oversight

Department of Energy: Status of Carryover Balances in the Energy Conservation Program

Published by the Government Accountability Office on 1999-02-11.

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

                    United States General Accounting Office

GAO                 Testimony
                    Before the Subcommittee on Interior and Related
                    Agencies, Committee on Appropriations, House of
                    Representatives


For Release
on Delivery
Expected at
                    DEPARTMENT OF
10:00 a.m. EST
Thursday            ENERGY
February 11, 1999



                    Status of Carryover
                    Balances in the Energy
                    Conservation Program
                    Statement of Susan D. Kladiva, Associate Director,
                    Energy, Reosurces, and Science Issues,
                    Resources, Community, and Economic
                    Development Division




GAO/T-RCED-99-82
Mr. Chairman and Members of the Subcommittee:

We are here today to participate in this hearing on the level of carryover
balances in the Department of Energy’s (DOE) Energy Conservation
Program. Carryover balances are essentially funds from prior fiscal years
that DOE has either not obligated for a specific purpose or has obligated
but not spent. While some carryover balances are necessary to transition a
program from one fiscal year to the next, we have reported over the last
several years that some DOE programs had carryover balances that were
larger than necessary and could be potentially available to reduce DOE’s
budget requests. As you requested, we will discuss the level of carryover
balances held by the Energy Conservation Program and the trend of these
balances since fiscal year 1997. We will also discuss our methodology for
determining the amount of carryover balances that may be available to
reduce DOE’s budget requests and how it differs from the methodology
used by DOE.

In summary, carryover balances within the Energy Conservation Program,
have declined by about 11 percent since the beginning of fiscal year 1997
to an estimated $319 million at the beginning of fiscal year 2000. To
estimate the amount of balances that potentially could be used to reduce
DOE’s fiscal year 2000 budget request, we (1) projected the carryover
balances for the beginning of the new fiscal year, (2) determined how
much of the carryover balance is needed to meet prior commitments that
have not been paid, and (3) analyzed the difference between the amount of
carryover balance needed to meet prior program commitments and the
projected carryover balance to identify potentially excess balances. Based
on this methodology, we estimated that about $60 million of the carryover
balance of $319 million would be needed at the beginning of fiscal year
2000 to carry out prior financial commitments in the conservation
program. Of the remaining $259 million, about $185 million in carryover
balances were excluded from this analysis because these funds were
associated with grants or cooperative agreements that are often used to
provide multiyear funding and are awarded late in the fiscal year. We
believe the remaining $74 million is potentially available to reduce DOE’s
budget request.

In prior years, DOE has disagreed with our methodology. DOE objected to:
(1) our use of total obligation authority as the basis for our analysis,
(2) our approach for establishing carryover balance goals, (3) the fact that
our approach does not identify specific areas where we believed balances




Page 1                                                      GAO/T-RCED-99-82
             might be available, and (4) using an approach that DOE believed we had
             criticized them for using in the past.1

             We believe that our overall approach is valid, as discussed below. For our
             fiscal year 2000 analysis, however, we worked closely with DOE officials to
             develop a carryover balance goal that can be used in our approach and
             that also takes into account all the individual goals DOE has set for
             components of its program.


             The fiscal year 1999 appropriation for the Energy Conservation Program
Background   was about $690 million. On the basis of DOE cost estimates for the balance
             of fiscal year 1999, we project that about $319 million will be carried over
             at the beginning of fiscal year 2000.

             Carryover balances represent funding from prior years’ budgets and
             consist of both unobligated balances and uncosted obligations. Each fiscal
             year, DOE requests obligation authority from the Congress to meet the
             costs of running its programs.2 Once DOE receives this authority, it
             obligates funds by placing orders or awarding contracts for goods and
             services that will require payment during the same fiscal year or in the
             future. Unobligated balances represent the portion of its authority that the
             Department has not obligated. Uncosted obligations represent the portion
             of its authority that the Department has obligated for goods and services
             but for which it has not yet spent funds. In some years, the Congress has
             reduced DOE’s budget request and recommended that the agency use
             carryover balances in lieu of new funding. It is important to recognize that
             there is a legitimate rationale for retaining some carryover balances. For
             example, with grants, the grantees control the expenditure of funds.
             Consequently, such costs are often slow to be reflected on DOE’s accounts
             because DOE must wait for cost reports from the grantees that lag
             significantly behind obligation of the funds.




             1
             DOE Management: DOE Needs to Improve Its Analysis of Carryover Balances (GAO/RCED-96-57,
             Apr. 12, 1996).
             2
              Some appropriations do not restrict the time in which funds must be obligated but state that the funds
             are “to remain available until expended.” This is generally referred to as “no-year” authority. DOE
             receives no-year authority for most of its activities.



