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ESSENTIAL PRINCIPLES OF FISCAL LAW

ESSENTIAL PRINCIPLES OF FISCAL LAW. Mike McGregor Office of the General Counsel michael.mcgregor@med.navy.mil 703-681-8974. What to Take Away:. AFFIRMATIVE AUTHORITY - PARADIGM SHIFT – “What gives me the authority to spend these public funds?” PTA ANALYSIS P urpose – 31 U.S.C. 1301

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ESSENTIAL PRINCIPLES OF FISCAL LAW

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  1. ESSENTIAL PRINCIPLES OF FISCAL LAW Mike McGregor Office of the General Counsel michael.mcgregor@med.navy.mil 703-681-8974

  2. What to Take Away: • AFFIRMATIVE AUTHORITY - PARADIGM SHIFT – “What gives me the authority to spend these public funds?” • PTA ANALYSIS • Purpose – 31 U.S.C. 1301 • Time – 31 U.S.C. 1341 & 1502 • Amount – 31 U.S.C. 1341, 1517 & 3302 • ANTIDEFICIENCY ACT - Do not spend, or commit to spend, in advance of or in excess of appropriations - 31 U.S.C. 1341 • MISCELLANEOUS RECEIPTS - Need authority to retain proceeds from sources other than congressional appropriations 31 U.S.C. 3302(b) FOR OFFICIAL USE ONLY

  3. Sources of Law • U.S. CONSTITUTION • PUBLIC LAWS • - U.S. CODE • AUTHORIZATION ACTS • APPROPRIATION ACTS • COURT, DOJ and GAO OPINIONS • ADMINISTRATIVE REGULATION FOR OFFICIAL USE ONLY

  4. Congressional Power of the Purse • Congress shall “make all laws which shall be necessary and proper for carrying into Execution the foregoing Powers . . .” • “No money shall be drawn from the Treasury, but in Consequence of Appropriations made by law . . . “ U.S. Constitution, Article I, section 9, clause 7 • “…[T]he expenditure of public funds is proper only when established by Congress, not that public funds may be expended unless prohibited by Congress.” U.S. v. MacCollom, 426 US 317 (1976) • Affirmative Authority FOR OFFICIAL USE ONLY

  5. Sources of Law: U.S. Code • Purpose Statute • - 31 USC 1301(a) • Antideficiency Act • - 31 USC 1341, 1342, 1349-1351, 1511-1519 • Adequacy of Appropriations Act • - 41 USC 11 • Miscellaneous Receipts Statute • - 1 USC 3302 • Bona Fide Needs Statute • - 31 USC 1502(a) • Account Closing Statutes • - 31 USC 1551-1558 FOR OFFICIAL USE ONLY

  6. Sources of Law: Authorization Acts • An Act of Congress that authorizes the appropriation of funds to implement programs • - Not an appropriation of public funds • - Enacts permanent legislation • - House and Senate Armed Services Committee (HASC and SASC) • - National Defense Authorization Act (NDAA FYXX) FOR OFFICIAL USE ONLY

  7. Sources of Law: Appropriations Acts • An Act of Congress that permits Federal agencies to incur obligations and to make payments out of the Treasury for specified purposes • - An appropriation of public funds – provides budget authority • - Generally temporary in nature (for FY in which it is enacted) • - House and Senate Appropriations Committee (HAC and SAC) • - Defense Appropriations Act for FYXX FOR OFFICIAL USE ONLY

  8. The Structure of the DoD Appropriations Act • Title I - Military Personnel • Title II - Operations and Maintenance • Title III - Procurement • Title IV - Research & Development • Title V - Revolving Funds • Title VI - Other DoD Programs • Title VII - Related Agencies • Title VIII - General Provisions FOR OFFICIAL USE ONLY

  9. Continuing Resolutions • LEGISLATION PERMITTING OPERATIONS IN THE ABSENCE OF AN APPROPRIATION • - GENERALLY AT CURRENT OR LOWER RATE • - GENERAL PROVISIONS OF PRIOR YEAR CONTINUE TO APPLY • - NO NEW STARTS FOR OFFICIAL USE ONLY

  10. PURPOSE – time - amountPurpose Statute • Appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law • 31 USC 1301(a) FOR OFFICIAL USE ONLY

