Revolving Fund

C. Revolving Fun
GAO Appropriations Law—Vol. III

GAO-08-978SP Appropriations Law—Vol. III
Page 12-85 through 12-140

C. Revolving Funds

1. Introduction

(a) Concept and Definition

A recurrent theme throughout much of this publication is the attempt to balance the legitimate need for executive flexibility with the constitutional role of the legislature as controller of the purse. While this theme underlies much of federal fiscal law, it is perhaps nowhere as clear as in the area of revolving funds. A revolving fund authorizes an agency to retain receipts and deposit them into the fund to finance the fund’s operations. The concept of a revolving fund is to permit the financing of some entity or activity on what is regarded as a more “business-like” basis. Laws that establish revolving funds may authorize agencies to perform reimbursable work for either the public or other federal agencies, or both.

Most Treasury accounts are either receipt accounts or expenditure accounts. Under the typical or “traditional” funding arrangement, any money an agency receives from any source outside of its congressional appropriations must, unless Congress has provided otherwise, be deposited in the Treasury to the credit of the appropriate general fund receipt account. 31 U.S.C. § 3302(b). Absent an appropriation, an agency may not withdraw money from a general fund receipt account. Congress provides the agency’s operating funds by making direct appropriations from the general fund of the Treasury. These are carried on Treasury’s books in the form of general fund expenditure accounts. It is possible to credit money to an appropriation (expenditure) account—if specifically authorized by statute or if the money qualifies as a “repayment,” such as the recovery of an erroneous payment, but the money is subject to the same limitations as the appropriation to which credited. 65 Comp. Gen. 600, 602 (1986), citing Treasury Department-GAO Joint Regulation No. 1, reprinted in GAO, Policy and Procedures Manual for Guidance of Federal Agencies, title 7, app. II. [56] Most importantly, its obligational availability expires along with the rest of the appropriation, and if the appropriation has already expired for obligational purposes at the time of the deposit, the funds deposited have only the limited availability of expired balances. [57] It should be apparent that a key element of congressional control is the ability to control the disposition and use of receipts. For a further description of accounts relating to the government’s financial operations, see the Treasury Financial Manual, 1 TFM 2-1500, and GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP (Washington, D.C.: Sept. 2005), at 2–5 (Budget Glossary).

A revolving fund, while classified as an expenditure account, combines elements of both receipt and expenditure accounts. The term “revolving fund” may be defined as “a fund established by Congress to finance a cycle of businesslike operations through amounts received by the fund.” Budget Glossary, at 88. See I TFM 2-1520.45 (also defining revolving funds); OMB Cir. No. A-11, Preparation, Submission, and Execution of the Budget, § 20.3 (July 2, 2007). See also 38 Comp. Gen. 185, 186 (1958). A 1977 GAO report explained that:

“In concept, expenditures from the revolving fund generate receipts which, in turn, are earmarked for new expenditures, thereby making the Government activity a self-sustaining enterprise. The concept is aimed at selected Government programs in which a buyer/seller relationship exists to foster an awareness of receipts versus outlays through business-like programming, planning, and budgeting. Such a market atmosphere is intended to create incentives for customers and managers of revolving funds to protect their self-interest through cost control and economic restraint, similar to those that exist in the private business sector.”

GAO, Revolving Funds: Full Disclosure Needed for Better Congressional Control, GAO/PAD-77-25 (Washington, D.C.: Aug. 30, 1977), at 2. Because a revolving fund authorizes the agency to retain receipts and deposit them into the fund, the miscellaneous receipts requirement of 31 U.S.C. § 3302(b) does not apply. The legislation authorizing a revolving fund is a permanent, indefinite appropriation.

Revolving funds in the federal government appear to have developed in the latter part of the nineteenth century. Although we have not been able to identify the first revolving fund, the Navy is said to have had one as far back as 1878. GAO/PAD-77-25 at 11. Some years later, as part of the Navy’s 1894 appropriation act, Congress created a permanent naval supply fund for the purchase of “ordinary commercial supplies . . ., to be reimbursed from the proper naval appropriations whenever the supplies purchased under said fund are issued for use.” Act of March 3, 1893, 27 Stat. 715, 723–24. The term “revolving fund” does not appear in the early statutes, but seems to have come into use in the early 1900s. Thus, the Comptroller of the Treasury was able to observe in a 1919 decision:

“The Congress has at times barred the application of [31 U.S.C. § 3302(b)] by authorizing expenditures under appropriations to be reimbursed such appropriations, and in recent years has used the term revolving fund for such purpose and the further purpose generally of permitting the use of the moneys without the fiscal year limitations which usually attend appropriations.”

26 Comp. Dec. 295 (1919). Within just a few more years, the term could be said to have an established meaning as a fund which functioned as both a receipt account and an expenditure account, and which authorized receipts the fund earned through its operations to remain available without fiscal year limitation. 1 Comp. Gen. 704 (1922). These, then, are the two key features of a revolving fund: 

  • A revolving fund is a single combined account to which receipts are credited and from which expenditures are made. Treasury does not assign separate “receipt” and “appropriation” accounts.
  • The generated or collected receipts are available for expenditure for the authorized purposes of the fund without the need for further congressional action and without fiscal year limitation.Thus, a revolving fund amounts to “a permanent authorization for a program to be financed, in whole or in part, through the use of its collections to carry out future operations.” GAO/PAD-77-25 at 47. Therefore, as explained below, a revolving fund is a permanent appropriation. The fund’s continuing availability is what distinguishes a revolving fund from a reimbursable appropriation. In the case of a reimbursable appropriation, the reimbursements are available only during the same period that the appropriation itself is available, whereas in a revolving fund, “monies are paid in and out over and over again for the same purpose.” B-75345, May 20, 1948, at 2. It is important to note, however, that only the receipts or collections that the fund has earned through its operations are available without fiscal year limitation. For example, advances made by a customer agency to a revolving fund to cover the costs of the order have not been earned by the fund and retain the fiscal year limitations of the customer agency. See, e.g., B-288142, Sept. 6, 2001 (customer agency funds advanced to the Library of Congress Federal Library and Information Network revolving fund are not available without fiscal year limitation; amounts transferred do not take on the character of the revolving fund). The time availability of funds an agency transfers to a revolving funds is discussed in more detail in section C.4.c of this chapter.Proponents of revolving funds cite several advantages.58 Since it involves only one “pocket,” a revolving fund provides a simpler funding structure. A revolving fund presents a clearer picture of an activity’s profit or loss. Also, reflecting expenditures in budget totals on a net basis, as is done with revolving funds, helps reduce budget distortion. Revolving funds also provide increased flexibility since the agency does not have to ask Congress for the money. In addition, as discussed above, revolving funds provide agencies with authority to enter into interagency agreements independent of the Economy Act, and thus the customer agency is not subject to the deobligation requirements of 31 U.S.C. § 1535(d). See B-288142, Sept. 6, 2001; B-286929, Apr. 25, 2001; B-301561, June 14, 2004 (nondecision letter). For these reasons, most executive agencies, naturally and understandably, will take all the revolving funds they can get.

(b) Creation/Establishment

Perhaps the most fundamental rule relating to revolving funds is that a federal agency may not establish a revolving fund unless it has specific statutory authority to do so. 44 Comp. Gen. 87, 88 (1964); A-68410, Jan. 20, 1936; A-65286, Oct. 1, 1935. The reason is that 31 U.S.C. § 3302(b), the so- called “miscellaneous receipts statute,” requires that any money a federal agency receives from any source outside of its congressional appropriations be deposited in the general fund of the Treasury unless otherwise provided. Since this requirement is statutory, exceptions must be statutory. Thus, agencies have no authority to administratively establish revolving funds.

The legislative authority creating a revolving fund must be explicit. Authority to reimburse an appropriation does not authorize the creation of a revolving fund. See 38 Comp. Gen. 185 (1958); B-75345, May 20, 1948. The authority to establish a revolving fund, of course, may be contained in an appropriation act.59 The National Technical Information Service revolving fund, for example, was created in the 1993 appropriation act for the Departments of Commerce, Justice, and State. See Pub. L. No. 102-395, title II, 106 Stat. 1828, 1853 (Oct. 6, 1992), 15 U.S.C. § 3704b note. See also B-127121, Apr. 3, 1956 (appropriation act riders used over long period of time to modify restrictive provision in the Alaska Railroad’s revolving fund).

While the authority must be explicit, there is no prescribed formula. Certainly the words “revolving fund” will do the job. As noted earlier, there is a long-established congressional pattern of using the term “revolving fund” to mean the authority to retain specified receipts and to use them for authorized purposes without further congressional action and without fiscal year limitation. 1 Comp. Gen. 704 (1922); 26 Comp. Dec. 295 (1919); B-209680, Feb. 24, 1983. However, as long as the statute contains the required elements, use of the words revolving fund is not necessary and failure to use them is not controlling. B-135037-O.M., June 19, 1958.

In order to create a revolving fund, a statute, at a minimum, must do the following:

  • It must specify the receipts or collections which the agency is authorized to credit to the fund (user charges, for example).
  • It must define the fund’s authorized uses, that is, the purpose or purposes for which the funds may be expended.
  • It must authorize the agency to use receipts for those purposes without fiscal year limitation. However, as explained above, only receipts and collections that the fund has earned through its operations are available without fiscal year limitation.

A statute illustrating several of these points is 15 U.S.C. § 1527a, the Commerce Department’s Economics and Statistics Administration Revolving Fund: 

“There is hereby established the Economics and Statistics Administration Revolving Fund which shall be available without fiscal year limitation. For initial capitalization, there is appropriated $1,677,000 to the Fund: Provided, That the Secretary of Commerce is authorized to disseminate economic and statistical data products as authorized by [15 U.S.C. §§ 1525–1527] and charge fees necessary to recover the full costs incurred in their production. Notwithstanding [31 U.S.C. § 3302], receipts received from these data dissemination activities shall be credited to this account as offsetting collections, to be available for carrying out these purposes without further appropriation.”

First, it specifies the receipts for credit to the fund—the fees charged to recover the costs in production of the data products to be disseminated. Second, it defines the authorized uses of the fund—to carry out the purposes of 15 U.S.C. §§ 1525–1527. Third, the statute uses the term “revolving fund” and states the fund “shall be available without fiscal year limitation.” Statutes creating revolving funds often specify additional features. For example, such statutes may fix the amount of the fund’s capital; authorize the fund to be maintained at the desired level by periodic appropriations as needed; direct that the fund be self-sustaining, or substantially so; require the return of excess amounts to the Treasury or, alternatively, authorize investment of these funds; or impose reporting requirements or other congressional control devices.

A statute which does not use the words “revolving fund” is 12 U.S.C. § 1755, the National Credit Union Administration’s operating fund. However, it contains the attributes of a revolving fund. For example, it specifies that the National Credit Union Administration is authorized to collect annual operating fees. It defines the purpose for which these collections may be used. Also, the Administration is implicitly authorized to use the collections without fiscal year limitation. It says that the National Credit Union Administration Board may invest “such portions of the annual operating fees . . . as the Board determines are not need for current operations.” If the collections were not available without fiscal year limitation, any unused collections would have to be deposited in miscellaneous receipts at the end of the fiscal year. The Treasury Department’s Federal Account Symbols and Titles in fact classifies this fund as a public enterprise revolving fund.60 See I TFM, FAST, at A-95.

Examples of statutes requiring the return of excess amounts to the Treasury are cited later in section C.5 of this chapter. Examples of the alternative approach— authorizing investment of funds not needed for current operations—are 12 U.S.C. § 1755(e), the revolving fund of the National Credit Union Administration, and 42 U.S.C. § 2000e-4(k)(3), the Equal Employment Opportunity Commission’s Education, Technical Assistance, and Training Revolving Fund. Typically, as in these two instances, the statute authorizes investment only in obligations of, or whose principal is guaranteed by, the United States, and authorizes income from the investment to be retained by the fund.

The requirement for specific statutory authority applies to federal agencies. It does not apply to the use of revolving funds by grantees and contractors unless prohibited by the relevant grant agreement or contract. The question in 44 Comp. Gen. 87 (1964) was whether an educational institution funded by a State Department grant could use a revolving fund to finance the printing and sale of publications. The answer was yes, because nothing in the grant documents prohibited it and the miscellaneous receipts statute does not apply to funds in the hands of a grantee. A 1974 case, B-164031(1)-O.M., Oct. 3, 1974, applied the same result to the publishing activities of a contractor. A requirement in the contract that unexpended funds be returned to the government upon completion did not stand in the way; the contractor’s accountability upon completion of the contract did not alter its discretionary authority during the course of performance.

If it takes a statute to create a revolving fund, it logically follows that it also takes a statute to terminate one, unless the law establishing the fund includes some sort of built-in termination mechanism. Legislation terminating a revolving fund should address the payment of existing debts if any remain, and the disposition of the fund’s balance and future receipts.61 As discussed in section C.4.c of this chapter, GAO, in the past, has also regarded the account closing statute as applicable to revolving funds. Section 1555 of title 31, United States Code, provides that a no-year account shall be closed if the agency head determines that the purposes of the appropriation have been carried out and no disbursement has been made against the appropriation for two consecutive fiscal years.

2. Receipts and Reimbursements

Since a revolving fund is a creature of statute, the statute which established the fund (or subsequent amendments or appropriation acts) will determine what may go into the fund. Receipts may be lumped generally into two categories, initial and ongoing or operational.

The typical revolving fund may receive an initial infusion of working capital (called the fund’s “corpus”) to enable it to finance operations until the “operational receipts” start coming in. This initial capitalization, which the fund may be required to repay, is normally furnished as part of the legislation establishing the fund. It may be in the form of an initial lump- sum appropriation, a transfer of balances from some existing appropriation or fund, a transfer of property and/or equipment, borrowing authority, or some combination of these.

An example of a fund capitalized by a direct appropriation is the Economics and Statistics Administration Revolving Fund, 15 U.S.C. § 1527a (“For initial capitalization, there is appropriated $1,677,000 to the Fund”).

Capitalization by transfer is illustrated by the Equal Employment Opportunity Commission Education, Technical Assistance, and Training Revolving Fund, which received its initial working capital by a transfer of $1,000,000 from the Commission’s Salaries and Expenses appropriation. 42 U.S.C. § 2000e-4(k)(4). The Corps of Engineers Civil Revolving Fund authorized the Secretary of the Army “to provide capital for the fund by capitalizing the present inventories, plant and equipment of the civil works functions of the Corps of Engineers.” 33 U.S.C. § 576. An example of one form of borrowing authority to capitalize a fund is 31 U.S.C. § 5136, the United States Mint Public Enterprise Fund, which authorized the Secretary of the Treasury, subject to reimbursement within 1 year, to “borrow such funds from the General Fund as may be necessary to meet existing liabilities and obligations incurred prior to the receipt of revenues into the Fund.”

