IJMITEB STATE C%?NERALACC(SUN WASH1 NGTON, B.C. 205 DEFENSE DIVISION c -. ’ llllllllllllllllllllllllllllllulllllllll LM095436 ~-1742U 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 . B-1742ll 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 . I B-1742ll 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 J-970. 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. -30 B-1742ll ACC~TION OF STOCKFUND I-SSW 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 inFY1g7l. "2. Addressees are to continue reviewing their essential June 1970 requirements and all FY 1970 outstanding commitments and unliquidated obligations with a vi~ta~~~ngt~~us~tsthatwauld 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." -4. BESTDOCUMENT AVAILABLE . 1 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 funds. 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. -5- B-17kk.l 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 provisions. Copies of this report are being sent today to the Chaim, House and Senate Committees on Government Operations; the Ckairmen, Eouse and c' .j -6- 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, Director The Honorable The Secretary of the Aqy -7-
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)