B-174981, APR 7, 1972, 51 COMP GEN 631

B-174981: Apr 7, 1972

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APPROPRIATIONS TO WHICH REMAIN AVAILABLE UNTIL EXPENDED - MAY ADOPT A REPORTING SYSTEM THAT DEPARTS FROM AN EXACT OBLIGATION BASIS IF THE SPECIFIC NATURE OF SUCH REPORTING IS DISCLOSED TO ALL APPROPRIATE BUDGETARY AUTHORITIES. 1972: REFERENCE IS MADE TO YOUR LETTER OF JANUARY 14. BOTH OF THESE ARE REVOLVING FUNDS. LOAN AUTHORIZATIONS OR APPROVALS ARE RECORDED ON A COMMITMENT BASIS. THE APPROVAL AMOUNT IS RECORDED IN A MEMORANDUM ACCOUNT AT THE TIME A LOAN AUTHORIZATION IS APPROVED. THE FIRST SUBSEQUENT ENTRY (OTHER THAN A CHANGE OR CANCELLATION OF THE AUTHORIZED AMOUNT) IS EITHER A REQUEST FOR DISBURSEMENT IN THE CASE OF A DIRECT OR IMMEDIATE PARTICIPATION LOAN. THE AGENCY CENTRAL ACCOUNTING SYSTEM DOES NOT REFLECT TRANSPIRING TRANSACTIONS WHICH CREATE OBLIGATIONS AS DEFINED IN SECTION 1311 AND FIELD VERIFICATIONS ARE NECESSARY IN ORDER TO DETERMINE YEAR-END FIGURES FOR VALID OBLIGATIONS.

B-174981, APR 7, 1972, 51 COMP GEN 631

APPROPRIATIONS - OBLIGATION - SECTION 1311, SUPPLEMENTAL APPROPRIATION ACT OF 1955 - LOANS - REPORTING SINCE THE REQUIREMENT OF SECTION 1311 OF THE SUPPLEMENTAL APPROPRIATION ACT OF 1955, AS AMENDED, (31 U.S.C. 200), THAT THE RECORDING OF AN OBLIGATION MUST BE SUPPORTED BY DOCUMENTS APPLIES MORE READILY TO ONE-YEAR OR MULTI-YEAR APPROPRIATIONS, THE SMALL BUSINESS ADMINISTRATION WHOSE FINANCIAL TRANSACTIONS INVOLVE LOANS FROM THE BUSINESS LOAN AND INVESTMENT FUND AND THE DISASTER LOAN FUND - BOTH REVOLVING FUNDS, APPROPRIATIONS TO WHICH REMAIN AVAILABLE UNTIL EXPENDED - MAY ADOPT A REPORTING SYSTEM THAT DEPARTS FROM AN EXACT OBLIGATION BASIS IF THE SPECIFIC NATURE OF SUCH REPORTING IS DISCLOSED TO ALL APPROPRIATE BUDGETARY AUTHORITIES. RECOGNIZING THE DISTINCTIONS BETWEEN LOANS, REPORTS ON GUARANTY LOANS MAY BE MADE ON A COMMITMENT BASIS, ON A COMPUTED BASIS FOR OBLIGATION ESTIMATES, AND ON DIRECT PARTICIPATION LOANS, AND REPORTS SHOULD INCLUDE OBLIGATION STATEMENTS.

TO THE ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION, APRIL 7, 1972:

REFERENCE IS MADE TO YOUR LETTER OF JANUARY 14, 1972, RELATING TO THE EFFECT OF SECTION 1311 OF THE SUPPLEMENTAL APPROPRIATION ACT, 1955, APPROVED AUGUST 26, 1954, CH. 935, 68 STAT. 830, AS AMENDED, 31 U.S.C. 200, UPON CERTAIN REPORTING PROCEDURES OF THE SMALL BUSINESS ADMINISTRATION (SBA). SECTION 1311 REQUIRES, INTER ALIA, THAT NO AMOUNT BE RECORDED AS AN OBLIGATION OF THE UNITED STATES UNLESS SUPPORTED BY CERTAIN DOCUMENTARY EVIDENCE; AND THAT STATEMENTS OF OBLIGATION FURNISHED BY FEDERAL AGENCIES TO THE OFFICE OF MANAGEMENT AND BUDGET, THE CONGRESS OR CONGRESSIONAL COMMITTEES INCLUDE ONLY THOSE ITEMS SUPPORTED BY SUCH DOCUMENTARY EVIDENCE.

