Review of Department of the Army Policies and Practices for Obligating Operations and Maintenance Appropriations Funds

Published by the Government Accountability Office on 1971-10-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                IJMITEB STATE C%?NERALACC(SUN
                                           WASH1   NGTON,   B.C.   205



          Dear Mr. Secretary:         -
                 The General Accounting Office has'?eviewed Deptimt        of the Arqy                  .‘:
    i     policies and practices for ob&igating o$!rations end maintenance appro-
          priations    (O&M) funds during the last 2 months of fiscal years 2969 and
          1970. Cur rev+w was made to determine whether appropriate controls
          were in effect     ‘to ensure compliance with congressionti restraints   on
          obligations7during      those periods and whether funds had been obligated
          only for bona fide needs of each year.
                We interviewed appropriate offi&&     at Headquarters, Department
          of the Army; Headquarters, U.S. Army Materiel Command; Headquarters,
          U.S. Continental Army Command; and Eeadqusrters, 3d U.S. Army, and re-
          viewed reports and guidance issued and/or received by those organiza-
          tions for application  to year-end spending. In addition,    we reviewed
          selected transactions  involving the purchase or requisition   of goods
          and services during June 1969 and June 1970 at Fort BennIng, Georgia;
          Fort Carson, Colorado;   atd Pueblo      Depot, Pueblo, Colorado.
                Since 19% each Department of Defense (MD) appropriation       act has
          contained a provision that, with minor exceptions, not more than 20
          percent of the ap-propriations in the a&, tich    aPIe limited 90s obliga-
          tion to a specific fiscal year:, be obligated during the last 2 months
          of that year. aple primary purpose of this protision     is to discourage
          obligating  excess funds at year-end for items that axe not ‘valid re-
          quirements of the specified year.
                DODDirective 7220.6, as emended.through change 6 dated August 4,
          1966, provides that components of I0D be required to determine that
          goods, supplies, or services required pursuant to contracts entered
          into or orders placed obligating  an annual appropriation  are intended
          to meet bona fide needs of the fiscal year in which the needs arise or
          to replace stocks used in that fiscal year. Such determination     shall
          consider the requirements which may be foreseen for future years on the

                                          5QTH ANNIERSARY          1921-1971


basis of proewpmt       lead time, authorized stock Bevels, and authorized
mobilization  reserves.     Essentially identical  provisions are included in
f?mw Regulation 374. dated Beetier        1, 1970.
      We found that, for fiscal. years 1969 and 1970, the Department of
the Army had complied with congressional restrtits     regarding the rate
of obligations   to be incurred 5n the last 2 mnths of the year. We
noted, however, several instances at Fort Carson and Pueblo Arqy Depot
where fuuds had bea obligated contrary to IDB and Amy Regulations,
or were not for bona fide needs of the ourrent fiscal. year or for re-
placing stocks used in that year.     Details of these matters follow.

      At Fort Carson our examLnation of 26 requisitions on the stock
fund, submitted in June 1969 for items valued at $398,000, revealed
seven requisitions  for items totaling about $L~L,OOO that were pro-
cessed as turn-ins to the stock fund shortly after the beginning of
the new fiscal year (1970). Pull credit was sUowed for O&Mappropri-
ation obligationaL  authority in the new year and thus augmented that
year's obligational  authority.

       Obligations for clothing aud equipment in the amount of $239,569
were recorded for three requisitions      ou the stock fund. Subsequent
reversal entries on June 30, 1969, for $1$5,273 reduced the obligated
a=mountto $84,296. On July 7, 1969, this amunt was processed as a
turn-in to the stock fund and a credit of $84,296 was allowed for fiscal
year 1970 O&Mobligational      authority.
      We disoussed the above trausactions   with Fort Carson8s comptroller
and were infomed that the intent of the transactions     had been to use
fiscal year 1969 funds to procure items for which there were contin&ug
requirements aud to alleviate     the   a& on fiscal year 1970 fuuds.
The comptroller could not say whether the items had or had not, in fact,
been physically    issued and returned or whether this naerely had been a
paper trausaction.
      We also found four requisitions,  dated June 25, 1969, for track
materials,   n.l.u& at $96,640, which subseguenK!y= were turned in to the
stock fund on July 3, 1969, 8 days later, and for which full csedAt was
allowed.   We could not determine whether this transaction    was only an
accounting transaction   or whether the mAeriaJ.s actually had been is-
Sued. There were no mintenance records available that would have dis-
closed whether the track m&erials had beeu requisitioned      for a curreut


    or an anticipated ma3ntenance requirement.        On the basis of the e&nost
    immediate turn in of the materials,      however, it appears that the req-
    uisitions    were not for valid current-year    requirements but were a means
    of transferring    fiscal. year 1969 obligation&I. authority to fiscal yeax

