<; IJnited States General Accounting Office Report to the Honorable GAO Andy Ireland, House of Representatives May 1990 LAPSEDACCOUNTS hY, Navy, anci Air Force “M” and Merged Surplus Authority Account Balances GAO/NSIAD-90-170 ‘. united states GAO General Accounting Office Washington, D.C. 20548 National Security and International Affairs Division B-238014 May 22,199O The Honorable Andy Ireland House of Representatives Dear Mr. Ireland: As requested by your office, this report summarizes information we dis- cussed previously with your staff concerning the Department of Defense’s use of “M” and merged surplus authority balances. In 1966 the Congress established the “M” and merged surplus authority Background accounts for the purpose of streamlining the method by which agencies pay obligations resulting from prior year activities. In our opinion, the Congress did not expect these accounts to accumulate large balances. However, our historical analysis of the Army’s, the Navy’s, and the Air Force’s accounts has shown that the accounts have grown considerably since their creation. Further, the Congress has repeatedly expressed concern about the increasing balances in the “M” and merged surplus authority accounts and, more recently, their possible misuse. “M” accounts are maintained by an agency by appropriation (e.g., the Air Force’s aircraft procurement appropriation) into which unliquidated obligated balances are transferred. The balances in these accounts have lost fiscal year identity and are used for the payment of valid, previ- ously incurred obligations. Merged surplus authority accounts are Department of the Treasury accounts maintained by an agency into which unobligated and deobligated balances have been withdrawn. The balances in these accounts also lose fiscal year identity and are merged with other amounts from appropriation accounts for the same general purpose. Merged surplus authority account balances can be restored to the “M” accounts for the payment of upward adjustments to prior obli- gations that were previously incurred by an agency. Figure 1 illustrates the withdrawal and restoration process. Page 1 GAO,‘NSL4DgO.17O Lapsed Accounts 82a8o14 Figure 1: The Process of Withdrawals, Rertorationr. and Transfers of Approprtetion Balance8 Treasury General Fund Unobligated Merged Surplus Surplus Authority Balance Authority (2 Year) (No Year) 4 4 4 a s Es 2 ‘sS .Z 5 e E E e 2 2.= s s P z ;i z a8 3 a” 5 d 5 v v t 1 Obligated r----- l Obligated r-- --l l Obligated Curramt Balance 1 Expired 1 Balance .I Expired “M ” Agency Account Appropriation a 1 Appropriation I , Appropriation !, (No Year) I I L-------l L-----A Pertinent Legislation In 1966 the Congress enacted Public Law 84-798. This law created the “M ” and what is now known as the merged surplus authority accounts, eliminated GAO'S responsibility to certify the payment of unliquidated obligations from expired appropriation balances, made the “M ” account balances available for the payment of previously incurred obligations and the merged surplus authority balances available for restoration to the “M ” account, and allowed all appropriations to maintain fiscal year identity for two fiscal years before being transferred into the “M ” and merged surplus authority accounts. The law also states that these appropriations are no longer available for new obligations once they expire. However, legislation since 1984 has allowed the Navy’s shipbuilding program to incur new obligations for final ship construction, engineering, and tests and evaluations after the appropriation has expired. Services’“M ” and Merged The Army’s, the Navy’s, and the Air Force’s “M ” and merged surplus Surplus Authority authority account balances totaled about $18 billion and $25 billion at the end of fiscal year 1989, respectively. Table 1 shows the combined Balances balances in the services’ “M ” and merged surplus authority accounts Page 2 GAO,‘NSuIDso17O Lapsed Accounts B238014 between fiscal years 1980 and 1989. In addition, the Army’s, the Navy’s, and the Air Force’s “M” and merged surplus authority balances from fiscal years 1973 through 1989 are shown in appendix I. The balances in these accounts do not represent cash actually set aside by the Treasury. When an agency uses these accounts, the Treasury provides the means to finance the proposed action, as it does for all outlay requirements. Table 1: Lapaed Account Balmcer for Fiscal Years 1980 Through 1988 for Dollars in thousands All Services . Merged surplus Fiscal year - “M” account authority account 1980 $2,741,706 $15,184,989 .~ 1981 _- 3.367.883 15.278.549 1982 -. 3,349,629 16,262,746 1983 4,205,433 18,422.910 1984 5.016,975 18,291,124 1985 6,744,759 19,817.631 1986 9.571,045 21,299,887 1987 _.-. 