  11. The Necessary Expense Rule: • Congress can’t anticipate every necessary expense • Appropriations Acts often contain broad categories (i.e., Operations and Maintenance) • - Defense Health Program: “For expenses, not otherwise provided for, $30.5 B shall be for the operation and maintenance…” (FY12 Appropriations Act) FOR OFFICIAL USE ONLY

  12. The Necessary Expense Rule: Rule: An appropriation is available for those expenses which are necessary or incident to the proper execution or achievement of the object of the appropriation Test: • Is there a logical relationship between the proposed expenditure and the appropriation? • Is the expenditure prohibited by law? • Is the expenditure otherwise provided for? FOR OFFICIAL USE ONLY

  13. Necessary Expense Test:Logical Relationship • Extent to which the expenditure will contribute to accomplishing the purposes of the appropriation • - Agency discretion/determination given considerable • deference • - Consider authorized mission/responsibilities of agency • - Must be reasonable • - Not just desirable/good idea/someone else is doing it FOR OFFICIAL USE ONLY

  14. GOVERNMENT FUNDS FOR GOVERNMENT PURPOSES • CAUTION – CAUTION - when expending agency funds for items of a personal nature • Examples: food, bottled water, clothing, trinkets, command coins, ceremonies, and decorations • What is authority: Appropriations Act, U.S. Code, Regulation, Necessary Expense Rule • Benefit to the agency versus benefit to the individual FOR OFFICIAL USE ONLY

  15. FOOD - PERSONAL EXPENSE • Exceptions: • - emergencies - imminent danger to human life or destruction to government property • - training, conferences - necessary to obtain full benefit of the training event; non-segregable portion of registration fee; no internal meetings • - cultural awareness ceremonies - samples • - awards ceremonies - refreshments as part of public recognition ceremony • - travel FOR OFFICIAL USE ONLY

  16. BOTTLED WATER – PERSONAL EXPENSE • Appropriated funds may be used only upon a showing of necessity; i.e., there is no potable water available. FOR OFFICIAL USE ONLY

  17. CLOTHING – PERSONAL EXPENSE • Official Civilian DOD Uniforms: 10 U.S.C. § 1593 • Administrative Expenses Act: 5 U.S.C. § 7903 • - Special/unusual clothing • - Item must be for the benefit of the government, essential to the safe and successful accomplishment of the work, and not solely for the protection/comfort of employee • - Must involve hazardous duty • OSHA Compliance: 29 U.S.C. § 668 FOR OFFICIAL USE ONLY

  18. TRINKET - GIVEAWAY ITEMS PERSONAL EXPENSE • Permissible in some limited circumstances: • - Approved awards programs • - Items of nominal or modest value for recruitment/retention (10 USC 2261) • - Direct connection to agency mission • - No intrinsic value and item assists achieving an internal management objective FOR OFFICIAL USE ONLY

  19. COMMANDER’S COINS • PROPER USE DETERMINED BY FUNDING • Appropriated funds (O&M) • Awards pursuant to approved awards program • Recognition for reenlistment/retention • Appropriated funds (ORF) • IAW SECNAVINST 7042.7K • PERSONAL FUNDS • All others • Cautions • Be wary of bona fide need • Policy strongly discourages personalization - increases risk of obsolete stock upon departure FOR OFFICIAL USE ONLY

  20. TRADITIONAL CEREMONIES(i.e., Retirement, Change of Command) • Authorized to use appropriated funds, government personnel, and other resources • Includes cost of printing/addressing/sending reasonable number of invitations, as appropriate • Does not include cost of food, beverages, or other entertainment • Presentation of award during a traditional ceremony does not permit use of appropriated funds to purchase food at follow-on reception or ceremony • Traditional ceremonies are considered official events FOR OFFICIAL USE ONLY

  21. Decorations • Permissible where consistent with work-related objectives (such as enhancement of morale), agency or other applicable regulations, and the agency mission, and is not primarily for the personal convenience or satisfaction of a government employee. 67 Comp. Gen. 87 (1987) • Agencies should be appropriately sensitive with respect to display of religious symbols • Does not apply to Christmas cards, which remain considered a personal expense. B-247563.4, December 11, 1996 FOR OFFICIAL USE ONLY

