B-136318, APRIL 28, 1959, 38 COMP. GEN. 734

B-136318, APRIL 28, 1959, 38 COMP. GEN. 734

COMMERCE DEPARTMENT FURNISHING SERVICES, ETC., TO PRIVATE PARTIES, OTHER GOVERNMENT AGENCIES, ETC. - DEPRECIATION OF FIXED ASSETS - EQUIPMENT REPLACEMENT SINCE, AS STATED IN 2 GAO 1282.60 (B), THE PRIMARY PURPOSE OF DEPRECIATION ACCOUNTING IS TO DISTRIBUTE COSTS OF FIXED ASSETS TO THE PERIODS AND ACTIVITIES BENEFITING FROM THEIR USE, DEPRECIATION ACCOUNTING IS RELATED TO THE RECOGNITION AND DISCLOSURE OF COSTS RATHER THAN TO EQUIPMENT REPLACEMENT PROGRAMS, AND, WHERE SIGNIFICANT, DEPRECIATION EXPENSE LIKE OTHER COSTS SHOULD BE RECOGNIZED AND RECORDED BY THE DEPARTMENT OF COMMERCE WHENEVER A REGULAR DETERMINATION OF THE COST OF RESOURCES CONSUMED IN PERFORMING WORK OR CARRYING OUT AN ACTIVITY IS NEEDED, WITHOUT REGARD TO WHETHER SUCH EXPENSE IS TO BE REIMBURSED OR TO THE METHOD TO BE USED IN FINANCING EQUIPMENT REPLACEMENTS. THE FINANCING OF REPLACEMENTS OF FIXED ASSETS BY THE DEPARTMENT OF COMMERCE SHOULD NOT BE GEARED TO DEPRECIATION ACCOUNTING; THE METHOD AND AMOUNT OF FINANCING, AS WELL AS THE FUNDAMENTAL DECISION TO REPLACE, BEING MATTERS FOR DISCLOSURE TO, AND APPROVAL BY, THE BUREAU OF THE BUDGET AND THE CONGRESS AS A PART OF THE REGULAR BUDGETARY PROCESSES. THE PROPOSAL OF THE BUREAU OF THE CENSUS, DEPARTMENT OF COMMERCE, TO INCLUDE THE COST OF DEPRECIATION OF FIXED ASSETS IN BILLING PARTIES OUTSIDE THE GOVERNMENT FOR SERVICES FURNISHED PURSUANT TO 13 U.S.C. 8 AND 15 U.S.C. 189A IS REQUIRED, BUT SINCE DEPRECIATION IS ONLY ONE ELEMENT OF THE COST OF THE SERVICES, APPROPRIATE ACTION SHOULD BE TAKEN TO INCLUDE ALL OTHER SIGNIFICANT COST ITEMS IN THE BILLINGS. THE PROPOSAL OF THE BUREAU OF THE CENSUS, DEPARTMENT OF COMMERCE, (A) TO LIMIT THE REIMBURSEMENT OF THE SALARIES AND EXPENSES APPROPRIATION WHICH WAS USED TO PAY THE COSTS OF WORK OR SERVICES FURNISHED PARTIES OUTSIDE THE GOVERNMENT PURSUANT TO 13 U.S.C. 8 AND 15 U.S.C. 189A, TO THE COST OF EQUIPMENT REPLACEMENTS AND (B) TO DEPOSIT THE DIFFERENCE BETWEEN THE AMOUNTS BILLED