In fiscal year 2014, unobligated balances—the balance of available budget authority that has not yet been obligated as of the end of the fiscal year—made up about $870 billion of the $2.3 trillion in unexpended balances. Unobligated balances can present agencies with an opportunity to better respond to unexpected events, but high levels of unobligated balances may highlight opportunities for funds to be used more efficiently elsewhere, such as through reprogramming funds to other activities or reducing future budget authority requests, as applicable.
In September 2013, GAO reported that agency officials should answer key questions during their reviews of unexpended balances to provide insight into why a balance exists, what size balance is appropriate, and what opportunities for savings may exist. Furthermore, understanding an agency’s processes for managing these balances provides information to assist decision makers in assessing how effectively agencies are in anticipating program needs and helping ensure the most efficient use of resources.
In October 2015, GAO reported that actively managing unobligated balances may include estimating projected annual unobligated balances and identifying the amount of unobligated balances that should be retained the following year. If an agency does not have a robust strategy in place to manage unobligated balances or is unable to adequately explain or support the reported unobligated balances, then a more in-depth review is warranted. If unobligated balances fall too low, agencies may not be able to efficiently manage operations. In contrast, if balances rise to unnecessarily high levels, there may be potential opportunities for those funds to be used more efficiently elsewhere.
Unexpended balances are the sum of obligated and unobligated balances. Obligated balances are the amount of obligations already incurred for which payment has not yet been made, while an unobligated balance is the portion of available budget authority that has not yet been obligated. An obligation is a definite commitment that creates a legal liability of the government for the payment of goods and services or a legal duty that could mature into a legal liability by virtue of actions that are beyond the control of the United States. For example, an agency incurs an obligation when it places an order, signs a contract, awards a grant, or purchases a service. See GAO, A Glossary of Terms Used in the Federal Budget Process, GAO‑05‑734SP (Washington, D.C.: September 2005).
In October 2015, GAO reported that four agencies—the Departments of Commerce, Energy, and State and the National Aeronautics and Space Administration—generally managed and tracked unobligated balances to ensure the effective use of program resources in the eight reviewed budget accounts. However, GAO found that for two of the reviewed accounts at the Department of Energy (Energy) and the Department of State (State), the agencies exceeded target levels of unobligated balances for fiscal year 2014. These target levels were set by agency officials, who explained that the target balances were necessary to properly execute activities and manage financial risk for certain programs within the accounts.
Energy’s Western Area Power Administration’s (WAPA) Construction, Rehabilitation, Operation and Maintenance (CROM) account. The unobligated balances in the CROM account exceeded the level officials said was necessary to maintain certain activities and manage risk for those activities. Specifically, for the annual expense fund within the account, officials set a target to retain up to 25 percent of the yearly budget requirement as contingency funds against unexpected events. The unobligated balance in the annual expense fund in fiscal year 2014 accounted for $92 million, or about 44 percent of the fund’s budget requirement. This exceeded the 25 percent target, which officials estimated to be about $52 million, by about $40 million. According to WAPA officials, the annual expense fund’s unobligated balance for fiscal year 2014 was higher than the predetermined target partially because they forecasted a 3 percent cost of living increase for personnel, which did not occur.
WAPA officials explained that WAPA’s mission—to market hydroelectric power to multiple regions across the western United States—can be affected by a number of environmental factors, such as drought, animal breeding seasons, and flood prevention, all of which may affect the function of power generating dams and introduce financial risk. WAPA officials reported addressing these environmental factors and potential financial risks by carrying over unobligated balances from one fiscal year to the next. WAPA officials told GAO that while a carryover of up to 25 percent in unobligated balances is the current target for the annual expense fund, they are continuing to refine and evaluate the necessary level of unobligated balances. These officials said that they do not have a model or formula for estimating anticipated environmental factors and how those factors may have a fiscal impact on the agency.
WAPA officials reported that they developed a strategy in fiscal year 2013 for managing unobligated balances in the annual expense fund. According to officials, the draft strategy includes three alternatives for reducing unobligated balances in the annual expense fund, including one to decrease future budget requests and to instead rely on existing unobligated balances to cover expenses. Officials said that this alternative was approved by WAPA senior management. However, officials acknowledged that this strategy would not be fully implemented until officials assess the outcomes of the strategy. WAPA officials also reported that they are considering other strategies for reducing unobligated balances to determined targets. According to WAPA, the strategy for managing its unobligated balances will be completed and implemented by the end of calendar year 2016.
State’s Consular and Border Security Programs (CBSP) within the Diplomatic and Consular Programs (D&CP) account. In fiscal year 2014, unobligated balances for the D&CP account exceeded State’s target to carry over approximately 25 percent of projected program expenditures for CBSP for the next year to manage complex global visa and passport operations. CBSP is fully fee funded, which means that all appropriations for the program are offsetting collections from consular fees and surcharges. These fees and surcharges include the Passport Security Surcharge, the Diversity Visa Lottery fee, and the Machine Readable Visa fee, among others. Congress has permanently appropriated these collections to State as no-year authority for CBSP’s use. State set the carryover target of 25 percent based on activity-specific analysis using historical data and projections.