12,366,323 22,797.271 1988 15,032,101 24,367,680 1989 18.498.882 25.394.462 An Office of the Secretary of Defense official advised us that his records show the balances in these accounts are slightly different than those reflected in this table. We did not attempt to reconcile the differences. As a result of the congressional interest generated by the Air Force’s use Recent Legislation of expired and lapsed authority, the Congress has recently placed limita- Pertaining to Use of tions on the services’ ability to restore these funds. The National Lapsed Authority Defense Authorization Act for fiscal years 1990 and 1991 (P.L. lOl- 189) dated November 29, 1989, requires the Secretary of Defense to approve a restoration from the merged surplus authority account, which would cause the total amount of restorations for a late contract change for a program, project, or activity to exceed $4 million within a fiscal year. The Office of the Secretary of Defense has provided additonal gui- dance that the restoration must be within the scope of the original con- tract. The act also provides any restoration causing the total amount of restorations for a program, project, or activity to exceed $25 million in a fiscal year would require 30-day advance written notification to the Senate and House Committees on Armed Services and on Appropria- tions, stating the intent to restore such funds and a description of the legal basis and policy reasons for the proposed action. page3 GAO/NSIAD-9@170Lqmed Accounta B-238014 We conducted our review in accordance with generally accepted govern- ment auditing standards. We did not obtain official agency comments on this report. However, we discussed the information with Department of Defense officials and incorporated their views where appropriate. We plan to provide you a copy of our final report when it is released. We are sending copies of this report to the Chairmen, Subcommittee on Defense, Senate Committee on Appropriations, and Subcommittee on Oversight and Investigations, House Committee on Energy and Com- merce; other appropriate congressional committees; the Secretaries of Defense, the Army, the Navy, and the Air Force; the Director, Office of Management and Budget; and other interested parties. Please contact me at (202) 275-4268 if you or your staff have any ques- tions concerning this report. Other major contributors to this report are listed in appendix II. Sincerely yours, Director Air Force Issues Page 4 GAO/‘NSIAD90170 lapsed Accounts Appendix I Army, Navy, and Air Force “M” and Merged Surplus Authority Balances Figure 1.1: All Services 26 DollmeIn Billions 24 22 20 18 16 14 12 IQ 8 6 4 2 1972 1874 1975 1978 t9n 1978 1979 Isa IoBl ISa2 1983 1984 198s 1988 1987 1908 m89 FlecelYU - -M-AccountBat- ..I. Merged Sutplus Aumority Balances Note, The merged surplus authonty balances are only shown for fiscal years 1980 through 1989 because 1980 was the first year these balances were readtly available for all services. Page 6 GAO/NSIALL9O-170Lapsed Accounts Figure 1.2: Army Note: Merged surplus authorey balances are not available for fiscal years 1973 through 1979. Page7 GAO/N-1704medAcconnts Appendix I hny, f’h% and Air Force “M” and Meeged Swplns Anthority Balances Figure 1.3: Navy 11 DoltamIn BillIona 10 8 a 7 6 5 4 3 2 1 0 19-n 1974 lo75 1978 19n 1971 1970 lwo lml lm2 1983 lm4 1m loBI 1987 1990 1909 Ffral YU - WACWIMZW~~~~S ---- MsrpedSurpluaAutlwtty-s Note: Merged surplus authority balances are not avadable for fiscal years 1973 through 1979 Page 8 GAO/NSIABS@170Lapsed Accounts . Figure 1.4: Air Force 11 ootlsm In BillIons 10 9 9 1973 191, 1975 19-m lsl7 197s 1979 1999 lssl lsm lsm 1984 lsm laa 1987 lsw lsm FkeatYsu - WAccountBaf- -1-1 MsrgsdSurptusAuthof3~Ba!anms Note: Mergsd surplus authonty balances am not availabk for fiscal years 1973 through 1975. Page 9 GAo/Tus~17o La9oedAccoluIta Appendix II Major Contributors to This Report Norman Rabkin, Associate Director National Security and Steven Kuhta, Assistant Director International Affairs John Klotz, Project Advisor Pathelia Batchelor, Evaluator-in-Charge Division, W=hiwGon, William Quade Evduator D.C. Sui-Ying Gantt: Evaluator (sseszs) Page 10 GAO/NSWWl70 Lapsed Accounts Requests for copies of GAO reports should be sent to: U.S. General Accounting Office Post Office Box 6015 Gaithersburg, Maryland 20877 Telephone 202-275-6241 The first five copies of each report are free. Additional copies are $2.00 each. There is a 25% discount on orders for 100 or more copies mailed to a single address. 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Lapsed Accounts: Army, Navy, and Air Force 'M' and Merged Surplus Authority Account Balances
Published by the Government Accountability Office on 1990-05-22.
Below is a raw (and likely hideous) rendition of the original report. (PDF)