THE TRUST FUND INTO WHICH THE MONEYS RECEIVED FOR THE SERVICES ARE DEPOSITED AND THE REIMBURSEMENTS TO THE SALARIES AND EXPENSES APPROPRIATION, INTO MISCELLANEOUS RECEIPTS IS NOT IMPROPER; HOWEVER, THERE IS NO REQUIREMENT THAT THE REIMBURSEMENTS TO THE SALARIES AND EXPENSES APPROPRIATION BE SO LIMITED. THE INTRABUREAU PLAN PROPOSED BY THE DEPARTMENT OF COMMERCE, WHICH CONTEMPLATES THAT ONE APPROPRIATION OF A BUREAU WILL INITIALLY FINANCE COSTS FOR BUREAU-WIDE OR OTHER ACTIVITIES FOR WHICH SEPARATE APPROPRIATIONS ARE PROVIDED AND WILL THEREAFTER BE REIMBURSED FROM THE APPROPRIATIONS OF THE BENEFITING ACTIVITIES, IS NOT WITHIN THE PURVIEW OF SECTION 601 OF THE ECONOMY ACT OF JUNE 30, 1932, AS AMENDED, 31 U.S.C. 686, WHICH PERMITS TRANSACTIONS BETWEEN TWO AGENCIES OF THE GOVERNMENT OR TWO BUREAUS OF AN AGENCY; IN THE ABSENCE OF EXPRESS STATUTORY AUTHORITY SUSPENDING THE APPLICATION OF 31 U.S.C. 686-1 AND 31 U.S.C. 686, THE PLAN MAY NOT BE ADOPTED. THE PRICES TO BE BILLED BETWEEN BUREAUS AND AGENCIES UNDER SECTION 601 OF THE ECONOMY ACT, AS AMENDED, 31 U.S.C. 686, ARE TO BE BASED UPON ACTUAL COSTS * * * AS MAY BE AGREED UPON BY PARTIES CONCERNED; ALTHOUGH NOT LEGALLY REQUIRED, SUCH PRICES MAY INCLUDE ALL OR PART OF THE DEPRECIATION OF FIXED ASSETS AND OVERHEAD AND OTHER INDIRECT COSTS INCURRED IN SUPPLYING GOODS AND SERVICES, BUT WHERE DEPRECIATION IS INCLUDED IN THE PRICE, REPLACEMENT REQUIREMENTS SHOULD NOT OPERATE TO INFLUENCE OR LIMIT THE EXTENT OF RECOVERY. AMOUNTS COLLECTED BY THE DEPARTMENT OF COMMERCE FOR DEPRECIATION EXPENSE OF FIXED ASSETS USED IN SUPPLYING GOODS AND SERVICES UNDER SECTION 601 OF THE ECONOMY ACT, AS AMENDED, 31 U.S.C. 686, LIKE AMOUNTS REIMBURSED FOR OTHER COSTS, CAN BE USED ONLY FOR PURPOSES WHICH HAVE BEEN AUTHORIZED AND APPROVED THROUGH REGULAR BUDGETARY REVIEW PROCESSES, BUT COLLECTIONS FOR DEPRECIATION EXPENSE NEED NOT BE APPLIED SOLELY TO THE REPLACEMENT OF FIXED ASSETS AND INSTEAD MAY BE OBLIGATED AND EXPENDED FOR ANY OF THE ACTIVITIES AUTHORIZED TO BE FINANCED BY THE REIMBURSED APPROPRIATION.

