Financial Management

In recent years, Congress has become increasingly concerned about (1) the large balances available to the Pentagon in the "M" and merged surplus accounts--a combination of obligated but unpaid balances from appropriations made in prior years--which totaled about $50 billion in 1990; (2) the Defense Department's (DOD) access to and routine use of hundreds of millions of dollars from the "M" accounts and merged surplus authority to cover contract cost increases; and (3) DOD's lack of oversight of these accounts. Legislation passed in 1990 canceled merged surplus authority and phased out the "M" accounts. This report discusses how six federal agencies have implemented the law. In particular, GAO found serious problems at DOD, which obligated current-year funds to cover additional contract costs--expenses that, had they been correctly charged to expired appropriations as is generally required, could have violated the Antideficiency Act. In addition, DOD, by not disclosing billions of dollars of canceled obligations, masked the government's potential liability.

GAO found that: (1) the Department of Defense (DOD) accounted for 47 percent of federal agency merged surplus authority restorations; (2) some DOD actions were unsupported, incomplete, or inappropriate; (3) DOD actions were inconsistent with the purpose and objective of the public law; (4) in 1992, Congress limited DOD reobligation of M account balances and required it to report monthly on reobligations and cancellations of M account funds until it completes its required audit of M account balances; (5) DOD has used current year appropriations to fund contract changes that should have been funded with expired appropriations but, in 1992, Congress authorized DOD to use current year funds for such charges; and (6) the Office of Management and Budget (OMB) and the Department of the Treasury issued guidelines to cancel obligated M account balances, but they did not require agencies to disclose in their financial reports the total amounts of obligations related to canceled budget authority.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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