the
extent it held that there was no need to either obligate or reserve
funds. Thus, in a situation like 42 Comp. Gen. 708, the agency would
presumably have to either obligate or administratively reserve funds
or include a provision that payments for losses may not exceed
appropriations available at the time of the loss and nothing in the
contract may be construed as implying that Congress will appropriate
funds to meet any deficiencies at a later date.
[79] To illustrate the potential fiscal consequences, an authorized
indemnity agreement entered into in 1950 produced liability of over
$64 million plus interest more than four decades later. See E.I. Du
Pont De Nemours & Co. v. United States, 24 Cl. Ct. 635 (1991), affd,
980 E2d 1440 (Fed. Cir. 1992).
[80] Note that the Price-Anderson Act, at 42 U.S.C. § 2210(j),
provided contract rather than indemnity authority to the Nuclear
Regulatory Commission (NRC) to address indemnification and other
financial protection that NRC is required to provide nuclear
licensees, contractors, and others to cover the consequences of
nuclear incidents.
[81] Pub. L. No. 85-804, § 1, 72 Stat. 972 (Aug. 28, 1958).
[82] Exec. Order No. 10789, Contracting Authority of Government
Agencies In Connection With National Defense Functions, 23 Fed. Reg.
8897 (Nov. 14, 1958), as amended, 50 U.S.C. § 1431 note. A decision
approving an indemnity agreement under authority of the First War
Powers Act is B-33801, Apr. 19, 1943. A later related decision is B-
33801, Oct. 27, 1943. Both of these decisions involved the famed
"Manhattan Project," although that fact is well-concealed. The
decisions had been classified, but were declassified in 1986.
[83] Although the Board's decision was vacated and remanded on other
grounds by the Court of Appeals for the Federal Circuit, New England
Tank Industries of New Hampshire v. United States, 861 F.2d 685 (Fed.
Cir. 1988), the court noted its agreement with the Board's
Antideficiency Act conclusions. Id. at 692 n.15.
[84] Another report in this series, making similar findings under a
different statutory ceiling, is GAO, Illegal Use of Operation and
Maintenance Funds for Rehabilitation and Construction of Family
Housing and Construction of a Related Facility, B-133102 (Washington,
D.C.: Aug. 30, 1963).
[85] This case also illustrates that the Antideficiency Act applies to
interagency transactions the same as any other obligations or
expenditures. Cf. B-247348, June 22, 1992 (nonreimbursable interagency
personnel detail).
[86] There are also a few older cases finding violations of both
statutes, but they are of little help in attempting to formulate a
reasoned approach. Examples are 39 Comp. Gen 388 (1959), which does
not discuss the relationship, and 22 Comp. Gen. 772 (1943), which
includes a rationale, now obsolete, based on the then-existing lack of
authority to include interest stipulations in contracts.
[87] See generally OMB Circular No. A-11, Preparation, Submission, and
Execution of the Budget, §§ 20.4(b), 20.7, and 20.12 (June 21, 2005).
See also the definitions of "Budget Authority" and "Collections" in
GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-
734SP (Washington, D.C.: September 2005), at 20-23, 28-30.
[88] The Public Buildings Act of 1959, Pub. L. No. 86-249, 73 Stat.
479 (Sept. 9, 1959), superseded the provisions of the 1949 legislation
discussed in 29 Comp. Gen. 504. The substance of the Public Buildings
Act of 1959 is codified in 40 U.S.C. §§ 3301-3315.
[89] The decision in 28 Comp. Gen. 300 concerned increases to Wage
Board employees under legislation which is now obsolete (see 39 Comp.
Gen. 422, cited in the text). However, it is still useful for the
basic proposition that nonmandatory increases are not obligations
"authorized by law" as that term is used in 31 U.S.C. § 1341(a). 28
Comp. Gen. at 302.
[90] Act of May 1, 1884, ch. 37, 23 Stat. 17.
[91] Pub. L. No. 217, ch. 1484, § 4, 33 Stat. 1214, 1257 (Mar. 3,
1905).
[92] Pub. L. No. 28, ch. 510, § 3, 34 Stat. 27, 48-49 (Feb. 27, 1906).
[93] See section C.1 of this chapter for a discussion of the coercive
deficiency concept. See also PCL Construction Services, Inc. v. United
States, 41 Fed. Cl. 242, 251-260 (1998) (incrementally funded contract
did not raise coercive deficiency issues where contract clauses
clearly provided that contractor assumed the sole risk of working at a
rate that would exhaust funding.)
[94] 39 Cong. Rec. 3687 (1906), quoted in 30 Op. Att'y Gen. 51, 53-54
(1913).
[95] See 30 Op. Att'y Gen. 51, 54-55 (1913), discussing the
legislative history of the 1884 prohibition.
[96] Glavey v. United States, 182 U.S. 595 (1901); Miller v. United
States, 103 F. 413 (C.C.S.D.N.Y. 1900). See also 9 Comp. Dec. 101
(1902). Later cases following Glavey are MacMath v. United States, 248
U.S. 151 (1918), and United States v. Andrews, 240 U.S. 90 (1916). The
policy rationale is that to permit agencies to disregard compensation
prescribed by statute could work to the disadvantage of those who
cannot, or are not willing to, accept the position for less than the
prescribed salary. See Miller, 103 F. at 415-16.
[97] Some cases in addition to those cited in the text are 32 Comp.
Gen. 236 (1952); 23 Comp. Gen. 109, 112 (1943); 14 Comp. Gen. 193
(1934); 34 Op. Att'y Gen. 490 (1925); 30 Op. Att'y Gen. 129 (1913); 13
Op. Off. Legal Counsel 113 (1989); 3 Op. Off. Legal Counsel 78 (1979).
[98] While the principle in B-181934 remains valid, the decision was
overruled by 55 Comp. Gen. 109 (1975) on factual grounds. Additional
information showed that the individual involved in that case was a "de
facto employee" performing under color of appointment and with a claim
of right to the position. A "voluntary" employee has no such "color of
appointment" or indicia of lawful employment.
[99] Further support for the decision's conclusion that 22 U.S.C. §
2395(d) was addressed to services from private sources rather than
federal employees can be found in the immediately preceding
subsection, which states: "It is the sense of Congress that the
President, in furthering the purposes of this [chapter], shall use to
the maximum extent practicable the services and facilities of
voluntary, nonprofit organizations registered with, and approved by,
the Agency for International Development." 22 U.S.C. § 2395(c).
[100] See footnote number 96, supra, and accompanying text.
[101] Pub. L. No. 92-54, 85 Stat. 146 (July 12, 1971).
[102] Pub. L. No. 93-203, 87 Stat. 839 (Dec. 28, 1973).
[103] It would now also contravene 18 U.S.C. § 209, which prohibits
payment of salaries of government employees from nongovernmental
sources. This statute did not exist at the time of the 1905 decision.
[104] See generally Chapter 12, section C.2.b in volume Ill of the
second edition of Principles of Federal Appropriations Law.
[105] The July 12, 2004, opinion clarified an earlier opinion on the
subject of the National Brokers Contract, B-291947, Aug. 15, 2003.
Also, it distinguished another opinion, B-300248, Jan. 15, 2004, which
held that the Small Business Administration improperly augmented its
appropriations by requiring certain lenders to pay fees to an agency
contractor. See section E.2.a of this chapter for a detailed
discussion of the Small Business Administration opinion and how it
compares with the GSA opinion.
[106] As explained in section C.6, this amendment was intended to
guard against what might have been viewed as an overly broad
application of one of the Attorney General's funding gap opinions.
[107] Finally, the opinion noted that, even if the exception to
section 1342 applied, it would not sanction the agency's actual
disbursement of funds in excess of its appropriations. Thus, the
agency violated the Antideficiency Act in any event.
[108] The opinions did acknowledge, of course, that USMS could not
actually spend funds if its appropriations were exhausted. They also
noted that a determination whether particular obligations would
satisfy the emergencies exception could not be made in the abstract
and would require case-by-case evaluation.
[109] See section C.2.b of this chapter for a discussion of the
"coercive deficiency" concept.
[110] Pub. L. No. 217, ch. 1484, 33 Stat. 1214, 1257 (Mar. 3, 1905).
[111] Pub. L. No. 759, ch. 896, 64 Stat. 595, 765 (Sept. 6, 1950).
[112] Exec. Order No. 6166, § 16 (June 10, 1933), at 5 U.S.C. § 901
note.
[113] Reorganization Plan No. 2 of 1970, 35 Fed. Reg. 7959, 84 Stat.
2085 (effective July 1, 1970), designated the Bureau of the Budget as
OMB and transferred to the President all functions vested in the
former Bureau of the Budget. Executive Order No. 11541, 35 Fed. Reg.
10737 (July 1, 1970), 31 U.S.C. § 501 note, transferred those
functions to the Director of OMB.
[114] GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-
05-734SP (Washington, D.C.: September 2005), at 12-13. See also OMB
Circular No. A-11, pt. 4, Instructions on Budget Execution, §§ 120.1-
120.5 (June 21, 2005). For a discussion of the Impoundment Control
Act, see section D.3.b of Chapter 1.
[115] 31 U.S.C. § 665(d)(2) (1976 ed.).
[116] See the codification note following 31 U.S.C. § 1511.
[117] Before 2002, OMB's guidance on apportionments was located in
Circular No. A-34.
[118] Pub. L. No. 93-344, title X, § 1002, 88 Stat. 297, 332 (July 12,
1974).
[119] The Court concluded that the one-house legislative veto was not
severable from the Act's deferral provision, and invalidated that
provision as well. Id.
[120] The two decisions cited concerned apportionments that OMB made
under continuing resolutions. As a general matter, the discussion of
OMB's apportionment discretion would apply to any appropriation. For a
discussion of continuing resolutions, see Chapter 8.
[121] A permanent provision of law included in the 1988 District of
Columbia appropriation act states that appropriations for the D.C.
government "shall not be subject to apportionment except to the extent
specifically provided by statute." Pub. L. No. 100-202, § 135, 101
Stat. 1329, 1329-102 (1987). This provision appears to implicitly
repeal 31 U.S.C. § 1513(a) as applied to the D.C. government.
[122] Neither section 1513 nor case law defines the phrase "official
having administrative control." Consequently, the apportioning
official for legislative and judicial appropriations is named by the
head of the agency to whom the appropriation is made.
[123] See footnote 113, supra, and accompanying text.
[124] See section C.2.g of this chapter.
[125] The law mandating payment of severance pay was enacted after the
start of fiscal year 1966, which is why the expenditures in that case
would qualify under 31 U.S.C. § 1515(b).
[126] Pub. L. No. 100-202, § 105, 101 Stat. 1329, 1329-433 (Dec. 22,
1987) (1988 continuing resolution).
[127] See section C.2.a of this chapter for a further discussion of 41
U.S.C. § 11.
[128] Prior to the 1982 recodification of title 31, sections 1513(d)
and 1514 had been combined as subsection (g) of the Antideficiency Act.
[129] See, in this regard, GAO, Standards for Internal Control in the
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 9,
1999); GAO, Policy and Procedures Manual for the Guidance of Federal
Agencies, title 7 (Washington, D.C.: May 18, 1993).
[130] Pub. L. No. 863, ch. 814, § 3, 70 Stat. 782, 783 (Aug. 1, 1956).
[131] The historical summary in this paragraph is taken largely from
37 Comp. Gen. 220 (1957).
[132] Pub. L. No. 759, ch. 896, § 1211, 64 Stat. 595, 765 (Sept. 6,
1950).
[133] Hearings Before Senate Comm. on Appropriations on H.R. 7786,
81st Cong., 2d Sess. 10 (1950), quoted in Hopkins & Nutt, The Anti-
Deficiency Act (Revised Statutes 3679) and Funding Federal Contracts:
An Analysis, 80 Mil. L. Rev. 51, 128 (1978).
[134] Memorandum for the Assistant Secretary of the Army (Financial
Management), 1976, quoted in Hopkins & Nutt, supra, at 130.
[135] Id.
[136] But see Cessna Aircraft Co. v. Dalton, 126 F.3d 1442 (Fed. Cir.
1997), cert. denied, 525 U.S. 818 (1998). In that case, the Navy had
exercised an option to extend a contract on October 1. The
appropriation that Navy charged the obligation to was signed into law
on October 1; however, OMB had not yet apportioned the appropriation.
Cessna, trying to get out of the contract, argued that the obligation
for the contract extension was not valid since it was made in advance
of the apportionment. The court held that the provisions of the
Antideficiency Act were only internal government operating
requirements and, as such, they did not confer legal rights on outside
parties. Id. at 1451-52. See generally Blackhawk Heating & Plumbing
Co. v. United States, 622 E2d 539, 552 n.9 (Ct. Cl. 1980); Rough
Diamond Co. v. United States, 351 F.2d 636, 640, 642 (Ct. Cl. 1965),
cert. denied, 383 U.S. 957 (1966).
In dicta, the court said that apportionment is not a prerequisite to
the obligation of appropriated funds. The court noted that 31 U.S.C. §
1341 explicitly prohibits obligations both in excess of and (unless
otherwise authorized) in advance of appropriations. By contrast, the
court pointed out, the apportionment sections of title 31 explicitly
prohibit only obligations exceeding an apportionment; they do not
literally forbid obligations in advance of an apportionment. Cessna,
126 F.3d at 1450-51. The court also rejected Cessna's reliance on
provisions of the Defense Department accounting manual that generally
prohibited obligations in advance of an apportionment. The Cessna
dicta has not been followed in any subsequent case.
[137] 31 U.S.C. §§ 1351, 1517(b), as amended by Consolidated
Appropriations Act, 2005, Pub. L. No. 108-447, div. G, title II, §
1401, 118 Stat. 2809, 3192 (Dec. 8, 2004). See, in this regard, the
Comptroller General's Memorandum to Heads of Departments, Agencies,
and Others Concerned, Transmission of Antideficiency Act Reports to
the Comptroller General of the United States, B-304335, Mar. 8, 2005.
[138] Payment under this authority is appropriate where there is no
enforceable contractual obligation on the part of the government but
where the government has received a benefit not prohibited by law
conferred in good faith. See chapter 12, section C.2.b in volume Ill
of the second edition of Principles of Federal Appropriations Law for
a general discussion of quantum meruit claims.
[139] See, e.g., GAO, Government Shutdown: Funding Lapse Furlough
Information, GAO/GGD-96-52R (Washington, D.C.: Dec. 1, 1995);
Government Shutdown: Permanent Funding Lapse Legislation Needed,
GAO/GGD-91-76 (Washington, D.C.: June 6, 1991); Funding Gaps
Jeopardize Federal Government Operations, PAD-81-31 (Washington, D.C.:
Mar. 3, 1981).
[140] 125 Cong. Rec. 26974 (Oct. 1, 1979) (remarks of Sen. Magnuson).
[141] GAO commented on this legislation in B-197584, Feb. 5, 1980, and
B-197059, Feb. 5, 1980. The legislation was not enacted.
[142] This would also include certain revolving fund operations, but
not those whose use requires affirmative authorization in annual
appropriation acts. B-241730.2, Feb. 14, 1991 (Government Printing
Office revolving fund).
[143] See section C.4 of this chapter for a more detailed discussion
of apportionment authorities.
[144] The Administrative Office noted a combination of factors
contributing to its projected shortfall, including Congress's decision
to enact an appropriation in an amount less than the Administrative
Office had requested and the appointment of new judges, which
increased the number of jury trials. Armster, 792 E2d at 1425 n.3.
[145] Although this case addressed an agency's projected exhaustion of
its appropriations rather than a funding gap, the court's dicta would
appear relevant for a funding gap.
[146] These figures are based on another CRS report, Shutdown of the
Federal Government: Causes, Effects, and Process, No. 98-844
(Washington, D.C.: Nov. 1, 2003), at 2-3. For a discussion of the
nature, background, and dynamics of the fiscal year 1996 funding gaps
and shutdowns, see Anita S. Krishnakumar, Reconciliation and the
Fiscal Constitution: The Anatomy of the 1995-1996 Budget "Train
Wreck," 35 Harv. J. On Legis. 589 (1998).
[147] The August 1995 opinion was discussed at length and reaffirmed
in a Memorandum for the General Counsel, United States Marshals
Service, Continuation of Federal Prisoner Detention Efforts in the
Face of a USMS Appropriation Deficiency, OLC Opinion, Apr. 5, 2000.
Current Office of Management and Budget guidance still references the
August 1995 opinion as well as the earlier opinions in 43 Op. Att'y
Gen. 224 (1980) and 43 Op. Att'y Gen. 293 (1981) as the principal
legal authorities governing what agencies can do during a funding gap.
See OMB Circular No. A-11, Preparation, Submission, and Execution of
the Budget, § 124.1 (a) (June 21, 2005).
[148] These legislative actions are described in the Congressional
Research Service report, Preventing Federal Government Shutdowns:
Proposals for an Automatic Continuing Resolution, cited previously.
Other automatic continuing resolution bills have been introduced but
died in committee. See H.R. 29, 107th Cong. (2000); H.R. 3744, 107th
Cong. (2001).
[149] Prior to the 1982 recodification of title 31, the mandate was
found in 31 U.S.C. § 623. The recodifiers thought those words
themselves were unnecessary, and the concept is now included in the
general mandate in 31 U.S.C. § 1104(a) to "use uniform terms" in
requesting appropriations.
[150] For a further discussion of the voluntary services prohibition,
see section C.3 of this chapter.
[151] In a 1984 decision, GAO found that acceptance by the Federal
Communications Commission of booth space and utility services at
industry trade shows did not augment the Commission's appropriation
because "no money changed hands, nor was money paid on the
Commission's behalf to anyone else." 63 Comp. Gen. 459, 461 (1984).
GAO found that there was a "mutually beneficial arrangement" between
the Commission and trade show promoters that was "neither an
augmentation of appropriations nor an illegal retention of a gift."
Id. For a discussion of "no-cost" contract, see section E.2.b of this
chapter.
[152] Akin to B-211079.2, the decision in B-286182, Jan. 11, 2001,
suggested that acceptance of services might be considered an improper
augmentation in some circumstances. That decision concerned a
settlement agreement in a rate case whereby a company agreed to
provide telecommunications equipment and services valued at $1.53
million to the District of Columbia courts for the purpose of
facilitating access to the legal system. The decision concluded,
however, that there was no augmentation issue in this case because the
courts had statutory gift-acceptance authority, which is discussed in
section E.3 of this chapter.
[153] The exception referenced as section 3718(b) now appears in
section 3718(d). It permits agencies to contract for assistance in the
collection of debts due the United States, and to pay the contractor
from the amounts recovered. For a decision addressing the scope and
application of this exception, see 72 Comp. Gen. 85 (1993).
[154] As a general proposition, an agency's appropriations do remain
"in the Treasury" until needed for a valid purpose. Unless Congress
expressly so provides, an agency may not have its appropriations paid
over directly to it to be held pending disbursement. 21 Comp.
Gen. 489 (1941).
[155] Several specific references to miscellaneous receipts in the pre-
1982 version of title 31 were deleted in the recodification because
they were regarded as covered by the general prescription of the new
section 3302. An example is the so-called User Charge Statute. The pre-
recodification version, 31 U.S.C. § 483a, required fees to be
deposited as miscellaneous receipts. The current version, 31 U.S.C. §
9701, omits the requirement because, as the Revision Note points out,
it is covered by § 3302.
[156] Section 571 stems from the Federal Property and Administrative
Services Act of 1949, ch. 288, 63 Stat. 377 (June 30, 1949). Prior to
this law, proceeds from the sale of public property were required to
be deposited as miscellaneous receipts under the more general
authority of what is now 31 U.S.C. § 3302(b). See Mammoth Oil Co. v.
United States, 275 U.S. 13, 34 (1927); Pan-American Petroleum &
Transport Co. v. United States, 273 U.S. 456, 502 (1927). (These are
the notorious "Teapot Dome" cases.)
[157] In addition to instances described elsewhere in the text, the
following are examples of statutory exceptions to section 3302(b): 42
U.S.C. § 8287 (measured savings from energy savings performance
contracts), discussed in B-287488, June 19, 2001; 42 U.S.C. § 8256 and
note (rebates received by federal agencies from utility companies on
account of energy-saving measures), discussed in B-265734, Feb. 13,
1996; and 38 U.S.C. § 1729A (compensatory settlement amounts under the
Federal Medical Care Recovery Act stemming from care provided at
Department of Veterans Affairs facilities), discussed in Memorandum
Opinion for the Assistant Attorney General, Civil Division,
Miscellaneous Receipts Act Exception for Veterans' Health Care
Recoveries, OLC Opinion, Dec. 3, 1998.
[158] It should not be automatically assumed that every form of credit
accruing to the government under a contract will qualify as a refund
to the appropriation. See, e.g., B-302366, July 12, 2004; A-51604, May
31, 1977.
[159] For further discussion of these concepts in the context of
statutes applicable to the Defense Department, see GAO, Reimbursements
to Appropriations: Legislative Suggestions for Improved Congressional
Control, FGMSD-75-52 (Washington, D.C.: Nov. 1, 1976). A more recent
report made a similar point in relation to agencies crediting user fee
proceeds to their appropriations. GAO, Federal User Fees: Budgetary
Treatment, Status, and Emerging Management Issues, GAO/AIMD-98-11
(Washington, D.C.: Dec. 19, 1997).
[160] Further guidance is contained in I Treasury Financial Manual
chapter 6-8000. For example, the Manual provides at section 6-8030.20
that collections totaling less than $5,000 may be accumulated and
deposited when the total reaches $5,000. However, deposits must be
made at least weekly regardless of amount.
[161] Act of March 3, 1849, ch. 110, 9 Stat. 398.
[162] Pub. L. No. 97-258, § 1, 96 Stat. 877, 948 (Sept. 13, 1982).
[163] The opinion also concluded that the fee arrangement was not
authorized under the user charge statute, 31 U.S.C. § 9701, or under
provisions of SBA's organic legislation.
[164] The court's disposition in Scheduled Airlines differed from a
Comptroller General decision that had denied a protest against this
solicitation. 73 Comp. Gen. 310 (1994).
[165] Subsequently, Congress enacted legislation that specifically
authorized Defense agencies to enter into contracts of the type
invalidated in Scheduled Airlines Traffic Offices that permit a
portion of commissions from unofficial travel to be deposited into
nonappropriated morale funds. 10 U.S.C. § 2646. See, in this regard, B-
283731, Dec. 21, 1999.
[166] See Chapter 5, section B.6. The basic rule is that where it
becomes necessary to terminate a contract because of the contractor's
default, the funds obligated under the original contract are
available, beyond their original period of availability, for purposes
of funding a contract to complete the unfinished work. Id. As
discussed in section B.6, certain conditions must be met in order to
invoke the replacement contract rule. Excess reprocurement costs
recovered from defaulting contractors cannot be retained by an agency
in its appropriations and applied to a new contract if the
reprocurement does not constitute an appropriate replacement contract.
Cf. B-242274, Aug. 27, 1991 (applying this principle in the context of
recovered liquidated damages).
[167] In 1990, subsequent to the decision in 65 Comp. Gen. 838 and
many of the other decisions discussed in this section, Congress
amended the statutory provisions applicable to the closing of
appropriation accounts and the disposition of account balances. See
generally Chapter 5, section D. These statutory changes do not
fundamentally affect the substantive rules discussed in this section,
although the changes they make in the time periods that appropriation
accounts retain their identity after they expire for obligation
purposes and before they close may affect the practical application of
those rules in particular circumstances.
[168] E.g., 46 Comp. Gen. 554 (1966); 40 Comp. Gen. 590 (1961); 27
Comp. Gen. 117 (1947); 14 Comp. Gen. 729 (1935); 14 Comp. Gen. 106
(1934); 10 Comp. Gen. 510 (1931); 8 Comp. Gen. 284 (1928); 26 Comp.
Dec. 877 (1920); 23 Comp. Dec. 352 (1916); A-26073, Mar. 20, 1929,
affd upon reconsideration, A-26073, Aug. 8, 1929; A-24614, June 20,
1929. The rule was applied regardless of whether the funds were
actually collected back from the contractor or merely withheld from
future contract payments due. 52 Comp. Gen. 45 (1972).
[169] This section provides that whenever a federal contract includes
a provision for liquidated damages for delay, the Secretary of the
Treasury may, upon the recommendation of the head of the procuring
agency, remit all or part of the damages if such action would be just
and equitable. The Comptroller General formerly exercised this
remission function, but it was transferred by law to the executive
branch in 1996. See the codification note following 41 U.S.C. § 256a.
[170] See section E.2.a of this chapter and 65 Comp. Gen. 600 (1986).
[171] The 1953 decision is inconsistent with the 1945 decision on this
point and appears to have effectively overruled the latter decision.
[172] See 42 U.S.C. § 8256(c)(5)(A), which authorizes such credits for
most agencies, subject to appropriation.
[173] Additional cases for this proposition are 35 Comp. Gen. 393
(1956); 28 Comp. Gen. 476 (1949); 15 Comp. Gen. 683 (1936); 5 Comp.
Gen. 928 (1926); 20 Comp. Dec. 349 (1913); 14 Comp. Dec. 87 (1907);
and 9 Comp. Dec. 174 (1902).
[174] A 1943 case suggested a different result, that is, the agency
might have to transfer the value of the repairs to miscellaneous
receipts, if the agency had a specific appropriation for repair or
replacement of the property in question. 22 Comp. Gen. 1133, 1137
(1943). GAO indicated in 67 Comp. Gen. 510 (1988) that this would not
be the case, although 67 Comp. Gen. 510 did not deal with a specific
repair appropriation, which would appear to be a rare case in any
event.
[175] As these cases demonstrate, the government occasionally
purchases insurance; however, it is a self-insurer in most areas. See
generally Chapter 4, section C.10.
[176] See section E.3 of this chapter for a discussion of gifts and
donations.
[177] See section B.1 of Chapter 15 for a more detailed discussion of
the Economy Act. Chapter 15 also discusses a variety of other
interagency ordering authorities including working capital funds,
special revolving funds, franchise funds, and program-specific funds.
[178] Temporary credits among appropriations are authorized by 31
U.S.C. § 1534, which generally provides for common service charges to
more than one appropriation. See Chapter 2, section B.3.a.
[179] Compare 10 U.S.C. § 2205(a), which provides that reimbursements
to Defense Department appropriations under the Economy Act and similar
authorities may be credited to authorized accounts and are available
for obligation for the same period as the funds in the account so
credited.
[180] The cited decisions note, for example, that agencies can use
standard costs for items provided from inventory as well as standard
costs for transportation and labor. While the standard cost for
inventory items may be based on the latest cost to acquire the item
provided, it may not be the cost to acquire a more technologically
advanced item. Also, reimbursement must include reasonable amounts for
both direct and indirect costs. Of course, agencies may have more
latitude to set rates under other, more specific statutes. See, e.g.,
10 U.S.C. § 2205(b); Department of Defense Financial Management
Regulation 7000.14-R, vol. 11A, ch. 3, Economy Act Orders (April
2000), available at [hyperlink,
http://www.defenselink.mil/comptroller/fmr/11A/index.html] (last
visited September 15, 2005).
[181] This and related decisions are also discussed in section E.2.d
of this chapter.
[182] See section C of Chapter 15 for a much more detailed discussion
of revolving funds.
[183] Chapter 17, section D discusses trust funds in far greater
detail. See also 31 U.S.C. §§ 1321-1323.
[184] The opinion noted that the proposed settlement would be
authorized under subsequent amendments to the governing legislation.
[185] The Federal Bureau of Investigation and the Drug Enforcement
Administration now have statutory authority to retain and use the
proceeds from undercover operations, subject to certain conditions.
See Pub. L. No. 102-395, § 102(b), 106 Stat. 1838 (Oct. 10, 1992),
which was continued in effect by Pub. L. No. 104-132, § 815(d), 110
Stat. 1315 (Apr. 24, 1996), and extended to the Bureau of Alcohol,
Tobacco, Firearms, and Explosives by Pub. L. No. 108-447, div. B,
title I, § 116, 118 Stat. 2809, 2870 (Dec. 8, 2004). See 28 U.S.C. §
533 note. Other agencies have similar authority. See also 8 U.S.C. §
1363a(a)(3) (Immigration and Naturalization Service); 19 U.S.C. §
2081(a)(2) (Customs Service); 26 U.S.C. § 7608(c)(1)(B) and (C)
(Internal Revenue Service).
[186] For agencies funded under the annual Interior Department and
Related Agencies appropriation acts, the rentals, whether collected by
payroll deduction or otherwise, go into a "special fund" maintained by
each agency to be used for maintenance and operation of the quarters.
5 U.S.C. § 5911 note.
[187] Pub. L. No. 97-300, 96 Stat. 1324 (Oct. 13, 1982).
[188] The reverse adjustment is made when funds which should have been
deposited as miscellaneous receipts are erroneously credited to an
appropriation. The remedy is a transfer from the appropriation to the
appropriate miscellaneous receipts account. E.g., B-48722, Apr. 16,
1945.
[189] See also B-3596, A-51615, Nov. 30, 1939. Use of a deposit fund
suspense account is equally acceptable. B-158381, June 21, 1968.
[190] In B-259065, Dec. 21, 1995, the Comptroller General sided with
Justice Blackmun on this point, holding that awards against the United
States for the return of forfeited cash or cash proceeds of forfeited
property that had been deposited in the Justice Department's Assets
Forfeiture Fund should be satisfied from that fund.
[191] See, e.g., 36 U.S.C. § 2307 (specifically provides that funds
donated to the United States Holocaust Memorial Museum are not to be
regarded as appropriated funds and are not subject to requirements or
restrictions applicable to appropriated funds).
[192] Some wag once said, jokingly we think, that if you looked hard
enough you could probably find a case dealing with the use of
appropriated funds to buy dog food. 22 Comp. Dec. 465 is it.
[193] Some cases from this series are 59 Comp. Gen. 415 (1980); 55
Comp. Gen. 1293 (1976); 49 Comp. Gen. 572 (1970); 46 Comp. Gen. 689
(1967); 36 Comp. Gen. 268 (1956); 26 Comp. Dec. 43 (1919).
[194] GAO's decisions involving promotional items obtained as a result
of government-sponsored travel were decided under its claims
settlement authority and predate the transfer of this authority to the
executive branch in 1995. For details of this transfer see B-275605,
Mar. 17, 1997. GAO has not issued decisions on such promotional items
subsequent to that transfer. In testimony before the House of
Representative's Subcommittee on Technology and Procurement Policy of
the Committee on Government Reform, the Comptroller General spoke in
favor of proposals that would allow employees who travel on government
business to keep their frequent flyer miles, describing it as a "small
benefit but one that private sector employers commonly provide their
people as part of a mosaic of competitive employee benefits." GAO,
Human Capital: Building the Information Technology Workforce to
Achieve Results, GAO-01-1007T (Washington, D.C.: July 31, 2001), at 23.
[195] GAO has no decisions addressing whether a federal agency with
gift acceptance authority may receive a gift of money transferred to
it from another federal agency.
[196] Economy Act transactions are described in more detail in section
E.2.e of this chapter, above, and in section B.1 of Chapter 15.
[197] For a discussion of some of these statutes as well as related
and predecessor provisions, see B-179708-0.M., Dec. 1, 1975, and B-
179708-0.M., July 21, 1975.
[198] No augmentation requiring an election between potential funding
sources exists, however, where the law clearly authorizes an agency to
use both sources interchangeably in order to supplement each other.
See B-272191, Nov. 4, 1997, distinguishing 68 Comp. Gen. 337.
[End of Chapter 6 footnotes]
[End of Chapter 6]
Chapter 7: Obligation of Appropriations:
A. Introduction: Nature of an Obligation:
B. Criteria for Recording Obligations (31 U.S.C. § 1501):
1. Section 1501(a)(1): Contracts:
a Binding Agreement:
b. Contract "in Writing":
c. Requirement of Specificity:
d. Invalid Award/Unauthorized Commitment:
e. Variations in Quantity to Be Furnished:
f. Amount to Be Recorded:
g. Administrative Approval of Payment:
h. Miscellaneous Contractual Obligations:
i. Interagency Transactions:
(1) Economy Act agreements:
(2) Non-Economy Act agreements:
(3) "Binding agreement" requirement:
(4) Orders from stock:
(5) Project orders:
2. Section 1501(a)(2): Loans:
3. Section 1501(a)(3): Interagency Orders Required by Law:
4. Section 1501(a)(4): Orders without Advertising:
5. Section 1501(a)(5): Grants and Subsidies:
a Grants:
b. Subsidies:
6. Section 1501(a)(6): Pending Litigation:
7. Section 1501(a)(7): Employment and Travel:
a Wages, Salaries, Annual Leave:
b. Compensation Plans in Foreign Countries:
c. Training:
d. Uniform Allowance:
e. Travel Expenses:
f. State Department: Travel Outside Continental United States:
g. Employee Transfer/Relocation Costs:
8. Section 1501(a)(8): Public Utilities:
9. Section 1501(a)(9): Other Legal Liabilities:
C. Contingent Liabilities:
D. Reporting Requirements:
E. Deobligation:
A. Introduction: Nature of an Obligation:
You, as an individual, use a variety of procedures to spend your
money. Consider the following transactions:
* You walk into a store, make a purchase, and pay at the counter with
cash, check, or debit card.
* You move to another counter and make another purchase with a credit
card. No money changes hands at the time, but you sign a credit form
which states that you promise to pay upon being billed. '
* You call the local tree surgeon to remove some ailing limbs from
your favorite sycamore. He quotes an estimate and you arrange to have
the work done. The tree doctor arrives while you are not at home, does
the work, and slips his bill under your front door.
* You visit your family dentist to relieve a toothache. The work is
done and you go home. No mention is made of money. Of course, you know
that the work wasn't free and that the dentist will bill you.
* You now visit your family lawyer to sue the dentist and the tree
surgeon. The lawyer takes your case and you sign a contingent fee
contract in which you agree that the lawyer's fee will be one-third of
any amounts recovered.
Numerous other variations could be added to the list but these are
sufficient to make the point. The first example is a simple cash
transaction. The legal liability to pay and the actual disbursement of
money occur simultaneously. The rest of the examples all have one
essential thing in common: You first take some action which creates
the legal liability to pay—that is, you "obligate" yourself to pay—and
the actual disbursement of money follows at some later time. The
obligation occurs in a variety of ways, such as placing an order or
signing a contract.
The government spends money in much the same fashion except that it is
subject to a variety of statutory restrictions. The simple "cash
transaction" or "direct outlay" involves a simultaneous obligation and
disbursement and represents a minor portion of government
expenditures. The major portion of appropriated funds are first
obligated and then expended. The subsequent disbursement "liquidates"
the obligation. Thus, an agency "uses" appropriations in two basic
ways—direct expenditures (disbursements) and obligations. There is no
legal requirement for you as an individual to keep track of your
"obligations." For the government, there is.
The concept of "obligation" is central to appropriations law. As will
be demonstrated in the discussion below, this is because of the
principle, one of the most fundamental, that an obligation must be
charged against the relevant appropriation in accordance with the
rules relating to purpose, time, and amount. The term "available for
obligation" is used throughout this publication to refer to
availability as to purpose, time, and amount. This chapter will
explore exactly what an obligation is.
It would be nice to start with an all-inclusive and universally
applicable definition of "obligation." However, because of the immense
variety of transactions in which the government is involved, GAO has
defined "obligation" only in the most general terms and has instead
analyzed on a case-by-case basis the nature of the particular
transaction at issue to determine whether an obligation has been
incurred. B-192282, Apr. 18, 1979; B-116795, June 18, 1954.
The most one finds in the decisions are general statements referring
to an obligation in such terms as "a definite commitment which creates
a legal liability of the Government for the payment of appropriated
funds for goods and services ordered or received." B-116795, June 18,
1954. See also B-300480.2, June 6, 2003; B-272191, Nov. 4, 1997; B-
265901, Oct. 14, 1997; 21 Comp. Gen. 1162, 1163 (1941) (circular
letter); B-222048, Feb. 10, 1987; B-82368, July 20, 1954; B-24827,
Apr. 3, 1942. From the earliest days, the Comptroller General has
cautioned that the obligating of appropriations must be "definite and
certain." A-5894, Dec. 3, 1924.
Another definition of an "obligation" that one finds in the decisions
takes a slightly broader perspective:
"A legal duty on the part of the United States which constitutes a
legal liability or which could mature into a legal liability by virtue
of actions on the part of the other party beyond the control of the
United States ..."
42 Comp. Gen. 733, 734 (1963).
Thus, in very general and simplified terms, an "obligation" is some
action that creates a legal liability or definite commitment on the
part of the government, or creates a legal duty that could mature into
a legal liability by virtue of an action that is beyond the control of
the government. Payment may be made immediately or in the future. GAO,
A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP
(Washington, D.C.: September 2005), at 70. See also McDonnell Douglas
Corp. v. United States, 37 Fed. Cl. 295, 301, order modified, 39 Fed.
Cl. 665 (1997); OMB Circular No. A-11, Preparation, Submission, and
Execution of the Budget, §§ 20.3, 20.5 (June 21, 2005).
An advance of funds to a working fund[Footnote 1] does not in itself
serve to obligate the funds. See B-180578-0.M., Sept. 26, 1978. The
same result holds for funds transferred to a special "holding account"
established for administrative convenience. B-118638, Nov. 4, 1974
(appropriations for District of Columbia Public Defender Service under
control of the Administrative Office of the U.S. Courts are not
obligated by transfer to a "Judiciary Trust Fund" established by the
Administrative Office).
The typical question on obligations is framed in terms of when the
obligation may or must be "recorded," that is, officially charged
against the spending agency's appropriations. Restated, what action is
necessary or sufficient to create an obligation? This is essential in
determining what fiscal year to charge, with all the consequences that
flow from that determination. It is also essential to the broader
concern of congressional control over the public purse.
Before proceeding with the specifics, two general points should be
noted. First, an obligation arises when the definite commitment is
made, even though the actual payment may not take place until a future
fiscal year. B-300480.2, June 6, 2003; 56 Comp. Gen. 351 (1977); 23
Comp. Gen. 862 (1944). Second, for appropriations law purposes, the
term "obligation" includes both matured and unmatured commitments. A
matured commitment is a legal liability that is currently payable. An
unmatured commitment is a liability which is not yet payable but for
which a definite commitment nevertheless exists. For example, a
contractual liability to pay for goods which have been delivered and
accepted has "matured." The liability for monthly rental payments
under a lease is largely unmatured although the legal liability covers
the entire rental period. Both types of liability are "obligations."
The fact that an unmatured liability may be subject to a right of
cancellation does not negate the obligation. A-97205, Feb. 3, 1944, at
9-10.[Footnote 2]
A recent decision illustrates this point. In B-300480, Apr. 9, 2003,
GAO determined that the Corporation for National and Community Service
(Corporation), the parent body of the AmeriCorps national service
program, incurred a legal liability for the award of AmeriCorps
national service educational benefits at the time it entered into a
grant agreement to provide educational benefits to AmeriCorps
participants. Participants in the AmeriCorps program who successfully
completed a required term of service earned a national service
educational award that could be used to pay for post-secondary
education. The Corporation awarded grants to state service
commissions, which awarded subgrants to the nonprofit groups—the
entities that actually enrolled the AmeriCorps participants. When the
Corporation awarded a grant to a state service commission, it entered
into a binding agreement authorizing the state service commissions to
provide grant awards to a specified number of new participants in the
AmeriCorps program. The Corporation argued that it did not incur an
obligation for an education award until the time of enrollment because
the Corporation could modify the terms and conditions of a grant,
including suspension of enrollment, prior to the enrollment of all
positions initially approved in a grant. GAO disagreed and explained
that:
"The fact that the government may have the power to amend unilaterally
a contract or agreement does not change the nature or scope of the
obligation incurred at time of award. Were it otherwise, every
government contract that permits the government to terminate the
contract for the convenience of the government (48 C.F.R. § 49.502),
or to modify the terms of the contract at will (48 C.F.R. §§ 52.243-1,
243-2, 243-3), would not be an obligation of the government at time of
award. Long-standing practice and logic both of the Congress (31
U.S.C. § 1501, 41 U.S.C. § 5) and the accounting officers of the
government (B-234957, July 10, 1989, B-112131, Feb. 1, 1956) have
rejected such a view."
B-300480, Apr. 9, 2003. GAO concluded that because the Corporation had
taken an action that could mature into a legal liability for the
education benefits by virtue of actions taken by the grantee and
participants, not the Corporation, the Corporation incurred an
obligation at the time of grant award. Id. Subsequently, GAO issued a
second decision, B-300480.2, June 6, 2003, which elaborated upon and
affirmed the April decision.
B. Criteria for Recording Obligations (31 U.S.C. § 1501):
The overrecording and the underrecording of obligations are equally
improper. Both practices make it impossible to determine the precise
status of the appropriation and can lead to other adverse
consequences. Overrecording (recording as obligations items that are
not) is usually done to inflate obligated balances and reduce
unobligated balances of appropriations expiring at the end of a fiscal
year. Underrecording (failing to record legitimate obligations) may
result in violating the Antideficiency Act. 31 U.S.C. § 1341.[Footnote
3] A 1953 decision put it this way:
"In order to determine the status of appropriations, both from the
viewpoint of management and the Congress, it is essential that
obligations be recorded in the accounting records on a factual and
consistent basis throughout the Government. Only by the following of
sound practices in this regard can data on existing obligations serve
to indicate program accomplishments and be related to the amount of
additional appropriations required."
32 Comp. Gen. 436, 437 (1953). See also GAO, Policy and Procedures
Manual for Guidance of Federal Agencies, title 7, § 3.5.A.
(Washington, D.C.: May 18, 1993) (hereafter GAO-PPM).
The standards for the proper recording of obligations are found in 31
U.S.C. § 1501(a), originally enacted as section 1311 of the
Supplemental Appropriation Act, 1955, Pub. L. No. 83-663, 68 Stat.
800, 830 (Aug. 26, 1954). A Senate committee has described the origin
of the statute as follows:
"Section 1311 of the Supplemental Appropriation Act of 1955 resulted
from the difficulty encountered by the House Appropriations Committee
in obtaining reliable figures on obligations from the executive
agencies in connection with the budget review. It was not uncommon for
the committees to receive two or three different sets of figures as of
the same date. This situation, together with rather vague explanations
of certain types of obligations particularly in the military
department[s], caused the House Committee on Appropriations to
institute studies of agency obligating practices.
"The result of these examinations laid the foundation for the
committee's conclusion that loose practices had grown up in various
agencies, particularly in the recording of obligations in situations
where no real obligation existed, and that by reason of these
practices the Congress did not have reliable information in the form
of accurate obligations on which to determine an agency's future
requirements. To correct this situation, the committee, with the
cooperation of the General Accounting Office and the Bureau of the
Budget, developed what has become the statutory criterion by which the
validity of an obligation is determined...."[Footnote 4]
Thus, the primary purpose of 31 U.S.C. § 1501 is to ensure that
agencies record only those transactions which meet specified standards
for legitimate obligations. 71 Comp. Gen. 109 (1991); 54 Comp. Gen.
962, 964 (1975); 51 Comp. Gen. 631, 633 (1972); B-192036, Sept. 11,
1978.[Footnote 5]
Subsection (a) of 31 U.S.C. § 1501 prescribes specific criteria for
recording obligations. The subsection begins by stating that "[a]n
amount shall be recorded as an obligation of the United States
Government only when supported by documentary evidence" and then goes
on to specify nine criteria for recording obligations. Note that the
statute requires "documentary evidence" to support the recording in
each instance. In one sense, these nine criteria taken together may be
said to comprise the "definition" of an obligation.[Footnote 6]
If a given transaction does not meet any of the criteria, then it is
not a proper obligation and may not be recorded as one. Once one of
the criteria is met, however, the agency not only may but must at that
point record the transaction as an obligation. While 31 U.S.C. § 1501
does not explicitly state that obligations must be recorded as they
arise or are incurred, it follows logically from an agency's
responsibility to comply with the Antideficiency Act. GAO has made the
point in decisions and reports in various contexts. E.g., B-302358,
Dec. 27, 2004; 72 Comp. Gen. 59 (1992); 65 Comp. Gen. 4, 6 (1985); B-
242974.6, Nov. 26, 1991; B-226801, Mar. 2, 1988; B-192036, Sept. 11,
1978; A-97205, Feb. 3, 1944, at 10; GAO, FGMSD-75-20 (Washington,
D.C.: Feb. 13, 1975) (untitled letter report); GAO, Substantial
Understatement of Obligations for Separation Allowances for Foreign
National Employees, B-179343, (Washington, D.C.: Oct. 21, 1974), at 6.
It is important to emphasize the relationship between the existence of
an obligation and the act of recording. Recording evidences the
obligation but does not create it. If a given transaction is not
sufficient to constitute a valid obligation, recording it will not
make it one. E.g., B-197274, Feb. 16, 1982 ("reservation and
notification" letter held not to constitute an obligation, act of
recording notwithstanding, where letter did not impose legal liability
on government and subsequent formation of contract was within agency's
control). Conversely, failing to record a valid obligation in no way
diminishes its validity or affects the fiscal year to which it is
properly chargeable. E.g., B-226782, Oct. 20, 1987 (letter of intent,
executed in fiscal year 1985 and found to constitute a contract,
obligated fiscal year 1985 funds, notwithstanding agency's failure to
treat it as an obligation). See also 63 Comp. Gen. 525 (1984); 38
Comp. Gen. 81, 82-83 (1958).
The precise amount of the government's liability should be recorded as
the obligation where that amount is known. However, where the precise
amount is not known at the time the obligation is incurred, an
obligation amount must still be recorded on a preliminary basis. How
to determine this amount is discussed in section B.l.f of this
chapter. See also OMB Circular No. A-11, Preparation, Submission, and
Execution of the Budget, § 20.5 (June 21, 2005) for guidance on how to
record obligation amounts in certain situations. As more precise data
on the liability becomes available, the obligation must be
periodically adjusted, that is, the agency must deobligate funds or
increase the obligational level as the case may be. 7 GAO-PPM § 3.5.D;
B-300480, Apr. 9, 2003.
Adjustments to recorded obligations, like the initial recordings
themselves, must be supported by documentary evidence. The use of
statistical methods to make adjustments "lacks legal foundation if the
underlying transactions cannot be identified and do not support the
calculated totals." B-236940, Oct. 17, 1989; GAO, Financial
Management: Defense Accounting Adjustments for Stock Fund Obligations
Are Illegal, GAO/AFMD-87-1 (Washington, D.C.: Mar. 11, 1987), at 6.
A related concept is the allocation of obligations for administrative
expenses (utility costs, computer services, etc.) between or among
programs funded under separate appropriations. There is no rule or
formula for this allocation apart from the general prescription that
the agency must use a supportable methodology. Merely relying on the
approved budget is not sufficient. See GAO, Financial Management:
Improvements Needed in OSMRE's Method of Allocating Obligations,
GAO/AFMD-89-89 (Washington, D.C.: July 28, 1989). An agency may
initially charge common-use items to a single appropriation as long as
it makes the appropriate adjustments from other benefiting
appropriations before or as of the end of the fiscal year. 31 U.S.C. §
1534; 70 Comp. Gen. 601 (1991). The allocation must be in proportion
to the benefit. 70 Comp. Gen. 592 (1991).
Further procedural guidance may be found in OMB Circular No. A-11, at
§ 20.5; the Treasury Financial Manual; and title 7 of GAO's Policy and
Procedures Manual for Guidance of Federal Agencies. For the most part,
the statutory criteria in 31 U.S.C. § 1501(a) reflect standards that
had been developed in prior decisions of the Comptroller General over
the years. See, e.g., 18 Comp. Gen. 363 (1938); 16 Comp. Gen. 37
(1936). The remainder of this section will explore the nine specific
recording criteria.
1. Section 1501(a)(1): Contracts:
Subsection (a)(1) of 31 U.S.C. § 1501 establishes minimum requirements
for recording obligations for contracts. Specifically, there must be
documentary evidence of:
"(1) a binding agreement between an agency and another person
(including an agency) that is:
"(A) in writing, in a way and form, and for a purpose authorized by
law; and;
"(B) executed before the end of the period of availability for
obligation of the appropriation or fund used for specific goods to be
delivered, real property to be bought or leased, or work or service to
be provided."
As seen in Chapter 5, the general rule for obligating fiscal year
appropriations by contract is that the contract imposing the
obligation must be made within the fiscal year sought to be charged
and must meet a bona fide need of that fiscal year. E.g., B-272191,
Nov. 4, 1997; B-235086, Apr. 24, 1991; 37 Comp. Gen. 155 (1957). This
discussion will center on the timing of the obligation from the
perspective of 31 U.S.C. § 1501(a)(1).
Subsection (a)(1) actually imposes several different requirements:
* a binding agreement;
* in writing;
* for a purpose authorized by law;
* executed before the expiration of the period of obligational
availability; and;
* a contract calling for specific goods, real property, work, or
services.
a. Binding Agreement:
An agreement must be legally binding (offer, acceptance, consideration,
made by authorized official). As stated in a 1991 decision:
"The primary purpose of section 1501(a)(1) is to 'require that there
be an offer and acceptance imposing liability on both parties.' 39
Comp. Gen. 829, 831 (1960). Hence the government may record an
obligation under section 1501 only upon evidence that both parties to
the contract willfully express the intent to be bound."
71 Comp. Gen. 109, 110 (1991) (emphasis in original). To be binding,
however, an agreement does not have to be the final "definitized"
contract. The legislative history of subsection (a)(1) makes this
clear. The following excerpt is taken from the conference report:
"Section 1311(a)(1) precludes the recording of an obligation unless it
is supported by documentary evidence of a binding agreement between
the parties as specified therein. It is not necessary, however, that
the binding agreement be the final formal contract on any specified
form. The primary purpose is to require that there be an offer and an
acceptance imposing liability on both parties. For example, an
authorized order by one agency on another agency of the Government, if
accepted by the latter and meeting the requirement of specificity,
etc., is sufficient. Likewise, a letter of intent accepted by a
contractor, if sufficiently specific and definitive to show the
purposes and scope of the contract finally to be executed, would
constitute the binding agreement required."[Footnote 7]
The following passage from 42 Comp. Gen. 733, 734 (1963) remains a
useful general prescription:
"The question whether Government funds are obligated at any specific
time is answerable only in terms of an analysis of written
arrangements and conditions agreed to by the United States and the
party with whom it is dealing. If such analysis discloses a legal duty
on the part of the United States which constitutes a legal liability
or which could mature into a legal liability by virtue of actions on
the part of the other party beyond the control of the United States,
an obligation of funds may generally be stated to exist."
In 35 Comp. Gen. 319 (1955), and 59 Comp. Gen. 431 (1980), the
Comptroller General set forth the factors that must be present in
order for a binding agreement to exist for purposes of 31 U.S.C. §
1501(a)(1) with respect to contracts awarded under competitive
procedures:
* Each bid must have been in writing.
* The acceptance of each bid must have been communicated to the bidder
in the same manner as the bid was made. If the bid was mailed, the
contract must have been placed in the mails before the close of the
fiscal year. If the bid was delivered other than by mail, the contract
must have been delivered in like manner before the end of the fiscal
year.
* Each contract must have incorporated the terms and conditions of the
respective bid without qualification. Otherwise, it must be viewed as
a counteroffer and there would be no binding agreement until accepted
by the contractor.
To illustrate, where the agency notified the successful bidder of the
award by telephone near the end of fiscal year 1979 but did not mail
the contract document until fiscal year 1980, there was no valid
obligation of fiscal year 1979 funds. 59 Comp. Gen. 431 (1980). See
also Goldberger Foods v. United States, 23 Cl. Ct. 295, 302-303,
aff'd, 960 F.2d 155 (Fed. Cir. 1992); B-159999-0.M., Mar. 16. 1967; B-
235086, Apr. 24, 1991; 35 Comp. Gen. 319 (1955). A document is
considered "mailed" when it is placed in the custody of the Postal
Service (given to postman or dropped in mailbox or letter chute in
office building); merely delivering the document to an agency
messenger with instructions to mail it is insufficient. 59 Comp.