TO THE SECRETARY OF COMMERCE, APRIL 28, 1959:

REFERENCE IS MADE TO LETTER OF MAY 28, 1958, FROM THE ASSISTANT SECRETARY OF COMMERCE FOR ADMINISTRATION, RAISING CERTAIN QUESTIONS WITH RESPECT TO THE TREATMENT OF DEPRECIATION OF PROPERTY USED IN THE PERFORMANCE OF SERVICES UNDER AUTHORITY OF SECTION 601 OF THE ECONOMY ACT OF JUNE 30, 1932, AS AMENDED, 31 U.S.C. 686.

THE PLAN PROPOSED IN THE LETTER FOR USING AMOUNTS COLLECTED FOR DEPRECIATION OF EQUIPMENT HAS BEEN DISCUSSED SEVERAL TIMES WITH OFFICIALS OF YOUR DEPARTMENT IN ORDER TO BETTER UNDERSTAND ITS PURPOSES, AND TO OBTAIN ADDITIONAL INFORMATION REGARDING THE SCOPE AND PARTICULARS OF THE PRESENT AND CONTEMPLATED PROCEDURES THEREUNDER. ALSO, WE WERE FURNISHED AND HAVE STUDIED COPIES OF A DISCUSSION DRAFT ENTITLED " DEPRECIATION ACCOUNTING AND REPLACEMENT OF CAPITAL EQUIPMENT" WHICH EXPLAINS THE PROPOSED PLAN IN SOME DETAIL. DURING THE DISCUSSIONS OF THE PLAN WE LEARNED THAT WHILE IT ORIGINALLY WAS INTENDED FOR APPLICATION TO THE BUREAU OF THE CENSUS, IT NOW IS UNDER CONSIDERATION FOR USE GENERALLY IN THE DEPARTMENT OF COMMERCE.

THE CENSUS PLAN CONTEMPLATES THAT THE ANNUAL SALARIES AND EXPENSES APPROPRIATION MADE TO THE BUREAU WILL BE USED TO INITIALLY FINANCE ALL REPLACEMENT EQUIPMENT PURCHASES. ALL PROJECTS OF THE BUREAU USING DEPRECIABLE EQUIPMENT WOULD BE CHARGED DEPRECIATION AND PART OF THE CHARGE WOULD BE INCLUDED IN BILLINGS TO (A) THE BUREAU OF THE CENSUS TRUST FUND ESTABLISHED TO ACCOUNT FOR SPECIAL STATISTICAL WORK PERFORMED FOR PERSONS AND FIRMS OUTSIDE THE GOVERNMENT UNDER AUTHORITY OF 13 U.S.C. SUPP. V, 8, AND 15 U.S.C. 189A AND 192; (B) THE OTHER BENEFITING APPROPRIATIONS OF THE BUREAU; AND (C) OTHER GOVERNMENT AGENCIES FOR WHICH SERVICES ARE PERFORMED UNDER AUTHORITY OF SECTION 601 OF THE ECONOMY ACT. RECOVERY BY THE SALARIES AND EXPENSES APPROPRIATION FROM THE OTHER GOVERNMENT AGENCIES, THE TRUST FUND, AND THE OTHER APPROPRIATIONS OF THE BUREAU WOULD BE LIMITED TO THE AMOUNT PROGRAMMED FOR REPLACEMENT OF EQUIPMENT AND RECORDED AS REIMBURSEMENTS. HOWEVER, FULL RECOVERY OF THE DEPRECIATION COSTS WOULD BE MADE BY THE TRUST FUND FROM PERSONS AND FIRMS OUTSIDE THE GOVERNMENT; THE EXCESS OF COLLECTIONS OVER THE AMOUNTS REIMBURSED TO THE SALARIES AND EXPENSES APPROPRIATION WOULD BE DEPOSITED TO MISCELLANEOUS RECEIPTS.

THE PROPOSAL IS DESIGNED AS A COMPREHENSIVE PLAN FOR (1) ADOPTING DEPRECIATION ACCOUNTING FOR ALL EQUIPMENT OF A BUREAU, WHETHER USED IN FURNISHING REIMBURSABLE SERVICES OR USED FOR THE BUREAUS OWN WORK; (2) BILLING FOR DEPRECIATION EXPENSE OF EQUIPMENT USED IN FURNISHING REIMBURSABLE SERVICES; AND (3) USING AMOUNTS COLLECTED FOR DEPRECIATION FOR PARTIAL FINANCING OF AN EQUIPMENT REPLACEMENT PROGRAM. THESE THREE OBJECTIVES ARE DISCUSSED IN THIS LETTER ON AN INDIVIDUAL BASIS.

