B-131494, JUL. 12, 1957

B-131494: Jul 12, 1957

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TO THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO LETTER OF THE ASSISTANT SECRETARY OF THE ARMY (FM) DATED APRIL 11. IT ALSO IS PROPOSED TO EXPEND THE FINANCIAL UTILIZATION OF THE CORPS OF ENGINEERS REVOLVING FUND. ARE DIRECTLY CHARGED TO THE PROJECT. OR APPROPRIATION TO WHICH THE INVOLVED EMPLOYEES ARE ASSIGNED WHEN THE LEAVE IS TAKEN OR THE LUMP SUM PAYMENT MADE. SINCE THE LEAVE SO COVERED BY WAGES AND LUMP SUM PAYMENTS MAY HAVE BEEN EARNED WHILE THE EMPLOYEES WERE EMPLOYED UNDER OTHER PROJECTS. AS A MATTER OF GENERAL PRINCIPLE WE BELIEVE THAT ITEMS SELECTED TO BE ACCOUNTED FOR ON THE ACCRUAL BASIS SHOULD DEPEND ON THE EXTENT TO WHICH THE RESULTING DATA WILL BE IMPORTANT AND USEFUL IN ASSISTING THE VARIOUS LEVELS OF MANAGEMENT IN CARRYING OUT THEIR RESPONSIBILITIES AS THEY PERTAIN TO FINANCIAL CONTROL OVER EXPENDITURES.

B-131494, JUL. 12, 1957

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO LETTER OF THE ASSISTANT SECRETARY OF THE ARMY (FM) DATED APRIL 11, 1957, TRANSMITTING A COPY OF A LETTER TO THE DIRECTOR, BUREAU OF THE BUDGET, PROPOSING TO APPLY THE ACCRUAL PRINCIPLE OF ACCOUNTING TO LABOR AND LEAVE COSTS FOR MILITARY CONSTRUCTION ACTIVITIES OF THE CORPS OF ENGINEERS. IN CONNECTION WITH THIS UNDERTAKING, IT ALSO IS PROPOSED TO EXPEND THE FINANCIAL UTILIZATION OF THE CORPS OF ENGINEERS REVOLVING FUND, ESTABLISHED BY THE ACT OF JULY 27, 1953, 67 STAT. 199.

LETTER OF THE ASSISTANT SECRETARY STATES THAT UNDER EXISTING PROCEDURES FOR MILITARY CONSTRUCTION ACTIVITIES, ALL CHARGES FOR LABOR, INCLUDING WAGES PAID TO EMPLOYEES WHILE IN A LEAVE STATUS AND LUMP SUM LEAVE PAYMENTS, ARE DIRECTLY CHARGED TO THE PROJECT, ALLOTMENT, OR APPROPRIATION TO WHICH THE INVOLVED EMPLOYEES ARE ASSIGNED WHEN THE LEAVE IS TAKEN OR THE LUMP SUM PAYMENT MADE. SINCE THE LEAVE SO COVERED BY WAGES AND LUMP SUM PAYMENTS MAY HAVE BEEN EARNED WHILE THE EMPLOYEES WERE EMPLOYED UNDER OTHER PROJECTS, APPROPRIATIONS, OR ALLOTMENTS, THE LETTER REPORTS THAT THE PRACTICE RESULTS IN THE CHARGING OF SUBSTANTIAL AMOUNTS TO OTHER THAN THE BENEFITING PROJECTS, APPROPRIATIONS, OR ALLOTMENTS. TO CORRECT SUCH DISTORTIONS OF COSTS AND TO INCORPORATE THE ACCRUAL PRINCIPLE OF ACCOUNTING, THE ASSISTANT SECRETARY PROPOSED TO CHARGE THE MILITARY CONSTRUCTION ACTIVITIES ON A TIME WORKED BASIS, INCLUDING AN ALLOWANCE FOR LEAVE EARNED. THESE LABOR AND LEAVE CHARGES WOULD BE PROCESSED THROUGH THE REVOLVING FUND, WITH THE REVOLVING FUND BEING CHARGED WITH PAYMENTS TO EMPLOYEES AND REIMBURSED FROM THE SERVICED APPROPRIATIONS.