Gen. 431, 433 (1980); B-235086, Apr. 24, 1991. Similarly, there was no
recordable obligation of fiscal year 1960 funds where the agency
erroneously mailed the notice of award to the wrong bidder and did not
notify the successful bidder until the first day of fiscal year 1961.
40 Comp. Gen. 147 (1960). It is important to note that, in the above
cases, the obligation was invalid only with respect to the fiscal year
the agency wanted to charge. The agency could still proceed to
finalize the obligation but would have to charge funds current in the
subsequent fiscal year.
A mere request for additional supplies under a purchase order with no
indication of acceptance of the request does not create a recordable
obligation. 39 Comp. Gen. 829 (1960). Similarly, a work order or
purchase order may be recorded as an obligation only where it
constitutes a binding agreement for specific work or services. 34
Comp. Gen. 459 (1955).
A "letter of intent" is a preliminary document that may or may not
constitute an obligation. At one extreme, it may be nothing more than
an "agreement to agree" with neither party bound until execution of
the formal contract. E.g., B-201035, Feb. 15, 1984, at 5. At the other
extreme, it may contain all the elements of a contract, in which event
it will create binding obligations. The crucial question is whether
the parties intended to be bound, determinable primarily from the
language actually used. Saul Bass & Associates v. United States, 505
F.2d 1386 (Ct. Cl. 1974). For a good example of a letter of intent
creating contractual obligations, see B-226782, Oct. 20, 1987.
A letter of intent which amounts to a contract is also called a
"letter contract." In the context of government procurement, it is
used most commonly when there is insufficient time to prepare and
execute the full contract before the end of the fiscal year. As
indicated in the legislative history quoted earlier, a "letter of
intent" accepted by the contractor may form the basis of an obligation
if it is sufficiently specific and definitive to show the purpose and
scope of the contract. 21 Comp. Gen. 574 (1941); B-127518, May 10,
1956. Letters of intent should be used "only under conditions of the
utmost urgency." 33 Comp. Gen. 291, 293 (1954). Under the Federal
Acquisition Regulation (FAR), letter contracts may be used:
"when (1) the Government's interests demand that the contractor be
given a binding commitment so that work can start immediately and (2)
negotiating a definitive contract is not possible in sufficient time
to meet the requirement. However, a letter contract should be as
complete and definite as feasible under the circumstances."
48 C.F.R. § 16.603-2(a) (2005).
The amount to be obligated under a letter contract is the government's
maximum liability under the letter contract itself, without regard to
additional obligations anticipated to be included in the definitive
contract or, restated, the amount necessary to cover expenses to be
incurred by the contractor prior to execution of the definitive
contract. The obligation is recorded against funds available for
obligation at the time the letter contract is issued. 34 Comp. Gen.
418, 421 (1955); B-197274, Sept. 23, 1983; B-197274, Feb. 16, 1982; B-
127518, May 10, 1956. See also FAR, 48 C.F.R. §§ 16.603-2(d), 16.603-
3(a).
Once the definitive contract is executed, the government's liability
under the letter contract is merged into it. If definitization does
not occur until the following fiscal year, the definitive contract
will obligate funds of the latter year, usually in the amount of the
total contract price less an appropriate deduction relating to the
letter contract. B-197274, Sept. 23, 1983. The cited decision, at page
5, specifies how to calculate the deduction as follows:
"The definitized contract then supports obligating against the
appropriation current at the time it is entered into since it is, in
fact, a bona fide need of that year. The amount of the definitized
contract would ordinarily be the total contract cost less either the
actual costs incurred under the letter contract (when known) or the
amount of the maximum legal liability permitted by the letter contract
(when the actual costs cannot be determined)."
Letter contracts should be definitized within 180 days, or before
completion of 40 percent of the work to be performed, whichever occurs
first. FAR, 48 C.F.R. § 16.603-2(c). Also, letter contracts should not
be used to record excess obligations as this distorts the agency's
funding picture. See GAO, Contract Pricing: Obligations Exceed
Definitized Prices on Unpriced Contracts, GAO/NSIAD-86-128
(Washington, D.C.: May 2, 1986).
b. Contract "in Writing:"
Although the binding agreement under 31 U.S.C. § 1501(a)(1) must be
"in writing," the "writing" is not necessarily limited to words on a
piece of paper. The traditional mode of contract execution is to affix
original handwritten signatures to a document (paper) setting forth
the contract terms. Change is in the winds, however, and traditional
interpretations are being reassessed in light of advancing computer
technologies. In 1983, GAO's legal staff, in an internal memorandum to
one of GAO's audit divisions, took note of modern legal trends and
advised that the "in writing" requirement could be satisfied by
computer-related media which produce tangible recordings of
information, such as punch cards, magnetic cards, tapes, or disks. B-
208863(2)-0.M., May 23, 1983.
Eight years later, the Comptroller General issued his first formal
decision on the topic, 71 Comp. Gen. 109 (1991). The National
Institute of Standards and Technology (NISI) asked whether federal
agencies could use certain Electronic Data Interchange (EDI)
technologies to create valid contractual obligations for purposes of
31 U.S.C. § 1501(a). Yes, replied the Comptroller, as long as there
are adequate safeguards and controls to provide no less certainty and
protection of the government's interests as under a "paper and ink"
method. The decision states:
"We conclude that EDI systems using message authentication codes which
follow NIST's Computer Data Authentication Standard ... or digital
signatures following NIST's Digital Signature Standard, as currently
proposed, can produce a form of evidence that is acceptable under
section 1501."
71 Comp. Gen. at 111. In 2000, Congress enacted the Electronic
Signatures in Global and National Commerce Act,[Footnote 8] which
confirmed the legality of digital signatures in any transaction in or
affecting interstate or foreign commerce. Section 101(a) of the act
provides:
"In General. Notwithstanding any statute, regulation, or other rule of
law ... with respect to any transaction in or affecting interstate or
foreign commerce:
(1) a signature, contract, or other record relating to such
transaction may not be denied legal effect, validity, or
enforceability solely because it is in electronic form; and;
(2) a contract relating to such transaction may not be denied legal
effect, validity, or enforceability solely because an electronic
signature or electronic record was used in its formation."
While there may be some room for interpretation as to what constitutes
a "writing" for purposes of 31 U.S.C. § 1501(a)(1), the writing, in
some acceptable form, must exist. Under the plain terms of the
statute, an oral agreement may not be recorded as an obligation. In
United States v. American Renaissance Lines, Inc., 494 F.2d 1059, 1062
(D.C. Cir.), cert. denied, 419 U.S. 1020 (1974), the court found that
31 U.S.C. § 1501(a)(1) "establishes virtually a statute of frauds" for
the government[Footnote 9] and held that neither party can judicially
enforce an oral contract in violation of the statute.
However, the Court of Claims and its successors, the Claims Court and
United States Court of Federal Claims, have taken the position that
31 U.S.C. § 1501(a)(1) does not bar recovery "outside of the contract"
where sufficient additional facts exist for the court to infer the
necessary "meeting of minds" (contract implied-in-fact). Narva Harris
Construction Corp. v. United States, 574 F.2d 508 (Ct. Cl. 1978);
Johns-Manville Corp. v. United States, 12 Cl. Ct. 1, 19-20 (1987). Cf.
Kinzley v. United States, 661 F.2d 187 (Ct. Cl. 1981) (documentary
evidence of employment of persons sufficient to support oral
employment contract for purposes of 31 U.S.C. § 1501(a)(7)). In
Pacord, Inc. v. United States, 139 F.3d 1320 (9th Cir. 1998), the
court relied on Narva Harris Construction Corp. in holding that, even
though the Federal Acquisition Regulation (FAR) generally requires
contracts to be in writing,[Footnote 10] an oral contract may be
enforced if the plaintiff "can establish sufficient facts, beyond a
mere oral agreement, for the court to infer the existence of an
implied-in-fact contract." Pacord, 139 F.3d at 1323.
These would be examples of subsequently imposed liability where the
agency did not record—and lawfully could not have recorded—an
obligation when the events giving rise to the liability took place. If
a contractor received a judgment in this type of situation, the
obligational impact on the contracting agency would depend on whether
the case was subject to the Contract Disputes Act. If the Act applies,
the judgment would be payable initially from the permanent judgment
appropriation (31 U.S.C. § 1304), to be reimbursed by the agency from
currently available appropriations. See 41 U.S.C. §§ 612(a)-(c); B-
252754, Oct. 6, 1994. If the Act does not apply, the judgment would be
paid from the judgment appropriation without reimbursement, and there
would thus be no obligational impact on the agency.
In B-118654, Aug. 10, 1965, GAO concluded that a notice of award
signed by the contracting officer and issued before the close of the
fiscal year did not satisfy the requirements of 31 U.S.C. § 1501(a)(1)
where it incorporated modifications of the offer as to price and other
terms which had been agreed to orally during negotiations. The reason
is that there was no evidence in writing that the contractor had
agreed to the modifications. GAO conceded, however, that the agency's
argument that there was documentary evidence of a binding agreement
for purposes of section 1501(a)(1) was not without merit. In view of
this and since the agency was in the process of changing its
contracting procedures to assure adequate documentary evidence of both
the offer and the acceptance, we did not insist on any appropriation
adjustments.
In a 1977 decision, however, GAO concluded that a signed contract that
included ambiguous terms relating to pricing might not be defeated
where the ambiguity was resolved by telephone conversations that were
incorporated by reference into an award letter, even though there was
no written record of the conversations showing agreement by both
parties. The Comptroller General concluded that the potential defect
in any event would not afford a basis for a third party (in this case
a protesting unsuccessful offeror) to object to the contract's
legality. 56 Comp. Gen. 768, 775 (1977).
c. Requirement of Specificity:
The statute requires documentary evidence of a binding agreement for
specific goods or services. An agreement that fails this test is not a
valid obligation.
For example, a State Department contract under the Migration and
Refugee Assistance Program establishing a contingency fund "to provide
funds for refugee assistance by any means, organization or other
voluntary agency as determined by the Supervising Officer" did not
meet the requirement of specificity and therefore was not a valid
obligation. B-147196, Apr. 5, 1965.
Similarly, a purchase order which lacks a description of the products
to be provided is not sufficient to create a recordable obligation. B-
196109, Oct. 23, 1979. In the cited decision, a purchase order for
"regulatory, warning, and guide signs based on information supplied"
on requisitions to be issued did not validly obligate fiscal year 1978
funds where the requisitions were not sent to the supplier until after
the close of fiscal year 1978. See also 70 Comp. Gen. 481 (1991)
(advances to establish an imprest fund to finance unspecified future
cash payments do not meet the statutory requirements for recording
obligations).
d. Invalid Award/Unauthorized Commitment:
Where a contract award is determined to be invalid, the effect is that
no binding agreement ever existed as required by 31 U.S.C. §
1501(a)(1) and therefore there was no valid obligation of funds. 38
Comp. Gen. 190 (1958); B-157360, Aug. 11, 1965. As discussed in
Chapter 5, section B.6, under more recent authorities the original
obligation is not extinguished for all purposes, and those amounts
originally obligated remain available post-expiration to fund a valid
"replacement contract." 70 Comp. Gen. 230 (1991); 68 Comp. Gen. 158
(1988). Where the invalidity is determined under a bid protest, which
will presumably cover most such instances, the extended availability
described in the GAO decisions is statutorily defined as 100 days
after the final ruling on the protest. 31 U.S.C. § 1558(a). Thus,
cases like 38 Comp. Gen. 190 must be regarded as modified to this
extent. Of course, amounts originally obligated do not survive post-
expiration for anything other than a valid replacement contract. B-
270723, Apr. 15, 1996.
Where the Comptroller General awards bid preparation costs to a
successful protester under authority of 31 U.S.C. § 3554(c), payment
should be charged to the agency's procurement appropriations current
at the time GAO issued its decision. If the agency must verify the
amount of bid preparation costs to which the protester is entitled
prior to payment, the agency should record an estimated obligation,
using GAO's decision as the obligating document. Upon verification,
the obligation is adjusted up or down as necessary, on the basis of
the documents submitted by the protester to substantiate the amount. B-
199368.4, Jan. 19, 1983 (nondecision letter).
Claims against the government resulting from unauthorized commitments
raise obligation questions in two general situations. If the
circumstances surrounding the unauthorized commitment are sufficient
to give rise to a contract implied-in-fact, it may be possible for the
agency to ratify the unauthorized act. If the ratification occurs in a
subsequent fiscal year, the obligation is chargeable to the prior
year, that is, the year in which the need presumably arose and the
claimant performed. B-208730, Jan. 6, 1983. However, before an agency
chooses to ratify the obligation, it first must assure that sufficient
prior year unobligated funds remain available to cover the
ratification. Id.; B-290005, July 1, 2002. If ratification is not
available for whatever reason, the only remaining possibility for
payment is a quantum meruit recovery under a theory of contract
implied-in-law. The quantum meruit theory permits payment in limited
circumstances even in cases where there was no valid obligation, for
example, where the contractor has made partial delivery operating
under what he believed to be a valid contract. B-303906, Dec. 7, 2004;
B-251668, May 13, 1993; B-118428, Sept. 21, 1954. See also 67 Comp.
Gen. 507 (1988). The obligational impact is the same as for
ratification—payment is chargeable to the fiscal year in which the
claimant performed. B-210808, May 24, 1984; B-207557, July 11, 1983.
e. Variations in Quantity to Be Furnished:
In some types of contracts, the quantity of goods to be furnished or
services to be performed may vary. The quantity may be indefinite or it
may be stated in terms of a definite minimum with permissible
variation. Variations may be at the option of the government or the
contractor. The obligational treatment of this type of contract
depends on the exact nature of the contractual liability imposed on
the government.
Before proceeding, it is important to define some terms. A
requirements contract is one in which the government agrees to
purchase all of its needs for the particular item or service during
the contract period from the contractor, and the contractor agrees to
fill all such needs. Federal Acquisition Regulation (FAR), 48 C.F.R. §
16.503(a) (2005); Modern Systems Technology Corp. v. United States,
979 F.2d 200, 206 (Fed. Cir. 1992); Torncello v. United States, 681
F.2d 756, 761 (Ct. CL 1982). An indefinite-quantity contract is one in
which the contractor agrees to supply whatever quantity the government
may order, within limits, with the government under no obligation to
use that contractor for all of its requirements. FAR, 48 C.F.R. §
16.504(a); Hemet Valley Flying Service Co. v. United States, 7 Cl. Ct.
512, 515-16 (1985); Mason v. United States, 615 F.2d 1343, 1346 n.5
(Ct. CL), cert. denied, 449 U.S. 830 (1980); B-302358, Dec. 27, 2004.
Under either type of contract, the government orders specific
quantities from time to time by issuing a document variously termed a
work order, task order, delivery order, etc.
In a requirements contract, the government must state a realistic
estimated total quantity. An agency may obtain its estimate from
records of previous requirements and consumption, or by other means,
and should base the estimate on the most current information
available. FAR, 48 C.F.R. § 16.503(a)(1); B-190855, Mar. 31, 1978; B-
188426, Sept. 20, 1977. It is not legally necessary that requirements
contracts place a minimum or a maximum limit upon the estimated
requirements. B-256312, June 6, 1994; B-226992.2, July 13, 1987. See
also Unlimited Enterprises, Export-Import, Inc., ASBCA No. 34825, 88-3
BCA ¶ 20,908 (1988). However, the FAR provides that "the contract
shall state, if feasible, the maximum limit of the contractor's
obligation to deliver and the Government's obligation to order." 48
C.F.R. § 16.503(a)(2). Needs must relate to the contract period. 21
Comp. Gen. 961, 964 (1942).
If, in the exercise of good faith, the anticipated requirements simply
do not materialize, the government is not obligated to purchase the
stated estimate or indeed, if no requirements arise, to place any
orders with the contractor beyond any required minimum. 47 Comp. Gen.
365, 370 (1968). See also Appeal of Shepard Printing, GPOBCA No. 37-92
(1994); AGSGenesys Corp., ASBCA No. 35302, 89-2 BCA ¶ 21,702 (1989);
World Contractors, Inc., ASBCA No. 20354, 75-2 BCA ¶ 11,536 (1975).
The contractor assumes the risk that nonguaranteed requirements may
fall short of expectations, and has no claim for a price adjustment if
they do. Medan, Inc. v. Austin, 967 F.2d 579 (Fed. Cir. 1992); 37
Comp. Gen. 688 (1958). If, however, the government attempts to meet
its requirements elsewhere, including the development of in-house
capability, or if failure to place orders with the contractor for
valid needs is otherwise found to evidence lack of good faith,
liability will result. E.g., Rumsfeld v. Applied Companies, Inc., 325
F.3d 1328 (Fed. Cir), cert. denied, 540 U.S. 981 (2003); Torncello,
681 F.2d at 768-69; Cleek Aviation v. United States, 19 CL Ct. 552
(1990); Appeal of MDP Construction, Inc., ASBCA No. 49527, 96-2 BCA
¶ 28,525 (1996); Viktoria Transport GmbH & Co., ASBCA No. 30371, 88-3
BCA ¶ 20,921 (1988); California Bus Lines, ASBCA No. 19732,
75-2 BCA ¶ 11,601 (1975); Henry Angelo & Sons, Inc., ASBCA No. 15082,
72-1 BCA ¶ 9356 (1972); B-182266, Apr. 1, 1975.
An indefinite-quantity contract, under current regulations, must
include a minimum purchase requirement which must be more than
nominal. FAR, 48 C.F.R. § 16.504(a)(2); B-302358, Dec. 27, 2004. An
indefinite-quantity contract without a minimum purchase requirement is
regarded as illusory and unenforceable. It is no contract at all.
Torncello, 681 F.2d at 761; Mason, 615 F.2d at 1346 n.5; Howell v.
United States, 51 Fed. CL 516 (2002); Rice Lake Contracting, Inc. v.
United States, 33 Fed. CL 144, 152-53 (1995); Modern Systems
Technology Corp. v. United States, 24 Cl. Ct. 360 (1991). Apart from
the specified minimum, the government is free to obtain its
requirements from other contractors. Government Contract Services,
Inc., GSBCA No. 8447, 88-1 BCA ¶ 20,255 (1987); Alta Construction Co.,
PSBCA No. 1395, 87-2 BCA ¶ 19,720 (1987).
An indefinite-delivery, indefinite-quantity (IDIQ) contract is a form
of an indefinite-quantity contract. As with other indefinite quantity
contracts, an IDIQ contract must require the government to order, and
the contractor to furnish, at least a stated minimum quantity of
supplies or services. FAR, 48 C.F.R. § 16.504(a). While the agency may
place orders at any time during a fixed period, actual delivery dates
during that period are undefined. After award of an IDIQ contract, the
government places task or delivery orders with the contractor (or
contractors) as the government's needs become definite. B-302358, Dec.
27, 2004. IDIQs have historically provided a way to expeditiously fill
certain government needs. See GAO, Contract Management: Few Competing
Proposals for Large DOD Information Technology Orders, NSIAD-00-56
(Washington, D.C.: Mar. 20, 2000), at 5.
What does all this signify from the perspective of obligating
appropriations? As we noted at the outset, the obligational impact of
a variable quantity contract depends on exactly what the government
has bound itself to do. A fairly simple generalization can be deduced
from the decisions: In a variable quantity contract (requirements or
indefinite-quantity), any required minimum purchase must be obligated
when the contract is executed; subsequent obligations occur as work
orders or delivery orders are placed, and are chargeable to the fiscal
year in which the order is placed. B-302358, Dec. 27, 2004.
Thus, in a variable quantity contract with no guaranteed minimum—or
any analogous situation in which there is no liability unless and
until an order is placed—there would be no recordable obligation at
the time of award. B-302358, Dec. 27, 2004; B-259274, May 22, 1996; 63
Comp. Gen. 129 (1983); 60 Comp. Gen. 219 (1981); 34 Comp. Gen. 459,
462 (1955); B-124901, Oct. 26, 1955 ("call contract").[Footnote 11]
Obligations are recorded as orders are placed.
The same approach applies to a contract for a fixed quantity in which
the government reserves an option to purchase an additional quantity.
The contract price for the fixed quantity is an obligation at the time
the contract is entered into; the reservation of the option ripens
into an obligation only if and when the government exercises the
option. 19 Comp. Gen. 980 (1940). See also B-287619, July 5, 2001 (for
medical services provided through civilian contracted care, DOD's
legal liability for at-risk payment is determined by the fixed price
established by the contract and should be recorded at the time DOD
executes the contract, and again when it executes any subsequent
options).
An application of these concepts also can be found at B-192036, Sept.
11, 1978. The National Park Service entered into a construction
contract for the development of a national historic site. Part of the
contract price was a "contingent sum" of $25,000 for "Force Account
Work," described in the contract as miscellaneous items of a minor
nature not included in the bid schedule. No "Force Account Work" was
to be done except under written orders issued by the contracting
officer. Since a written order was required for the performance of
work, no part of the $25,000 could be recorded as an obligation unless
and until such orders were issued and accepted by the contractor. That
portion of the master contract itself which provided for the Force
Account Work was not sufficiently specific to create an obligation.
In a 1955 case, the Army entered into a contract for the procurement
of lumber. The contract contained a clause permitting a 10 percent
overshipment or undershipment of the quantity ordered. This type of
clause was standard in lumber procurement contracts. The Comptroller
General held that the Army could obligate the amount necessary to pay
for the maximum quantities deliverable under the contract. 34 Comp.
Gen. 596 (1955). Here, the quantity was definite and the government
was required to accept the permissible variation.
In another 1955 case, the General Services Administration had
published in the Federal Register an offer to purchase chrome ore up
to a stated maximum quantity. Formal agreements would not be executed
until producers made actual tenders of the ore. The program published
in the Federal Register was a mere offer to purchase and GSA could not
obligate funds to cover the total quantity authorized. Reason: there
was no mutual assent and therefore no binding agreement in writing
until a producer responded to the offer and a formal contract was
executed. B-125644, Nov. 21, 1955.
So-called "level of effort" contracts are conceptually related to the
"variation in quantity" cases. In one case, the Environmental
Protection Agency entered into a cost-plus-fixed-fee contract for
various services at an EPA facility. The contractor's contractual
obligation was expressed as a "level of effort" in terms of staff-
hours. The contractor was to provide up to a stated maximum number of
direct staff-hours, to be applied on the basis of work orders issued
during the course of the contract. Since the government was obligated
under the contract to order specific tasks, the contract was
sufficiently definitive to justify recording the full estimated
contract amount at the time of award. B-183184, May 30, 1975. See also
58 Comp. Gen. 471, 474 (1979); B-199422, June 22, 1981 (nondecision
letter).
f. Amount to Be Recorded:
As noted previously, where the precise amount of the government's
liability is defined at the time the government enters into the
contract that is the amount to be recorded. For example, in the simple
firm fixed-price contract, the contract price is the recordable
obligation. The possibility that the contractor may not perform up to
the level specified in the contract does not provide a basis for
recording less than the full contract price as the obligation.
However, for many types of obligations, the precise amount of the
government's liability cannot be known at the time the liability is
incurred. As summarized in our preliminary discussion of 31 U.S.C.
§ 1501(a), some initial amount must still be recorded. The agency
should then adjust this initial obligation amount up or down
periodically as more precise information becomes available.[Footnote
12]
GAO decisions, as well as GAO's Policy and Procedures Manual for
Guidance of Federal Agencies,[Footnote 13] indicate that, in general,
the agency should use its best estimate to record the initial amount
where the amount of the government's final liability is undefined.
E.g., 56 Comp. Gen. 414, 418 (1977); 50 Comp. Gen. 589 (1971). Section
3.5.D of the Manual further provides that, where an estimate is used,
the basis for the estimate and the computation must be documented.
For example, in 50 Comp. Gen. 589, GAO considered the accounting
procedures used by the Administrative Office of the United States
Courts (Administrative Office) with respect to paying court-appointed
attorneys in federal criminal cases. GAO held that at the time of
appointment of such attorneys a contractual obligation was created on
the part of the government to pay the reasonable costs of the
representation, although the exact amount of such obligation remained
to be determined. Such obligations must, therefore, be charged against
the appropriations current at the time of appointment. Id. at 590-91.
The proper procedure for charging these obligations was described as
follows:
"Upon the appointment of an attorney by the court, a copy of the order
of appointment is sent to [the Administrative Office] for the purpose
of estimating the obligation to be charged against the current
appropriation. This estimate made by [the Administrative Office] is
based on past average costs per case and the fact that the [Criminal
Justice Act] sets dollar limits on the amount of compensation a court-
appointed attorney may receive."
Id. at 589. The appropriation account current at the time of
appointment was thus charged until the voucher reflecting the actual
costs was approved (which could occur in a subsequent fiscal year), at
which point the estimated amounts were adjusted accordingly.[Footnote
14]
Decisions dealing with certain kinds of contract obligations provide
more specific rules. Under a fixed-price contract with escalation,
price redetermination, or incentive provisions, the amount to be
obligated initially is the fixed price stated in the contract or the
target price in the case, for example, of a contract with an incentive
clause. B-255831, July 7, 1995; 34 Comp. Gen. 418 (1955); B-133170,
Jan. 29, 1975; B-206283-0.M., Feb. 17, 1983. Thus, in an incentive
contract with a target price of $85 million and a ceiling price of
$100 million, the proper amount to record initially as an obligation
is the target price of $85 million. 55 Comp. Gen. 812, 824 (1976). See
also McDonnell Douglas Corp. v. United States, 39 Fed. CL 665 (1997).
The agency must increase or decrease the amount recorded (i.e., the
target price) to reflect price revisions at the time such revisions
are made or determined pursuant to the provisions of the contract. 34
Comp. Gen. at 420-21. When obligations are recorded based on a target
price, the agency should establish appropriate safeguards to guard
against violations of the Antideficiency Act. This usually means the
administrative reservation of sufficient funds to cover potential
liability.
B-255831, July 7, 1995; 34 Comp. Gen. at 420-21; B-206283-0.M., Feb.
17, 1983.
The two recent decisions involving the Corporation for National and
Community Service, discussed previously in section A of this chapter,
held that the Corporation must record the government's full liability
under the grant at the time of grant award. B-300480, Apr. 9, 2003,
aff'd, B-300480.2, June 6, 2003. Under the grant agreements involved,
the Corporation agreed to fund a specified number of AmeriCorps
program participants. This number could be converted into a precise
dollar amount. Thus, the Corporation incurred an obligation to pay the
maximum dollar amount if the grantee fully performed under the grant
agreement and enrolled the specified number of participants. While the
grantee might ultimately fail to enroll the number of participants
called for in the grant agreement, the extent of the grantee's
performance under the grant was entirely within the grantee's control.
The decisions rejected contentions by the Corporation and the Office
of Management and Budget that the initial grant obligation should be
recorded on the basis of estimates that reflected past experience. As
the April 9, 2003 decision observed:
"For purposes of identifying the amount of the
Corporation's obligation at grant award ... the grantee and
subgrantee, by their actions in enrolling participants, ultimately
control the amount of the Corporation's liability. If the amount of
liability of the government is under the control of the grantee, not
the Corporation, the government should obligate funds to cover the
maximum amount of the liability. See, e.g., B-238581, Oct. 31, 1990; B-
197274, Sept. 23, 1983."[Footnote 15]
In this regard, the result in the two 2003 decisions is really no
different from the obligation rule that applies to a simple fixed-
price contract. There, the government incurs a firm obligation to pay
a specified amount provided, of course, that the contractor fully
performs under the contract. The possibility that the contractor may
not perform up to the level specified in the contract does not provide
a basis for recording less than the full contract price as the
obligation.
g. Administrative Approval of Payment:
In some instances, a liability does not arise until the agency
formally reviews and approves a payment. In these instances, of
course, the agency should not record an obligation for payment until
it approves the payment. (The review and approval here refers to a
process in addition to the normal review and approval of the voucher
by a certifying and disbursing officer that is always required.) For
example, under Internal Revenue Service (IRS) regulations, IRS has no
financial liability to its informants until it has evaluated the worth
of the information and assessed and collected any underpaid taxes and
penalties stemming from that information. It is at this point that an
appropriate IRS official determines that a reward should be paid and
its amount, and it is at this point that IRS incurs a recordable
obligation. B-137762.32, July 11, 1977.
In 46 Comp. Gen. 895 (1967), GAO approved the then Veterans
Administration's (VA) practice of recording obligations for fee-basis
outpatient treatment of eligible veterans at the time the agency
administratively approved the vouchers. VA had established a review
and approval process to determine whether the government should accept
liability; therefore, no obligation arose until that time. See also B-
133944, Jan. 31, 1958; B-92679, July 24, 1950.
GAO followed 46 Comp. Gen. 895 in a decision concerning the Defense
Department's TRICARE health care program, B-287619, July 5, 2001. The
decision concluded that the Defense Department did not incur a
liability for the costs of medical services provided under the so-
called "pass through" arrangement of the TRICARE program until the
Department processed and approved a claim—that is, until the
Department determined that the beneficiary was eligible to receive
treatment, the services provided were allowable, and the amount billed
was proper. Thus, claims-approval was the appropriate time at which to
record an obligation.
By way of contrast, the obligation for the expenses of a court-
appointed attorney under the Criminal Justice Act of 1964 (CJA) arises
at the time of appointment, not later when the expenses are approved,
because of the terms of the Act. 50 Comp. Gen. 589 (1971). Under
section 2 of the CJA, as amended, 18 U.S.0 § 3006A, the court's order
of appointment establishes contractual liability, even though the
exact amount of the obligation is not determinable until the
attorney's payment voucher is approved. The court's review of the
voucher is intended only to ensure the reasonableness of the expenses
incurred. Thus, GAO held that payment must be charged to the funds
available for the fiscal year in which the appointment was made.
Beginning with fiscal year 1977 the Judiciary has received no-year
appropriations to pay court appointed attorneys. See Departments of
State, Justice, and Commerce, the Judiciary, and Related Agencies
Appropriation Act, 1977, Pub. L. No. 94-362, title IV, 90 Stat. 937,
953 (July 14, 1976); Consolidated Appropriations Act, 2005, Pub. L.
No. 108-447, div. B, title DI, 118 Stat. 2809, 2892 (Dec. 8, 2004).
h. Miscellaneous Contractual Obligations:
The core issue in many of the previously discussed cases has been when
a given transaction ripens into a recordable obligation, that is,
precisely when the "definite commitment" occurs. Many of the cases do
not fit neatly into categories. Rather, the answer must be derived by
analyzing the nature of the contractual or statutory commitments in
the particular case.
A 1979 case dealt with a lease arrangement entered into by the Peace
Corps in Korea. Under a particular type of lease recognized by Korean
law, the lessee does not make installment rental payments. Instead,
the lessee makes an initial payment of approximately 50 percent of the
assessed valuation of the property. At the end of the lease, the
lessor is required to return the entire initial payment. The lessor
makes his profit by investing the initial payment at the local
interest rate. Since the lease is a binding contractual commitment and
since the entire amount of the initial payment may not be recoverable
for a number of reasons, GAO found it improper to treat the initial
payment as a mere advance or an account receivable (as in the case of
travel advances) and thus not reflected as an obligation. Rather, the
amount of the initial payment must be recorded as an obligation
chargeable to the fiscal year in which the lease is entered into, with
subsequent returns to be deposited in the Treasury as miscellaneous
receipts. B-192282, Apr. 18, 1979.
Several cases deal with court-related obligations. For example, the
obligation for fees of jurors, including retroactive increases
authorized by 28 U.S.C. § 1871, occurs at the time the jury service is
performed. 54 Comp. Gen. 472 (1974). See also the discussion of
attorney fee payments in section B.1.g of this chapter. The recording
of obligations for land commissioners appointed to determine just
compensation in land condemnation cases was discussed in B-184782,
Feb. 26, 1976, and 56 Comp. Gen. 414 (1977).[Footnote 16] The rules
derived from these decisions are as follows:
* The obligation occurs at the time of appointment and is chargeable
to the fiscal year of appointment if a specific case is referred to
the commission in that fiscal year.
* Pendency of an action will satisfy the bona fide needs rule and will
be sufficient to support the obligation even though services are not
actually performed until the following fiscal year.
* Appointment of a "continuous" land commission creates no obligation
until a particular action is referred to it.
* An amended court order increasing the compensation of a particular
commissioner amounts to a new obligation and the full compensation is
chargeable to the appropriation current at the time of the amended
order.
* A valid obligation occurs under the above principles even though the
order of appointment does not expressly charge the costs to the United
States because, under the Constitution, the costs cannot be assessed
against the condemnee.
i. Interagency Transactions:
It is not uncommon for federal agencies to provide goods or services to
other federal agencies. Section 1501 addresses these interagency
transactions in two places. Subsection (a)(3) addresses interagency
orders required by law. We discuss these transactions in section B.3
of this chapter. Subsection (a)(1) addresses the obligational
requirements of all other interagency transactions: "a binding
agreement between an agency and another person (including an agency)"
(emphasis added). To distinguish these other transactions from those
required by law, these transactions are often referred to as
"voluntary orders." This section discusses voluntary orders. Because
voluntary orders are covered by section 1501(a)(1), obligations for
many voluntary orders are recorded in the same manner as for
contracts. However, the authority that governs the interagency
transaction, not contract practices, determines the obligational
treatment of a voluntary order.
(1) Economy Act agreements:
A major source of authority for voluntary interagency agreements is
the Economy Act, 31 U.S.C. §§ 1535, 1536. An Economy Act agreement is
recorded as an obligation of the ordering agency at the time the
ordering agency enters into the agreement.[Footnote 17] However,
Economy Act agreements are subject to one additional requirement.
Under 31 U.S.C. § 1535(d), if the ordering agency obligated a fixed-
year appropriation, the ordering agency must deobligate the obligation
at the end of the fiscal year to the extent that the performing agency
has not incurred an obligation, that is, (1) has not provided the
requested item to the ordering agency, (2) has not performed the
requested service, or (3) has not entered into a valid contract with
another person to provide the requested item or service to the
ordering agency. 39 Comp. Gen. 317 (1959); 34 Comp. Gen. 418, 421-22
(1955). It was, for example, improper for the Library of Congress to
use annual funds transferred to it under Economy Act agreements and
not obligated by it prior to the end of the fiscal year to provide
services in the following fiscal year. GAO, Financial Audit: First
Audit of the Library of Congress Discloses Significant Problems,
GAO/AFMD-91-13 (Washington, D.C.: Aug. 22, 1991). The reason for this
requirement is to prevent the Economy Act from being used to extend
the obligational life of an appropriation beyond that provided by law.
31 Comp. Gen. 83, 85 (1951). The deobligation requirement of 31 U.S.C.
§ 1535(d) does not apply to obligations against no-year
appropriations. 39 Comp. Gen. 317, 319 (1959). For more background
information on obligation and deobligation under the Economy Act, see
Chapter 15, section B.1; B-302760, May 17, 2004; B-288142, Sept. 6,
2001; and B-301561, June 14, 2004 (nondecision letter).
(2) Non-Economy Act agreements:
Where the agreement is based on some statutory authority other than
the Economy Act, the recording of the obligation is still governed by
31 U.S.C. § 1501(a)(1). However, the deobligation requirement of 31
U.S.C. § 1535(d) does not apply. In this situation, the obligation
will remain payable in full from the appropriation initially charged,
regardless of when performance occurs, in the same manner as
contractual obligations generally, subject, of course, to the bona
fide needs rule and to any restrictions in the legislation authorizing
the agreement. E.g., B-302760, May 17, 2004 (interagency agreement
pursuant to 2 U.S.C. § 141(c) for renovation of loading dock); B-
289380, July 31, 2002 (interagency agreement pursuant to the
section 27(g) of the Consumer Product Safety Act, 15 U.S.C. §
2076(g)); B-286929, Apr. 25, 2001 (interagency agreement pursuant to
what is now 40 U.S.C. § 322 for implementation of a declassification
information management system); 51 Comp. Gen. 766 (1972) (interagency
agreement pursuant to section 303(a) of the former Manpower
Development and Training Act of 1962, 42 U.S.C. § 2613(a) (1964) for
training of air traffic controllers). Thus, it is necessary to
determine the specific statutory authority supporting the interagency
agreement in order to properly obligate a requesting agency's
appropriation. The following examples illustrate these principles.
The National Park Service (NPS) of the Department of Interior entered
into a series of agreements during fiscal year 1998 with the National
Resource Conservation Service of the Department of Agriculture to
obtain soil surveys at various NPS locations. Each agreement
delineated specific tasks organized in two or three phases across
several fiscal years, culminating in the publication of a final soil
survey report for each location. GAO concluded that the agreements
were entered into primarily under the authority of 16 U.S.C. § 4601-
1(g) and thus were not subject to the deobligation requirement of 31
U.S.C. § 1535(d). However, since NPS provided insufficient information
for GAO to determine whether the agreements were for severable or
nonseverable services for purpose of complying with the bona fide
needs rule,[Footnote 18] GAO returned the case to NPS in order to make
the requisite determinations and adjust its accounts accordingly. B-
282601, Sept. 27, 1999.
The Administrative Office of United States Courts and the General
Services Administration entered into an agreement during fiscal year
1976 for design and implementation of an automated payroll system that
was authorized by 40 U.S.C. § 759 (1976) (a provision of law that has
since been repealed), rather than the Economy Act. The work was to be
performed during fiscal years 1976 and 1977. Since the agreement met
the requirements of 31 U.S.C. § 1501(a)(1), it was properly recordable
as a valid obligation against fiscal year 1976 funds and was not
subject to 31 U.S.C. § 1535(d). 55 Comp. Gen. 1497 (1976).
The Army Corps of Engineers entered into agreement with Department of
Housing and Urban Development (HUD) to perform flood insurance studies
pursuant to orders placed by HUD. Since the agreement presumably
required the Corps to perform as HUD placed the orders, a recordable
obligation would arise when HUD placed an order under the agreement.
Since the agreement was authorized by the National Flood Insurance
Act,[Footnote 19] rather than the Economy Act, funds obligated by an
order would remain obligated even though the Corps did not complete
performance (or contract out for it) until following the fiscal year.
B-167790, Sept. 22, 1977.
(3) "Binding agreement" requirement:
Regardless of whether the Economy Act or other interagency transaction
authority governs the transaction, a voluntary interagency order is
recordable under 31 U.S.C. § 1501(a)(1) only if it constitutes a
binding agreement that meets the other criteria of that subsection. If
it does, the applicability or nonapplicability of 31 U.S.C. § 1535(d)
then becomes relevant. If it does not, an obligation arises only when
the performing agency has completed the work or has awarded contracts
to have the work done. See 59 Comp. Gen. 602 (1980); 39 Comp. Gen. 829
(1960); 34 Comp. Gen. 705, 708 (1955); 23 Comp. Gen. 88 (1943); B-
193005, Oct. 2, 1978; B-180578-0.M., Sept. 26, 1978. For example,
Military Interdepartmental Procurement Requests (MIPR) are viewed as
authorized by the Economy Act. An MIPR is considered a binding
agreement for obligation purposes under 31 U.S.C. § 1501(a)(1). It is
subject to the deobligation requirement of 31 U.S.C. § 1535(d) and is
thus ultimately chargeable to appropriations current when the
performing component incurs valid obligations. 59 Comp. Gen. 563
(1980); 34 Comp. Gen. 418, 422 (1955).
In B-193005, Oct. 2, 1978, GAO considered the procurement of crude oil
for the Strategic Petroleum Reserve. The Federal Property and
Administrative Services Act of 1949[Footnote 20] authorized the
General Services Administration (GSA) to procure materials for other
federal agencies as well as to delegate such authority. GSA delegated
the authority to procure fuel commodities to the Secretary of Defense,
who redelegated the authority to the Defense Fuel Supply Center
(DFSC). Thus, the Department of Energy (DOE) could procure oil through
the DFSC in a non-Economy Act transaction. An order placed by DOE with
DFSC prior to the expiration of the period of availability of the
appropriation to be charged could be recorded as an obligation against
such appropriation under 31 U.S.C. § 1501(a)(1) if it constituted a
"binding agreement." Further, the appropriation that was obligated
would remain available to liquidate contracts awarded by DFSC. This
result would have been precluded by 31 U.S.C. § 1535(d) had the
transaction been governed by the Economy Act.
In 59 Comp. Gen. 602 (1980), GAO considered the procedure by which the
then Bureau of Alcohol, Tobacco, and Firearms (ATF) ordered "strip
stamps" from the Bureau of Engraving and Printing. (These are the
excise tax stamps one sees pasted across the caps of liquor bottles.)
GAO reviewed pertinent legislation and concluded that ATF was not
"required by law" to procure its strip stamps from the Bureau of
Engraving and Printing. Since individual orders were not binding
agreements, it was immaterial in one important respect whether the
order was governed by the Economy Act or some other law; in neither
event could ATF's funds remain obligated beyond the last day of a
fiscal year to the extent an order remained unfilled. Funds could be
considered obligated at the end of a fiscal year only to the extent
that stamps were printed or in process or that the Bureau of Engraving
and Printing had entered into a contract with a third party to provide
them.
(4) Orders from stock:
The obligational treatment of orders for items to be delivered from
stock of the requisitioned agency derives from 32 Comp. Gen. 436
(1953). An order for items to be delivered from stock is a recordable
obligation if (1) it is intended to meet a bona fide need of the
fiscal year in which the order is placed or to replace stock used in
that fiscal year[Footnote 21] and (2) the order is firm and complete.
To be firm and complete, the order must request prompt delivery of
specific available stock items for a stated consideration and must be
accepted by the supplying agency in writing. "Available" means on hand
or routinely on order. However, acceptance is not required for common-
use stock items which are on hand or on order and will be delivered
promptly.
Materials which are specially manufactured or otherwise created for a
particular purpose in order to satisfy an order are not "stock" 44
Comp. Gen. 695 (1965). Likewise, an order for an item not stocked by
the requisitioned agency (or, if out of stock, not routinely on order)
is not a recordable obligation until the requisitioned agency
purchases the item or executes a contract for it. The reason is that
such an order does not mature into a binding agreement until the
requisitioned agency executes the order or purchases the item(s)
needed to fill it; before then, it is merely an offer subject to
acceptance by the requisitioned agency's performance. B-193005, Oct.
2, 1978. The basic rules in this area were established by
34 Comp. Gen. 705 (1955).
Although the foregoing rules were developed prior to the enactment of
31 U.S.C. § 1501(a)(1), they continue to govern the recording of
obligations under that statute. 34 Comp. Gen. 705; 34 Comp. Gen. 418,
422 (1955).
(5) Project orders:
Historically, "project orders" refer to orders authorized by 41 U.S.C.
§ 23,[Footnote 22] which provides:
"All orders or contracts for work or material or for the manufacture
of material pertaining to approved projects heretofore or hereafter
placed with Government-owned establishments shall be considered as
obligations in the same manner as provided for similar orders or
contracts placed with commercial manufacturers or private contractors,
and the appropriations shall remain available for the payment of the
obligations so created as in the case of contracts or orders with
commercial manufacturers or private contractors."[Footnote 23]
GAO has interpreted this statute, which was derived from earlier
appropriation act provisions for the military departments appearing
shortly after World War I,[Footnote 24] as applying only to
transactions between the military departments and establishments owned
by the Defense Department for work related to military projects. 72
Comp. Gen. 172, 173 (1993); B-95760, June 27, 1950. Thus, the decision
in 72 Comp. Gen. 172 held that the Economy Act, rather than 41 U.S.C.
§ 23, applies to Defense Department transactions with other federal
agencies, in this case a Department of Defense request for research
assistance from the Library of Congress.
A project order is a valid and recordable obligation when the order is
issued and accepted, regardless of the fact that performance may not
be accomplished until after the expiration of the fiscal year. 1 Comp.
Gen. 175 (1921); B-135037-0.M., June 19, 1958. The statute does not,
however, authorize the use of the appropriations so obligated for the
purpose of replenishing stock used in connection with the order. A-
25603, May 15, 1929. The requirement of specificity applies to project
orders the same as any other recordable obligations under 31 U.S.C. §
1501(a)(1). B-126405, May 21, 1957.
Since a project order is not an Economy Act transaction, the
deobligation requirement of 31 U.S.C. § 1535(d) does not apply. 34
Comp. Gen. 418, 422 (1955). See also 16 Comp. Gen. 752 (1937). Also,
unlike the Economy Act, 41 U.S.C. § 23 does not authorize advance
payment. Thus, advance payment for project orders is not authorized
unless permitted by some other statute. B-95760, June 27, 1950.
2. Section 1501(a)(2): Loans:
Under 31 U.S.C. § 1501(a)(2), a recordable obligation exists when
there is documentary evidence of "a loan agreement showing the amount
and terms of repayment."
A loan agreement is essentially contractual in nature. Thus, to have a
valid obligation, there must be a proposal by one party and an
acceptance by another. Approval of the loan application must be
communicated to the applicant within the fiscal year sought to be
charged, and there must be documentary evidence of that communication.
B-159999-0.M., Mar. 16, 1967. Where a loan application is made in one
fiscal year and approval is not communicated to the applicant until
the following fiscal year, the obligation is chargeable to the later
year. Id.; B-159999-0.M., Dec. 14, 1966.
Telegraphic notification of approval of a loan application where the
amount of the loan and terms of repayment are thereby agreed upon is
legally acceptable. B-159999-0.M., Dec. 14, 1966.
To support a recordable obligation under section 1501(a)(2), the
agreement must be sufficiently definite and specific, just as in the
case of section 1501(a)(1) obligations. To illustrate, the United
States and the government of Brazil entered into a loan agreement in
1964. As a condition precedent to any disbursement under the
agreement, Brazil was to furnish a statement covering utilization of
the funds. The funds were to be used for various economic and social
development projects "as may, from time to time, be agreed upon in
writing" by the governments of the United States and Brazil While the
loan agreement constituted a valid binding contract, it was not
sufficiently definite or specific to validly obligate fiscal year 1964
funds. The basic agreement was little more than an "agreement to
agree," and an obligation of funds could arise only when a particular
"utilization statement" was submitted and approved. B-155708-0.M.,
Apr. 26, 1965.
Prior to fiscal year 1992, the amount to be recorded in the case of a
loan was quite simple-—the face amount of the loan. From the budgetary
perspective, however, this was undesirable because the obligation was
indistinguishable from any other cash outlay. By disregarding at the
obligational stage the fact that loans are supposed to be repaid, this
treatment did not reflect the true cost to the government of direct
programs. Congress addressed the situation in the Federal Credit
Reform Act of 1990 (FCRA), Pub. L. No. 101-508, § 13201, 104 Stat.
1388, 1388-609 (Nov. 5, 1990), codified at 2 U.S.C. §§ 661-661f). The
general approach of the FCRA is to require the advance provision of
budget authority to cover the subsidy portion of direct loans (in
recognition of the fact that not all loans are repaid), with the non-
subsidy portion (the portion expected to be repaid) financed through
borrowings from the Treasury. The Office of Management and Budget has
issued detailed instructions for implementing the FCRA's requirements
that appear in OMB Circular No. A-11, Preparation, Submission, and
Execution of the Budget, part 5 (June 21, 2005).[Footnote 25]
The FCRA defines "direct loan" as "a disbursement of funds by the
Government to a non-Federal borrower under a contract that requires
the repayment of such funds with or without interest." 2 U.S.C. §
661a(1). A "direct loan obligation" is "a binding agreement by a
Federal agency to make a direct loan when specified conditions are
fulfilled by the borrower." Id. § 661a(2). The "cost" of a direct loan
is the estimated long-term cost to the government, taking into
consideration disbursements and repayments, calculated on a net
present value basis at the time of disbursement. Id. § 661a(5).
Unless otherwise provided by statute, new direct loan obligations may
be incurred only to the extent that budget authority to cover the
subsidy costs is provided in advance. 2 U.S.C. § 661c(b). Under this
provision, the typical appropriation will include both an
appropriation of budget authority for the subsidy costs and a program
ceiling (total face amount of loans supportable by the cost
appropriation). The appropriation is made to a "program account." When
a direct loan obligation is incurred, its cost is obligated against
the program account. See generally OMB Cir. No. A-11, at § 185.10. The
actual funding is done through a revolving, nonbudget "financing
account." Loan repayments are credited to the financing account. See
generally OMB Cir. No. A-11, at § 185.11. The overobligation or
overexpenditure of either the loan subsidy or the credit level
supportable by the enacted subsidy violates the Antideficiency Act.
See OMB Cir. No. A-11, at § 145.3.
3. Section 1501(a)(3): Interagency Orders Required by Law:
The third standard for recording obligations, 31 U.S.C. § 1501(a)(3),
is "an order required by law to be placed with [a federal] agency."
Subsection (a)(3) means exactly what it says. An order placed with
another government agency is recordable under this subsection only if
it is required by statute or statutory regulation to be placed with
the other agency. The subsection does not apply to orders that are
merely authorized rather than required. 34 Comp. Gen. 705 (1955).
An order required by law to be placed with another agency is not an
Economy Act transaction. Therefore, the deobligation requirement of
31 U.S.C. § 1535(d) does not apply. 35 Comp. Gen. 3, 5 (1955). The
fact that the work will be performed in the next fiscal year does not
defeat the obligation as long as the bona fide need test is met. B-
302760, May 17, 2004; 59 Comp. Gen. 386 (1980); 35 Comp. Gen. 3. Also,
the fact that the work is to be accomplished and reimbursement made
through use of a revolving fund is immaterial. 35 Comp. Gen. 3; 34
Comp. Gen. 705.
A common example of "orders required by law" is printing and binding
to be done by the Government Printing Office (GPO). 44 U.S.C. § 501.
[Footnote 26] The rule is that a requisition for printing services may
be recorded as an obligation when placed if (1) there is a present
need for the printing and (2) the requisition is accompanied by copy
or specifications sufficient for GPO to proceed with the job.
Thus, a requisition by the Commission on Fine Arts for the printing of
"Sixteenth Street Architecture, Volume I" placed with GPO in fiscal
year 1977 and accompanied by manuscript and specifications obligated
fiscal year 1977 funds and was chargeable in its entirety to fiscal
year 1977, notwithstanding that the printing would be done in the
following fiscal year. 59 Comp. Gen. 386 (1980). However, a
requisition for U.S. Travel Service sales promotional literature
placed with GPO near the end of fiscal year 1964 did not obligate
fiscal year 1964 funds where no copy or manuscript was furnished to
GPO until fiscal year 1965. 44 Comp. Gen. 695 (1965). For other
printing cases illustrating these rules, see 29 Comp.
Gen. 489 (1950); 23 Comp. Gen. 82 (1943); B-154277, June 5, 1964; B-
123964, Aug. 23, 1955; B-114619, Apr. 17, 1953; B-50663, June 30,
1945; B-35807, Aug. 10, 1943; B-34888, June 21, 1943.
After an agency certifies that it requires the services of GPO, the
Public Printer is required to furnish an estimate of the cost of the
services to the ordering agency, which then may make a requisition for
performance from GPO. The estimate is the amount that the ordering
agency should obligate against its appropriation and establishes a
ceiling that GPO may not exceed without first providing the ordering
agency a new estimate and obtaining a requisition from an authorized
official of the ordering agency. 44 U.S.C. §§ 1102(c), 1103. Thus GPO
was not authorized to exceed its estimate of $14,000 and incur
expenses amounting to $304,334 without first notifying and obtaining
the approval of an authorized official of the requisitioning agency,
in this case the Environmental Protection Agency. B-259208, Mar. 6,
1996. Further, the printing estimate alone, even if written, is not
sufficient to create a valid and recordable obligation unless it is
accompanied by the placement of an order. B-182081, Jan. 26, 1977,
aff'd, B-182081, Feb. 14, 1979. In the cited decision, there was no
valid obligation before the ordering commission went out of existence
and its appropriations ceased to be available for further obligation.
