United States General Accounting Office 

Washington, DC 20548 

B-300480 

April 9, 2003 

The Honorable Christopher Bond 

Chairman 

The Honorable Barbara Mikulski 

Ranking Minority Member 

Subcommittee on VA, HUD, and Independent Agencies 

Committee on Appropriations 

United States Senate 

Subject: Obligational Practices of the Corporation for National and Community

 Service

This responds to your letter dated February 25, 2003. You requested that we 

determine whether the Corporation for National and Community Service 

(Corporation) incurs a legal liability for the award of national service educational 

benefits of AmeriCorps participants at the time it enters into a grant agreement 

authorizing a grantee to enroll a certain number of AmeriCorps participants, or at the 

time a participant enrolls in the AmeriCorps program. Subsequent to your letter, your 

staff explained to us that your question arises in the context of your efforts to ensure 

that the Corporation is properly recording obligations of the Corporation for National 

and Community Service National Service Trust (Trust). 

As we explain in further detail below, the Corporation incurs an obligation for 

education benefits when it enters into a grant agreement. At the time of grant award, 

the Corporation approves the grantee’s enrollment of a specified number of new 

participants in the AmeriCorps program. By this action, the Corporation incurs a 

legal duty that once fully matured, by action of the grantee and participants outside 

the Corporation’s control, will require the Corporation to pay education benefits to 

qualified participants from the National Service Trust. As the Corporation incurs an 

obligation for the education benefits, it must record the obligation against the budget 

authority available in the Trust. 

You also requested that we review the Corporation’s request for a deficiency 

appropriation for the Trust. We will provide a subsequent response addressing this 

request. 
Page 2 B-300480 

BACKGROUND 

The Corporation for National and Community Service was created to help community 

needs in education, the environment, and public safety, to expand educational 

opportunity by rewarding individuals who participate in national service, and to 

encourage citizens to engage in national service. National and Community Service 

Trust Act of 1993, Pub. L. No. 103-82, 107 Stat. 785, 42 U.S.C. § 12501. One of the 

three national service programs the Corporation oversees is AmeriCorps. 

Participants in the AmeriCorps program who successfully complete a required term 

of service earn a national service educational award of up to $4,725 that can be used 

to pay for college, graduate school, an approved school-to-work program, or qualified 

student loans. 42 U.S.C. § 12604(a); 45 C.F.R. § 2527.10. Participants who earn the 

award have up to 7 years in which to use it. 42 U.S.C. § 12602(d)(1). While the 

Corporation pays the education benefits directly from the Trust, 42 U.S.C. § 12601(c),

the Corporation also is authorized to make grants for the purpose of assisting grant 

recipients in carrying out national service programs. 42 U.S.C. § 12571(a). The 

Corporation provides grant funds for program costs, including a stipend, and health 

and child care coverage. In its grants, the Corporation also approves enrollment of a 

specified number of new participants. See, e.g., AmeriCorps Grant Award to City 

Year, Inc., Aug. 3, 2000.1

 Most of the grant funding from the Corporation for 

AmeriCorps programs goes to governor-appointed state service commissions, which 

award subgrants to nonprofit groups, who then enroll the AmeriCorps participants. 

Corporation for National and Community Service website, http://www.national 

service.org. 

The AmeriCorps program is funded through the Departments of Veterans Affairs, 

Housing and Urban Development, and Independent Agencies Appropriations Act (VAHUD Appropriations Act). Congress appropriates amounts in the VA-HUD 

Appropriations Act on a no-year basis to the National Service Trust. See, e.g., 

VA-HUD Appropriations Act, 2001, Pub. L. No. 106-377, 114 Stat. 1441 (“not more than 

$70,000,000, to remain available without fiscal year limitation, shall be transferred to 

the National Service Trust account for educational awards authorized under subtitle 

D of title I of the Act”). The National Service Trust is a dedicated fund within the 

Corporation used to pay national service educational awards to eligible participants. 

42 U.S.C. § 12601(c) (“[a]mounts in the Trust shall be available, to the extent provided 

for in advance by appropriation, for payments of national service educational awards 

in accordance with section 12604 of this title”). The amount deposited into the Trust 

is to be equal to the product of the value of a national service educational award and 

the total number of approved national service positions. 41 U.S.C. § 12571(c). Of 

significance is a provision that prohibits the Corporation from approving positions for 

a fiscal year unless sufficient funds are available in the National Service Trust. It 

states that “[t]he Corporation may not approve positions as approved national service 

 

1

 The Corporation provided us with a copy of this grant agreement. 
Page 3 B-300480 

positions ... for a fiscal year in excess of the number of positions for which the 

Corporation has sufficient available funds in the National Service Trust for that fiscal 

year . . . .” 42 U.S.C. § 12581(f). 