After the initial capitalization, the defining feature of a revolving fund is, as we have seen, its ability to retain and use receipts. Normally, the receipts will be those generated by the fund’s operations as this is the very concept of a revolving fund. See, e.g., B-124995, Sept. 27, 1955; B-112395, Oct. 20, 1952; B-105693, Oct. 22, 1951.62 This is not a firm legal requirement, however, and a revolving fund can mean “a fund which when reduced is replenished by new funds from specific sources,” whether or not generated by the fund’s operations. 23 Comp. Gen. 986, 988 (1944). However the fund is capitalized, the authority to retain receipts is an exception to 31 U.S.C. § 3302(b). E.g., 20 Comp. Gen. 280 (1940); 19 Comp. Gen. 791 (1940). When describing 31 U.S.C. § 3302(b), we usually say that it requires that all receipts be deposited in the Treasury as miscellaneous receipts absent statutory authority for some other disposition. However, the portion of the statute requiring that all receipts be deposited in the Treasury promptly and without deduction also applies to receipts credited to an appropriation pursuant to a specific statutory authority. Accordingly, the requirement that all receipts be deposited in the Treasury promptly and without deduction applies fully to revolving funds deposits. B-305402, Jan. 3, 2006; B-72105, Nov. 7, 1963.

The statute will prescribe the types of receipts which may be credited to the fund and, where contextually appropriate, the method of payment. The prescription of sources is found in varying degrees of specificity, depending on the purpose of the fund. A fund intended to finance an entity rather than a particular activity tends to have broader language, an example being the Bonneville Power Administration’s provision, 16 U.S.C. § 838i(a) (“all receipts, collections, and recoveries . . . from all sources”). Some funds expressly authorize the crediting of receipts from the sale or exchange of, and payments for loss or damage to, fund property. E.g., 5 U.S.C.
§ 1304(e)(3) (Office of Personnel Management investigation/training fund); 44 U.S.C. § 309(b)(2) (Government Printing Office revolving fund). Unlike an activity funded by direct appropriations, a revolving fund would, even without this explicit authority, be able to retain payments for loss or damage to fund property. B-302962, June 10, 2005; 50 Comp. Gen. 545 (1971).

The specification of authorized receipts operates, as one might expect, as a limitation as well as an authorization, although this principle should not be applied to the exclusion of common sense. Thus, a provision of the Agricultural Marketing Act providing that payments of principal or interest on loans be deposited in a revolving fund (12 U.S.C. § 1141f(b)) includes sale proceeds obtained in a foreclosure proceeding as well as voluntary payments. 12 Comp. Gen. 553 (1933).

Revolving fund legislation may or may not authorize advance payments. If the statute specifies reimbursement and is silent as to advances, advances are not authorized. 32 Comp. Gen. 99 (1952). But see 32 Comp. Gen. 45 (1952), in which legislative history was used to conclude that while the statute did not specifically authorize advance payments, it did not preclude payment in advance. While the approach in 32 Comp. Gen. 45 appears questionable as a general proposition, the apparent congressional intent in that case was buttressed by a separate provision in the same appropriation act which made the appropriations of the client agencies available “for advances or reimbursements” to the fund.63 An interesting linguistic variation found in several of the working capital fund statutes is “reimbursed in advance.” E.g., 20 U.S.C. § 3483(b) (Department of Education); 42 U.S.C. § 3513 (Health and Human Services); 49 U.S.C. § 327(d) (Transportation). Cf. B-286929, Apr. 25, 2001 (Economy Act authorizes transactions on a “reimbursable advance payment basis”).

Customer agencies receiving goods or services from the Government Printing Office’s revolving fund are required to pay promptly upon the Public Printer’s written request, “either in advance or upon completion of the work, all or part of the estimated or actual cost, as the case may be, and bills rendered by the Public Printer are not subject to audit or certification in advance of payment.” 44 U.S.C. § 310. Under this provision, regardless of the status of the work, “[p]ayment of an acceptable invoice may not be delayed in order to complete a prepayment audit.” 56 Comp. Gen. 980, 981 (1977).

Where receipts are based on the cost of work or services, such as the typical working capital fund, the statute will generally require the recovery of indirect costs (overhead) as well as direct costs. For example, the Corps of Engineers Civil Revolving Fund, 33 U.S.C. § 576, requires payment “at rates which shall include charges for overhead and related expenses, depreciation of plant and equipment, and accrued leave.” In B-167790, Dec. 23, 1977, an agency whose regulations precluded reimbursement of administrative overhead nevertheless entered into an agreement with the Corps for revolving fund work. Since the requirement to charge for overhead was statutory, it had to prevail over the contrary provision in the customer agency’s regulations. The burden properly fell upon the agency even if it did not fully understand that the Corps would be using its revolving fund. A 1995 decision involving the same revolving fund advised that the fund could recover its costs for “idle time” where fund property was forced to remain idle as the result of a congressional enactment, even though the effect may be that the reimbursing appropriations are paying for periods of nonuse. B-257064, Apr. 3, 1995. Precisely how to account for these costs (allotments, rate adjustments, etc.) is within the Corps’ discretion.

The statutory language may be less explicit, providing merely for recovery on an actual cost basis, an example being the Office of Personnel Management revolving fund, 5 U.S.C. § 1304(e)(1). GAO has construed this language to include indirect costs, consistent with similar language in the Economy Act. B-206231-O.M., Sept. 12, 1986. See also 72 Comp. Gen. 159 (1993) (similar interpretation of term “reimbursable basis”). In a more recent decision, GAO found an administrative fee that a Library of Congress revolving fund charged to each customer agency was consistent with GAO’s long held view that, pursuant to the Economy Act, it is appropriate for agencies to assess administrative fees to other agencies in the course of providing goods and services, in order to recover overhead and other indirect costs. B-301714, Jan. 30, 2004.

As discussed above, it is not uncommon for revolving funds to enter into contracts with private parties as part of their performance. If a customer agency cancels an order and the revolving fund is forced to terminate the commercial contract for the convenience of the government and bear the resultant termination costs, the revolving fund may recover these costs from the customer agency. 60 Comp. Gen. 520 (1981). However, the fund itself should bear the loss if it terminates a contract it entered into merely to build up its inventory in anticipation of customer orders. Id. at 523. In accord is 69 Comp. Gen. 112 (1989), holding that the General Services Administration (GSA) could assess termination charges, payable to its then Information Technology revolving fund, against an agency which had withdrawn from GSA’s telecommunications system. The alternative in both cases would have been to pass those costs on to other customers.

A more recent GAO decision involved a somewhat different situation in which the revolving fund was required to bear the loss. In B-301714, Jan. 30, 2004, the Library of Congress incurred losses as a result of advance payments that the Federal Library and Information Network (FEDLINK) revolving fund made for the acquisition of subscriptions to a contractor who subsequently defaulted and declared bankruptcy. The FEDLINK fund has two components: (1) advance payments made by agencies to cover their orders for goods and services, and (2) administrative fees to reimburse the Library for its administrative costs, both direct and indirect, of operating the program. The Library also uses the administrative fees to build a reserve in the revolving fund to finance future improvements and to replace outdated equipment. In an earlier FEDLINK decision, GAO agreed that it was prudent for the Library to reserve some of the administrative fees, not spending all of them in the same fiscal year in which they were collected, so that they might be used for “legitimate business costs” which arise in subsequent years. B-288142, Sept. 6, 2001. GAO considered the losses associated with the bankruptcy to be “legitimate business costs” of the FEDLINK fund. Accordingly, GAO concluded that the Library should use the administrative fees that it collects from all FEDLINK customers to cover this loss, rather than assign the loss to the specific agencies whose orders were placed with the contractor. B-301714, Jan. 30, 2004.

We should note one final potential source of capital for a revolving fund— the United States Treasury. If a fund is falling behind its goal of self-sufficiency, or if there has been a significant impairment of capital, or if Congress wishes to increase the fund’s capital, Congress can enact additional appropriations. Some revolving fund statutes expressly recognize this possibility (for example, 31 U.S.C. § 5142, the Bureau of Engraving and Printing Fund), although, subject to a possible point of order, absence of the language can not stop Congress from making the appropriation. Also, some revolving funds have borrowing authority, one example being the Rural Electrification and Telephone Revolving Fund, 7 U.S.C. § 931.64

3. Types

There are three broad categories of revolving funds—public enterprise, trust, and intragovernmental. [65] Since they are all revolving funds, they share the common elements of revolving funds discussed below: they are created by act of Congress, they operate as combined receipt and expenditure accounts, and they authorize use of the receipts without further congressional action.

a. Public Enterprise Revolving Fund

A public enterprise revolving fund is a revolving fund which derives most of its receipts from sources outside of the federal government. It usually involves a business-type operation, which generates receipts, that are in turn used to finance a continuing cycle of operations. Although not a legal requirement, like a self-sustaining business operation the fund should be self-sustaining or nearly so. B-302962, June 10, 2005; 65 Comp. Gen. 910 (1986); GAO, Revolving Funds: Full Disclosure Needed for Better Congressional Control, GAO/PAD-77-25 (Washington, D.C.: Aug. 30, 1977), at 7, 51.

Many wholly owned government corporations are financed, at least in part, by public enterprise revolving funds. They are also commonly used for credit programs (direct loan, loan guarantee) of agencies such as the Department of Housing and Urban Development and the Small Business Administration. Although not necessary, the governing legislation sometimes explicitly designates the fund as a “public enterprise” fund. An example is 31 U.S.C. § 5136, the United States Mint Public Enterprise Fund. Either way, if it meets the criteria, Treasury will assign it an account symbol from the 4000–4499 group reserved for public enterprise revolving funds.66 An example is the Senate Restaurant Revolving Fund, which is

Account 4022. See GAO, Financial Audit: Senate Restaurants Revolving Fund for Fiscal Years 2006 and 2005, GAO-07-462 (Washington, D.C.: Mar. 13, 2007).

b. Trust Revolving Fund

A trust revolving fund account (Treasury accounts 8400–8499) is similar to other types of revolving funds—a fund permanently established to finance a continuing cycle of business-type operations—except that it is used for specific purposes or programs in accordance with a statute that designates the fund as a trust fund.67 Examples of trust revolving funds include the Employees’ Life Insurance Fund, 5 U.S.C. § 8714, and the Veterans Special Life Insurance Fund, 38 U.S.C. § 1923. Chapter 15, section D, provides an in-depth discussion of federal trust funds.

c. Intragovernmental Revolving Fund

An intragovernmental revolving fund (Treasury accounts 4500–4999) is, as the name implies, a revolving fund whose receipts come primarily from other government agencies, programs, or activities. It is designed to carry out a cycle of business-type operations with other federal agencies or separately funded components of the same agency. Some intragovernmental revolving funds perform the services or provide the requested goods primarily themselves, such as the Transportation Systems Center working capital fund (49 U.S.C. § 328). Others enter into contracts with private vendors to provide the customer agency with the agreed upon goods or services. Examples of such intragovernmental revolving funds include the Federal Library and Information Network (FEDLINK) revolving fund (2 U.S.C. § 182c), which the Library of Congress uses to provide other federal agencies online access to databases, periodical subscriptions, and other related reimbursable services, and the Acquisition Services Fund  (40 U.S.C. § 321),68 which provides federal agencies with supplies, services, personal property management, and telecommunications services and support. See General Services Administration Modernization Act, Pub. L. No. 109-313, § 3, 120 Stat. 1734, 1735–37 (Oct. 6, 2006). For additional examples of intragovernmental revolving funds, see GAO, Budget Issues: Franchise Fund Pilot Review, GAO-03-1069 (Washington, D.C.: Aug. 22, 2003), at 50–51.

Intragovernmental revolving funds have common elements:

  • As with all revolving funds, receipts that the fund has earned through its operations are available without fiscal year limitation. B-288142, Sept. 6, 2001; 1 Comp. Gen. 704 (1922); 26 Comp. Dec. 295 (1919); B-209680, Feb. 24, 1983.
  • The authorizing statute will address the services to be covered in one of three ways: it may list the services (e.g., 42 U.S.C. § 3513), leave it to the agency’s discretion (e.g., 42 U.S.C. § 3535(f)), or provide some combination. Discretion is not unbridled, but must remain within the scope of the fund statute. 6 Op. Off. Legal Counsel 384, 386 n. 8 (1982).
  • The authorizing statute will require payment for goods or services the fund provides. Some authorize advance payments, while others do not. An advance payment provision may limit the advance’s period of availability to that of the paying appropriation. E.g., 7 U.S.C. § 2235.
  • The authorizing statute may require some form of budgetary disclosure. Authorizing statutes usually include some direction on determining the amount of reimbursement, the inclusion of depreciation being the most common.

The authorizing statutes may also have a provision limiting the amount the fund may retain and requiring return of amounts exceeding the limitation to the general fund of the Treasury. E.g., 15 U.S.C. § 278b(f).

Intragovernmental revolving funds include stock funds, industrial funds, supply funds, working capital funds, and franchise funds. We will discuss the latter two in more detail below. Stock funds finance inventories of consumable items and industrial funds generally finance industrial- and commercial-type activities. See Senate Committee on Government Operations, Financial Management in the Federal Government, S. Doc. No. 87-11, at 171 (1961). Both are found primarily within the Defense establishment. See section C.7 of this chapter for more information on stock and industrial funds. A supply fund is largely self-explanatory and is used to finance the operation and maintenance of an agency’s supply system, plus whatever else the governing legislation may specify. Examples include a revolving supply fund within the Department of Veterans Affairs (38 U.S.C. § 8121) and the Coast Guard Supply Fund (14 U.S.C. § 650).

(1) Working capital funds

A working capital fund is a form of intragovernmental revolving fund that generally finances the centralized provision of common services within an agency. A typical example69 of a working capital fund that is used to finance the centralized provision of common services within an agency is the Commerce Department’s working capital fund, 15 U.S.C. § 1521:

“There is established a working capital fund of $100,000, without fiscal year limitation, for the payment of salaries and other expenses necessary to the maintenance and operation of (1) central duplicating, photographic, drafting, and photostating services and (2) such other services as the Secretary, with the approval of the Director of the [Office of Management and Budget], determines may be performed more advantageously as central services; said fund to be reimbursed from applicable funds of bureaus, offices, and agencies for which services are performed on the basis of rates which shall include estimated or actual charges for personal services, materials, equipment (including maintenance, repairs, and depreciation) and other expenses: Provided, That such central services shall, to the fullest extent practicable, be used to make unnecessary the maintenance of separate like services in the bureaus, offices, and agencies of the Department . . .”