           IDB tistruction  7220.28 and m        Regulation 37-U. protide that an
    obligation    for items requisitioned    from a retail  stock fund be estab-
    lished only at the time the items are delivered, i.eog dropped from the
    stock fU.ud inventory.    At Pueblo, however, we found that $ljl,600 had
    been obligated on June 30, 1969, for supplies aud equip-t            reqtxisi-
    tioned from the local retail       stock fund even though the items were not
    dropped from the stock fxmd inventory until July 9, 1969, or later.
           We discussed this matter with Fueblo*s comptroller who stated that
    fiscal year I.969 was an austere f'unding year during which all organiza-
    tions at the installation     were directed to "live off the shelf" and to
    requisition    only those it;ems which were absoMx.ly necessary,      On
    June 30, 1969, he determined that about $13a.,OOOwas available,        ad,
    since he beLieved that an obligation        could be recorded on the basis of
    bona fide current-year     requiremerats, the funds were obligated on the
    basis of requisitions     submitted to the retail    stock fund, As his au-
    thority he cited a section of Amy Regulation 37-21 which stipulated,
    in essence, that an obligation      be established on the basis of rec@si-
    tions for bona fide current-year       requirements.
           We did not question the validity    of the requisitions   with regard
    to their being for current-year     requlremnts,     since they were to re-
    plenish bemh stocks to normal levels or were to satisfy long-standiug,
    approved unfinanced requirements,       As previously stated, however, we
    btieve     that tMs obligation   was in violation    of other more specific
    protisions     of Amy Regulation 37-21 and W)D InstructSon 7220.28 per-
    taining to the time for recording obligations        for items requisitioned
    from retail     stock funds.
          It should be noted that Pueblo received a $1,614,900 increase to
    its approved operating budget during.June and that $309,OOOof this in-
    crease was received on June 30, 1.969, the finaIL day of the fiscal year,
    When fumis are received so late in the year, time requirements cau se-
    verely limit the options available to the installation   in establishing
    a valid obligation.


      Our examination of 32 requisitions, valued at $41,208, on Pueblo's
stock fund in June 1970, revealed that 13 requisitions,   vslued at
$17,526, were not supported by demand history data and were not, in our
opinion, valid fiscal year 1970 requirements.
      For exa;mple, one requisition,    which was processed on a "fill-or-
kill"  basis, was for 12,204 board feet of lumber, whereas the total de-
mend for the fiscal year to the date of this requisition      (June 17, 19'70)
had been only 9,740 board feet.      We believe that these 13 requisitions,
along with others not included in our revif3w, were processed as a result
of guitice    from the       MaterielCo       d as provided in the following
message received by Pueblo on June 3, 19'70.
       "1.   This headqusrters has certain high priority   ON
             fiperations   and maintenance,      unfinanced re-
             quir~ents   that should be financed in FY 1970 to
             proxide some relief to the tiown funding shortages
       "2.   Addressees are to continue reviewing their essential
             June 1970 requirements and all FY 1970 outstanding
             commitments and unliquidated  obligations with a
             otherwise result in a loss of FI 70 obligation&.
             authority.   All excesses generated as a result of
             this review will be reported ASAP ,& soon as
             possibld   but not later than 15 June 1970 to this
             headquarters, *"

       “4.   It is possible that the repor-bed excesses will ex-
             ceed the high priority   0 unfinanced requirements
             mentioned in paragraph 1. To be certain that all
             available funds are gainfully    used in FY 70, ad-
             dressees are requested to report any FY 7l. require-
             ments that can be obligated prior to 30 June.
             Submit report as indicated in para, 2 ASAP but not
             later than 15 June. ln addition provide a brief
             description  of the items included and the latest
             date the funds can be obligated,     Consider as a
             candidate moving programmed July issues from retail
              stock fund to June."