  22. Purpose, TIME, amountAVAILABILITY OF APPROPRIATIONS • Annual – 1 October to 30 September • - Annual assumed unless specified otherwise • - Definite period of availability • - Example: O&M • Multiple Year • - More than 1 Fiscal Year • - Definite period of availability • - Example: RDT&E funds 2 FYs; Procurement 3 FYs; MILCON 5 FYs • No Year • - Available until expended • - Indefinite FOR OFFICIAL USE ONLY

  23. THE LIFE OF A DEFINITE ACCOUNT(Annual / Multiple Year) EXPIRED 5YEARS CLOSED FOREVER CURRENT FOR OFFICIAL USE ONLY

  24. BONA FIDE NEEDS (BFN) RULE • Appropriation is available for: • - Payment of expenses properly incurred during the period of availability (needs of the agency that arise during the period of availability); and, • - Complete contracts properly made within the period of availability (even if appropriation has expired – not closed) • - Period of availability is the time period during which appropriation is current – available to incur new obligations FOR OFFICIAL USE ONLY

  25. GENERAL RULES OF AVAILABILITY • Future Year’s Needs: appropriations are not available for needs in fiscal years beyond availability. • Continuing Need: unfulfilled BFN of one FY may be carried forward to the next FY. • Severable Services: BFN of FY when service performed (10 USC 2410a exception). • Non-severable: BFN of FY of contract execution. FOR OFFICIAL USE ONLY

  26. GENERAL RULES OF AVAILABILITY • Multiyear Contracts: only if multiyear or no year appropriations or specific statutory authority exists. • Lead Time: item is BFN of current FY but cannot be delivered until future FY (not a standard commercial item). • Inventory: replacement of stock inventory is BFN of current FY (no stockpiling). FOR OFFICIAL USE ONLY

  27. EXPIRED ACCOUNTS • Funds retain identify. • No new obligations. • Available Only for: • - Recording, adjusting, liquidating obligations properly chargeable, • - Settlements, • - Re-procurement actions. FOR OFFICIAL USE ONLY

  28. CLOSED ACCOUNTS • Account closed after 5 years. • All balances cancelled. • No longer available for obligation or expenditure for any purpose. • Current appropriation of same purpose may be used to liquidate properly chargeable bills. FOR OFFICIAL USE ONLY

  29. Purpose, Time, AMOUNTBasic Concept • Whether sufficient budgetary authority from the proper fiscal year and appropriation is available at the time of obligation or expenditure to pay the liability. • Obligating or expending in excess of amounts available violates the Anti-Deficiency Act (ADA). 31 USC §§ 1341 & 1517 FOR OFFICIAL USE ONLY

  30. DETERMINING AMOUNT • APPROPRIATION - Congress • APPORTIONMENT – OMB • ALLOCATION - Agency FOR OFFICIAL USE ONLY

  31. THE APPROPRIATION • THE ACT • STATUTORY SUBDIVISIONS OF THE ACT • EARMARKS (in the act or incorporated into the act) • REDUCTIONS/RESCISSIONS • OTHER STATUTORY RESTRICTIONS FOR OFFICIAL USE ONLY

  32. APPORTIONMENT • Apportionment is required by 31 USC 1512. • Concept is to prevent expenditures at rates that will cause a deficiency. • OMB apportions funds to DoD. • Obligation in excess of apportionment is an Anti-deficiency Act (ADA) violation. FOR OFFICIAL USE ONLY

  33. ALLOCATION • Allocation is required by 31 U.S.C. 1514. • Designed to restrict obligations from exceeding appropriation, apportionment, or amounts permitted under agency administrative controls. • Obligation in excess of allocation is an ADA violation. FOR OFFICIAL USE ONLY

  34. AUGMENTATION • Amounts appropriated for a purpose represent a limitation Congress has fixed for that purpose; may not exceed that amount absent express statutory authority. • No agency may augment its appropriations from outside sources or from improper internal sources unless statutorily authorized to do so. FOR OFFICIAL USE ONLY

  35. AUGMENTATION: GENERAL RULES • 31 U.S.C. § 3302(b)— “Miscellaneous Receipts” • - Funds received by Agency from outside sources must be deposited into General Fund of the Treasury unless receipt constitutes authorized by law • Economy Act, Project Orders, Gift statute • Funds from the “wrong” appropriation may not be used to augment the “right” appropriation • - Can’t use O&M for Procurement FOR OFFICIAL USE ONLY