1. DEPRECIATION ACCOUNTING:

THE PRIMARY PURPOSE OF DEPRECIATION ACCOUNTING IS TO DISTRIBUTE COSTS OF FIXED ASSETS TO THE PERIODS AND ACTIVITIES BENEFITING FROM THEIR USE. STATED IN 2 GAO 1282.60 (B), DEPRECIATION OF FIXED ASSETS SHOULD BE RECORDED WHEN A REGULAR DETERMINATION OF THE COST OF ALL RESOURCES CONSUMED IN PERFORMING WORK OR CARRYING OUT AN ACTIVITY IS NEEDED. DECISIONS TO REPLACE EQUIPMENT AND OTHER FIXED ASSETS REQUIRE CONSIDERATION OF SUCH FACTORS AS THE ECONOMICAL AND EFFICIENT USE OF PRESENT ASSETS, THE NEED FOR ADDITIONAL OR BETTER ASSETS, AND THE AVAILABILITY OF FINANCING THEREFOR.

THE FINANCING OF REPLACEMENTS SHOULD NOT BE GEARED TO DEPRECIATION ACCOUNTING. THE METHOD AND AMOUNT OF FINANCING, AS WELL AS THE FUNDAMENTAL DECISION TO REPLACE, ARE MATTERS FOR AGENCY MANAGEMENT TO DISCLOSE TO AND DISCUSS WITH THE BUREAU OF THE BUDGET AND THE CONGRESS AS A PART OF THE ANNUAL BUDGETARY PROCESSES. AN AGENCY MAY ADOPT DEPRECIATION ACCOUNTING WITHOUT REGARD TO WHETHER THE DEPRECIATION EXPENSE IS TO BE RECOVERED, OR TO THE METHOD TO BE USED IN FINANCING EQUIPMENT REPLACEMENTS.

IN OUR DISCUSSIONS WITH YOUR STAFF, WE WERE INFORMED THAT THE BUREAU OF THE CENSUS PLANS TO ADOPT DEPRECIATION ACCOUNTING FOR ALL EQUIPMENT, IRRESPECTIVE OF THE OUTCOME OF THE PROPOSAL TO FINANCE AN EQUIPMENT REPLACEMENT PROGRAM FROM COLLECTIONS REALIZED THROUGH BILLINGS FOR DEPRECIATION EXPENSE. WE BELIEVE THAT DEPRECIATION ACCOUNTING CAN SERVE A USEFUL PURPOSE IN THE BUREAU OF THE CENSUS AND ELSEWHERE IN THE DEPARTMENT OF COMMERCE. ALL SIGNIFICANT ELEMENTS OF COST, INCLUDING DEPRECIATION, PERTAINING TO AN ACTIVITY, EVEN THOUGH NOT FINANCED FROM CURRENT APPROPRIATIONS SHOULD BE RECOGNIZED IN ORDER TO DETERMINE OPERATING COSTS BY PERIODS AND BY PROJECTS, ACTIVITIES OR COST CENTERS. THUS, THE ADOPTION OF DEPRECIATION ACCOUNTING CLEARLY IS RELATED TO THE RECOGNITION AND DISCLOSURE OF COSTS RATHER THAN TO THE EQUIPMENT REPLACEMENT PROGRAM.

2. BILLING OF DEPRECIATION EXPENSE:

A. COLLECTIONS FROM OUTSIDERS. THE PROPOSAL TO INCLUDE DEPRECIATION EXPENSE IN BILLINGS FOR SERVICES FURNISHED TO PARTIES OUTSIDE THE GOVERNMENT IS CONSISTENT WITH THE CITED PROVISIONS 13 U.S.C. SUPP. V, 8, AND 15 U.S.C. 189A WHICH AUTHORIZE THE SECRETARY OF COMMERCE TO FURNISH CERTAIN SERVICES UPON THE PAYMENT OF THE ACTUAL COST OF SUCH WORK BY THE PERSON, FIRM OR CORPORATION REQUESTING IT. IT ALSO IS IN ACCORD WITH THE LETTER AND INTENT OF TITLE V OF THE INDEPENDENT OFFICES APPROPRIATION ACT, 1952, 65 STAT. 290, 5 U.S.C. 140, WHICH DECLARES IT TO BE THE SENSE OF THE CONGRESS THAT SERVICES, ETC., FURNISHED BY ANY EXECUTIVE AGENCY TO OUTSIDE PARTIES SHALL BE SELF-SUSTAINING TO THE FULL EXTENT POSSIBLE. SINCE DEPRECIATION OF EQUIPMENT IS ONLY ONE ELEMENT OF THE COSTS INCURRED IN FURNISHING SUCH SERVICES, APPROPRIATE ACTION SHOULD BE TAKEN CONSISTENT WITH THE LAW FOR BILLING AN EQUITABLE APPORTIONMENT OF ALL SIGNIFICANT COSTS OF SERVICES FURNISHED, INCLUDING DEPRECIATION OF FIXED ASSETS.