As the Justice Department has pointed out, a working capital fund statute like 15 U.S.C. § 1521 provides the necessary authority to tap the appropriations of the component bureaus to pay for the services, regardless of whether they were previously funded on a centralized or decentralized basis. 6 Op. Off. Legal Counsel 384 (1982).

A working capital fund may also provide goods or services to other agencies on a reimbursable basis. See, e.g., 43 U.S.C. § 50a, the United States Geological Survey Working Capital Fund (“the fund shall be credited with appropriations and other funds of the Survey, and other agencies of the Department of the Interior, other Federal agencies, and other sources, for providing materials, supplies, equipment, work and services”). These working capital funds may operate similarly to the franchise and other entrepreneurial revolving funds described below.

In recent years, federal agencies have turned increasingly to contracting services provided through fee-for-service intragovernmental revolving funds, and to contracts one agency makes available governmentwide, such as Governmentwide Acquisition Contracts (GWACs), and Multiple Award Schedule (MAS) Contracts. Under GWACs and MAS contracts, the purchasing agency incurs an obligation directly against the contract; accordingly, interagency agreements are not required when placing orders against these contracts. Section A of this chapter discusses MAS contracts and GWACs.

(2) Franchise and other revolving funds

In the 1990s, in an attempt to foster competition among agencies in the area of providing common services in order to increase efficiency at reduced cost, Congress introduced the concept of the “franchise fund” as a pilot. Government Management Reform Act of 1994, Pub. L. No. 103-356, § 403, 108 Stat. 3410, 3413 (Oct. 13, 1994), codified at 31 U.S.C. § 501 note. Section 403(a) authorized the establishment of franchise fund pilots in six executive agencies to be selected by the Office of Management and Budget (OMB) in consultation with specified congressional committees. Section 403(b) provides: 

“Each such fund may provide, consistent with guidelines established by the Director [of OMB], such common administrative support services to the agency and to other agencies as the head of such agency, with the concurrence of the Director, determines can be provided more efficiently through such a fund than by other means. To provide such services, each such fund is authorized to acquire the capital equipment, automated data processing systems, and financial management and management information systems needed. Services shall be provided by such funds on a competitive basis.”

Section 403(c) addresses funding by providing those elements commonly found in revolving fund legislation. It authorizes the necessary start-up appropriations and the transfer of certain unexpended balances and inventories. It also addresses the charging and disposition of fees as follows:

“Fees for services shall be established by the head of the agency at a level to cover the total estimated costs of providing such services. Such fees shall be deposited in the agency’s fund to remain available until expended, and may be used to carry out the purposes of the fund.”

Pub. L. No. 103-356, § 403(c)(2). Thus, a franchise fund is a type of intragovernmental revolving fund designed to compete with similar funds of other agencies to provide common administrative services. Examples of such services include accounting, financial management, information resources management, personnel, contracting, payroll, security, and training.

The six executive agencies selected by OMB in consultation with specified congressional committees were the Department of Commerce, the Department of Health and Human Services, the Department of the Interior, the Department of Veterans Affairs, the Environmental Protection Agency, and the Department of the Treasury. See OMB and Chief Financial Officers Council, 2000 Federal Financial Management Report (Nov. 20, 2000), at 23, available at (last visited Mar. 20, 2008); Report to Congress: The Franchise Fund Program, An Interim Progress Report (Apr. 1998). The specific statutory authority for each fund is as follows:

  • Department of Commerce: Pub. L. No. 105-277, div. A, title II, § 209, 112 Stat. 2681, 2681-87 (Oct. 21, 1998), 31 U.S.C. § 501 note.
  • Department of Health and Human Services (HHS): This franchise fund operates under the authority of the HHS Service and Supply Fund.
    42 U.S.C. § 231.
  • Department of the Interior: Pub. L. No. 104-208, div. A, title I, § 113, 110 Stat. 3009, 3009-200–201 (Sept. 30, 1996), 31 U.S.C. § 501 note (Acquisition Services Directorate, formerly GovWorks).
  • Department of Veterans Affairs (VA): Pub. L. No. 104-204, title I, 110 Stat. 2874, 2880 (Sept. 26, 1996), 31 U.S.C. § 501 note.
  • Environmental Protection Agency (EPA): Pub. L. No. 104-204, 110 Stat. at 2912–13. EPA’s franchise fund was subsequently reclassified as a working capital fund and not a franchise fund pilot. See Pub. L. No. 105-65, title III, 111 Stat. 1344, 1374 (Oct. 27, 1997), codified at 42 U.S.C. § 4370e. Department of the Treasury: Pub. L. No. 104-208, 110 Stat. at 3009-316–317.

The provisions for Commerce, Interior, VA, and Treasury are similar and track the enabling legislation. The Interior and Commerce statutes mandate payment in advance (as did the EPA statute). The HHS, Treasury, and VA statutes permit advance payment but do not require it.

As explained in section C.6 of this chapter, a common feature of most revolving funds is that they are intended to operate on a break-even basis or reasonably close to it, over the long term. Most of the franchise fund pilots authorize the funds to charge a fee at rates which will return in full all expenses of operation, including an amount necessary to maintain a reasonable operating reserve, as well as to retain up to 4 percent of total annual income as a reserve for acquisition of capital equipment and enhancement of support systems, with any excess to be transferred to the Treasury. See, e.g., Pub. L. No. 104-208, § 113. Revolving fund statutes may also limit the amount the revolving fund may retain and require periodic payments of surplus amounts to the general fund of the Treasury.

The Department of Transportation and Related Agencies Appropriations Act established a new franchise fund at the Federal Aviation Administration. See Pub. L. No. 104-205, 110 Stat. 2951, 2957 (Sept. 30, 1996). It has authorities similar to those of the Commerce, Interior, Treasury, and VA franchise funds. Id.

Other agencies also have revolving funds that operate on a fee-for-service basis, but these funds generally do not have the authority to retain up to
4 percent of total annual income as a reserve for capital equipment. See, e.g., Federal Library and Information Network’s (FEDLINK) revolving fund (2 U.S.C. § 182c); General Services Administration’s Acquisition Services Fund (40 U.S.C. § 321); Department of Interior’s Working Capital Fund (43 U.S.C. § 1467).

(3) Contracting services and revolving funds

GAO and inspectors general of several agencies have identified numerous issues in contracting services provided by revolving funds, including possible Antideficiency Act violations. GAO added management of interagency contracting to the High Risk List in 2005. GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: Jan. 2005). The report discussed both interagency agreements through which one agency uses the contracting services of another agency, and contracts that one agency makes available to other agencies governmentwide. See also GAO, Interagency Contracting: Improved Guidance, Planning, and Oversight Would Enable the Department of Homeland Security to Address Risks, GAO-06-996 (Washington, D.C.: Sept. 27, 2006).

Inspectors General of DOD, GSA, and Interior have been critical of their agencies with respect to obtaining or providing goods and services through interagency agreements with revolving funds. For example, the DOD Inspector General reported that guidance on the use of GSA’s then Information Technology Fund was widely misunderstood and that DOD may have violated the Antideficiency Act. See DOD Office of Inspector General, Acquisition: DOD Purchases Made Through the General Services Administration, Report No. D-2005-096 (July 29, 2005), available at (last visited Mar. 20, 2008).

A General Services Administration Inspector General report identified instances of inappropriate contracting practices, including misuse by GSA of contract vehicles, inadequate competition, nonexistent or ineffective contract administration, misleading descriptions of work, and awarding contracts outside of the scope of the then Information Technology Fund. See GSA, Office of the Inspector General, Compendium of Audits of  Federal Technology Service Client Support Centers (Dec. 14, 2004), at 5, available at, under About GSA, OIG Reports, Special Reports (last visited Mar. 20, 2008).

A subsequent report by the DOD Inspector General in 2006 found that although GSA and DOD contracting and management officials improved the interagency acquisition process, they continued to purchase goods and services without fully complying with appropriations law and federal regulations. DOD Office of Inspector General, Acquisition: FY 2005 DoD Purchases Made Through the General Services Administration, Report No. D-2007-007 (Oct. 30, 2006), at i, available at (last visited Mar. 20, 2008).

The Department of Defense Inspector General also reported numerous appropriations and procurement issues regarding the goods and services the Department of Interior revolving funds provided to DOD. Department of Interior Office of Inspector General, Audit of FY2005 Department of the Interior Purchases Made on Behalf of the Department of Defense, Report No. X-IN-MOA-0018-2005 (Jan. 9, 2007), available at (last visited Mar. 20, 2008).

DOD, in an effort to improve its compliance with appropriations and procurement laws, entered into agreements with both GSA and Interior outlining more than 20 areas in which GSA and Interior agreed to work with DOD to achieve “acquisition excellence,” and to ensure the acquisition practices comply with all statutory, regulatory, and policy requirements.70 One area was severable services and compliance with 41 U.S.C. § 253l and 10 U.S.C. § 2410a.71 In particular, GSA and Interior agreed that if DOD has transferred fiscal year appropriations to them, they will return those appropriations to DOD when they expire unless the agency has obligated those appropriations for a severable services contract for DOD during the appropriation’s period of availability and the contract’s performance period does not exceed 1 year. In establishing this practice, DOD, GSA, and Interior will prevent use of an expired appropriation to fund a new contract. [72]

Recent GAO decisions have examined interagency agreements and revolving funds and found that customer and performing agencies are violating the bona fide needs statute and trying to “park” or “bank” expiring appropriations. B-308944, July 17, 2007, and discussion in section C.4.c.2 of this chapter. For a discussion of “parking,” see Chapter 5, section B.1.c. We also found that agencies cannot use a revolving fund to acquire office space when neither the customer nor performing agency has authority to enter into leases. B-309181, Aug. 17, 2007, and the discussion in
section C.4.b of this chapter. The next section examines interagency agreements in the context of purpose, time, and amount.

4. Expenditures/Availability

a. Status as Appropriation

There are perhaps two “fundamental rules” pertaining to revolving funds from which all else flows. One, discussed earlier, is that specific statutory authority is necessary to create a revolving fund. The second is that a revolving fund is an appropriation. Hence, funds in a revolving fund are appropriated funds. The significance of this second rule is twofold. First, except as may be otherwise specified by statute, a revolving fund is available for expenditure without further appropriation action by Congress. It “is in no way dependent on the existence of [a separate] appropriation for the same purpose.” B-209680, Feb. 24, 1983, at 4. Second, unless specifically exempted, funds in a revolving fund are subject to the various purpose, time, and amount limitations and restrictions applicable to appropriated funds.

As discussed in Chapter 2, the reason for the rule that revolving funds are appropriated funds follows from the Miscellaneous Receipts Act, 31 U.S.C. § 3302(b), and the Appropriations Clause, U.S. Const., art. I, § 9, cl. 7. Under 31 U.S.C. § 3302(b) all moneys received for the use of the United States must be deposited in the general fund of the Treasury absent statutory authority for some other disposition. B-271894, July 24, 1997. Pursuant to the Appropriations Clause, once the money is in the Treasury, it can be withdrawn only if Congress appropriates it.73 Therefore, the authority for an agency to obligate or expend collections without further congressional action amounts to a continuing appropriation or permanent appropriation of the collections.74 E.g., United Biscuit Co. v. Wirtz, 359 F.2d 206, 212 (D.C. Cir. 1965), cert. denied, 384 U.S. 971 (1966); 73 Comp. Gen. 321 (1994); 69 Comp. Gen. 260, 262 (1990).

In addition, 31 U.S.C. §§ 701(2)(C) and 1101(2)(C) define “appropriation” as including “other authority making amounts available for obligation or expenditure.” A revolving fund certainly fits this definition. Discussing a now-obsolete fund called the “Farm Labor Supply Revolving Fund,” the Comptroller General set forth the principle in these terms:

“The payments received from the growers who make use of the workers represent moneys collected for the use of the United States and in the absence of specific statutory authority would be required to be deposited into the general fund of the Treasury as miscellaneous receipts under [31 U.S.C. § 3302(b)]. In this case, the specific statutory authority to use the moneys is supplied by the referred-to legislation establishing the Fund. The result of such legislation is to continuously appropriate such collections for the authorized expenditures for which the Fund is available . . . . Thus, we conclude that the ‘Farm Labor Supply Revolving Fund’ does represent an ‘appropriation’ . . . .” 

35 Comp. Gen. 436, 438 (1956).GAO has expressed this principle on numerous occasions. E.g., B-289219, Oct. 29, 2002 (revolving funds of the Pension Benefit Guarantee Corporation, a wholly owned government corporation, are appropriated funds and are subject to statutory restrictions governing appropriated monies); 63 Comp. Gen. 31 (1983), aff’d on reconsideration, B-210657, May 25, 1984 (operating fund of National Credit Union Administration is an appropriation and thus subject to certain employee compensation provisions in title 5 of the United States Code; the 1984 decision includes the more detailed discussion of the appropriation issue); 60 Comp. Gen. 323 (1981) (Federal Prison Industries revolving fund is an appropriated fund for purposes of surplus personal property provisions of Federal Property and Administrative Services Act); 35 Comp. Gen. 615 (1956) (statutory restriction on use of appropriated funds applies to operating fund of National Credit Union Administration’s predecessor); B-204078.2, May 6, 1988 (Panama Canal Revolving Fund); B-217281-O.M., Mar. 27, 1985 (revolving funds of Pension Benefit Guaranty Corporation subject to federal procurement laws and regulations); B-148229-O.M., May 15, 1962 (General Services Administration’s General Supply Fund is an appropriated fund for purposes of administrative payment under Federal Tort Claims Act). The decisions have consistently rejected the suggestion that revolving funds should be regarded as nonappropriated funds. E.g., 60 Comp. Gen. at 327; B-210657, May 25, 1984.

The fact that the initial capitalization has been paid back to the general fund of the Treasury and the revolving fund has thereafter become fully self-sustaining through collections from private parties does not change the fund’s character as an appropriation. 60 Comp. Gen. at 326; 35 Comp. Gen. at 438.