The unobligated balances for CBSP in fiscal year 2014 accounted for approximately $1.3 billion, or 38 percent of projected program expenditures for fiscal year 2015. This exceeded the 25 percent target of approximately $850 million by approximately $440 million. Similarly, in fiscal years 2012 and 2013, unobligated balances for CBSP accounted for approximately 40 percent of program expenditures for the next fiscal year. State officials reported that unobligated balances were higher than the predetermined target, in part, because some fees collected under CBSP may only be used for limited purposes. In particular, fees collected for fraud prevention and detection on certain types of visas can only be spent on specific fraud activities, which State officials said limits the opportunities they have to expend funds and decrease the balances. State officials reported that annual revenue from this fee is usually higher than the cost of these activities, resulting in an annual increase in unobligated balances. However, the unobligated balance from this fee accounts for only about 22 percent of the total excess unobligated balances (approximately $97 million of the total excess unobligated balance of $440 million in fiscal year 2014).
State officials within the Bureau of Consular Affairs said that they began drafting a plan in 2013 for managing and monitoring funding for each program within CBSP. According to officials, this plan is to include a strategy for tracking and managing unobligated balances to reach the identified target of 25 percent. Officials said that they are waiting on leadership to approve the plan and they anticipate that it will be finalized by June 2016. While unobligated balances for CBSP were greater than the 25 percent target in recent years, State officials reported that they have taken steps to regulate and reduce unobligated balances. According to officials, these steps included decreasing fees or delaying fee increases when unobligated balances were adequate to cover costs. For example, officials reported that since fiscal year 2012, the cost of the Passport Security Surcharge service was higher than the $40 fee charged; however, State did not implement an increase of the fee to $60 until 2015. Officials said that this delay of the fee increase allowed them to spend down existing unobligated balances from fiscal years 2012 through 2014. According to data provided by State, unobligated balances for the Passport Security Surcharge decreased from 95 percent of the next year’s program expenditures in fiscal year 2012 to 72 percent in fiscal year 2014. Officials also reported realigning spending, consistent with authorities, to better coincide with actual costs and improving internal coordination to better track and model revenues and obligations. However, unobligated balances for CBSP remained greater than the agency’s 25 percent target, indicating that further action is needed to reduce excess unobligated balances.
Without finalized and fully implemented strategies for reducing unobligated balances in excess of the agencies’ predetermined targets for the identified programs or activities in these two accounts, Energy and State are missing opportunities to actively manage unobligated balances and help ensure effective use of resources.
GAO reviewed data for each of the 24 Chief Financial Officers Act agencies and selected these agencies based on their use of balances to address sequestration and large or significant changes in the balances from fiscal years 2012 to 2014.The Department of Defense was excluded from selection because of ongoing GAO work.
No-year budget authority is available for obligation until expended, in contrast with multiyear budget authority, which is available for obligation for a fixed period of time in excess of 1 fiscal year, or one-year budget authority, which is available for obligation only in a specific fiscal year and expires at the end of that fiscal year. See GAO‑05‑734SP.
To better ensure effective use of federal funds and management of unobligated balances,in October 2015 GAO recommended the following two actions:
Financial benefits could be as much as the $40 million and $440 million in excess unobligated balances GAO identified in the Energy and State accounts, respectively, at the end of fiscal year 2014. Energy and State could use various methods to reduce the excess unobligated balances, as appropriate, such as reprogramming or transferring funds to other activities, to the extent allowed by appropriations law; reevaluating fees to ensure that fee revenues match program needs; or reducing budget authority requests where applicable in future years.
The information contained in this analysis is based on findings from the products in the related GAO products section. To examine agencies’ management of carryover balances across the federal government, GAO analyzed agency budget reports and guidance, congressional budget justifications, and congressional notifications, among other things. GAO also interviewed agency officials at selected department (or agency), bureau, and account levels about account management policy and practice, especially with regard to unobligated balances. To describe unexpended balances government-wide, GAO analyzed data across all federal budget accounts from the Office of Management and Budget’s MAX database.
Table 13 in appendix V lists the programs GAO identified that might have opportunities for cost savings.
In commenting on GAO’s October 2015 report on which this analysis is based, Energy and State concurred with GAO’s recommendations. Energy said that it agrees with the need to avoid excess unobligated balances and reported that WAPA is finalizing a plan to better manage unobligated balances in the CROM account. While State concurred with the recommendation, officials noted that they disagreed with the use of “excess” to describe the unobligated balances in CBSP. State said that it plans to continue efforts to better align unobligated balances and finalize the plan for CBSP to maintain balances at optimal levels. GAO maintained that the unobligated balances for CBSP are “excess” because they are above the agency’s own target of 25 percent of projected program expenditures for the next year.
GAO provided a draft of this report section to Energy and State for review and comment. Energy provided comments on February 17, 2016 stating it agrees with the need to manage its unobligated balances, but said it does not agree that the $40 million in unobligated balances identified in GAO’s October 2015 report should be considered in “excess” or characterized as a potential cost savings or revenue enhancement area. GAO maintains that the balances are “excess” because they are above the agency’s own target of 25 percent of the yearly budget requirement and opportunities exist for potential financial benefits if the excess balances were reduced. State provided comments on February 17, 2016 stating that the Bureau of Consular Affairs is on track to complete its plan to maintain its balances at optimal levels by June 2016.
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GAO found that the selected agencies—the Departments of Commerce, Energy, and State, and the National Aeronautics and Space Administration (NASA)—generally managed and tracked unobligated balances to ensure the effective use of program resources in the eight reviewed accounts. Agency estimation and management of unobligated balances in the reviewed accounts involved the following activities:Re...
Carryover balances in fiscal year 2012 were $2.2 trillion, of which about $800 billion had not yet been obligated. Answering key questions during review of carryover balances provides insights into why a balance exists, what size balance is appropriate, and what opportunities (if any) for savings exist. Given that a single account may support a single program or multiple programs--or that multiple...