Problems Caused by Imprecise Terminology

1
To Spend? or Expend?
That is the Question

• Problems Caused by Imprecise Terminology

2
What is Spending?

• Umbrella term
• Covers a range of actions
• Definition depends on intent of question

3
"Spending"
4

• What is an Obligation?

5

• A promise to pay for something -- right away or
  later
• As you pay for the obligation, it goes away

6
Government Definition

• Orders placed,
• Contracts awarded,
• Grants issued,
• Services received, etc.--
• -- that will require payments (outlays) during
  the same or a future period.

7
Statutory Definition
31 USC 1501 An amount shall be recorded as an
obligation of the United States Government only
when supported by documentary evidence of-

• A binding agreement
• A loan agreement
• Order required by law
• A grant or subsidy

• A liability from litigation
• Employment of persons
• Public utilities services
• Other

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Obligations are Classified as
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• What is an Outlay?

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• A payment of an obligation
• Once all payments are made, the obligation goes
  away (is liquidated)
• Outlays during a fiscal year may be for payment
  of obligations incurred in prior years or in the
  same year.

11
Outlays are Paid Obligations
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How do we Link to the Budget?

• Accounting events are assigned unique identifiers
  from a standard government-wide list (U.S.
  Standard General Ledger)
• All federal agencies are required to use these
  standard accounts in order to properly link to
  the Budget

13
SGL Accounts
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Other Information Needed

• In order to properly crosswalk the balances in
  these SGL accounts to the budget, we also need to
  identify
• Whether the balances are new or expired
• Whether the balances are from the beginning of
  the year or the end

15
Budget PF Schedule Line 1000

• Total New Obligations
• All new obligations, whether paid or not
• Total of balances in SGL accounts
• 4801
• 4802
• 4901
• 4902

16
Crosswalk SGL to PF
http//www.fms.treas.gov/ussgl/tfm_releases/06-02/
2006/sec5_crosswalks_entire_2006.pdf
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Total Obligations in the Budget
18
Budget PF Schedule Lines 7240/7440

• Obligated Balance, Start/End of Year
• All unpaid obligations at the beginning/end of
  the year
• Total BOY/EOY balances in SGL accounts
• 4801
• 4901

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Obligated Balances in the Budget
20
Budget PF Schedule Line 7320

• Total Outlays
• All paid obligations at the end of the year
• Total EOY balances in SGL accounts
• 4802
• 4902

21
Outlays in the Budget
22
What does Expend Mean?
What is an Expenditure?
23

• In 1956, Congress passed amendments to the Budget
  and Accounting Act of 1921 requiring accounts to
  be maintained on an accrual basis (P.L. 84-863).

24
What is an Accrued Expenditure?

• the financial measure of the requirement to pay
  for goods or services that have been ordered and
  received.
• GAO, Frequently Asked Questions About Accrual
  Accounting in the Federal Government, 1970

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What is an Accrued Expenditure?

• Chargesthat reflect liabilities incurred and the
  need to pay for
• services
• goodsreceived
• amounts becoming owed under programs for which no
  current service or performance is required (such
  as annuities, benefit payments..)
• Expenditures accrue regardless of when cash
  payments are made
• GAO, Glossary of Federal Terms Used in the
  Federal Budget Process, 1981.

26
What is an Expended Appropriation?

• Chargesthat reflect liabilities incurred and the
  need to pay for
• services
• goodsreceived
• amounts becoming owed under programs for which no
  current service or performance is required (such
  as annuities, benefit payments..)
• Expended appropriationsaccrue regardless of when
  cash payments are made
• GAO, Glossary of Federal Terms Used in the
  Federal Budget Process, 1993

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Expenditures in the Budget (A)
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What is an Expenditure?

• With respect to provisions of the Antideficiency
  Act and the Congressional Budget and Impoundment
  Control Act of 1974, the term expenditures has
  the same definition as outlays.
• GAO, Glossary of Federal Terms Used in the
  Federal Budget Process, 1993

29
Accrual Accounting Events
30
Expenditures in the Budget (B)
31
What is an Expenditure?

• In one sense, an expenditure is a disbursement,
  outlay, amount of checks issuedor other payment
  made by a federal entity
• Cornelius Tierney, Federal Accounting Handbook
  (Policies, Standards, Procedures, Practices),
  2000.

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What is an Expenditure?

• An appropriation expenditure is also a reduction
  in an appropriation or other budget authority
  related to the receipt of goods and services
  ordered. The expending of an appropriation
  reverses, partially or in total, the earlier
  accounting entry made to record the formal
  obligation of appropriated funds. This expended
  appropriation status is not dependent upon
  whether the related obligations have been paid or
  an invoice received.
• Cornelius Tierney, Federal Accounting Handbook
  (Policies, Standards, Procedures, Practices),
  2000.

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What is an Expenditure?

• .The descriptor expended, used in the
  budgetary context, refers to the reduction or
  consumption of appropriation or budgetary
  authority funds expended are no longer available
  for obligation for the purchase of goods or
  services
• Cornelius Tierney, Federal Accounting Handbook
  (Policies, Standards, Procedures, Practices),
  2000.

34
Two Definitions of Expended

• The reduction or consumption of budget authority.
• Disbursement or outlay.

The American Heritage Dictionary of the English
Language provides the following definitions and
synonyms of expend to use up consume. to
lay out spend.
35
Problem 1

• Sec. 101(d) ... If all the amounts in the Fund
  have not been expended by the end of the 5-year
  period, investments of amounts in the Fund shall
  be liquidated, the receipts of such liquidation
  shall be deposited in the Fund, and all funds
  remaining in the Fund shall be deposited in the
  miscellaneous receipts account in the Treasury of
  the United States.