YOU STATE THAT THE PREPONDERANCE OF SBA'S FINANCIAL TRANSACTIONS INVOLVE LOAN APPROVALS, DISBURSEMENTS AND SUBSEQUENT REPAYMENTS WITH RESPECT TO THE BUSINESS LOAN AND INVESTMENT FUND AND THE DISASTER LOAN FUND. BOTH OF THESE ARE REVOLVING FUNDS, APPROPRIATIONS TO WHICH REMAIN AVAILABLE UNTIL EXPENDED. SEE 15 U.S.C. 633(C)(1) AND (3). FOR FUND CONTROL PURPOSES, LOAN AUTHORIZATIONS OR APPROVALS ARE RECORDED ON A COMMITMENT BASIS, I.E., THE APPROVAL AMOUNT IS RECORDED IN A MEMORANDUM ACCOUNT AT THE TIME A LOAN AUTHORIZATION IS APPROVED. THE FIRST SUBSEQUENT ENTRY (OTHER THAN A CHANGE OR CANCELLATION OF THE AUTHORIZED AMOUNT) IS EITHER A REQUEST FOR DISBURSEMENT IN THE CASE OF A DIRECT OR IMMEDIATE PARTICIPATION LOAN, WHERE SBA ACTS AS THE DISBURSING AGENT, OR A NOTIFICATION OF DISBURSEMENT IN THE CASE OF DEFERRED PARTICIPATION OR GUARANTY-TYPE LOANS. SINCE SBA DOES NOT ACT AS DISBURSING AGENT WITH RESPECT TO LOANS IN THE LATTER CATEGORY, THE AGENCY CENTRAL ACCOUNTING SYSTEM DOES NOT REFLECT TRANSPIRING TRANSACTIONS WHICH CREATE OBLIGATIONS AS DEFINED IN SECTION 1311 AND FIELD VERIFICATIONS ARE NECESSARY IN ORDER TO DETERMINE YEAR-END FIGURES FOR VALID OBLIGATIONS. ON THE OTHER HAND, THE CENTRAL ACCOUNTING SYSTEM CONTAINS THE ENTRIES NECESSARY TO DETERMINE VALID OBLIGATIONS ARISING FROM DIRECT OR IMMEDIATE PARTICIPATION LOANS. THE VERIFICATION PROCESS FOR THE FISCAL YEAR ENDED JUNE 30, 1971, COVERED MORE THAN 39,000 LOANS UNDER THE CITED REVOLVING FUNDS, AND RESULTED IN A DOWNWARD ADJUSTMENT IN OBLIGATIONS ARISING FROM LOANS IN BOTH MAJOR CATEGORIES. ADJUSTMENT OF $153 MILLION RELATED TO DIRECT OR IMMEDIATE PARTICIPATION LOANS DISBURSED BY SBA. A MUCH SMALLER ADJUSTMENT RESULTED WITH RESPECT TO INDIRECT PARTICIPATION OR GUARANTY TYPE LOANS, AND PRODUCED A FIGURE FOR VALID OBLIGATIONS IN THIS CATEGORY WHICH AMOUNTED TO LESS THAN 2 PERCENT OF SBA'S TOTAL LOAN PORTFOLIO AS OF JUNE 30, 1971. A COST STUDY REVEALED THAT 3,185 MAN HOURS (THE EQUIVALENT OF 1.5 MAN-YEARS) WAS EXPENDED AT AN APPROXIMATE COST OF $13,000 IN COMPLETING THE APPROVAL VERIFICATION PROCESS FOR THE FISCAL YEAR ENDED JUNE 30, 1971.