MONEYS RECEIVED BY THE BUREAU OF THE CENSUS FOR SERVICES FURNISHED PARTIES OUTSIDE THE GOVERNMENT ARE DEPOSITED IN A TRUST FUND, WHICH, UNDER 13 U.S.C. SUPP. V, 8, AND 15 U.S.C. 192, IS AVAILABLE TO PAY DIRECTLY THE COSTS OF THE WORK OR SERVICES AND TO REPAY APPROPRIATIONS WHICH HAVE BORNE SUCH COSTS ORIGINALLY. UNDER THE CENSUS PLAN, REIMBURSEMENTS TO THE SALARIES AND EXPENSES APPROPRIATION WOULD BE LIMITED TO EQUIPMENT REPLACEMENTS AND THE DIFFERENCE BETWEEN THE AMOUNTS BILLED BY THE TRUST FUND AND THE REIMBURSEMENTS TO THE SALARIES AND EXPENSES APPROPRIATION WOULD BE DEPOSITED IN MISCELLANEOUS RECEIPTS.

WHILE WE PERCEIVE NO OBJECTION TO LIMITING REIMBURSEMENTS TO THE SALARIES AND EXPENSES APPROPRIATION IN THE MANNER PROPOSED, WE DO NOT BELIEVE SUCH A RESTRICTION IS REQUIRED. IN THIS CONNECTION, WE INVITE ATTENTION TO OUR REMARKS IN PART 3 OF THIS LETTER,"USE OF AMOUNTS COLLECTED FOR DEPRECIATION.'

B. INTRABUREAU APPROPRIATION TRANSFERS. THE PROPOSAL CONTEMPLATES THAT THE ADMINISTRATIVE EXPENSE APPROPRIATION OF A BUREAU WOULD INITIALLY BE CHARGED FOR EQUIPMENT REPLACEMENTS AND SUBSEQUENTLY WOULD BE REIMBURSED FROM OTHER APPROPRIATIONS OF THE SAME BUREAU ON THE BASIS OF DEPRECIATION OF EQUIPMENT ACTUALLY USED FOR THE ACTIVITIES THAT ARE FINANCED BY THESE OTHER APPROPRIATIONS. WE UNDERSTAND THAT THIS PROPOSAL IS BUT ONE PHASE OF A LARGER PLAN UNDER WHICH OTHER SERVICES AND SUPPLIES WOULD BE SIMILARLY FINANCED, FURNISHED, AND REIMBURSED. THAT IS TO SAY, ONE APPROPRIATION WOULD BE CHARGED WHEN IT IS KNOWN AT THE TIME THAT OTHER APPROPRIATIONS ARE PROPERLY CHARGEABLE, IN WHOLE OR IN PART, AND THAT AN ADJUSTMENT OF FUNDS WILL BE NECESSARY TO RECORD THE CHARGES TO THE PROPER APPROPRIATION.