Therefore, there was no appropriation available to reimburse GPO for
work done under the invalid purported obligation.
GPO is required by law to print certain congressional materials such
as the Congressional Record, and receives a "Printing and Binding"
appropriation for this purpose. For items such as these where no
further request or authorization is required, a copy of the basic law
authorizing the printing and a copy of the appropriation constitute
the obligating documents. B-123964, Aug. 23, 1955.
Another common "order required by law" situation is building
alteration, management, and related services to be performed by the
General Services Administration. For example, a job order by the
Social Security Administration for building repairs validly obligated
funds of the fiscal year in which the order was placed, by virtue of
subsection (a)(3), notwithstanding that GSA was unable to perform the
work until the following fiscal year. 35 Comp. Gen. 3 (1955). See also
B-158374, Feb. 21, 1966. However, this result assumes compliance with
the bona fide need concept. Thus, an agreement for work incident to
the relocation of Federal Power Commission employees placed in fiscal
year 1971 did not validly obligate fiscal year 1971 funds where it was
clear that the relocation was not required to, and would not, take
place, nor would the space in question be made tenantable, until the
following fiscal year. B-95136-0.M., Aug. 11, 1972. Orders placed with
GSA are further discussed in 34 Comp. Gen. 705 (1955).
As noted earlier, GAO has expressed the view that the recording
criteria of 31 U.S.C. § 1501(a) should be followed in evaluating
obligations of the government of the District of Columbia. Thus,
orders by a department of the District of Columbia government for
repairs and improvements which are required by statute or statutory
regulation to be placed with the District of Columbia Department of
General Services and performed through use of the Repairs and
Improvements Working Fund create valid obligations when the orders are
placed. B-180578-0.M., Sept. 26, 1978.
4. Section 1501(a)(4): Orders without Advertising:
The fourth recording standard in 31 U.S.C. § 1501(a)(4) is:
"an order issued under a law authorizing purchases without advertising:
(A) when necessary because of a public exigency;
(B) for perishable subsistence supplies; or;
(C) within specific monetary limits."
Subsection (a)(4) is limited to statutorily authorized purchases
without advertising in the three situations specified. The subsection
must be self-explanatory as there appear to be no Comptroller General
decisions under it.
5. Section 1501(a)(5): Grants and Subsidies:
The fifth recording standard in 31 U.S.C. § 1501(a)(5) requires that
the obligation be supported by documentary evidence of a grant or
subsidy payable:
"(A) from appropriations made for payment of, or contributions to,
amounts required to be paid in specific amounts fixed by law or under
formulas prescribed by law;
"(B) under an agreement authorized by law; or:
"(C) under plans approved consistent with and authorized by law."
The recording statute refers to grants and subsidies although federal
assistance may be characterized in many ways. See Chapters 10 and 11,
respectively, for a more comprehensive discussion of the concepts of
federal assistance in the form of grants and cooperative agreements
and federal assistance in the form of guaranteed and insured loans.
a. Grants:
In order to properly obligate an appropriation for an assistance
program, some action creating a definite liability against the
appropriation must occur during the period of the obligational
availability of the appropriation. In some situations, the obligating
action under section 1501(a)(5) involves a discretionary action by an
agency of awarding a grant that is evidenced by a grant agreement. The
particular document will vary and may be in the form of an agency's
approval of a grant application or a letter of commitment. See B-
289801, Dec. 30, 2002; 39 Comp. Gen. 317 (1959); 37 Comp. Gen. 861,
863 (1958); 31 Comp. Gen. 608 (1952); B-128190, June 2, 1958; B-
114868.01-0.M., Mar. 17, 1976.
Generally, in order to properly obligate federal assistance funds,
there must be some action to establish a firm commitment on the part
of the United States. This commitment must be unconditional. 50 Comp.
Gen. 857, 862 (1971). There must be documentary evidence of the grant
award and this requirement is not satisfied by the mere reservation or
earmarking of amounts in accounting records for the purpose of having
them available should an application for a grant be submitted and
approved. Champaign County, Illinois v. United States Law Enforcement
Assistance Administration, 611 F.2d 1200 (7th Cir. 1979); B-126372,
Sept. 18, 1956. Finally, the award terms must be communicated to the
official grantee, and where the grantee is required to comply with
certain prerequisites, such as putting up matching funds, the
prerequisite must also be accepted by the grantee during the period of
availability of the grant funds.
An illustration of this latter requirement is B-220527, Dec. 16, 1985.
The Economic Development Administration made an "offer of grant" to a
Connecticut municipality that would have required a substantial outlay
of funds by the municipality. The offer was accepted by a town
official who had no authority to accept the grant. By its own
municipal ordinance, only the town council could accept a grant offer.
By the time the town marshaled the resources to fulfill its
obligations under the grant and the unauthorized acceptance was
ratified by the town council, the federal funds had expired for
obligational purposes. GAO held that no valid grant obligation on the
part of the government had ever been made. See also B-164990, Jan. 10,
1969, finding an attempted obligation invalid where the program
legislation required approval of a proposed grant by the state
governor and he had not yet agreed, even though the award instruments
had already been executed.
Applying the above principles, the Comptroller General found that a
document entitled "Approval and Award of Grant" used by the Economic
Development Administration was sufficient for recording grant
obligations under the local public works program because it "reflects
the Administration's acceptance of a grant application; specifies the
project approved and the amount of funding; and imposes a deadline for
affirmation by the grantee." B-126652, Aug. 30, 1977. Once the
appropriation has been properly obligated, performance by the grantee
and the actual disbursement of funds may extend beyond the period of
obligational availability. B-300480, Apr. 9, 2003, aff'd, B-300480.2,
June 6, 2003; B-289801, Dec. 30, 2002; 31 Comp. Gen. 608, 610 (1952);
20 Comp. Gen. 370 (1941); B-37609, Nov. 15, 1943; B-24827, Apr. 3,
1942; B-124374-0.M., Jan. 26, 1956.
If the above requirements are not met, then the appropriation is not
obligated. Thus, the Comptroller General determined that the attempted
obligation was invalid in B-164990, Sept. 6, 1968, where the grantee
corporation was not in existence when the obligation was recorded.
Also, the relevant program legislation must be examined to see if
there are any additional requirements.
In other situations, the obligating action for purposes of 31 U.S.C.
§ 1501(a)(5)(A) may take place by operation of law under a statutory
formula grant or by virtue of actions authorized by law to be taken by
others that are beyond the control of the agency (even when the
precise amount of the obligation is not determined until a later
time). When this occurs, the documentary evidence used to support the
accounting charge against the appropriation is a reflection of, not
the creation of, the obligation under the particular law and usually
is generated subsequent to the time that the actual obligation arose.
63 Comp. Gen. 525 (1984); B-164031(3).150, Sept. 5, 1979. Thus where
an agency is required to allocate funds to states on the basis of a
statutory formula, the formula establishes the obligation to each
recipient rather than the agency's allocation since, if the allocation
is erroneous, the agency must adjust the amounts paid each recipient.
41 Comp. Gen. 16 (1961); B-164031(3).150, Sept. 5, 1979.
The rules for deobligation and reobligation of assistance funds are
the same as for other obligations generally. Program legislation in a
given case may, of course, provide for different treatment. For
example, B-211323, Jan. 3, 1984, considered a provision of the Public
Works and Economic Development Act of 1965[Footnote 27] under which
funds apportioned to states remained available to the state until
expended. Under that particular provision, funds deobligated as the
result of a cost underrun could be reobligated by the state, without
fiscal year limitation, for purposes within the scope of the program
statute. For a discussion of obligation and deobligation of funds
under the now defunct Comprehensive Employment and Training Act (the
predecessor of the Job Training Partnership Act) in the context of the
Impoundment Control Act, see B-200685, Apr. 27, 1981.
b. Subsidies:
There have been relatively few cases dealing with the obligational
treatment of subsidies, although the principles should parallel those
for grants since they both derive from 31 U.S.C. § 1501(a)(5). This
may be explained by the fact that some courts when confronted with the
necessity to determine the meaning of "subsidy" (when used in a
statute that does not define the word) have done so in a manner that
is remarkably similar to the commonly used definitions of a grant.
(See the discussion of grants in Chapter 10, section B). Thus a
subsidy has been defined as "a grant of public funds or property by a
government to a private person to assist in establishment or support
of an enterprise deemed advantageous to public..." In re Hooper's
Estate, 359 F.2d 569, 575-76 Ord Cir.), cert. denied sub. nom, 385
U.S. 903 (1966). See also Satellite Broadcasting & Communications
Ass'n of America v. FCC, 146 F. Supp. 2d 803, 829-30 (E.D. Va.), affd,
275 F.3d 337 (4th Cir. 2001), cert. denied, 536 U.S. 922 (2002);
Kennecott Copper Corp. v. State Tax Commission, 60 E Supp. 181 (D.
Utah 1944) rev'd, 150 F.2d 905 (10th Cir. 1945), aff'd, 327 U.S. 573
(1946); Los Angeles County v. State Department of Public Health, 322
P.2d 968, 973 (Cal. App. 2nd Dist. 1958).
The few GAO decisions in this area treat subsidies in a manner similar
to grants for obligational purposes. In 50 Comp. Gen. 857 (1971) GAO
considered legislation authorizing the former Federal Home Loan Bank
Board to make "interest adjustment" payments to member banks. The
payments were designed to adjust the effective rates of interest
charged by member banks on short- and long-term borrowing, the
objective being to stimulate residential construction for low- and
middle-income families. Funds were appropriated to the Board for this
purpose on a fiscal year basis. GAO concluded that an obligation arose
for purposes of 31 U.S.C. § 1501(a)(5) when a Federal Home Loan Bank
made a firm and unconditional commitment in writing to a member
institution, provided that the commitment letter included a reasonable
expiration date. The funds would have to be deobligated to the extent
that a member institution failed to execute loans prior to the
specified expiration date.
In 65 Comp. Gen. 4 (1985), GAO advised the Department of Education
that mandatory interest subsidies under the Guaranteed Student Loan
Program should be recorded as obligations on a "best estimate" basis
as they arise, even if the recordings would exceed available budgetary
resources. Since the subsidies are not discretionary obligations but
are imposed by law, there would be no Antideficiency Act violation.
The decision overruled an earlier case (B-126372, Sept. 18, 1956)
which had held that the recording of obligations for mail rate
subsidies to air carriers could be deferred until the time of payment.
65 Comp. Gen. at 8 n.3.
In 64 Comp. Gen. 410 (1985), GAO considered obligations by the
Department of Housing and Urban Development for operating subsidies to
state public housing authorities for low-income housing projects.
Under the governing statute and regulations, the amount of the subsidy
was determined upon HUD's approval of the state's annual operating
budget, although the basic commitment stemmed from an annual
contribution contract. HUD's practice, primarily for states whose
fiscal year coincides with that of the federal government, was to
record the obligation on the basis of an estimate, issued in a letter
of intent. GAO found this to be legally permissible, but cautioned
that HUD was required to adjust the obligation up or down once it
approved the operating budget.
A 1983 decision, B-212145, Sept. 27, 1983, discusses the use of
estimates subject to subsequent adjustment for the recording of
obligations for payments in lieu of taxes under 31 U.S.C. §§ 6901-6906.
From the perspective of the recording of obligations, these two
decisions-64 Comp. Gen. 410 and B-212145—are simply applications of
the general principle, previously noted, that best estimates should be
recorded when more precise information is not available, subject to
later adjustment.
For additional discussion see Chapter 5, section B.10, relating to the
application of the bona fide needs rule to grants and cooperative
agreements and Chapter 10 relating to the obligation of appropriations
for grants.
6. Section 1501(a)(6): Pending Litigation:
The sixth standard for recording obligations is "a liability that may
result from pending litigation." 31 U.S.C. § 1501(a)(6).
Despite its seemingly broad language, subsection (a)(6) has very
limited application. Most judgments against the United States are paid
from a permanent indefinite appropriation, 31 U.S.C. § 1304.
Accordingly, since the expenditure of agency funds is not involved,
judgments payable under 31 U.S.C. § 1304 have no obligational impact
on the respondent agency.
Not all judgments against the United States are paid from the
permanent judgment appropriation. Several types are payable from
agency funds. However, the mere fact that a judgment is payable from
agency funds does not make it subject to subsection (a)(6). Thus far,
the Comptroller General has applied subsection (a)(6) in only two
situations—land condemnation (35 Comp. Gen. 185 (1955)) and certain
impoundment litigation (54 Comp. Gen. 962 (1975)). In land
condemnation proceedings, the appropriation is obligated when the
request is made to the Attorney General to institute the proceedings.
34 Comp. Gen. 418, 423 (1955); 34 Comp. Gen. 67 (1954);
17 Comp. Gen. 664 (1938); 4 Comp. Gen. 206 (1924). In impoundment
litigation, the Comptroller General has held that when the impounded
balance is obligated under subsection (a)(6) as a liability which
might result from the pending litigation, the balance so obligated may
be used without further appropriation action. 54 Comp. Gen. 962.
However, with limited exceptions, pending litigation itself does not
create an obligation against the United States for purposes of section
1501(a)(6). Rochester Pure Waters District v. EPA, 960 F.2d 180, 186
(D.C. Cir. 1992) (citing 35 Comp. Gen. 185 and 54 Comp. Gen. 962). The
plaintiff in Rochester sought an injunction to restore appropriated
funds that Congress had rescinded pending adjudication of a claim the
plaintiff was pursuing against the Environmental Protection Agency
that would have been payable from the rescinded funds. The court held
that it lacked statutory or constitutional authority to grant the
requested relief.
As stated in 35 Comp. Gen. at 187, subsection (a)(6) requires
recording an obligation in cases where the government is definitely
liable for the payment of money out of available appropriations and
the pending litigation is for the purpose of determining the amount of
the government's liability. Thus, for judgments payable from agency
appropriations in other than land condemnation and impoundment cases,
the standard of 35 Comp. Gen. 185 should be applied to determine
whether an obligation must be recorded.
In cases where a judgment will be payable from agency funds but
recording is not required, 35 Comp. Gen. 185 suggested that the agency
should nevertheless administratively reserve sufficient funds to cover
the contingent liability to avoid a possible violation of the
Antideficiency Act. Id. at 187. While the administrative reservation
may still be a good idea for other reasons, the majority of more
recent cases (cited and summarized in Chapter 6, section C.2.f under
the heading "Intent/Factors Beyond Agency Control") have taken the
position that overobligations resulting from court-ordered payments do
not violate the Antideficiency Act.[Footnote 28]
It should be apparent that the preceding discussion applies to money
judgments-—judgments directing the payment of money. 62 Comp.
Gen. 527 (1983); 61 Comp. Gen. 509 (1982). In some types of
litigation, a court may order an agency to take some specific action.
While compliance will result in the expenditure of agency funds, this
type of judgment is not within the scope of 35 Comp. Gen. 185. While
we have found no cases, it seems clear from the application of 31
U.S.C. § 1501(a) in other contexts that no recordable obligation would
arise while this type of litigation is still "pending."
7. Section 1501(a)(7): Employment and Travel:
Under 31 U.S.C. § 1501(a)(7), obligations are recordable when
supported by documentary evidence of "employment or services of
persons or expenses of travel under law," which covers a variety of
loosely related obligations.
a. Wages, Salaries, Annual Leave:
Salaries of government employees, as well as related items that flow
from those salary entitlements such as retirement fund contributions,
are obligations at the time the salaries are earned, that is, when the
services are rendered. B-303961, Dec. 6, 2004; B-302911, Sept. 7,
2004; B-287619, July 5, 2001; 24 Comp. Gen. 676, 678 (1945). For
example, in 38 Comp. Gen. 316 (1958), the Commerce Department wanted
to treat the salaries of employees performing administrative and
engineering services on highway construction projects as part of the
construction contract costs. Under this procedure, the anticipated
expenses of the employees, salaries included, would be recorded as an
obligation at the time a contract was awarded. However, the
Comptroller General held that this would not constitute a valid
obligation under 31 U.S.C. § 1501. The employee expenses were not part
of the contract costs and could not be obligated before the services
were performed.
Section 1501(a)(7) is not limited to permanent federal employees. It
applies as well to persons employed in other capacities, such as
temporary or intermittent employees or persons employed under a
personal services contract. In Kinzley v. United States, 661 F.2d 187
(Ct. Cl. 1981), for example, the court found various agency
correspondence sufficient compliance with subsection (a)(7) to permit
a claim for compensation for services rendered as a project
coordinator. Unlike subsection (a)(1), the court pointed out,
subsection (a)(7) does not require a binding agreement in writing
between the parties, but only documentary evidence of "employment or
services of persons." Id. at 191.
For persons compensated on an actual expense basis, it may be
necessary to record the obligation as an estimate, to be adjusted when
the services are actually performed. Documentation requirements to
support the obligation or subsequent claims are up to the agency.
E.g., B-217475, Dec. 24, 1986.
When a pay increase is granted to wage board employees, the effective
date of the increase is governed by 5 U.S.C. § 5344. This effective
date determines the government's liability to pay the additional
compensation. Therefore, the increase is chargeable to appropriations
currently available for payment of the wages for the period to which
the increases apply. B-287619, July 5, 2001; 39 Comp. Gen. 422 (1959).
This is true regardless of the fact that appropriations may be
insufficient to discharge the obligation and the agency may not yet
have had time to obtain a supplemental appropriation. The obligation
in this situation is considered "authorized by law" and therefore does
not violate the Antideficiency Act. 39 Comp. Gen. at 426.
Annual leave status "is synonymous with a work or duty status." 25
Comp. Gen. 687 (1946). As such, annual leave obligates appropriations
current at the time the leave is taken. Id.; 50 Comp. Gen. 863, 865
(1971); 17 Comp. Gen. 641 (1938). Except for employees paid from
revolving funds (25 Comp. Gen. 687), or where there is some statutory
indication to the contrary (B-70247, Jan. 9, 1948), the obligation for
terminal leave is recorded against appropriations for the fiscal year
covering the employee's last day of active service. 25 Comp. Gen. at
688; 24 Comp. Gen. 578, 583 (1945).
Bonuses such as performance awards or incentive awards obligate
appropriations current at the time the awards are made. Thus, for
example, where performance awards to Senior Executive Service
officials under 5 U.S.C. § 5384 were made in fiscal year 1982 but
actual payment had to be split between fiscal year 1982 and fiscal
year 1983 to stay within statutory compensation ceilings, the entire
amount of the awards remained chargeable to fiscal year 1982 funds. 64
Comp. Gen. 114, 115 n. 2 (1984). The same principle would apply to
other types of discretionary payments; the administrative
determination creates the obligation. E.g., B-80060, Sept. 30, 1948.
Employees terminated by a reduction in force (RIF) are entitled by
statute to severance pay. 5 U.S.C. § 5595. Severance pay is obligated
on a pay period by pay period basis. Thus, where a RIF occurs near the
end of a fiscal year and severance payments will extend into the
following fiscal year, it is improper to charge the entire amount of
severance pay to the fiscal year in which the RIF occurs. B-200170,
July 28, 1981.
GAO reached a different result in B-200170, Sept. 24, 1982. The United
States Metric Board was scheduled to terminate its existence on
September 30, 1982. Legislative history indicated that the Board's
fiscal year 1982 appropriation was intended to include severance pay,
and no appropriations had been requested for fiscal year 1983. Under
these circumstances, severance payments to be made in fiscal year 1983
were held chargeable to the fiscal year 1982 appropriation. A contrary
result would have meant that the fiscal year 1982 funds would expire,
and Congress would have had to appropriate the same funds again for
fiscal year 1983.
b. Compensation Plans in Foreign Countries:
By statute, the State Department is required to establish compensation
plans for foreign national employees of the Foreign Service in foreign
countries. The plans are to be "based upon prevailing wage rates and
compensation practices ... for corresponding types of positions in the
locality of employment," to the extent consistent with the public
interest. 22 U.S.C. § 3968(a)(1).
Under subsection (b) of 22 U.S.C. § 3968, other government agencies
are authorized to administer foreign national employee compensation
programs in accordance with the applicable provisions of the Foreign
Service Act. This provision, for example, authorized the Defense
Department to establish a pension and life insurance program for
foreign national employees in Bermuda, provided that it corresponded
to prevailing local practice. 40 Comp. Gen. 650 (1961).
Section 3968(c) of title 22, United States Code, authorizes the
Secretary of State to prescribe regulations for local compensation
plans applicable to all federal agencies. To the extent this authority
is not exercised, however, the statute does not otherwise require that
a plan established by another agency conform to the State Department's
plan. An agency establishing a local plan should, to the extent not
regulated by State, coordinate with other agencies operating in the
locality. 40 Comp. Gen. at 652. (As a practical matter, two agencies
operating in the same locality should not develop substantially
different plans, assuming both legitimately reflect prevailing local
practice.)
To the extent the authority of 22 U.S.C. § 3968 is exercised in a
given country, the obligational treatment of various elements of
compensation may vary from what would otherwise be required. For
example, Colombian law provides for the advance payment of accrued
severance pay to help the employee purchase or make improvements on a
home. Thus, under a compensation plan for foreign national employees
in Colombia, severance pay would be recorded as an obligation against
the fiscal year appropriation current at the time of accrual. B-
192511, Feb. 5, 1979.
While 22 U.S.C. § 3968 authorizes compensation plans based on local
practice, it does not permit automatic disregard of all other laws of
the United States. Thus, under the Colombian severance pay program
noted above, if the employee subsequently is terminated for cause or
otherwise loses eligibility, the agency must proceed with collection
action under the Federal Claims Collection Act, local practice to the
contrary notwithstanding. B-192511, June 8, 1979. Similarly, accrued
severance pay retains its status as United States funds up to actual
disbursement and is therefore subject to applicable fiscal and fund
control requirements. B-199722, Sept. 15, 1981 (severance pay plan in
Jordan).
In several foreign countries, foreign nationals employed by the United
States are entitled to be paid a "separation allowance" when they
resign, retire, or are otherwise separated through no fault of their
own. The allowance is based on length of service, rate of pay at time
of separation, and type of separation. Unlike severance pay for
federal employees, these separation allowances represent binding
commitments which accrue during the period of employment. As such,
they should be recorded as obligations when they are earned rather
than when they are paid. GAO, FGMSD-76-25 (Washington, D.C.: Oct. 17,
1975); FGMSD-75-20 (Washington, D.C.: Feb. 13, 1975); Substantial
Understatements of Obligations for Separation Allowances for Foreign
National Employees, B-179343, (Washington, D.C.: Oct. 21, 1974).
(These three items are GAO reports, the first two being untitled
letter reports.) See also B-226729, May 18, 1987; B-192511, Feb. 5,
1979.
c. Training:
The obligation for training frequently stems from a contract for
services and to that extent is recordable under subsection (a)(1)
rather than subsection (a)(7) of 31 U.S.C. § 1501. The rules for
training obligations are summarized in Chapter 5, section B.5.
d. Uniform Allowance:
The Federal Employees Uniform Act, 5 U.S.C. § 5901, authorizes a
uniform allowance for each employee required by statute or regulation
to wear a uniform. The agency may furnish the uniform or pay a cash
allowance. Where an agency elects to pay an allowance, the obligation
arises when the employee incurs the expense and becomes entitled to
reimbursement. Thus, the appropriation chargeable is the one currently
available at the time the employee makes the expenditure or incurs the
debt. 38 Comp. Gen. 81 (1958).
e. Travel Expenses:[Footnote 29]
The obligation of appropriations for expenses relating to travel was
an extremely fertile area and generated a large number of decisions
before 31 U.S.C. § 1501 was enacted. The cases seem to involve every
conceivable permutation of facts involving trips or transactions
covering more than one fiscal year. The enactment of 31 U.S.C. § 1501
logically prompted the question of how the new statute affected the
prior decisions. It did not, replied the Comptroller General. Thus,
the starting point is that subsection (a)(7) incorporates prior GAO
decisions on obligations for travel. 35 Comp. Gen. 183 (1955); 34
Comp. Gen. 459 (1955).
The leading case in this area appears to have been 35 Comp. Gen. 183,
which states the pertinent rules. The rules for travel may be
summarized as follows: The issuance of a travel order in itself does
not constitute a contractual obligation. The travel order is merely an
authorization for the person specified to incur the obligation. The
obligation is not incurred until the travel is actually performed or
until a ticket is purchased, provided in the latter case the travel is
to be performed in the same fiscal year the ticket is purchased. 35
Comp. Gen. at 185. A 1991 decision, 70 Comp. Gen. 469, reaffirmed the
principle that the expenses of temporary duty travel are chargeable to
the fiscal year or years in which they are actually incurred.
Some of the earlier cases in this evolutionary process are as follows:
* Where tickets are purchased in one fiscal year and the travel is
performed in the following fiscal year, the obligation is chargeable
to the year in which the travel is performed, even though early
purchase of the tickets may have been necessary to assure
reservations. 27 Comp. Gen. 764 (1948); 26 Comp. Gen. 131 (1946).
* A "continuous journey" involving more than one segment obligates
funds of the fiscal year in which the ticket was purchased, as long as
the trip starts in that same fiscal year. However, procurement of
transportation en route is a new obligation. Similarly, a round-trip
ticket obligates funds at the time of purchase as long as the trip
starts in the same fiscal year. However, if the return portion of the
ticket cannot be used and a separate return ticket must be purchased,
a new obligation is created. 26 Comp. Gen. 961 (1947); A-36450, May
27, 1931.
* Per diem incident to official travel accrues from day to day. Per
diem allowances are chargeable to appropriations current when the
allowances accrue (i.e., when the expenditures are made). Thus, where
travel begins in one fiscal year and extends into the next fiscal
year, the per diem obligation must be split along fiscal year lines,
even though the cost of the travel itself may have been chargeable in
its entirety to the prior fiscal year. 23 Comp. Gen. 197 (1943).
* Reimbursement on a mileage basis is chargeable to the fiscal year in
which the major portion of the travel occurred. If travel is begun
sufficiently prior to the end of a fiscal year to enable the employee
to complete a continuous journey before the close of the fiscal year,
the obligation is chargeable entirely to that year. However, if the
travel is begun so late in the fiscal year that the major portion of
it is performed in the succeeding fiscal year, it is chargeable to
appropriations for the succeeding year. 9 Comp. Gen. 458, 460 (1930);
2 Comp. Dec. 14 (1895).
* Where (1) an employee is authorized to travel by privately owned
vehicle at not to exceed the constructive cost of similar travel by
rail, (2) the trip starts in one fiscal year and extends into the
following fiscal year, and (3) the journey would have been completed
in the prior year had rail travel been used, the travel expense is
chargeable to the fiscal year in which the travel began. 30 Comp. Gen.
147 (1950).
Other cases involving obligations for travel expenses are: 16 Comp.
Gen. 926 (1937); 16 Comp. Gen. 858 (1937); 5 Comp. Gen. 1 (1925);
26 Comp. Dec. 86 (1919); B-134099, Dec. 13, 1957; A-30477, Apr. 20,
1939; A-75086, July 29, 1936; A-69370, Apr. 10, 1936.
f. State Department: Travel Outside Continental United States:
By virtue of 22 U.S.C. § 2677, appropriations available to the State
Department for travel and transportation outside the continental United
States "shall be available for such expenses when any part of such
travel or transportation begins in one fiscal year pursuant to travel
orders issued in that year, notwithstanding the fact that such travel
or transportation may not be completed during that same fiscal year."
This provision appeared in appropriation acts starting in 1948 and was
subsequently made permanent and codified. It has the effect of
excluding State Department travel or transportation outside the
continental United States from some of the earlier decisions. The
authority is permissive rather than mandatory. 42 Comp. Gen. 699
(1963).
Section 2677 of title 22 applies to temporary duty travel as well as
travel incident to change of duty station. 71 Comp. Gen. 494 (1992).
In either case, expenses are chargeable to the year in which the
travel is ordered as long as some travel-related expense is also
incurred in that year, even though the physical travel may not begin
until the following year. Id. Travel-related expenses in this context
include miscellaneous incidental expenses such as inoculations and
passports as long as they are not incurred at a time so far removed
from the actual travel as to question their legitimacy as incident to
the travel. 30 Comp. Gen. 25 (1950). The statute also permits charging
the prior year for expenses incurred under amended travel orders
issued in the subsequent fiscal year as long as some part of the
travel or transportation began in the prior fiscal year. 29 Comp.
Gen. 142 (1949).
The statute does not permit retroactive charging of an expired
appropriation. Thus, the Comptroller General found it improper to
issue a travel authorization in one fiscal year designating the
succeeding fiscal year as the appropriation to be charged, and then,
at the start of the succeeding fiscal year, cancel the authorization
and replace it with a new authorization retroactively designating the
prior year. 42 Comp. Gen. 699 (1963).
g. Employee Transfer/Relocation Costs:
A government employee transferred to a new duty station is entitled to
various allowances, primarily travel expenses of the employee and his
or her immediate family, and transportation and temporary storage of
household goods. 5 U.S.C. § 5724. In addition, legislation enacted in
1967, now found at 5 U.S.C. § 5724a, authorized several types of
relocation expenses for transferred employees. Specifically, they are:
(1) per diem allowance for employee's immediate family en route
between old and new duty station; (2) expenses of one house-hunting
trip to new duty station; (3) temporary quarters allowance incident to
relocation; (4) certain expenses of real estate transactions incurred
as a result of the transfer; and (5) a miscellaneous expense allowance.
The leading case on the obligation of employee transfer expenses is 64
Comp. Gen. 45 (1984). The rule is that "for all [reimbursable] travel
and transportation expenses of a transferred employee, the agency
should record the obligation against the appropriation current when
the employee is issued travel orders." Id. at 48. This treatment
applies to expenses stemming from employee transfers; it does not
apply to expenses stemming from temporary duty. 70 Comp. Gen. 469
(1991).
The rule of 64 Comp. Gen. 45 applies to obligations for extensions of
temporary quarters subsistence expenses—the obligation is chargeable
to the year in which the transfer order was issued. 64 Comp. Gen. 901
(1985). It also applies to dislocation allowances payable to members
of the armed services incident to a permanent change of station move.
67 Comp. Gen. 474 (1988).
Agencies have discretionary authority under 5 U.S.C. § 5724c to
contract with private firms for arranging the purchase of a
transferred employee's old residence. Since this service is wholly
discretionary and in no way an "entitlement," the agency's obligation
to a relocation firm stems from its contract with the firm, not from
the employee's transfer. Thus, the obligation under one of these
arrangements occurs when a purchase order under the contract is
awarded. 66 Comp. Gen. 554 (1987). Since the obligation is evidenced
by a written contract, it would be recorded under 31 U.S.C. §
1501(a)(1).
The decision at 64 Comp. Gen. 45 overruled prior inconsistent
decisions such as 28 Comp. Gen. 337 (1948) (storage) and B-122358,
Aug. 4, 1976 (relocation expenses under 5 U.S.C. § 5724a). In
assessing the impact of 64 Comp. Gen. 45, however, care must be taken
to determine precisely what has been overruled and what has not. For
example, since 64 Comp. Gen. 45 dealt with reimbursable expenses,
prior decisions addressing the transportation of household goods
shipped directly by the government presumably remain valid.[Footnote
30]
Also, 35 Comp. Gen. 183 (1955) should not be regarded as overruled,
notwithstanding language to the contrary in 64 Comp. Gen. 45. There
are two reasons for this. First, 35 Comp. Gen. 183 was not limited to
employee transfers, but dealt with travel in other contexts as well,
situations not involved in the 1984 decision. Second, 35 Comp. Gen.
183 states, at page 185:
"It may be stated, however, that we have no objection to recording
tentatively as obligations the estimated cost of transportation to be
purchased and reimbursements therefor to be earned, including
reimbursements for transportation of household effects, within the
current fiscal year at the time the travel orders are actually issued
where it is administratively determined desirable in order to avoid
certain additional accounting requirements; but all estimated amounts
for travel and related expenses so recorded should be adjusted to
actual obligations periodically ..."
This is not very different from the holding of 64 Comp. Gen. 45.
8. Section 1501(a)(8): Public Utilities:
Under 31 U.S.C. § 1501(a)(8), a recordable obligation arises when
there is documentary evidence of "services provided by public
utilities. [Footnote 31]
Government agencies are not required to enter into contracts with
public utilities when charges are based on rates that are fixed by
regulatory bodies. However, contracts may be used if desired by the
utility or the agency. GAO, Policy and Procedures Manual for Guidance
of Federal Agencies, title 7, § 6.2.C.5 (Washington, D.C.: May 18,
1993).
If there is a contract, monthly estimates of the cost of services to
be performed, based on past experience, may be recorded as
obligations. If there is no contract, obligations should be recorded
only on the basis of services actually performed. 34 Comp. Gen. 459,
462 (1955). See also B-287619, July 5, 2001; B-259274, May 22, 1996.
A statute relating to obligations for public utility services is 31
U.S.C. § 1308. Under this law, in making payments for telephone
services and for services like gas or electricity where the quantity
is based on metered readings, the entire payment for a billing period
which begins in one fiscal year and ends in another is chargeable to
appropriations current at the end of the billing period. If the charge
covers several fiscal years, 31 U.S.C. § 1308 does not apply. A charge
covering several fiscal years must be prorated so that the charge to
any one fiscal year appropriation will not exceed the cost of service
for a 1-year period ending in that fiscal year. 19 Comp. Gen. 365
(1939). GAO has construed this statute as applicable to teletypewriter
services as well. 34 Comp. Gen. 414 (1955).
The General Services Administration is authorized to enter into
contracts for public utility services for periods not exceeding 10
years. 40 U.S.C. § 501(b)(1)(B).[Footnote 32] A contract for the
procurement of telephone equipment and related services has been held
subject to this provision even where the provider was not a
"traditional" form of public utility. 62 Comp. Gen. 569 (1983). Noting
that the concept of what constitutes "public utility service" is
flexible, the decision emphasized that the nature of the product or
service provided rather than the nature of the provider should govern
for purposes of 40 U.S.C. § 501(b)(1)(B). 62 Comp. Gen. at 575. The
decision also concluded that GSA is not required to obligate the total
estimated cost of a multiyear contract under 40 U.S.C. § 501(b)(1)(B),
but is required to obligate only its annual costs. 62 Comp. Gen. at
572, 576.
9. Section 1501(a)(9): Other Legal Liabilities:
The final standard for recording obligations, 31 U.S.C. § 1501(a)(9),
is documentary evidence of any "other legal liability of the
Government against an available appropriation or fund." This is sort
of a catch-all category designed to pick up valid obligations which
are not covered by 31 U.S.C. §§ 1501(a)(1)-(a)(8). 34 Comp. Gen. 418,
424 (1955).
Thus far, the decisions provide very little guidance on the types of
situations that might be covered by subsection (a)(9). The few
decisions that mention subsection (a)(9) generally cite it in
conjunction with one of the other subsections and stop short of a
definitive statement as to its independent applicability. See, e.g.,
54 Comp. Gen. 962 (1975) (impoundment litigation); B-192511, Feb. 5,
1979 (severance pay plan under 22 U.S.C. § 3968).
Another case, although not specifically citing subsection (a)(9),
pointed out a situation that would seemingly qualify under that
subsection: estimates of municipal tax liabilities on United States
property located in foreign countries, based on tax bills received in
prior years. 35 Comp. Gen. 319 (1955).
Thus, subsection (a)(9) must be applied on a case-by-case basis. If a
given item is a legal liability of the United States, if
appropriations are legally available for the item in terms of purpose
and time, and if the item does not fit under any of the other eight
subsections, then subsection (a)(9) should be considered.
C. Contingent Liabilities:
Up to this point in Chapter 7, we have discussed obligations: what
they are and how and when to record them. As pointed out in the
previous sections of this chapter, the core attribute of an obligation
recordable under 31 U.S.C. § 1501 is that it creates a definite legal
liability on the part of the federal government. While the precise
amount of the liability may be undefined initially, an "obligational
event," reflecting a definite liability, may occur even though the
amount of the liability at that time is undefined. A "contingent
liability" is fundamentally different. In contrast to a definite
liability, a contingent liability does not create an obligation unless
and until the contingency materializes.
Contingent liabilities take different forms depending on the
circumstances. However, whatever form it takes, a contingent liability
by definition lacks the definiteness that is essential to the concept
of an obligation. Thus, GAO defines a "contingent liability"
generically as "[a]n existing condition, situation, or set of
circumstances that poses the possibility of a loss to an agency that
will ultimately be resolved when one or more events occur or fail to
occur.[Footnote 33]
Contingent liabilities are not recordable as obligations under section
1501 of title 31.[Footnote 34] Rather, a contingent liability ripens
into a recordable obligation for purposes of section 1501 only if and
when the contingency materializes. E.g., 62 Comp. Gen. 143, 145-46
(1983); 37 Comp. Gen. 69192 (1958); GAO, Policy and Procedures Manual
for Guidance of Federal Agencies, title 7, § 3.5.0 (Washington, D.C.:
May 18, 1993) (hereafter GAO-PPM).
The contingent liability poses somewhat of a fiscal dilemma. On the
one hand, it is by definition (and absent special statutory treatment)
not sufficiently definite to support the recording of an obligation.
Yet on the other hand, sound financial management may dictate that it
somehow be recognized. Indeed, if completely disregarded, a contingent
liability could mature into an actual liability and result in an
Antideficiency Act violation. Agencies have a legal obligation to take
reasonable steps to avoid situations in which contingent liabilities
become actual liabilities that result in Antideficiency Act
violations. This may include the "administrative reservation" or
"commitment" of funds, as well as taking other actions to prevent
contingencies from materializing.[Footnote 35]
For example, in B-238201, Apr. 15, 1991, the General Services
Administration (GSA) was faced with a contingent liability that could
become an actual liability. GSA was engaged in litigation concerning
an Illinois statute authorizing the taxation of government property
purchased under an installment contract. GSA had entered into
arrangements to purchase buildings in Illinois on an installment
basis, so there was a potential for tax liability, including back
taxes, which would be assessed if the Illinois statute was upheld.
Since the litigation was extending over fiscal years and the outcome
was in doubt, GSA accrued amounts from the fiscal years involved as
loss contingencies for the potential tax liability. GAO agreed with
GSA's approach and stated:
"Because the underlying legal liability of the Government has yet to
be established, the potential tax liability of the [property] is not
sufficiently definite to be recorded as an obligation. However, GSA
has not actually obligated funds for this purpose, ... Instead, in
terms of fiscal operations, it is possible for GSA officials to have
recorded the potential liability as a commitment through the budgetary
account 'Commitments Available for Obligation' in the Standard General
Ledger. This accounting procedure reflects allotments or other
available funds which were earmarked in anticipation of a potential
obligation and is used for purposes of effective financial planning."
Id. See also 35 Comp. Gen. 185, 187 (1955) (GAO recommended reserving
funds as a means to avoid potential Antideficiency Act violations from
contingent liabilities involving pending litigation in cases where it
was believed that claims against the government were meritorious).
In addition to the obligational accounting treatment of contingent
liabilities, agencies need to be aware of the financial accounting
treatment of contingent liabilities. Contingent liabilities may be
sufficiently important to warrant recognition in a footnote to
pertinent financial statements. 62 Comp. Gen. 143, 146 (1983); 37
Comp. Gen. at 692. See also Federal Accounting Standards Advisory
Board, Accounting for Liabilities of the Federal Government, SSFAS No.
5, 55 35-42 (Dec. 20, 1995), as amended by SSFAS No. 12 (December
1998) (provides guidance on the appropriate accounting treatment of
contingent liabilities in financial statements).
D. Reporting Requirements:
When 31 U.S.C. § 1501 was originally enacted in 1954,[Footnote 36] it
required each agency to prepare a report each year on the unliquidated
obligations and unobligated balance for each appropriation or fund
under the agency's control. The reports were to be submitted to the
Senate and House Appropriations Committees, the (then) Bureau of the
Budget, and GAO. GAO was often asked by the appropriations committees
to review these reports.
After several years of reviewing reports, the appropriations
committees determined that the requirement had served its purpose, and
Congress amended the law in 1959 to revise and relax the reporting
procedures. The current reporting requirements are found at 31 U.S.C.
§§ 1108(c) and 1501(b).
Under 31 U.S.C. § 1108(c), each agency, when submitting requests for
appropriations to the Office of Management and Budget, must report
that "the statement of obligations submitted with the request contains
obligations consistent with section 1501 of this title." See 39 Comp.
Gen. 422, 425 (1959). The reports must be certified by officials
designated by the agency head. OMB Circular No. A-11, Preparation,
Submission, and Execution of the Budget, § 51.1 (June 21, 2005). The
certification must be supported by adequate records, and the agency
must retain the records and certifications in such form as to
facilitate audit and reconciliation. Officials designated to make the
certifications may not redelegate the responsibility.[Footnote 37]
The conference report on the original enactment of 31 U.S.C. § 1501
specified that the officials designated to make the certifications
should be persons with overall responsibility for the recording of
obligations, and "in no event should the designation be below the
level of the chief accounting officer of a major bureau, service, or
constituent organizational unit."[Footnote 38]
The person who makes certifications under 31 U.S.C. § 1108(c) is not a
"certifying officer" for purposes of personal accountability for the
funds in question. Although he or she may be coincidentally an
"authorized certifying officer," the two functions are legally
separate and distinct. B-197559-0.M., May 13, 1980.
The statute does not require 100 percent verification of unliquidated
obligations prior to certification. Agencies may use statistical
sampling. B-199967-0.M., Dec. 3, 1980.
In the case of transfer appropriation accounts under interagency
agreements, the certification official of the spending agency must
make the certifications to the head of the advancing agency and not to
the head of the spending agency. 7 GAO-PPM § 3.8.A.
Finally, 31 U.S.C. § 1501(b) provides that any statement of
obligations furnished by any agency to the Congress or to any
congressional committee "shall include only those amounts that are
obligations consistent with subsection (a) of this section."
The definition of the term "deobligation" is an agency's cancellation
or downward adjustment of previously incurred obligations. Deobligated
funds may be reobligated within the period of availability of the
appropriation. For example, annual appropriations may be reobligated
in the fiscal year for which the funds were appropriated, while
multiyear or no-year appropriated funds may be reobligated in the same
or subsequent fiscal years.[Footnote 39] Deobligations occur for a
variety of reasons. Examples are:
* Liquidation in amount less than amount of original obligation. E.g.,
B-207433, Sept. 16, 1983 (cost underrun); B-183184, May 30, 1975
(agency called for less work than maximum provided under level-of-
effort contract). See also B-286929, Apr. 25, 2001.
* Cancellation of project or contract.
* Initial obligation determined to be invalid.
* Reduction of previously recorded estimate.
* Correction of bookkeeping errors or duplicate obligations.
In addition, deobligation may be statutorily required in some
instances. An example is 31 U.S.C. § 1535(d), requiring deobligation
of appropriations obligated under an Economy Act agreement to the
extent the performing agency has not incurred valid obligations under
the agreement by the end of the fiscal year. See section B.1.i of this
chapter for a further discussion of recording obligations in Economy
Act transactions.
For the most part, there are no special rules relating to
deobligation. Rather, the treatment of deobligations follows logically
from the principles previously discussed in this and preceding
chapters. Thus funds deobligated within the original period of
obligational availability are once again available for new obligations
just as if they had never been obligated in the first place.
Naturally, any new obligations are subject to the purpose, time, and
amount restrictions governing the source appropriation. Funds
deobligated after the expiration of the original period of
obligational availability are not available for new obligations. B-
286929, Apr. 25, 2001; 64 Comp. Gen. 410 (1985); 52 Comp. Gen. 179
(1972). They may be retained as unobligated balances in the expired
account until the account is closed, however, and are available for
adjustments in accordance with 31 U.S.C. § 1553(a).
A proper and unliquidated obligation should not be deobligated unless
there is some valid reason for doing so. Absent a valid reason, it is
improper to deobligate funds solely to "free them up" for new
obligations. To do so risks violating the Antideficiency Act. For
example, where a government check issued in payment of some valid
obligation cannot be promptly negotiated (if, for example, it is
returned as undeliverable), it is improper to deobligate the funds and
use them for new obligations. 15 Comp. Gen. 489 (1935); A-44024, Sept.
21, 1942. (The two cited decisions deal with provisions of law which
have since changed, but the thrust of the decisions remains the same.)
The Antideficiency Act violation would occur if the payee of the
original check subsequently shows up and demands payment but the funds
are no longer available because they have been reobligated and the
account contains insufficient funds. This does not preclude an agency
from exercising flexibility in the use of its appropriations so long
as the agency does not risk an Antideficiency Act violation. B-272191,
Nov. 4, 1997.
Under some programs, an agency provides funds to an intermediary which
in turn distributes the funds to members of a class of beneficiaries.
The agency records the obligation when it provides, or legally commits
itself to provide, the funds to the intermediary. It is undesirable
for many reasons to permit the intermediary to hold the funds
indefinitely prior to reallocation. Unless the program legislation
provides otherwise, the agency may establish a reasonable cutoff date
at which time unused funds in the hands of the intermediary are
"recaptured" by the agency and deobligated. GAO recommended such a
course of action in 50 Comp. Gen. 857 (1971). If recapture occurs
during the period of availability, the funds may be reobligated for
program purposes; if it occurs after the period of availability has
ended, the funds expire absent some contrary direction in the
governing legislation. Id.; Dabney v. Reagan, No. 82 Civ. 2231-CSH
(S.D.N.Y. Mar. 21, 1985).
Congress may occasionally by statute authorize an agency to reobligate
deobligated funds after expiration of the original period of
availability. This is called "deobligation-reobligation" (or "deob-
reob") authority. Such authority exists only when expressly granted by
statute. Deobligation-reobligation authority generally contemplates
that funds will be deobligated only when the original obligation
ceases to exist and not as a device to effectively augment the
appropriation. See B-173240-0.M., Jan. 23, 1973. Also, absent
statutory authority to the contrary, "deob-reob" authority applies
only to obligations and not to expenditures. Thus, repayments to an
appropriation after expiration of the original period of obligational
availability are not available for reobligation. B-121836, Apr. 22,
1955.
Chapter 7 Footnotes:
[1] A working fund account is established to receive advance payment
from other agencies or accounts. 14 Comp. Gen. 25 (1934). For an
example, see 10 U.S.C. § 2208, which authorizes working capital funds
in the Department of Defense.
[2] An "unmatured liability" as described in this paragraph is
different from a "contingent liability" as discussed in section C of
this chapter.
[3] For further discussion of the Antideficiency Act, see Chapter 6,
section C.
[4] Senate Committee on Government Operations, Financial Management in
the Federal Government, S. Doc. No. 87-11, at 85 (1961).
[5] Although 31 U.S.C. § 1501 does not expressly apply to the
government of the District of Columbia, GAO has expressed the view
that the same criteria should be followed. B-180578, Sept. 26, 1978.
This is because the proper recording of obligations is the only way to
assure compliance with 31 U.S.C. § 1341, a portion of the
Antideficiency Act, which does expressly apply to the government of
the District of Columbia. District of Columbia Self-Government and
Governmental Reorganization Act (so-called "Home Rule" Act), Pub. L.
No. 93-198, § 603(e), 87 Stat. 774, 815 (Dec. 24, 1973).
[6] S. Doc. No. 87-11, at 86.
[7] H.R. Rep. No. 83-2663, at 18 (1954), quoted in B-118654, Aug. 10,
1965.
[8] Pub. L. No. 106-229, § 101(a), 114 Stat. 464 (June 30, 2000).
[9] A "statute of frauds" is a law requiring contracts to be in
writing in order to be enforceable. Most, if not all, states have some
version of such a statute. Strictly speaking, as the Comptroller
General has noted, there is no federal statute of frauds. 39 Comp.
Gen. 829, 831 (1960). See also 55 Comp. Gen. 833 (1976).
[10] The FAR defines "contracts" as including "all types of
commitments that obligate the Government to an expenditure of
appropriated funds and that, except as otherwise authorized, are in
writing." This provision also provides that "in writing, writing, or
written means any worded or numbered expression that can be read,
reproduced, and later communicated, and includes electronically
transmitted and stored information." 48 C.F.R. § 2.101 (2005).
[11] As cases such as 63 Comp. Gen. 129 illustrate, there can be many
variations on the basic indefinite-quantity theme.
[12] This discussion addresses the amount to be recorded when the
amount of the liability is undefined, and is not to be confused with a
discussion of contingent liabilities. For example, for an indefinite-
delivery, indefinite-quantity contract, any liability in excess of the
government's minimum commitment, as defined in the contract, is a
contingent liability—that is, contingent on the government placing
future orders with the contractor. For that reason, at the time the
government enters into the contract, the government has no liability
above the minimum specified in the contract, and thus incurs no
obligation for future orders. We discuss contingent liabilities in
section C of this chapter.
[13] Title 7, § 3.5.D (Washington, D.C.: May 18, 1993).
[14] The decision in 50 Comp. Gen. 589 is offered here as an example
of a methodology for estimating obligations. Beginning with fiscal
year 1977 the Judiciary has received no-year appropriations to pay
court appointed attorneys. See Departments of State, Justice, and
Commerce, the Judiciary, and Related Agencies Appropriation Act, 1977,
Pub. L. No. 94-362, title IV, 90 Stat. 937, 953 (July 14, 1976);
Consolidated Appropriations Act, 2005, Pub. L. No. 108-447, div. B,
title III, 118 Stat. 2809, 2892 (Dec. 8, 2004).
[15] Subsequently, Congress passed legislation clarifying the method
by which the Corporation should record obligations, authorizing the
Corporation to record as an obligation an estimate based on a formula
that takes into consideration historical rates of enrollment in the
program. Pub. L. No. 108-45, § 2(b), 117 Stat. 844 (July 3, 2003). See
also 149 Cong. Rec. S8163-64 (2003) (statement of Sen. Bond).
[16] Beginning with fiscal year 1978, the appropriation to compensate
land commissioners was switched from the Justice Department to the
Judiciary and since then has been a no-year appropriation. See the
appropriation entitled "Fees of Jurors and Commissioners" in the
Judiciary Appropriation Act, 1978, Pub. L. No. 95-86, title IV, 91
Stat. 419, 434-35 (Aug. 2, 1977), and in the Consolidated
Appropriations Act, 2005, Pub. L. No. 108-447, div. B, title III, 118
Stat. 2809, 2892-93 (Dec. 8, 2004). We retain the above summary here
to illustrate the analysis and because it may have use by analogy in
similar situations.
[17] The determination of whether an interagency agreement is
"binding" for purposes of recording under 31 U.S.C. § 1501(a)(1) is
made in the same manner as if the contract were with a private party—
examining precisely what the parties have "committed" themselves to do
under the terms of the agreement. However, an agreement between two
government agencies cannot be legally "enforced" against a defaulting
agency in the sense of compelling performance or obtaining damages.
Enforcement against another agency is largely a matter of comity and
good faith. Thus, the term "binding" in the context of interagency
agreements reflects the undertakings expressed in the agreement
without regard to the legal consequences (or lack thereof) of
nonperformance.
[18] See Chapter 5, section B for a discussion of the bona fide needs
rule.
[19] 42 U.S.C. § 4101(A) (1970 and Supp. V 1975).
[20] Ch. 288, 63 Stat. 377 (June 30, 1949).
[21] The fact that the replacement stock will not be used until the
following year will not defeat an otherwise valid obligation. See 73
Comp. Gen. 259 (1994); 44 Comp. Gen. 695 (1965).
[22] The Coast Guard has virtually identical authority in 14 U.S.C. §
151.