YOU SUGGEST THAT SINCE REVOLVING FUNDS ARE CONTROLLED ON A COMMITMENT OR RESERVATION BASIS, THE VALID OBLIGATION FIGURES PRODUCED BY THE VERIFICATION PROCESS HAVE NO BEARING ON AGENCY OPERATIONS, EXCEPT TO THE EXTENT OF BEING AN EXPLANATION IN THE FORM OF A FOOTNOTE TO THE FINANCIAL STATEMENT. IN VIEW OF YOUR CONCLUSIONS AS TO THE LIMITED RELEVANCE OF THE CONCEPT OF VALID OBLIGATIONS REFLECTED IN SECTION 1311 TO THE CITED REVOLVING FUND OPERATIONS, AND THE EXCESSIVE COST OF DETERMINING SUCH OBLIGATIONS, YOU REQUEST THAT SBA BE PERMITTED TO REPORT ITS VALID OBLIGATIONS ON A COMPUTED BASIS.

SECTION 1311, AS AMENDED, 31 U.S.C. 200, PROVIDES, IN PART, AS FOLLOWS:

(A) REQUIREMENT; CHARACTER OF EVIDENCE.

AFTER AUGUST 26, 1954 NO AMOUNT SHALL BE RECORDED AS AN OBLIGATION OF THE GOVERNMENT OF THE UNITED STATES UNLESS IT IS SUPPORTED BY DOCUMENTARY EVIDENCE OF -

(2) A VALID LOAN AGREEMENT, SHOWING THE AMOUNT OF THE LOAN TO BE MADE AND THE TERMS OF REPAYMENT THEREOF; ***

(B) REPORT BY AGENCY HEADS IN CONNECTION WITH REQUESTS FOR PROPOSED APPROPRIATIONS.

HEREAFTER, IN CONNECTION WITH THE SUBMISSION OF ALL REQUESTS FOR PROPOSED APPROPRIATIONS TO THE OFFICE OF MANAGEMENT AND BUDGET, THE HEAD OF EACH FEDERAL AGENCY SHALL REPORT THAT ANY STATEMENT OF OBLIGATIONS FURNISHED THEREWITH CONSISTS OF VALID OBLIGATIONS AS DEFINED IN SUBSECTION (A) OF THIS SECTION.

(C) SAME; CERTIFICATIONS AND RECORDS; RETENTION FOR AUDIT; PROHIBITION AGAINST REDELEGATION OF RESPONSIBILITY.

EACH REPORT MADE PURSUANT TO SUBSECTION (B) OF THIS SECTION SHALL BE SUPPORTED BY CERTIFICATIONS OF THE OFFICIALS DESIGNATED BY THE HEAD OF THE AGENCY, AND SUCH CERTIFICATIONS SHALL BE SUPPORTED BY RECORDS EVIDENCING THE AMOUNTS WHICH ARE REPORTED THEREIN AS HAVING BEEN OBLIGATED. ***

(D) RESTRICTION ON USE OF APPROPRIATIONS OR FUNDS.

NO APPROPRIATION OR FUND WHICH IS LIMITED FOR OBLIGATION PURPOSES TO A DEFINITE PERIOD OF TIME SHALL BE AVAILABLE FOR EXPENDITURE AFTER THE EXPIRATION OF SUCH PERIOD EXCEPT FOR LIQUIDATION OF AMOUNTS OBLIGATED IN ACCORD WITH SUBSECTION (A) OF THIS SECTION; BUT NO SUCH APPROPRIATION OR FUND SHALL REMAIN AVAILABLE FOR EXPENDITURE FOR ANY PERIOD BEYOND THAT OTHERWISE AUTHORIZED BY LAW.

(E) AMOUNTS TO BE INCLUDED IN STATEMENTS OF OBLIGATIONS TO CONGRESS.

ANY STATEMENT OF OBLIGATION OF FUNDS FURNISHED BY ANY AGENCY OF THE GOVERNMENT TO THE CONGRESS OR ANY COMMITTEE THEREOF SHALL INCLUDE ONLY SUCH AMOUNTS AS MAY BE VALID OBLIGATIONS AS DEFINED IN SUBSECTION (A) OF THIS SECTION.

