top 10 things you always wanted to know about appropriations law

1. Top 10 Things You Always Wanted to Know About Appropriations Law Sandy Fry Patrick Gourley April 27, 2011

3. 5 Basic Concepts 1) Knowing responsibilities to avoid an Anti-Deficiency Act (ADA) violation 2) Building a Body of Knowledge 3) Using Authorities - When can I use the Economy Act? 4) Reviewing Contracts and Obligations: Why the push to close old contracts? 5) Naming Names and Reporting an ADA

4. Knowing Responsibilities of the Law Who is responsible? What responsibilities can be delegated to others/what responsibilities cannot be delegated? How do I avoid an Anti-Deficiency Act violation? What are the penalties for a violation? What relief from penalties is available?

5. Building a Body of Knowledge How do I decide whether a transaction is appropriate or not? Time (bona fide need; severable versus non-severable) Purpose (necessary expense doctrine) Amount (amount specified or fulfills general purpose of the authorization)

6. Building a Body of Knowledge (cont.) What are resources for questions about time, purpose, amount? Internal Resources ASFR Budget/Finance/OGAPA policies and consultation Appropriations Law Decision Tree (currently beta tested) Financial Policy on Administrative Control of Funds (currently in draft; existing policy is Chapter 2-10 of the Financial Accounting Manual). Acquisition Policy Memorandum 2010-1 Office of the General Counsel External Resources The various appropriation laws, including the Anti-Deficiency Act OMB Circular A-11( Sections 120, 145, 150, and Appendix H) GAO Redbook GAO opinions – who may request a GAO opinion? Accountable Officers (Disbursing and Certifying Officials) Heads of Agencies OMB OGC (in consultation with HHS ASFR Budget/Finance, HHS OGC) Department of Justice (in consultation with the above and OIG)

7. Building a Body of Knowledge (cont.) How do I decide if a potential ADA violation has occurred? Consult with OPDIV, ASFR Budget/Finance, and OGC officials as soon as possible OGC makes the final determination What are the next steps? Determination of cause(s), who contributed to the ADA, management decisions concerning remedies (including recovery of costs) Prepare to report the violation as early as possible

8. Using Authorities Basic rule: an organization must have both an authorization and an appropriation! Authorizing legislation provides an organization’s purpose(s) Appropriation legislation provides an amount of money for a specified period of time (i.e., annual, multi-year, no-year) If either is missing, spending cannot legally occur 31 U.S.C. §1301 (a) An OMB-approved apportionment must be in place (31 U.S.C. §1512) unless there is an exemption (31 U.S.C. §1516)

9. Authorities: Economy Act Buyer Conditions The order is in the best interest of the government Determination that the seller can provide the goods/services more economically Agreement meets purpose, time, amount conditions specific to the buyer (seller cannot satisfy any of these) Seller Conditions No more specific authority is available (i.e., revolving fund, franchise fund, and other authorities) An OMB-approved apportionment authority from offsetting collections Able to provide or get by contract the ordered goods or services

10. Authorities: When the Economy Act Can’t Be Used Buyer When there is a more economical way to provide for the need May not be used by an agency to circumvent conditions and limitations imposed on the use of funds (31 U.S.C. 1532) Can’t be used to change the fiscal year identity of the buyer Can’t be used to change the authority of the buyer The buyer must de-obligate any funds not obligated by the seller before the end of the buyer’s period of availability Seller When there is no authority to receive payments from the buyer OMB apportionment for reimbursement The agreement is not signed by both parties Seller doesn’t have the authority to provide services Example: When there is no grant-making authority, can’t fund provider’s grant payments to the grantee on behalf of the buyer The seller must return any amounts advanced but not obligated before the end of the buyer’s period of availability

11. Reviewing Contracts/Obligations Why is it important to review and close older contracts and obligations? External auditors have identified this as a significant deficiency Risk associated with adjustments to contracts Quarterly review of obligations is a requirement under the law (31 U.S.C.§1512) What happens when an adjustment is needed to a contract when the appropriation has expired? (31 U.S.C. §1553) Obligations and adjustments may be made to the current year appropriation available for the same purpose (if amounts are available) that would have been chargeable to the expired appropriation (may not exceed 1% of the total appropriations) Obligations for contract changes >$4,000,000 must be approved in advance by the Head of the Agency or an officer with the Secretary’s delegation. The total amount obligated from that appropriation, including the contract change, exceeds $25,000,000, the contract change obligation may not be made until: The Secretary notifies Congress A period of 30 days has elapsed after the notice is submitted.

