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)

                    IJnited   States   General   Accounting   Office
                    Report to the Honorable
GAO                 Andy Ireland, House of Representatives

May 1990
                    hY,                    Navy, anci
                    Air Force “M” and
                    Merged Surplus
                    Authority Account

GAO          General Accounting  Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division


             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             which unobligated and deobligated balances have been withdrawn.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

Figure 1: The Process of Withdrawals, Rertorationr.             and Transfers of Approprtetion Balance8

                                                                                                      General Fund
                                                                                                      Unobligated                Merged
                                                                             Surplus                                             Surplus
                                                                            Authority                   Balance
                                                                             (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
                               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

                                      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

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,

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





 1972        1874         1975       1978   t9n   1978       1979     Isa       IoBl     ISa2     1983     1984     198s     1988     1987      1908 m89
    -               -M-AccountBat-
    ..I.            Merged
                             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







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


 1973           191,         1975      19-m       lsl7   197s       1979       1999       lssl       lsm       lsm        1984      lsm        laa          1987       lsw    lsm

         -             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
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