Most of the cases involve public enterprise revolving funds because it is there that the miscellaneous receipts statute comes into play. It is much harder to try to suggest that an intragovernmental revolving fund is not an appropriated fund, in effect, that moving money from one government pocket to another changes its status. E.g., 31 Comp. Gen. 7 (1951) (Navy Management Fund is an appropriation). [75]  See also Pulsar Data Systems, Inc. v. GSA, GSBCA No. 13223, 96-2 B.C.A. ¶ 28, 407 (1996) (involving a lease funded under GSA’s working capital fund in which there is not the slightest suggestion that the monies are anything but appropriated funds).

The Court of Appeals for the District of Columbia Circuit is in agreement. Holding a military stock fund subject to certain procurement laws, the court stated that the revolving fund legislation “eliminated the need for a new appropriation each fiscal year by creating what was, in effect, an on- going appropriation.” United Biscuit Co. v. Wirtz, 359 F.2d 206, 212 (D.C. Cir. 1965), cert. denied, 384 U.S. 971 (1966). Indeed, the court went on to note, in view of the Appropriations Clause of the Constitution, if a revolving fund is not an appropriation, its constitutionality is cast into doubt. Id. at 213 n.14. See also B-67175, July 16, 1947.

b. Purpose

Since funds in a revolving fund are appropriated funds, they are fully subject to 31 U.S.C. § 1301(a) which restricts the use of appropriated funds to their intended purpose(s). 63 Comp. Gen. 110, 112 (1983); 37 Comp. Gen. 564 (1958); B-203087, July 7, 1981. The purpose requirement, as discussed in detail in Chapter 4, applies to revolving funds in exactly the same manner that it applies to direct appropriations.

You look first and foremost to the statute creating the fund, that is, the appropriation, to identify the fund’s authorized purposes. Since revolving funds are by definition creatures of statute, this step is of paramount importance. The governing legislation may be somewhat general, or it may be painstakingly specific. Either way, the rule is the same: the terms of the statute, in conjunction with other applicable statutory provisions, define the fund’s availability. Thus, for example, revolving funds for the Senate Recording and Photographic Studios, without further statutory authority, may not be invested in short-term certificates of deposit since this is not a specified purpose under the enabling legislation (2 U.S.C. §§ 123b(g) and (h)). B-203087, July 7, 1981. Similarly, the General Services Administration’s Working Capital Fund, which is available for the expenses of operating “a central blueprinting, photostating, and duplicating service” (40 U.S.C. § 3173), may not be used to finance the agency’s central library or travel office. B-208697, Sept. 28, 1983. While reimbursing the Working Capital Fund from the appropriations which should have been charged in the first instance will avoid an Antideficiency Act violation, use of the Fund for unauthorized items was nevertheless improper. Id.

While the statute is the first and most important source for determining purpose availability, it cannot be expected to spell out every detail. If the statute does not directly address the item in question one way or the other, the next step is to apply the “necessary expense” rule the same as with any other appropriation. E.g., 63 Comp. Gen. 110, 112 (1983); B-230304,

Mar. 18, 1988; B-216943, Mar. 21, 1985. This means that a revolving fund is available for expenditures which are directly related to, and which materially contribute to accomplishing an authorized purpose of, the fund and which are not otherwise specifically provided for or prohibited.

One revolving fund whose purpose statement is quite general is 31 U.S.C. § 5142, the Bureau of Engraving and Printing Fund. The Fund is available “to operate the Bureau of Engraving and Printing” (id. § 5142(a)(1)) or, in the original language, “for financing all costs and expenses of operating and maintaining the Bureau” (Act of August 4, 1950, ch. 558, § 2, 64 Stat. 409). Under this language, the Fund has been held available for various alterations and improvements to the Bureau’s real property (replacements and additions of elevators, air conditioning, electrical, plumbing and heating equipment, partitions, flooring, etc.), as these are clearly necessary costs of operating and maintaining the Bureau. B-104492, Oct. 4, 1951. It may be used to send representatives to meetings of societies of coin collectors as this is sufficiently related to the Bureau’s activities for purposes of 5 U.S.C. § 4110. B-152624, Feb. 18, 1965. And, in view of legislative history strongly indicating an intent that the language be broadly construed, it satisfies the requirement of 5 U.S.C. § 3109(b) that the procurement of experts and consultants be “authorized by an appropriation or other statute.” B-122562, May 26, 1955.

Another illustration is the Rural Housing Insurance Fund, which, under
42 U.S.C. § 1487(j)(3), is available, for “servicing of loans, and other related program services and expenses.” One “related expense” chargeable to the fund is the purchase of surety bonds needed to obtain the release of deeds of trust for borrowers where the Farmers Home Administration could not find, and therefore could not deliver, the original canceled promissory note. B-114860, Dec. 19, 1979. GAO also regards the fund as available to pay the pro rata share of developing and installing a new computerized program accounting system, intended in part to permit prompter and more accurate loan servicing. B-226249-O.M., Mar. 2, 1988.

A somewhat more specific purpose statement was contained in the now- defunct Farm Labor Supply Revolving Fund. The Agricultural Act of 1949, as amended by Pub. L. No. 82-78, 65 Stat. 119 (July 12, 1951), authorized the Department of Labor to incur, on a reimbursable basis, certain expenses incident to the transportation and subsistence of farm workers. Under the legislation establishing the revolving fund, the fund was available “for payment of transportation, subsistence, and all other expenses” which were reimbursable under the Agricultural Act. See Supplemental Appropriation Act, 1952, 65 Stat. 741 (Nov. 1, 1951). One decision concluded that the fund was available for the cost of physical examinations because they could be regarded as directly connected with the transportation of the workers into the country. Of course this also meant that the costs were reimbursable and would ultimately be borne by the employers of the imported workers and not the taxpayers. 33 Comp. Gen. 425 (1954). GAO determined, however, that the necessary expense rationale could not be stretched far enough to justify charging the revolving fund for the cost of a management survey of the program. B-119354, Mar. 30, 1959. It is not clear whether GAO would reach this same conclusion today.

An example of an expenditure which is otherwise provided for is B-230304, Mar. 18, 1988, concluding that the Federal Prison Industries’ revolving fund was not available to construct a prison camp because Congress had provided statutory procedures and specific appropriations for prison construction. An expenditure which is otherwise prohibited is illustrated in B-67175, July 16, 1947, finding a revolving fund unavailable for the purchase of motor vehicles without the specific authority required by 31 U.S.C. § 1343(b). By way of contrast, in B-122562, May 26, 1955, one of the Bureau of Engraving and Printing cases noted above, explicit legislative history combined with sufficiently broad statutory language was found to supply the necessary authority.

In analyzing the purpose availability of a revolving fund, as with any other appropriation, the agency has reasonable discretion in selecting means of implementation, as long as its exercise is consistent with the statutory objectives. Since the 1970s, the Department of Housing and Urban Development (HUD) had a revolving fund to finance something called the New Community Development Program. The fund was available for specified forms of credit and other financial assistance, and for “any other program expenditures.” When the program failed and the incipient new communities raced toward insolvency, HUD was faced with a variety of options. In one decision, GAO advised that, under the statute, HUD could acquire the property by foreclosing on its security and undertake a variety of expenditures incident to engaging a new builder. Actions specifically authorized by the statute had to be regarded as “program expenditures,” and nothing in the law required HUD to choose the option which would minimize the government’s loss. B-170971, July 9, 1976. The discretion was not open-ended, however. Another decision, cautioning that “program expenditures” means “expenses of the program established by other sections” of the statute, found no basis for using the revolving fund to, in effect, step into the developer’s shoes and maintain and operate a development, except pursuant to a bona fide determination to acquire a given security. B-170971, Jan. 22, 1976.

The desirability of a proposed expenditure is not enough to supply legal authority which is otherwise lacking. In 40 Comp. Gen. 356 (1960), for example, the Veterans Administration (VA) proposed using its revolving supply fund to finance a program to recover silver from x-ray developing solutions. There was no question that the proposal was a good idea. The problem was that recovering silver was more of an industrial-type operation than the furnishing of supplies and the reclaimed silver was apparently of no benefit to any of the appropriations which supported the supply fund. Therefore, GAO was forced to conclude that the proposal was not an authorized revolving fund activity, but urged the VA to seek an amendment to its statute. This was done, and the statute now specifically includes the “reclamation of used, spent, or excess personal property.” 38 U.S.C. § 8121(a).

Chapter 4 uses over a dozen broad subject areas to illustrate different aspects of purpose availability. The same authorities and limitations apply to revolving funds. For example:

  • Statutes dealing with the use of appropriated funds to pay the expenses of attendance at meetings apply to revolving funds. 34 Comp. Gen. 573 (1955) (37 U.S.C. § 412 (Department of Defense)); B-152624, Feb. 18, 1965 (5 U.S.C. § 4110).
  • Employees paid from revolving funds are subject to the statutory restriction on payment of compensation to noncitizens. 50 Comp. Gen. 323 (1970);76 B-161976, Aug. 10, 1967.
  • Like other appropriations, revolving funds are not available for entertainment without statutory authority. B-170938, Oct. 30, 1972.
  • Revolving fund may be used to subsidize employee cafeteria if properly justified under the necessary expense rule. B-216943, Mar. 21, 1985.
  • Revolving funds are subject to the prohibition in 31 U.S.C. § 1348(a)(1) on providing telephone service to private residences. 35 Comp. Gen. 615 (1956), aff’d on reconsideration, B-126760, Aug. 21, 1972.

A revolving fund cannot be used to permit the customer agency to evade restrictions on its funds or to accomplish some purpose it is not authorized to do directly. E.g., 30 Comp. Gen. 453 (1951) (working capital fund not available for construction where customer agency lacks the authority required by 41 U.S.C. § 12). See also 34 Comp. Gen. 573 (1955); B-161976, Aug. 10, 1967.

A similar situation was presented in a transaction involving the DOD’s Counterintelligence Field Activity (CIFA) and GovWorks77 for acquisition of space to consolidate CIFA’s activities. B-309181, Aug. 17, 2007. GovWorks is a revolving fund. CIFA entered into an interagency agreement with GovWorks for GovWorks to consolidate CIFA programs and provide space for multiple activities. CIFA directed GovWorks to enter into a contract with a vendor for services, including supplying office space and facilities management services. The vendor then signed a lease with a property owner for office space for use by CIFA. GAO concluded that without a delegation from GSA or independent statutory authority to enter into a lease, neither GovWorks nor CIFA had authority to obtain office space through a third-party lease. Unless ratified by an appropriate government official, the agreement for office space was unenforceable against the government. The decision stressed that GovWorks and CIFA could not circumvent federal statutory and regulatory requirements on leasing by bundling the lease agreement in a contract for services, and that without ratification, all payments under this third-party lease were improper payments.

The purpose for which a revolving fund may be used, of course, is governed by the statute which created the fund. See, for example, 40 Comp. Gen. 356 (1960), holding that a revolving supply fund is available to finance a supply operation and not an industrial-type program. In addition, it is necessary to consider the purpose availability of the supporting appropriations, that is, the appropriations from which the revolving fund is advanced or reimbursed. A decision addressing the Navy Industrial Fund stated the rule that the Fund is “available only for the purposes permissible under [the] source appropriation, and subject to the source restrictions.” 63 Comp. Gen. 145, 150 (1984). See also, e.g., 18 Comp. Gen. 489, 490–91 (1938); B-106101, Nov. 15, 1951. For related material, see section B.1.c(4) of this chapter.

c. Time

(1) Earned receipts and collection

As pointed out earlier in this discussion, one of the key features of a revolving fund is that receipts and collections earned through the fund’s operations and credited to the fund are available without further congressional action and without fiscal year limitation.78 This continuing availability of receipts and collections that a revolving fund has earned through its operations has long been recognized as an inherent characteristic of a revolving fund, at least as that term is used in statutes enacted by Congress. While the more modern statutes tend to include explicit language such as “without fiscal year limitation” without more, the term “revolving fund” alone would be construed to mean the same thing. 1 Comp. Gen. 704 (1922); 26 Comp. Dec. 296 (1919).

Thus, the various rules discussed in Chapter 5 governing the obligation and expenditure of fixed-year appropriations with respect to time generally do not apply to receipts and collections that a revolving fund has earned through its operations. For purposes of comparison, the time availability of receipts and collections that a revolving fund earns through its operations, unless otherwise restricted by statute, is similar to that of a no-year appropriation—the money is “available until expended.” This being the case, the rules for no-year appropriations provide a useful analogy. Under a no-year appropriation—and therefore a revolving fund as well—“all statutory time limits as to when the funds may be obligated and expended are removed.” 40 Comp. Gen. 694, 696 (1961). Amounts earned and credited to the fund are treated as unobligated balances and are available for obligation the same as any other unobligated money in the fund. Id. at 697. Deobligated funds are treated the same way. B-200519, Nov. 28, 1980.

A question that appears to have drawn little attention is whether 31 U.S.C. § 1555 applies to revolving funds. That statute permits an agency to close a no-year account if the agency head determines that the purposes of the appropriation have been carried out and if there have been no disbursements from the account for two consecutive fiscal years. In 72 Comp. Gen. 295 (1993), the Treasury Department had invoked 31 U.S.C. § 1555 to terminate the Check Forgery Insurance Fund, a revolving fund. GAO found closure improper because the reasons the fund had been created continued to exist. While the issue was not directly raised in the decision, apparently both Treasury and GAO regarded 31 U.S.C. § 1555 as applicable to the revolving fund without question.

(2) Appropriations of revolving funds’ customer agencies

When entering into a transaction with a revolving fund, the customer agency still must satisfy the various time rules to its own appropriation. Specifically, the customer agency must obligate its appropriation for a bona fide need within the specified period of availability.

In order for the customer agency to incur an obligation when it enters into an interagency agreement with the revolving fund, the customer agency must have documentary evidence of a binding agreement between the two agencies for specific goods or services. 31 U.S.C. § 1501(a). In addition, an appropriation is available for obligation only to fulfill a bona fide need of the period of availability for which it was made. 31 U.S.C. § 1502(a). In B-308944, July 17, 2007, GAO found that a Department of Interior revolving fund accepted Military Interdepartmental Purchase Requests (MIPRS), which DOD used to document interagency agreements with Interior, that did not identify the specific items or services that DOD wanted the revolving fund to acquire on its behalf. Lacking the necessary specificity as to the items or services ordered, these MIPRs did not obligate DOD’s funds. DOD sent more specific information to the revolving fund at a later date, which served to perfect the orders and obligate DOD’s appropriations; however, at this point, DOD’s appropriations had expired, and they were not available for obligation in the fiscal year when the orders were perfected and the funds were used. Accordingly, when the revolving fund later used these funds for three contracts, the revolving fund improperly used prior year funds.