THESE INTRABUREAU PROCEDURES, INVOLVING THE PERFORMANCE OF ACTIVITIES BY A SINGLE BUREAU OPERATING WITH ITS OWN FUNDS, FOR AND ON ACCOUNT OF ITSELF, DO NOT FALL WITHIN THE PURVIEW OF SECTION 601 OF THE ECONOMY ACT. THIS PROVISION OF LAW AUTHORIZES THE PERFORMANCE OF SERVICES OR THE FURNISHING OF SUPPLIES BY ONE GOVERNMENT AGENCY TO ANOTHER UNDER A REIMBURSEMENT OR ADVANCE-OF-FUNDS PROCEDURE. SUCH TRANSACTIONS INVOLVE PROCUREMENT BETWEEN TWO AGENCIES OF THE GOVERNMENT OR TWO BUREAUS OF AN AGENCY OPERATING UNDER SEPARATE APPROPRIATIONS, RATHER THAN PROCUREMENT TRANSACTIONS WITHIN A BUREAU OF AN AGENCY. SECTION 1210 OF THE GENERAL APPROPRIATION ACT, 1951, 64 STAT. 765, 31 U.S.C. 686-1, PROVIDES THAT "NO FUNDS MADE AVAILABLE BY THIS OR ANY OTHER ACT SHALL BE WITHDRAWN FROM ONE APPROPRIATION ACCOUNT FOR CREDIT TO ANOTHER, OR TO A WORK EXCEPT AS AUTHORIZED BY LAW.' ALSO, SECTION 3678, REVISED STATUTES, 31 U.S.C. 628, REQUIRES THAT, IN THE ABSENCE OF EXPRESS AUTHORITY CONTRARY, AMOUNTS MADE AVAILABLE UNDER PARTICULAR APPROPRIATION HEADS MAY BE USED ONLY FOR ACTIVITIES JUSTIFIED UNDER SUCH APPROPRIATIONS. AS A COROLLARY, IT FOLLOWS THAT AMOUNTS SPECIFICALLY APPROPRIATED UNDER PARTICULAR HEADS MAY NOT BE INCREASED EXCEPT FOR AUTHORIZED REIMBURSEMENTS AND TRANSFERS. COMP. GEN. 902, 906; 36 ID. 386, 388. WE ARE NOT AWARE OF ANY LEGISLATIVE AUTHORITY WHICH WOULD SUSPEND APPLICATION OF THESE STATUTES IN YOUR DEPARTMENT OR OTHERWISE PERMIT ADOPTION OF THE INTRABUREAU PORTION OF THE PROPOSAL. SUCH EXPRESS AUTHORITY, FOR EXAMPLE, WAS GRANTED IN SECTION 522 (F) OF THE MUTUAL SECURITY ACT OF 1954, AS ADDED BY SECTION 10 (B) OF THE MUTUAL SECURITY ACT OF 1956, 70 STAT. 560, 22 U.S.C. SUPP. V, 1782 (F), AND IN THE FIRST PARAGRAPH OF THE GENERAL PROVISIONS PERTAINING TO APPROPRIATIONS FOR THE ATOMIC ENERGY COMMISSION CONTAINED IN THE SUPPLEMENTAL APPROPRIATION ACT, 1959, PUBLIC LAW 85-766, APPROVED AUGUST 27, 1958, 72 STAT. 881.

ACCORDINGLY, BEFORE THE PROPOSED INTRABUREAU REIMBURSEMENT PROCEDURE IS ADOPTED, IT WILL BE NECESSARY TO SECURE LEGISLATIVE AUTHORITY FOR (1) THE SALARIES AND EXPENSES APPROPRIATION TO INITIALLY FINANCE COSTS FOR BUREAU- WIDE OR OTHER ACTIVITIES FOR WHICH SEPARATE APPROPRIATIONS ARE PROVIDED, AND FOR (2) THE BENEFITING ACTIVITIES TO REIMBURSE THE FINANCING APPROPRIATION FROM THEIR SEPARATE APPROPRIATIONS. THE CONGRESS SHOULD BE AFFORDED THE OPPORTUNITY TO EVALUATE THE PROPOSAL IN RELATION TO THE BUREAU'S APPROVED APPROPRIATION STRUCTURE AND TO EXPRESS CONCURRENCE OR CONSIDER ALTERNATIVES.