[23] The term "approved projects," as used in 41 U.S.C. § 23, has no
special meaning. It refers simply to "projects that have been approved
by officials having legal authority to do so." B-171049-0.M., Feb. 17,
1972.
[24] Thus 41 U.S.C. § 23 predates enactment of § 1311 of the
Supplemental Appropriations Act of 1955, now codified at 31 U.S.C. §
1501, and, like the Economy Act, provides an early statutory authority
to obligate an appropriation on the basis of an interagency
transaction.
[25] The FCRA applies to new direct loan obligations incurred on or
after October 1, 1991. The budgetary and obligational treatment of
guaranteed and insured loans is discussed in Chapter 11, section B.
[26] See B-300192, Nov. 13, 2002, regarding the constitutionality of
this and related statutory provisions.
[27] 42 U.S.C. § 3153 (1976 and Supp. IV 1980).
[28] Apart from the considerations discussed here, pending litigation
as well as potential litigation and other legal claims, may require
disclosure as a contingent liability in an agency's financial
statements. See generally Federal Accounting Standards Advisory Board,
Accounting for Liabilities of the Federal Government, SFFAS No. 5, 33,
35-42 (Dec. 20, 1995), as amended by SFFAS No. 12 (December 1998),
available at www.fasab.gov/codifica.html (last visited September 15,
2005).
[29] This section does not apply to travel incident to employee
transfers. The rules for employee transfers are set forth separately
in section B.7.g of this chapter.
[30] If the government ships the goods, the obligation occurs when a
carrier picks up the goods pursuant to a government bill of lading. If
separate bills of lading are issued covering different segments of the
shipment, each bill of lading is a separate and distinct obligation.
E.g., 31 Comp. Gen. 471 (1952).
[31] Prior to the 1982 recodification of title 31, United States Code,
section 1501(a)(7) included public utilities as well as employment and
travel expenses. The recodification logically separated public
utilities into a new subsection since it is unrelated to the other
items. Thus, pre-1982 materials refer to eight subsections whereas
there are now nine.
[32] The military departments have authority to enter into utility
service contracts for up to 50 years in connection with the conveyance
of a utility system from the department to the service provider. See
10 U.S.C. § 2688(c)(3).
[33] GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-
05-734SP (Washington, D.C.: September 2005), at 35 (emphasis added).
[34] Outside the framework of 31 U.S.C. § 1501, however, Congress has
provided special treatment for certain contingent liabilities in order
to better capture their budgetary impact. Most notably, the Federal
Credit Reform Act of 1990, 2 U.S.C. §§ 661-661, changed the normal
budgetary treatment of loans and loan guarantees by establishing that
for most programs, loan guarantee commitments cannot be made unless
the Congress has appropriated budget authority in advance to cover
their estimated losses (known as "credit subsidy costs"). See Chapter
11, section B, for a detailed discussion of the budgetary and
obligational treatment of loan and loan guarantee programs under the
Federal Credit Reform Act.
[35] See 7 GAO-PPM § 3.5.F; B-238201, Apr. 15, 1991 (nondecision
letter).
[36] See Pub. L. No. 83-663, § 1311(b), 68 Stat. 800, 830 (Aug. 26,
1954).
[37] See GAO, Policy and Procedures Manual for Guidance of Federal
Agencies, title 7, § 3.8.A (Washington, D.C.: May 18, 1993) (hereafter
GAO-PPM).
[38] H.R. Rep. No. 83-2663, 18 (1954), quoted in Financial Management
in the Federal Government, S. Doc. No. 87-11, 88 (1961), and in 50
Comp. Gen. 857, 862 (1971).
[39] See GAO, A Glossary of Terms Used in the Federal Budget Process,
GAO-05-734SP (Washington, D.C.: September 2005), at 44 and 85.
[End of Chapter 7]
Chapter 8: Continuing Resolutions:
A. Introduction:
1. Definition and General Description:
2. Use of Appropriation Warrants:
B. Rate for Operations:
1. Current Rate:
2. Rate Not Exceeding Current Rate:
3. Spending Pattern under Continuing Resolution:
a. Pattern of Obligations:
b. Apportionment:
4. Liquidation of Contract Authority:
5. Rate for Operations Exceeds Final Appropriation:
C. Projects or Activities:
D. Relationship to other Legislation:
1. Not Otherwise Provided For:
2. Status of Bill or Budget Estimate Used as Reference:
3. More Restrictive Authority:
4. Lack of Authorizing Legislation:
E. Duration:
1. Duration of Continuing Resolution:
2. Duration of Appropriations:
3. Impoundment:
A. Introduction:
1. Definition and General Description:
The term "continuing resolution" may be defined as follows:
"An appropriation act that provides budget authority for federal
agencies, specific activities, or both to continue in operation when
Congress and the President have not completed action on the regular
appropriation acts by the beginning of the fiscal year."[Footnote 1]
For the most part, continuing resolutions are temporary appropriation
acts. With a few exceptions to be noted later, they are intended by
Congress to be stop-gap measures enacted to keep existing federal
programs functioning after the expiration of previous budget authority
and until regular appropriation acts can be enacted. B-300673, July 3,
2003. Congress resorts to the continuing resolution when there is no
regular appropriation for a program or agency, perhaps because the two
houses of Congress have not yet agreed on common language, because
authorizing legislation has not yet been enacted, or because the
President has vetoed an appropriation act passed by Congress. 58 Comp.
Gen. 530, 532 (1979). Also, given the size and complexity of today's
government, the consequent complexity of the budget and appropriations
process, and the occasionally differing policy objectives of the
executive and legislative branches, it sometimes becomes difficult for
Congress to enact all of the regular appropriation acts before the
fiscal year ends.
Continuing resolutions are nothing new GAO has found administrative
decisions discussing them as far back as the 1880s.[Footnote 2] At one
time, they were called "temporary resolutions." The term "continuing
resolution" came into widespread use in the early 1960s.[Footnote 3]
In the 20 years from fiscal years 1962 to 1981, 85 percent of the
appropriation bills for federal agencies were enacted after the start
of the fiscal year and thus necessitated continuing resolutions. GAO
has discussed the problems inherent in this situation in several
reports. See, e.g., GAO, Updated Information Regarding Funding Gaps
and Continuing Resolutions, GAO/PAD-83-13 (Washington, D.C.: Dec. 17,
1982); Funding Gaps Jeopardize Federal Government Operations, PAD-81-
31 (Washington, D.C.: Mar. 3, 1981). In 24 of the fiscal years between
fiscal years 1977 and 2004, Congress and the President did not
complete action on a majority of the 13 regular appropriations by the
start of the fiscal year. In eight of those years, they did not finish
any of the bills by the start of the new fiscal year.[Footnote 4]
Twenty-one continuing resolutions were enacted for fiscal year 2001.
The periodic experience of government "shutdowns," or partial
shutdowns, when appropriations bills have not been enacted has led to
proposals for an automatic continuing resolution. The automatic
continuing resolution, however, is an idea for which the details are
critically important. Depending on the detailed structure of such a
continuing resolution, the incentive for policymakers—some in the
Congress and the President—to negotiate seriously and reach agreement
may be lessened. If the goal of the automatic continuing resolution is
to provide a little more time for resolving issues, it could be
designed to permit the incurrence of obligations to avoid a funding
gap, but not the outlay of funds to liquidate the new obligations.
This would allow agencies to continue operations for a period while
the Congress completes appropriations actions. GAO, Budget Process:
Considerations for Updating the Budget Enforcement Act, GAO-01-991T
(July 19, 2001). Funding gaps and the legal problems they present are
discussed in greater detail in Chapter 6, section C.6.
Continuing resolutions are enacted as joint resolutions making
continuing appropriations for a certain fiscal year or portion of the
fiscal year. Although enacted in this form rather than as an "act,"
once passed by both houses of Congress and approved by the President,
a continuing resolution becomes a public law and has the same force
and effect as any other statute. Oklahoma v. Weinberger, 360 F. Supp.
724, 726 (WD. Okla. 1973); B-152554, Dec. 15, 1970. Since a continuing
resolution is a form of appropriation act, it often will include the
same types of restrictions and conditions that are commonly found in
regular appropriation acts. See, e.g., B-210603, Feb. 25, 1983 (ship
construction appropriation in continuing resolution making funds
available "only under a firm, fixed price type contract"). Indeed,
continuing resolutions typically incorporate by reference restrictions
and conditions from regular appropriations acts. See, e.g., Pub. L.
No. 108-309, § 102, 118 Stat. 1137, 1138 (Sept. 30, 2004). Having said
this, however, it is necessary to note that continuing resolutions, at
least those in what GAO considers the "traditional form," differ
considerably from regular appropriation acts.
Continuing resolutions may take different forms. The "traditional"
form, used consistently except for a few years in the 1980s, employs
essentially standard language and is clearly a temporary measure. An
example of this form is Public Law 108-309, the first continuing
resolution for fiscal year 2005, which provided funding authority from
October 1 through November 20, 2004. Section 101 appropriates:
"Such amounts as may be necessary under the authority and conditions
provided in the applicable appropriations Act for fiscal year 2004 for
continuing projects or activities including the costs of direct loans
and loan guarantees (not otherwise specifically provided for in this
joint resolution) which were conducted in fiscal year 2004, at a rate
for operations not exceeding the current rate, and for which
appropriations, funds, or other authority was made available in the
following appropriations Acts ..."
Section 101 then references most of the regular appropriation acts for
fiscal year 2004.
Public Law 108-309 also contains a number of additional typical
provisions, including the following:
"SEC. 102. Appropriations made by section 101 shall be available to
the extent and in the manner which would be provided by the pertinent
appropriations Act."
"SEC. 104. No appropriation or funds made available or authority
granted pursuant to section 101 shall be used to initiate or resume
any project or activity for which appropriations, funds, or other
authority were not available during fiscal year 2004."
"SEC. 107. Unless otherwise provided for in this joint resolution or
in the applicable appropriations Act, appropriations and funds made
available and authority granted pursuant to this joint resolution
shall be available until (a) enactment into law of an appropriation
for any project or activity provided for in this joint resolution, or
(b) the enactment into law of the applicable appropriations Act by
both Houses without any provision for such project or activity, or (c)
November 20, 2004, whichever first occurs."
When enacting continuing resolutions in this form, there is clear
indication that Congress intends and expects that the normal
authorization and appropriation process will eventually produce
appropriation acts which will replace or terminate the budget
authority contained in the resolution. Thus, a continuing resolution
of this type generally provides that funds appropriated for an
activity by the resolution will no longer be available for obligation
if the activity is later funded by a regular appropriation act, or
Congress indicates its intent to end the activity by enacting an
applicable appropriation act without providing for the activity. 58
Comp. Gen. at 532. See also section 107 of Public Law 108-309, quoted
above. Obligations already incurred under the resolution, however, may
be liquidated.
GAO's decision in B-300673, July 3, 2003, illustrates the interplay
between funding under a continuing resolution and a later-enacted
regular appropriation. The fiscal year 2003 appropriation act for the
legislative branch authorized the House of Representatives Chief
Administrative Officer to use that Office's salaries and expenses
appropriation to pay certain expenses of the House Child Care Center
for "fiscal year 2003 and each succeeding fiscal year." Pub. L. No.
108-7, § 108, 117 Stat. 11, 355 (Feb. 20, 2003). Previously, a
revolving fund paid those expenses. However, since Public Law 108-7
was not enacted until February 20, 2003, fiscal year 2003 expenses for
the Child Care Center were initially charged to the revolving fund
under continuing resolutions. With enactment of Public Law 108-7, GAO
held that the Chief Administrative Officer's salaries and expenses
appropriation should fund the Child Care Center expenses retroactive
to the beginning of fiscal year 2003 and that this appropriation
should reimburse the revolving fund for the fiscal year 2003 expenses
initially charged to it under the continuing resolutions. The decision
stated that the fact that payments were initially made during a period
covered by a continuing resolution was not significant since the
regular appropriation, once enacted, supersedes the continuing
resolution and governs the amount and period of availability.
Unlike regular appropriation acts, continuing resolutions in their
traditional form do not usually appropriate specified sums of money.
Rather, they usually appropriate "such amounts as may be necessary"
for continuing projects or activities at a certain "rate for
operations." The rate for operations may be the amount provided for
the activity in an appropriation act that has passed both houses of
Congress but has not become law; the lower of the amounts provided
when each house has passed a different act; the lower of the amounts
provided either in an act which has passed only one house or in the
administration's budget estimate; the amount specified in a particular
conference report; the lower of either the amount provided in the
budget estimate or the "current rate"; or simply the current rate.
Therefore, in order to determine the sum of money appropriated for any
given activity by this type of continuing resolution, it is necessary
to examine documents other than the resolution itself. Some continuing
resolutions have used a combination of "formula appropriations" of the
types described in this paragraph and appropriations of specific
dollar amounts. An example is the fiscal year 1996 continuing
resolution, Pub. L. No. 104-69, 109 Stat. 767 (Dec. 22, 1995).
There are times when Congress acknowledges at the outset that it is
not likely to enact one or more regular appropriation acts during the
current fiscal year.[Footnote 5] See, for example, the 1980 continuing
resolution, Pub. L. No. 96-86, 93 Stat. 656 (Oct. 12, 1979), which
provided budget authority for the legislative branch for the entire
fiscal year.
For a few years in the 1980s, Congress used a very different form of
continuing resolution, simply stringing together the complete texts of
appropriation bills not yet enacted and enacting them together in a
single "omnibus" package. This approach reached its extreme in the
1988 continuing resolution, Pub. L. No. 100-202, 101 Stat. 1329 (Dec.
22, 1987), which included the complete texts of all 13 of the regular
appropriation bills. This form of continuing resolution differs from
the traditional form in two key respects:
* Unlike the traditional continuing resolution, the "full text"
version amounts to an acknowledgment that no further action on the
unenacted bills will be forthcoming, and consequently provides funding
for the remainder of the fiscal year.
* When the entire text of an appropriation bill is incorporated into a
continuing resolution, the appropriations are in the form of specified
dollar amounts, the same as if the individual bill had been enacted.
The "full text" format generally does not raise the same issues of
statutory interpretation that arise under the traditional format.
However, it produces new ones. For example, in a continuing resolution
which consolidates the full texts of what would otherwise have been
several separate appropriation acts, GAO has construed the term "this
act" as referring only to the individual "appropriation act" in which
it appears rather than to the entire continuing resolution. B-230110,
Apr. 11, 1988.
While the omnibus approach of the 1988 resolution may appear
convenient, it generated considerable controversy because, among other
reasons, it is virtually "veto-proof-—the President has little choice
but to sign the bill or bring the entire government to an abrupt halt.
See Presidential Remarks on the Signing of the Continuing
Appropriations for Fiscal Year 1988 and the Omnibus Budget
Reconciliation Act of 1987 Into Law, 23 Weekly Comp. Pres. Doc. 1546,
1547 (Dec. 22, 1987).
There was no continuing resolution for fiscal year 1989. All 13 of the
appropriation bills were enacted on time, for what was reported to be
the first time in 12 years.[Footnote 6] For fiscal year 1990, Congress
reverted to the traditional type of continuing resolution. See Pub. L.
No. 101-100, 103 Stat. 638 (Sept. 29, 1989). Nor were there any
continuing resolutions for fiscal years 1995 and 1997. The start of
the 1997 fiscal year was met with an omnibus appropriations act which
added five regular appropriations bills to a sixth regular
appropriations bill. Pub. L. No. 104-208, 110 Stat. 3009 (Sept. 30,
1996). The remaining seven bills were enacted separately.
Questions arising under continuing resolutions can be grouped loosely
into two broad categories. First are questions in which the fact that
a continuing resolution is involved is purely incidental, in other
words, questions which could have arisen just as easily under a
regular appropriation act. For example, one of the issues considered
in B-230110, Apr. 11, 1988, was whether certain provisions in the 1988
resolution constituted permanent legislation. Cases in this category
are included with their respective topics throughout this publication
and are not repeated in this chapter.
Second are issues that are unique to continuing resolutions, and these
are the focus of the remainder of this chapter. For the most part, the
material deals with the traditional form of continuing resolution as
it is this form that uses concepts and language found only in
continuing resolutions.
One point that should emerge from the GAO decisions and opinions is
the central role of legislative intent. To be sure, legislative intent
cannot change the plain meaning of a statute; Congress must enact what
it intends in order to make it law. However, there are many cases in
which the statutory language alone does not provide a clear answer,
and indications of congressional intent expressed in well-established
methods, viewed in light of the purpose of the continuing resolution,
will tip the balance.
In one case, for example, a continuing resolution provided a lump-sum
appropriation for the National Oceanic and Atmospheric
Administration's research and facilities account, and provided further
for the transfer of $1.8 million from the Fisheries Loan Fund. The
first continuing resolution for 1987 included the transfer provision
and was signed into law on October 1, 1986. The Fisheries Loan Fund
was scheduled to expire at "the close of September 30, 1986." Under a
strictly technical reading, the $1.8 million ceased to be available
once the clock struck midnight on September 30. However, the
Comptroller General found the transfer provision effective, noting
that a contrary result would "frustrate the obvious intent of
Congress." B-227658, Aug. 7, 1987.
Similarly, appropriations for the United States Commission on Civil
Rights contained in a fiscal year 1992 continuing resolution were
found to have extended the existence of the Commission beyond its
termination on September 30, 1991. "When viewed in their entirety,
legislative actions on the Commission's reauthorization and
appropriation bills, together with their legislative history, clearly
manifest an intent by Congress for the Commission to continue to
operate after September 30, 1991." 71 Comp. Gen. 378, 381 (1992).
While many of the continuing resolution provisions to be discussed
will appear highly technical (because they are highly technical),
there is an essential logic to them, evolved over many years, which is
more readily seen from the perspective not of a specific case or
problem, but of the overall goals and objectives of continuing
resolutions and their relationship to the rest of the budget and
appropriations process.
2. Use of Appropriation Warrants:
Funds, including funds appropriated under a continuing resolution, are
drawn from the Treasury by means of an appropriation warrant (FMS
Form 6200).[Footnote 7] A warrant is the official document issued
pursuant to law by the Secretary of the Treasury upon enactment of an
appropriation that establishes the amount of money authorized to be
withdrawn from the Treasury.[Footnote 8] Under 31 U.S.C. § 3323(a),
warrants authorized by law are to be signed by the Secretary of the
Treasury and countersigned by the Comptroller General. However, under
the authority of section 3326(a) of title 31, United States Code, the
Secretary of the Treasury and the Comptroller General have issued
several joint regulations phasing out the countersignature
requirement.[Footnote 9] First, Department of the Treasury-General
Accounting Office Joint Regulation No. 5 (Oct. 18, 1974) waived the
requirement for all appropriations except continuing resolutions.
Next, Treasury-GAO Joint Regulation No. 6 (Oct. 1, 1983) further
simplified the process by requiring issuance of a warrant and
countersignature under a continuing resolution only once, for the
total amount appropriated, unless a subsequent resolution changed the
annual amount. Finally, Treasury-GAO Joint Regulation No. 7, effective
January 1, 1991, eliminated the countersignature requirement
completely.
B. Rate for Operations:
1. Current Rate:
The current rate, as that term is used in continuing resolutions, is
equivalent to the total amount of money which was available for
obligation for an activity during the fiscal year immediately prior to
the one for which the continuing resolution is enacted.
The term "current rate" is used in continuing resolutions to indicate
the level of spending which Congress desires for a program. For
example, a resolution may appropriate sufficient funds to enable a
program to operate at a rate for operations "not in excess of the
current rate," or at a rate "not in excess of the lower of the current
rate" or the rate provided in a certain bill. It is possible to read
the term "current rate" as referring to either the amount of money
available for the program in the preceding year, or an amount of money
sufficient to enable continuation of the program at the level of the
preceding year. The two can be very different.
As a general proposition, GAO regards the term "current rate" as
referring to a sum of money rather than a program level. See, e.g., 58
Comp. Gen. 530, 533 (1979); B-194362, May 1, 1979. Thus, when a
continuing resolution appropriates in terms of the current rate, the
amount of money available under the resolution will be limited by that
rate, even though an increase in the minimum wage may force a
reduction in the number of people participating in an employment
program (B-194063, May 4, 1979), or an increase in the mandatory level
of assistance will reduce the number of meals provided under a meals
for the elderly program (B-194362, May 1, 1979).
The term "current rate" refers to the rate of operations carried on
within the appropriation for the prior fiscal year. B-152554, Dec. 6,
1963. The current rate is equivalent to the total appropriation, or
the total funds which were available for obligation, for an activity
during the previous fiscal year. Edwards v. Bowen, 785 F.2d 1440 (9th
Cir. 1986); B-300167, Nov. 15, 2002; B-255529, Jan. 10, 1994; 64 Comp.
Gen. 21 (1984); 58 Comp. Gen. 530, 533 (1979); B-194063, May 4, 1979;
B-194362, May 1, 1979. Funds administratively transferred from the
account during the fiscal year, under authority contained in
substantive legislation, should not be deducted in determining the
current rate. B-197881, Apr. 8, 1980; B-152554, Nov. 4, 1974.
It follows that funds transferred into the account during the fiscal
year pursuant to statutory authority should be excluded. B-197881,
Apr. 8, 1980.
In those instances in which the program in question has been funded by
1-year appropriations in prior years, the current rate is equal to the
total funds appropriated for the program for the previous fiscal year.
See, e.g., B-271304, Mar. 19, 1996; 64 Comp. Gen. at 22; 58 Comp. Gen.
530; B-194362, May 1, 1979. In those instances in which the program
has been funded by multiple year or no-year appropriations in prior
years, the current rate is equal to the total funds appropriated for
the previous fiscal year plus the total of unobligated budget
authority carried over into that year from prior years. 58 Comp. Gen.
530; B-152554, Oct. 9, 1970.
One apparent deviation from this calculation of current rate occurred
in 58 Comp. Gen. 530, a case involving the now obsolete Comprehensive
Employment and Training Act program. In that decision, the Comptroller
General, in calculating the current rate under the 1979 continuing
resolution, included funds appropriated in a 1977 appropriation act
and obligated during 1977. Ordinarily, only funds appropriated by the
fiscal year 1978 appropriation act, and carry-over funds unobligated
at the beginning of fiscal year 1979, would have been included in the
current rate. However, Congress did not appropriate funds for this
activity in the fiscal year 1978 appropriation act. In this instance
the funds appropriated in 1977 were included because it was clear from
the legislative history of the appropriation act that Congress
intended these funds to be an advance of appropriations for fiscal
year 1978. Thus, in order to ascertain the actual amount available for
the activity for fiscal year 1978, it was necessary to include the
advance funding provided by the 1977 appropriation act. The rationale
used in this decision would apply only when it is clear that Congress
was providing advance funding for the reference fiscal year in an
earlier year's appropriation act.
Where funding for the preceding fiscal year covered only a part of
that year, it may be appropriate to "annualize" the previous year's
appropriation in order to determine the current rate. This was the
result in 61 Comp. Gen. 473 (1982), in which the fiscal year 1981
appropriation for a particular program had been contained in a
supplemental appropriation act and was intended to cover only the last
quarter of the fiscal year. The current rate for purposes of the
fiscal year 1982 continuing resolution was four times the fiscal year
1981 figure.
Prior year supplemental appropriations also count in calculating the
current rate. In this regard, section 103 of Public Law 108-309, 118
Stat. 1137, 1138 (Sept. 30, 2004), discussed above, provides: "The
appropriations Acts listed in section 101 shall be deemed to include
miscellaneous and supplemental appropriation laws enacted during
fiscal year 2004."
There are exceptions to the rule that current rate means a sum of
money rather than a program level. For example, GAO construed the
fiscal year 1980 continuing resolution as appropriating sufficient
funds to support an increased number of Indochinese refugees in view
of explicit statements by both the Appropriations and the Budget
Committees that the resolution was intended to fund the higher program
level. B-197636, Feb. 25, 1980. Also, the legislative history of the
fiscal year 1981 continuing resolution (Pub. L. No. 96-369, 94 Stat.
1351 (Oct. 1, 1980)) indicated that in some instances current rate
must be interpreted so as to avoid reducing existing program levels.
It is always preferable for the exception to be specified in the
resolution itself. Starting with the first continuing resolution for
fiscal year 1983 (Pub. L. No. 97-276, 96 Stat. 1186 (Oct. 2, 1982)),
Congress began appropriating for the continuation of certain programs
"at a rate to maintain current operating levels." GAO has construed
this language as meaning sufficient funds to maintain the program in
question at the same operating level as at the end of the immediately
preceding fiscal year. B-209676, Apr. 14, 1983; B-200923, Nov. 16,
1982 (nondecision letter). Recent continuing resolutions have included
similar language for entitlement and other mandatory payments:
"activities shall be continued at the rate to maintain program levels
under current law."[Footnote 10]
2. Rate Not Exceeding Current Rate:
When a resolution appropriates funds to continue an activity at a rate
for operations "not in excess of the current rate," the amount of
funds appropriated by the resolution is equal to the current rate less
any unobligated balance carried over into the present year.
As discussed in the preceding section, the current rate is equivalent
to the total amount of funds that was available for obligation for a
project or activity in the preceding fiscal year. When the continuing
resolution appropriates funds to continue an activity at a rate for
operations "not in excess of the current rate," it is the intent of
Congress that the activity have available for obligation in the
present fiscal year no more funds than it had available for obligation
in the preceding fiscal year. Therefore, if there is a balance of
unobligated funds which can be carried over into the present fiscal
year because the funds are multiple year or no-year funds, this
balance must be deducted from the current rate in determining the
amount of funds appropriated by the continuing resolution. If this
were not done, the program would be funded at a higher level in the
present year than it was in the preceding year, which is not permitted
by the language of the resolution. See 58 Comp. Gen. 530, 535 (1979).
For example, suppose a continuing resolution for fiscal year 2006 were
to appropriate sufficient funds to continue an activity at a rate not
exceeding the current rate, and the current rate, or the total amount
which was available for obligation in fiscal year 2005, is $1,000,000.
Of this amount, suppose $100,000 of multiple year funds remains
unobligated at the end of fiscal year 2005, and is available for
obligation in fiscal year 2006. If the activity is to operate at a
rate not to exceed the current rate, $1,000,000, then the resolution
appropriates no more than the difference between the current rate and
the carryover from 2005 to 2006, or $900,000. If the resolution were
interpreted as appropriating the full current rate, then a total of
$1,100,000 would be available for fiscal year 2006, and the activity
would be able to operate at a rate in excess of the current rate, a
result prohibited by the language of the resolution.
An unobligated balance which does not carry over into the present
fiscal year (the more common situation) does not have to be deducted.
B-152554, Nov. 4, 1974.
A commonly encountered form of continuing resolution formula
appropriation is an amount not in excess of the current rate or the
rate provided in some reference item, whichever is lower. The
reference item may be an unenacted bill, a conference report, the
President's budget estimate, etc. When the current rate produces the
lower figure—the situation encountered in 58 Comp. Gen. 530—the above
rule applies and an unobligated carryover balance must be deducted to
determine the amount appropriated by the continuing resolution.
However, when the current rate is not the lower of the two referenced
items, the rule does not necessarily apply.
To illustrate, a continuing resolution appropriated funds for the
Office of Refugee Resettlement at a rate for operations not in excess
of the lower of the current rate or the rate authorized by a bill as
passed by the House of Representatives. The rate under the House-
passed bill was $50 million. The current rate was $77.5 million, of
which $39 million remained unobligated at the end of the preceding
fiscal year and was authorized to be carried over into the current
fiscal year. If the continuing resolution had simply specified a rate
not in excess of the current rate, or if the rate in the House-passed
bill had been greater than the current rate, it would have been
necessary to deduct the $39 million carryover balance from the
$77.5 million current rate to determine the maximum funding level for
the current year. Here, however, the rate in the House-passed bill was
the lower of the two.
Reasoning that the current rate already includes an unobligated
carryover balance, if any, whereas the rate in the House-passed bill
did not include a prior year's balance, and supported by the
legislative history of the continuing resolution, the Comptroller
General concluded that the amount available for the current year was
the amount appropriated by the resolution, $50 million, plus the
unobligated carryover balance of $39 million, for a total of $89
million. 64 Comp. Gen. 649 (1985). The decision distinguished 58 Comp.
Gen. 530, stating that "the rule with respect to deduction of
unobligated balances in 58 Comp. Gen. 530 is not applicable where the
lower of two referenced rates is not the current rate." Id. at 652-53.
The case went to court, and the Ninth Circuit Court of Appeals reached
the same result. Edwards v. Bowen, 785 F.2d 1440
(9th Cir. 1986).
In sum, if a continuing resolution appropriates the lower of the
current rate or the rate in some reference item, you compare the two
numbers to determine which is lower before taking any unobligated
carryover balance into account. If the current rate is lower, you then
deduct the carryover balance to determine the funding level under the
continuing resolution. If the rate in the reference item is lower, the
funding level is the reference rate plus the carryover balance unless
it is clear that this is not what was intended.
3. Spending Pattern under Continuing Resolution:
a. Pattern of Obligations:
An agency may determine the pattern of its obligations under a
continuing resolution so long as it operates under a plan which will
keep it within the rate for operations limit set by the resolution. If
an agency usually obligates most of its annual budget in the first
month or first quarter of the fiscal year, it may continue that
pattern under the resolution. If an agency usually obligates funds
uniformly over the entire year, it will be limited to that pattern
under the resolution, unless it presents convincing reasons why its
pattern must be changed in the current fiscal year.
Continuing resolutions are often enacted to cover a limited period of
time, such as a month or a calendar quarter. The time limit stated in
the resolution is the maximum period of time during which funds
appropriated by the resolution are available for obligation.
However, this limited period of availability does not affect the
amount of money appropriated by the resolution. The rate for
operations specified in the resolution, whether in terms of an
appropriation act which has not yet become law, a budget estimate, or
the current rate, is an annual amount. The continuing resolution, in
general, regardless of its period of duration, appropriates this full
annual amount. See B-271304, Mar. 19, 1996; B-152554, Nov. 4, 1974.
Because the appropriation under a continuing resolution is the full
annual amount, an agency may generally follow any pattern of
obligating funds, so long as it is operating under a plan which will
enable continuation of activities throughout the fiscal year within
the limits of the annual amount appropriated. Thus, under a resolution
with a duration of one month, and which appropriates funds at a rate
for operations not in excess of the current rate, the agency is not
necessarily limited to incurring obligations at the same rate it
incurred them in the corresponding month of the preceding year if the
agency can establish that it is operating under a flexible plan that
would enable continuation of activities throughout the fiscal year. B-
152554, Dec. 6, 1963. The same principle applies when the resolution
appropriates funds at a rate to maintain current operating levels. B-
209676, Apr. 14, 1983.
However, the pattern of obligations in prior years does provide a
framework for determining the proper pattern of obligations under the
continuing resolution. For example, if the activity is a formula grant
program in which nearly all appropriated funds are normally obligated
at the beginning of the fiscal year, then the full annual amount
should be made available to the agency under the resolution, even
though the resolution may be in effect for only 1 month. However, if
the activity is salaries and expenses, in which funds are normally
obligated uniformly throughout the year, then the amount made
available to the agency should be only one-twelfth of the annual
amount under a 1-month resolution or one-fourth of the annual amount
under a calendar quarter resolution. B-152554, Feb. 17, 1972.
For example, GAO determined that OMB properly apportioned, and the
State Department properly obligated, 75 percent of funds appropriated
by a fiscal year 1994 continuing resolution (Pub. L. No. 103-88, 107
Stat. 977 (Sept. 30, 1993)) for payments to the United Nations. It was
State Department policy to defer payment of the United States' general
assessment of United Nations contributions to the fourth quarter of
the calendar year, which is the first quarter of the fiscal year. As a
matter of normal practice, the State Department also made peacekeeping
payments when bills were received to the extent funds were available.
We found that the advance apportionment and obligation for the United
Nations assessment and peacekeeping payments with funds appropriated
by the fiscal year 1994 continuing resolution did not violate either
the continuing resolution or the provisions of title 31, United States
Code, controlling apportionment of funds. B-255529, Jan. 10, 1994.
Congress can, of course, alter the pattern of obligations by the
language of the resolution. For example, if the resolution limits
obligations in any calendar quarter to one-fourth of the annual rate,
the agency is limited to that one-fourth rate regardless of its normal
pattern of obligations. B-152554, Oct. 16, 1973. Further, even if the
resolution itself does not have such limitations, but the legislative
history clearly shows the intent of Congress that only one-fourth of
the annual rate be obligated each calendar quarter, only this amount
should be made available unless the agency can demonstrate a real need
to exceed that rate. B-152554, Nov. 4, 1974.
Beginning with fiscal year 1996, Congress to date has included the
following two provisions in continuing resolutions:
"... for those programs that had high initial rates of operation or
complete distribution of funding at the beginning of the fiscal year
in fiscal year [1995] because of distributions of funding to States,
foreign countries, grantees, or others, similar distributions of funds
for fiscal year [1996] shall not be made and no grants shall be
awarded for such programs funded by this resolution that would impinge
on final funding prerogatives."
"This joint resolution shall be implemented so that only the most
limited funding action of that permitted in the resolution shall be
taken in order to provide for continuation of projects and activities."
Pub. L. No. 104-31, §§ 113, 114, 109 Stat. 278, 281 (Sept. 30, 1995).
[Footnote 11]
GAO considered these provisions in B-300167, Nov. 15, 2002. That
decision involved the Federal Highway Administration's (FHWA)
distribution of federal aid to highways funds to the states under a
continuing resolution for fiscal year 2003, Pub. L. No. 107-229, 116
Stat. 1465 (Sept. 30, 2002).
FHWA had determined its distributions to the states at 4/365ths of the
current rate of $31.8 billion since that was the previous fiscal
year's obligation limitation under the 2002 Department of
Transportation appropriations act referenced by the continuing
resolution. FHWA's consistent historical practice was to allocate
funds to the states on a pro-rata basis by multiplying the percentage
of the year covered by the continuing resolution by the rate for the
continuing resolution (at the time the anticipated length of the
continuing resolution was 4 days, hence FHWA's 4/365ths distribution).
OMB, however, apportioned a total amount of $27.7 billion to FHWA
during the term of the continuing resolution to refrain from
"impinging on final funding prerogatives" per the first provision
quoted above, thereby reducing the amount FHWA had available for
allocation to the states from 4/365ths of $31.8 billion to 4/365ths of
$27.7 billion. OMB reasoned that because the program traditionally
makes available all of the budgetary resources subject to limitation
for allocation to the states at the beginning of the fiscal year, had
OMB apportioned the full amount of the fiscal year 2002 level, then
any subsequent effort by Congress to enact an obligation limitation of
less than $31.8 billion could have been compromised.
GAO found that OMB had no basis to further reduce the level of highway
spending below the current rate established in fiscal year 2002. Based
on the plain language of the first provision above, it only applies to
programs that (1) had "high initial rates of operation or a complete
distribution" of funds at the beginning of the prior fiscal year
(assuming the normal appropriations process), and where (2) a "similar
distribution of funds" under the continuing resolution would impinge
on Congress's final funding prerogatives. In other words, the
provision can only be applied to reduce or limit the distribution of
the current rate for a program (as defined in the continuing
resolution) if both prongs of the two-part test are met. Since FHWA's
long-standing practice of distributing highway funds under a
continuing resolution on a pro-rata basis fully protects congressional
funding prerogatives, and does so in a manner that is consistent with
the second provision (and is far more restrictive than would be true
under the first provision), GAO concluded that OMB was not justified
under the two provisions to set the level of highway spending at $27.7
billion.
Congress subsequently resolved the dispute between OMB and FHWA by
including a specific provision in its second amendment to the
continuing resolution establishing an annual rate of operations of
$31.8 billion for FHWA provided that total obligations for the program
not exceed $27.7 billion while operating under the resolution, Pub. L.
No. 107-240, § 137, 116 Stat. 1492, 1495 (Oct. 11, 2002).
b. Apportionment:
The requirement that appropriations be apportioned by the Office of
Management and Budget, imposed by the Antideficiency Act, applies to
funds appropriated by continuing resolution as well as regular
appropriations.[Footnote 12] See generally OMB Circular No. A-11,
Preparation, Submission, and Execution of the Budget, pt. 4, § 120.1
(June 21, 2005).
Typically, OMB has permitted some continuing resolution funds to be
apportioned automatically. OMB Cir. No. A-11, § 123.5. For example, if
a given continuing resolution covers 10 percent of a fiscal year, OMB
may permit 10 percent of the appropriation to be apportioned
automatically, meaning that the agency can obligate this amount
without seeking a specific apportionment. Under such an arrangement,
if program requirements produced a need for additional funds, the
agency would have to seek an apportionment from OMB for the larger
amount.
Apportionment requirements may vary from year to year because of
differences in duration and other aspects of applicable continuing
resolutions. A device OMB has commonly used to announce its
apportionment requirements for a given fiscal year is an OMB Bulletin
reflecting the particular continuing resolution for that year.
[Footnote 13]
4. Liquidation of Contract Authority:
When in the preceding fiscal year Congress has provided an agency with
contract authority, the continuing resolution must be interpreted as
appropriating sufficient funds to liquidate that authority to the
extent it becomes due during the period covered by the continuing
resolution.
When an activity operates on the basis that in one year Congress
provides contract authority to the agency and in the next year
appropriates funds to liquidate that authority, then a continuing
resolution in the second year must be interpreted as appropriating
sufficient funds to liquidate the outstanding contract authority. The
term "contract authority" means express statutory authority to incur
contractual obligations in advance of appropriations.[Footnote 14]
Thus, there is no "rate for operations" limitation in connection with
the liquidation of due debts based on validly executed contracts
entered into under statutory contract authority. In this context, rate
for operations limitations apply only to new contract authority for
the current fiscal year. B-114833, Nov. 12, 1974.
5. Rate for Operations Exceeds Final Appropriation:
If an agency operating under a continuing resolution incurs
obligations within the rate for operations limit, but Congress
subsequently appropriates a total annual amount less than the amount
of these obligations, the obligations remain valid. B-152554, Feb. 17,
1972.
For example, a continuing resolution for a period of 1 month may have
a rate for operations limitation of the current rate. The activity
being funded is a grant program and the agency obligates the full
annual amount during the period of the resolution. Congress then
enacts a regular appropriation act which appropriates for the activity
an amount less than the obligations already incurred by the agency.
Under these circumstances, the obligations incurred by the agency
remain valid obligations of the United States.
Having established that the "excess" obligations remain valid, the
next question is how they are to be paid. At one time, GAO took the
position that an agency finding itself in this situation must not
incur any further obligations and must attempt to negotiate its
obligations downward to come within the amount of the final
appropriation. B-152554, Feb. 17, 1972. If this is not possible, the
agency would have to seek a supplemental or deficiency appropriation.
This position was based on a provision commonly appearing in
continuing resolutions along the following lines:
"Expenditures made pursuant to this joint resolution shall be charged
to the applicable appropriation, fund, or authorization whenever a
bill in which such applicable appropriation, fund, or authorization is
contained is enacted into law."[Footnote 15]
However, the 1972 opinion failed to take into consideration another
provision commonly included in continuing resolutions:
"Appropriations made and authority granted pursuant to this joint
resolution shall cover all obligations or expenditures incurred for
any program, project, or activity during the period for which funds or
authority for such project or activity are available under this joint
resolution."[Footnote 16]
When these two provisions are considered together, it becomes apparent
that the purpose of the first provision is merely to emphasize that
the funds appropriated by the continuing resolution are not in
addition to the funds later provided when the applicable regular
appropriation act is enacted. Accordingly, GAO modified the 1972
opinion and held that funds made available by a continuing resolution
remain available to pay validly incurred obligations which exceed the
amount of the final appropriation. 62 Comp. Gen. 9 (1982). See also 67
Comp. Gen. 474 (1988); B-207281, Oct. 19, 1982.
Thus, obligations under a continuing resolution are treated as follows:
"When an annual appropriation act provides sufficient funding for an
appropriation account to cover obligations previously incurred under
the authority of a continuing resolution, any unpaid obligations are
to be charged to and paid from the applicable account established
under the annual appropriation act. Similarly, to the extent the
annual act provides sufficient funding, those obligations which were
incurred and paid during the period of the continuing resolution must
be charged to the account created by the annual appropriation act. On
the other hand, to the extent the annual appropriation act does not
provide sufficient funding for the appropriation account to cover
obligations validly incurred under a continuing resolution, the
obligations in excess of the amount provided by the annual act should
be charged to and paid from the appropriation account established
under authority of the continuing resolution. [Footnote omitted.] Thus
the funds made available by the resolution must remain available to
pay these obligations."
62 Comp. Gen. 9, 11-12 (1982). Thus, as GAO had advised in 1972,
agencies are still required to make their best efforts to remain
within the amount of the final appropriation. The change recognized in
62 Comp. Gen. 9 is that, to the extent an agency is unable to do so,
the appropriation made by the continuing resolution remains available
to liquidate the "excess" obligations.
C. Projects or Activities:
"Projects or activities" as used in continuing resolutions may have
two meanings. When determining which government programs are covered
by the resolution, and the rate for operations limit, the term
"project or activity" refers to the total appropriation rather than to
specific activities. When determining whether an activity was
authorized or carried out in the preceding year, the term "project or
activity" may refer to the specific activity. The following paragraphs
will elaborate.
The term "projects or activities" is sometimes used in continuing
resolutions to indicate which government programs are to be funded and
at what rate. Thus a resolution might appropriate sufficient funds to
continue "projects or activities provided for" in a certain
appropriation bill "to the extent and in the manner" provided in the
bill or as provided for in prior year appropriation acts. See, e.g.,
Pub. L. No. 108-309, §§ 101, 102, 118 Stat. 1137-38 (Sept. 30, 2004).
Occasionally Congress will use only the term "activities" by
appropriating sufficient funds "for continuing the following
activities, but at a rate for operations not in excess of the current
rate." See, e.g., Pub. L. No. 97-51, § 101(d), 95 Stat. 958, 961 (Oct.
1, 1981). When used in this context, "projects or activities" or
simply "activities" does not refer to specific items contained as
activities in the administration's budget submission or in a committee
report. Rather, the term refers to the appropriation for the preceding
fiscal year. B-204449, Nov. 18, 1981.[Footnote 17] Thus, if a
resolution appropriates funds to continue projects or activities under
a certain appropriation at a rate for operations not exceeding the
current rate, the agency is operating within the limits of the
resolution so long as the total of obligations under the appropriation
does not exceed the current rate. Within the appropriation, an agency
may fund a particular activity at a higher rate than that activity was
funded in the previous year and still not violate the current rate
limitation, assuming of course that the resolution itself does not
provide to the contrary.
An exception to the interpretation that projects or activities refers
to the appropriation in existence in the preceding fiscal year
occurred in 58 Comp. Gen. 530 (1979). In prior years, Comprehensive
Employment and Training Act (CETA)[Footnote 18] programs had been
funded in two separate appropriations, Employment and Training
Assistance and Temporary Employment Assistance. The individual
programs under the two appropriations differed only in that the number
of jobs provided under Temporary Employment Assistance depended on the
condition of the national economy.
Concurrently with the enactment of the 1979 continuing resolution,
Congress amended the CETA authorizing legislation so that certain
programs previously operating under the Temporary Employment
Assistance appropriation were to operate in fiscal year 1980 under the
Employment and Training Assistance appropriation. Under these
circumstances, if the phrase "activities under the Comprehensive
Employment and Training Act" in the continuing resolution had been
interpreted as referring to the two separate appropriations made in
the preceding year, and the current rates calculated accordingly,
there would have been insufficient funds available for the now
increased programs under the Employment and Training Assistance
appropriation, and a surplus of funds available for the decreased
programs under the Temporary Employment Assistance appropriation. To
avoid this result, the Comptroller General interpreted the 1979
continuing resolution as appropriating a single lump-sum amount for
all CETA programs, based on the combined current rates of the two
appropriation accounts for the previous year. See 58 Comp. Gen. at 535-
36.
Of course, as we noted earlier, continuing resolutions are really just
short term appropriations that bridge the gaps that occasionally arise
between the end of appropriations for one fiscal year and the start of
appropriations for the next.[Footnote 19] For this reason, continuing
resolutions usually refer only to those projects and activities for
which annual funding has expired—on account of which funding is being
provided. It should be remembered that most, but not all, of the
government is funded under annual appropriations. Those projects and
activities which are funded by multiple year and no-year
appropriations are not usually directly affected by continuing
resolutions. Thus, it would be a mistake to read the failure of a
continuing resolution to address funding for the rest of the
government as an implicit prohibition on undertaking other projects or
activities that are, in fact, funded from other appropriations not
covered by the continuing resolution.[Footnote 20]
The term "projects or activities" has also been used in continuing
resolutions to prohibit the use of funds to start new programs. Thus,
many resolutions have contained a section stating that no funds made
available under the resolution shall be available to initiate or
resume any project or activity which was not conducted during the
preceding fiscal year. When used in this context, the term "projects
or activities" refers to the individual program rather than the total
appropriation. See 52 Comp. Gen. 270 (1972); 35 Comp. Gen. 156 (1955).
One exception to this interpretation occurred in B-178131, Mar. 8,
1973. In that instance, in the previous fiscal year funds were
available generally for construction of buildings, including plans and
specifications. However, a specific construction project was not
actually under way during the previous year. Nonetheless it was
decided that, because funds were available generally for construction
in the previous year, this specific project was not a new project or
activity and thus could be funded under the continuing resolution.
[Footnote 21]
In more recent years, Congress has resolved the differing
interpretations of "project or activity" by altering the language of
the new program limitation. Rather than limiting funds to programs
which were actually conducted in the preceding year, the more recent
resolutions prohibit use of funds appropriated by the resolution for
"any project or activity for which appropriations, funds, or other
authority were not available" during the Continuing Resolutions
preceding fiscal year.[Footnote 22] Thus, if an agency had authority
and sufficient funds to carry out a particular program in the
preceding year, that program is not a new project or activity
regardless of whether it was actually operating in the preceding year.
A variation occurred in 60 Comp. Gen. 263 (1981). A provision of the
Higher Education Act[Footnote 23] authorized loans to institutions of
higher education from a revolving fund, not to exceed limitations
specified in appropriation acts. Congress had not released money from
the loan fund since 1978. The fiscal year 1981 continuing resolution
provided funds to the Department of Education based on its regular
fiscal year 1981 appropriation bill as passed by the House of
Representatives. The House-passed version included $25 million for the
higher education loans. Since the continuing resolution did not
include a general prohibition against using funds for projects not
funded during the preceding fiscal year, the $25 million from the loan
fund was available under the continuing resolution, notwithstanding
that the program had not been funded in the preceding year.
Another variation can be seen in In re Uncle Bud's, Inc., 206 B.R. 889
(Bankr. M.D. Tenn., 1997). In a fiscal year 1997 continuing
resolution, Pub. L. No. 104-99, title II, § 211, 110 Stat. 26, 37-38
(Jan. 26, 1996), Congress amended the Bankruptcy Code to require the
U.S. Trustee to impose and collect a new quarterly fee as part of the
bankruptcy process. Uncle Bud's, 206 B.R. at 897. Some debtors argued
that the new fee was barred because it constituted a "new activity."
The bankruptcy court disagreed, noting that, while the fee itself was
new, the U.S. Trustee had long been required to collect other fees
imposed by law. The court reasoned that the continuing resolution
language was intended to limit spending to previous year levels. The
new fee did not require the expenditure of additional funds—rather, it
brought in more revenues. Accordingly, the bankruptcy court concluded
that collection of the new fee represented, not a new project or
activity, but the continuation of activities undertaken in the
previous year. Id. On appeal, while other parts of the bankruptcy
court's ruling were reversed, this part was upheld and even expanded
when the district court gave retroactive effect to the provision
imposing the new fees. See Vergos v. Uncle Bud's, Inc., No. 3-97-0296
(M.D. Tenn., Aug. 17, 1998).
Under the right set of circumstances, the projects or activities
limitation can also have the effect of blocking existing programs. For
example, in Environmental Defense Center v. Babbitt, 73 F.3d 867 (9th
Cir. 1995), the Secretary of the Interior was sued for failing to
determine whether to list the California red-legged frog under the
Endangered Species Act, 16 U.S.C. § 1533(b)(6)(A). The Secretary
acknowledged that the only actions that remained to be taken before
the frog's status could be settled were the agency's in-house review
and its final decision-making. Babbitt, 73 F.3d at 871-72. However,
the Secretary argued he could not take those steps because, in 1995,
Congress had enacted an appropriations rider which rescinded some of
that fiscal year's funds and barred the remaining funds for that year
from being used to make any determination that a species was
threatened or endangered.[Footnote 24] See Emergency Supplemental
Appropriations and Rescissions for the Department of Defense to
Preserve and Enhance Military Readiness Act of 1995, Pub. L. No. 104-
6, 109 Stat. 73, 86 (Apr. 10, 1995). Although the supplemental rider
applied only to fiscal year 1995 funds, the ban was effectively
continued into fiscal year 1996 by the projects or activities
limitation in the continuing resolution under which the government was
being funded when the lawsuit was brought. Babbitt, 73 F.3d at 870.
Continuing Resolutions can carry over restrictions on projects and
activities that applied under prior year appropriations riders. The
court held that neither the appropriations rider nor the projects or
activities limitation repealed the Secretary's duty to determine
whether the California red-legged frog is endangered, but they did bar
the Secretary from complying with that duty by denying him funding for
that purpose. Id. at 871-72. As the court explained:
"Even though completion of the process may require only a slight
expenditure of funds, ... taking final action on the California red-
legged frog listing proposal would necessarily require the use of
appropriated funds. The use of any government resources—whether
salaries, employees, paper, or buildings—to accomplish a final listing
would entail government expenditure. The government cannot make
expenditures, and therefore cannot act, other than by appropriation."
Id.
D. Relationship to other Legislation:
1. Not Otherwise Provided For:
Continuing resolutions often appropriate funds to continue projects
"not otherwise provided for." This language limits funding to those
programs which are not funded by any other appropriation act. Programs
which received funds under another appropriation act are not covered
by the resolution even though the authorizing legislation which
created the program is mentioned specifically in the continuing
resolution. See B-183433, Mar. 28, 1979. For example, if a resolution
appropriates funds to continue activities under the Social Security
Act, and a specific program under the Social Security Act has already
been funded in a regular appropriation act, the resolution does not
appropriate any additional funds for that program.
2. Status of Bill or Budget Estimate Used as Reference:
When a continuing resolution appropriates funds at a rate for
operations specified in a certain bill or in the administration's
budget estimate, the status of the bill or estimate on the date the
resolution passes is controlling, unless the resolution specifies some
other reference date.
A continuing resolution will often provide funds to continue
activities at a rate provided in a certain bill that has passed one or
both houses of Congress, or at the rate provided in the
administration's budget estimate. In such instances, the resolution is
referring to the status of the bill or budget estimate on the date the
resolution became law. B-164031(2).17, Dec. 5, 1975; B-152098, Jan.
30, 1970.
For example, the resolution may provide that activities are to be
continued at the current rate or at the rate provided in the budget
estimate, whichever is lower. The budget estimate referred to is the
one in existence at the time the resolution is enacted, and the rate
for operations cannot be increased by a subsequent upward revision of
the budget estimate. B-164031(2).17, Dec. 5, 1975.
Similarly, if a resolution provides that activities are to continue at
the rate provided in a certain appropriation bill, the resolution is
referring to the status of the bill on the date the resolution is
enacted. A later veto of the bill by the President would not affect
the continuation of programs under the resolution. B-152098, Jan. 15,
1973.