Funds transferred to a revolving fund through an interagency agreement must comply with the bona fide needs rule. So when DOD ordered laser printers (a readily available commercial item) from a revolving fund at the Department of Interior, and the revolving fund did not execute a contract on DOD’s behalf until 17 months later and 11 months after funds transferred expired, GAO found that the contract did not fulfill a bona fide need arising during the funds’ period of availability. B-308944, July 17, 2007.

When an agency withdraws funds from its appropriation and makes them available for credit to another appropriation, like a revolving fund, the withdrawn amounts retain their time character and do not assume the time character of the appropriation to which they are credited until they are earned. See B-306975, Feb. 27, 2006; B-288142, Sept. 6, 2001; 31 Comp. Gen. 109, 114–15 (1951). Consequently, unless otherwise specifically provided by law, unexpended expired balances must be returned to the customer agency.

GAO addressed the time availability of funds a customer agency transfers to a revolving fund in a 2001 decision which involved the Library of Congress Federal Library and Information Network (FEDLINK) revolving fund. B-288142, Sept. 6, 2001. Section 103(e) of the Library of Congress Fiscal Operations Improvement Act of 2000, Pub. L. No. 106-481, 114 Stat. 2187, 2189–90 (Nov. 9, 2000), specifies that amounts in the FEDLINK revolving fund are available to the Librarian “without fiscal year limitation” to carry out the FEDLINK program. GAO explained that this language did not permit the Library to retain unexpended fiscal year appropriations advanced by a customer agency that were not needed for costs the Library had incurred in filling the order. B-288142. The Library could not reserve the unexpended amounts to cover future year orders placed by the customer agency but was required to return excess funds to the customer agency. Id. If the period of availability of the customer’s appropriation has not expired, the customer agency may deobligate the returned funds and use them to place a new order. However, remaining balances are not available to enter into a new obligation once the period of availability of the customer agency’s appropriation has expired. Id.; 51 Comp. Gen. 766 (1972). See also B-306975, Feb. 27, 2006 (if a customer agency advances fiscal year funds to the National Archives and Records Administration (NARA) Revolving Fund for September’s estimated costs, NARA may not credit excess amount in adjusting October’s bill).

GAO addressed a bona fide need issue in a decision involving GSA’s Federal Systems Integration and Management Center (FEDSIM), which was financed through GSA’s Information Technology Fund.79 B-286929, Apr. 25, 2001. The U.S. Total Army Personnel Command (PERSCOM) entered into an interagency agreement with the revolving fund using fiscal year 2007 funds and transferred funds to the revolving fund. While the agencies envisioned a three-phase project, PERSCOM actually entered into an agreement for only the first phase of the project. Because PERSCOM entered into an agreement for only the first phase of the project and incurred an obligation during the period of availability of the appropriation only for the first phase, PERSCOM could not apply the expired balance of the amount originally transferred to the revolving fund to complete the remaining project phases. Even if PERSCOM could have established phases II and III as a bona fide need of fiscal year 2007, PERSCOM did not take appropriate action to satisfy that need during the fiscal year by contracting for additional phases during the period of availability of the appropriation.

It is also improper for a customer agency using a fiscal-year appropriation to place an order with an industrial fund at the end of the fiscal year without a legitimate need, thereby using the revolving fund to extend the life of the appropriation. GAO, Improper Use of Industrial Funds by Defense Extended the Life of Appropriations Which Otherwise Would Have Expired, GAO/AFMD-84-34 (Washington, D.C.: June 5, 1984). Similarly, a customer agency, using fiscal year appropriations, may not amend a properly placed order in a subsequent fiscal year to widen the scope of work and charge the increased costs to expired funds of the prior year. Id. app. I at 9.

While the funds a customer agency advances to a revolving fund to cover its order for goods or services are not available without fiscal year limitation, the “earned fee,” that is, the component of the fee that reimburses the revolving fund for the cost of its operations is available until expended. In the FEDLINK example discussed above, fees for service under the FEDLINK revolving fund had two components: (1) advances the customer agency provides the Library of Congress to cover the customer’s order for goods and services, and (2) reimbursements to the Library for the accounting services and its other administrative costs, both direct and indirect, of operating the program. Because the Library intended for these amounts to reimburse the Library for administrative costs of running the program rather than as an advance to cover the customer’s order for goods and services, GAO agreed with the Library’s conclusion that it could retain these amounts without fiscal year limitation. B-288142, Sept. 6, 2001.

Revolving funds must also abide by time restrictions when entering into an indefinite-delivery, indefinite-quantity contract (IDIQ)80 on behalf of a customer agency. In B-308969, May 31, 2007, the Department of Interior’s (DOI) National Business Center Acquisition Services Division, Southwest Branch (SWB), awarded a 1-year indefinite-delivery, indefinite-quantity contract on behalf of DOD, having a period of performance from July 1, 2003, to June 30, 2004. This transaction was funded through DOI’s working capital fund. The contract required the government to purchase a minimum of $1 million in services from the contractor. SWB, however, obligated only $45,000 of $1 million from DOD’s fiscal year 2003 appropriation and incorrectly obligated the balance from DOD’s fiscal year 2004 appropriation, using fiscal year 2004 funds to satisfy an obligation established in fiscal year 2003.

d. Amount

As with other appropriations, authorities and limitations relating to the amount that can be obligated or expended apply to revolving funds unless specifically exempted. Limitations fall into three categories. First are governmentwide limitations. An example is 35 Comp. Gen. 436 (1956), finding a revolving fund bound by a governmentwide statute, since repealed, limiting obligations or expenditures for improvements to real property to 25 percent of the first year’s rent. Because the Farm Labor supply revolving fund constituted an appropriation, the statute applied.

Next are limitations or restrictions specific to the particular fund. An unusual situation occurred in 46 Comp. Gen. 198 (1966). Hurricane Betsy caused considerable damage in several southern states in 1965. Part of the congressional response was a law authorizing the Small Business Administration (SBA) to cancel portions of outstanding indebtedness. The indebtedness to be forgiven stemmed from loans financed by a revolving fund. The law authorized the appropriation of $70 million. Congress subsequently appropriated half that amount, $35 million. The SBA asked if it could grant relief in excess of $35 million, noting quite logically that forgiving an obligation does not require an appropriation. The decision concluded that SBA may not have needed an appropriation, but since it received one, it could not ignore it. The authorization and appropriation reflected the congressional determination to maintain the revolving fund for future program use. (The alternative would have been to let the fund dwindle and pump more money into it later.) Congress chose to enact the limitation, and the agency could not disregard it.

The final category, applicable in the case of intragovernmental revolving funds, consists of limitations on the appropriation from which the fund will be reimbursed. For example, Defense Department industrial funds can finance authorized military construction, reimbursable from Operation and Maintenance appropriations. “Minor military construction” projects may be charged to O&M appropriations up to a monetary ceiling set by 10 U.S.C. § 2805. It is improper to use the industrial fund for a construction project whose cost has been split to evade the ceiling. B-234326.15, Dec. 24, 1991. Similarly improper is the use of revolving fund financing to exceed a ceiling on travel expenses applicable to the reimbursing appropriation. B-120480, Sept. 6, 1967.

Of course, the most important law relating to amount is the Antideficiency Act, which by its terms applies to an “appropriation or fund.” 31 U.S.C. § 1341(a)(1)(A). It is clear that the statutory prohibition against overobligating applies to revolving funds. E.g., 72 Comp. Gen. 59 (1992). It also applies to annual obligation limitations on revolving funds. B-248967.2, Apr. 21, 1993, at 3 (Antideficiency Act applies “to any fund administered by a federal employee”). See also OMB Cir. No. A-11, Preparation, Submission, and Execution of the Budget, § 145.4 (July 2, 2007).

The law is violated by creating an obligation in excess of available budgetary resources. 60 Comp. Gen. 520, 522 (1981). Depending on whether the revolving fund is an intragovernmental revolving fund or a public enterprise revolving fund, available budgetary resources may include (a) amounts received from other government accounts that represent valid obligations of the ordering account, [81] and (b) amounts received from the public.82 However, the concept does not include inventory. 72 Comp. Gen. at 61; 60 Comp. Gen. 520. Nor does it include anticipated receipts from transactions that have not yet occurred. GAO, The Air Force Has Incurred Numerous Overobligations in Its Industrial Fund, AFMD-81-53 (Washington, D.C.: Aug. 14, 1981); B-195316-O.M., Jan. 30, 1980; OMB Cir. No. A-11, § 20.13. A statutory exception is 10 U.S.C. § 2210(b), which authorizes Defense Department stock funds (but not industrial funds) to obligate against anticipated reimbursements if necessary to maintain stock levels planned for the next fiscal year. The Coast Guard Supply Fund has similar authority. 14 U.S.C. § 650(b). The rules relating to indemnification discussed in detail in Chapter 6 apply fully to revolving funds. 63 Comp. Gen. 145 (1984).

A revolving fund can also violate the Antideficiency Act by overspending a specific monetary limitation. B-120480, Sept. 6, 1967. However, if the overobligation or overexpenditure is authorized under some other appropriation or fund available at the time of the overobligation or overexpenditure, the revolving fund can make an accounting adjustment and charge the proper source—assuming it is still available. This would not constitute an Antideficiency Act violation. B-208697, Sept. 28, 1983.

As discussed in Chapter 6, a violation may also occur when an agency charges an obligation or expenditure to an appropriation that is not legally available for that item, regardless of how much money is in the account. The same is true if the proper funding source does not contain adequate budgetary resources to cover the obligation or expenditure when the accounts are adjusted. A problem of this sort arose when the Defense Supply Agency charged the Defense Stock Fund with a renewal option on a multiyear fuel storage service contract. The contractor argued that exercise of the option violated the Antideficiency Act because a Defense Department Directive required that supply administration contracts be charged to Operation and Maintenance appropriations and not to stock funds. There was no question that charging the stock fund was unauthorized. The Armed Services Board of Contract Appeals, however, found that the Defense Directive was merely an “in-house accounting [measure] not relevant to determining the availability of appropriated funds.” Therefore, and since there was no statutory limitation on using stock funds for otherwise authorized fuel storage contacts, there was no Antideficiency Act violation. The Board further noted that, even if the stock fund was considered to be legally unavailable, there would be no violation as long as a funding adjustment could be made. New England Tank Industries of New Hampshire, Inc., ASBCA No. 26474, 88-1 BCA ¶ 20,395, at 103,169 and n.23 (1987). While vacating and remanding the Board’s decision on other grounds, the Court of Appeals for the Federal Circuit expressly agreed that using the stock fund, although unauthorized, did not violate the Antideficiency Act. New England Tank Industries of New Hampshire, Inc. v. United States, 861 F.2d 685, 692 n.15 (Fed. Cir. 1988).

Another part of the Antideficiency Act requires the apportionment of “appropriations and funds” by the Office of Management and Budget (OMB). 31 U.S.C. §§ 1511(a), 1512, 1513. While fixed-year appropriations are generally apportioned by time, appropriations for an indefinite period are apportioned “to achieve the most effective and economical use.” Id. § 1512(a). Overobligating or overspending an apportionment is just as illegal as overobligating or overspending the appropriation itself. Id. § 1517(a). That the apportionment statutes apply to revolving funds is reinforced by 31 U.S.C. § 1516(2), which authorizes OMB to exempt from apportionment “a working capital fund or a revolving fund established for intragovernmental operations.”

The applicability of the apportionment laws to revolving funds is reflected in OMB Circular No. A-11. OMB’s illustration of the Standard Form 132 Apportionment and Reapportionment Schedule (Exhibit 121G) includes both public enterprise and intragovernmental revolving funds, while section 120.7 restates OMB’s authority to exempt particular intragovernmental funds. For purposes of assessing violations, the fact that the fund includes unapportioned budgetary resources greater than the amount of the deficiency is irrelevant. OMB Cir. No. A-11, § 145.4. The authority of 10 U.S.C. § 2210(b), mentioned above, can be exercised only “with the approval of the President.” This means OMB apportionment. B-179708-O.M., July 10, 1975.

An important concept covered in Chapter 4 is the agency’s spending discretion under a lump-sum appropriation, illustrated in decisions such as B-279338, Jan. 4, 1999; 55 Comp. Gen. 307 (1975); and 55 Comp. Gen. 812 (1976). The same discretion applies under a revolving fund. In one year, for example, committee reports expressed the view that the Economic Development Administration not make any direct loans in the upcoming fiscal year. Since this desire did not find its way into any statutory language, the agency’s revolving fund was legally available to make the loans. Of course, the agency was also within its discretion to comply with the committee preference and not make any direct loans. B-209680, Feb. 24, 1983.

Nothing exempts revolving funds from the obligation recording provisions of 31 U.S.C. § 1501. When a revolving fund does something that meets one of the statutory recording criteria, it must, just like other appropriations, record an obligation. 72 Comp. Gen. 59 (1992) (entering into contract to procure equipment). See also 60 Comp. Gen. 700, 703 (1981); 51 Comp. Gen. 631 (1972). [83]

Under a multiyear or base-year-plus-options contract, the amount to be recorded as an obligation depends on the nature and extent of the government’s commitment. For example, if a multiyear contract does not restrict the government’s obligation to less than the full contract amount, then the full contract amount is the amount of the obligation. B-104492-O.M., Apr. 23, 1976. If the contract consists of a base period plus renewal options, the obligation is the cost of the base period plus any amounts payable for failure to exercise the options (termination costs), this being the least amount of the government’s potential liability. [84] 62 Comp. Gen. 143 (1983); 48 Comp. Gen. 497, 502 (1969).

Congress, of course, can vary the above treatment by statute. Statutory exceptions have tended to involve multiyear contracts under the rather large Defense Department revolving funds where the chances of premature termination are, from practical and political perspectives, remote. Under a Navy ship-leasing program financed by the Navy industrial fund, for example, Congress enacted a provision authorizing the Navy to obligate only 10 percent of the outstanding gross termination liability. See B-174839, Mar. 20, 1984. A case several years earlier considered a recurring Defense appropriation act provision which authorized Defense working capital funds to maintain cash balances only to the extent necessary to cover cash disbursements at any time, and further authorized transfers between such funds when and if necessary. [85]

This provision amounted to an exception to the requirement to obligate for termination liability. 51 Comp. Gen. 598 (1972). With an intragovernmental revolving fund, it is also necessary to consider the obligational treatment of the supporting appropriations. Section 1501(a)(1) of the recording statute (31 U.S.C. § 1501) applies to contracts “between an agency and another person (including other agencies)” and thus applies to interagency agreements with revolving funds. At the time the agencies involved in the transaction enter into a written, binding agreement, the customer agency incurs an obligation for the costs of the work to be performed. See, e.g., B-308944, July 17, 2007; B-302760, May 17, 2004. In B-308944, July 17, 2007, GAO found that Military Interdepartmental Purchase Requests (MIPRs ) used to document interagency agreements between DOD and a revolving fund in the Department of Interior (GovWorks, now called the Acquisition Services Directorate) lacked the specificity necessary to comply with the recording statute. Consequently, the DOD funds expired before being properly obligated.