Your question arises in the context of the Corporation’s decision to suspend 

participant enrollment in the fall of 2002 because the Corporation feared that the 

Trust would not have sufficient funds to cover education awards for all approved 

enrollees. For fiscal year 2002, the President did not request and the Congress did 

not appropriate funds for the Trust, based apparently on the Administration’s 

determination that sufficient funds were available to support fiscal year 2002 

education benefit outlays. Letter from Phillip J. Perry, General Counsel, Office of 

Management and Budget, to Susan A. Poling, Associate General Counsel, General 

Accounting Office (GAO), Mar. 31, 2003. According to the Corporation’s General 

Counsel, in the fall of 2002, internal controls alerted the Corporation to the fact that 

grantees were enrolling members at an unexpectedly high rate, and the Corporation 

determined that “in all likelihood the obligations associated with those approved 

positions would exceed budgetary resources in the National Service Trust.” Letter 

from Frank R. Trinity, General Counsel, Corporation for National and Community 

Service, to Susan A. Poling, Associate General Counsel, GAO, Mar. 21, 2003. In 

response, the Corporation amended all AmeriCorps grants to suspend enrollments as 

of November 15, 2002, and did not permit any additional enrollments until Congress 

appropriated additional funds to the Trust. Id. Notwithstanding these actions, 

according to the audit of the Corporation’s fiscal year 2002 financial statements, in 

fiscal year 2002, the Corporation had approved AmeriCorps national service positions 

in excess of the number of positions that the Trust could support and thus violated 

42 U.S.C. § 12581(f). Audit of the Corporation for National and Community Service’s 

Fiscal Year 2002 Financial Statements, Audit Report 03-01 at 24, KPMG, Feb. 4, 2003. 

ANALYSIS 

The issues presented are (1) when does the Corporation incur an obligation for 

education benefits, and (2) in what amount does the Corporation incur an obligation 

for these benefits. Understanding the concept of an obligation and properly 

recording obligations are important because an obligation serves as the basis for the 

scheme of funds control that Congress envisioned when it enacted such fiscal laws as 

the Antideficiency Act. 31 U.S.C. § 1341(a); B-237135, Dec. 21, 1989. Under that act, 

an agency may not incur an obligation in excess of the amount available to it in an 

appropriation, 31 U.S.C. § 1341(a); accordingly, proper recording of obligations 

permits compliance with the Antideficiency Act by ensuring that government 

agencies have adequate budget authority to cover all of their obligations. 42 Comp. 

Gen. 272, 275 (1962). 

Determining the Obligational Event

A general definition of an obligation is “a definite commitment that creates a legal 

liability of the government for the payment of goods and services ordered or 
Page 4 B-300480 

received.” B-116795, June 18, 1954. A legal liability is defined, generally, as any duty, 

obligation or responsibility established by a statute, regulation, or court decision, or 

where the agency has agreed to assume responsibility in an interagency agreement, 

settlement agreement, or similar legally binding document. See Black’s Law 

Dictionary 925 (7th ed. 1999). While we ordinarily consider obligations as “legal 

liabilities,” for the concept to be meaningful for funds control purposes, we have not 

limited the definition solely to agency actions that create legal liabilities, but also 

have extended the definition to include “[a] legal duty on the part of the United States 

which constitutes a legal liability or which could mature into a legal liability by virtue 

of actions on the part of the other party beyond the control of the United States . . .” 

42 Comp. Gen. 733, 734 (1963); see also McDonnell Douglas Corp. v. United States, 

37 Fed. Cl. 295, 301 (1997). 

When the Corporation awards a grant, it enters into a binding agreement authorizing 

the grantee to enroll a specified number of new participants in the AmeriCorps 

program. In addition, when the Corporation enters into grant agreements with state 

service commissions, it specifies the budget and project period of the award, the total 

number of positions approved, the total amount awarded for related program costs 

for the approved positions, and the terms of acceptance. See, e.g., AmeriCorps Grant 

Award to City Year, Inc., Aug. 3, 2000. The amounts awarded for related program 

costs are used by the grantee to pay participants’ stipends and health and child care 

coverage. The Corporation incurs an obligation for these program costs at the time 

of grant award.2

 See, e.g., B-289801, Dec. 30, 2002; B-167790, Jan. 15, 1973. The costs 

of education benefits for the new participants are not specified in the grants. 

Nevertheless, at the time of grant agreement, the Corporation commits to fund 

education benefits for all of the positions approved in the grant if all of the positions 

are enrolled before the Corporation modifies the terms or conditions of the grant. 

Letter from Frank R. Trinity, General Counsel, Corporation for National and 

Community Service, to Susan A. Poling, Associate General Counsel, GAO, Mar. 21, 

2003. At the time of grant award, when the Corporation approves enrollment of a 

specified number of new participants, the Corporation has taken an action that can 

mature into a legal liability for the education benefits of the new participants by 

virtue of actions taken by the grantee and participants, not the Corporation. In other 

words, upon award of the grant, the Corporation, at a minimum, has accepted “[a] 

legal duty . . . which could mature into a legal liability by virtue of actions on the part 

of the grantee beyond the control of the United States.” 42 Comp. Gen. 733, 734 

(1963). In our view, therefore, the Corporation incurs a recordable obligation at grant 

award for the education benefits of the approved number of new participants. 