BEFORE LEGISLATIVE SANCTION IS SOUGHT FOR THE PROPOSED PROCEDURE, WE SUGGEST THAT THE NEED OR DESIRABILITY FOR REIMBURSEMENTS BETWEEN APPROPRIATIONS OF A BUREAU BE EVALUATED AND THAT THE ADVANTAGES OF THE PROPOSED AND ALTERNATIVE PROCEDURES BE CONSIDERED IN TERMS OF IMPROVED FINANCIAL MANAGEMENT OF THE BUREAU'S OPERATIONS. AN ALTERNATIVE TO THE PROPOSED PROCEDURE, WHICH WOULD ELIMINATE THE NEED FOR REIMBURSEMENTS, IS TO PROVIDE UNDER ONE OF THE APPROPRIATIONS OF A BUREAU SUFFICIENT FUNDS TO FINANCE ALL COMMON SERVICE EXPENDITURES RATHER THAN ALLOCATE AND FINANCE THESE EXPENDITURES FROM SEVERAL APPROPRIATIONS.

C. INTERAGENCY COLLECTIONS. SECTION 601 OF THE ECONOMY ACT, WITH REFERENCE TO PAYMENT FOR SUPPLIES, EQUIPMENT AND SERVICES OBTAINED FROM OTHER GOVERNMENT AGENCIES, PROVIDES FOR PAYMENT ON THE BASIS OF THE "ACTUAL COST" OF THE SUPPLIES OR SERVICES FURNISHED AS MAY BE AGREED UPON BY THE AGENCIES CONCERNED. SUCH COST WAS CONSTRUED IN 22 COMP. GEN. 74, CITED IN THE ASSISTANT SECRETARY'S LETTER, AND IN 32 ID. 479, AS PROPERLY INCLUDING, IN ADDITION TO DIRECT COSTS, THE OVERHEAD AND OTHER INDIRECT EXPENSES INCLUDING DEPRECIATION OF FIXED ASSETS, PROPORTIONATELY ALLOCABLE TO SUCH SERVICES.

UNDER THE PROPOSED PLAN, THE AMOUNT OF DEPRECIATION TO BE BILLED OTHER GOVERNMENT AGENCIES IS LIMITED TO THE AMOUNT OF EQUIPMENT TO BE REPLACED. AS PREVIOUSLY OUTLINED, THE PROPOSED ANNUAL REPLACEMENT OF EQUIPMENT, THE DEPRECIATION EXPENSE TO BE RECORDED EACH YEAR, AND THE AMOUNT TO BE BILLED FOR DEPRECIATION ARE NOT ALL BASED ON THE SAME FACTORS. HENCE, WE DO NOT BELIEVE THAT REPLACEMENT REQUIREMENTS SHOULD IN ANY WAY OPERATE TO INFLUENCE OR LIMIT THE EXTENT OF RECOVERY OF DEPRECIATION EXPENSE IN OTHERWISE PROPER SITUATIONS.