AS A MATTER OF GENERAL PRINCIPLE WE BELIEVE THAT ITEMS SELECTED TO BE ACCOUNTED FOR ON THE ACCRUAL BASIS SHOULD DEPEND ON THE EXTENT TO WHICH THE RESULTING DATA WILL BE IMPORTANT AND USEFUL IN ASSISTING THE VARIOUS LEVELS OF MANAGEMENT IN CARRYING OUT THEIR RESPONSIBILITIES AS THEY PERTAIN TO FINANCIAL CONTROL OVER EXPENDITURES, REVENUES, AND RESOURCES, INCLUDING THEIR USE IN OPERATIONS. IN OUR OPINION THE ADOPTION OF THE ACCRUAL BASIS OF ACCOUNTING FOR LABOR AND ANNUAL LEAVE FOR THE MILITARY CONSTRUCTION ACTIVITIES IS JUSTIFIED. CONVERSELY, WE DO NOT THINK SICK LEAVE IS A COST TO BE ACCRUED NOR IS SICK LEAVE NOT TAKEN A LIABILITY. HOWEVER, THE EXPERIENCE OF SICK LEAVE TAKEN MAY BE CONSIDERED IN DISTRIBUTING LABOR COSTS TO THE RESPECTIVE PROJECTS.

WE HAVE NO OBJECTION TO THE PROPOSED PROCESSING OF LABOR AND ANNUAL LEAVE CHARGES OF EMPLOYEES ENGAGED ON MILITARY CONSTRUCTION ACTIVITIES THROUGH THE CORPS' REVOLVING FUND. HOWEVER, THE ASSISTANT SECRETARY'S LETTER DOES NOT DESCRIBE THE METHOD WHICH HE PROPOSES TO EMPLOY IN ASSUMING THE ACCRUED ANNUAL LEAVE LIABILITY EXISTING AT THE TIME THE CHANGE IS MADE. THE CORPS HAS INFORMALLY ADVISED OUR REPRESENTATIVES THAT IT EXPECTS TO FUND THE LIABILITY OVER A PERIOD OF TIME THROUGH CURRENT CHARGES TO THE MILITARY CONSTRUCTION APPROPRIATIONS FOR SERVICES PERFORMED. THIS PROCEDURE WOULD RESULT IN BILLINGS IN EXCESS OF CURRENT COSTS AND WOULD INFLATE THE COSTS OF MILITARY CONSTRUCTION ACTIVITIES. THEREFORE, WE ARE OPPOSED TO ITS UTILIZATION AND SUGGEST AS AN ALTERNATIVE THAT THE REVOLVING FUND RECORD THE LIABILITY THROUGH A CHARGE TO CAPITAL.

IN CONNECTION GENERALLY WITH ANNUAL LEAVE ACCRUALS UNDER THE REVOLVING FUND, WE UNDERSTAND THAT THE CORPS DOES NOT RECORD THE FULL LIABILITY FOR ACCRUED LEAVE FOR EMPLOYEES ENGAGED IN THE CORPS' CIVIL FUNCTIONS. INSTEAD THE LIABILITY IS RECORDED AT A PREDETERMINED PERCENTAGE OF THE FULL LIABILITY AND SURCHARGES ARE INCREASED WHEN NECESSARY TO BRING THE LEAVE RESERVE UP TO THE PREDETERMINED PERCENTAGE. SINCE AMOUNTS COLLECTED UNDER THIS PROCEDURE HAVE EXCEEDED THE AMOUNT OF ANNUAL LEAVE ACCRUING TO THE EMPLOYEES DURING THE SAME PERIOD, A SUBSTANTIAL INCREASE IN THE CASH BALANCE OF THE REVOLVING FUND RESULTED.

IT IS OUR OPINION THAT THE LIABILITY OF THE REVOLVING FUND FOR ANNUAL LEAVE OF EMPLOYEES SHOULD BE FULLY RECORDED. HOWEVER, IT IS UNNECESSARY TO INCREASE THE CASH BALANCE IN THE FUND TO TAKE CARE OF THE FULL LIABILITY. INSTEAD, AS WE POINT OUT ABOVE FOR THE MILITARY CONSTRUCTION ACTIVITIES, A CHARGE TO THE CAPITAL OF THE REVOLVING FUND SHOULD BE MADE TO RECORD THE ADDITIONAL LIABILITY FOR ACCRUED ANNUAL LEAVE OF EMPLOYEES ENGAGED IN THE CORPS' CIVIL FUNCTIONS. PERIODICALLY THE CASH AND OTHER WORKING CAPITAL NEEDS OF THE REVOLVING FUND SHOULD BE REVIEWED AND EVALUATED ON THE BASIS OF ITS OPERATING REQUIREMENTS. ALSO, THE ACTUAL ANNUAL LEAVE BALANCES DUE EMPLOYEES SHOULD BE COMPARED TO THE LIABILITY ESTABLISHED ON THE RECORDS, WITH APPROPRIATE ADJUSTMENTS AS NECESSARY.

