Evaluation of Agency Comments on Cash and Investment Management of Defense Nonappropriated Funds

The major recommendation contained in the report entitled, "Cash and Investment Management of Department of Defense Nonappropriated Funds Need To Be Improved," was that, unless the Department of Defense (DOD) can show that disadvantages outweigh advantages, Congress should enact legislation: (1) directing that DOD nonappropriated funds (NAFs) be put in the Treasury and invested in Treasury securities; and (2) specifying what the interest policy should be. This recommendation envisioned NAF receipts being deposited to the credit of the Treasury and funds excess to current operating needs being invested in Treasury securities. The recommendation was based primarily on the principle of financial management that all funds, including trust funds, received and disbursed by the government as a result of its operations should be deposited with the Treasury and included in the federal budget.

DOD contended that: (1) NAFs are not government funds; (2) NAFs are handled in accordance with present policies; and (3) no requirement exists to deposit NAFs in the Treasury or to include them in the federal budget. DOD asserted that the current investment policy fully complies with Treasury Circular No. 176, which the Department claimed clearly recognizes and provides for operating NAFs off-budget. The position that NAFs are government funds is supported by the fact that the funds are maintained and controlled solely by instrumentalities of the government. It has been consistently recommended to Congress that off-budget activities should be included in the federal budget. Although there is a possibility that some revenue may be lost to the NAFS if Congress does not authorize interest rates on NAF investments equivalent to what they might otherwise earn in the commercial market, adoption of the recommendation may increase interest income by making more cash available for investment and reduce operating costs through centralized accounting and banking. (RRS)