  36. Voluntary Services • Voluntary Services are a form of augmentation of resources and may not be accepted without authority. • 31 USC 1342 allows accepting voluntary services in emergencies involving human life and property. • 10 USC 1588 and 10 USC 2601 provide authority to accept certain voluntary services (see SECNAVINST 5380.1). • Voluntary services are different from gratuitous services. FOR OFFICIAL USE ONLY

  37. ANTIDEFICIENCY ACT (ADA) • 31 U.S.C. § 1341: prohibits obligations or expenditures in excess of appropriations and contracting in advance of an appropriation • 31 U.S.C. § 1342: prohibits government employees from accepting voluntary services • 31 U.S.C. §§ 1511-1517: requiring apportionment/ administrative subdivision of funds and prohibits obligations or expenditures in excess of apportionment or administrative subdivision of funds FOR OFFICIAL USE ONLY

  38. Reporting Suspected ADA ViolationsPreliminary Investigation • Purpose is to gather basic facts and determine whether a violation appears likely. Completion of the review is usually required within 14 weeks of the date of discovery. • Focus is on the potential violation, not possible corrective actions. • In all cases, the reviewer shall request and obtain advice of legal counsel on legal issues raised during the preliminary review and legal office reviews for legal sufficiency. • Preliminary Report must be forwarded to the Assistant Secretary (Financial Management & Comptroller) of the Military Department or the equivalent for DoD activities. FOR OFFICIAL USE ONLY

  39. Formal Investigation • If the preliminary report determines that a violation occurred, an Investigating Officer must be appointed and a formal investigation must be initiated within 2 weeks of approval of the preliminary investigation. • Purpose is to determine the relevant facts and circumstances of the potential violation, assign responsibility and discipline/corrective action. • Final report must reach the office of USD (Comptroller) within 12 months 2 weeks from the date the preliminary review ended. FOR OFFICIAL USE ONLY

  40. Reports to the President and Congress • The Secretary of Defense must report violations to the President and Congress (31 U.S.C. §1351, 1517(b)). The report must also be transmitted to the Comptroller General and Office of Management and Budget. FOR OFFICIAL USE ONLY

  41. Criminal Penalties • A knowing and willful violation of the Antideficiency Act is a Class E felony (18 U.S.C. § 3559(a)(5). • Punishment may include a $5,000 fine, confinement for up to two years, or both. FOR OFFICIAL USE ONLY

  42. ADA CASES • The Naval Observatory (USNO) received $842,857.00 from private parties for astronomical data and related services, credited those funds to the USNO O&M(N) account, and then used the funds for USNO purposes without statutory authority. The result was an ADA violation for the improper augmentation of USNO’s O&M(N) account. Discipline included a letter of caution and required fiscal law training. FOR OFFICIAL USE ONLY

  43. ADA CASES (cont) • The Marine Corps Logistics Command used $87,492.00 to purchase future training. No specific content or dates for the training were established and the training subsequently took place in the following fiscal year. The result was an ADA violation for an expenditure that failed to meet the bona fide needs rule. Discipline included letters of caution. FOR OFFICIAL USE ONLY

  44. ADA CASES (cont) • The AF Air Warfare College used $21,730.76 of O&M(AF) between FY99 and FY05 to purchase light refreshments in relation to the hosting of regional studies events. The result was an ADA violation for using O&M(AF) funds for an unauthorized purpose. Discipline included a letter of counseling. FOR OFFICIAL USE ONLY

  45. What to Take Away: • AFFIRMATIVE AUTHORITY - PARADIGM SHIFT – “What gives me the authority to spend these public funds?” • PTA ANALYSIS • Purpose – 31 U.S.C. 1301 • Time – 31 U.S.C. 1341 & 1502 • Amount – 31 U.S.C. 1341, 1517 & 3302 • ANTIDEFICIENCY ACT - Do not spend, or commit to spend, in advance of or in excess of appropriations - 31 U.S.C. 1341 • MISCELLANEOUS RECEIPTS - Need authority to retain proceeds from sources other than congressional appropriations 31 U.S.C. 3302(b) FOR OFFICIAL USE ONLY

  46. Michael McGregor Counsel to the Surgeon General of the Navy Office of General Counsel Michael.McGregor@med.navy.mil 703.681.8974

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