           Pueblo's reply to %he above Imessage was tha% $gO,OOOof programmed
    July stock fund issues (BY IL972 re       ements) could be obUgated in June
     (FY 1970)* A BubebJbs  off%eial notdfied tie directorates  at the instaU.a-
    tion %o recpisition   %heir July stock fund requirements so that O&Mobli-
    g&ions could be establlished by June 30, lg70e This official       estimated
    that $82,000 of July 1970 (Fl 197l) stock fund requirements had been ob-
    ligated tith fiscal. year 1970 funds. We were &nformed that the fiscal
    year 197l budget programs s.%the installation     had been adjusted to give
    effect to July 1970 stock fund issues obligated ~5th fiscal year 2,970
          S%ock Wnd issues at Rzeb2.o to O&Ms,ctitities were substantisUy
    lower in Jme 1969 and substanti       higher in June 1970 compared tith
    issues in other mnths of fiscal. years 1969 and 1970 as shown below.
                                                  Fiscal   yea3
                  Xontbly stock issues        1969             E
                         tit&               $225 JQO         @63,7~
                         LOW                  7LllcQo          58,200
                         Average             139&Q            106,100
                         June                 %~              163,700
    The increase in stock find issues to O&Mactivities     in June 1970 re-
    sulted prUarily  from the advance pmcm~t        of July 1970 requirements.
             ah our opinion,
                          the aceelera%ion of progzmmmed July 1970 issues
    from the retail      s-tack z!?wxl to June 1970 to obligate
                                                            funds available at
    year-end was contrary to the requ3zements set forth 5x1 EOD Dtiec-
    tive 7220.6 and                   37-21. that obEig&lons be for bona fide
    needs of the fi                  ch the needs arise or, t?cf'kr comxLdera-
    %ion of pzxmmmen% lead tim or au%horiaed stock I.eveILs, to replace
    stocks used 2x1that year.

          At IQeb2.o one of the techniques used $0 ensure full utUzation
    of funds at year-ad was the subtission of requisitions           oh the s%ook
    fund on a fill-or-kill   bssis.   If items requisitioned      on this basis
    were svail~ble in the s%ock fund invmto~,         they were issued and sn
    obligation  was esixblPshed prior to year-end.        22 %he ita      were not
    in stock, however, the requisition     was cmctied,     instead of back-
    ordered, snd the reqxisitfoning     orgasaization then was notified      that
    the funds were available for o%her requirements.


      This practice is inconsistent     with normal, orderly operations,
since it appears that the items so requ5sftAoned wotid be needed and
would be backordered if not in stock., If the items really are needed,
auother requ-isition would have to be submitted e-3-y in the new fiscal
year a Canceling the requisition      does serve to give prompt notice to
the requisitioning    organbzatioan that the funds which it hoped to obli-
gate before year=-end are still    adable     and that prompt action must
be taken to find some other means to obligate them. It appears,
however,         this could be accomplAshed by givF\ag notification    that
the items had been backordered rathe? than by canceling the rec#.sition.

       We believe that, for the most part, the deficiencies     discussed in
this reports resulted from the act%tities * f3i2J.lure to comply with the
recpizcemeuts of EOB Directive 7220.      DOD~struction    7220.28,   and AsmrIg
Reg-ulation 37-22.. !?%erefore we pee ad that you issue guidance near
the end of each fiscal yeax eqhasizin      the reqxkements of these in-
structions    that pertain to the establi        of valid obligations.
      We recomend also that you t&e specific action to (I) prevent the
manipulation of stock fund transactions      for the purpose of transferring
obligational    authority for annual. appropriations    from one fiscal year
to the n         d (2) preclude the acceleration     of stock fund &sues that
were pro         d for a subsewent fiscal year so&ly for the purpose of
obligating   funds a=vail.able near the end of the current year.
       Xn our opiuion, it is a =poor              t practice     to issue requisi-
tions on installation      level stock funds on a fill-or-k5.J.l      basis near
the end of the fisc&!. gem for the sole purpose of ensuring proapt noti-
fication   to the requisitioning     actitity that xfkxndscannot be obligated
because the items cannot be delivered 5x1that year, We recomaend f'ur-
ther that you issue instructions       that requisitions     on l.ocal. stock funds
not be issued on such a basis unless there is a valid operating need to
procure the items elsdere        if the stock fund cannot fLKl. the sequisi-
tion promptly.

       This letter contains recommendations for your consideration .which
are subject to the provisions of section 236 of the Legislative    Reorgani-
zation Act of 1973. We shall appreciate receiving copies of the state-
ments you rftwnish to the specified comaittees in accordance with these
     Copies of this report are being sent today to the Chaim,    House
and Senate Committees on Government Operations; the Ckairmen, Eouse and               c' .j

Senate Committees on Appropria%ions; the ChW,         House and Senate L \.y,
Comittees on Armed Services; and the Director,    Office of Managemart
and Budget.                                                            -' ' '

                                      Sincerely   yours,


The Honorable
The Secretary of the Aqy