             Page 2                                                                           GAO/T-RCED-99-82
Some Carryover Balances   To assist the Congress in its budget deliberations, since fiscal year 1995,
May Be Potentially        we have made estimates of the potentially available carryover balances
Available to Reduce       that could be used to reduce a portion of DOE’s annual budget request that
                          the Congress was considering. At the start of fiscal year 1997, the Energy
Budget Requests           Conservation Program that is normally funded as part of the annual
                          Interior and Related Agencies Appropriations bill had a carryover balance
                          of $357 million. At the start of fiscal year 2000, we estimate that the Energy
                          Conservation Program will have a carryover balance of about $319 million,
                          a decline of 11 percent from fiscal year 1997. In determining the amount
                          that is potentially available, we adjust these amounts to reflect individual
                          program characteristics that would effect the carryover balance needed to
                          meet unique program requirements. For the fiscal year 2000 analysis, we
                          excluded balances of $185 million that were associated with grants and
                          cooperative agreements because they often provide multiyear funding and
                          are awarded late in the fiscal year.

                          Using minimum goals for carryover balances of 15 percent of total
                          obligation authority3, we estimated that the Energy Conservation Program
                          would need a minimum of $60 million to pay for prior years’ commitments
                          that had not yet been paid.4 Thus, we estimate that there would be about
                          $74 in potentially available carryover balances at the beginning of fiscal
                          year 2000 for the Congress to consider as part of its budget deliberations.

                          These carryover balances represent potentially available funds—the
                          amount of projected carryover balances that exceed a minimum goal for
                          balances needed to meet prior program commitments. Thus, these
                          balances represent a starting point from which to identify the amount that
                          could actually be used to reduce DOE’s budget. It should also be noted that


                          3
                           This amount includes the new obligation authority for a fiscal year plus any unobligated balances
                          carried over into that fiscal year. We then adjust this amount to exclude funds for such thing as grants
                          and cooperative agreements. This amount then becomes our base for determining the carryover
                          balance goal. For example, to determine the carryover balance goal for fiscal year 2000, we added the
                          new budget authority for fiscal year 1999 of $692 million and the unobligated carryover balance of
                          $15 million at the end of fiscal year 1998 for a total obligation authority of $707 million. We then
                          reduced this total by the $307 million that was associated with fiscal year 1999 grants and cooperative
                          agreements to obtain a new adjusted total of $400 million. We multiplied the adjusted total by 15
                          percent to establish a carryover balance goal of $60 million for fiscal year 2000.
                          4
                           We adopted minimum level carryover balance goals based on an approach first developed by DOE’s
                          Environmental Management program. In prior years, we allowed 1 month’s carryover balance (or
                          8 percent) for operating funds and 6 months’ carryover balance (or 50 percent) for capital equipment
                          funds. However, in fiscal year 1997, operating and capital equipment activities were no longer funded
                          as separate categories. To account for this change, we calculated a new target percentage (12 percent)
                          for calculating carryover balances that would equal the same carryover balance levels as those
                          calculated under the dual percentage method of prior years. For fiscal year 2000, we worked with DOE
                          officials to develop an overall goal that can be used in our approach and that takes into account all of
                          the goals DOE has set for the individual components of its programs. The new goal is 15 percent.



                          Page 3                                                                             GAO/T-RCED-99-82
                        when calculating these balances we did not place any limits on the amount
                        of carryover balances excluded for unique program requirements such as
                        grants and cooperative agreements that often involve multiyear funding.
                        DOE should be able to quantify any other unique program characteristics
                        that would require carryover balances in excess of the goal.


Methodology for         Over the last several years, we have assisted the Congress in its budget
Determining the         deliberations by estimating potentially available carryover balances for
Potentially Available   operating activities for major DOE program areas- -in this case, Energy
                        Conservation. To estimate the amount of balances that potentially could
Carryover Balances      be used to reduce DOE’s budget request, we (1) project the carryover
                        balances for the beginning of the new fiscal year, (2) determine how much
                        of the carryover balance is needed to meet prior program commitments
                        that have not been paid, and (3) analyze the difference between the
                        amount of carryover balance needed to meet prior commitments and the
                        projected carryover balance to identify potentially excess balances.

                        To develop our projected total carryover balances for fiscal year 2000, we
                        used a multistep process. First, we added carryover balances at the
                        beginning of fiscal year 1999 to new funding made available for fiscal year
                        1999. Second, we subtracted estimated fiscal year 1999 program costs
                        from the total funds available for fiscal year 1999 to arrive at the projected
                        carryover balances for the beginning of fiscal year 2000.