For some types of transactions, however, orders are required by law to be placed with another agency. With these types of transactions, section 1501(a)(3) applies, and the obligation occurs when the order is placed.86 The same holds true for interagency transactions with a revolving fund. For example, when an agency places an order with the General Services Administration (GSA) for work to be financed from one of GSA’s revolving funds, placing the order obligates the customer agency’s appropriations if the order is one which is required by law—including GSA’s statutory regulations—to be placed with GSA. If the order is not required by law to be placed with GSA, the job order itself does not obligate the customer’s funds. 34 Comp. Gen. 705 (1955).

Obligating for purchases from stock or supply funds (Defense Department stock funds or GSA’s General Supply Fund, for example) has its own set of conventions. For common-use stock items which are on hand or on order and expected to be delivered promptly, placing the order obligates the customer agency’s appropriation. 73 Comp. Gen. 259 (1994); 34 Comp. Gen. at 707; 34 Comp. Gen. 418, 422 (1955); 32 Comp. Gen. 436 (1953). For other orders of items which are part of the stock fund system, there is a measure of discretion. The fund can develop a system—for example, a list of items which constitutes an offer to sell at the published prices—under which placing the order “accepts” the offer and creates the recordable obligation. See B-208863-O.M., Apr. 11, 1983; GAO, Criteria for Recording Obligations for Defense Stock Fund Purchases Should Be Changed, GAO/AFMD-83-54 (Washington, D.C.: Aug. 19, 1983). Otherwise, if the customer’s order is the offer, a recordable obligation requires acceptance by the revolving fund unless the order is required by law to be placed with the fund. 34 Comp. Gen. at 707–08; 34 Comp. Gen. at 422; 32 Comp. Gen. 436. For items which are not part of the stock fund system, the order must be accepted before an obligation can be recorded. GAO/AFMD-83-54, app. I at 5.

If a revolving fund finds that it has undercharged the supporting (customer) appropriations, and those appropriations have expired for obligational purposes, the customer agency should use its expired appropriation to reimburse the revolving fund. See 31 U.S.C. § 1553(a). The customer agency incurred an obligation for the order at the time it entered into the interagency agreement with the revolving fund. The undercharge relates back in time to when the customer agency and the revolving fund entered into the interagency agreement. Under 31 U.S.C. § 1553(a), the customer agency’s expired appropriation would remain available to make adjustments to obligations that were properly incurred during the period of availability of the appropriation. GAO has taken the position that any such restoration should be supported by adequate documentation of the underlying obligations. Use of statistical methods is not sufficient where the agency cannot identify the underlying transactions. B-236940, Oct. 17, 1989; GAO, Financial Management: Defense Accounting Adjustments for Stock Fund Obligations Are Illegal, GAO/AFMD-87-1 (Washington, D.C.: Mar. 11, 1987).87 Presumably, although we have found no published decision, if the customer account has been closed pursuant to 31 U.S.C. § 1552(a), a validly supported reimbursement could be charged to current appropriations in accordance with, and subject to the limitations of, 31 U.S.C. § 1553(b).

Any statement of obligations an agency furnishes either to the Office of Management and Budget in connection with an appropriation request, or to the Congress or a congressional committee, is required to be consistent with the obligational criteria of 31 U.S.C. § 1501(a). Id. §§ 1108(c), 1501(b).

5. Augmentation and Impairment

One of the cornerstones of congressional control of the purse is the rule, covered extensively in Chapter 6, that an agency may not augment its appropriations without authority of law, or, in other words, may not retain for credit to its own appropriations anything Congress has not expressly authorized. The primary statutory manifestation of this rule is the miscellaneous receipts requirement of 31 U.S.C. § 3302(b). We have previously noted that a revolving fund is an exception to the miscellaneous receipts requirement. While this is certainly true, it is not a blanket exemption but goes only so far as the governing legislation specifies. The improper augmentation of a revolving fund can occur in either of two ways: (1) putting something in the fund which Congress has not authorized to be put there, or (2) leaving something in the fund, regardless of the propriety of the original deposit, beyond the point Congress has said to take it out. The presence or absence of a fixed dollar ceiling on the fund’s capital is irrelevant.

GAO has frequently used the following formulation of the anti- augmentation rule: “[W]hen Congress specifies the source of money and property that go to make up the permanent working capital of revolving funds there may not be added additional sources which serve to increase the working capital in the absence of specific statutory authority therefor.” B-149858-O.M., Aug. 15, 1968, at 5. The legislation establishing a revolving fund will prescribe what may go into the fund. Depositing anything not expressly authorized by the statute is an improper augmentation. E.g., 23 Comp. Gen. 986 (1944); 20 Comp. Gen. 280 (1940); 19 Comp. Gen. 791 (1940). In these cases, all related and dealing with the same fund, a statute authorized an agency to use, as a revolving fund, income derived from operations of a particularly special fund. It did not authorize the agency to retain and reuse income from any other source, including operations of the revolving fund itself (as opposed to the special fund from whose income the revolving fund was derived), and this income therefore had to be treated as miscellaneous receipts. The situation was admittedly unusual in that the typical revolving fund does depend on self-generated receipts, but in this case Congress had chosen a different approach. “The statute thus having expressly specified the sources of the money that comprise the revolving fund, other sources may not be added by construction.” 23 Comp. Gen. at 988.

The lesson of the preceding paragraph is simple: the precise terms of the statute control. Another illustration, closely related to the cases cited above, is the treatment of interest income. Interest income earned on revolving fund operations can be added to the fund if and only if the statute says so. An example is the revolving fund created by the Agricultural Marketing Act, 12 U.S.C. § 1141d. Payments of “principal or interest” on authorized loans “shall be covered into the revolving fund.” Id. § 1141f(b). Another example is interest on rural electrification loans. 7 U.S.C. § 931(3). Of course, general language which is sufficiently inclusive will also do the job, for example, the Bonneville Power Administration’s authority in 16 U.S.C. § 838i(a) to retain “all receipts, collections, and recoveries . . . from all sources.” Alternatively, Congress may authorize interest to be deposited to a revolving fund and later paid over to the general fund in whole or under some statutory formula. See, e.g., 15 U.S.C. § 633(c) (Small Business Administration Business Loan and Investment Fund). If the statute does not include authority of the types noted, interest income must be deposited in the Treasury as miscellaneous receipts. 26 Comp. Dec. 295 (1919); A-96531, Oct. 24, 1940. See also 1 Comp. Gen. 656 (1922) (same principle applies to reimbursable appropriation as opposed to revolving fund). Contrary to the impression a superficial look might give, this is not an example of logic versus the law. It is a matter of the choices Congress has made as to the scope and purposes of the revolving fund.

Some further examples of unauthorized augmentations are:

  • Increasing a revolving fund’s working capital by transferring funds to it from other revolving funds (or nonrevolving appropriation accounts, for that matter) either without statutory authority or in excess of applicable statutory authority. See GAO, Operations of General Services Administration’s General Supply Fund, GAO/LCD-76-421 (Washington, D.C.: Mar. 19, 1976).
  • Retention of funded reserve for accrued annual leave after the employees have transferred to another agency. B-149858-O.M., Aug. 15, 1968.
  • Retention of jury service fees remitted by an employee paid from a revolving fund. B-113214-O.M., Jan. 16, 1953.

Our discussion thus far has emphasized the need to follow the precise statutory language. In addition, there are, as discussed in Chapter 6, section E.2, certain nonstatutory exceptions to the miscellaneous receipts requirement, and these apply to revolving funds just as to other appropriations. For example, receipts which qualify as “refunds,” such as the recovery of overpayments or erroneous payments, may be credited to a revolving fund even though not specified in the governing legislation. 69 Comp. Gen. 260 (1990). That decision held that the Federal Emergency Management Agency could deposit in its revolving fund recoveries under the False Claims Act sufficient to reimburse the fund for losses suffered as a result of the false claim, including administrative expenses incurred in investigating and prosecuting the case, but must deposit any recoveries in excess of those amounts (treble damages, for example) in the Treasury as miscellaneous receipts. See also B-281064, Feb. 14, 2000 (Tennessee Valley Authority (TVA) may credit the TVA Fund (a public enterprise revolving fund) with that portion of a False Claims Act award or settlement that represents a refund of moneys erroneously disbursed from the fund).

Similarly, although we do not have a case precisely on point, a revolving fund may retain excess reprocurement costs recovered from a defaulting contractor, at least to the extent necessary to fund the reprocurement or corrective work, regardless of whether the recovery occurs before or after the fund has incurred the additional costs. As discussed in Chapter 6, this is the case where the procurement is funded under a no-year appropriation. If it is true for a no-year appropriation, it is true for a revolving fund. [88]

A variation on this principle is illustrated in two cases involving the Corps of Engineers Civil Revolving Fund, 33 U.S.C. § 576. When supervising military construction under 10 U.S.C. § 2851, the Corps charges its “customer” a flat percentage (5.5 percent in the cases discussed here) of the contract price for “supervision and administration” (S&A). The charge is designed to enable the revolving fund to break even over the long term. In one case, faulty design caused the Air Force to incur additional construction costs, which in turn increased the Corps’ S&A charge. GAO advised the Air Force that it could retain the money recovered from the architect to cover its increased construction costs and the S&A fees actually paid to the revolving fund. However, the portion of the recovery representing S&A expenses over and above the 5.5 percent, which the revolving fund had absorbed, had to go to the Treasury as miscellaneous receipts. Had the fund been charging its customers on an actual cost basis, it could have been reimbursed the entire amount of S&A expenses actually incurred. However, since the percentage fee was designed to recover actual costs over time, and the Corps had already received this from the Air Force, any additional reimbursement would amount to an unauthorized augmentation of the fund. 65 Comp. Gen. 838 (1986). On the other hand, the fund can be reimbursed for expenses actually incurred which are not covered by the flat rate. B-237421, Sept. 11, 1991 (additional S&A costs resulting from contractor delay can be reimbursed from recovery of liquidated damages since delay costs are not factored into uniform rate).

The cases cited in the preceding paragraph point to a common feature of most revolving funds—they are intended to operate on a break-even basis or reasonably close to it, over the long term. One thing this means is that the fund should not augment its working capital by retaining funds in excess of what it needs to cover its costs. To nudge this process along, revolving fund statutes frequently include the requirement for the periodic payment of surplus amounts to the general fund of the Treasury. We quote three variations:

  • General Services Administration’s (GSA) Acquisition Services Fund, 40 U.S.C. § 321(f):89

“Transfer of Uncommitted Balances.—Following the close of each fiscal year, after making provision for a sufficient level of inventory of personal property to meet the needs of Federal agencies, the replacement cost of motor vehicles, and other anticipated operating needs reflected in the cost and capital plan . . ., the uncommitted balance of any funds remaining in the Fund shall be transferred to the general fund of the Treasury as miscellaneous receipts.”

  • Bureau of Engraving and Printing Fund, 31 U.S.C. § 5142(d):

“The Secretary shall deposit each fiscal year, in the Treasury as miscellaneous receipts, amounts accruing to the Fund in the prior fiscal year that the Secretary decides are in excess of the needs of the Fund. However, the Secretary may use the excess amounts to restore capital of the Fund reduced by the difference between the charges for services of the Bureau and the cost of providing those services.”

  • Office of Personnel Management (OPM) Revolving Fund, 5 U.S.C. § 1304(e)(4):

“Any unobligated and unexpended balances in the fund which the Office determines to be in excess of amounts needed for activities financed by the fund shall be deposited in the Treasury . . . as miscellaneous receipts.”

The Acquisition Services Fund provision is the most restrictive, at least on its face. The other two examples confer more discretion. The OPM provision is the most discretionary and permits OPM to reduce retained earnings by freezing or reducing fees, purchasing equipment, or using the money essentially for any authorized purpose, or depositing surplus as miscellaneous receipts. B-206231-O.M., Sept. 12, 1986. While this provision clearly does not require the OPM fund to operate on a break-even basis each year, GAO has voiced the opinion that operating with deficits or surpluses for periods of several years is not consistent with the statutory objective. GAO, OPM’s Revolving Fund Policy Should Be Clarified and Management Controls Strengthened, GAO/GGD-84-23 (Washington, D.C.: Oct. 13, 1983), at 9.

The absence of a provision requiring periodic payments of surplus to the Treasury does not eliminate augmentation as a concern. For example, the Defense Department working capital fund authority, 10 U.S.C. § 2208, contains no such provision. It nevertheless remains the case that the fund should try to minimize annual gains or losses. Absence of statutory limitation merely means that the fund has more discretion in adjusting its charges periodically to recover losses or offset profits of prior periods. B-181714-O.M., Jan. 3, 1975.

The provision quoted above for the Bureau of Engraving and Printing Fund expressly authorizes reductions from surplus for certain capital restoration, with the net amount then to be paid over to the Treasury. This introduces a concept which does not exist in the case of other appropriations—the concept of capital impairment. If the objective is to maintain a revolving fund at a certain level, then impairment—diminution of fund capital—is as important to guard against as augmentation.

This concern manifests itself in the statutes in various ways. The revolving fund of the National Institute of Standards and Technology, for example, directs that earned net income be paid over to the general fund of the Treasury at the close of each fiscal year, but may first be applied “to restore any prior impairment of the fund.” 15 U.S.C. § 278b(f). GAO considered the meaning of this provision in 58 Comp. Gen. 9 (1978). The decision first noted that “impairment” is not a term of art with an established meaning in the accounting world. Id. at 10. Then, after reviewing legislative history and similar provisions in other laws, GAO concluded that impairment in the context of a revolving fund statute means operating losses, specifically, losses sustained by providing services at prices which do not recover costs. Id. at 12. The term does not include losses caused by inflation. Under the language of the statute as it then existed, the fund could not retain profits to offset increased equipment replacement costs. (The statute was subsequently amended to permit this.) One of the statutes GAO reviewed in the course of reaching its conclusion was the Bureau of Engraving and Printing provision, a linguistic variation of the anti-impairment concept. Id. at 12–13.