Where a continuing resolution provides funds based on a reference
bill, this includes restrictions or limitations contained in the
reference bill, as well as the amounts appropriated, unless the
continuing resolution provides otherwise. 33 Comp. Gen. 20 (B-116069,
July 10, 1953);[Footnote 25] B-199966, Sept. 10, 1980. In National
Treasury Employees Union v. Devine, 733 F.2d 114 (D.C. Cir. 1984), the
court construed a provision in a reference bill prohibiting the
implementation of certain regulations, accepting without question the
restriction as having been "enacted into law" by a continuing
resolution which provided funds "to the extent and in the manner
provided for" in the reference bill. See also Environmental Defense
Center v. Babbitt, 73 F.3d 867 (9th Cir. 1995); Connecticut v.
Schweiker, 684 F.2d 979 (D.C. Cir. 1982), cert. denied, 459 U.S. 1207
(1983). Obviously, the same result applies under a "full text"
continuing resolution, that is, a continuing resolution that enacts
the full text of a reference bill "to be effective as if" the
reference bill "had been enacted into law as the regular appropriation
Act." B-221694, Apr. 8, 1986.
A provision in a continuing resolution using a reference bill may
incorporate legislative history, in which event the specified item of
legislative history will determine the controlling version of the
reference bill. For example, an issue in American Federation of
Government Employees v. Devine, 525 F. Supp. 250 (D.D.C. 1981), was
whether the 1982 continuing resolution prohibited the Office of
Personnel Management from funding coverage of therapeutic abortions in
government health plans. The resolution funded employee health
benefits "under the authority and conditions set forth in H.R. 4121 as
reported to the Senate on September 22, 1981." An earlier version of
H.R. 4121 had included a provision barring the funding of therapeutic
abortions. However, the bill as reported to the full Senate by the
Appropriations Committee on September 22, 1981, dropped the provision.
Accordingly, the court held that the continuing resolution could not
form the basis for refusing to fund therapeutic abortions in the
plaintiff's 1982 health plan. Devine, 525 F. Supp. at 254.
In previous years, it was also not uncommon for a continuing
resolution to appropriate funds as provided in a particular reference
bill at a rate for operations provided for in the conference report on
the reference bill. See, e.g., Pub. L. No. 99-103, § 101(c), 99 Stat.
471, 472 (Sept. 30, 1985). At a minimum, this will include items on
which the House and Senate conferees agreed, as reflected in the
conference report. If the resolution also incorporates the "joint
explanatory statement" portion of the conference report, then it will
enact those amendments reported in "technical disagreement" as well.
See B-221694, Apr. 8, 1986; B-205523, Nov. 18, 1981; B-204449, Nov.
18, 1981.
3. More Restrictive Authority:
The "more restrictive authority," as that term is used in continuing
resolutions, is the version of a bill which gives an agency less
discretion in obligating and disbursing funds under a certain program.
Continuing resolutions will often appropriate funds to continue
projects or activities at the rate provided in either the version of
an appropriation act that has passed the House or the version that has
passed the Senate, whichever is lower, "or under the more restrictive
authority." Under this language, the version of the bill which
appropriates the lesser amount of money for an activity will be
controlling. If both versions of the bill appropriate the same amount,
the version which gives the agency less discretion in obligating and
disbursing funds under a program is the more restrictive authority and
will be the reference for continuing the program under the resolution.
B-210922, Mar. 30, 1984; B-152098, Mar. 26, 1973; B-152554, Dec. 15,
1970.
However, this provision may not be used to amend or nullify a
mandatory provision of prior permanent law. To illustrate, the Federal
Housing Administration was required by a provision of permanent law to
appoint an Assistant Commissioner to perform certain functions. The
position subsequently became controversial. For the first month of
fiscal year 1954, the agency operated under a continuing resolution
which included the "more restrictive authority" provision. Language
abolishing the position had been contained in one version of the
reference bill, but not both. The bill, when subsequently enacted,
abolished the position.
Under a strict application of the "more restrictive authority"
provision, it could be argued that there was no authority to continue
the employment of the Assistant Commissioner during the month covered
by the continuing resolution. Noting that "laws are to be given a
sensible construction where a literal application thereof would lead
to unjust or absurd consequences, which should be avoided if a
reasonable application is consistent with the legislative purpose,"
the Comptroller General held that the Assistant Commissioner could be
paid his salary for the month in question. B-116566, Sept. 14, 1953.
The decision concluded:
"Manifestly the [more restrictive authority] language... was not
designed to amend or nullify prior permanent law which theretofore
required, or might thereafter require, the continuance of a specific
project or activity during July 1953....
"... Accordingly, it is concluded that the words 'the lesser amount or
the more restrictive authority' as used in [the continuing resolution]
had reference to such funds and authority as theretofore were provided
in appropriations for [the preceding fiscal year], and which might be
changed, enlarged or restricted from year to year."
In addition, continuing resolutions frequently provide that a
provision "which by its terms is applicable to more than one
appropriation" and which was not included in the applicable
appropriation act for the preceding fiscal year, will not be
applicable to funds or authority under the resolution unless it was
included in identical form in the relevant appropriation bill as
passed by both the House and the Senate. Thus, in 52 Comp. Gen. 71
(1972), a provision in the House version of the 1973 Labor Department
appropriation act prohibited the use of "funds appropriated by this
Act" for Occupational Safety and Health Act (OSHA)[Footnote 26]
inspections of firms employing 25 persons or less. The Senate version
contained the identical version except that "15" was substituted for
"25." The continuing resolution for that year contained both the "more
restrictive authority" and the "applicable to more than one
appropriation" provisions. The Comptroller General concluded that,
even though the House provision was more restrictive, the OSHA
provision did not apply to funds under the continuing resolution since
it had not been contained in the 1972 appropriation act and by its
terms it was applicable to more than one appropriation (i.e., it
applied to the entire appropriation act). See also B-210922, Mar. 30,
1984; B-142011, Aug. 6, 1969.
For purposes of the "applicable to more than one appropriation"
provision, GAO has construed the "applicable appropriation act for the
preceding fiscal year" as meaning the regular appropriation act for
the preceding year and not a supplemental. B-210922, Mar. 30, 1984.
(The cited decision also illustrates some of the complexities
encountered when the appropriation act for the preceding year was
itself a continuing resolution.)
4. Lack of Authorizing Legislation:
In order for a government agency to carry out a program, the program
must first be authorized by law and then funded, usually by means of
regular appropriations. This section deals with the relationship of
continuing resolutions to programs whose authorization has expired or
is about to expire. The common issue is the extent to which a
continuing resolution provides authority to continue the program after
expiration of the underlying authorization.
As the following discussion will reveal, there are no easy answers.
The cases frequently involve a complex interrelationship of various
legislative actions (or inactions) and are not susceptible to any
meaningful formulation of simple rules. For the most part, the answer
is primarily a question of intent, circumscribed of course by
statutory language and aided by various rules of statutory
construction.
We start with a fairly straightforward case. Toward the end of fiscal
year 1984, Congress was considering legislation (S. 2456) to establish
a commission to study the Ukrainian famine of 1932-33. The bill passed
the Senate but was not enacted into law before the end of the fiscal
year. The fiscal year 1985 continuing resolution provided that "there
are hereby appropriated $400,000 to carry out the provisions of S.
2456, as passed by the Senate on September 21, 1984.[Footnote 27] If
this provision were not construed as authorizing the establishment and
operation of the commission as well as the appropriation of funds, it
would have been absolutely meaningless. Accordingly, GAO concluded
that the appropriation incorporated the substantive authority of S.
2456. B-219727, July 30, 1985. The result was supported by clear and
explicit legislative history.
In a 1975 case, GAO held that the specific inclusion of a program in a
continuing resolution will provide both authorization and funding to
continue the program despite the expiration of the appropriation
authorization legislation. Thus, for example, if the continuing
resolution specifically states that the School Breakfast Program is to
be continued under the resolution, the program may be continued
although funding authorization legislation for the program expires
prior to or during the period the resolution is in effect. 55 Comp.
Gen. 289 (1975). The same result would follow if the intent to
continue the program was made particularly clear in legislative
history. 65 Comp. Gen. 318, 320-21 (1986).
The result in 55 Comp. Gen. 289 flows from two concepts. First, the
continuing resolution, as the later enactment, is the more recent
expression of congressional intent. Second, if Congress can
appropriate funds in excess of a specific ceiling in authorizing
legislation, which it can, then it should be able to appropriate funds
to continue a program whose funding authorization is about to expire,
at least where the authorization of appropriations is not a legal
prerequisite to the appropriation itself.
However, the "rule" of 55 Comp. Gen. 289 is not an absolute and the
result in any given case will depend on several variables. Although
not spelled out as such in any of the decisions, the variables may
include: the degree of specificity in the continuing resolution; the
apparent intent of Congress with respect to the expired program;
whether what has expired is an authorization of appropriations or the
underlying program authority itself; and the duration of the
continuing resolution (short-term versus full fiscal year).[Footnote
28]
In one case, for example, "all authority" under the Manpower
Development and Training Act (MDTA)[Footnote 29] terminated on June
30, 1973. The program was not specifically provided for in the 1974
continuing resolution, and the authority in fact was not reestablished
until enactment of the Comprehensive Employment and Training Act
(CETA)[Footnote 30] six months later. Under these circumstances, the
Claims Court held that, in the absence of express language in the
continuing resolution or elsewhere, contracts entered into during the
gap between expiration of the MDTA and enactment of CETA were without
legal authority and did not bind the government. Consortium Venture
Corp. v. United States, 5 Cl. Ct. 47 (1984), aff'd mem., 765 F.2d 163
(Fed. Cir. 1985).
In another case, recent Defense Department authorization acts,
including the one for fiscal year 1985, had authorized a test program
involving payment of a price differential to "labor surplus area"
contractors. The test program amounted to an exemption from permanent
legislation prohibiting the payment of such differentials. The 1985
provision expired, of course, at the end of fiscal year 1985. The 1986
continuing resolution made no specific provision for the test program
nor was there any evidence of congressional intent to continue the
test program under the resolution. (This lack of intent was confirmed
when the 1986 authorization act was subsequently enacted without the
test program provision.) GAO found that the Defense Logistics Agency's
failure to apply the price differential in evaluating bids on a
contract awarded under the continuing resolution (even though the
differential had been included in the solicitation issued prior to the
close of fiscal year 1985) was not legally objectionable. 65 Comp.
Gen. 318 (1986).
A more difficult case was presented in B-207186, Feb. 10, 1989.
Congress enacted two pieces of legislation on December 22, 1987. One
was a temporary extension of the Solar Bank, which had been scheduled
to go out of existence on September 30, 1987. Congress had enacted
several temporary extensions while it was considering reauthorization,
the one in question extending the Bank's life to March 15, 1988. The
second piece of legislation was the final continuing resolution for
1988 which funded the government for the remainder of the fiscal year.
The resolution included a specific appropriation of $1.5 million for
the Solar Bank, with a 2-year period of availability.
If the concept of 55 Comp. Gen. 289 were applied, the result would
have been that the specific appropriation in the continuing
resolution, in effect, reauthorized the Solar Bank as well. However,
the "later enactment of Congress" concept has little relevance when
both laws are enacted on the same day. In addition, in contrast to 55
Comp. Gen. 289, there was no indication of congressional intent to
continue the Solar Bank beyond the March 1988 expiration date.
Therefore, GAO distinguished prior cases,[Footnote 31] found that the
two pieces of legislation could be reconciled, and concluded that the
resolution merely appropriated funds for the Bank to use during the
remainder of its existence.
Another case involving a sunset provision is 71 Comp. Gen. 378 (1992).
The legislation establishing the United States Commission on Civil
Rights provided for the Commission to terminate on September 30, 1991.
During fiscal year 1991, Congress was working on the Commission's
reauthorization and its regular fiscal year 1992 appropriation.
Although both bills passed both houses of Congress, neither was
enacted into law by September 30. The first continuing resolution for
fiscal year 1992, with a cutoff date of October 29, 1991, expressly
provided funds for activities included in the Commission's yet-
unenacted 1992 appropriations bill. It was clear from all of this that
Congress intended the Commission to continue operating beyond
September 30. Thus, the continuing resolution effectively suspended
the sunset date and authorized the Commission to operate until October
28, 1991, when the regular 1992 appropriation act was enacted, at
which time the regular appropriation provided similar authority until
November 26, when the reauthorization was enacted.
Appropriation bills sometimes contain provisions malting the
availability of the appropriations contingent upon the enactment of
additional authorizing legislation. If a continuing resolution used a
bill with such a provision as a reference, and if the authorizing
legislation was not enacted, the amount contained in the appropriation
bill, and therefore the amount appropriated by the continuing
resolution, would be zero. To avoid this possibility, a continuing
resolution may contain a provision suspending the effectiveness of
such "contingency" provisions for the life of the resolution.[Footnote
32] Such a suspension provision will be applicable only until the
referenced appropriation bill is enacted into law. 55 Comp. Gen. at
294.
E. Duration:
1. Duration of Continuing Resolution:
Continuing resolutions generally provide that the budget authority
provided for an activity by the resolution shall remain available
until (a) enactment into law of a regular appropriation for the
activity, (b) enactment of the applicable appropriation by both houses
of Congress without provision for the activity, or (c) a fixed cutoff
date, whichever occurs first.[Footnote 33] Once either of the first
two conditions occurs, or the cutoff date passes, funds appropriated
by the resolution are no longer available for obligation and new
obligations may be incurred only if a regular appropriation is made or
if the termination date of the resolution is extended.
The period of availability of funds under a continuing resolution can
be extended by Congress by amending the fixed cutoff date stated in
the resolution. B-165731(1), Nov. 10, 1971; B-152098, Jan. 30, 1970.
The extension may run beyond the session of Congress in which it is
enacted. B-152554, Dec. 15, 1970.
Thus, some fiscal years have seen a series of continuing resolutions,
informally designated "first," "second," etc., up to "final." This
happens as Congress extends the fixed cutoff date for short time
periods until either all the regular appropriation acts are enacted or
Congress determines that some or all of the remaining bills will not
be enacted individually, in which event relevant portions of the
resolution will continue in effect for the remainder of the fiscal
year.
The second condition of the standard duration provision—enactment of
the appropriation by both houses of Congress without provision for the
activity—will be considered to have occurred only when it is clear
that Congress intended to terminate the activity. Thus, in B-
164031(1), Mar. 14, 1974, although regular and supplemental
appropriation acts had been enacted without provision for a program,
the Comptroller General decided that funds for the program were still
available under the continuing resolution. In this case, the
legislative history indicated that in enacting the regular
appropriation act, Congress was providing funding for only some of the
programs normally funded by this act and was deferring consideration
of other programs, including the one in question. Therefore, the
second condition was not applicable. Moreover, because supplemental
appropriations are intended to provide funding only for new or
additional needs, omission of the program from the supplemental did
not trigger the second cutoff provision.
As discussed previously, once the applicable appropriation is enacted
into law, expenditures made under the continuing resolution are
charged to that appropriation, except that valid obligations incurred
under the continuing resolution in excess of the amount finally
appropriated are charged to the account established under the
continuing resolution.
2. Duration of Appropriations:
For the most part, the duration (period of obligational availability)
of an appropriation under a short-term continuing resolution does not
present problems. If you have, say, only 1 month to incur obligations
under a continuing resolution, it matters little that the
corresponding appropriation in a regular appropriation act might be a
multiple year or no-year appropriation. Also, once the regular
appropriation is enacted, it supersedes the continuing resolution and
governs the period of availability.
B-300673, July 3, 2003. Questions may arise, however, under continuing
resolutions whose duration is the balance of the fiscal year.
For example, the continuing resolution for fiscal year 1979 included
the standard duration provision described above, with a cutoff date of
September 30, 1979, the last day of the fiscal year. However, a
provision in the Comprehensive Employment and Training Act (CETA), 29
U.S.C. § 802(B) (1976), stated that "notwithstanding any other
provision of law, unless enacted in specific limitation of the
provisions of this subsection," appropriations to carry out the CETA
program shall remain available for 2 years. Applying the principle
that a specific provision governs over a more general one, it was held
that funds appropriated for CETA under the continuing resolution were
available for obligation for 2 years in accordance with the CETA
provision. B-194063, May 4, 1979; B-115398.33, Mar. 20, 1979.
A few years earlier, the United States District Court for the District
of Columbia had reached the same result in a case involving grants to
states under the Elementary and Secondary Education Act. Pennsylvania
v. Weinberger, 367 E Supp. 1378, 1384-85 (D.D.C. 1973). The court
stated, "it is a basic premise of statutory construction that in such
circumstances the more specific measure ... is to be held controlling
over the general measure where inconsistencies arise in their
application." Id. at 1385.
Application of the same principle produced a similar result in B-
199966, Sept. 10, 1980. The 1980 continuing resolution appropriated
funds for foreign economic assistance loans by referencing the regular
1980 appropriation bill which had passed the House but not the Senate.
For that type of situation, the resolution provided for continuation
of projects or activities "under the appropriation, fund, or authority
granted by the one House [which had passed the bill]." The House-
passed bill gave the economic assistance loan funds a 2-year period of
availability. The continuing resolution also included the standard
duration provision with a cutoff date of September 30, 1980. Since the
duration provision applied to the entire resolution whereas the
provision applicable to the loan funds had a narrower scope, the
latter provision was the more specific one and the loan funds were
therefore held to be available for 2 years. See also 60 Comp. Gen. 263
(1981) for further discussion of similar continuing resolution
language.
In some instances, an extended period of availability is produced by a
specific exemption from the standard duration provision. For example,
the 1983 continuing resolution provided foreign assistance funds
"under the terms and conditions" set forth in the Foreign Assistance
Appropriation Act of 1982, and further exempted that appropriation
from the duration provision. Since under the 1982 act, appropriations
for the African Development Fund were to remain available until
expended, appropriations to the Fund under the continuing resolution
were also no-year funds. B-212876, Sept. 21, 1983. In view of the
express exemption from the duration provision, there was no need to
apply the "specific versus general" rule because there was no
conflict. See also B-210922, Mar. 30, 1984.
3. Impoundment:
The duration of a continuing resolution is relevant in determining the
application of the Impoundment Control Act. Impoundment in the context
of continuing resolutions was discussed in a letter to the Chairman of
the House Budget Committee, B-205053, Dec. 31, 1981. Generally, a
withholding from obligation of funds provided under a continuing
resolution would constitute an impoundment. Where the continuing
resolution runs for only part of the fiscal year, the withholding,
even if proposed for the duration of the continuing resolution, should
be classified as a deferral rather than a rescission. Withholding
funds during a temporary continuing resolution is different from
withholding them for the life of a regular annual appropriation in
that, in the former situation, Congress is still deliberating over the
regular funding levels. Also, deferred funds are not permanently lost
when a continuing resolution expires if a subsequent funding measure
is passed.
Under this interpretation, classification as a rescission would
presumably still be appropriate where a regular appropriation is never
passed, the agency is operating under continuing resolution authority
for the entire fiscal year, and the timing of a withholding is such
that insufficient opportunity would remain to utilize the funds. See B-
115398, May 9, 1975.
Impoundment issues under continuing resolutions may arise in other
contexts as well. See, e.g., 64 Comp. Gen. 649 (1985) (failure to make
funds available based on good faith disagreement over treatment of
carryover balances in calculating rate for operations held not to
constitute an illegal rescission); B-209676, Apr. 14, 1983 (no
improper impoundment where funds were apportioned on basis of budget
request although continuing resolution appropriated funds at rate to
maintain program level, as long as apportionment was sufficient to
maintain requisite program level).
Chapter 8 Footnotes:
[1] GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-
05-734SP (Washington, D.C.: September 2005), at 35-36.
[2] 4 Lawrence, First Comp. Dec. 116 (1883); 3 Lawrence, First Comp.
Dec. 213 (1882).
[3] For a brief historical sketch, see Library of Congress,
Congressional Research Service, Budget Concepts and Terminology: The
Appropriations Phase, No. GGR 74-210, ch. V (1974), at 31-32, which
identifies what may have been the first continuing resolution, an 1876
resolution (ch. 157, 19 Stat. 65 (June 30, 1876)) requested by
President Grant.
[4] Library of Congress, Congressional Research Service (CRS), The
Congressional Appropriations Process: An Introduction, No. 97-6845
(Dec. 6, 2004), at 15. See also CRS, Duration of Continuing
Resolutions in Recent Years, No. RL32614 (Apr. 22, 2005); CRS,
Continuing Appropriations Acts: Brief Overview of Recent Practices,
No. RL30343 (Jan. 10, 2005).
[5] In November 1995, perhaps anticipating numerous continuing
resolutions for fiscal year 1996, for example, Congress suspended for
the remainder of that session the requirement in 1 U.S.C. § 107 that
the resolutions be printed on parchment for presentation to the
President. Pub. L. No. 104-56, title II, § 201, 109 Stat. 548, 553
(Nov. 20, 1995).
[6] Irvin Molotsky, AU Spending Bills Completed on Time, N.Y. Times,
Oct. 2, 1988, at 27.
[7] TFM 2-2025 (Dec. 15, 2004).
[8] GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-
05-734SP (Washington, D.C.: September 2005), at 101.
[9] Treasury-GAO Joint Regulations are included in Appendix II to
Title 7 of the GAO Policy and Procedures Manual for Guidance of
Federal Agencies (Washington, D.C.: May 18, 1993). Because of their
nature, they are not published in the Federal Register. Some of the
earlier ones, but not those noted in the text, were published in the
annual "Comp. Gen." volumes. Title 7 of the Policy and Procedures
Manual is the only GAO reference in which the regulations and
amendments can be found together in a single location, available at
www.gao.govispecial.pubs/ppm.html (last visited September 15, 2005).
[10] Pub. L. No. 108-309, § 126 (first continuing resolution for
fiscal year 2005). See also Pub. L. No. 108-84, § 112, 117 Stat. 1042,
1044 (Sept. 30, 2003) (first continuing resolution for fiscal year
2004).
[11] See also Pub. L. No. 108-309, §§ 110, 111, 118 Stat. 1137, 1138-
39 (Sept. 30, 2004). Our review did not reveal any relevant
legislative history concerning the intent of Congress in adopting
these provisions.
[12] For a more general discussion of apportionment, see Chapter 6,
section C.4.
[13] See, e.g., OMB Bulletin No. 04-05, Apportionment of the
Continuing Resolution(s) for Fiscal Year 2005 (Sept. 30, 2004). For a
detailed review of apportionment of funds appropriated or authority
granted by the fiscal year 2003 continuing resolution, see B-300373,
Dec. 20, 2002.
[14] GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-
05-734SP (Washington, D.C.: September 2005), at 21.
[15] E.g., Pub. L. No. 108-309, § 108, 118 Stat. 1137, 1138 (Sept. 30,
2004). Comparable provisions have been included in continuing
resolutions for over a century See, for example, the fiscal year 1883
continuing resolution ( Pub. L. No. 38, 22 Stat. 384 (June 30, 1882))
discussed in 3 Lawrence, First Comp. Dec. 213 (1882).
[16] E.g., Pub. L. No. 108-309, § 105.
[17] This position also follows from decisions such as B-162447, Mar.
8, 1971, read in conjunction with decisions on the availability of
lump-sum appropriations. Of course, if the appropriation for the
preceding fiscal year was a line-item appropriation, then the scope of
"project or activity" will be defined accordingly. See 66 Comp. Gen.
484 (1987) (Special Defense Acquisition Fund, a revolving fund made
available by annual "limitation on obligations" provisions, held a
"project or activity" for purposes of appropriating language in a
continuing resolution).
[18] Pub. L. No. 93-203, 87 Stat. 839 (Dec. 28, 1973).
[19] See GAO, A Glossary of Terms Used in the Federal Budget Process,
GAO-05-734SP (Washington, D.C.: September 2005) at 35-36 (definition
of "Continuing Appropriation/Continuing Resolution").
[20] See 19 Op. Off. Legal Counsel 278 (1995) (requester was
proceeding from the mistaken belief that a continuing resolution
implicitly prohibits all obligations or expenditures except those
expressly provided for in the resolution itself; activity at issue was
funded by a no-year appropriation).
[21] For this exception to work, however, the previous appropriation
must have afforded adequate authority to undertake the construction.
See 4 Lawrence, First Comp. Dec. 116 (1883), which concluded that
Howard University violated the Antideficiency Act while operating
under a continuing resolution. The University undertook building
repairs that were not authorized by the outgoing appropriation or the
continuing resolution, and could not defend its violation by pointing
to new authority pending (and eventually enacted) during the
continuing resolution that would have authorized the repairs.
[22] See, e.g., Pub. L. No. 108-309, § 104 (first continuing
resolution for fiscal year 2005, discussed above).
[23] Pub. L. No. 96-374, § 731, 94 Stat. 1367, 1475 (Oct. 3, 1980).
[24] For a further discussion of the effect of appropriations riders,
see Chapter 1, section B, and the update of that section in GAO,
Principles of Federal Appropriations Law: Annual Update of the Third
Edition, GAO-05-354SP (Washington, D.C.: March 2005), available at
www.gao.gov/legal.htm (last visited September 15, 2005).
[25] Two decisions begin on the same page, hence the variation in
citation format.
[26] Pub. L. No. 91-596, 84 Stat. 1590 (Dec. 29, 1970).
[27] Pub. L. No. 98-473, § 136, 98 Stat. 1837, 1973 (Oct. 12, 1984).
[28] See also 71 Comp. Gen. 378, 380-81 (1992):
"While the outcome in these cases varies, they are all grounded in the
same principle. The Congress may revive or extend an act by any form
of words which makes clear its intention to do so. Kersten v. United
States, 161 F.2d 337 (10th Cir. 1947), cert. denied, 331 U.S. 851.
Furthermore, when the Congress desires to extend, amend, suspend or
repeal a statute, it can accomplish its purpose by including the
requisite language in an appropriations or other act of Congress. The
whole matter depends on the intention of Congress as expressed in
statute. United States v. Will, 449 U.S. 200, 221-222 (1980) and
United States v. Burton, 888 F.2d 682, 685 (10th Cir. 1989)."
[29] Pub. L. No. 87-415, 76 Stat. 23 (Mar. 15, 1962).
[30] Pub. L. No. 93-203, 87 Stat. 839 (Dec. 28, 1973).
[31] GAO had also applied the concept of 55 Comp. Gen. 289 in 65 Comp.
Gen. 524 (1986), holding that a specific provision in a regular
appropriation act permitted the continuation of an activity whose
organic authority had expired at the end of the preceding fiscal year.
See also B-164031(3), Jan. 3, 1973.
[32] E.g., Pub. L. No. 102-109, § 109, 105 Stat. 551, 553 (Sept. 30,
1991) (1992 continuing resolution).
[33] E.g., Pub. L. No. 108-309, § 107, 118 Stat. 1137, 1138 (Sept. 30,
2004).
[End of Chapter 8]
Chapter 9: Liability and Relief of Accountable Officers:
A. Introduction:
B. General Principles:
1. The Concepts of Liability and Relief:
a. Liability:
b. Surety Bonding:
c. Relief:
2. Who Is an Accountable Officer?
a. Certifying Officers:
b. Disbursing Officers:
c. Cashiers:
d. Collecting Officers:
e. Other Agents and Custodians:
3. Funds to Which Accountability Attaches:
a. Appropriated Funds:
(1) Imprest funds:
(2) Flash rolls:
(3) Travel advances:
b. Receipts:
c. Funds Held in Trust:
d. Items Which Are the Equivalent of Cash:
4. What Kinds of Events Produce Liability?
5. Amount of Liability:
6. Effect of Criminal Prosecution:
a. Acquittal:
b. Order of Restitution:
C. Physical Loss or Deficiency:
1. Statutory Provisions:
a. Civilian Agencies:
b. Military Disbursing Officers:
2. Who Can Grant Relief?
a. 31 U.S.C. § 3527(a):
b. 31 U.S.C. § 3527(b):
c. Role of Administrative Determinations:
3. Standards for Granting Relief:
a. Standard of Negligence:
b. Presumption of Negligence/Burden of Proof:
c. Actual Negligence:
d. Proximate Cause:
e. Unexplained Loss or Shortage:
f. Compliance with Regulations:
g. Losses in Shipment:
h. Fire, Natural Disaster:
i. Loss by Theft:
(1) Burglary: forced entry:
(2) Robbery:
(3) Riot, public disturbance:
(4) Evidence less than certain:
(5) Embezzlement:
j. Agency Security:
k. Extenuating Circumstances:
D. Illegal or Improper Payment:
1. Disbursement and Accountability:
a. Statutory Framework: Disbursement Under Executive Order No. 166:
b. Automated Payment Systems:
c. Statistical Sampling:
d. Provisional Vouchers and Related Matters:
e. Facsimile Signatures and Electronic Certification:
f. GAO Audit Exceptions:
2. Certifying Officers:
a. Duties and Liability:
b. Applicability of 31 U.S.C. § 3528:
c. Relief:
3. Disbursing Officers:
a. Standards of Liability and Relief:
b. Some Specific Applications:
(1) Fraudulent travel claims:
(2) Other cash payments fraudulently obtained:
(3) Military separation vouchers:
(4) Assignment of contract payments:
(5) Improper purpose/payment beyond scope of legal authority:
4. Check Losses:
a. Check Cashing Operations:
b. Duplicate Check Losses:
c. Errors in Check Issuance Process:
5. Statute of Limitations:
E. Other Relief Statutes:
1. Statutes Requiring Affirmative Action:
a. United States Court of Federal Claims:
b. The Legislative and Judicial Branches:
c. Savings Bond Redemption Losses:
2. Statutes Providing "Automatic" Relief:
a. Waiver of Indebtedness:
b. Compromise of Indebtedness:
c. Foreign Exchange Transactions:
d. Check Forgery Insurance Fund:
e. Secretary of the Treasury:
f. Other Statutes:
F. Procedures:
1. Reporting of Irregularities:
2. Obtaining Relief:
3. De Minimis Rule: Payments of $100 or Less:
4. Relief versus Grievance Procedures:
G. Collection Action:
1. Against Recipient:
2. Against Accountable Officer:
H. Restitution, Reimbursement, and Restoration:
1. Restitution and Reimbursement:
2. Restoration:
a. Adjustment Incident to Granting of Relief:
b. Other Situations:
A. Introduction:
The concept that a person should be held accountable for funds in his
or her care is not peculiar to the government. If you get a job as a
cashier at your local supermarket and come up short at the end of the
day, you will probably be forced to make up the shortage from your own
pocket. The store manager does not have to prove the loss was your
fault. The very fact that the money is not there is sufficient to make
you liable. Of course, if your cash register is emptied by an armed
robber and you are in no way implicated, you will be off the hook.
Just like a private business enterprise, the government can lose money
in many ways. For example, it can be physically lost, stolen, paid out
improperly, or embezzled. Sometimes the money is recovered; often it
is not. If government funds are lost because of some employee's
misconduct or carelessness, and if the responsible employee is not
required to make up the loss, the result is that the taxpayer ends up
paying twice for the same thing, or paying for nothing.
When you accept the job at the supermarket, you do so knowing
perfectly well that you will be potentially liable for losses. There
is no reason why the government should operate any differently. If
anything, there is a stronger case for the liability of government
employees since they are, in effect, trustees for the taxpayers
(themselves included). As the Comptroller General once stated, "A
special trust responsibility exists with regard to public monies and
with this special trust goes personal financial responsibility." B-
161457, Oct. 30, 1969. This chapter will explore these concepts—the
liability and relief of government officers and employees who are
entrusted with public funds or who have certain specific
responsibilities in their disbursement. In government language, they
are called "accountable officers."[Footnote 1]
B. General Principles:
1. The Concepts of Liability and Relief:
a. Liability:
The concept of accountability for public funds in the form of strict
personal liability evolved during the nineteenth century. Its origins
can be traced to a number of congressional enactments, some dating
back to the Nation's infancy. The legislation establishing the
Department of the Treasury in 1789 included a provision requiring the
Comptroller of the Treasury to "direct prosecutions for all
delinquencies of officers of the revenue.[Footnote 2] A few years
later, in 1795, Congress authorized the Comptroller to require "any
person who has received monies for which he is accountable to the
United States" to render "all his accounts and vouchers, for the
expenditure of the said monies," and to commence suit against anyone
failing to do so.[Footnote 3]
In 1846, Congress mandated that all government officials safeguard
public funds in their custody. The statute provided that:
"all public officers of whatsoever character, be, and they are hereby,
required to keep safely, without loaning, using, depositing in banks,
or exchanging for other funds than as allowed by this act, all the
public money collected by them, or otherwise at any time placed in
their possession and custody, till the same is ordered, by the proper
department or officer of the government, to be transferred or paid out
...."
Act of August 6, 1846, ch. 90, § 6, 9 Stat. 59, 60. This statute still
exists, in modernized form, at 31 U.S.C. § 3302(a).
These are civil provisions. Congress also addressed fiscal
accountability in a variety of criminal statutes. An important one is
the Act of June 14, 1866, ch. 122, 14 Stat. 64, which declared it to
be the duty of disbursing officers to use public funds entrusted to
them "only as ... required for payments to be made ... in pursuance of
law," and made it a felony for a disbursing officer to, among other
things, "apply any portion of the public money intrusted to him" for
his own use or for any purpose not prescribed by law.[Footnote 4]
The strict liability of accountable officers became firmly established
in a series of early Supreme Court decisions. In 1845, the Court
upheld liability in a case where money had been stolen with no fault
or negligence on the part of the accountable officer. In an often-
quoted passage, the Court said:
"Public policy requires that every depositary of the public money
should be held to a strict accountability. Not only that he should
exercise the highest degree of vigilance, but that 'he should keep
safely' the moneys which come to his hands. Any relaxation of this
condition would open a door to frauds, which might be practiced with
impunity. A depositary would have nothing more to do than to lay his
plans and arrange his proofs, so as to establish his loss, without
laches on his part. Let such a principle be applied to our
postmasters, collectors of the customs, receivers of public moneys,
and others who receive more or less of the public funds, and what
losses might not be anticipated by the public?"
United States v. Prescott, 44 U.S. (3 How.) 578, 588-89 (1845). While
some might view this passage as unduly cynical of human nature, it
makes the important point that the laws relating to the liability and
relief of accountable officers are intended not only to give the
officers incentive to guard against theft by others, but also to
protect against dishonesty by the officers themselves.
An 1872 case, United States v. Thomas, 82 U.S. (15 Wall.) 337,
recognized that the liability announced in Prescott, while strict, was
not absolute. In that case, the Court refused to hold a customs
official liable for funds which had been forcibly taken by Confederate
forces during the Civil War.
In formulating its conclusion, the Court recognized two exceptions to
the strict liability rule:
"No rule of public policy requires an officer to account for moneys
which have been destroyed by an overruling necessity, or taken from
him by a public enemy, without any fault or neglect on his part."
Id. at 352. The exceptions, however, are limited. In Smythe v. United
States, 188 U.S. 156 (1903), the Court reviewed its precedents,
including Prescott and Thomas, and upheld the liability of a Mint
official for funds that had been destroyed by fire, finding the loss
attributable neither to "overruling necessity" nor to a public enemy.
The standard that has evolved from the cases and statutes noted is one
of strict liability. It is often said that an accountable officer is,
in effect, an "insurer" of the funds in his or her charge. E.g., B-
258357, Jan. 3, 1996; 64 Comp. Gen. 303, 304 (1985); 54 Comp. Gen.
112, 114 (1974); 48 Comp. Gen. 566, 567 (1969); 6 Comp. Gen. 404, 406
(1926). See also United States v. Heller, 1 F. Supp. 1, 6 (D. Md.
1932). The liability is automatic and arises by operation of law at
the moment a physical loss occurs or an erroneous payment is made.
E.g., B-291001, Dec. 23, 2002; 70 Comp. Gen. 12, 14 (1990); 54 Comp.
Gen. at 114.
In addition to the applicable statutory provisions, courts have
sometimes cited public policy considerations as a basis for an
accountable officer's strict liability. E.g., Prescott, 44 U.S. at 587-
88 ("The liability of the defendant ... arises out of ... principles
which are founded upon public policy"); Heller, 1 F. Supp. at 6
(strict liability "is imposed as a matter of public policy").
As discussed in section B.2 of this chapter, accountable officer
liability does not attach to individuals who are not accountable
officers even if they played a part—even a crucial part—in causing an
improper payment. By the same token, an accountable officer's
liability is not diminished because other individuals induced—or even
ordered—the improper payment. For example, in B-271021, Sept. 18,
1996, an official of the Equal Employment Opportunity Commission
(EEOC) submitted a memorandum to the director of an EEOC district
office asking the district director to provide a travel advance in
order to enable a nongovernment witness to appear in an agency
proceeding. The official concluded his request as follows: "If there
is a subsequent determination that the funds should not have been
disbursed for the aforementioned purpose, I will assume liability for
repayment of the funds." The district director ordered the travel
advance to be made; his order was passed on to an accountable officer,
Mr. Guthrie, who complied with it and issued the travel advance. EEOC
headquarters later determined that the payment was unauthorized and
disallowed it. GAO affirmed the disallowance, stating:
"The fact that Mr. Guthrie may have received instructions from
superiors to make the improper payment does not relieve him of
responsibility for the deficiency in his account resulting from the
improper payment. See 55 Comp. Gen. 297 (1975); 49 Comp. Gen. 38
(1969)."
B-271021 at 4. The other EEOC official's statement offering to assume
liability if the payment proved to be erroneous was equally unavailing
to Mr. Guthrie. The decision observed:
"This statement ... has no effect on the liability of Mr. Guthrie for
the deficiency in his account, which is fixed by statute and
regulation. The government, accordingly, need look no further than Mr.
Guthrie for restitution of the deficiency."
Id. at 5.
Similarly, a long line of GAO decisions holds that an accountable
officer is liable even where his or her subordinates actually made the
improper payment. See, e.g., B-274364, B-276306, Apr. 23, 1997; B-
260369, June 5, 1995; B-241019.2, Feb. 7, 1992; B-246418, Feb. 7,
1992, and decisions cited.[Footnote 5] As these decisions point out,
however, relief from liability is appropriate where the supervising
accountable officer maintained and ensured effective implementation of
an adequate system of procedures and controls to avoid errors.
b. Surety Bonding:
The early cases also based liability on the accountable officer's
bond. Prior to 1972, the fidelity bonding of accountable officers was
required by law.
See, e.g., 22 Comp. Gen. 48 (1942); 21 Comp. Gen. 976 (1942). As an
examination of the statement of the case in decisions such as United
States v. Prescott, 44 U.S. (3 How.) 578 (1845), United States v.
Thomas, 82 U.S. (15 Wall.) 337 (1872), and Smythe v. United States,
188 U.S. 156 (1903), demonstrates, the terms of the bond were very
similar to, and in fact were derived from, the 1846 "keep safely"
legislation quoted above. Thus, while the bond gave the government a
more certain means of recovery, it did not impose upon accountable
officers any duties that were not already required by statute.
[Footnote 6]
In a 1962 report, GAO concluded that bonding was not cost-effective,
[Footnote 7] and recommended legislation to repeal the bonding
requirement. GAO, Review of the Bonding Program for Employees of the
Federal Government, B-8201 (Washington, D.C.: Mar. 29, 1962). Congress
repealed the requirement in 1972, and accountable officers are no
longer bonded. Indeed, 31 U.S.C. § 9302 generally prohibits federal
agencies from requiring or obtaining surety bonds to cover their
officers and employees in carrying out official duties. The last
sentence of 31 U.S.C. § 9302 specifically states that the prohibition
against surety bonds "does not affect the personal financial
liability" of individual officers or employees. Thus elimination of
the bonding requirement has no effect on the legal liability of
accountable officers. 54 Comp. Gen. 112 (1974); B-191440, May 25, 1979.
c. Relief:
The early cases and statutes previously noted made no mention of
relief from liability.[Footnote 8] "Relief' in this context means an
action, taken by someone with the legal authority to do so, which
absolves an accountable officer from liability for a loss. Prior to
the World War II period, with limited exceptions for certain
accountable officers of the armed forces, an accountable officer had
but two relief options available. First, a disbursing officer could
bring an action in what was then the Court of Claims (now the United
States Court of Federal Claims) under 28 U.S.C. § 2512.[Footnote 9] Of
course, the officer would probably need legal representation and would
incur other expenses, none of which were reimbursable. Second, and
this became the most common approach, was private relief legislation,
a burdensome process for amounts which were often relatively small.
There was no mechanism for providing relief at the administrative
level, however meritorious the case. 4 Comp. Gen. 409 (1924); 27 Comp.
Dec. 328 (1920).
Starting in 1941, Congress enacted a series of relief statutes, and
there is now a comprehensive statutory scheme for the administrative
relief of accountable officers who are found to be without fault. The
major portion of this chapter deals with the application of this
legislation.
It is important to distinguish between liability and relief. It is not
the denial of relief that makes an accountable officer liable. As
noted previously, the basic legal liability of an accountable officer
arises automatically by virtue of the loss and is not affected by any
lack of fault or negligence on the officer's part. Relief is a
separate process and may take lack of fault into consideration to the
extent authorized by the governing statute.[Footnote 10] B-291001,
Dec. 23, 2002; 54 Comp. Gen. 112 (1974); B-167126, Aug. 28, 1978.
2. Who Is an Accountable Officer?
An accountable officer is any government officer or employee who by
reason of his or her employment is responsible for or has custody of
government funds. B-288163, June 4, 2002; 62 Comp. Gen. 476, 479
(1983); 59 Comp. Gen. 113, 114 (1979); B-257068, Oct. 22, 1994; B-
188894, Sept. 29, 1977. Accountable officers encompass such officials
as certifying officers, disbursing officers, collecting officers, and
other employees who by virtue of their employment have custody of
government funds.
Clearly, the relevant statutory provisions are the first place one
looks for the source of authority conferring the status of
"accountable officer" and establishing the responsibilities and
liabilities that go with it. Does this leave any room for agencies to
create "accountable officers" by administrative action? Until
recently, GAO decisions indicated that agencies could impose
accountable officer status and liability so long as they did so by
specific regulation. See B-247563.3, Apr. 5, 1996; B-260369, June 15,
1995; 72 Comp. Gen. 49, 52 (1992); B-241856, Sept. 23, 1992, and
decisions cited. These decisions reasoned that such liability, duly
imposed by regulation, could be regarded as part of the employee's
"employment contract." However, in B-280764, May 4, 2000, GAO
reconsidered its position and held that accountable officer status and
liability can only be created by statute. The 2000 decision overruled
prior inconsistent decisions.[Footnote 11]
The decision in B-280764 concerned a Defense Department regulation
that authorized the Department's certifying officers to designate as
"accountable officials" certain employees engaged in developing,
verifying, approving, and processing salary payments. Specifically,
the regulation defined "accountable officials" as "DOD military and
civilian personnel, who are designated in writing and not otherwise
accountable under applicable law, who provide source information, data
or service ... to a certifying or disbursing officer in support of the
payment process." Id. at 3. The regulation further provided that these
employees would be pecuniarily liable for erroneous payments resulting
from negligence in performing their duties. Id.
In analyzing the validity of the regulation in B-280764, GAO invoked
the "unassailable proposition" that the federal employment
relationship is primarily governed by statute rather than contract or
common law concepts, and that this is equally true when it comes to
disciplining or penalizing employees. Id. at 3. In this regard, the
decision cited a number of judicial opinions, including Bush, v.
Lucas, 462 U.S. 367 (1983); United States v. Gilman, 347 U.S. 507
(1954); and United States v. Standard Oil Co., 332 U.S. 301 (1947).
Applying these principles, GAO concluded that the Defense Department
regulation could not stand since it lacked the necessary statutory
authorization:
"Here, as in the cases noted above, Congress has not spoken to the
issue of the liability of government employees who provide information
to certifying officers that they rely on when performing their
statutory function.... Yet Congress has clearly legislated in detail
on many features of the certifying and disbursing function as well as
the government's employer-employee relationship. With respect to the
certifying and disbursing function, Congress has specifically provided
for the personal pecuniary liability of certifying and disbursing
officers, but, significantly, has not extended liability beyond these
officers to those governmental employees whose work supports these
functions.... Pecuniary liability for negligent conduct,
administratively imposed, is no less a penalty than would be an
employee's judicially created obligation to indemnify the government
for losses resulting from his negligent conduct. As noted above, the
Supreme Court counseled in Gilman, Standard Oil Co. and Bush, v. Lucas
that these issues are for Congress to resolve. We think the same holds
true for administrative extensions of personal liability beyond the
existing statutory parameters."
B-280764, May 4, 2000, at 5-6 (footnotes omitted).
In B-280764, GAO did not question the merits of extending
accountability and potential pecuniary liability to more Defense
Department employees, only the means of accomplishing that objective.
In 2002, Congress added a new section 2773a to title 10, United States
Code, which supplied the Department with the requisite statutory
authority to designate additional accountable officials.[Footnote 12]
Certifying officers play a significant role in the accountability for
public funds. A certifying officer is a government officer or employee
whose job is or includes certifying vouchers (including voucher
schedules or invoices used as vouchers) for payment. B-280764, May 4,
2000. A certifying officer differs from other accountable officers in
one key respect: the certifying officer has no public funds in his or
her physical custody. Rather, accountability is statutorily prescribed
because of the nature of the certifying function. A certifying
officer's liability, discussed in detail later in this chapter, is
established by 31 U.S.C. § 3528. In brief, certifying officers are
responsible for the legality of proposed payments and are liable for
the amount of illegal or improper payments resulting from their
certifications.
Prior to enactment of the National Defense Authorization Act for
Fiscal Year 1996, Pub. L. No. 104-106, 110 Stat. 186 (Feb. 10, 1996),
the military departments were subject to a different system of
accountability. The certifying officer provisions in section 3528 of
title 31 of the United States Code did not apply to them. See 31
U.S.C. § 3528(d) (1994). Instead, the military departments operated
under a system of subordinate and supervisory disbursing officers.
Supervisory disbursing officers (often called "finance and accounting
officers") had responsibility and liability for the correctness of
payments similar to that of a certifying officer in a civilian agency.
See B-266001, May 1, 1996, for a general description of this system.
Section 913 of Public Law 104-106 amended various provisions of titles
10, 31, and 37 of the United States Code to change the system of
accountability of the military departments. Among other things,
section 913 authorized the designation and appointment of certifying
officers within the military departments. The purpose of this
authorization was to strengthen internal controls within the military
departments by providing a separation of duties between officials who
authorized payments (certifying officers) and those who made payments
(disbursing officers), thereby placing the military departments more
in line with financial procedures in the civilian agencies. S. Rep.
No. 104-112, at 279 (1995).
A great many government officials make official "certifications" of
one type or another, but this does not make them certifying officers
for purposes of accountability and liability. E.g., B-247563.4, Dec.
11, 1996 (voucher auditors who "certified" invoices for payment by
accountable officers did not thereby become authorized certifying
officers themselves). As discussed above, this status can only be
conferred by statute. Thus, the concepts of accountability and relief
discussed in this chapter apply only to "authorized certifying
officers" who certify vouchers upon which moneys are to be paid out by
disbursing officers in discharging a debt or obligation of the
government. 23 Comp. Gen. 953 (1944). This may in appropriate
circumstances include the head of a department or agency. 31 U.S.C.
§ 3325(a)(1); 21 Comp. Gen. 976, 979 (1942). An authorized certifying
officer must be so designated in writing. 31 U.S.C. § 3325(a)(1); I
TFM § 4-1140 (Aug. 18, 1997).
Thus, an employee who "certified" overtime assignments in the sense of
a timekeeper verifying that employees worked the hours of overtime
claimed could not be held liable for resulting overpayments under an
accountable officer theory. B-197109, Mar. 24, 1980. The same approach
applies to various post-certification administrative actions, the rule
being that once a voucher has been duly certified by an authorized
official, subsequent administrative processing does not constitute
certification for purposes of 31 U.S.C. § 3528. 55 Comp. Gen. 388, 390
(1975). For example, the Comptroller General has held that 31 U.S.C. §
3528 does not apply to an "approving officer" who approves vouchers
after they have been duly certified. 21 Comp. Gen. 841 (1942).
b. Disbursing Officers:
A disbursing officer is an officer or employee of a federal department
or agency, civilian or military, designated to disburse moneys and
render accounts in accordance with laws and regulations governing the
disbursement of public funds. The term is essentially self-defining.
As one court has stated:
"We do not find the term 'disbursing officer' statutorily defined,
probably because it is self-definitive. It can mean nothing except an
officer who is authorized to disburse funds of the United States."
Romney v. United States, 167 F.2d 521, 526 (D.C. Cir.), cert. denied,
334 U.S. 847 (1948).
Whether an employee is a disbursing officer depends more on the nature
of the person's duties than on the title of his or her position. In
some cases, the job title will be "disbursing officer." This is the
title for the disbursing officers of the Treasury Department who
disburse funds for most civilian agencies under 31 U.S.C. § 3321. For
the military departments, which generally do their own disbursing, the
title may be "finance and accounting officer." As a general
proposition, any employee to whom public funds are entrusted for the
purpose of making payments from those funds will be regarded as a
disbursing officer. See B-151156, Dec. 30, 1963.
There may be more than one disbursing officer for a given transaction.
Military disbursing operations, at least as they existed prior to
enactment of the National Defense Authorization Act for Fiscal Year
1996,[Footnote 13] provide an example. The account was often held in
the name of a supervisory official such as a Finance and Accounting
Officer, with the actual payment made by some subordinate (agent,
cashier, deputy, etc.). Both were regarded as disbursing officers for
purposes of liability and relief although, as we will discuss later,
the standards for relief differ. E.g., B-261312, Feb. 5, 1995;
62 Comp. Gen. 476, 479-80 (1983); B-248532, Oct. 26, 1992; B-245127,
Sept. 18, 1991; B-240280, May 22, 1991. The principle of joint
liability in the case of multiple disbursing officers applies outside
the military departments as well. See B-288163, June 4, 2002 (clerk
and deputy clerk of a bankruptcy court).
c. Cashiers:
A cashier is a federal officer or employee who has been designated as
a cashier by an official delegated authority to make such designations
and who is thereby authorized to perform limited cash disbursing
functions or other cash operations. Department of the Treasury
Financial Management Service, Manual of Procedures and Instructions
for Cashiers (hereafter Cashier's Manual), § IV (April 2001), at 4.
Cashiers are designated in writing. Id. § DI, at 3 (cashier is
appointed by completing a specified form).
Cashiers who are authorized to make payments from funds advanced to
them are regarded as a category of disbursing officer. They deal
primarily with petty cash funds known as "imprest funds.[Footnote 14]
Cashiers outside the military departments exercise disbursing
functions pursuant to a delegation of authority from the Secretary of
the Treasury under 31 U.S.C. § 3321(b). Cashier's Manual, § II, at 2.
With respect to disbursing functions under 31 U.S.C. § 3321, cashiers
are divided into five categories: (1) Class A Cashier (may not advance
imprest funds to another cashier except to an alternate); (2) Class B
Cashier (may advance imprest funds to alternate or subcashier); (3)
Class D Cashier (receives funds solely for change-making purposes);
(4) Subcashier (may receive imprest funds from a Class B or D
cashier); and (5) Alternate to a Cashier or Subcashier (functions
during short absences of the cashier but may act simultaneously if
required by workload). Cashier's Manual, § IV, at 4; § V, at 12-13;
App. 1, at 16-17.
Cashiers are personally liable for any loss or shortage of funds in
their custody unless relieved by proper authority. Like other
accountable officers, they are regarded as "insurers" and are subject
to strict liability. B-258357, Jan. 3, 1996. Further discussion of the
role and responsibilities of cashiers may be found in sections IV and
V of the Cashier's Manual.
For the most part, a cashier will be operating with funds advanced by
his or her own employing agency. In some situations, however, such as
an authorized interagency agreement, the funds may be advanced by
another agency. Liability and relief are the same in either case. 65
Comp. Gen. 666, 675-77 (1986).
d. Collecting Officers:
Collecting officers are those who receive or collect money for the
government, such as Internal Revenue collectors or Customs collectors.