SECTION 1311 WAS DESIGNED TO REMEDY THE THEN-EXISTING PRACTICE OF SOME AGENCIES TO AVOID THE WITHDRAWAL AND REVERSION OF APPROPRIATED FUNDS REMAINING UNEXPENDED AT THE END OF THEIR PERIOD OF AVAILABILITY BY ADOPTING STRAINED AND DIVERSE CONCEPTS OF OBLIGATION, THEREBY MAKING IT DIFFICULT FOR THE CONGRESS TO DISTINGUISH THOSE ITEMS WHICH TRULY DESERVED TO BE TREATED AS OBLIGATIONS. SEE H. REPT. NO. 2266, 83D CONG., 2D SESS. 49-50; 100 CONG. REC. 11476 (1954). THE REMEDY WAS ACCOMPLISHED BY ESTABLISHING SPECIFIC STANDARDS FOR THE DETERMINATION OF VALID OBLIGATIONS, AND BY REQUIRING THAT AGENCY REPORTS OF OBLIGATIONS CONFORM TO THESE STANDARDS. SUBSECTION (B) OF SECTION 1311 AS ORIGINALLY ENACTED REINFORCED THE REMEDY BY REQUIRING IN ADDITION THAT THE HEAD OF EACH AGENCY SUBMIT ANNUALLY SPECIAL REPORTS SETTING FORTH THE AMOUNT OF EACH APPROPRIATION OR FUND REMAINING OBLIGATED BUT UNEXPENDED. 68 STAT. 830. BY SECTION 210(A) OF THE ACT APPROVED JULY 8, 1959, PUBLIC LAW 86-79, 73 STAT. 167, SECTION 1311(B) WAS AMENDED TO ITS PRESENT FORM, REQUIRING ONLY THAT AGENCY HEADS REPORT THAT ANY STATEMENT OF OBLIGATIONS FURNISHED IN CONNECTION WITH APPROPRIATION REQUESTS TO THE OFFICE OF MANAGEMENT AND BUDGET CONFORM TO THE STANDARDS OF SECTION 1311(A). THE REQUIREMENT FOR SPECIAL REPORTS OF OBLIGATIONS WAS DELETED ON THE GROUND THAT SUCH REPORTS HAD "SERVED THEIR PURPOSE *** ." H. REPT. NO. 366, 86TH CONG., 1ST SESS. 5.

SUBSECTION 1311(A) SETS FORTH PREREQUISITES TO THE RECORDING OF OBLIGATIONS. SUBSECTIONS (B) AND (E) REQUIRE ONLY THAT AGENCY SUBMISSIONS WHICH PURPORT TO BE STATEMENTS OF OBLIGATIONS MUST CONFORM TO THE STANDARDS OF SUBSECTION (A). IN EFFECT, SECTION 1311 LEAVES TO THOSE AUTHORITIES TO WHOM AGENCIES SUBMIT INFORMATION CONCERNING THE STATUS OF APPROPRIATIONS AND FUNDS DETERMINATION OF THE FORM AND CONTENT OF SUCH SUBMISSIONS.