The original version of the OPM statute included anti-impairment language similar to 15 U.S.C. § 278b, but it was deleted in the 1969 amendment90 which recast the provision in the form quoted above. In view of the discretionary language used, the amendment in no way diminished OPM’s ability to restore capital impairment. Rather, it expanded OPM’s authority to use surplus—from the limited purpose of the restoration of impairment, to any authorized fund purpose. See B-110497, May 10, 1968 (GAO’s comments on the proposed amendment); B-206231-O.M., Sept. 12, 1986.

6. Property Management and Utilization

Items of property and equipment that revolving funds use in their operations are typically treated as assets of the fund itself. This in turn raises issues which implicate augmentation and impairment concerns.

One type of cost the fund will necessarily incur is the cost of equipment replacement. The fund anticipates this by including depreciation in its charges and fees, and establishing a reserve for this purpose. E.g., B-75212, June 16, 1955. The problem is that inflationary pressures drive prices up over time, and a piece of replacement equipment will almost certainly cost more than the original equipment did, sometimes a lot more. Simple enough, you say, just raise prices. The obstacle here is that statutory authority is needed in order to avoid an augmentation. The agency had no such authority in 58 Comp. Gen. 9 (1978), discussed in section C.5 above. The decision explained:

“We believe that the term ‘cost,’ absent something in the law or its legislative history indicating otherwise, means historical cost, and not replacement cost. Thus, when capitalizing fixed assets in the fund, the value of the asset is determined by historical cost (e.g., acquisition cost) and it is this value that depreciation allocates over the useful life of the asset.”

Id. at 14. See also B-151204-O.M., Dec. 9, 1971. Since the agency could not base depreciation on replacement cost, its next thought was to treat the difference between the depreciation reserve and replacement cost as an impairment of capital and to take the difference from surplus before turning it over to the Treasury. As explained above, GAO concluded that impairment did not include losses caused by inflation and that the fund could not retain profits to offset increased equipment replacement costs. 58 Comp. Gen. 9.

In some cases, the rule that depreciation refers to historical cost and not replacement cost is expressed in the statute. For example, the Bureau of Engraving and Printing is directed to provide for equipment replacement “by maintaining adequate depreciation reserves based on original cost or appraised values.” 31 U.S.C. § 5141(b)(1)(C). In view of this language, and the rule that would have been applied even without it, the Bureau had no authority to augment its depreciation reserve through a surcharge. B-104492-O.M., Apr. 23, 1976.

One solution is to amend the statute. The statute in 58 Comp. Gen. 9,
15 U.S.C. § 278b(f), was later amended to authorize the application of net income “to ensure the availability of working capital necessary to replace equipment and inventories.” The Bureau of Engraving and Printing statute also received a legislative solution with the 1977 enactment of 31 U.S.C. § 5142(c)(3), which permits it to adjust its prices “to permit buying capital equipment and to provide future working capital.” Pursuant to this authority, the Bureau can levy a surcharge, or it can simply raise its prices. B-114801-O.M., Nov. 19, 1979. Similarly, at one time, the General Services Administration (GSA) could not charge using agencies the replacement cost of motor pool vehicles as it would have amounted to an unauthorized augmentation of the former General Supply Fund. B-158712-O.M., Oct. 4, 1976. Legislation was enacted in 1978, 40 U.S.C. § 605(b)(2) (formerly cited as 40 U.S.C. § 491(d)(2)) to authorize GSA to charge for estimated replacement costs and to retain those increments in the fund, but only for replacement purposes. Still another statutory approach is to require payment to the Treasury at the end of a fiscal year of any balance “in excess of the estimated requirements for the ensuing fiscal year.” See B-100831- O.M., Mar. 1, 1951. Or, a statute may specify the actual amount an agency may retain. For example, many of the franchise fund pilot programs have authority to retain up to 4 percent of total annual income as a reserve for acquisition of capital equipment and enhancement of support systems, with any excess to be transferred to the Treasury. See, e.g., Pub. L. No. 104-208, div. A, title I, § 113, 110 Stat. 3009, 3009-200–01 (Sept. 30, 1996), 31 U.S.C. § 501 note (Department of Interior franchise fund). In addition, the exchange/sale authority of 40 U.S.C. § 503 (formerly cited as 40 U.S.C. § 481(c)) is available to a revolving fund. See B-149858-O.M., Feb. 25, 1963. If none of these approaches affords a solution, the fund has little choice but to seek additional appropriations from Congress. 58 Comp. Gen. at 14.

It has also been stated as a general proposition that “the corpus of [a] revolving fund should not be impaired by the transfer of assets.” B-121695, Feb. 3, 1955, at 2. Of course, transfers authorized by law to be made without reimbursement are an exception. Id.; B-149858-O.M., Feb. 25, 1963. Property can become excess to a revolving fund just as it can to any other entity. Unless the fund’s own legislation provides specific authority, the disposal of excess property should be handled under authority of the Federal Property and Administrative Services Act and GSA’s implementing regulations. 56 Comp. Gen. 754 (1977); B-121695, Feb. 3, 1955.

One section of the Federal Property Act, 40 U.S.C. § 574(a) (formerly cited as 40 U.S.C. § 485(c)), provides that transfers shall be reimbursable when the property transferred or disposed of was acquired by the use of funds either “not appropriated from the general fund of the Treasury” or appropriated therefrom “but by law reimbursable from assessment, tax, or other revenue or receipts.” This language includes revolving funds. 56 Comp. Gen. at 757; B-116731, Nov. 4, 1953. Another section of the Federal Property Act, 40 U.S.C. § 522(b) (formerly cited as 40 U.S.C. § 483(a)(1)), states that reimbursement of the fair value of transferred excess property is required if “net proceeds are requested under section 574(a).” In view of these provisions, unless the revolving fund legislation itself requires reimbursement, the rule is that the transfer of excess property from a revolving fund is reimbursable if and when requested by the transferring agency. The agency has discretion in the matter. 35 Comp. Gen. 207 (1955); B-233847, Apr. 14, 1989. The same rationale authorizes a military department to credit to its industrial fund the proceeds from the sale of scrap and salvage generated by fund operations, regardless of the potentially large amounts of money involved. B-162337-O.M., Oct. 2, 1967.

Some revolving fund statutes require reimbursement. An example is the Veterans Affairs Supply Fund, which provides that the fund shall be “credited with . . . all other receipts resulting from the operation of the funds, including . . . the proceeds of disposal of scraps, excess or surplus personal property of the fund.” 38 U.S.C. § 8121(a)(3). Under this type of legislation, the disposal would still be done under the authority and procedures of the Federal Property Act and GSA regulations, except that the agency no longer has the discretion to decline reimbursement. The mandatory language of the statute overcomes the discretionary language of 40 U.S.C. § 522(b) and the statement in 41 C.F.R. § 102-36.285(a)(3) that “[i]t is the current executive branch policy that working capital fund property shall be transferred without reimbursement.”

If the authorized transfer of excess property from a revolving fund without reimbursement is not an impairment of the fund, it is equally true that the transfer of excess property to a revolving fund without reimbursement, when authorized by law, is not an improper augmentation. B-110497, Aug. 28, 1952.

Thus far, we have been talking about fund property as opposed to property purchased by the fund on behalf of a customer. Property in the latter category no longer needed by the customer agency, apart from transactions which may be authorized under the Federal Property Act, does not revert to the revolving fund simply because it was initially purchased by the fund; converting the property to cash and then retaining and using those proceeds improperly augments the revolving fund because it would credit the revolving fund with amounts supplied by the customer. 40 Comp. Gen. 356 (1960). Somewhat similarly, if an agency using fund property has paid the full cost of the item and then no longer needs it, nothing prevents the fund from making the property available to a second user at rates based on fair market value. The income should not be used to augment the fund’s capital, however, but should, to the extent it exceeds costs, be treated as net income subject to a “transfer to Treasury” provision if there is one. B-151204-O.M., Dec. 9, 1971.

An unusual provision of law is found in 22 U.S.C. § 2358(a), which authorizes the Agency for International Development (AID) to receive excess property from other agencies for foreign assistance purposes, and to stockpile that property “in advance of known requirements therefor,” up to a specified monetary ceiling. In determining compliance with the ceiling, AID may properly deduct the amount of unfilled orders received from overseas missions since the receipt of an order represents a known requirement. B-160485-O.M., Jan. 17, 1967.

The Federal Property and Administrative Services Act does not apply to the Senate or House of Representatives. However, they may purchase services under the act from GSA if they choose. 40 U.S.C. § 113(d). Therefore, when a revolving fund of the Senate or House of Representatives has excess property, it may either request GSA’s assistance or dispose of the property through the official or body with operational control of the particular fund. B-205013, Jan. 27, 1982 (Senate); B-114842, Oct. 17, 1979 (House).

Under the “interdepartmental waiver doctrine,” the general rule is that if one agency damages the personal property of another agency, funds available to the agency causing the damage may not be used to pay claims for damages by the agency whose property suffered the damage.91 The general rule, however, does not apply to revolving fund activities. A 1986 decision, 65 Comp. Gen. 910, held that a revolving fund which had loaned vehicles to another agency for use on a project unrelated to the fund’s purpose should be reimbursed for damage which occurred while the vehicles were in the borrower’s custody.92 Acknowledging the general prohibition on interagency damage liability, the decision states: “It is our opinion, however, that even in the absence of an Economy Act or similar agreement, the prohibition should not apply where the fund that would be charged with the cost of repair if reimbursement were not permitted is a reimbursable or revolving fund.” Id. at 911. The decision further pointed out that the fund in that case, the Air Force Industrial Fund, treated repair costs as an indirect cost factored into its charges, but it is assumed that this referred to damage which occurred while the property was being used by the Air Force on fund work, not damage caused by another agency. Id.

The view that a revolving fund should be reimbursed for damage to fund property caused by another agency is supported by the approach taken in 59 Comp. Gen. 515 (1980). GSA regulations provide that GSA will charge the using agency for damage to motor pool vehicles which occurs while the vehicle is assigned or issued to that agency, unless the damage can be attributed to the fault of an identifiable party other than the using agency or its employee. 41 C.F.R. § 101-39.406(a). Motor pool vehicles are financed under GSA’s Acquisition Services Fund (formerly its General Supply Fund). Reviewing an earlier (but not substantially different in principle) version of the regulations, GAO agreed that GSA was well within its discretion because repair cost is certainly a cost of maintaining the service. The decision further noted: “In addition, since the GSA revolving fund is intended to be operated on a businesslike basis, it is inequitable to impose upon the revolving fund a loss for which the managing agency is in no way responsible.” 59 Comp. Gen. at 518.

A 2005 GAO decision held that a federal agency should collect for damages to property financed by a revolving fund either from the customer agency, the customer agency’s contractor, or the revolving fund agency’s own contractor, as the case may be. B-302962, June 10, 2005. The National Archives and Records Administration (NARA) asked GAO whether it could collect and retain in its Records Center revolving fund payments for damages to a Records Center storage facility caused by a customer agency or the agency’s contractor. GAO concluded that NARA should collect amounts sufficient to repair damages to the facilities, whether the damage was caused by NARA’s customer, the customer’s contractor, or NARA’s own contractor, depending on which entity was responsible for the damages, and deposit these amounts into the Records Center revolving fund. Id.

Similarly, in 50 Comp. Gen. 545 (1971), GAO advised the National Credit Union Administration that it could credit to its revolving fund recoveries for property lost or damaged in transit. The fund consists of fees paid by member credit unions, and the decision emphasized legislative history expressing the intent that “the Administration will not cost the taxpayers a single penny.” Id. at 546. Several revolving fund statutes—mostly intragovernmental funds where the “not cost the taxpayers a penny” rationale has no meaning—expressly authorize the retention of payments for loss or damage to fund property. E.g., 5 U.S.C. § 1304(e)(3)(B) (Office of Personnel Management revolving fund); 38 U.S.C. § 8121(a)(3) (Veterans Affairs Supply Fund); 40 U.S.C. § 321(b)(2) (Acquisition Services Fund); 44 U.S.C. § 309(b)(2) (Government Printing Office revolving fund).

7. Revolving Funds in the Department of Defense

At the outset of our discussion, we noted that revolving funds in the federal government appear to have originated within the defense establishment. Their use in that establishment has grown over the course of the past century so that they now play a highly significant role in financing defense operations. For example, the Defense-wide Working Capital Fund is estimated to have financed about $49 billion in defense operations in fiscal year 2008. Budget of the United States Government, Fiscal Year 2009 Appendix (Feb. 4, 2008), at 317, available at (last visited Mar. 20, 2008).

The most important piece of legislation was section 405 of the National Security Act Amendments of 1949, which enacted what is now 10 U.S.C. § 2208. Pleased with the success of the Navy’s working capital funds through two World Wars, Congress decided to expand the concept and extend it to all of the military departments. The objectives Congress sought to achieve were “most effectively to control and account for the cost of the programs and work performed, to provide adequate, accurate, and current cost data which can be used as a measure of efficiency, and to facilitate the most economical administration and operation of the military departments.” S. Rep. No. 81-366, at 17 (1949).

Section 2208(a) of title 10, United States Code authorizes the Secretary of Defense to create working capital funds to: “(1) finance inventories of such supplies as he may designate; and (2) provide working capital for such industrial-type activities, and such commercial-type activities that provide common services within or among departments and agencies of the Department of Defense, as he may designate.” These are known as, respectively, stock funds and industrial funds. The stock fund concept was intended to standardize procurement, storage, and issue policies and thereby encourage interservice utilization; reduce over-all inventory requirements; facilitate procurement of seasonal items at times when the market is most favorable; facilitate cost control; and permit standard pricing. S. Rep. No. 81-366, at 19. The Senate report described the intended operation of industrial funds as follows:

“All costs of the operation of [the] industrial-type or commercial-type activity would be paid from the working capital fund, utilizing standard, accepted, and approved commercial practices for the distribution of direct and indirect costs to jobs in process. . . . The activity which places a work order with the industrial-type or commercial- type activity would establish proper commitments and obligations against moneys appropriated to it—generally in the same manner as would be followed if the order were placed for the work to be done by a private concern. The industrial plant would enter the order and distribute the work in the plant by its own job orders—a fundamentally sound procedure. When the work is completed and the cost of the job ascertained, the plant will invoice or bill the cost to the ordering military agency and its proper appropriation and budget program. . . . The invoice charges would include items of cost for labor, material, and current operating expense.”