3. USE OF AMOUNTS COLLECTED FOR DEPRECIATION:

AS STATED ABOVE, THE LAW CONTEMPLATES THAT BILLINGS FOR SERVICES FURNISHED TO PARTIES OUTSIDE THE GOVERNMENT BE BASED UPON RECOVERY OF ALL SIGNIFICANT COSTS OF THE SERVICES FURNISHED, INCLUDING DEPRECIATION EXPENSE; AND THAT WHERE DEPRECIATION EXPENSE INCURRED IN SUPPLYING SERVICES TO OTHER GOVERNMENT AGENCIES UNDER SECTION 601 OF THE ECONOMY ACT IS SIGNIFICANT, IT IS AN ELEMENT OF COST WHICH PROPERLY MAY BE INCLUDED IN BILLINGS AND RECOVERED. IT DOES NOT FOLLOW, HOWEVER, THAT COLLECTIONS SO REALIZED MAY BE UTILIZED BY AGENCIES UNCONDITIONALLY. EVEN IN THE CASE OF REVOLVING FUNDS, WHERE COLLECTIONS GENERATED BY THE ACTIVITY FINANCED BY THE FUND GENERALLY ARE AVAILABLE FOR USE, THE PURPOSES FOR WHICH COLLECTIONS, INCLUDING THOSE FOR DEPRECIATION, MAY BE USED BY THE REVOLVING FUND ARE DEPENDENT ON THE LEGISLATION ESTABLISHING OR GOVERNING THE OPERATIONS OF THE PARTICULAR FUND AND ON PERTINENT REGULATIONS OF THE BUREAU OF THE BUDGET. REGARDLESS OF THE FACT THAT ADEQUATE FINANCING MAY BE AVAILABLE FOR THE REPLACEMENT OF EQUIPMENT, IT IS ESSENTIAL FIRST TO DETERMINE WHETHER THE EQUIPMENT IS NEEDED AND, IF SO, TO JUSTIFY THE NEED THEREFOR AS A PART OF THE REGULAR BUDGET REVIEW PROCESSES. UNDER BUREAU OF THE BUDGET CIRCULAR NO. A-11, AGENCIES ARE REQUIRED ANNUALLY TO PRESENT TO THE BUREAU OF THE BUDGET DATA, WHICH, WITH CERTAIN EXCEPTIONS SUCH AS APPROPRIATION TRANSFERS OR ALLOCATIONS OF FUNDS FROM OTHER AGENCIES, DESCRIBE IN MONETARY TERMS BY ACTIVITY AND OBJECT CLASSIFICATION THE WORK WHICH THE AGENCY PROPOSES TO PERFORM (1) THROUGH THE USE OF DIRECT APPROPRIATION OBLIGATING AUTHORITY, AND (2) THROUGH THE USE OF ADVANCES AND REIMBURSEMENTS RECEIVED FROM OTHER AGENCIES AND FROM NON-FEDERAL SOURCES. AFTER APPROVAL BY THE BUREAU OF THE BUDGET, THE DATA PRESENTED BY THE AGENCY IS TRANSMITTED TO THE CONGRESS FOR ITS CONSIDERATION. BASED ON SUCH DATA, THE CONGRESS IS REQUESTED TO APPROPRIATE TO THE AGENCY AN AMOUNT WHICH REPRESENTS THE DIFFERENCE BETWEEN THE TOTAL PROGRAM PRESENTED AND THE AMOUNT TO BE FINANCED BY OTHERS. THE APPROPRIATIONS FINALLY MADE BY THE CONGRESS THUS ARE NET OF THE ESTIMATED ADVANCES AND REIMBURSEMENTS.

THE PRACTICAL EFFECT OF THE DESCRIBED BUDGETARY AND LEGISLATIVE PROCESSES IS A CONGRESSIONAL RECOGNITION OF THE SCOPE OF THE PROGRAM REPRESENTED BY THE DIRECT OBLIGATIONS AND THE REIMBURSABLE OBLIGATIONS TO BE INCURRED IN CARRYING OUT THE PROGRAM PRESENTED. THE SUM OF THE APPROPRIATIONS AND REIMBURSEMENTS, WHEN APPORTIONED BY THE BUREAU OF THE BUDGET FOR AGENCY USE, BECOMES AVAILABLE WITHOUT REGARD TO SOURCE FOR OBLIGATION AND EXPENDITURE FOR ANY OF THE ACTIVITIES AUTHORIZED TO BE FINANCED BY THE APPROPRIATION.

THEREFORE, AND IN RESPONSE TO THE SPECIFIC INQUIRY BY THE ASSISTANT SECRETARY AS TO THE USE OF DEPRECIATION EXPENSE RECOVERED, YOU ARE ADVISED THAT SUCH REIMBURSEMENTS, LIKE ANY OTHER ITEMS OF REIMBURSABLE EXPENSE, MAY BE UTILIZED IN CARRYING OUT AN ACTIVITY THAT HAS BEEN AUTHORIZED AND APPROVED FOR THE BUDGET YEAR SUBJECT, OF COURSE, TO APPORTIONMENT BY THE BUREAU OF THE BUDGET UNDER THE PROVISIONS OF ITS CIRCULAR NO. A-34.

A COPY OF THIS LETTER IS BEING FURNISHED TO THE DIRECTOR OF THE BUREAU OF THE BUDGET.