12.  Naming Names: Reporting an ADA The report must include specific information under OMB Circular A-11, Section 145. Report a violation as soon as possible (must be in consultation with ASFR, OGC, and OMB) Report sent to the President, OMB, Congress, and GAO The report must include: Transmittal to OMB Letter from the Secretary to the President, Congress, and GAO

13. Naming Names: Reporting an ADA Name responsible employees Describe the administrative and/or criminal actions against the employee (31 U.S.C. §1349-1350; §1518-1519) Describe administrative controls Actions taken to mitigate violations Personal liability Cannot be delegated away for the Secretary May be imposed for others in absence of attempts to recover funds expended in excess of appropriations and/or apportionments

14. Naming Names: Reporting an ADA Describe the details and facts of the ADA Purpose (31 U.S.C. 1301(a) Obligating funds for an unauthorized purpose Obligating funds in the wrong appropriation, when a correction to the correct appropriation would exceed the amount available Time Obligating funds before (31 U.S.C. §1341) they were available Obligating funds after (31 U.S.C. §1502) they were available Amount Obligations exceeding an appropriation or fund (31 U.S.C. §1341) Acceptance of voluntary services or employing personal services in excess of amounts available (31 U.S.C. §1342) Obligations exceeding an apportionment, reapportionment, or allotment (31 U.S.C. §1517)

15. Contract Funding Concepts Funding flexibility and limitations Contracts are not “bank accounts” Contract type does matter Application of the necessary expense doctrine to contracts A year is not always 12 months long

16. Funding Flexibility and Limitations Appropriations Law: Purpose Time Amount Time: The obligation must occur within the time limits applicable to the appropriation. (Bona Fide Needs Rule; 31 USC 1502(a))

17. Funding Flexibility and Limitations Time: Bona Fide Needs Rule Services Severable Nonseverable Annual Funds: The obligation must occur prior to Sep 30 for a Bona Fide Need of that year.

18. Funding Flexibility and Limitations Severable Services continuing and recurring in nature bona fide need of the year services are performed Nonseverable Services constitute an entire job or single undertaking with a defined end product bona fide need of the fiscal year in which the contract is awarded and work begins

19. Funding Flexibility and Limitations Severable Services and Annual Funds Prior to 1995, services were funded only through Sep 30 of each year Exception to the basic statute: May fund contracts for severable services beginning in one fiscal year and extending into the next as long as the performance period does not exceed 12 months (FAR 32.703-3 and 41 U.S.C. 253l)

20. Funding Flexibility and Limitations Severable Services Funding Exception (41 U.S.C. 253l) Applies only to annual funds Multiple year funds: Severable services funded with Multiple-year funds must end on Sept 30 of the year the appropriation expires. Severable services cannot cross fiscal years if funded by the final year of a Multiple year appropriation

21. Funding Flexibility and Limitations No-Year funds: Severable services: Full Flexibility Bona Fide Needs rule does not apply (GAO B-317636) Nonseverable Services Must be fully funded

22. Contracts are not “bank accounts” 12 month Severable Services Funding Exception (41 U.S.C. 253l) For services that begin in one fiscal year and continue into the next year Specificity: Does not permit the advance funding of a future contract requirement that is not clearly defined until the following fiscal year Modifications: Does not permit changes that result in the establishment of a new requirement during the next fiscal year

23. Contract type does matter GAO Decisions and Red Book must be read in full context Cost Plus Fixed Fee Contracts (GAO B-214597) Term (Severable Services) Completion (Nonseverable Services) Nature of the work determines severability (GAO B-277165) Both Cases remain relevant

24. Contract type does matter Fixed Price vs. Time and Materials Time and Materials T & M is a form of level of effort contract T & M contracts are presumptively severable Fixed Price Could be for severable or nonseverable services Should be first consideration for a nonseverable requirement Your challenge is to develop a contract that is consistent with the nature of the work. Consider the implications of establishing a nonseverable contract on a T & M basis. Example – we require the writing of a children’s book related to proper nutrition. Clearly nonseverable. What happens if you award that on a T & M basis? What happens if the book is not complete when all the hours are expended? You could do that but why would you? Your challenge is to develop a contract that is consistent with the nature of the work. Consider the implications of establishing a nonseverable contract on a T & M basis. Example – we require the writing of a children’s book related to proper nutrition. Clearly nonseverable. What happens if you award that on a T & M basis? What happens if the book is not complete when all the hours are expended? You could do that but why would you?

25. Application of the necessary expense doctrine to contracts Purpose - The purpose of the obligation or expenditure must be authorized. (Necessary Expense Doctrine; 31 USC 1301 (a)) A contract cannot be used as a means to purchase something that the Agency is unauthorized to purchase directly Statements of work must be read carefully Food at conferences Gift Cards Clothing (personal expenses) Consult the Agency Chief Financial Officer

26. A year is not always 12 months long Annual Immunization Survey – 5 Year contract One 12 month base period Four 12 month option periods Final Report delivered after each survey year Nonseverable services

27. A year is not always 12 months long Annual Immunization Survey Each survey requires one month of preparation time Each survey requires three months to analyze data and prepare final report. Nonseverable services Five independent fully funded overlapping 16 month periods.

28. Important points to remember  Consider and understand the funding source Consider the specificity of the requirement Ensure the contract type is consistent with the nature of the work Carefully read each statement of work to ensure the purpose is authorized Understand the requirement prior to developing the contract