Id. at 20–21.

Section 2208(b) of title 10 directs the Secretary of the Treasury to establish the appropriate accounts on Treasury’s books upon request of the Secretary of Defense. Section 2208(c) authorizes the revolving funds to be charged with the cost of supplies and services, including administrative expenses, and to be reimbursed from available appropriations. Section 2208(d) authorizes the capitalization of existing inventories and the appropriation of necessary amounts. Section 2208(e) authorizes internal reorganization of military departments in order to take maximum advantage of the revolving funds. Section 2208(f) prohibits a requisitioning agency from incurring costs for supplies or services from any of the revolving funds in excess of “the amount of appropriations or other funds available for those purposes.” The Senate Committee described this subsection as the means by which Congress controls the amount of money that may be spent by the department and agencies for supplies or services. S. Rep. No. 81-366, at 18.

Under section 2208(g), supplies returned to inventory are charged to the applicable revolving fund and the proceeds credited to “current applicable appropriations” of the customer agency. Where the return takes place in a subsequent fiscal year, this amounts to an augmentation of the current appropriation (B-132900-O.M., Feb. 1, 1974), but it is expressly authorized. This procedure is intended to encourage the return of materials found not to be immediately needed and to “reduce the temptation to overbuy.” S. Rep. No. 81-366, at 18. Section 2208(h) authorizes implementing regulations. The remaining portions of the statute were added in later amendments.

According to one commentator, performance of the military revolving funds “is not well documented.” Although there is “some evidence” that they are achieving the desired benefits, the evidence is “mixed.” Patricia E. Byrnes, Defense Business Operating [sic] Fund: Description and Implementation Issues, 13 Public Budgeting and Finance 29, 32 (No. 4, 1993). According to Byrnes:

“Revolving funds are intended to provide at least three important benefits. First, in contrast to the services budgeted and financed through the appropriations process, the contractual relationship between the fund activity (supplier) and the customer improves supplier incentives for efficient, demand-driven production. Second, because revolving funds are intended to operate across organization boundaries, economies of scale can be achieved in procurement and use of facilities. Finally, in addition to reduced rates from more efficient provision of services, the customers should also realize advantages of stabilized rates typical of contractual arrangements.” Id. at 31–32.

While, as Byrnes points out, the measure of success of an activity intended to be businesslike is how closely it resembles a commercial activity, the goal of a government revolving fund, in sharp contrast with a private business’s goal of profit maximization, is “a zero fund balance.”

Id. at 32.

In any event, after operating under the structure established by the 1949 legislation for over four decades, the next major development took place in late 1991 with the introduction of the Defense Business Operations Fund (DBOF). The Defense Department had proposed the DBOF as a consolidation of the various stock and industrial funds already in existence, together with other activities, such as the Defense Commissary Agency and the Defense Finance and Accounting Service, which would be converted to revolving fund status. Considering the proposal as part of Defense’s 1992 appropriations package, the congressional reception was cautious. The Senate Appropriations Committee reported:

“The DBOF proposal has been met with both antipathy and confusion. The antipathy arises, for the most part, from the perception of Congress losing influence on and oversight of programs to be subsumed in the fund. The confusion arises from several factors; probably the most important of these was the Department having not clearly defined the advantages of establishing DBOF when the proposal was first made to Congress.”

S. Rep. No. 102-154, at 354 (1991). The conference committee shared the concern over the potential loss of oversight. H.R. Conf. Rep. No. 102-328, at 176 (1991). These concerns notwithstanding, Congress gave the DBOF its initial statutory basis in section 8121 of the 1992 Department of Defense Appropriations Act, Pub. L. No. 102-172, title VIII, § 8121, 105 Stat. 1150, 1204–05 (Nov. 26, 1991), as “a working capital fund under the provisions of” 10 U.S.C. § 2208.

To call the DBOF “big” would be somewhat of an understatement. Testifying before a congressional subcommittee only 6 months after the DBOF was established GAO noted that for fiscal year 1993, when compared with the “Fortune 500,” the DBOF’s sales “would make the Fund equivalent to the fifth largest corporation in the world.”93 The Fund experienced a number of management problems, and GAO issued a steady stream of reports over the next few years. [94]

In 1996, as part of the National Defense Authorization Act for Fiscal Year 1996 (Pub. L. No. 104-106, § 371, 110 Stat. 186, 277–80 (Feb. 10, 1996)), Congress repealed the 1991 provision and codified the DBOF in more detailed legislation, 10 U.S.C. § 2216a, which restricted the DBOF to a list of specified funds and activities. Later that year Congress directed the Secretary of Defense to prepare and submit a comprehensive plan to improve the management and performance of the DBOF. Pub. L. No. 104-201, § 363, 110 Stat. 2422, 2493–94 (Sept. 23, 1996). In December 1996, the Defense Department initiated a reorganization, and in effect a “de-consolidation,” of the DBOF and created four new working capital funds—Army, Navy, Air Force, and Defense-wide.95 The authority to manage working capital funds and certain activities through the DBOF was terminated when section 2216a was repealed in 1998. Pub. L. No. 105-261, div. A, title X, § 1008, 112 Stat. 1920, 2115–17 (Oct. 17, 1998).96 The military working capital funds, however, continued to face management problems following the de-consolidation of DBOF, and GAO continued to issue reports examining the funds. [97]

The funds’ various permutations notwithstanding, the legal issues they raise and the analytical approach used in resolving them are not fundamentally different from other revolving funds, and cases and reports dealing with the military funds have been included in the various topics throughout our discussion. While the funds are certainly here to stay in one form or another, their precise scope and direction will almost certainly continue to evolve. 


56 Available at (last visited Mar. 20, 2008).

57 Congress, of course, can authorize reimbursements to be made to appropriations “currently available” or “then current and chargeable.” See B-75345, May 20, 1948. While this affects the agency’s ability to reuse the money, the reimbursement still cannot remain available beyond the appropriation to which credited.

58 See Senate Committee on Government Operations, Financial Management in the Federal Government, S. Doc. No. 87-11, at 267–68 (1961).

59 As discussed in Chapter 2, section B.4, a provision contained in an annual appropriations act may not be construed as permanent legislation unless the language or nature of the provision makes it clear that Congress intended it to be permanent.

60 See section C.3.a of this chapter for a discussion of public enterprise revolving funds.

61 See GAO, Revolving Funds: Office of the Attending Physician Revolving Fund Can Be Terminated, GAO/AFMD-89-29 (Washington, D.C.: Dec. 21, 1988), at 2–3.

62 These three cases involved the Vessels Operations Revolving Fund, 46 U.S.C. App. § 1241a. While the fund was terminated by Pub. L. No. 109-304, § 19, 120 Stat. 1485, 1710–18 (Oct. 6, 2006), the cases are interesting illustrations of the relationship of receipts to fund operations.

63 The statute in that case, the Office of Personnel Management revolving fund, was subsequently amended to specifically include advances. See 5 U.S.C. § 1304(e)(3)(A).

64 For a detailed analysis of revolving fund use of borrowing authority, see GAO, Spending Authority Recordings in Certain Revolving Funds Impair Congressional Budget Control, PAD-80-29 (Washington, D.C.: July 2, 1980).

65 Our definitions are culled from several sources: GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP (Washington, D.C.: Sept. 2005), at 3–5; I TFM § 2-1520; OMB Cir. No. A-11, Preparation, Submission, and Execution of the Budget, § 20 (July 2, 2007).

66 In most cases, the type of fund should be apparent from the statutory language and context. If not, the account symbol will at least tell you how Treasury regards it. See 1 TFM 2-1530.10 for a list of fund types and their associated Treasury account symbols. See also OMB Cir. No. A-11, Preparation, Submission, and Execution of the Budget, § 20.12 (July 2, 2007).

67 For an overview of federal trust funds, see GAO, Federal Trust and Other Earmarked Funds: Answers to Frequently Asked Questions, GAO-01-199SP (Washington, D.C.: Jan. 2001).

68 The Acquisition Services Fund replaced the General Services Administration’s General Supply Fund and Information Technology Fund.

69 Other working capital funds include 7 U.S.C. § 2235 (Agriculture); 15 U.S.C. § 278b (National Institute of Standards and Technology); 20 U.S.C. § 3483 (Education); 22 U.S.C.
§ 2684 (State); 28 U.S.C. § 527 (Justice); 29 U.S.C. §§ 563, 563a (Labor); 31 U.S.C. § 322 (Treasury); 40 U.S.C. § 293 (General Services Administration); 42 U.S.C. § 3513 (Health and Human Services); 42 U.S.C. § 3535(f) (Housing and Urban Development); 43 U.S.C. § 1467 (Interior); 43 U.S.C. § 1472 (Bureau of Reclamation); and 49 U.S.C. § 327 (Transportation). The Defense Department legislation (10 U.S.C. § 2208) is covered separately.

70 Memorandum of Agreement Between the Department of Defense and the General Services Administration, Dec. 2006, available at (last visited Mar. 20, 2008); Memorandum of Agreement Between the Department of Defense and the Department of Interior, March 6, 2007, available at (last visited Mar. 20, 2008).

71 Most federal agencies have authority to enter into a 1-year severable services contract at any time during the fiscal year extending into the next fiscal year, and to obligate the total amount of the contract to the appropriation current at the time the agency entered into the contract. See, e.g., 41 U.S.C. § 253l and 10 U.S.C. § 2410a. Chapter 5, section B.9.a, provides additional information about this authority.

72 See Memorandum from the Under Secretary of Defense to Secretaries of the Military Departments, Chairman of the Joint Chiefs of Staff, Under Secretaries of Defense, and other DOD officials, Subject: Non-Economy Act Orders, Oct. 16, 2006, available at (last visited Mar. 20, 2008).

73 U.S. Const. art. I, § 9, cl. 7 (discussed in Chapter 1, section B).

74 Some have argued that a law making moneys available from some source other than the general fund of the Treasury is not an appropriation. See Chapter 2, section B.1.

75 A management fund may or may not be a revolving fund. See, e.g., 10 U.S.C. § 2209.

76 Technically, 50 Comp. Gen. 323 involved a “special deposit account,” but the decision points out that it was similar to a revolving fund in that it authorized the crediting of receipts and their use for specified purposes.

77 GovWorks is now the Acquisition Services Directorate. See (last visited Mar. 20, 2008).

78 The key here is “earned.” Earned receipts and collections are the component of the fee that reimburses the revolving fund for the cost of its operations. Advances a customer agency makes to a revolving fund have not yet been earned and retain their fiscal year character.

79 The Information Technology Fund has since been merged with the GSA General Supply Fund to become the Acquisition Services Fund. Pub. L. No. 109-313, § 3, 120 Stat. 1734, 1735–37 (Oct. 6, 2006), codified at 40 U.S.C. § 321.

80 An indefinite-delivery, indefinite-quantity (IDIQ) contract is a form of indefinite-quantity contract, which provides for an indefinite quantity of supplies or services, within stated limits, during a fixed period. For a detailed discussion of IDIQ contracts, see Chapter 5, section B.8.

81 E.g., B-308944, July 17, 2007 (Department of Interior revolving fund); B-288142, Sept. 6, 2001 (FEDLINK revolving fund).

82 E.g., B-286661, Jan. 19, 2001 (United States Enrichment Corporation Fund).

83 Both cases discuss the recording of obligations under credit programs financed by revolving funds. While some of the specifics have been superseded by the Federal Credit Reform Act of 1990, 2 U.S.C. §§ 661–661f, in neither case was the applicability of the recording statute called into question.

84 See Chapter 5, section B.8, for a detailed discussion of multiyear contracts.

85 The fiscal year 2008 version of this provision is section 8008 of the Department of Defense Appropriations Act, 2008, Pub. L. No. 110-116, 121 Stat. 1295, 1314–15 (Nov. 13, 2007).

86 See Chapter 7, section B.3, for a more detailed discussion of orders required by law.

87 The report and legal opinion cited in the text both predated the current statutory account closing structure, but the principle should remain valid.

88 One older case seemingly to the contrary, 14 Comp. Gen. 106 (1934), must be regarded as overruled by 62 Comp. Gen. 678 (1983). See 65 Comp. Gen. 838, 841 (1986), and the detailed coverage in Chapter 6, section E.2.b(1).

89 The Acquisition Services Fund replaced the GSA General Supply Fund and the GSA Information Technology Fund. Pub. L. No. 109-313, § 3, 120 Stat. 1734, 1735–37 (Oct. 6, 2006).

90 Pub. L. No. 91-189, § 1, 83 Stat. 851 (Dec. 30, 1969).

91 For further discussion of the interdepartmental waiver doctrine, see Chapter 6, section E.2.c.

92 Although the decision specifically notes that the vehicles were not being used for fund work at the time of the damage, this factor does not appear necessary to the decision.

93 GAO, Financial Management: Defense Business Operations Fund Implementation Status, GAO/T-AFMD-92-8 (Washington, D.C.: Apr. 30, 1992), at 2.

94 E.g., GAO, Defense Business Operations Fund: DOD Is Experiencing Difficulty in Managing the Fund’s Cash, GAO/AIMD-96-54 (Washington, D.C.: Apr. 10, 1996); Defense Business Operations Fund: Management Issues Challenge Fund Implementation, GAO/AIMD-95-79 (Washington, D.C.: Mar. 1, 1995); Financial Management: Status of the Defense Business Operations Fund, GAO/AIMD-94-80 (Washington, D.C.: Mar. 9, 1994).

95 Memorandum from the Under Secretary of Defense (Comptroller), Subject: Working Capital Funds for Defense Support Organizations, Dec. 11, 1996. The reorganization is noted in GAO, Navy Ordnance: Analysis of Business Area Price Increases and Financial Losses, GAO/AIMD/NSIAD-97-74 (Washington, D.C.: Mar. 14, 1997).

96 The authority for the Army, Navy, Air Force, and Defense-wide working capital funds continues to be 10 U.S.C. § 2208.

97 See, e.g., GAO, Navy Working Capital Fund: Management Action Needed to Improve Reliability of the Naval Air Warfare Center’s Reported Carryover Amounts, GAO-07-643 (Washington, D.C.: June 26. 2007); Army Depot Maintenance: Ineffective Oversight of Depot Maintenance Operations and System Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 2005); Air Force Depot Maintenance: Improved Pricing and Cost Reduction Practices Needed, GAO-04-498 (Washington, D.C.: June 17, 2004); Defense Logistics: Better Fuel Pricing Practices Will Improve Budget Accuracy, GAO-02-582 (Washington, D.C.: June 21, 2002).

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