Collecting officers are accountable for all money collected. E.g., 59
Comp. Gen. 113, 114 (1979); 3 Comp. Gen. 403 (1924); 1 Comp. Dec. 191
(1895); B-201673 et al., Sept. 23, 1982. For example, an Internal
Revenue collector is responsible for the physical safety of taxes
collected, must pay over to the government all taxes collected, and
must make good any money lost or stolen while in his or her custody
unless relieved. E.g., 60 Comp. Gen. 674 (1981). However, under a
lockbox arrangement whereby tax payments are mailed to a financial
institution at a post office box and then wired to a Treasury account,
Internal Revenue Service officials are not accountable for funds in
the possession of the financial institution since they do not gain
custody or control over those funds. B-223911, Feb. 24, 1987.
The clerk of a bankruptcy court, if one has been appointed under 28
U.S.C. § 156(b), is the accountable officer with respect to fees paid
to the court, as prescribed by 28 U.S.C. § 1930, by parties commencing
a case under the Bankruptcy Code. 28 U.S.C. § 156(f). This provision,
added in 1986, essentially codified the result of two GAO decisions
issued the previous year, 64 Comp. Gen. 535 (1985) and B-217236, May
22, 1985. See also B-288163, June 4, 2002, for a more recent decision
following the same approach.
In some situations, certain types of receipts may be collected by a
contractor. Since the contractor is not a government officer or
employee, the various accountable officer statutes discussed
throughout this chapter do not apply, and the contractor's liability
is governed by the terms of the contract. For example, a parking
service contract with the General Services Administration required the
contractor to collect parking fees at certain government buildings and
to remit those fees to GSA on a daily basis. One day, instead of
remitting the receipts, an official of the contractor took the money
home in a paper bag and claimed to have been robbed in a parking lot
near her residence. When GSA withheld the amount of the loss from
contract payments, the contractor tried to argue that the risk of loss
should fall upon the government. The Claims Court disagreed. Since the
contract terms were clear and the contractor failed to comply, the
contractor was held responsible for the loss. Miracle Contractors,
Inc. v. United States, 5 CL Ct. 466 (1984).
The Department of Agriculture has statutory authority to use
volunteers to collect user fees in national forests. The volunteers,
private individuals, are to be bonded, with the cost of the bonds paid
by the Department. 16 U.S.C. § 4601-6a(k). In 68 Comp. Gen. 470
(1989), GAO concurred with the Department that the volunteers could be
regarded as agents of the Forest Service and, as such, eligible for
relief for non-negligent losses. The practical significance of this
decision is that it would be difficult to recruit volunteers if they
faced potential liability for non-negligent losses, a possibility that
would exist even under a surety bond. Id. at 471.
e. Other Agents and Custodians:
Officers and employees who do not fit into any of the preceding
categories, and who may not even be directly involved in government
fiscal operations, are occasionally given custody of federal funds and
thereby become accountable officers for the funds placed in their
charge. Note in this connection that the "safekeeping" mandate of 31
U.S.C. § 3302(a) (made unmistakably clear by reference to the original
1846 language quoted in section B.1.a of this chapter) applies to any
government employee, regardless of job description, to whom public
funds are entrusted in connection with the performance of government
business. See, e.g., B-170012, Feb. 3, 1972.
Examples of employees in this general custodial category include: a
messenger sent to the bank to cash checks, B-226695, May 26, 1987; a
Department of Energy special counsel with control over petroleum
overcharge refunds, B-200170, Apr. 1, 1981; State Department employees
responsible for packaging and shipping funds to an overseas embassy, B-
193830, Oct. 1, 1979; a special messenger delivering cash to another
location, B-188413, June 30, 1977; and an officer in charge of a
laundry operation on an Army base who had been advanced public funds
to be held as a change fund, B-155149, Oct. 21, 1964.
As with disbursing officers, there may be more than one accountable
officer in a given case, and the concept of accountability is not
limited to the person in whose name the account is officially held nor
is it limited to the person or persons for whom relief is officially
requested. For example, accounts in the regional offices of the U.S.
Customs Service are typically held in the name of the Regional
Commissioner. While the Regional Commissioner is therefore an
accountable officer with respect to that account, subordinate
employees who actually handle the funds are also accountable officers.
B-197324, Mar. 7, 1980; B-193673, May 25, 1979. The same principle
applies to the various service centers of the Internal Revenue
Service. E.g., 60 Comp. Gen. 674 (1981).
As demonstrated by the Customs and Internal Revenue Service
situations, as well as the many cases involving military finance and
accounting officers, a supervisory official will be an accountable
officer if that official has actual custody of public funds, or if the
account is held in the official's name, regardless of who has physical
custody. B-271017, Aug. 12, 1996. Absent these factors, however, a
supervisor is not an accountable officer and does not become one
merely because he or she supervises one. E.g., B-266245, Oct. 24,
1996; 72 Comp. Gen. 49, 51-52 (1992); B-214286, July 20, 1984; B-
194782, Aug. 13, 1979.[Footnote 15]
In each case, it is necessary to examine the particular facts and
circumstances to determine who had responsibility for or custody of
the funds during the relevant stages of the occurrence or transaction.
In B-193830, Oct. 1, 1979, money shipped from the State Department to
the American Embassy in Paraguay never reached its destination. While
the funds were chargeable to the account of the Class B cashier at the
Embassy, the State Department employees responsible for packaging and
shipping the funds were also accountable officers with respect to that
transaction. In another case, a new Class B cashier had been
recommended at a Peace Corps office in Western Samoa, and had in fact
been doing the job, but his official designation was not made until
after the loss in question. Since the new cashier, even though not yet
formally designated, had possession of the funds at the time of the
loss, he was an accountable officer. However, since the former cashier
retained responsibility for the imprest fund until formally replaced,
he too was an accountable officer. B-188881, May 8, 1978.
In sum, any government officer or employee who physically handles
government funds, even if only occasionally, is accountable for those
funds while in his or her custody.
It may be impossible, in rare cases, to specify exactly who the proper
accountable officer is. For example, the Drug Enforcement
Administration used a flash roll of 650 $100 bills and discovered that
15 bills had been replaced by counterfeits scattered throughout the
roll. (The "roll" was actually a number of stacks.) The roll had been
used in a number of investigations and in each instance, the
transactions (transfers from cashier to investigators, returns to
cashier, transfers between different groups of investigators) were
recorded on receipts and the money was counted. While it was thus
possible to determine precisely who had the roll on any given day,
there was no way to determine when the substitution took place and
hence to establish to whom the loss should be attributed. B-191891,
June 16, 1980. See also B-288284.2, Mar. 7, 2003 ("The lack of a paper
trail makes assignment of responsibility for the improper payment
impossible. In situations like this, where there is no basis for
attributing a loss or improper payment to one particular individual,
we have determined that no one can be held liable."); B-235368, Apr.
19, 1991 ("Failure to follow ... procedures for transferring the fund
to the alternate cashier makes assignment of responsibility for the
loss impossible; there is no audit trail permitting placement of
accountability, and no individual had exclusive control over the
fund.").
3. Funds to Which Accountability Attaches:
a. Appropriated Funds:
When we talk about the liability of accountable officers, we
deliberately use the broad term "public funds." As a general
proposition, for purposes of accountability, "public funds" consist of
three categories: appropriated funds, funds received by the government
from nongovernmental sources, and funds held in trust. It is important
to emphasize that when we refer to certain funds as "nonaccountable"
in the course of this discussion, all we mean is that the funds are
not subject to the laws governing the liability and relief of
accountable officers. Liability for losses may still attach on some
other basis.
Appropriated funds are accountable funds. The funds may be in the
Treasury, which is where most appropriated funds remain pending
disbursement, or they may be in the form of cash advanced to a
government officer or employee for some authorized purpose.
(1) Imprest funds:
As noted previously, the definitions of the various types of cashier
refer primarily to the use of "imprest funds." An imprest fund is
essentially a petty cash fund. More specifically, it is a fixed-cash
fund (i.e., a fixed dollar amount) advanced to a cashier for cash
disbursements or other cash requirement purposes as specifically
authorized. An imprest fund may be either a stationary fund, such as a
change-making fund, or a revolving fund. Department of the Treasury
Financial Management Service, Manual of Procedures and Instructions
for Cashiers (hereafter Cashier's Manual), App. 1 (April 2001), at 17
(definition of "imprest fund").
Historically, imprest funds were commonly used for such things as
small purchases, travel advances, and authorized emergency salary
payments. On November 9, 1999, however, the Treasury Department's
Financial Management Service issued a policy directive that required
federal agencies to eliminate imprest funds by October 1, 2001, except
for certain waived payments.[Footnote 16] According to the directive's
preamble, the main impetus for eliminating imprest funds was the
strong preference for making payments by electronic funds transfer
(EFT). Specifically, the National Performance Review had issued a
report recommending the elimination of imprest funds in favor of using
EFT transactions.[Footnote 17] Furthermore, the Debt Collection
Improvement Act of 1996 generally mandated the use of EFT payments as
of January 1, 1999, subject to waiver by the Secretary of the Treasury
under certain circumstances.[Footnote 18]
Under the Treasury policy directive, two conditions must be met in
order for imprest funds to be used after October 1, 2001. First, the
use of funds must qualify for waiver of the statutory prohibition
against non-EFT payments under standards prescribed in 31 C.F.R. §
208.4. Second, the payment must meet additional standards for waiver
specified in the policy directive. Given the waiver authorities,
imprest funds have not been completely eliminated. Thus, the
discussion that follows retains some relevance.
Current guidance on the use of imprest funds is contained primarily in
the Cashier's Manual and in the Federal Acquisition Regulation (FAR),
48 C.F.R. §§ 13.305-1-13.305-4. Agencies using imprest funds are
required to issue their own implementing regulations as well. FAR, 48
C.F.R. § 13.305-2(c). Except to the extent specified in an agency's
own regulations (e.g., B-220466 et al., Dec. 9, 1986), there are no
special subject matter limitations on the kinds of services payable
from imprest funds. 65 Comp. Gen. 806 (1986); B-242412, July 22, 1991.
Of course, like any other appropriated funds, imprest funds may not be
used for a purpose that is not authorized under the applicable
appropriation. B-243411, July 30, 1991 (imprest fund not available for
purchase of electric shoe polisher).
Imprest funds of the revolving type are replenished to the fixed
amount as spent or used. As replenishments are needed, replenishment
vouchers are submitted through the certifying officer to the
disbursing officer. Replenishment vouchers must be supported by
receipts or other evidence of the expenditures.
At any given time, an imprest fund may consist of cash, uncashed
government checks, and other documents such as unpaid reimbursement
vouchers, sales slips, invoices, or other receipts for cash payments.
An imprest fund cashier must at all times be able to account for the
full amount of the fund. Cashier's Manual, § IV at 8. For example, if
a cash box containing a $1,000 imprest fund disappears, and at the
time of disappearance the box contained $500 in cash and $500 in
receipts for which reimbursement vouchers had not yet been issued, the
loss to the government is the full $1,000 and the cashier is
accountable for that full amount. A cashier's failure to keep adequate
records, thus making proper reconciliation impossible, is negligence.
B-189084, Jan. 15, 1980.
Loss of a replenishment check before it reaches the cashier is not a
situation requiring relief of the cashier. The proper procedure in
such a situation is to report the loss to the disbursing office that
issued the check to obtain a replacement. B-203025, Oct. 30, 1981.
If it is in the government's interests, a checking account may be set
up in a private bank for imprest fund disbursements as long as
adequate control procedures are developed. B-117566, Apr. 29, 1959.
Use of depositary accounts must be approved by the agency head or
designee and is authorized only for cash withdrawal transactions.
Cashier's Manual, § IV at 10-11. The account may be interest-bearing,
in which event any interest earned must be deposited in the Treasury
as miscellaneous receipts. Id. at 11.
The method of imprest fund accountability changed starting with fiscal
year 1985. Prior to that time, funds advanced to cashiers by Treasury
disbursing officers were not "charged" to the agency's appropriations
at the time of the advance but were carried on the disbursing
officers' records of accountability. The cashiers were regarded as
agents of the disbursing officers. In fact, it was common to refer to
cashiers as "agent cashiers." E.g., A-89775, Mar. 21, 1945. Charges
were made to the applicable appropriation or fund accounts only when
replenishment checks were issued. Relief requests had to be submitted
through the Treasury's Chief Disbursing Officer.
In 1983, the Treasury Department proposed removing imprest fund
advances from the disbursing officers' accountability inasmuch as the
transactions were beyond the disbursing officers' control. GAO
concurred. B-212819-0.M., May 25, 1984. The current procedures are
discussed in 70 Comp. Gen. 481 (1991). In brief, the charge to the
agency's appropriation is now made at the time of the initial advance.
However, since the advance does not qualify as an obligation under 31
U.S.C. § 1501, the charge must be in the form of a "commitment" or
"reservation." In general, the actual obligation occurs when the
advance is used and the cashier seeks replenishment. The preliminary
charge is necessary to protect against violating the Antideficiency
Act. Except for certain procedural matters (relief requests are no
longer processed through the applicable disbursing officer), the
changes have no effect on the cashier's liability as an accountable
officer.
An alternative approach to managing imprest funds is the "third-party
draft" procedure described in I TFM § 4-3000 (Aug. 3, 2000). In brief,
an agency may retain a contractor to provide the agency with payment
instruments, not to exceed certain amounts, drawn on the contractor's
account. The face value of an individual third-party draft generally
may not exceed $10,000, and third-party drafts for routine imprest
payments are limited to $2,500. Id. § 4-3020.10. The agency then uses
these drafts for its imprest fund transactions and reimburses the
contractor for properly payable drafts that the contractor has paid.
Since the funds being disbursed from the imprest fund under the third-
party draft system are not government funds, personal liability does
not attach to the cashier who issues the draft. Id. § 4-3020; GAO,
Policy and Procedures Manual for Guidance of Federal Agencies, title
7, § 6.8.B (Washington, D.C.: May 18, 1993); B-247563.4, Dec. 11,
1996; B-247563.3, Apr. 5, 1996. However, this obviously does not mean
that third-party drafts can or should be used to circumvent
restrictions on the use of appropriated funds.
(2) Flash rolls:
Law enforcement officers on undercover assignments frequently need a
supply of cash to support their operations, for example, to purchase
contraband or to use as a gambling stake. This money, often advanced
from an imprest fund, is called a "flash roll." By the very nature of
the activities involved, flash roll money is at high risk to begin
with.
It is clear that a flash roll in the hands of a law enforcement agent
retains its status as government funds. Garcia v. United States, 469
U.S. 70 (1984) (flash roll held to be money of the United States for
purposes of 18 U.S.C. § 2114, which makes it a criminal offense to
assault a custodian of government money). However, flash roll money
will be accountable in some situations and nonaccountable in others,
depending on the nature of the loss. If the loss is within the risk
inherent in the operation, such as the suspect absconding with the
money, it is not viewed as an "accountable officer" loss but may be
handled internally by the agency. If the agency, under its internal
investigation procedures, finds the agent with custody of the funds to
have been negligent, it should hold the agent liable to the extent
provided in its regulations. Otherwise, it may simply record the loss
as a necessary expense against the appropriation which financed the
operation. If, on the other hand, the loss occurs in the course of the
operation but is unrelated to carrying out its purpose, the
accountable officer laws apply. The decision first recognizing this
distinction is 61 Comp. Gen. 313 (1982), applying it in the context of
Drug Enforcement Administration undercover operations.[Footnote 19]
The fact pattern in the Garcia case illustrates the nonaccountable
situation. A Secret Service agent had been given a flash roll to buy
counterfeit currency from suspects in Miami. The agent met the
suspects in a park. One of the suspects pulled a semi-automatic pistol
and demanded the money. Other Secret Service agents rushed to the
scene and apprehended the suspects, one of whom was trying to run off
with the money. Of course there was no loss since the money was
recovered. If the second suspect had gotten away with the money,
however, the loss could have been treated as an expense of the
operation, without the need to seek relief for anyone. GAO decisions
finding flash roll losses "nonaccountable" under the standards of 61
Comp. Gen. 313 are B-238222, Feb. 21, 1990 (suspect stole flash roll
during drug arrest); B-232253, Aug. 12, 1988 (informant stole money
provided to rent undercover apartment); and B-205426, Sept. 16, 1982
(federal agent robbed at gunpoint while trying to purchase illegal
firearms).
An example of a case which remains subject to the accountable officer
laws is B-218858, July 24, 1985. A federal agent, posing as a
narcotics trafficker, stopped at a telephone booth to make a call. Two
women approached the booth, which did not have a door. One diverted
the agent's attention while the other picked his pocket. The loss,
while certainly incident to the undercover operation, was unrelated to
its central purpose. Relief was granted. Other cases are:
* Agent set shoulder bag containing flash money on airport counter and
left it unattended for several minutes while making ticket
arrangements; relief denied. 64 Comp. Gen. 140 (1984).
* Briefcase containing funds stolen when agent set it down in coffee
shop for 15-20 seconds to remove jacket; relief granted. B-210507,
Apr. 4, 1983.
* Agent left funds in glove compartment while making phone call in
high crime area; agent found negligent. B-220492, Dec. 10, 1985.
As 64 Comp. Gen. 140 and B-210507 point out, losses which occur while
flash money is being transported to the location where it is intended
to be used are at best incidental to the operation and are thus
governed by the accountable officer laws.
The conspicuous display of a flash roll is not in and of itself
negligence where necessary to the agent's undercover role. B-194919,
Nov. 26, 1980.
(3) Travel advances:
Travel advances are authorized by 5 U.S.C. § 5705. The statute
expressly directs the recovery, from the traveler or from his or her
estate, of advances not used for allowable travel expenses. Like
imprest funds, travel advances can still be used but their use is now
the exception rather than the common practice. Section 2 of the Travel
and Transportation Reform Act of 1998, Pub. L. No. 105-264, 112 Stat.
2350 (Oct. 19, 1998), 5 U.S.C. § 5701 note, generally mandates the use
of government contractor-issued travel charge cards for payment of
official government travel. Under the General Services Administration
regulations implementing this statute, travel advances are authorized
only if an exemption from use of a travel charge card has been
granted. 41 C.F.R. §§ 301-51.1, 301-51.5.
A travel advance is "based upon the employee's prospective entitlement
to reimbursement" (B-178595, June 27, 1973) and is essentially for the
convenience of the traveler. Travel advances in the hands of the
traveler are regarded as nonaccountable and hence not governed by the
accountable officer laws. Rather, they are treated as loans for the
personal benefit of the traveler. As such, if the funds are lost or
stolen while in the traveler's custody, regardless of the presence or
absence of fault attributable to the traveler, the funds must be
recovered as provided by 5 U.S.C. § 5705, and the accountable officer
relief statutes do not apply. 54 Comp. Gen. 190 (1974); B-206245, Apr.
26, 1982; B-183489, June 30, 1975; B-254089, Sept. 10, 1993
(nondecision letter). The same principle applies to traveler's checks.
64 Comp. Gen. 456, 460 (1985).
In many cases, a messenger or some other clerical employee picks up
the funds for the traveler. If the funds are lost or stolen while in
the intermediary's custody, and use of the intermediary was the
traveler's choice, the intermediary is the agent of the traveler and
the traveler, having constructively received the funds, remains
liable. B-204387, Feb. 24, 1982; B-200867, Mar. 30, 1981. However, if
use of the intermediary is required by agency or local policy, then
the intermediary is the agent of the government and the traveler is
not liable. 67 Comp. Gen. 402 (1988).
Even though the accountable officer relief statutes do not apply, it
may be possible to effectively "relieve" the non-negligent traveler by
considering a claim under the Military Personnel and Civilian
Employees' Claims Act of 1964, 31 U.S.C. § 3721, to the extent
permissible under the agency's implementing regulations. B-208639,
Oct. 5, 1982; B-197927, Sept. 12, 1980.
Travel advances returned to government custody for reasons such as
postponement of the travel regain their status as accountable funds,
and an employee receiving custody of these funds is governed by the
laws relating to the liability and relief of accountable officers. B-
200404, Feb. 12, 1981; B-170012, Mar. 14, 1972; B-170012, May 3, 1971.
Also, where an advance greatly exceeds the employee's legitimate
travel expense needs and it is clear that the excess is intended to be
used for operational purposes, the excess over reasonable needs may be
treated as accountable funds and not part of the "loan." B-196804,
July 1, 1980.
b. Receipts:
In our definitions of governmental receipts and offsetting collections
in Chapter 2, we noted that the government receives funds from
nongovernment sources (a) from the exercise of its sovereign powers
(e.g., tax collections, customs duties, court fines), and (b) from a
variety of business-type activities (e.g., sale of publications).
These collections, whether they are to be deposited in the Treasury as
miscellaneous receipts or credited to some agency appropriation or
fund, are accountable funds from the moment of receipt. Some examples
are: B-288163, June 4, 2002, and 64 Comp. Gen. 535 (1985) (both cases
involved registry funds and fees paid to bankruptcy court); 60 Comp.
Gen. 674 (1981) (tax collections); B-200170, Apr. 1, 1981 (petroleum
overcharge refunds); and B-194782, Aug. 25, 1980 (recreational fee
collections).
c. Funds Held in Trust:
When the government holds private funds in a trust capacity, it is
obligated, by virtue of its fiduciary duty, to pay over those funds to
the rightful owners at the proper time. Thus, although the funds are
not appropriated funds, they are nevertheless accountable funds. The
principle has been stated as follows:
"The same relationship between an accountable officer and the United
States is required with respect to trust funds of a private character
obtained and held for some particular purpose sanctioned by law as is
required with respect to public funds."
6 Comp. Gen. 515, 517 (1927). See also Woog v. United States, 48 Ct.
Cl. 80 (1913).
A common example is the Department of Veterans Affairs (VA) "Personal
Funds of Patients" (PFOP) account. Patients, upon admission to a VA
hospital, may deposit personal funds in this account for safekeeping
and use as needed. Upon release, the balance is returned to the
patient. Patient funds in the PFOP account have been consistently
treated as accountable funds. 68 Comp. Gen. 600 (1989); 68 Comp. Gen.
371 (1989); B-226911, Oct. 19, 1987; B-221447, Apr. 2, 1986; B-215477,
Nov. 5, 1984; B-208888, Sept. 28, 1984.
Another example is private funds of litigants deposited in a registry
account of a court of the United States, to be held pending
distribution by order of the court in accordance with 28 U.S.C. §§
2041 and 2042. These are also accountable funds under the trust
capacity concept. B-288163, June 4, 2002; 64 Comp. Gen. 535 (1985); 6
Comp. Gen. 515 (1927); B-200108, B-198558, Jan. 23, 1981. See also
Osborn v. United States, 91 U.S. 474 (1875) (court can summarily
compel restitution of funds improperly withdrawn from registry account
by former officers).
Other situations applying the trust capacity concept are B-288284.2,
Mar. 7, 2003, and B-288284, May 29, 2002 (embassy employees' funds
held on their behalf in a Suspense Deposit Abroad account administered
by the State Department); B-238955, Apr. 3, 1991 (Overseas Consular
Service fund from which embassy consular officers authorize payment
for funerals and other expenses); 67 Comp. Gen. 342 (1988) (Indian
trust accounts administered by Bureau of Indian Affairs); 17 Comp.
Gen. 786 (1938) (United States Naval Academy laundry fund); B-190205,
Nov. 14, 1977 (foreign currencies accepted in connection with
accommodation exchanges authorized by 31 U.S.C. § 3342); and A-22805,
Nov. 30, 1929 (funds taken from prisoners at the time of their
confinement, to be held in their behalf). See also B-239955, June 18,
1991 (Treasury Department personnel are held accountable for loss of
damaged currency held in Treasury mailroom pending replacement); 69
Comp. Gen. 314 (1990) (BIA may contract with private bank for
ministerial aspects of trust fund disbursements, but government
disbursing officer must retain responsibility for managerial and
judgmental aspects).
Not all nongovernment funds in the custody of a government official
are held in a trust capacity. For example, in B-164419-0.M., May 20,
1969, GAO distinguished between funds of a foreign government held by
the United States incident to a cooperative agreement (trust capacity
funds), and funds of a private contractor held by a government
official for safekeeping as a favor to the contractor. The latter
situation was a mere bailment for the benefit of the contractor, and
the official was not an accountable officer with respect to those
funds.
d. Items Which Are the Equivalent of Cash:
The concepts of accountability and liability discussed in this chapter
apply primarily to money. However, for reasons which should be
apparent, accountability also attaches to certain noncash items which
are negotiable by the bearer or are otherwise the equivalent of cash.
Examples are:
* Food stamps. B-221580, Oct. 24, 1986 (nondecision letter).
* Government Transportation Requests. B-239387, Apr. 24, 1991.
* Military payment certificates. B-127937-0.M., Aug. 2, 1956.
* Receipts signed by employees acknowledging that they were advanced
funds to make small purchases. B-288014, May 17, 2002.
* Traveler's checks in the custody of an accountable officer. 64 Comp.
Gen. 456 (1985); B-235147.2, Aug. 14, 1991.
* Treasury bonds with interest coupons attached. B-190506, Nov. 28,
1977, aff'd on reconsideration, B-190506, Dec. 20, 1979.
In the reconsideration of B-190506, Dec. 20, 1979, it was contended
that loss of the bonds did not really result in a loss to the
government because neither the bonds nor the coupons had been cashed
and a "stop notice" had been placed with the Federal Reserve Bank. GAO
could not agree, however, since the bonds were bearer bonds and the
stop notice does not completely extinguish the government's liability
to pay on them. (The Treasury Department no longer issues coupon
bonds, although many older ones are still outstanding.)
4. What Kinds of Events Produce Liability?
The generic term for losses which trigger an accountable officer's
liability is "fiscal irregularity." See GAO, Policy and Procedures
Manual for Guidance of Federal Agencies, title 7, § 8.2 (Washington,
D.C.: May 18, 1993). Fiscal irregularities are divided into two broad
categories: (1) physical loss or deficiency, and (2) illegal or
improper payment. Since, as we will see, the relief statutes are
expressly tied to these categories, the proper classification of a
fiscal irregularity is the essential first step in determining which
statute to apply.
A working definition of "physical loss or deficiency" may be found in
B-202074, July 21, 1983:
"In sum, 'physical loss or deficiency' includes such things as loss by
theft or burglary, loss in shipment, and loss or destruction by fire,
accident, or natural disaster. It also includes the totally
unexplained loss, that is, a shortage or deficiency with absolutely no
evidence to explain the disappearance.... Finally, ... losses
resulting from fraud or embezzlement by subordinate finance personnel
may ... be treated as physical losses."
This definition has been repeated in several subsequent decisions such
as 70 Comp. Gen. 616, 621 (1991) and 65 Comp. Gen. 881, 883 (1986). A
loss resulting from a bank failure would also be treated as a physical
loss. See 18 Comp. Gen. 639 (1939).
The second type of fiscal irregularity is the "illegal, improper, or
incorrect payment." 31 U.S.C. §§ 3527(c), 3528(a)(4). The key word
here is "payment"—-"the disbursement of public funds by a disbursing
officer or his subordinate." B-202074, July 21, 1983. Improper
payments include such things as payments obtained by fraud, whether by
nongovernment persons or by government employees other than
subordinate finance personnel; erroneous payments or overpayments
resulting from human or mechanical error attributable to the
government; payments prohibited by statute; and disbursements for
unauthorized purposes. The legislative history of 31 U.S.C. § 3527(c),
the improper payment relief statute for disbursing officers, describes
an improper payment as a payment "which the Comptroller General finds
is not in strict technical conformity" with the law. Excerpts from the
pertinent committee reports are quoted in 49 Comp. Gen. 38, 40 (1969)
and in B-202074, cited above.
A loss resulting from an uncollectible personal check may be an
improper payment or a physical loss, depending on the circumstances.
If the loss results from an authorized check-cashing transaction, it
is an improper payment because government funds were disbursed to the
bearer. 70 Comp. Gen. 616 (1991). However, if the check is tendered to
pay an obligation owed to the United States or to purchase something
from the government, the loss, to the extent an accountable loss
exists, would be a physical loss. In this connection, Treasury
regulations provide:
"Government officers accept checks received subject to collection. If
a check cannot be collected in full or is lost or destroyed before
collection, the agency making the deposit must obtain the proper
payment. Payment by check is not effective until the full proceeds are
received."
I TFM § 5-2010 (Oct. 4, 2001). If a personal check is accepted subject
to collection, and if the government does not exchange value for the
check, any resulting loss is not a loss within the scope of the
accountable officer laws and may be adjusted administratively by the
agency. If, however, an accountable officer purports to accept a
personal check in satisfaction of an obligation due the United States
(rather than for collection only), or if the government parts with
something of value in exchange for the check (e.g., sale of government
property), a resulting loss is treated as a physical loss. B-201673 et
al., Sept. 23, 1982. See also 3 Comp. Gen. 403 (1924); A-44019, Mar.
15, 1934; A-24693, Oct. 30, 1929. The distinction is summarized in the
following passage from B-201673:
"If a check tendered in payment of a fine, duty, or penalty becomes
uncollectible, it may be argued that the Government incurs a loss in
the sense that it does not have money to which it was legally
entitled, but it has not lost anything that it already had. When the
check is in exchange for property, the Government has lost the
property, the value of which is measured by the agreed-upon sales
price. Of course, recovery of the property will remove or mitigate the
loss."
The concept of B-201673 has also been applied to a check seized as
forfeiture under 31 U.S.C. §§ 5316 and 5317(b), and subsequently
returned as uncollectible. B-208398, Sept. 29, 1983.
A conceptually similar case is B-216279, Oct. 9, 1984. A teller at a
Customs Service auction gave a receipt to a customer and negligently
failed to collect the tendered funds. It was suggested that there was
no loss because the teller never had physical possession of the funds.
However, the applicable relief statute (31 U.S.C. § 3527) uses the
terms "physical loss or deficiency" in the disjunctive, and there was
clearly a deficiency in the teller's account to the extent of the
property turned over in exchange for the lost payment.
While every fiscal irregularity by definition involves a loss or
deficiency for which someone is accountable, not every loss or
deficiency is a fiscal irregularity which triggers accountability. For
example, an accountable officer is not liable for interest lost on
collections which should have been deposited promptly but were not. 64
Comp. Gen. 303 (1985) (failure to deposit collections in designated
depositary); B-190290, Nov. 28, 1977 (increased interest charges on
funds borrowed from Treasury, no net loss to United States).
Also, losses resulting from the imperfect exercise of judgment in
routine business operations, where no law has been violated, do not
create accountable officer liability. 65 Comp. Gen. 881 (1986) (loss
to Internal Revenue Service Tax Lien Revolving Fund caused by sale of
property for substantially less than amount for which it had been
redeemed).
5. Amount of Liability:
As a general proposition, the amount for which an accountable officer
is liable is easy to determine: It is the amount of the physical loss
or improper payment, reduced by any amounts recovered from the
recipient (thief, improper payee, etc.). E.g., 65 Comp. Gen. 858
(1986); B-194727, Oct. 30, 1979.
There is an exception, discussed in 65 Comp. Gen. at 863-64, in which
amounts recovered from the recipient should not be used to reduce the
amount of the accountable officer's liability. A loss may result from
a series of transactions spanning several years, each transaction
giving rise to a separate debt. By the time the loss is discovered,
recovery from the accountable officer may be partially barred by the 3-
year statute of limitations found in 31 U.S.C. § 3526(c). This,
however, does not affect the indebtedness of the recipient which, in
this situation, will exceed the liability of the accountable officer.
Under the Federal Claims Collection Standards,[Footnote 20] a debtor
owing multiple debts may specify the allocation of a voluntary partial
payment. If the recipient/debtor fails to so specify, or if payment is
involuntary, the collecting agency may allocate the money among the
various debts in accordance with the best interests of the United
States. 31 C.F.R. § 901.3(c)(4). Generally, "the best interests of the
United States are clearly served by applying payments made by the
recipients to the class of debt for which only the recipients are
liable" (65 Comp. Gen. at 864), that is, those for which recovery from
the accountable officer is time-barred. Thus, in this type of
situation, partial recoveries from the recipient should first be
applied to the time-barred debt of the accountable officer until any
such amounts have been recouped, and only thereafter used to reduce
the accountable officer's remaining liability.
A judgment obtained against some third party (improper payee, thief,
etc.) is only "potential unrealized value" and does not reduce the
accountable officer's liability until it is actually collected. B-
147747, Dec. 28, 1961; B-194727, Oct. 30, 1979 (nondecision letter).
The liability of an accountable officer does not include interest and
penalties assessed against the recipient. 64 Comp. Gen. 303 (1985); B-
235037, Sept. 18, 1989.
The liability of an accountable officer resulting from the payment of
fraudulent travel claims is the amount of the fraudulent payment and
does not include nonfraudulent amounts paid for the same day(s). 70
Comp. Gen. 463 (1991). Previously GAO had included both, under the so-
called "tainted day" rule.[Footnote 21] The 1991 decision
distinguishes fraudulent payees from fraudulent claimants, concluding
that the tainted day rule does not apply to paid claims. That decision
was modified in 72 Comp. Gen. 154 (1993) to make clear that rejected
use of the tainted day rule was to be applied prospectively only from
the date of the prior decision, May 6, 1991.
When determining the amount of a loss for which an accountable officer
is to be held liable, the government does not "net" overages against
shortages. In GAO's view, such "netting" would weaken internal
controls over the accounting for cash balances. B-212370, Nov. 15,
1983; B-199447, Mar. 17, 1981.[Footnote 22] As noted in B-199447,
overages must generally be deposited in the Treasury as miscellaneous
receipts.
In almost all cases, the amount of an accountable officer's liability
is precisely determinable at the outset. It may be reduced by
recoveries, but it will not increase. One exception is illustrated in
B-239387, Apr. 24, 1991, in which an agency held an employee
accountable for a booklet of missing or stolen Government
Transportation Requests. Because the amount of the government's loss
could not be known until the GTRs were actually used and the
government forced to honor them, additional liability accrued as each
GTR was used over time.
6. Effect of Criminal Prosecution:
As we noted previously, the body of law governing the liability and
relief of accountable officers is designed not only to induce proper
care but also to protect against dishonesty by the officers
themselves. This section summarizes the relationship between criminal
prosecution and civil liability.
a. Acquittal:
Acquittal in a criminal proceeding does not extinguish civil liability
and does not bar subsequent civil actions to enforce that liability as
long as they are remedial rather than punitive. Helvering v. Mitchell,
303 U.S. 391 (1938). The reason is the difference in burden of proof.
Acquittal means only that the government was unable to prove guilt
beyond a reasonable doubt, a standard higher than that for civil
liability "That acquittal on a criminal charge is not a bar to a civil
action by the Government, remedial in its nature, arising out of the
same facts on which the criminal proceeding was based has long been
settled." Id. at 397. See also B-239134, Apr. 22, 1991 (nondecision
letter) (conviction on only a portion of the loss).
The rules are the same for acquittal (or reversal of a conviction) by
a military court-martial. B-235048, Apr. 4, 1991. See also Serrano v.
United States, 612 F.2d 525 (Ct. Cl. 1979) (acquittal held not to bar
agency from imposing civil liability and withholding pay of
accountable officer).
It follows that an accountable officer's civil liability will be
unaffected by the fact that a grand jury has refused to return an
indictment. B-186922, Apr. 8, 1977.
b. Order of Restitution:
A court may order a defendant to make monetary restitution to the
victim, either as part of the sentence (18 U.S.C. § 3556) or as a
condition of probation (18 U.S.C. § 3563(b)(2)). In either case, the
relevant terms and procedures are governed by 18 U.S.C. §§ 3663 and
3664. Restitution may be ordered in a lump sum or in installments. 18
U.S.C. § 3664(f)(3). These are general criminal statutes and would
apply fully where the defendant is an accountable officer and the
United States is the victim as well as the prosecutor.
The statutory scheme clearly recognizes the possibility of subsequent
civil proceedings by the United States as victim against the
accountable officer. Any amounts paid to a victim under a restitution
order must be set off against amounts recovered in a subsequent civil
action. 18 U.S.C. § 3664(j)(2). In such an action, the previously
convicted defendant cannot deny the "essential allegations" of the
offense. 18 U.S.C. § 3664(k)(1).
Where restitution is ordered in full, payable in installments, it has
been held that the victim may nevertheless obtain a civil judgment for
the unpaid balance, even though there has been no default in the
installment payments. Teachers Insurance and Annuity Association v.
Green, 636 F. Supp. 415 (S.D.N.Y. 1986). "Future payments that do not
fully compensate a victim in present value terms cannot be a bar to a
civil judgment." Id.
Where restitution is ordered in an amount less than the full amount of
the loss, civil liability for the balance would remain, subject to the
statutory setoff requirement. See 64 Comp. Gen. 303 (1985), reaching
this result under a prior version of the legislation. The decision
further suggests that, if the record indicates that the court thought
it was ordering restitution in full, it might be desirable to seek
amendment of the restitution order. Obviously, the fact of conviction
precludes any consideration of administrative relief. Id. at 304.
The preceding paragraphs are presented from the perspective of
restitution by the accountable officer. Similar principles would apply
with respect to restitution by a responsible party other than the
accountable officer. See, e.g., B-193673, May 25, 1979, modified on
other grounds by B-201673 et al., Sept. 23, 1982 (partial restitution
by thief reduces amount of accountable officer's liability). See also
B-270863, June 17, 1996. For example, where the Department of Justice
enters into a settlement with a culpable third party compromising a
claim of the government, the liability of the accountable officer is
terminated for any amounts of the claim in excess of the settlement.
See B-235048, Apr. 4, 1991.
C. Physical Loss or Deficiency:
1. Statutory Provisions:
The two principal statutes authorizing administrative relief from
liability for the physical loss or deficiency of public funds are 31
U.S.C. §§ 3527(a) and 3527(b). Subsection (a) applies to the civilian
agencies and subsection (b) applies to accountable officers of the
armed forces.
a. Civilian Agencies:
The physical loss or deficiency relief statute applicable to
accountable officers generally, 31 U.S.C. § 3527(a), was originally
enacted in 1947. Pub. L. No. 321, ch. 441, 61 Stat. 720 (Aug. 1,
1947). Its justification, similar to that for all relief statutes, was
summarized by the Senate Committee on Expenditures in the Executive
Departments as follows:
"The justification ... is that, at the present time, relief of the
kind with which this bill is concerned is required to be granted
either through passage of a special relief bill by the Congress or by
the filing of suit by the responsible person in the United States
Court of Claims, the latter to be done at the personal expense of the
responsible person. Both methods are costly and time consuming."
S. Rep. No. 80-379, at 1 (1947).
Before the actual relief mechanism is triggered, two threshold
conditions must be satisfied. First, the loss must be a physical loss
or deficiency and not an improper payment. 31 U.S.C. § 3527(a)(2).
Second, the person for whom relief is desired must be an "accountable
officer."[Footnote 23] The legislative history confirms that this
includes the general custodial category:
"There are many agents of the Government who do not disburse but who,
nevertheless, are fully responsible for funds ... entrusted to their
charge and, for that reason, the committee bill has been broadened to
include that class of personnel."
S. Rep. No. 80-379, at 2.
Once it has been determined that there has been a physical loss or
deficiency of "public money, vouchers, checks, securities, or records"
for which an accountable officer is liable, the statute authorizes the
Comptroller General to grant relief from that liability if the head of
the agency involved makes two administrative determinations (31 U.S.C.
§ 3527(a)(1)), and if the Comptroller General agrees with those
determinations (31 U.S.C. § 3527(a)(3)). E.g., B-288014, May 17, 2002.
First, the agency head must determine that the accountable officer was
carrying out official duties at the time of the loss, or that the loss
was attributable to the act or omission of a subordinate of the
accountable officer. B-241820, Jan. 2, 1991. Note that this is stated
in the disjunctive. The second part, loss attributable to a
subordinate, is designed to cover the situation, found in several
agencies such as the Internal Revenue Service and the Customs Service,
in which the account is in the name of a supervisory official who does
not actually handle the funds. In this situation, both persons are
accountable, and relief of one does not necessarily mean relief of the
other. See B-270863, June 17, 1996; B-265853, Jan. 23, 1996.
Second, the agency head must determine that the loss was not
attributable to fault or negligence on the part of the accountable
officer. This determination is necessary regardless of which part of
the first determination applies. Thus, while lack of fault does not
affect the automatic imposition of liability, it does provide the
basis for relief. See, e.g., B-288166, Mar. 11, 2003; B-258357, Jan.
3, 1996.
Generally, the requirement that the accountable officer must have been
acting in the discharge of official duties does not present problems.
Thus, in the typical case, the central question becomes whether GAO is
able to concur with the administrative determination that the loss
occurred without fault or negligence on the part of the accountable
officer. In reviewing relief cases over the years, GAO has developed a
number of standards, the application of which to a given case requires
a careful analysis of the particular facts. Many factors may bear on
the conclusion in any given case, and the result will be determined by
the interrelationship of these factors.
Section 3527(a) applies to accountable officers of "an agency,"
defined in 31 U.S.C. § 101 as any "department, agency, or
instrumentality of the United States Government." Thus, section
3527(a) has been construed as applicable to the judicial branch (B-
200108, B-198558, Jan. 23, 1981; B-197021, May 9, 1980; B-191440, May
25, 1979; B-185486, Feb. 5, 1976), and to agencies of the legislative
branch (B-192503-0.M., Jan. 8, 1979, denying relief to a GAO
employee). GAO has not specifically considered whether it applies to
the Senate or House of Representatives. Section 3527(a) has also been
construed as applicable to those government corporations which are
subject to GAO's accounts settlement authority. B-88578, Aug. 21,
1951; B-88578-0.M., Aug. 21, 1951.
b. Military Disbursing Officers:
The need for physical loss relief authority for military disbursing
officers became highlighted during World War I when several ships were
sunk with funds and records on board. The first permanent
administrative relief statute was enacted in 1919 and applied only to
the Navy.[Footnote 24] The Army received similar statutory authority
in 1944.[Footnote 25] The two were combined in 1955 and expanded to
cover all of the military departments.[Footnote 26] The legislation
was later codified at 31 U.S.C. § 3527(b). The origins of the 1919 law
are described in 7 Comp. Gen. 374, 377-78 (1927); the statutory
evolution is detailed in B-202074, July 21, 1983. The statute applies
to both civilian and military personnel of the various military
departments. B-151156, Dec. 30, 1963. As discussed later, section
3527(b) was further amended in 1996 to expand the coverage of the
section to all military accountable officials and to include erroneous
payments. However, since the requirements and procedures regarding
physical loss or deficiency were not altered, we retain the discussion
of the earlier version of section 3527(b) to give context to our
decisions predating the 1996 amendments.
As with section 3527(a), two threshold conditions had to be satisfied
before the relief mechanism came into play. First, like section
3527(a), the pre-1996 section 3527(b) applied only to physical losses
or deficiencies and not to improper payments. 31 U.S.C. §
3527(b)(1)(B); 7 Comp. Gen. 374 (1927); 2 Comp. Gen. 277 (1922); B-
202074, July 21, 1983. The statute was intended to authorize relief in
appropriate cases for losses "such as losses by fire, ship sinkings,
thefts or physical losses resulting from enemy action or otherwise." B-
75978, June 1, 1948. Thus, a loss in shipment was cognizable under
section 3527(b). B-200437, Oct. 21, 1980. However, the making of a
travel advance to an employee who terminated his employment without
accounting for the advance was not a physical loss but rather "a
payment voluntarily made by the disbursing officer in the course of
his duties." B-75978, June 1, 1948.
Second--and here the two statutes differ--section 3527(b) applied only
to disbursing officers and not to nondisbursing accountable officers.
B-194782, Aug. 13, 1979; B-194780, Aug. 8, 1979; B-151156, Dec. 30,
1963; B-144467, Dec. 19, 1960 ("while all disbursing officers are
accountable officers, all accountable officers are not disbursing
officers"). As each of the cited cases points out, physical loss
relief for nondisbursing accountable officers of the military
departments had to be sought under 31 U.S.C. § 3527(a).
Section 3527(b) was also similar to section 3527(a) in that, once it
had been determined that a loss is properly cognizable under the
statute, the applicable agency head must determine that (1) the
disbursing officer was carrying out official duties at the time of the
loss or deficiency (prior versions of the statute, and hence many GAO
decisions, use the military term "line of duty status"), and (2) the
loss occurred without fault or negligence on the part of the
disbursing officer. The first determination, 31 U.S.C. §
3527(b)(1)(A), did not expressly include the "loss attributable to
subordinate" clause found in section 3527(a). However, it was applied
in the same manner. See B-155149, Oct. 21, 1964; B-151156, Dec. 30,
1963.
The administrative determinations under section 3527(b)(2) were
conclusive on GAO. 31 U.S.C. § 3527(b)(2). Thus, once the
determinations were made, the granting of relief was mandatory, and
GAO had no discretion in the matter. Under section 3527(a), agency
determinations on the threshold issues—what is a physical loss and who
is a disbursing officer—were not conclusive. B-151156, Dec. 30, 1963.
As noted above and in sections B.2 and C.2.b of this chapter, the
statutory scheme for military accountable officers was changed by
section 913 of Public Law No. 104-106, div. A, title IX, subtitle B,
110 Stat. 186, 410-12 (Feb. 10, 1996). Section 913 amended a number of
provisions in titles 10, 31, and 37 of the United States Code to
authorize the designation and appointment of certifying and disbursing
officials within the Department of Defense (including military
departments, defense agencies, and field activities) to clearly
delineate a separation of duties and accountabilities between
personnel who authorize payments (certifying officers) and personnel
who make payments (disbursing officers). In doing so, section 913 also
amended 31 U.S.C. § 3527(b) to apply to all accountable officials of
the armed forces, not just disbursing officers,[Footnote 27] and
included a new section 3527(b)(1)(B) to provide relief for erroneous
payments.
2. Who Can Grant Relief?
a. 31 U.S.C. § 3527(a):
The statute confers the authority to grant relief on the Comptroller
Genera1.[Footnote 28] At one time, every case, no matter how small the
amount, involved an exchange of correspondence—a letter from the
agency to GAO requesting relief, and a letter from GAO back to the
agency granting or denying it. By 1969, after 20 years of experience
under the statute, a set of standards had developed, and it became
apparent that there was no need for GAO to actually review every case.
In that year, GAO inaugurated the practice of setting a dollar amount,
initially $150, below which GAO delegated its authority to the
agencies to apply the standards and to grant or deny relief
accordingly without the need to obtain formal concurrence from GAO.
GAO has raised the amount several times over the years and has used
various formats to announce the increase.[Footnote 29] The current
ceiling is $3,000. See B-243749, Oct. 22, 1991. The authorization
applies to all physical losses or deficiencies; however, with a few
exceptions to be noted later, it does not extend to improper
payments.[Footnote 30] 61 Comp. Gen. 646 (1982); 59 Comp. Gen. 113
(1979). As stated in 61 Comp. Gen. at 647:
"For the most part, the law governing the physical loss or deficiency
of Government funds is clear, and most cases center around the
determination of whether there was any contributing negligence on the
part of the accountable officer. Our numerous decisions in this area
should provide adequate guidance to agencies in resolving most smaller
losses."
The $3,000 limitation applies to "single incidents or the total of
similar incidents which occur about the same time and involve the same
accountable officer." 7 GAO-PPM § 8.9.C. Thus, two losses arising from
the same theft, one under the limit and one over, should be combined
for purposes of relief. B-189795, Sept. 23, 1977. In B-193380, Sept.
25, 1979, an imprest fund cashier discovered a $300 shortage while
reconciling her cash and subvouchers. A few days later, her
supervisor, upon returning from vacation, found an additional $500
missing. Since the losses occurred under very similar circumstances,
GAO agreed with the agency that they should be treated together for
purposes of seeking relief. Another case, B-187139, Oct. 25, 1978,
involved losses of $1,500, $60, and $50. Since there was no indication
that the losses were related, the agency was advised to separately
resolve the $60 and $50 losses administratively. (The ceiling was $500
at the time of B-193380 and B-187139.) Likewise, in B-260862, June 6,
1995, GAO granted relief to an imprest fund cashier from liability for
the loss of $3,939 missing from a safe, apparently due to theft, but
did not grant relief for an $820 shortage allegedly due to a
bookkeeping error discovered the day prior to the theft. The $820
shortage was referred back to the agency for resolution since it was
under the $3,000 limit.
Thus, in cases of physical loss or deficiency, it is necessary to
request relief from GAO only if the amount involved is $3,000 or more.
For below-ceiling losses, GAO's concurrence is, in effect, granted
categorically provided the matter is properly cognizable under the
statute, the agency makes the required determinations, and the
administrative resolution is accomplished in accordance with the
standards set forth in the GAO decisions. E.g., B-252809, Apr. 7,
1993; B-206817, Feb. 10, 1983; B-204740, Nov. 25, 1981.
Each agency should maintain a central control record of its below-
ceiling resolutions, should document the basis for its decisions, and
should retain that documentation for subsequent internal or external
audit or review. 7 GAO-PPM § 8.9.C. Also, agencies should ensure the
independence of the official or entity making the relief decisions. B-
243749, Oct. 22, 1991.
If an agency inadvertently submits a relief request to GAO for a below-
ceiling loss, GAO's policy is simply to return the case with a brief
explanation. E.g., B-214086, Feb. 2, 1984. GAO will also provide any
further guidance that may appear helpful. See, e.g., B-249796, Feb. 9,
1993.
As a practical matter, GAO's authorization for below-ceiling
administrative resolution is relevant only where the agency believes
relief should be granted. In these cases, the need for an exchange of
correspondence is eliminated, and the relief process is quicker, more
streamlined, and less costly. If the agency believes relief should not
be granted, its refusal to support relief effectively ends the matter
regardless of the amount. GAO will not review an agency's refusal to
grant relief in a below-ceiling case. B-247581, June 4, 1992; 59 Comp.
Gen. 113, 114 (1979).
b. 31 U.S.C. § 3527(b):
Like 31 U.S.C. § 3527(a), section 3527(b) also specifies the
Comptroller General as the relieving authority. However, by virtue of
the mandatory nature of section 3527(b), the monetary ceiling concept
used in civilian relief cases has much less relevance to military
disbursing officer losses.
By circular letter B-198451, Feb. 5, 1981, GAO notified the military
departments of a change in procedures under the pre-1996 version of 31
U.S.C. § 3527(b) pertaining to relief for physical loss or deficiency
of funds. Since GAO has no discretion with respect to the agency
determinations and relief is mandatory as long as the determinations
are made, there is no need for GAO to review any of those
determinations on a case-by-case basis. Thus, there is no need for the
agency to submit a formal request for relief regardless of the amount
involved. As long as the case is properly cognizable under 31 U.S.C. §
3527(b) (i.e., it involves a disbursing officer and a physical loss or
deficiency), it is sufficient for purposes of compliance with the
statute for the agency to make the required determinations and to
retain the documentation on file for audit purposes. See B-303671,
Dec. 3, 2004. Of course, should there be a question as to whether a
particular case is properly cognizable under the statute, GAO is
available to provide guidance.
