Revolving funds

Generally, the Economy Act (1) requires agencies to deobligate funds for incomplete or unperformed orders at the end of the fiscal year. Acquisitions in revolving funds may cross fiscal years if a bona fide need exists, and if the need is identified at the time the funds are obligated. (2) The Department of Defense (DOD) Office of the Inspector General (IG) recently issued a report illustrating how funds "parked" in a revolving fund with an unspecific contract or task order attached may violate the bona-fide needs rule and the Anti-Deficiency Act. (3) The DOD IG Report instructs agencies to identify their bona fide needs clearly for revolving fund acquisitions crossing fiscal years. (4)

The DOD IG Report recommended that the "Under Secretary of Defense (Comptroller) issue fiscal guidance on the use of the General Services Administration Federal System Integration and Management Center (GSA FEDSIM) Information Technology Fund (IT fund)." (5) The U.S. Army Claims Service (USARCS) issued Military Interdepartmental Purchase Requests (MIPR) to the GSA to procure information technology support services and products from September 1997 through September 2000. (6) The USARCS issued the GSA about $8.5 million at the end of each fiscal year. (7) "Although USARCS could technically obligate funds at the end of a fiscal year" (8) if the obligation is based on a valid need in the fiscal year of the appropriation, the IG determined that the USARCS failed to establish that a bona fide need existed at the time it provided funds to the GSA. (9)

The IG stated that the USARCS's inadequate planning and unspecified MIPRs "indicated the requirements existed in the future, not the year the funds were appropriated." (10) He added, "according to 314 U.S.C. [section] 1501(a)(1), agencies must have documented evidence of a binding agreement for specific goods or services to record valid obligations in financial records." (11) The MIPR may establish an agreement, but the IG believed that "the MIPRs were so unspecific as to be ineffective in establishing an obligation for a bona fide need in the fiscal year in question" and constituted "a mechanism to 'park' funds." (12) The USARCS alleged that the GSA could retain funds in its IT fund for up to five years. (13) The GSA IG indicated, however, that this practice failed to comply with GSA policy. (14) The IG also found that the USARCS's failure to plan a four-phased software development project adequately "resulted in the use of funds from the wrong fiscal year." (15) Ultimately, the IG recommended that the Army investigate potential Anti-Deficiency Act violations for obligating funds without establishing a bona fide need and using funds from the wrong year. (16)

On 9 April 2002, the Air Force Headquarters Materiel Command issued a memorandum detailing the funding rules for ordering information technology from the GSA FEDSIM. The memorandum stated that the "remaining uncommitted funds must be deobligated from the IT fund if no further need for the requirement exists or the requirements are not within the scope of the original order." (17) The message is that agencies must clearly define requirements that cross fiscal years at the time of the obligation, or risk losing the funds to the general treasury at the end of the fiscal year. Major Davis.

(1.) 31 u.s.c . [section] 1535 (2000).

(2.) Continued Availability of Expired Appropriations for Additional Project Phases, B-286929, 2001 U.S. Comp. Gen. LEXIS 211 (Apr. 25, 2001).

(3.) U.S. DEP'T OF DEFENSE, OFFICE OF THE INSPECTOR GENERAL, REP. No. D-2002-109, Army Claims Service Military Interdepartmental Purchase Requests (June 19, 2002) [hereinafter DOD IG Report].

(4.) Id. at 8.

(5.) Id. at 12. The GSA IT fund is a revolving fund.

(6.) Id at 1. The USARCS's seven approved projects "covered the following areas: GSA administrative costs; hardware and software acquisitions; hardware, software, and network acquisitions; European software development; torts and affirmative claims software development, hardware, and software acquisition support; and personnel claims software development." Id. at 5.

(7.) Id. at 2. The USARCS issued a total of about $11.6 million to the GSA during fiscal years (FY) 1997 to 2000. "About $8.5 million were [sic] issued during the last three days of FY 97 to FY 00." Id.

(8.) Id. at 7.

(9.) ld. at 8.

(10.) Id.

(11.) Id.

(12.) Id. The IG concluded, "USARCS had about $2.8 million dollars 'banked' in the GSA IT fund to meet future requirements." Id. at 4.

(13.) Id. at 5.

(14.) Id. at 7; see GENERAL SERVS. ADMIN., OFFICE OF THE INSPECTOR GENERAL, REP. NO. A001031 (Feb. 22, 2001), Review of Center for Information Security Services.

(15.) See DOD IG Report, supra note 3, at 8.

(16.) Id. at 9.

(17.) Memorandum, Headquarters, Air Force Materiel Command, to ALHQCTR/FM/SC, subject: Funding Rules for Ordering Information Technology Services from General Services Administration (GSA) (9 Apr. 2002).