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• Does expended mean outlaid or consumed?

Are there guidelines to help us decide?
37
GAO Red Book
There is afrequently cited canon of
construction that statutory language will not be
interpreted literally if doing so would produce
and absurd consequence or absurd result, that
is, one that the legislature, presumably, could
not have intended.
38
Reductio ad Absurdum
Disproof of a proposition by showing an absurdity
to which it leads when carried to its logical
conclusion.
39
Occams Razor
The simplest of competing theories is preferred
over the more complex.
40
Consequences of Each

• Outlaid
• Paying obligations after the sunset could be an
  ADA violation
• Obligations would have to be timed to permit
  payment before sunset
• Payments made after sunset may have been
  improper
• If you cant pay after sunset, how would you pay
  to misc. receipts?

• Consumed
• Obligations could continue to be paid after
  sunset
• No issue with timing of obligations to insure
  payment by sunset
• No improper payments
• Payment to misc. receipts after sunset not an
  issue

41
Solution to Problem 1

• Congressional Action
• the term expended in section 101(d) of such
  Actshall mean delivered orders-obligations
  unpaid as defined in the United States Standard
  General Ledger Accounts and Definitions.
• Put another way, expended in this context means
  obligated, not outlaid.
• P.L. 108-309

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Expenditures in the Budget (A)
43
Problem 2

• (E) APPROPRIATION.
• (i) IN GENERAL.Out of funds in the Treasury not
  otherwise appropriated, there are appropriated to
  the Secretary to carry out this subsection for
  fiscal year 2006, 7,500,000.
• (ii) AVAILABILITY.Funds appropriated under
  clause (i) shall remain available for expenditure
  through fiscal year 2008.

44
Problem 2

• Does expenditure mean outlay or
  consumption?
• If outlay, the funds are available only for one
  year.
• If consumption, the funds are available until
  2008.

45
Does Outlay Lead to Absurd Conclusion?

• The program funded was for reimbursement of
  outlier costs
• Legislation anticipated pilot sites would incur
  more costs than covered in initial grant over
  time
• Funds were supposed to be available to cover such
  costs during the first 3 years of sites
  operation (in 12-month increments)
• One-year availability incompatible with statutory
  language

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Does Outlay Lead to Absurd Conclusion?

• There was an availability clause
• AVAILABILITY.Funds appropriated under clause (i)
  shall remain available for expenditure through
  fiscal year 2008.
• Availability historically refers to
  availability for obligation
• When an appropriation is by its terms available
  for a fixed period of time, the general rule is
  that the availability relates to the authority to
  obligate the appropriation (GAO Red Book, Vol.
  1, Ch. 5)
• No need for Availability clause if
  expenditure means outlay since ADA already
  limits time for outlay

47
Lets revisit Tierneys Definition

• .The descriptor expended, used in the
  budgetary context, refers to the reduction or
  consumption of appropriation or budgetary
  authority funds expended are no longer available
  for obligation for the purchase of goods or
  services
• Cornelius Tierney, Federal Accounting Handbook
  (Policies, Standards, Procedures, Practices),
  2000.

48
Consider this

• What is the common understanding of the phrase
  available until expended?
• What does expended mean in this context?
• Outlaid? or
• Consumed?

49
Samples of Appropriating Language Conveying
Multi-year Availability

• available until September 30, 2008
• available through September 30, 2008
• available for obligation until September 30,
  2008
• available for obligation through September 30,
  2008

50
Samples of Appropriating Language Conveying
Multi-year Availability

• appropriated for the period of FYs 2006 through
  2010
• payments shall not exceed 50 million during
  the 4-year period beginning with 2006

51
Samples of Appropriating Language Conveying
Multi-year Availability

• Amounts made available under paragraph (1) for a
  fiscal year shall remain available for the
  awarding of grants to States by not later than
  September 30, 2011.

52
Samples of Appropriating Language Conveying
Multi-year Availability

• Funds appropriated under clause (i) shall remain
  available for expenditure through fiscal year
  2008.
• If expenditure in this context means
  consumed, it is yet another sample of language
  conveying multi-year authority

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Solution to Problem 2

• None to-date.
• The funds expired 9/30/06.

54
Conclusions

• There are two incompatible definitions of
  expend or expenditure
• The ideal way to settle the issue is for Congress
  to define terms accurately in statute
• A-11 should clearly define expenditure and
  establish the criteria for proper usage
• GAO should clarify the terminology in their
  Glossary of Federal Terms Used in the Federal
  Budget Process

55
Conclusions

• But, when there is confusion
• Consider the context to determine the correct use
  of the term. Ask ourselves What did Congress
  intend? or better yet, ask them!
• Consider whether there are absurd consequences
  to the proposed usage.
• Look for the simplest answer, not the one that
  creates complexity.

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• Questions?

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Some Basic Concepts Life Cycle
Appropriation
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Some Basic Concepts Life Cycle
There are three possibilities for the status of
resources
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Some Basic Concepts Life Cycle
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Some Basic Concepts Life Cycle End of Year 1
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Some Basic Concepts Life Cycle End of Year 2
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Some Basic Concepts Life Cycle End of Year 3
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Some Basic Concepts Life Cycle End of Year 4
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Some Basic Concepts Life Cycle End of Year 5
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Some Basic Concepts Life Cycle End of Year 6