As noted above and in sections B.2 and C.1.b of this chapter, the
statutory scheme for military accountable officers was changed by
section 913 of Public Law No. 104-106, div. A, title IX, subtitle B,
110 Stat. 186, 410-12 (Feb. 10, 1996). Section 913 amended a number of
provisions in titles 10, 31, and 37 of the United States Code to
authorize the designation and appointment of certifying and disbursing
officials within the Department of Defense (including military
departments, defense agencies, and field activities) to clearly
delineate a separation of duties and accountabilities between
personnel who authorize payments (certifying officers) and personnel
who make payments (disbursing officers). In doing so, section 913 also
amended 31 U.S.C. § 3527(b) to apply to all accountable officials of
the armed forces, not just disbursing officers,[Footnote 31] and
included a new section 3527(b)(1)(B) to provide relief for erroneous
payments made by military accountable officials. As in the case of a
physical loss or deficiency, the finding of the Secretary involved
regarding whether the circumstances warrant relief is conclusive on
the Comptroller General. GAO has not yet addressed relief of military
accountable officials for erroneous payments under the revised section
3527(b).
c. Role of Administrative Determinations:
Both of the relief statutes described above require two essentially
identical administrative determinations as prerequisites to granting
relief. It is the making of those determinations that triggers the
ability to grant relief. If the agency cannot in good faith make those
determinations, the legal authority to grant administrative relief
simply does not exist, regardless of the amount involved and
regardless of who is actually granting relief in any given case. GAO
will not review an agency's refusal to make the determinations under
either statute, and has no authority to "direct" an agency to make
them. In this sense, an agency's refusal to make the required
determinations is final. The best discussion of this point is found in
59 Comp. Gen. 113 (1979) (case arose under section 3527(a) but point
applies equally to both statutes).
While GAO's role under section 3527(a) is somewhat broader than under
section 3527(b), that role is still limited to concurring with
determinations made by the agency. GAO cannot make those
determinations for the agency. If they are absent, whatever the
reason, relief cannot be granted regardless of the apparent merits of
the case. There are numerous decisions to this effect. A few of them
are B-248804.2, July 5, 1994; B-217209, Dec. 11, 1984; B-204464, Jan.
19, 1982;[Footnote 32] and B-197616, Mar. 24, 1980. The determinations
are as much required in below-ceiling cases as they are in cases
submitted to GAO. 72 Comp. Gen. 49 (1992); 59 Comp. Gen. 113 (1979); B-
247581, June 4, 1992.
On occasion GAO has been willing to infer a determination that the
loss occurred while the accountable officer was carrying out official
duties where that determination was not expressly stated but the facts
make it clear and there is no question that relief would be granted.
E.g., B-244723, Oct. 29, 1991; B-235180, May 11, 1989; B-199020, Aug.
18, 1980; B-195435, Sept. 12, 1979. However, the determination of no
contributing fault or negligence will not be inferred but must be
expressly stated. B-241478, Apr. 5, 1991. It is not sufficient to
state that the investigative report did not produce affirmative
evidence of fault or negligence. B-167126, Aug. 9, 1976. Nor is it
sufficient to state that there is "no evidence of willful misconduct."
B-217724, Mar. 25, 1985. See also 70 Comp. Gen. 389, 390 (1991) ("The
mere administrative determination that there is no evidence of fault
or negligence will not adequately rebut the presumption of
negligence.").
As a practical matter, it will simplify the relief process if the
agency's request explicitly states all required determinations. It is
best simply to follow the wording of the statute.
Agency determinations required by a relief statute must be made by an
agency official authorized to do so. E.g., B-184028, Oct. 24, 1975.
Section 3527(a) requires determinations by the "head of the agency."
Section 3527(b) specifies the "appropriate Secretary." Of course in most
cases the authority under either statute will be delegated. It has
been held that, absent a clear expression of legislative intent to the
contrary, the authority to make determinations under these statutes
may be delegated only to officials authorized by law to act in place
of the agency head, or to an Assistant Secretary. 29 Comp. Gen. 151
(1949). Many agency heads have separate statutory authority to
delegate and redelegate, and this of course will be sufficient. See,
e.g., 22 U.S.C. § 2651a(a)(4) (Secretary of State). As far as GAO is
concerned, the form of the delegation is immaterial although it
should, of course, be in writing. Documentation of delegations need
not be furnished to GAO, nor need it be specified in relief requests,
but should be available if requested. See GAO, Policy and Procedures
Manual for Guidance of Federal Agencies, title 7, § 8.9.B (Washington,
D.C.: May 18, 1993).
If, under agency procedures, the determinations are made in the first
instance by someone other than the designated official (e.g., a board
of inquiry), the relief request must explicitly state the designated
official's concurrence. B-207062, July 20, 1982.
3. Standards for Granting Relief:
a. Standard of Negligence:
Again, it is important to distinguish between liability and relief.
The presence or absence of negligence has nothing to do with an
accountable officer's basic liability. The law is not that an
accountable officer is liable for negligent losses. The officer is
strictly liable for all losses, but may be relieved if found to be
free from fault or negligence. It has frequently been stated that an
accountable officer must exercise "the highest degree of care in the
performance of his duty." E.g., 48 Comp. Gen. 566, 567-68 (1969); B-
186922, Aug. 26, 1976. See also 72 Comp. Gen. 49, 53 (1992) ("high
standard of care"). Statements of this type, however, have little
practical use in applying the relief statutes.
In evaluating the facts to determine whether or not an accountable
officer was negligent, GAO applies the standard of "reasonable care."
54 Comp. Gen. 112 (1974); B-196790, Feb. 7, 1980. This is the standard
of simple or ordinary negligence, not gross negligence. 54 Comp. Gen.
at 115; B-158699, Sept. 6, 1968. The standard has been stated as what
the reasonably prudent and careful person would have done to take care
of his or her own property of like description under like
circumstances. B-288166, Mar. 11, 2003 (failure to record checks
mailed for deposit "not a common practice for many reasonably prudent
and careful people handling their own collections"); B-257120, Dec.
13, 1994 (leaving cash under truck seat not "an action that a
reasonably prudent and careful person would have taken"). This is an
objective standard, that is, it does not vary with such factors as the
age and experience of the particular accountable officer. See, e.g.,
70 Comp. Gen. 389, 390 (1991). Likewise, inadequate training or
supervision does not affect the standard. B-257120, Dec. 13, 1994.
The doctrine of comparative negligence (allocating the loss based on
the degree of fault) does not apply under the relief statutes. B-
211962, July 20, 1983; B-190506, Nov. 28, 1977.
b. Presumption of Negligence/Burden of Proof:
The mere fact that a loss or deficiency has occurred gives rise to a
presumption of negligence on the part of the accountable officer. The
presumption may be rebutted by evidence to the contrary, but it is the
accountable officer's burden to produce the evidence. The government
does not have to produce evidence to establish that the accountable
officer was at fault in order to hold the officer liable. Rather, to
be entitled to relief, the accountable officer must produce evidence
to show that there was no contributing fault or negligence on his or
her part, that is, that he or she exercised the requisite degree of
care.
This rule originated in decisions of the Court of Claims under 28 U.S.C.
§ 2512, before any of the administrative relief statutes existed, and
has been consistently followed. An early statement is the following
from Boggs v. United States, 44 Ct. Cl. 367, 384 (1909):
"There is at the outset a presumption of liability, and the burden of
proof must rest upon the officer who has sustained the loss."
A later case quoting and applying Boggs is O'Neal v. United States, 60
Ct. Cl. 413 (1925). More recently, the court said:
"The Government does not have the burden of proving fault or
negligence on the part of plaintiff; plaintiff has the sole burden of
proving that he was without fault or negligence in order to qualify
for [relief]."
Serrano v. United States, 612 F.2d 525, 532-33 (Ct. Cl. 1979).
GAO follows the same rule, stating it in literally dozens of relief
cases. E.g., B-288014, May 17, 2002; B-271896, Mar. 4, 1997; 72 Comp.
Gen. 49, 53 (1992); 67 Comp. Gen. 6 (1987); 65 Comp. Gen. 876 (1986);
54 Comp. Gen. 112 (1974); 48 Comp. Gen. 566 (1969).[Footnote 33]
The amount and types of evidence that will suffice to rebut the
presumption vary with the facts and circumstances of the particular
case. However, there must be affirmative evidence. It is not enough to
rely on the absence of implicating evidence, nor is the mere
administrative determination that there was no fault or negligence,
unsupported by evidence, sufficient to rebut the presumption. E.g., B-
272613, Oct. 16, 1996 (assertions of "the absence of negligence, or
mere administrative determinations that there was no fault or
negligence on the part of the accountable officer are not sufficient
to rebut the presumption of negligence when unsupported by the
evidence."); B-257120, Dec. 13, 1994 (accountable officer "must rebut
presumption with convincing evidence that the loss was not caused by
the accountable officer's negligence or lack of reasonable care."); B-
242830, Sept. 24, 1991 (mere absence of evidence implicating the
accountable officer in the loss is not sufficient to rebut the
presumption of negligence.). See also 70 Comp. Gen. 12, 14 (1990); B-
204647, Feb. 8, 1982; B-167126, Aug. 9, 1976.
If the record clearly establishes that the loss resulted from burglary
or robbery, the presumption is easily rebutted. See, e.g., B-288014,
May 17, 2002; B-265856, Nov. 9, 1995, and cases cited therein. But the
evidence does not have to explain the loss with absolute certainty. If
the evidence is not all that clear, the accountable officer may still
be able to rebut the presumption by presenting evidence tending to
corroborate the likelihood of theft or showing that some factor beyond
his or her control was the proximate cause of the loss. If such
evidence exists, and if the record shows that the accountable officer
complied fully with all applicable regulations and procedures, the
agency's determination of no fault or negligence will usually be
accepted and relief granted. See, e.g., B-260862, June 6, 1995; B-
242830, Sept. 24, 1991.
GAO will consider the results of a polygraph (lie detector) test as an
additional factor in the equation, but does not regard those results,
standing alone, as dispositive. This applies whether the results are
favorable (B-260862, June 6, 1995; B-206745, Aug. 9, 1982, rev'd on
submission of additional evidence, B-206745, May 11, 1983; B-204647,
Feb. 8, 1982; B-142326, Mar. 31, 1960; B-182829-0.M., Feb. 3, 1975) or
unfavorable (B-209569, Apr. 13, 1983. See also B-192567, Aug. 4, 1983,
aff'd upon reconsideration, B-192567, June 21, 1988).
Another situation in which the presumption is easily rebutted is where
the accountable officer does not have control of the funds at the time
of the loss. An example is losses occurring while the accountable
officer is on leave or duty absence. As a practical matter, relief
will be granted unless there is evidence of actual contributing
negligence on the part of the accountable officer. B-196960, Nov. 18,
1980; B-184028, Mar. 2, 1976; B-175756-0.M., June 14, 1972. Of course,
where contributing negligence exists, relief will be denied and the
role of the presumption never comes into play. B-182480, Feb. 3, 1975.
The presumption of negligence may be criticized as unduly harsh. It
is, however, necessary both in order to preserve the concept of
accountability and to protect the government against dishonesty as
well as negligence. See B-191440, May 25, 1979; B-167126, Aug. 28,
1978. As stated in one decision, the presumption of negligence:
"is a reasonable and legal basis for the denial of relief where the
accountable officers have control of the funds and the means available
for their safekeeping but the shortage nevertheless occurs without
evidence of forcible entry or other conclusive explanation which would
exclude negligence as the proximate cause of the loss."
B-166519, Oct. 6, 1969. Indeed, if liability is strict and automatic,
a legal presumption against the accountable officer is virtually
necessary as a starting point.
c. Actual Negligence:
If the facts indicate negligence on the part of the accountable
officer, and if it appears that the negligence was the proximate cause
of the loss, then relief must be denied.
One group of cases involves failure to lock a safe. It is negligence
for an accountable officer to place money in a safe in an area which
is accessible to others, and then leave the safe unlocked for a period
of time when he or she is not physically present. E.g., B-190506, Nov.
28, 1977; B-139886, July 2, 1959. It is also negligence to leave a
safe unattended in a "day lock" position. B-199790, Aug. 26, 1980; B-
188733, Mar. 29, 1979, affd, B-188733, Jan. 17, 1980; B-187708, Apr.
6, 1977. Compare these cases with B-180863, Apr. 24, 1975, in which an
accountable officer who had left a safe on "day lock" was relieved in
view of her lack of knowledge or instruction regarding the day lock
mechanism. Thus, an accountable officer who leaves a safe unlocked
(either by leaving the door open or closing the door but not rotating
the combination dial), and then leaves the office for lunch or for the
night will be denied relief. B-204173, Jan. 11, 1982, aff'd, B-204173,
Nov. 9, 1982; B-183559, Aug. 28, 1975; B-180957, Apr. 24, 1975; B-
142597, Apr. 9, 1960; B-181648-0.M., Aug. 21, 1974.
Merely being physically present may not be enough. A degree of
attentiveness, dictated by the circumstances and common sense, is also
required. In B-173710-0.M., Dec. 7, 1971, relief was denied where the
cashier did not lock the safe while a stranger, posing as a building
maintenance man, entered the cashier's cage ostensibly to repair the
air conditioning system and erected a temporary barrier between the
cashier and the safe.
Another group involves the failure to use available security
facilities. As we will see in our discussion of agency security, a
good rule of thumb for the accountable officer is: You do the best you
can with what is available to you. Failure to do so, without
compelling justification, does not meet the standard of reasonable
care. Some examples in which relief was denied are:
* Accountable officer left unlocked cash box in safe to which several
other persons had access. B-172614-0.M., May 4, 1971; B-167596-0.M.,
Aug. 21, 1969.
* Cashier left funds overnight in locked desk drawer instead of safe
provided for that purpose. B-177730-0.M., Feb. 9, 1973.
* Cashier left funds in unlocked drawer while at lunch instead of
locked drawer provided for that purpose. B-161229-0.M., Apr. 20, 1967.
* Funds disappeared from bar-locking file cabinet. Combination safe
was available but not used. B-192567, June 21, 1988.
Inattentiveness or simple carelessness which facilitates a loss may
constitute negligence and thus preclude relief. 64 Comp. Gen. 140
(1984) (shoulder bag with money left unattended on airport counter for
several minutes); B-257120, Dec. 13, 1994 (cash left under a truck
seat); B-233937, May 8, 1989 (bag with money set on ledge in crowded
restaurant); B-208888, Sept. 28 1984 (evidence suggested that funds
were placed on desk and inadvertently knocked into trash can); B-
127204, Apr. 13, 1956 (pay envelopes left on top of desk in cashier's
cage 19 inches from window opening on hallway to which many persons
had access).
The best way to know how much cash you have is to count it. Failure to
do so where reasonable prudence would dictate otherwise is negligence.
B-247581, June 4, 1992 (alternate cashier failed to count cash upon
receipt from principal or upon return to principal); B-206820, Sept.
9, 1982 (accountable officer handed money over to another employee
without counting it or obtaining receipt); B-193380, Sept. 25, 1979
(cashier cashed checks at bank and failed to count the cash received).
A deficiency in an accountable officer's account caused by the
acceptance of a counterfeit note constitutes a physical loss for
purposes of 31 U.S.C. § 3527(a). B-140836, Oct. 3, 1960; B-108452, May
15, 1952; B-101301, July 19, 1951. Whether accepting counterfeit money
is negligence depends on the facts of the particular case, primarily
whether the counterfeit was readily detectable. B-271895, Sept. 3,
1996 ("super-dollars"). See also B-239724, Oct. 11, 1990; B-191891,
June 16, 1980; B-163627-0.M., Mar. 11, 1968. (Relief was granted in
these four cases.) If the quality of the counterfeit is such that a
prudent person in the same situation would question the authenticity
of the bill, relief should not be granted. B-155287, Sept. 5, 1967.
Also, failure to check a bill against a posted list of serial numbers
will generally be viewed as negligence. B-155287, Sept. 5, 1967; B-
166514-0.M., July 23, 1969. Finally, failure without compelling
justification to use an available counterfeit detection machine is
negligence. B-243685, July 1, 1991.
Other examples of conduct which does or does not constitute negligence
are scattered throughout this chapter, for example, in the sections on
compliance with regulations and agency security. In all cases,
including those which cannot be neatly categorized, the approach is to
apply the standard of reasonable care to the conduct of the
accountable officer in light of all surrounding facts and
circumstances. For example, in B-196790, Feb. 7, 1980, a patient at a
then Veterans Administration hospital, patient "X," had obtained a
cashier's check from a bank on May 9, 1978. On September 12, 1978,
another patient, patient "Y," presented the check at the hospital for
deposit to patient X's personal funds account. On the following day,
patient X withdrew the money and left. The bank refused to honor the
check because, unknown to hospital personnel, patient X had gone to
the bank on May 17, stated that he had never received the check, and
the bank had refunded its face value. As noted in the decision,
patient X had "cleverly managed to double his bank account by
collecting the same funds twice." The issue was whether it was
negligence for the hospital cashier to accept the check dated four
months earlier or to permit patient X to withdraw the funds the day
after the check was deposited. GAO considered the nature of a
cashier's check, noted the absence of applicable regulations, applied
the reasonable care standard, and granted relief, but recommended that
the agency pursue further collection efforts against the bank.
d. Proximate Cause:
An accountable officer may be found negligent and nevertheless
relieved from liability if it can be shown that the negligence was not
the "proximate cause" of the loss or shortage. E.g., B-272613, Oct.
16, 1996, fn. 2; B-235147, Aug. 14, 1991. A precise definition of the
term "proximate cause" does not exist.[Footnote 34] The concept means
that, first, there must be a cause-and-effect relationship between the
negligence and the loss. In other words, the negligence must have
contributed to the loss. However, as one authority notes, the cause of
an event can be argued in a philosophical sense to "go back to the
dawn of human events" and its consequences can "go forward to
eternity." Prosser and Keeton, § 41. Obviously a line must be drawn
someplace. Thus, the concept also means that the cause-and-effect
relationship must be reasonably foreseeable; that is, a reasonably
prudent person should have anticipated that a given consequence could
reasonably follow from a given act.
Before proceeding, we must refer again to the accountable officer's
burden of proof. The Court of Claims said, in Serrano v. United
States, 612 F.2d 525, 531-32 (Ct. CL 1979):
"It is argued that the ... fault or negligence involved must be the
proximate cause of the loss. Thus the Secretary... could not deny
relief unless the loss was proximately attributable to plaintiff. This
argument has no merit. If such an argument were to be accepted by this
court, it would shift the burden of proof ... to the Government...
"Shifting of the burden of proof, and forcing the Government to prove
that plaintiffs conduct was a proximate cause of the loss, would be
intolerable. This shift would negate the special responsibility that
disbursing officers have in handling public funds." (Emphasis in
original.)
Thus, the government does not have to prove causation any more than it
has to prove negligence. Rather, the accountable officer who has been
negligent must, in order to be eligible for relief, show that some
other factor or combination of factors was the proximate cause of the
loss, or at least that the totality of evidence makes it impossible to
fix responsibility. B-272613, Oct. 16, 1996 (relief denied when
accountable officer failed to provide plausible evidence that some
factor other than his negligence was the proximate cause of the loss).
In analyzing proximate cause, it may be helpful to ask certain
questions. First, if the accountable officer had not been negligent,
would the loss have occurred anyway? If the answer to this question is
yes, the negligence is not the proximate cause of the loss and relief
will probably be granted. However, it may not be possible to answer
this question with any degree of certainty. If not, the next question
to ask is whether the negligence was a "substantial factor" in
bringing about the loss. If this question is answered yes, relief will
probably be denied. A couple of simple examples will illustrate:
* An accountable officer leaves cash visible and unguarded on a desk
top while at lunch, during which time the money disappears. There can
be no question that the negligence was the proximate cause of the loss.
* As noted previously, failure to count cash received at a bank window
is negligence. Suppose, however, that the accountable officer is
attacked and robbed by armed marauders while returning to the office.
The failure to count the cash, even though negligent, would not be the
proximate cause of the loss since presumably the robbers would have
taken the entire amount anyway.
Another good illustration is B-201173, Aug. 18, 1981. Twelve armed men
in two Volkswagen minibuses broke into the West African Consolidated
Services Center at the American Embassy in Lagos, Nigeria. They
forcibly entered the cashier's office and proceeded to carry the safe
down the stairs. The burglars dropped the safe while carrying it, the
safe opened upon being dropped, and the burglars took the money and
fled. The reason the safe opened when dropped was that the cashier had
not locked it, clearly an act of negligence. However, even if the safe
had been locked, the burglars would presumably have continued to carry
it away, loaded it onto their minibus, and forcibly opened it
somewhere else. Thus, the cashier's failure to lock the safe, while
negligent, was not the proximate cause of the loss.
Proximate cause considerations are often relevant in cases involving
weaknesses in agency security, and the topic is explored further under
the Agency Security heading in section C.3.j of this chapter.
The following are a few additional examples of cases in which relief
was granted even though the accountable officer was or may have been
negligent, because the negligence was found not to be the proximate
cause of the loss or deficiency.
* Accountable officer left safe combination in unlocked desk drawer.
Burglars found combination and looted safe. Had this been the entire
story, relief could not be granted. However, burglars also pried open
locked desk drawers throughout the office. Thus, locking the desk
drawer would most likely not have prevented the theft. B-229587, Jan.
6, 1988.
* Accountable officer in Afghanistan negligently turned over custody
of funds to unauthorized person. Money was taken by rioters in severe
civil disturbance. Relief was granted because negligence was not the
proximate cause of the loss. (Whether the person holding the funds was
or was not an authorized custodian was not a matter of particular
concern to the rioters.) B-144148-0.M., Nov. 1, 1960.
* Cashier discovered loss upon return from 2-week absence. It could
not be verified whether she had locked the safe when she left.
However, time of loss could not be pinpointed, other persons worked
out of the same safe, and it would have been opened daily for normal
business during her absence. Thus, even if she had failed to lock the
safe (negligence), proximate cause chain was much too conjectural. B-
191942, Sept. 12, 1979.
Even if there is a clearly identified intervening cause, relief may
still be denied depending on the extent to which the accountable
officer's negligence facilitated the intervening cause or contributed
to the loss. In such a case, the negligence will be viewed as the
proximate cause notwithstanding the intervening cause. The following
cases will illustrate.
* Accountable officer failed to make daily deposits of collections as
required by regulations. Funds were stolen from locked safe in
burglary. Relief was denied because officer's negligence was proximate
cause of loss in that funds would not have been in the safe to be
stolen if they had been properly deposited. B-71445, June 20, 1949.
See also B-203726, July 10, 1981; B-164449, Dec. 8, 1969; B-168672-
0.M., June 22, 1970.
* Accountable officer negligently left safe on "day lock" position
(door closed, dial or handle partially turned but not rotated, so that
partial turning in one direction, without knowledge of combination,
will permit door to open). Thief broke into premises, opened safe
without using force, and stole funds. Relief was denied because
negligence facilitated theft by making it possible for thief to open
safe without force or knowledge of combination. B-188733, Mar. 29,
1979, aff'd, B-188733, Jan. 17, 1980.
* Although cash was stolen, negligence by the accountable officer in
placing the cash under the seat of a truck while she went shopping
enabled the theft to occur and was thus the proximate cause of the
loss. Accordingly, relief was denied. B-257120, Dec. 13, 1994.
e. Unexplained Loss or Shortage:
The cases cited under the Actual Negligence heading all contained
clear evidence of negligence on the part of the accountable officer.
Absent a proximate cause issue, these cases are relatively easy to
resolve. Such evidence, however, is not necessary in order to deny
relief in the situation we refer to as the "unexplained loss or
shortage." In the typical case, a safe is opened at the beginning of a
business day and money is found missing, or an internal audit reveals
a shortage in an account. There is no evidence of negligence or
misconduct on the part of the accountable officer; there is no
evidence of burglary or any other reason for the disappearance. All
that is known with any certainty is that the money is gone. In other
words, the loss or shortage is totally unexplained. In many cases, a
formal investigation confirms this conclusion.
The presumption of negligence has perhaps its clearest impact in the
unexplained loss situation. If the burden of proof is on the
accountable officer to establish eligibility for relief, the denial of
relief follows necessarily. Since there is no evidence to rebut the
presumption, there is no basis on which to grant relief. See, e.g., B-
272613, Oct. 16, 1996; 70 Comp. Gen. 389 (1991); B-238955, Apr. 3,
1991. The presumption and its application to unexplained losses were
discussed in 48 Comp. Gen. 566, 567-68 (1969) as follows:
"While there is no positive or affirmative evidence of negligence on
the part of [the accountable officer] in connection with this loss, we
have repeatedly held that positive or affirmative evidence of
negligence is not necessary, and that the mere fact that an
unexplained shortage occurred is, in and of itself, sufficient to
raise an inference or presumption of negligence. A Government official
charged with the custody and handling of public moneys ... is expected
to exercise the highest degree of care in the performance of his duty
and, when funds ... disappear without explanation or evident reason,
the presumption naturally arises that the responsible official was
derelict in some way. Moreover, granting relief to Government
officials for unexplained losses or shortages of this nature might
tend to make such officials lax in the performance of their duties."
[Footnote 35]
The rationale is fairly simple. Money does not just get up and walk
away. If it is missing, there is an excellent chance that someone took
it. If the accountable officer exercised the requisite degree of care
and properly safeguarded the funds, it is unlikely that anyone else
could have taken the money without leaving some evidence of forced
entry. Therefore, where there is no evidence to explain a loss, the
leading probabilities are that the accountable officer either took the
money or was negligent in some way that facilitated theft by someone
else. Be that as it may, denial of relief in an unexplained loss case
is not intended to imply dishonesty by the particular accountable
officer; it means merely that there was insufficient evidence to rebut
the applicable legal presumption. See B-122688, Sept. 25, 1956. See
also B-258357, Jan. 3, 1996 (loss of receipts creates "unexplained
loss" from imprest fund for which cashier is liable).
Despite the strictness of the rule, there are many unexplained loss
cases in which the presumption can be rebutted and relief granted.
See, e.g., B-242830, Sept. 24, 1991. By definition, the evidence will
not be sufficient to "explain" the loss; otherwise there would not be
an unexplained loss to begin with. There is no simple formula to apply
in determining the kinds or amount of evidence that will rebut the
presumption. It is necessary to evaluate the totality of available
evidence, including statements by the accountable officer and other
agency personnel, investigation reports, and any relevant
circumstantial evidence. Compare B-206745, Aug. 9, 1982 (denial of
relief in "unexplained loss" case), with B-206745, May 11, 1983
(reversing on submission of additional evidence B-206745, Aug. 9,
1982).
In some cases, for example, it may be possible to reasonably conclude
that any negligence that may have occurred was not the proximate cause
of the loss. These cases tend to involve security weaknesses and are
discussed under the Agency Security heading, section C.3.j of this
chapter. The evidence, in conjunction with the lack of any evidence to
the contrary and the agency's "no fault or negligence" determination,
supports the granting of relief. For example, relief from an
unexplained loss was granted in B-271896, Mar. 4, 1997, when a cashier
was forced to operate in a lax security environment. In this case,
agency management allowed other employees access to the cash area of
the cashier's office, failed to fix a safe combination lock that had
been broken for over a week, and failed to heed repeated warnings to
correct the security deficiencies. See also B-235147.2, Aug. 14, 1991
(proximate cause of loss was "general lack of concern and sense of
laxity" that pervaded agency).
Since the burden of proof rests with the accountable officer, the
accountable officer's own statements take on a particular relevance in
establishing due care, and relief should never be denied without
obtaining and carefully analyzing them. Naturally, the more specific
and detailed the statement is, and the more closely tied to the time
of the loss, the more helpful it will be. While the accountable
officer's statement is obviously self-serving and may not be enough if
there are no other supporting factors, it has been enough to tip the
balance in favor of granting relief when combined with other evidence,
however slight or circumstantial, which by itself would not have been
sufficient.[Footnote 36]
f. Compliance with Regulations:
If a particular activity of an accountable officer is governed by a
regulation, failure to follow that regulation will be considered
negligence. If that failure is the proximate cause of a loss or
deficiency, relief must be denied. 70 Comp. Gen. 12 (1990); 54 Comp.
Gen. 112, 116 (1974). The relationship of this rule to the standard of
reasonable care discussed earlier is the premise that the prudent
person exercising the requisite degree of care will become familiar
with, and will follow, applicable regulations. Indeed, it has been
stated that accountable officers have a duty to familiarize themselves
with pertinent Treasury Department and agency rules and regulations. B-
229207, July 11, 1988; B-193380, Sept. 25, 1979.
Treasury Department regulations on disbursing, applicable to all
agencies for which Treasury disburses under 31 U.S.C. § 3321, are
found in volume I of the Treasury Financial Manual, especially part 4,
"Disbursing," and part 5, "Deposit Regulations." The Treasury
regulations establish general requirements for sound cash control, and
failure to comply may result in the denial of relief. E.g., 70 Comp.
Gen. 12 (1990) (cashier kept copy of safe combination taped to
underside of desk pull-out panel).[Footnote 37]
The same principle applies with respect to violations of individual
agency regulations and written instructions. E.g., B-193380, Sept. 25,
1979 (cashier violated agency regulations by placing the key to a
locked cash box in an unlocked cash box and then leaving both in a
locked safe to which more than one person had the combination). The
decision further pointed out that oral instructions to the cashier to
leave the cash box unlocked could not be considered to supersede
published agency regulations. However, if agency regulations are
demonstrably ambiguous, relief may be granted. B-169848-0.M., Dec. 8,
1971. See also B-288166, Mar. 11, 2003 (accountable officer granted
relief when he complied with agency regulations).
Negligence will not be imputed to an accountable officer who fails to
comply with regulations where full compliance is prevented by
circumstances beyond his or her control. This recognizes the fact that
compliance is sometimes up to the agency and beyond the control of the
individual. For example, violating a regulation which requires that
funds be kept in a safe is not negligence where the agency has failed
to provide the safe. B-78617, June 24, 1949. Note, however, that
instructions from superiors to disregard regulations do not, in
themselves, relieve an accountable officer of responsibility to follow
those regulations. See, e.g., B-271021, Sept. 18, 1986 (improper
payment case).
Also, as with other types of negligence, failure to follow regulations
will not prevent the granting of relief if the failure was not the
proximate cause of the loss or deficiency. B-229207, July 11, 1988; B-
229587, Jan. 6, 1988; B-185666, July 27, 1976. See also Libby v.
United States, 81 F. Supp. 722, 727 (Ct. Cl. 1948). In B-185666, for
example, a cashier kept her cash box key and safe combination in a
sealed envelope in an unlocked desk drawer, in violation of the
Cashier's Manual. Relief was nevertheless granted because the seal on
the envelope had not been broken and the negligence could therefore
not have contributed to the loss.
While failure to comply with regulations is generally considered
negligence, the converse is not always true. To be sure, the fact that
an accountable officer has complied with all applicable regulations
and instructions is highly significant in evaluating eligibility for
relief. It is not conclusive, however, because the accountable officer
might have been negligent in a matter not covered by the regulations.
In a 1979 case, an accountable officer accepted a $10,000 personal
check at a Customs auction sale and turned over the property without
attempting to verify the existence or adequacy of the purchaser's
account. The check bounced. It was not clear whether existing
regulations applied to that situation. Even without regulations,
however, accepting a personal check for a large amount without
attempting verification was viewed as not meeting the standard of
reasonable care, and relief was denied. B-193673, May 25, 1979,
modified on other grounds, B-201673 et al., Sept. 23, 1982.
g. Losses in Shipment:
Government funds are occasionally lost or stolen in shipment. The
Postal Service or other carrier is the agent of the sender, and funds
in shipment remain in the "custody" of the accountable officer who
shipped them until delivered, notwithstanding the fact that they are
in the physical possession of the carrier. B-185905-0.M., Apr. 23,
1976. Thus, a loss in shipment is a physical loss for which an
accountable officer is liable.
For the most part, relief for losses in shipment is the same as relief
for other losses, and the rules discussed in this chapter with respect
to negligence and proximate cause apply. For example, relief was
denied in one case because transmitting cash by ordinary first-class
mail rather than registered or certified mail was held not to meet the
reasonable care standard. B-164450-0.M., Sept. 5, 1968.
However, relief for losses in shipment differs from relief for other
losses in one important respect. A loss in shipment is not viewed as
an "unexplained loss" and there is no presumption of negligence. B-
164450-0.M., Sept. 5, 1968. The reason for this distinction is that
there is no basis to infer negligence when a loss occurs while funds
are totally beyond the control of the accountable officer. Thus, where
funds are lost in shipment, in the absence of positive evidence of
fault or negligence, an accountable officer will be relieved if he or
she conformed fully with applicable regulations and procedures for the
handling and safeguarding of the funds and they were nevertheless lost
or stolen. B-142058, Mar. 18, 1960; B-126362, Feb. 21, 1956; B-119567,
Jan. 10, 1955; B-95504, June 16, 1950.
The Government Losses in Shipment Act (GLISA), 40 U.S.C. §§
1730117309, authorizes agencies to file claims with the Treasury
Department for funds or other valuables lost or destroyed in shipment.
See generally B-244473.2, May 13, 1993. The Treasury Department has a
revolving fund for the payment of these claims and has issued
regulations, found at 31 C.F.R. parts 361 and 362, to implement the
statute. The Treasury Department will generally disallow a claim
unless there has been strict compliance with the statute and
regulations. See, e.g., B-200437, Oct. 21, 1980.
If a loss in shipment occurs, the agency should first consider filing
a claim under GLISA, and should seek relief only if this fails. 70
Comp. Gen. 9 (1990). Denial of a GLISA claim should prompt further
inquiry since it suggests the possibility that someone at the point of
shipment may have been negligent, but it will not automatically
preclude the granting of relief. For example, it is possible for a
claim to be denied for reasons that do not suggest negligence. In B-
126362, Feb. 21, 1956, the accountable officer had reimbursed the
government from personal funds, and a claim under GLISA was denied
because there was no longer any loss. GAO nevertheless granted relief
and the accountable officer was reimbursed.
Disallowance of a GLISA claim for failure to strictly comply with the
regulations carries with it an even stronger suggestion of negligence,
but it is still appropriate to examine the facts and circumstances of
the particular case to evaluate the relationship of the noncompliance
to the loss. For example, GAO granted relief in B-191645, Oct. 5,
1979, despite the denial of a GLISA claim, because there was no
question that the funds had arrived at their initial destination
although they never reached the intended recipient. Even if there had
been negligence at the point of shipment, it could not have been the
proximate cause of the loss. See also B-193830, Oct. 1, 1979, and B-
193830, Mar. 30, 1979 (both cases arising from the same loss).
h. Fire, Natural Disaster:
Earlier in this chapter, we noted the Supreme Court's conclusion in
United States v. Thomas, 82 U.S. (15 Wall.) 337, 352 (1872), that
strict liability (and hence the need for relief) would not attach in
two situations: funds destroyed by an "overruling necessity" and funds
taken by a "public enemy," provided there is no contributing fault or
negligence by the accountable officer. The Court gave only one example
of an "overruling necessity":
"Suppose an earthquake should swallow up the building and safe
containing the money, is there no condition implied in the law by
which to exonerate the receiver from responsibility?"
Id. at 348. We are aware of no subsequent judicial attempts to further
define "overruling necessity," although some administrative
formulations have used the term "acts of God." E.g., 48 Comp. Gen.
566, 567 (1969). Thus, at the very least, assuming no contributing
fault or negligence, an accountable officer is not liable for funds
lost or destroyed in an earthquake, and hence there is no need to seek
relief. Contributing negligence might occur, for example, if an
accountable officer failed to periodically deposit collections and
funds were therefore on hand which should not have been. See B-71445,
June 20, 1949.
GAO granted relief in one case involving an earthquake, B-229153, Oct.
29, 1987, in which most of the funds were recovered. While arguably
there was no need to seek relief in that case, it makes no difference
as a practical matter since relief would be granted as a matter of
routine unless there is contributing negligence, in which event the
accountable officer would be liable even under Thomas.
More recently, GAO relieved an accountable officer from liability for
the loss of the "confidential fund" of the Secret Service field office
resulting from the destruction of the World Trade Center on Sept. 11,
2001. B-300677, June 19, 2003. See also B-249372, Aug. 13, 1992
(rioting forced evacuation of the American embassy in Somalia,
resulting in loss of funds in safe).
Whatever the scope of the "overruling necessity" exception, it is
clear that it does not extend to destruction by fire, even though
money destroyed by fire is no longer available to be used by anyone
else and can be replaced simply by printing new money. In Smythe v.
United States, 188 U.S. 156, 173-74 (1903), the Supreme Court declined
to apply Thomas and expressly rejected the argument that an
accountable officer's liability for notes destroyed by fire should be
limited to the cost of printing new notes. See also 1 Comp. Dec. 191
(1895), in which the Comptroller of the Treasury similarly declined to
apply the Thomas exception to a loss by fire. Thus, a loss by fire is
a physical loss for which the accountable officer is liable, but for
which relief will be granted under 31 U.S.C. § 3527 if the statutory
conditions are met. Examples are B-212515, Dec. 21, 1983, and B-
203726, July 10, 1981.
i. Loss by Theft:
If money is taken in a burglary, robbery, or other form of theft, the
accountable officer will be relieved of liability if the following
conditions are met:
* There is sufficient evidence that a theft took place;[Footnote 38]
* There is no evidence implicating, or indicating contributing
negligence by, the accountable officer; and;
* The agency has made the administrative determinations required by
the relief statute.
The fact patterns tend to fall into several well-defined categories.
(1) Burglary: forced entry:
Forced entry cases tend to be fairly straightforward. In the typical
case, a government office is broken into while the office is closed
for the night or over a weekend, and money is stolen. Evidence of the
forced entry is clear. As long as there is no evidence implicating the
accountable officer, no other contributing fault or negligence, and
the requisite administrative determinations are made, relief is
granted. A few examples follow:[Footnote 39]
* Burglars broke into the welding shop at a government laboratory,
took a blowtorch and acetylene tanks to the administrative office and
used them to cut open the safe. B-242773, Feb. 20, 1991.
* Cashier's office was robbed over a weekend. Office had been forcibly
entered, but there was no evidence of forced entry into the safe.
Federal Bureau of Investigation found no evidence of negligence or
breach of security by any government personnel associated with the
office. B-193174, Nov. 29, 1978. See also B-260862, June 6, 1995.
* Persons unknown broke front door lock of Bureau of Indian Affairs
office in Alaska and removed safe on sled. Sled tracks led to an
abandoned building in which the safe was found with its door removed.
B-182590, Feb. 3, 1975.
* Unsecured bolt cutters found on premises used to remove safe
padlock. No contributing negligence because there was no separate
facility in which to secure the tools. B-202290, June 5, 1981.
The same principles apply to theft from a hotel room. 69 Comp. Gen.
586 (1990); B-229847, Jan. 29, 1988. Note, however, that relief was
not granted in the case of a theft of cash stashed under the front
seat of a locked vehicle left in an area where several vehicles had
been broken into recently, since leaving cash in such a manner was not
a prudent way to safeguard the funds. B-257120, Dec. 13, 1994.
(2) Robbery:
In this situation, one or more individuals, armed or credibly
pretending to be armed, rob an accountable officer. Again, as long as
there is no evidence implicating the accountable officer and no
contributing negligence, relief is granted. The accountable officer is
not expected to risk his or her life by resisting. Depending on the
circumstances, it is not necessary that the thief be, or pretend to
be, armed. An example is the common purse-snatching incident. B-
197021, May 9, 1980; B-193866, Mar. 14, 1979. Some illustrative
robbery cases follow:[Footnote 40]
* Armed robber forced cashier to open the safe at gunpoint, shot the
cashier, and stole the funds. B-261261, Aug. 31, 1995.
* Gunman entered cashier's office, knocked cashier unconscious, and
robbed safe. B-235458, Aug. 23, 1990.
* Man entered cashier's office in a veterans hospital and handed
cashier a note demanding all of her $20 bills. Although he did not
display a weapon, he said he was armed. B-191579, May 22, 1978. A very
similar case is B-237420, Dec. 8, 1989 (man gave cashier note
indicating bomb threat; upon running off with the money, he left a
second note saying "no bomb").
(3) Riot, public disturbance:
This category includes the popular pastime of ransacking American
embassies. The Supreme Court's second exception in United States v.
Thomas, 82 U.S. (15 Wall.) 337 (1872) (see Fire, Natural Disaster in
section C.3.h of this chapter) to an accountable officer's strict
liability is funds taken by a "public enemy." That case concerned the
Civil War. As with the "overruling necessity" exception, we are aware
of no further definition of "public enemy" in this context, and the
cases cited here have consistently been treated as accountable officer
losses. In any event, relief is routinely granted unless there is
contributing negligence. Thus, GAO granted relief in the following
cases:[Footnote 41]
* Armed soldiers forced entry into U.S. Information Agency compound in
Beirut, Lebanon, and looted safe. B-195435, Sept. 12, 1979.
* Cash equivalents stolen when embassy in Belgrade, Federal Republic
of Yugoslavia, was ransacked. B-288014, May 17, 2002.
* Funds taken during attack on American Embassy in Tehran, Iran. B-
229753, Dec. 30, 1987; B-194666, Aug. 6, 1979 (separate attacks, both
occurring in 1979).
* Loss of Secret Service confidential funds resulting from terrorist
attack on World Trade Center on September 11, 2001. B-300677, June 19,
2003.
* Safes looted by Cuban detainees during prison riot. B-232252, Jan.
5, 1989; B-230796, Apr. 8, 1988.
(4) Evidence less than certain:
In all of the cases cited above dealing with forced entry, armed
robbery, or rioting, the fact that a theft had taken place was beyond
question. However, there are many cases in which the evidence of theft
is not all that clear. The losses are unexplained in the sense that
what happened cannot be determined with any certainty. The problem
then becomes whether the indications of theft are sufficient to
classify the loss as a theft and thereby to rebut the presumption of
negligence.
These tend to be the most difficult cases to resolve. The difficulty
stems from the fact, which we have noted previously, that the
accountable officer laws are designed to protect the government
against dishonesty as well as negligence. On the one hand, an
accountable officer who did all he or she could to safeguard the funds
should be relieved of liability. But on the other hand, the
application of the relief statutes should not provide a blueprint for
(or absolution from) dishonesty. Recognizing that complete certainty
is impossible in many if not most cases, the decisions try to achieve
a balance between these two considerations. Thus, GAO gives weight to
the administrative determinations and to statements of the individuals
concerned, but these factors cannot be conclusive and the decision
will be based on all of the evidence. Other relevant factors include
how and where the safe combination was stored, when it was last
changed, whether the combination dial was susceptible of observation
while the safe was being opened, access to the safe and to the
facility itself, and the safeguarding of keys to cash boxes.
For example, in B-198836, June 26, 1980, funds were kept in the bottom
drawer of a four-drawer file cabinet. Each drawer had a separate key
lock and the cabinet itself was secured by a steel bar and padlock.
Upon arriving at work one morning, the cashier found the bottom drawer
slightly out of alignment with several pry marks on its edges. A
police investigation was inconclusive. GAO viewed the evidence as
sufficient to support a conclusion of burglary and, since the record
contained no indication of negligence on the part of the cashier,
granted relief.
In another case, a safe was found unlocked with no signs of forcible
entry. However, there was evidence that a thief had entered the office
door by breaking a window. The accountable officer stated that he had
locked the safe before going home the previous evening, and there was
no evidence to contradict this or to indicate any other negligence.
GAO accepted the accountable officer's uncontroverted statement and
granted relief. B-188733, Mar. 29, 1979. See also B-260862, June 6,
1995; B-242830, Sept. 24, 1991; B-210017, June 8, 1983.
In B-170596-0.M., Nov. 16, 1970, the accountable officer stated that
she had found the padlock on and locked in reverse from the way she
always locked it. Her statement was corroborated by the agency
investigation. In addition, the lock did not conform to agency
specifications, but this was not the cashier's responsibility. She had
used the facilities officially provided for her. Relief was granted.
Relief was also granted in B-170615-0.M., Nov. 23, 1971, reversing
upon reconsideration B-170615-0.M., Dec. 2, 1970. In that case, there
was some evidence that the office lock had been pried open but there
were no signs of forcible entry into the safe. This suggested the
possibility of negligence either in failing to lock the safe or in not
adequately safeguarding the combination. However, the accountable
officer's supervisor stated that he (the supervisor) had locked the
safe at the close of business on the preceding workday, and two safe
company representatives provided statements that the safe was
vulnerable and could have been opened by anyone with some knowledge of
safe combinations. See also B-242830, Sept. 24, 1991.
The occurrence of more than one loss under similar circumstances
within a relatively short time will tend to corroborate the likelihood
of theft. B-199021, Sept. 2, 1980; B-193416, Oct. 25, 1979. In B-
199021, two losses occurred in the same building within several weeks
of each other. All agency security procedures had been followed and
the record indicated that the cashier had exercised a very high degree
of care in safeguarding the funds. In B-193416, the first loss was
totally unexplained, and the entire cash box disappeared a week later.
The safe combination had been kept in a sealed envelope in a "working
safe" to which other employees had access. Although the seal on the
envelope was not broken, an investigation showed that, while the
combination could not be read by holding the envelope up to normal
light, it could be read by holding it up to stronger light. In neither
case was there any evidence of forcible entry or of negligence on the
part of the accountable officer. Balancing the various relevant
factors in each case, GAO granted relief.
The disappearance of an entire cash box will also be viewed as an
indication of theft. However, this factor standing alone will not be
conclusive since there is nothing to prevent a dishonest employee from
simply taking the whole box rather than a handful of money from it.
Signs of forced entry to the safe or file cabinet will naturally
reinforce the theft conclusion. E.g., B-229136, Jan. 22, 1988; B-
186190, May 11, 1976. Far more difficult are cases in which a cash box
disappears with no signs of forcible entry to the container in which
it was kept. Note the various additional factors viewed as relevant in
each of the following cases:
* Police were able to open file cabinet with a different key, and
other thefts had occurred around the same time. Relief granted. B-
223602, Aug. 25, 1986.
* Safe was not rated for burglary protection and could have been
opened fairly easily by manipulating the combination dial. Relief
granted. B-189658, Sept. 20, 1977.
* Supervisor's secretary maintained a log of all safe and bar-lock
combinations, a breach of security which could have resulted in the
compromise of the combination. Relief granted. B-189896, Nov. 1, 1977.
* Cashier locked safe and checked it in the presence of a guard.
Several other employees had access to the safe combination. Relief
granted. B-173133-0.M., Dec. 10, 1973. Multiple access also
contributed to the granting of relief in B-241201.2, Apr. 15, 1992; B-
235167, Jan. 8, 1990; B-217945, July 23, 1985; and B-212605, Apr. 19,
1984.[Footnote 42]
* Safe was malfunctioning at time of loss. Relief granted. B-183284,
June 17, 1975.
* Extensive security violations attributable to agency. Relief
granted. B-211649, Aug. 2, 1983. See also B-235167, Jan. 8, 1990; B-
197799, June 18, 1980.
* Some evidence of forced entry to door of cashier's office but not to
safe or safe drawer. Cash box later found in men's room. Negligence by
cashier in improperly storing keys and safe combination in unlocked
desk drawer not proximate cause of loss since seal on envelope was
found intact. Relief granted. B-185666, July 27, 1976. Compare 70
Comp. Gen. 12 (1990) (cashier denied relief because she negligently
stored the cash box key, not in an envelope, in the back of her top
center desk drawer which did not lock and kept a copy of the safe
combination taped to the underside of an accessible pull-out panel on
her desk).
* Cash box disappeared during 2-week absence of cashier. Even assuming
cashier negligently failed to lock safe prior to her absence, there
was no way to establish this as the proximate cause of the loss since
box had been kept in a "working safe" which would have been opened
daily in her absence. Relief granted. B-191942, Sept. 12, 1979.
* Cashier went on leave without properly securing key to file cabinet or
entrusting it to an alternate. Relief denied. B-182480, Feb. 3, 1975.
* Cashier had been experiencing difficulty trying to lock the safe and
stated she might have left it unlocked inadvertently. Relief denied. B-
184028, Mar. 2, 1976.
To summarize the "cash box" cases, the disappearance of an entire cash
box suggests theft but is not conclusive. In such cases, even though
the cause of the loss cannot be definitely attributed, relief will
probably be granted if there is uncontroverted evidence that the safe
was locked, no other evidence of contributing fault or negligence on
the part of the accountable officer, and especially if there are other
factors present tending to corroborate the likelihood of theft. In no
case has relief been granted based solely on the fact that a cash box
disappeared; without more, it is simply another type of unexplained
loss for which there is no basis for relief.
(5) Embezzlement:
The term "embezzlement" means the fraudulent misappropriation of
property by someone to whom it has lawfully been entrusted. Black's
Law Dictionary 540 (71h ed. 1999). Losses due to embezzlement or
fraudulent acts of subordinate finance personnel, acting alone or in
collusion with others, are treated as physical losses and relief will
be granted if the statutory conditions are met. B-260563, Mar. 31,
1995; B-244113, Nov. 1, 1991; B-202074, July 21, 1983, at 6; B-211763,
July 8, 1983; B-133862-0.M., Nov. 29, 1957; B-101375-0.M., Apr. 16,
1951.
An illustrative group of cases involves the embezzlement of tax
collections, under various schemes, by employees of the Internal
Revenue Service (IRS). In each case the IRS pursued the perpetrators,
and most were prosecuted and convicted. The IRS recovered what it
could from the (now former) employees, and sought relief for the
balance for the pertinent supervisor in whose name the account was
held. In each case, GAO agreed with the "no fault or negligence"
determination and granted relief. B-270863, June 17, 1996; B-265853,
Jan. 23, 1996; B-260563, Mar. 31, 1995; B-244113, Nov. 1, 1991; B-
226214 et al., June 18, 1987; B-215501, Nov. 5, 1984; B-192567, Nov.
3, 1978; B-191722, Aug. 7, 1978; B-191781, June 30, 1978.
The accountable officer in each of the IRS cases was a supervisor who
did not actually handle the funds. The approach to evaluating the
presence or absence of negligence when the accountable officer is a
supervisor is to review the existence and adequacy of internal
controls and procedures and to ask whether the accountable officer
provided reasonable supervision. If internal controls and management
procedures are reasonable and were being followed, relief will be
granted. As noted in B-226214 et al., June 18, 1987, the standard does
not expect perfection and recognizes that a clever criminal scheme can
outwit the most carefully established and supervised system. See also
B-270863, June 17, 1996; B-260563, Mar. 31, 1995.
Losses resulting from the fraudulent acts of other than subordinate
finance personnel (e.g., payments on fraudulent vouchers) are not
physical losses but must be treated as improper payments. See B-
287043, May 29, 2001; 2 Comp. Gen. 277 (1922); B-248517, Oct. 20,
1992; B-202074, July 21, 1983; B-76903, July 13, 1948; B-133862-0.M.,
Nov. 29, 1957.
j. Agency Security:
In evaluating virtually any physical loss case, physical security—the
existence, adequacy, and use of safekeeping facilities and procedures—
is a crucial consideration. The Department of the Treasury Financial
Management Service's Manual of Procedures and Instructions for
Cashiers (hereafter Cashier's Manual) (April 2001) sets forth many of
the requirements.[Footnote 43] For example, the Cashier's Manual
provides that safe combinations should be changed annually, whenever
there is a change of cashiers, or when the combination has been
compromised, and prescribes procedures for safeguarding the
combination. It also reflects what is perhaps the most fundamental
principle of sound cash control—that an employee with custody of
public funds should have exclusive control over those funds. In
addition, agencies should have their own specific regulations or
instructions tailored to individual circumstances. Cashier's Manual, §
VI at 14.
The first step in analyzing the effect of a security violation or
deficiency is to determine whether the violation or deficiency is
attributable to the accountable officer or to the agency. Two
fundamental premises drive this analysis: (1) the accountable officer
is responsible for safeguarding the funds in his or her custody; and
(2) the agency is responsible for providing adequate means to do so.
Adequate means includes both physical facilities and administrative
procedures.
Basically, if the accountable officer fails to use the facilities and
procedures that have been provided, this failure will be viewed as
negligence and, unless some other factor appears to be the proximate
cause of the loss, will preclude the granting of relief. Several
examples have been previously cited under the Actual Negligence
heading, section C.3.c of this chapter.