WE APPRECIATE THE DIFFICULTIES OF REPORTING TRANSACTIONS UNDER THE CITED REVOLVING FUNDS ON AN EXACT OBLIGATION BASIS, AND AGREE THAT THE CONCEPTS OF OBLIGATION UNDER SECTION 1311 APPLY MORE READILY TO 1-YEAR OR MULTIPLE- YEAR APPROPRIATIONS. THE PRIMARY PURPOSE OF SECTION 1311 IN THE PRESENT CONTEXT IS TO AVOID MISUNDERSTANDINGS IN THE SUBMISSION OF BUDGETARY INFORMATION. ACCORDINGLY, WE WOULD HAVE NO OBJECTION UNDER SECTION 1311 TO THE ADOPTION BY SBA OF A REPORTING SYSTEM WITH RESPECT TO THE CITED REVOLVING FUNDS WHICH DEPARTS FROM AN EXACT OBLIGATION BASIS, SO LONG AS THE SPECIFIC NATURE OF SUCH REPORTING SYSTEM IS CLEARLY DISCLOSED TO ALL APPROPRIATE BUDGETARY AUTHORITIES, AND PROVIDES ALL INFORMATION REQUIRED BY THEM. HOWEVER, SEVERAL ADDITIONAL OBSERVATIONS SEEM RELEVANT WITH RESPECT TO THE LATTER POINT. WHILE EXCESSIVE DETAILS AND UNNECESSARY REFINEMENTS ARE TO BE AVOIDED, 2 GAO 8.10(A), AGENCIES ARE SUBJECT TO A GENERAL DUTY TO MAKE THE MOST COMPLETE DISCLOSURE OF BUDGETARY INFORMATION PRACTICABLE UNDER ANY PARTICULAR CIRCUMSTANCES, 31 U.S.C. 65; CF. 2 GAO 8.2, 8.4, 8.5, 8.9, 8.10(B). ON THIS BASIS, WE PERCEIVE A SIGNIFICANT DISTINCTION BETWEEN DEFERRED PARTICIPATION OR GUARANTY-TYPE TRANSACTIONS UNDER SBA REVOLVING FUNDS, AND TRANSACTIONS IN WHICH SBA MAKES DIRECT DISBURSEMENTS. WITH RESPECT TO THE FORMER, WHERE THE FIGURE FOR VALID OBLIGATIONS CAN ONLY BE DETERMINED THROUGH COSTLY FIELD VERIFICATION PROCESS AND REPRESENTED LESS THAN 2 PERCENT OF THE AGENCY'S TOTAL LOAN PORTFOLIO AS OF JUNE 30, 1971, WE WOULD HAVE NO OBJECTION TO DISPENSING WITH REPORTS OF OBLIGATIONS, ASSUMING THAT REPORTS ON A COMMITMENT BASIS WOULD BE SUBSTITUTED, AND THAT THE DISTINCTION WOULD BE MADE CLEAR. THE INTEREST OF COMPLETE DISCLOSURE, HOWEVER, WE PREFER YOUR SPECIFIC SUGGESTION THAT ESTIMATES OF OBLIGATIONS, ON A COMPUTED BASIS, ALSO BE REPORTED AS TO THOSE TRANSACTIONS. THIS APPROACH WOULD NOT BE INCONSISTENT WITH SECTION 1311 IF IT IS MADE CLEAR THAT SUCH INFORMATION REPRESENTS ESTIMATES, RATHER THAN STATEMENTS, OF OBLIGATIONS. WE DO NOT BELIEVE THAT THE PROBLEMS YOU RAISE APPLY WITH EQUAL FORCE TO OTHER TRANSACTIONS UNDER THE CITED REVOLVING FUNDS, I.E., DIRECT OR IMMEDIATE PARTICIPATION LOANS BY SBA, AND ALSO THOSE ADMINISTRATIVE EXPENSES OF THE AGENCY FOR WHICH SUCH REVOLVING FUNDS ARE AVAILABLE. SEE 15 U.S.C. 633(C). CLEARLY THE PROCESS OF VERIFYING THESE OBLIGATIONS SHOULD NOT INVOLVE MAJOR DIFFICULTIES OR EXPENSE SINCE THE NECESSARY INFORMATION IS CONTAINED IN THE AGENCY CENTRAL ACCOUNTING SYSTEM. ACCORDINGLY, AS TO THESE TRANSACTIONS WE DO NOT PERCEIVE CONSIDERATIONS SUFFICIENT TO COUNTERVAIL THE INTEREST IN THE FULLEST POSSIBLE DISCLOSURE, AND RECOMMEND THAT REPORTS CONCERNING SUCH TRANSACTIONS CONTINUE TO INCLUDE STATEMENTS OF OBLIGATIONS.

SINCE THIS PROPOSAL, HOWEVER, WILL RESULT IN A CHANGE IN THE STATEMENT OF OBLIGATIONS FURNISHED TO THE OFFICE OF MANAGEMENT AND BUDGET IN CONNECTION WITH REQUESTS FOR PROPOSED APPROPRIATIONS, WE SUGGEST THAT THE PROPOSAL BE CLEARED WITH THAT OFFICE.