Office of Budget and Analysis

Summer 2012

Session Objectives
Participants will be able to:
Explain the availability/characteristics of appropriations
Define Obligation
Describe the components of appropriations restrictions

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Purpose
Time
Amount

Nature of Appropriations Law

No money shall be drawn from the Treasury, but in
Consequence of Appropriations made by Law.
- US Constitution, Article 1 Section 9
The established rule is that the expenditure of public
funds is proper only when authorized by Congress, not
that public funds may be expended unless prohibited
by Congress.

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Characteristics of Appropriations
Duration Period of Availability
One Year
Multiple Year
No Year (X account)
Timing
Discretionary (Current)
Mandatory (Permanent)

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Characteristics of Appropriations
(cont).

Amount
Definite
Indefinite

Disposition
Unexpired
Expired
Canceled
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Expired and Canceled

Appropriation
Expired accounts are available for recording, adjusting, and liquidating

obligations properly chargeable to that account.

On September 30th of the 5th fiscal year of expired status, a fixed

appropriation account ends, the appropriation is canceled and the

accounts closed and will not be available for obligation or expenditure for
any purpose.

After closing an account, obligations and adjustments to obligations that

would have been properly chargeable to that account may be charged to

any current appropriation account of the agency available for the same
purpose not to exceed an amount equal to 1 percent of the total
appropriations for that account.

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An Obligation is:
Binding agreement which creates a legal

liability of the USG for payment of Appropriated funds

for goods and services ordered or received.

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Legal Availability for Obligation

The Purpose Of The Obligation Or Expenditure Must

Be Authorized

Specific legal language

Pick and Stick Rule
Necessary Expense Rule

The Obligation Must Occur With The Time Limits

Applicable To The Appropriation

The Obligations And Expenditures Must Be Within
The Amounts Congress Has Established

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Purpose Legal language

Appropriations shall be applied only to the objects for
which the appropriations were made except otherwise
provided for by law. - 31 USC 1301 (a)
(Public funds may be used only for the purpose for which they were
appropriated.)

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Purpose Legal Language (cont)

The exact wording of the Appropriations Act is the

Law:

Violation of specific language = violation of law.

Individuals who do so are indebted to the USG.

Congressional intent and purpose is in the wording of

the appropriation
Specific language of appropriation (line-item or
earmark) or other statute is legally binding on agency
Other laws may also have specific language requiring
or prohibiting expenditures
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Consolidated Appropriations Act, 2010 Peace Corps

For necessary expenses to carry out the provisions of the
Peace Corps Act (75 Stat. 612), including the purchase of
not to exceed five passenger motor vehicles for
administrative purposes for use outside of the United
States, $400,000,000 to remain available until September 30,
2011: Provided, That none of the funds appropriated under
this heading shall be used to pay for abortions: Provided
further, That the Director of the Peace Corps may transfer to
the Foreign Currency Fluctuations Account, as authorized
by 22 U.S.C. 2515, an amount not to exceed $4,000,000:
Provided further, That funds transferred pursuant to the

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Purpose - Pick and Stick Rule

If an expenditure could be charged to two different

appropriations, the agency may choose. But similar

and related expenditures that follow must then be
charged to the appropriation the agency chose.

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Purpose - Necessary Expenses Rule

Logical Relationship:
Expenditure must have a logical relationship to the appropriation

charged and the purpose of the agency.

Not Prohibited by Law:

Expenditure must not be prohibited by legal statute.

Not Otherwise Provided For:

Agency must charge more specific appropriation to the exclusion of

a general appropriation.

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Time
Commitment of the US Government
Bona Fide Needs Rules
Contract Issues

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Time - Commitment
Obligation takes place when the definite commitment

is made to spend, not when the payment is made.

Obligation occurs when the contract is signed.
By statute (by law) certain actions must be obligated.
Each obligation must be supported by documentary
evidence. Recording shows proof of the obligation
BUT does not create the obligation.

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Required Obligations
1. Contracts
2. Orders required by statute to be placed with a
3.
4.
5.
6.
7.

Government agency
Orders without advertising
Pending litigation
Employment or services of persons, or expenses of travel
under law
Public utilities
Other legal liabilities

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Bona Fide Needs Rule

31 USC 1502 (a)

Bona Fide means In Good Faith, which means that an

agency must have a genuine need for the item or service in
the year in which the obligation is entered into.
An agency may not obligate funds when it is apparent that
there will be no requirement until the following fiscal year.
No apparent need will be presumed if items are scheduled
only for continual delivery during a subsequent fiscal year.

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Bona Fide Needs Rule

No violation of the bona fide needs rule occurs when
materials needed in a fiscal year are not available in the
fiscal year needed and contracted for, if the intervening
period is not excessive and the materials are not readily
available from other sources. Also, no violation of the
bona fide need rule occurs when there is a continuing
need and the order is for replacement of regular stock
and the delivery time is reasonable.

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Modifications
Modification = written amendment/alteration of original

contract. May be done for variety of reasons at instigation

of USG or contractor.

When modification exceeds scope of original contract, the

modification is new obligation and must use funds

available at time of modification.

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Refunds/Cost Underruns
Refunds or cost underruns may not be used to order an

additional quantity or items under a contract if the

funds are expired.

Refunds are collected against the corresponding

obligation.

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Ratifications
Ratification = authorization of an unauthorized

procurement (when a governmental official lacking

procurement authority enters into a contract on behalf
of the USG).
Ratifications are charged back to the time of the
unauthorized action.

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Replacement Contracts
If a termination because of contractors default, the funds

properly obligated under the original contract are available

beyond the original period of obligational availability for
the purpose of engaging another contractor to finish the
work:
Bona Fide Need must still exist;
The replacement must be similar in scope, nature and size
to defaulted;
Must be awarded on the same basis as the original (except
for cost);
Must be done within a reasonable time

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Amount - Anti-deficiency Act

The Anti-Deficiency Act prohibits making or

authorizing an expenditure or obligation exceeding or in

advance of an amount available in an appropriation, an
apportionment, or an administrative subdivision as
specified by regulation.

When an agencys appropriation is not available for a

designated purpose, and the agency has no other funds

available for that purpose, any officer of the agency who
authorizes an obligation or expenditure of agency funds
for that purpose violates the Anti-Deficiency Act.

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Anti-Deficiency Act (cont)

Administrative Penalties:

An officer or employee who violates the Act

shall be subject to appropriate
administrative discipline including, when
circumstances warrant, suspension from
duty without pay or removal from office.

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Anti-Deficiency Act (cont)

Criminal Penalties:

An officer or employee who knowingly and

willfully violates the Anti-Deficiency Act
shall be fined not more than $5,000,
imprisoned for not more than 2 years, or
both.

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QUESTIONS

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