Another element of the accountable officer's responsibility is the
duty to report security weaknesses to appropriate supervisory
personnel. E.g., 63 Comp. Gen. 489, 492 (1984), rev'd on other
grounds, 65 Comp. Gen. 876 (1986). If the agency fails to respond, a
loss attributable to the reported weakness is not the accountable
officer's fault. E.g., B-235147.2, Aug. 14, 1991; B-208511, May 9,
1983.
Ultimately, an accountable officer can do no more than use the best
that has been made available, and relief will not be denied for
failure to follow adequate security measures which are beyond the
accountable officer's control. E.g., B-226947, July 27, 1987 (U.S.
Mint employees stole coins from temporarily leased facility which was
incapable of adequate security); B-207062, May 12, 1983 (agent kept
collections in his possession because, upon returning to office at
4:30 p.m., he found all storage facilities locked and all senior
officials had left for the day); B-210245, Feb. 10, 1983 (lockable gun
cabinet was the most secure item available); B-186190,
May 11, 1976 (funds kept in safe with padlock because combination
safe, which had been ordered, had not yet arrived); B-78617, June 24,
1949 (agency failed to provide safe). Of course, the accountable
officer is expected to act to correct weaknesses that are subject to
his or her control. B-127204, Apr. 13, 1956.
The principle that relief will be granted if the agency fails to
provide adequate security and that failure is viewed as the proximate
cause of the loss manifests itself in a variety of contexts. One group
of cases involves multiple violations. In B-182386, Apr. 24, 1975,
imprest funds were found missing when a safe was opened for audit. The
accountable officer was found to be negligent for failing to follow
approved procedures. However, the agency's investigation disclosed a
number of security violations attributable to the agency. Two cashiers
operated from the same cash box; transfers of custody were not
documented; the safe combination had not been changed despite several
changes of cashiers; at least five persons knew the safe combination.
The agency, in recommending relief, concluded that the loss was caused
by "pervasive laxity in the protection and administration of the funds
... on all levels." GAO agreed, noting that the lax security
"precludes the definite placement of responsibility" for the loss, and
granted relief.
In several later unexplained loss cases (no sign of forcible entry, no
indication of fault or negligence on the part of the accountable
officer), GAO has regarded overall lax security on the part of the
agency, similar to that in B-182386, as the proximate cause of the
loss and thus granted relief.
B-271896, Mar. 4, 1997; B-243324, Apr. 17, 1991; B-229778, Sept. 2,
1988; B-226847, June 25, 1987; B-217876, Apr. 29, 1986; B-211962, Dec.
10, 1985; B-211649, Aug. 2, 1983. All of these cases involved numerous
security violations beyond the accountable officer's control, and
several adopt the "pervasive laxity" characterization of B-182386.
However, in order for relief to be granted, security weaknesses
attributable to the agency need not rise to the level of "pervasive
laxity" encountered in the cases cited in the preceding paragraph.
Thus, relief will usually be granted where several persons other than
the accountable officer have access to the funds through knowledge of
the safe combination since "multiple access" makes it impossible to
attribute the loss to the accountable officer. B-241201.2, Apr. 15,
1992; B-235368, Apr. 19, 1991; B-235072, July 5, 1989; B-228884, Oct.
13, 1987; B-214080, Mar. 25, 1986; B-211233, June 28, 1983; B-209569,
Apr. 13, 1983; B-196855, Dec. 9, 1981; B-199034, Feb. 9, 1981.
Additional cases are cited in our earlier discussion of missing cash
boxes.
If multiple access to a safe will support the granting of relief for
otherwise unexplained losses, it follows that multiple access to a
cash box or drawer will have the same effect. The Cashier's Manual
provides that cashiers should never work out of the same cash box or
drawer. Cashier's Manual, § VI at 14. Violation of this requirement,
where beyond the control of the accountable officer, is a security
breach that, in appropriate cases, has supported the granting of
relief. B-227714, Oct. 20, 1987; B-204647, Feb. 8, 1982. If it is
necessary for more than one cashier to work out of the same safe, the
safe should preferably have separate built-in locking drawers rather
than removable cash boxes. B-191942, Sept. 12, 1979.
The following security deficiencies have also contributed to the
granting of relief:
* Cash box could be opened with other keys. B-203646, Nov. 30, 1981; B-
197270, Mar. 7, 1980.
* Crimping device used to seal cash bags did not use sequentially
numbered seals and was accessible to several employees. B-246988, Feb.
27, 1992.
* Failure to change safe combination as required by Treasury
regulations. B-211233, June 28, 1983; B-196855, Dec. 9, 1981. (Both
cases also involve multiple access.)
* Safe combination and key to cash drawer were kept in an unlocked
desk drawer. B-177963-0.M., Mar. 21, 1973. (The result would most
likely be different if the violation were the fault of the accountable
officer or if the accountable officer passively acquiesced in the
breach. See B-185666, July 27, 1976.)
* Safe combination could be read through the sealed envelope in which
it was kept. B-243324, Apr. 17, 1991.
* Safe malfunctioning, defective, or otherwise not secure. B-271896,
Mar. 4, 1997; B-221447, June 1, 1987; B-215477, Nov. 5, 1984; B-
183284, June 17, 1975.
The preceding cases are mostly unexplained losses. It naturally
follows that security violations of the type noted will contribute to
rebutting the presumption of negligence in cases where there is clear
evidence of theft. In B-184493, Oct. 8, 1975, for example, there was
evidence of forced entry to the office door but not to the safe. The
record showed that, despite the accountable officer's best efforts, it
was impossible for him to shield the dial from observation while
opening the safe. In view of the office layout, the position of the
safe, and the number of persons allowed access to the office, GAO
granted relief.[Footnote 44] Other examples are: B-241201.2, Apr. 15,
1992, B-243324, Apr. 17, 1991, and B-180664-0.M., Apr. 23, 1974
(multiple access to safe); and B-170251-0.M., Oct. 24, 1972 (insecure
safe).
If there is evidence of negligence on the part of the accountable
officer in conjunction with security deficiencies attributable to the
agency, the accountable officer's negligence must be balanced against
the agency's negligence. Relief may be granted or denied based largely
on the proximate cause analysis. As with the unexplained loss cases,
relief has been granted in a number of cases where the agency's
violations could be said to amount to "pervasive laxity." B-235147.2,
Aug. 14, 1991; B-197799, June 19, 1980; B-182386, Apr. 24, 1975; B-
169756-0.M., July 8, 1970. Similarly, agency security violations which
do not amount to pervasive laxity may support the granting of relief.
Such violations must either be the proximate cause of the loss or make
it impossible to attribute the loss to the accountable officer. In a
1971 case, for example, a cashier kept the combinations to three safes
on an adding machine tape in her wallet. The agency failed to change
the combinations after the wallet was stolen. Also, safe company
representatives stated that one safe was vulnerable and could readily
have been opened. The fact that only the vulnerable safe had been
robbed supported the conclusion that the stolen combinations had not
been used. B-170615-0.M., Nov. 23, 1971. Other cases in which agency
security violations were found to override negligence by the
accountable officer are B-232744, Dec. 9, 1988 (safe combination not
changed despite several requests by accountable officer following
possible compromise); B-205985, July 12, 1982 (multiple access, safe
combination not changed as required); B-199128, Nov. 7, 1980 (multiple
access); B-191440, May 25, 1979 (two cashiers working out of same
drawer).
The result in these cases should not be taken too far. Poor agency
security does not guarantee relief; it is merely another factor to
consider in the proximate cause equation. Another relevant factor is
the nature and extent of the accountable officer's efforts to improve
the situation.
Where security weaknesses exist, a supervisor will normally be in a
better position to take or initiate corrective action, and a
supervisor who is also an accountable officer may be found negligent
for failing to do so. 63 Comp. Gen. 489 (1984), rev'd upon
reconsideration, 65 Comp. Gen. 876 (1986) (new evidence presented); 60
Comp. Gen. 674, 676 (1981). However, a new supervisor should not be
held immediately responsible for the situation he or she inherited. B-
209715, Apr. 4, 1983 (supervisor relieved in pervasive laxity
situation where loss occurred only a week after he became accountable).
A close reading of the numerous security cases reveals the somewhat
anomalous result that an accountable officer who works in a sloppy
operation stands a much better chance of being relieved than one who
works in a well-managed office. True as this may be, it would be wrong
to hold accountable officers liable for conditions beyond their
control. Rather, the solution lies in the proper recognition and
implementation of the responsibility of each agency, mandated by the
Federal Managers' Financial Integrity Act of 1982, 31 U.S.C. §
3512(c)(1), to safeguard its assets against loss and misappropriation.
k. Extenuating Circumstances:
Since relief under 31 U.S.C. §§ 3527(a) and (b) is a creature of
statute, it must be granted or denied solely in accordance with the
statutory conditions. When Congress desires that "equitable" concerns
be taken into consideration, it expressly so states. Examples are
waiver statutes such as 5 U.S.C. § 5584 and 10 U.S.C. § 2774.[Footnote
45] In contrast, the physical loss relief statutes do not authorize
the granting of relief on the basis of equitable considerations or
extenuating or mitigating circumstances.
Thus, where an accountable officer has been found negligent, the
following factors have been held not relevant, nor are they sufficient
to rebut the presumption of negligence:
* Acceptance of extra duties by the accountable officer; shortage of
personnel. B-186127, Sept. 1, 1976.
* Financial hardship of having to repay loss. B-239387, Apr. 24, 1991;
B-241478, Apr. 5, 1991; B-216279.2, Dec. 30, 1985.
* Good work record; long period of loyal and dependable service;
evidence of accountable officer's good reputation and character. B-
241478, Apr. 5, 1991; B-204173, Nov. 9, 1982; B-170012, Aug. 11, 1970;
B-158699, Sept. 6, 1968.
* Heavy work load. 67 Comp. Gen. 6 (1987); 48 Comp. Gen. 566 (1969); B-
241201, Aug. 23, 1991, reed on reconsideration, B-241201.2, Apr. 15,
1992 (reversed on other grounds—new evidence submitted indicating
multiple access).
* Inexperience; inadequate training or supervision. 70 Comp. Gen. 389
(1991); B-257120, Dec. 13, 1994; B-189084, Jan. 3, 1979; B-191051,
July 31, 1978.
D. Illegal or Improper Payment:
1. Disbursement and Accountability:
In order to understand the laws governing liability and relief for
improper payments, and how the application of those laws evolved over
the last quarter of the twentieth century, it is helpful to start by
summarizing, from the accountability perspective, a few points
relating to how the federal government disburses its money.
a. Statutory Framework: Disbursement Under Executive Order No. 6166:
For most of the nineteenth century and the early decades of the
twentieth century, federal disbursement was decentralized. Each agency
had its own disbursing office(s), and the function was performed by a
small army of disbursing officers and clerks (who were accountable
officers) scattered among the various agencies and throughout the
country. In part, the reason for this was the primitive state of
communication and transportation then existing. One of the weaknesses
of this system was that, in many cases, vouchers were prepared,
examined, and paid by the same person. 20 Comp. Dec. 859, 869 (1914).
This resulted in the growth of large disbursing offices in several
agencies, some of which exceeded in size that of the Treasury
Department. GAO, Annual Report of the Comptroller General of the
United States for the Fiscal Year Ended June 30, 1939 (Washington,
D.C.: 1939), at 98.
From the perspective of accountability for improper payments, the
modern legal structure of federal disbursing evolved in three major
steps. First, Congress enacted legislation on August 23, 1912,
[Footnote 46] the remnants of which are found at 31 U.S.C. § 3521(a),
to prohibit disbursing officers from preparing and auditing their own
vouchers. With this newly mandated separation of voucher preparation
and examination from actual payment, payment was accomplished by
having some other administrative official "certify" the correctness of
the voucher to the disbursing officer. The 1912 legislation was thus
the genesis of what would later become a new class of accountable
officer—the certifying officer.
Disbursing officers remained accountable for improper payments, the
standard now reflecting the more limited nature of the function. Since
1912 law was intended to prohibit the disbursing officer from
duplicating the detailed voucher examination already performed by the
certifying officer, disbursing officers were held liable only for
errors apparent on the face of the voucher, as well as, of course,
payments prohibited by law or for which no appropriation was
available. 20 Comp. Dec. 859 (1914). In a sense, the 1912 statute
operated in part as a relief statute, with credit being allowed or
disallowed in the disbursing officer's account based on the
application of this standard. E.g., 4 Comp. Gen. 991 (1925); 3 Comp.
Gen. 441 (1924).
The second major step in the evolution was section 4 of Executive
Order No. 6166, signed by President Roosevelt on June 10, 1933 (see
note at 5 U.S.C. § 901). The first paragraph of section 4, codified at
31 U.S.C. § 3321(a), consolidated the disbursing function in the
Treasury Department, eliminating the separate disbursing offices of
the other executive departments. The second paragraph, codified at 31
U.S.C. § 3321(b), authorizes Treasury to delegate disbursing authority
to other executive agencies for purposes of efficiency and economy.
The third paragraph gave new emphasis to the certification function:
"The Division of Disbursement [Treasury Department] shall disburse
moneys only upon the certification of persons by law duly authorized
to incur obligations upon behalf of the United States. The function of
accountability for improper certification shall be transferred to such
persons, and no disbursing officer shall be held accountable therefor."
The following year, Executive Order No. 6728, May 29, 1934 (see note at
5 U.S.C. § 901), exempted the military departments from the
centralization. This exemption, an exemption for the United States
Marshals Service which originated in a 1940 reorganization plan, and
an exemption for certain expenditures of the Coast Guard[Footnote 47]
are codified at 31 U.S.C. § 3321(c). Executive Order No. 6166 provided
the framework for the disbursing system still in effect today. Apart
from the specified exemptions, the certifying officer is now an
employee of the spending agency, and the disbursing officer is an
employee of the Treasury Department.
Disbursing officers continued to be liable for their own errors, as
under the 1912 legislation. E.g., 13 Comp. Gen. 469 (1934). However, a
major consequence of Executive Order No. 6166 was to make the
certifying officer an accountable officer as well. The certifying
officer became liable for improper payments "caused solely by an
improper certification as to matters not within the knowledge of or
available to the disbursing officer." 13 Comp. Gen. 326, 329 (1934).
See also 15 Comp. Gen. 986 (1936); 15 Comp. Gen. 362 (1935).
Over the next few years, confusion and disagreement developed as to
the precise relationship of certifying officers and disbursing
officers with respect to liability for improper payments. In the
Annual Report of the Comptroller General of the United States for the
Fiscal Year Ended June 30, 1940 (Washington, D.C.: 1941) at pages 63-
66, GAO summarized the problem and recommended legislation to specify
the allocation of responsibilities "to provide the closest possible
relationship between liability and fault" (id. at 64).
The third major evolutionary step was the enactment of Public Law No.
77389, ch. 641, 55 Stat. 875 (Dec. 29, 1941) to implement GAO's
recommendation. Section 1, 31 U.S.C. § 3325(a), reflects the substance
of the third paragraph of Executive Order No. 6166, § 4, quoted above.
It requires that a disbursing officer disburse money only in
accordance with a voucher certified by the head of the spending agency
or an authorized certifying officer who, except for some interagency
transactions, will also be an employee of the spending agency. As with
the amended Executive Order No. 6166 itself, section 3325(a) does not
apply to disbursements of the military departments or certain expenses
of the Coast Guard. 31 U.S.C. § 3325(b). The rest of the statute,
which we will discuss in detail later, delineates the responsibilities
of certifying and disbursing officers and provides a mechanism for the
administrative relief of certifying officers. (Comparable authority to
relieve disbursing officers from liability for improper payments was
not to come about until 1955.) Further detail on the federal
disbursement system may be found in the Treasury Financial Manual,
volume I, part 4 (2004), and GAO's Policy and Procedures Manual for
Guidance of Federal Agencies, title 7, chapter 6 (Washington, D.C.:
May 18, 1993).
It should be apparent that control of the public treasury must repose
in the hands of federal officials. However, this does not mean that
every task in the disbursement process must be performed by a
government employee. For example, GAO has advised that the Bureau of
Indian Affairs is authorized as a matter of law to contract with a
private bank to perform certain ministerial or operational aspects of
disbursing Indian trust fund money, such as printing checks,
delivering checks to payees, and debiting amounts from accounts.
However, in order to comply with 31 U.S.C. §§ 3321 and 3325, a federal
disbursing officer must retain managerial and judgmental
responsibility. 69 Comp. Gen. 314 (1990). The decision concluded:
"We see no reason to object to a contractual arrangement whereby a
private contractor provides disbursement services, so long as a
government disbursing officer remains responsible for reviewing and
overseeing the disbursement operations through agency installed
controls designed to assure accurate and proper disbursements."
Id. at 319. To intrude further into this responsibility would require
clear statutory authority. E.g., B-210545-0.M., June 6, 1983 (Indian
Health Service would need statutory authority to use fiscal
intermediaries to pay claims by providers; memorandum cites examples
of such authority in Medicare legislation).
b. Automated Payment Systems:
The statutory framework we have just described came into existence at
a time when all disbursing was done manually. The certifying officer
and his or her staff would review the supporting documentation for
each payment voucher. The certifying officer would then sign the
voucher, certifying to its legality and accuracy, and send it on to
the disbursing officer. The increased use of automated payment systems
has changed the way certifying officers must operate. Perhaps the
clearest example is payroll certification. A certifying officer may be
asked to certify a grand total accompanied by computer tapes
containing payrolls involving millions of dollars. There is no way the
certifying officer can verify that each payment is accurate and legal.
Even if it were reasonably possible, the cost of doing it would be
prohibitive.
With the onslaught of the computer age, it was natural and inevitable
to ask how accountability would function in a computerized
environment. Since many of the assumptions of a manual system were
unrealistic under an automated system, something had to change. GAO
reviewed the impact of computerization in a report entitled New
Methods Needed for Checking Payments Made by Computers, FGMSD-76-82
(Washington, D.C.: Nov. 7, 1977). The report recognized that, while
the certifying officer's basic legal liability remains, the conditions
in which a certifying officer may be relieved under an automated
payment system must be different to reflect the new realities. The
approach to relief in this context stems from the following premises
discussed in the report:
* In automated systems, evidence that the payments are accurate and
legal must relate to the system rather than to individual transactions.
* Certifying and disbursing officers should be provided with
information showing that the system on which they are largely
compelled to rely is functioning properly.
* Reviews should be made at least annually, supplemented by interim
checks of major system changes, to determine that the automated
systems are operating effectively and can be relied on to produce
payments that are accurate and legal.
The report then concluded:
"In the future, when a certifying or disbursing officer requests
relief from an illegal, improper, or incorrect payment made using an
automated system, GAO will continue to require the officer to show
that he or she was not negligent in certifying payments later
determined to be illegal or inaccurate. However, consideration will be
given to whether or not the officer possessed evidence at the time of
the payment approval that the system could be relied on to produce
accurate and legal payments. In cases in which the designated
assistant secretary or comparable official provides the agency head
and GAO with a written statement that effective system controls could
not be implemented prior to voucher preparation and certifies that the
payments are otherwise proper, GAO will not consider the absence of
such controls as evidence of negligence in determining whether the
certifying official should be held liable for any erroneous payment
prior to receipt of an advance decision. Of course, the traditional
requirements that due care be exercised in making the payments and
that diligent effort be made to recoup any erroneous payments will
still be considered in any requests for waiver of liability. Also,
should the certifying official fail to take reasonable steps to
establish adequate controls for future payments, the reasons for such
failure will be taken into account in any requests for waiver of
liability concerning such future payments."
FGMSD-76-82, at 17-18.
A few years later, the concepts and premises of the GAO report were
explored and reported, with implementing recommendations, in a key
study by the Joint Financial Management Improvement Program entitled
Assuring Accurate and Legal Payments—The Roles of Certifying Officers
in Federal Government (Washington, D.C.: June 1980).[Footnote 48]
Further guidance from the internal control perspective may be found in
GAO, Public Key Infrastructure: Examples of Risks and Internal Control
Objectives Associated with Certification Authorities, GAO-04-1023R
(Washington, D.C.: Aug. 10, 2004); GAO, Streamlining the Payment
Process While Maintaining Effective Internal Control, GAO/AIMD-21.3.2
(Washington, D.C.: May 1, 2000); GAO, Policy and Procedures Manual for
Guidance of Federal Agencies (hereafter GAO-PPM), title 7 (Washington,
D.C.: May 18, 1993); OMB Circular No. A-123, Management Accountability
and Control (June 21, 1995); and OMB Circular No. A-127, Financial
Management Systems (July 23, 1993). See also a GAO publication
entitled Critical Factors in Developing Automated Accounting and
Financial Management Systems, Document Accession No. 132042
(Washington, D.C.: January 1987).
Thus, in considering requests for relief under an automated payment
system where verification of individual transactions is impossible as
a practical matter, the basic question will be the reasonableness of
the certifying officer's reliance on the system to continually produce
legal and accurate payments. B-178564, Jan. 27, 1978 (confirming the
conceptual feasibility of using automated systems to perform preaudit
functions under various child nutrition programs). See also B-201965,
June 15, 1982. Contexts in which system reliance is relevant are
discussed in B-291001, Dec. 23, 2002 (proposed time and attendance
system); 59 Comp. Gen. 85 (1989) (automated "ZIP plus 4" address
correction system); 59 Comp. Gen. 597 (1980) (electronic funds
transfer program). Regardless of what system is used, there is of
course no authority to make known overpayments. B-205851, June 17,
1982; B-203993-0.M., July 12, 1982.
c. Statistical Sampling:
Statistical sampling is a procedure whereby a random selection of
items from a universe is examined, and the results of that examination
are then projected to the entire universe based on the laws of
probability. In 1963, the Comptroller General held that reliance on a
statistical sampling plan for the internal examination of vouchers
prior to certification would not operate to relieve a certifying
officer from liability for improper or erroneous payments. 43 Comp.
Gen. 36 (1963). GAO recognized in the decision that an adequate
statistical sampling plan could produce overall savings to the
government, but was forced to conclude that it was not authorized
under existing law.
In response to this, Congress enacted legislation in 1964, now found
at 31 U.S.C. §§ 3521(b)-(d). The statute authorizes agency heads, upon
determining that economies will result, to prescribe the use of
adequate and effective statistical sampling procedures in the
prepayment examination of disbursement vouchers.
As originally enacted, 31 U.S.C. § 3521(b) was limited to vouchers not
exceeding $100. A 1975 amendment to the statute removed the $100 limit
and authorized the Comptroller General to prescribe maximum dollar
limits. The current limit is $2,500. GAO, Policy and Procedures Manual
for Guidance of Federal Agencies (hereafter GAO-PPM), title 7, § 7.4.E
(Washington, D.C.: May 18, 1993). For further guidance, see 7 GAO-PPM
App. DI, and GAO, Using Statistical Sampling, GAO/PEMD-10.1.6
(Washington, D.C.: May 2, 1992). For vouchers over the prescribed
limit, unless GAO has approved an exception (7 GAO-PPM App. III, § B),
43 Comp. Gen. 36 would continue to apply.
The relevance of all this to accountable officers is spelled out in
the statute. A certifying or disbursing officer acting in good faith
and in conformity with an authorized statistical sampling procedure
will not be held liable for any certification or payment on a voucher
which was not subject to specific examination because of the
procedure. However, this does not affect the liability of the payee or
recipient of the improper payment, and relief may be denied if the
agency has not diligently pursued collection action against the
recipient. 31 U.S.C. §§ 3521(c)-(d). See B-254436, Mar. 1, 1994, where
GAO found that disbursing and certifying officers are not liable for
payments made on unaudited vouchers under the statistical sampling
procedure provided that the agency carries out diligent collection
actions on any improper payment.
GAO has approved the use of statistical sampling to test the
reliability of accelerated payment or "fast pay" systems. See, e.g.,
GAO, Streamlining the Payment Process While Maintaining Effective
Internal Control, GAO/AIMD-21.3.2 (Washington, D.C.: May 1, 2000); 60
Comp. Gen. 602, 606 (1981). In 67 Comp. Gen. 194 (1988), GAO for the
first time considered the use of statistical sampling for post-payment
audit in conjunction with "fast pay" procedures. The question arose in
connection with a General Services Administration proposal to revise
its procedures for paying and auditing utility invoices. GAO approved
the proposal in concept, subject to several conditions: (1) the
economic benefit to the government must exceed the risk of loss; (2)
the plan must provide for a meaningful sampling of all invoices not
subject to 100 percent audit; and (3) the plan must provide a reliable
and defensible basis for the certification of payments. GAO then
considered and approved GSA's specific plan in 68 Comp. Gen. 618
(1989). As a general proposition, however, approaching the problem
through system improvements is preferable to an alternative that
involves relaxing controls or audit requirements. 7 GAO-PPM § 7.4.E
d. Provisional Vouchers and Related Matters:
Apart from questions of automation or statistical sampling, proposals
arise from time to time, prompted by a variety of legitimate concerns,
to expedite or simplify the payment process. Proposals of this type
invariably raise the potential for overpayments or erroneous payments.
Therefore, their consequences in terms of the liability and relief of
certifying and disbursing officers must always be considered.
A 1974 case involved a proposal by the Environmental Protection Agency
for the certification of "provisional vouchers" for periodic payments
under cost-type contracts. Under the proposal, monthly vouchers
certified for payment would be essentially unaudited except for basic
mathematical and cumulative cost checks, subject to adjustment upon
audit when the contract is completed. Under this system, as with
statistical sampling, some errors could escape detection. However,
certifying officers would not have the benefit of the protection
afforded by the statistical sampling legislation. Since there would be
a complete audit upon contract completion, the provisional vouchers
could be certified upon a somewhat lesser standard of prepayment
examination, but GAO pointed out that any such system should provide,
at a minimum, for periodic audit of the provisional vouchers. To
better protect the certifying officers, GAO suggested following a
Defense Department procedure under which "batch audits" of accumulated
vouchers are conducted as frequently as deemed necessary based on the
reliability of each contractor's accounting and billing procedures,
but not less than annually, again subject to final audit upon contract
completion. B-180264, Mar. 11, 1974.
In order to meet processing deadlines, time and attendance forms are
often "certified" by appropriate supervisory personnel before the end
of the pay period covered, raising the possibility that information
for the latter days of the pay period may turn out to be erroneous.
Since necessary adjustments can easily be made in the subsequent pay
period and since the risk of loss to the government is viewed as
remote, the provisional certification of payroll vouchers based on
these "provisional" time and attendance records is acceptable. B-
145729, Aug. 17, 1977 (internal memorandum).
Simplification plans may be prompted by nothing more exotic than
understaffing of audit resources. In B-201408, Apr. 19, 1982, an
agency proposed an "audit resources utilization plan" whereby it would
(1) attempt to identify high risk contractors through preaward
questionnaires; (2) for low risk contracts below a monetary limit,
substitute desk audits for field contract audits; and (3) encourage
the use of systems audits where possible. GAO found no "conceptual
objection" to the proposal, noting that the final audits discussed in
B-180264, Mar. 11, 1974, did not necessarily have to be field audits,
but emphasized that high risk contractors should be subject to
contract audits in all cases. The decision also discusses the
certifying officer's role.
Another type of simplification proposal involves lessening the degree
of scrutiny on small payments. For example, the Department of Veterans
Affairs (VA) is authorized to reimburse certain low-cost supplies
furnished to veterans under statutory training and rehabilitation
programs. Experience taught the VA that participants could reasonably
be expected to incur at least $35 of reimbursable supply expenses. The
VA proposed to waive documentation and review requirements on invoices
of up to $35 for miscellaneous supplies, and to pay essentially
unsupported invoices up to that amount.[Footnote 49] GAO concurred,
but added that the VA should be able to demonstrate that prior audits
have not revealed a significant number of false or inappropriate
claims, and that it has internal controls adequate to detect multiple
claims for the same individual. B-221949, June 30, 1987. An unstated
consequence of the decision is that a certifying officer who relied on
the system, assuming it was set up in accordance with the specified
criteria, would be relieved from liability should any of the payments
turn out to be erroneous.
e. Facsimile Signatures and Electronic Certification:
Signature devices other than the traditional pen-and-ink signature are
called "facsimile signatures." The term has been defined as "an
impression of a signature made by a rubber stamp, metal plate, or
other mechanical contrivance." B-194970, July 3, 1979. As a general
proposition, there is no prohibition on the use of facsimile
signatures on financial documents as long as adequate controls and
safeguards are observed. The rule was stated as follows in B-48123,
Nov. 5, 1965 (nondecision letter):
"Generally, an acceptable facsimile of a signature may be made by a
rubber stamp impression or may be reproduced on a metal plate or by
other mechanical contrivances, the validity of which is derived from a
signed original. An otherwise proper document may be so authenticated
mechanically with the knowledge and consent or under an express
delegation of authority from the signer of the original provided that
appropriate safeguards are observed in those respects."
The rule has statutory recognition. In any federal statute unless
otherwise specified, the term "signature" includes "a mark when the
person making the same intended it as such." 1 U.S.C. § 1; 71 Comp.
Gen. 109 (1991) (definition of writing in 1 U.S.C. § 1 encompasses
electronic data interchange technologies); 65 Comp. Gen. 806, 810
(1986).
When facsimile signatures are to be used by government officials, the
safeguards should include:
* Standards for the authorization of the use of facsimile signatures,
* An enumeration of the types of documents on which facsimile
signatures may be used,
* Physical control of the signature device to prevent unauthorized
use, and;
* Notification to officials authorized to use facsimile signatures
that use of a signature device in no way lessens their responsibility
or liability.
B-140697, Oct. 28, 1959 (approving use of facsimile signatures in the
execution of contracts). Other cases approving the use or acceptance
of facsimile signatures are 40 Comp. Gen. 5 (1960) (use by Air Force
on purchase orders for small purchases); 33 Comp. Gen. 297 (1954)
(certification of invoice bearing only rubber stamp signature of
vendor); B-194970, July 3, 1979 (certification of voucher/purchase
order bearing only facsimile signature of contracting officer); B-
150395, Dec. 21, 1962 (use by Navy on purchase orders); B-126776-0.M.,
Mar. 5, 1956 (use by Army on certificates of availability of
government quarters and/or mess in support of military travel
vouchers); B-104590, Sept. 12, 1951 (use on vouchers in federal
educational grant programs).[Footnote 50]
A more recent case held that payment could be certified on the basis
of a contractor's facsimile ("fax") invoice, again provided that the
agency has adequate internal controls to guard against fraud and
overpayments and it determines that accepting facsimiles is beneficial
to and cost-effective for the government. See B-242185, Feb. 13, 1991,
citing several cases authorizing the acceptance of carbon copies.
One place where facsimile signatures are not permitted is the Standard
Form 210, the signature/designation card for certifying officers which
must be filed with the Treasury Department and which must bear the
certifying officer's original, manual signature. 1 TFM 4-1125.
Most of the cases cited thus far have involved relatively primitive
devices such as rubber stamps or signature machines. When we move into
the realm of computerized data transmission, the equipment is far more
sophisticated but the underlying principles are the same—there is no
prohibition but there must be adequate safeguards.
In the 1980s, GAO and the Treasury Department began to consider the
feasibility of electronic certification of payment vouchers. In a 1984
memorandum to one of GAO's audit divisions, GAO's General Counsel
agreed with the Treasury Department that there is no specific legal
requirement that a certifying officer's certification be limited to
writing on paper. Then, applying the precedent of the earlier rubber
stamp cases, the memorandum concluded that electronic certification,
with adequate safeguards, was not legally objectionable. The
"signature" could be an appropriate symbol adopted by the certifying
officer, which should be unique, within the certifying officer's sole
control or custody, and capable of verification by the disbursing
officer. B-216035-0.M., Sept. 20, 1984.
Treasury subsequently developed a proposal for a prototype electronic
certification system, which GAO found to adequately satisfy the
statutory requirements for voucher certification and payment. B-216035-
0.M., Sept. 25, 1987.[Footnote 51] In 1998, Congress enacted
legislation that required executive agencies to implement procedures
for the use and acceptance of electronic signatures. Government
Paperwork Elimination Act, Pub. L. No. 105-277, § 1703, 112 Stat.
2681, 2681-749 (Oct. 21, 1998), at 44 U.S.C. § 3504 note. The E-
Government Act of 2002 contains a provision to ensure the
compatibility of executive agency methods for use and acceptance of
electronic signatures.[Footnote 52] Treasury issued guidelines in 1998
for the full implementation of an electronic certification system as
the required method of submission of vouchers and schedule of payments
to the Financial Management Service. 1 TFM 4-2030.10. The guidelines
provide that an authorized ECS (electronic certifying system)
certifying officer "will be held responsible for the correctness of
the facts stated on the voucher or its supporting documents, and to
the effect that payment is proper from the appropriations shown on the
basic voucher or voucher-schedule." 1 TFM 4-2040.10.
f. GAO Audit Exceptions:
"Taking an exception" is a device GAO uses to formally notify an
accountable officer of a fiscal irregularity which may result in
personal liability. Today, this device is very rarely used. At one
time, accountable officers had to submit all of their account
documents to GAO, and GAO "settled" the accounts (31 U.S.C. § 3526(a))
by physically examining each piece of paper. Exceptions were common
during that era. The nature of the process has evolved in recent
decades in recognition of the increased responsibility of agencies in
establishing their own financial systems and controls. Account
settlement now is more a matter of systems evaluation and the review
of administrative surveillance and the effectiveness of collection and
disbursement procedures. Examination of individual transactions by GAO
is minimal. See GAO, Policy and Procedures Manual for Guidance of
Federal Agencies (hereafter GAO-PPM), title 7, § 8.5 (Washington,
D.C.: May 18, 1993). However, fiscal irregularities still come to
GAO's attention in various ways (through its normal audit activities,
agency irregularity reports, etc.), and GAO may invoke the exception
procedure when warranted by the circumstances. The process is
summarized in 7 GAO-PPM § 8.6. Examples are noted in 65 Comp.
Gen. 858, 861 (1986), modified by 70 Comp. Gen. 463 (1991) (massive
travel fraud scheme), and B-194727, Oct. 30, 1979 (fraudulent
misappropriation of mass transit grant funds by government employee).
The first step in the exception process is the issuance of a "Notice
of Exception" to the agency concerned. The issuance of a Notice of
Exception does not itself constitute a definite determination of
liability. It has been described as "in the nature of a challenge to
the propriety of a certifying officer's action in certifying the
voucher for payment." B-69611, Oct. 27, 1947. The certifying or
disbursing officer, through his or her agency, then has the
opportunity to respond to the exception. It is the accountable
officer's responsibility to establish the propriety of the payment. 13
Comp. Gen. 311 (1934). If the reply to the exception is satisfactory,
the exception is withdrawn. E.g., B-78091, Nov. 2, 1948. If the reply
does not provide a satisfactory basis to remove the exception, the
item is "disallowed" in the account.
Technically, the term "disallowance" applies only to disbursing
officers since a certifying officer does not have physical custody of
funds and does not have an "account" in the same sense that a
disbursing officer does. Thus, strictly speaking, GAO "disallows an
expenditure" in the account of a disbursing officer and "raises a
charge" against a certifying officer. See 32 Comp. Gen. 499, 501
(1953); A-48860, Apr. 14, 1950. For account settlement purposes, a
certifying officer's "account" consists of the certified vouchers and
supporting documents on the basis of which payments have been made by
a disbursing officer and included in the disbursing officer's account
for a particular accounting period. B-147293-0.M., Feb. 21, 1962.
The taking of an exception does not preclude submission of a relief
request under applicable relief legislation. As a practical matter, if
the agency has been unable to respond satisfactorily to the Notice of
Exception, the likelihood of there being adequate basis for relief is
diminished correspondingly. However, as in 65 Comp. Gen. 858, it can
happen, and the possibility should therefore not be dismissed.
2. Certifying Officers:
a. Duties and Liability:
As we have seen, a certifying officer is the official who certifies a
payment voucher to a disbursing officer. The responsibility and
accountability of certifying officers are specified in 31 U.S.C. §
3528(a), part of the previously noted 1941 legislation enacted to
clarify the roles of accountable officers under Executive Order No.
6166, June 10, 1933 (see note at 5 U.S.C. § 901). The certifying
officer is responsible for (1) the existence and correctness of the
facts stated in the certificate, voucher, and supporting
documentation; (2) the correctness of computations on the voucher; and
(3) the legality of a proposed payment under the appropriation or fund
involved. The statute further provides that a certifying officer will
be accountable for the amount of any "illegal, improper, or incorrect"
payment resulting from his or her false or misleading certification,
as well as for any payment prohibited by law or which does not
represent a legal obligation under the appropriation or fund involved.
There is a recurring appropriation act provision, discussed in section
C.4.b of Chapter 4 under the heading "Employment of Aliens," which
bars the use of appropriated funds to pay the compensation of a
government employee who is not a United States citizen, subject to
certain exceptions. The provision applies only to employees whose post
of duty is in the continental United States. Thus, a certifying
officer (or disbursing officer) in the continental United States must
be a U.S. citizen unless one of the exceptions applies. There is no
comparable requirement applicable to employees outside the continental
United States. B-206288-0.M., Aug. 4, 1982.
A certifying officer must normally be an employee of the agency whose
funds are being spent, but may be an employee of another agency under
an authorized interagency transaction or agreement. 72 Comp. Gen. 279
(1993); 59 Comp. Gen. 471 (1980); 44 Comp. Gen. 100 (1964).
A certifying officer is liable the moment an improper payment is made
as the result of an erroneous or misleading certification. E.g., 54
Comp. Gen. 112, 114 (1974). This is true whether the certification
involves a matter of fact, a question of law, or a mixed question of
law and fact.
55 Comp. Gen. 297, 298 (1975) (citing several other cases). As a
general proposition, the government looks first to the certifying
officer for reimbursement even though some other agency employee may
be liable to the certifying officer under administrative regulations.
32 Comp. Gen. 332 (1953); 15 Comp. Gen. 962 (1936). The fact that a
certifying officer receives instructions from superiors to make the
improper payment does not relieve him from liability. B-271021, Sept.
18, 1996. Also, the certifying officer's liability does not depend on
the government's ability or lack of ability to recoup from the
recipient of the improper payment. 31 Comp. Gen. 17 (1951); 28 Comp.
Gen. 17, 20 (1948). What this means is that the government is not
obligated to seek first to recoup from the recipient, although it
frequently does so, and of course any recovery from the recipient will
reduce the certifying officer's liability, at least in most cases.
Occasionally there may be two certifying officers involved with a
given payment, so-called "successive certifications." The rule is that
the responsibility of the certifying officer certifying the basic
voucher is not diminished by the subsequent action. GAO stated the
principle as follows in a letter to the Secretary of the Treasury, B-
142380, Mar. 30, 1960:
"Where the certifying officer who certifies the voucher and schedule
of payments is different from the certifying officer who certifies the
basic vouchers, ... the certifying officer who certifies the basic
vouchers is responsible for the correctness of such vouchers and the
certifying officer who certifies the voucher-schedule is responsible
only for errors made in the preparation of the voucher-schedule."
See also 67 Comp. Gen. 457 (1988).
An illustration of how this principle may apply is 55 Comp. Gen. 388
(1975), involving the liability of General Services Administration
certifying officers under interagency service and support agreements
with certain independent agencies. Under the arrangement in question,
the agency would assume certification responsibility for the basic
expenditure vouchers, but they would be processed for final payment
through GSA, with GSA preparing and certifying a master voucher and
schedule to be accompanied by a master magnetic tape. Again quoting
the above passage from B-142380, GAO concluded that the legal
liability of the GSA certifying officer would be limited to errors
made in the final processing. See also 72 Comp. Gen. 279 (1993), where
a State Department certifying officer could certify an "emergency
extraordinary expense voucher," submitted by a Defense Attaché, which
was not accompanied by supporting documentation because of security
considerations. The certifying officer was only responsible for errors
made on his own processing of the voucher and not for the underlying
propriety of the certification by the Defense Attaché.
Similarly, the statutory accountability does not apply to an official
who certifies an "adjustment voucher" used to make adjustments between
accounts or funds in the Treasury in respect of an obligation already
paid and which therefore does not involve paying money out of the
Treasury to discharge an obligation. 23 Comp. Gen. 953 (1944).
Although certification even in this situation should not be reduced to
a "matter of form," the accountability would attach to the certifying
officer who certified the basic payment voucher. See 23 Comp. Gen.
181, 183-84 (1943).
The function of certification is not perfunctory, but involves a high
degree of responsibility. 55 Comp. Gen. 297, 299 (1975); 20 Comp. Gen.
182, 184 (1940). This responsibility is not alleviated by the press of
other work. B-147747, Dec. 28, 1961.[Footnote 53] It also involves an
element of verification, the extent of which depends on the
circumstances. For example, a voucher for goods or services should be
supported by evidence that the goods were received or the services
performed. 39 Comp. Gen. 548 (1960). Agencies are authorized to
implement fast pay processes using certain controls to pay vendors
subject to post-payment verification of the receipt and acceptance of
goods and services ordered and the accuracy of invoices received.
Federal Acquisition Regulation (FAR), 48 C.F.R. pt. 13 (2005); GAO,
Policy and Procedures Manual for Guidance of Federal Agencies, title
7, § 7.4.D (Washington, D.C.: May 18, 1993). Generally, an independent
investigation of the facts is not contemplated. E.g., B-257334, June
30, 1995; 28 Comp. Gen. 571 (1949). Similarly, where proper
administrative safeguards exist, certifying officers need not examine
time, attendance, and leave records in order to certify the
correctness of amounts shown on payrolls submitted to them. 31 Comp.
Gen. 17 (1951).[Footnote 54] A 1982 decision, 61 Comp. Gen. 477,
reviewed the safeguards proposed by a Bonneville Power Administration
certifying officer for certifying recurring payments to a regional
planning body and found them adequate to satisfy 31 U.S.C. § 3528. In
the case of a compensatory damages award in settlement of an employee
discrimination claim, certifying officers needed to ensure that all
the items covered in the lump sum payment were statutorily
permissible, that the amount of the payment did not exceed statutory
limits, and that correct administrative procedures were followed. B-
257334, June 30, 1995.
An example of the role of a certifying officer in verifying a payment
is in B-301184, Jan. 15, 2004, in which certifying officers twice
questioned payment for the cost of food at a program that was offered
to employees at their permanent duty station for which appropriated
funds were not available. In the decision, it was stated that:
"In matters such as this, we carefully consider the views of
certifying officers who request a decision pursuant to 31 U.S.C. §
3529(a)(2), in addition to those positions advanced by the agency's
program officials, because the agency's certifying officers are the
agency officials who, statutorily, are responsible for the propriety
of all expenditures. 31 U.S.C. § 3528(a)(3) CA certifying official
certifying a voucher is responsible for ... the legality of a proposed
payment under the appropriation or fund involved'). Unlike other
agency officials, certifying officers are personally financially
liable for improper payments that they certify. 31 U.S.C. § 3528(a)(4)
CA certifying official certifying a voucher is responsible for ...
repaying a payment ... (A) illegal, improper or incorrect because of
an inaccurate or misleading certificate; (B) prohibited by law; or (C)
that does not represent a legal obligation under the appropriation or
fund involved')."
Whatever else the certifying officer's verification burden may or may
not involve, it certainly involves questioning items on the face of
vouchers or supporting documents, which simply do not look right. For
example, a certifying officer who certifies a voucher for payment in
the full amount claimed, disregarding the fact that the accompanying
records indicate an outstanding indebtedness to the government against
which the sum claimed is available for offset, is accountable for any
resulting overpayment. 28 Comp. Gen. 425 (1949). Similarly, certifying
a voucher in the full amount within a prompt payment discount period
without taking the discount will result in liability for the amount of
the lost discount. However, a certifying officer is not liable for
failing, even if negligently, to certify a voucher within the time
discount period. 45 Comp. Gen. 447 (1966).
A clear illustration of a certifying officer's responsibility and
liability occurred when a Department of Transportation employee
fraudulently misappropriated more than $850,000 in 1977. The fraud was
discovered by virtue of the employee's ostentatious purchases,
including several luxury automobiles and a "topless" bar in
Washington, D.C. The employee was found guilty and sent to jail.
However, investigation revealed negligence on the part of a Department
certifying officer. The employee had perpetrated the fraud by
inserting his own name on six payment vouchers for Urban Mass
Transportation Administration grants. Each voucher contained a list of
approximately ten payees with individual amounts, and the total
amount, and each had been certified by the certifying officer. The
negligence occurred in one of two ways. If the employee inserted his
own name and address on the voucher before presenting it to the
certifying officer, the certifying officer was negligent in not
spotting the name of an individual (whose name he should have known)
with an address in suburban Maryland on a list of payees the rest of
which were mass transit agencies. If the employee presented a partial
voucher and added his own name after it was certified, the total as
presented to the certifying officer could not have agreed with the sum
of the individual amounts, and the certifying officer was negligent in
not verifying the computation. GAO raised exceptions to the certifying
officer's account, and advised the Department of Transportation that
it must proceed with collection action against the certifying officer
for the full amount of the excepted payments less any amounts
recovered from the employee or through the sale of assets, like the
topless bar, which the Justice Department seized. See B-194727,
Oct. 30, 1979. Apparently in view of the clear negligence, relief was
never requested.
At this point, it should be noted that no one involved in the process
remotely expects that the government will be able to recover several
hundred thousand dollars from a certifying officer, or from any other
accountable officer, except perhaps one who has him(her)self stolen
the money. However, the burden of having to repay even a portion in
cases of losses of this size sends an important message and reinforces
the certain if indeterminable deterrent effect of the statute.
Certifying officers should not certify payment vouchers that are
unsupported by pertinent documentation indicating that procedural
safeguards regarding payment have been observed. Vouchers that are
deficient in this regard should be returned to the appropriate
administrative officials for proper approvals and supporting
documents. B-257334, June 30, 1995; B-179916, Mar. 11, 1974.
An area in which a certifying officer's duty to question is minimal is
payments to a contractor determined under a statutory or contractual
disputes procedure. In the absence of fraud or bad faith by the
contractor, a payment determination made under a disputes clause
procedure is final and conclusive and may not be questioned by a
certifying officer, GAO, or the Justice Department. S&E Contractors,
Inc. v. United States, 406 U.S. 1 (1972); B-201408, Apr. 19, 1982. It
does not follow that any administrative settlement is entitled to the
same effect. In B-239592, Aug. 23, 1991, GAO found that an "informal
settlement" of a personnel action between an agency and one of its
employees was without legal authority and found the certifying officer
liable for the unauthorized payments. (A subsequent letter, B-
239592.2, Sept. 1, 1992, clarified that this meant the authorized
certifying officer, not an official who had signed certain documents
as "approving official" but was not responsible for determining the
legality of the payment.)
A different issue involving an administrative settlement arose in
67 Comp. Gen. 385 (1988). After an investigation by federal and state
officials, the Forest Service determined that it was responsible for a
fire in a national forest in Oregon, and reimbursed the state for fire
suppression expenses incurred under a cooperative agreement.
Subsequently, a private landowner sued for damages resulting from the
same fire, and the court made a finding of fact that the Forest
Service was not liable. The certifying officer was concerned that the
court's finding might have the effect of invalidating the prior
payment to Oregon and making him liable for an erroneous payment. The
decision concluded that the payment was proper when made, and that the
court finding did not impose any duty on the certifying officer to
reopen and reexamine it. See also B-262110, Mar. 19, 1997, where the
Environmental Protection Agency used a cooperative agreement to
provide for payment of the costs of travel and related expenses by
nonfederal attendees of an EPA conference. If EPA had used a
procurement agreement, as required, these costs would not have been
allowable. Relief was granted the certifying officer and recipient of
the funding because both acted in good faith in fulfilling obligations
and had no basis for questioning the use of the inappropriate
agreement.
A certifying officer has the statutory right to seek and obtain an
advance decision from the Comptroller General regarding the lawfulness
of any payment to be certified. 31 U.S.C. § 3529.[Footnote 55] This
procedure will insulate the certifying officer against liability.
Following the advice of agency counsel, on the other hand, does not
guarantee protection against liability. E.g., 55 Comp. Gen. 297
(1975). Having said this, we do not wish to imply that consulting
agency counsel is a pointless gesture. See B-257893, June 1, 1995
(certifying officer's good faith was demonstrated, in part, by
reliance on agency counsel approval of settlement agreement). On the
contrary, it is to be encouraged. Seeking internal legal advice prior
to certification of matters on which the certifying officer is unsure
will in many cases obviate any need for an advance decision. In other
cases it may help define those situations in which consulting GAO may
be desirable.
As a final note, the Treasury Department has published a supplement to
the Treasury Financial Manual entitled Now That You're a Certifying
Officer (revised March 2005), which can be found at
www.fmstreas.gov/publications.html (last visited September 15, 2005).
Written expressly for certifying officers, it provides a good overview
of the importance of the job and the responsibilities which accompany
it.
b. Applicability of 31 U.S.C. § 3528:
There are two major exceptions to 31 U.S.C. § 3528(a). First, it
applies only to the executive branch. While section 3528(a) is not
limited by its terms to the executive branch, 31 U.S.C. § 3325(a), the
basic requirement that disbursing officers disburse only upon duly
certified vouchers, is expressly limited to the executive branch, and
sections 3325(a) and 3528(a) originated as sections 1 and 2 of the
same 1941 enactment. Thus, GAO has concluded that 31 U.S.C. § 3528(a)
does not apply to the legislative branch. 21 Comp. Gen. 987 (1942); B-
191036, July 7, 1978; B-236141.2, Feb. 23, 1990 (internal memorandum).
See also B-39695, Mar. 27, 1945. It has also been held that 31 U.S.C.
§ 3325(a) does not apply to the judicial branch. B-6061, A-51607, Apr.
27, 1942. It follows that section 3528(a) would be equally
inapplicable to the judicial branch. B-236141.2, cited above. In 1996,
the United States Code was amended to authorize the designation and
appointment of certifying and disbursing officers within the
Department of Defense. See National Defense Authorization Act for
Fiscal Year 1996, Pub. L. No. 104-106, thy. A, title IX, subtitle B, §
913, 110 Stat. 186, 410-12 (Feb. 10, 1996). Previously, 31 U.S.C. §
3528 specifically exempted military departments from its applicability
except for departmental pay and expenses in the District of Columbia.
Some legislative branch agencies now have their own legislation
patterned after 31 U.S.C. § 3528. See statutes listed in section E.1.b
of this chapter. Until recently, GAO decisions indicated that agencies
that do not have their own legislation, including legislative branch
agencies, nevertheless had the authority, within their discretion, to
create their own certifying officers and to make them accountable by
administrative regulation. The 1990 memorandum cited above, B-
236141.2, contains a detailed discussion. See also B-247563.3, Apr. 5,
1996; B-260369, June 15, 1995; 21 Comp. Gen. at 989. These decisions
reasoned that such liability, duly imposed by regulation, could be
regarded as part of the employee's "employment contract." However, in
B-280764, May 4, 2000, GAO reconsidered its position in a case
involving the Department of Defense (DOD) and held that accountable
officer status and liability can only be created by statute. GAO found
no authority that would permit DOD to impose pecuniary liability by
regulation on officials whom it refers to as "accountable officials"
(but who are not certifying or disbursing officers) for erroneous
payments resulting from information that they "negligently provide" to
certifying officers. The 2000 decision overruled prior inconsistent
decisions, which would include those applying to legislative branch
agencies. There is a further discussion of B-280764 in section B.2 of
this chapter.
c. Relief:
Informally known as the Certifying Officers' Relief Act, 31 U.S.C. §
3528(b) establishes a mechanism for the administrative relief of
certifying officers governed by 31 U.S.C. § 3528(a).[Footnote 56]
There are two standards for relief. The Comptroller General may
relieve a certifying officer from liability for an illegal, improper,
or incorrect payment upon determining that:
* the certification was based on official records and the certifying
officer did not know, and by reasonable diligence and inquiry co