CONCERNING THE PROPOSAL TO ISSUE PROJECT ORDERS, AS CONTEMPLATED UNDER 41 U.S.C. 23, IN REQUESTING SERVICES TO BE RENDERED BY THE REVOLVING FUND, WE FEEL THAT SUCH PROCEDURE, EVEN IF LEGALLY PROPER, IS NEITHER NECESSARY NOR DESIRABLE. THE USE OF PROJECT ORDERS IN APPROPRIATE CIRCUMSTANCES HAS THE EFFECT OF OBLIGATING THE SERVICED APPROPRIATIONS. WE UNDERSTAND THAT PROCEDURES CURRENTLY ARE BEING DEVELOPED TO "BULK FUND" THE CORPS' CONSTRUCTION PROGRAM SO THAT FUNDS APPROPRIATED BY THE CONGRESS FOR AUTHORIZED CONSTRUCTION NO LONGER WILL BE SUBJECT TO APPORTIONMENT BY THE BUREAU OF THE BUDGET FOR SPECIFIC PROJECTS. THE PURPOSE OF THIS PROJECTED CHANGE IS TO CONFER ON THE CORPS A WIDER DEGREE OF DISCRETIONARY AUTHORITY IN DETERMINING PRIORITIES IN PROCEEDING WITH AUTHORIZED PROGRAMS AND PROJECTS. SINCE THE AUTHORIZED USE OF PROJECT ORDERS WOULD SERVE TO TIE UP AVAILABLE FUNDS EVEN TEMPORARILY, IT SEEMS TO US THAT THEIR USE IS INCONSISTENT WITH THE PURPOSE OF BULK FUNDING AND THAT TOTAL PROGRAM ACCOMPLISHMENT WOULD BE HINDERED THEREBY.

SINCE THE CITED ACT OF JULY 27, 1953, AUTHORIZES THE USE OF THE REVOLVING FUND FOR THE ,FURNISHING OF FACILITIES AND SERVICES FOR MILITARY FUNCTIONS OF THE DEPARTMENT OF THE ARMY," WE SEE NO OBJECTION, AS A MATTER OF LAW, TO THE PROPOSED EXPANSION OF THE FINANCIAL UTILIZATION OF THE FUND TO INCLUDE LABOR AND ANNUAL LEAVE CHARGES FOR MILITARY CONSTRUCTION ACTIVITIES OF THE CORPS OF ENGINEERS. HOWEVER, IN VIEW OF THE TESTIMONY CITED IN THE ASSISTANT SECRETARY'S LETTER, AND APPEARING AT PAGES 1201 AND 1202 OF THE HEARINGS BEFORE THE SENATE SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS ON THE CIVIL FUNCTIONS APPROPRIATION ACT, 1954, TO THE EFFECT THAT LABOR CHARGES OF PERSONNEL ENGAGED EXCLUSIVELY IN MILITARY ACTIVITIES WOULD NOT BE FINANCED THROUGH THE REVOLVING FUND, WE CONCUR WITH THE VIEW EXPRESSED BY THE ASSISTANT SECRETARY ON THE NEED FOR ACQUAINTING THE APPROPRIATE COMMITTEES OF THE CONGRESS WITH THE PROPOSAL AND OBTAINING THEIR APPROVAL IN THE MATTER. IF AND WHEN SUCH LEGISLATIVE APPROVAL IS HAD, AND UPON YOUR REQUEST, REPRESENTATIVES OF OUR OFFICE WILL BE AVAILABLE TO ASSIST IN WORKING OUT THE NECESSARY DETAILS.

A COPY OF THIS LETTER HAS BEEN FURNISHED TO THE DIRECTOR, BUREAU OF THE BUDGET.