                        To develop the minimum level carryover balances required to pay prior
                        program commitments, we used goals based on an approach first
                        developed by DOE’s Environmental Management program. Their goal was
                        to provide 1 month’s carryover balance (or 8 percent) for operating funds
                        and 6 months’ carryover balance (or 50 percent) for capital equipment
                        funds. However, beginning in fiscal year 1997, operating and capital
                        equipment activities were no longer funded as separate categories. To
                        account for this change, for our fiscal year 1999 analysis, we calculated a
                        new target percentage goal of 12 percent that equals the carryover balance
                        levels calculated under the dual-percentage method of prior years. For our
                        fiscal year 2000 analysis, we worked with DOE officials to develop an
                        overall goal (15 percent) that can be used in our approach and that takes
                        into account all of the goals DOE has set for the individual components of
                        its programs. We then apply this percentage goal for carryover balances to
                        the total obligation authority to establish the target carryover balance
                        level.




                        Page 4                                                        GAO/T-RCED-99-82
We then compared projected carryover balances to a goal for the target
carryover balance level needed to pay for prior program commitments.
The resulting difference represented the amount of potentially available
carryover balances for that fiscal year. In analyzing the differences, we
adjusted the goals, where possible, to reflect individual programs’
characteristics that would affect the amount of carryover balances needed
to meet unique program requirements. For example, grants were not
included in the analysis because grants often provide multiyear funding
and are awarded late in the fiscal year.

DOE   Concerns About Our Methods for Analyzing Carryover Balances

In prior years, DOE has disagreed with our methodology. DOE objected to:
(1) our use of total obligation authority as the basis for our analysis,
(2) our approach for establishing carryover balance goals, (3) the fact that
our approach does not identify specific areas where we believed balances
might be available, and (4) using an approach that DOE believed we had
criticized them for using in the past.5

Overall, we continue to believe that our methodology is valid. The key
difference between our approach and DOE’s is that we apply the goals to
DOE’s total obligation authority while DOE chooses to apply the goals to
what it defines as the total available to cost.6 Applying the goals to DOE’s
total obligation authority—essentially the funds the Congress has given
DOE to spend—gives a stable goal against which to judge DOE’s
performance. It also accounts for the sometimes-large unobligated
balances within DOE programs. Use of DOE’s approach assumes that a
percentage of the uncosted obligations existing at the beginning of the
year would again be carried over for an additional fiscal year. This
assumption is inconsistent with the assumption made in developing the
goal that uncosted obligations would be needed only for a certain period
of time (e.g., 1 month for operating funding) before the balances were
costed.

With respect to the goals we use, we have consistently employed the same
general goals DOE programs have developed but have adapted them to fit
our methodology, which relies on projecting the balances for the coming
fiscal year obligations. For our fiscal year 2000 analysis, we worked with
DOE officials to develop an overall goal that can be used in our approach


5
DOE Management: DOE Needs to Improve Its Analysis of Carryover Balances (GAO/RCED-96-57,
Apr. 12, 1996).
6
 Total available to cost equals beginning uncosted obligations plus current year obligations.



Page 5                                                                            GAO/T-RCED-99-82
           and that takes into account all of the goals DOE has set for its individual
           program components.

           On the issue of whether we have identified specific areas where balances
           may be available, our overall approach is to analyze operating funds in
           order to identify funds that could exceed the amount necessary to
           carryout program operations. We believe that, as the agency requesting the
           funds, DOE bears the burden of showing that it has adequately managed its
           programs and that the Department is not carrying over funds into the
           upcoming fiscal year that are in excess of those needed to successfully
           conduct its programs.

           DOE is not correct when it states that we are using a methodology similar
           to the one we criticized them for using. Our April 1996 report
           recommended that the Department (1) establish carryover balance goals,
           (2) project carryover balances, and (3) justify the differences between the
           goals and the projected balances. Because we follow these three steps, we
           believe our methodology is consistent with our April 1996
           recommendation.

           Finally, we believe that our methodology provides a conservative
           approach to identifying potentially available balances that merit further
           justification to the Congress. In our methodology, we (1) allow a carryover
           balance equal to 12 to 15 percent of total obligation authority, (2) exclude
           certain categories of funding like grants and construction funds, and
           (3) base our estimates on DOE-estimated costs for the current fiscal year. In
           some years, we have found that DOE overestimated its costs for the fiscal
           year, resulting in a larger-than-expected carryover balance.

           Mr. Chairman, this concludes my prepared remarks, we would be happy to
           respond to any questions you may have.




(141278)   Page 6                                                        GAO/T-RCED-99-82
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