 

2

 We have not examined and accordingly express no opinion on whether the 

Corporation is appropriately obligating these costs in the applicable appropriation 

account. 
Page 5 B-300480 

We think our view of when the obligational event occurs is entirely consistent with 

applicable provisions of the National and Community Service Trust Act. As noted 

above, the Act requires the Trust to have adequate funds to cover the total number of 

approved positions. 42 U.S.C. § 12581(f). The language of section 12581(f) focuses 

on the Corporation’s approval of positions as the obligational event for fund control 

purposes: “[t]he Corporation may not approve positions as approved national service 

positions . . . for a fiscal year in excess of the number of such positions for which the 

Corporation has sufficient available funds in the National Service Trust for that fiscal 

year . . . .” 

The General Counsel of the Corporation has concluded, however, that the 

obligational event with respect to the education award occurs no earlier than the 

enrollment of an individual in the Trust. Letter from Frank R. Trinity, General 

Counsel, Corporation for National and Community Service, to Susan A. Poling, 

Associate General Counsel, GAO, Mar. 21, 2003. In the past, the Corporation 

recorded education award obligations on an outlay basis, i.e., it recorded an 

obligation at the time of the quarterly drawdown of education awards from the Trust. 

Id. The General Counsel explained, however, that the Corporation is in the process 

of modifying its procedures for recording obligations and now will record obligations 

at the time of enrollment based on estimates of what these enrolled members will 

draw down in the future. Id. 

The General Counsel stated that the Corporation does not incur an obligation for an 

education award until the time of enrollment because the Corporation may modify 

the terms and conditions of a grant, including suspension of enrollment into the 

Trust, prior to the enrollment of all positions initially approved in a grant. According 

to the General Counsel, this permits the Corporation, if necessary, to prevent a 

shortfall in the Trust. The General Counsel also stated that “a binding agreement 

between the Government and an AmeriCorps member exists only upon the member’s 

authorized enrollment in the Trust.” Id. While it may well be true that the 

Corporation has no binding agreement with a participant until the participant enrolls, 

we do not view this as the controlling consideration for funds control purposes. In 

our opinion, this view overlooks the legal duty the Corporation incurs at time of grant 

award when it commits to funding a specified number of participants and ignores the 

constraint imposed on the Corporation by section 12581(f). 

The Corporation, by its own admission, may modify the number of approved 

participants only if it amends the grant agreement to reduce the number of enrolled 

positions prior to enrollment. While the Corporation may unilaterally reduce the 

number of authorized positions awarded to a grantee prior to participant enrollment, 

from the time of grant award until the Corporation acts to reduce the approved 

number of positions, the grantee and its subgrantee, not the Corporation, controls the 

number of participants who may enroll, up to the maximum number of participants 

the Corporation has approved in the grant agreement. The fact that the government 

may have the power to amend unilaterally a contract or agreement does not change 

the nature or scope of the obligation incurred at time of award. Were it otherwise, 
Page 6 B-300480 

every government contract that permits the government to terminate the contract for 

the convenience of the government (48 C.F.R. § 49.502), or to modify the terms of the 

contract at will (48 C.F.R. §§ 52.243-1, 243-2, 243-3), would not be an obligation of the 

government at time of award. Long-standing practice and logic both of the Congress 

(31 U.S.C. § 1501, 41 U.S.C. § 5) and the accounting officers of the government 

(B-234957, July 10, 1989, B-112131, Feb. 1, 1956) have rejected such a view. As we 

explained earlier, at the time of grant award, the Corporation’s approval of a specified 

number of new participants establishes a legal duty that can mature into a legal 

liability for education benefits by virtue of actions of the grantee that are beyond the 

control of the Corporation unless the Corporation takes affirmative action to modify 

the grant. 

Amount of the Obligation

For purposes of identifying the amount of the Corporation’s obligation at grant 

award, it is also significant that the grantee and subgrantee, by their actions in 

enrolling participants, ultimately control the amount of the Corporation’s liability. If 

the amount of liability of the government is under the control of the grantee, not the 

Corporation, the government should obligate funds to cover the maximum amount of 

the liability. See, e.g., B-238581, Oct. 31, 1990; B-197274, Sept. 23, 1983. As more 

information is known, the Corporation may adjust the obligation, i.e., deobligate 

funds or increase the obligational level, as needed. 

The General Counsel stated that at the time a member enrolls and the Corporation 

records an obligation for the member’s education benefits, the Corporation will 

record its “best estimate of the Government’s ultimate liability for education awards 

provided to members enrolled in the National Service Trust.” Letter from Frank R. 

Trinity, General Counsel, Corporation for National and Community Service, to Susan 

A. Poling, Associate General Counsel, GAO, Mar. 21, 2003. According to the General 

Counsel, the model the Corporation will use to make estimates of what enrolled 

members will draw down in the future, i.e., the amount the Corporation will obligate, 

uses historical information, such as attrition rate and actual usage by members who 

complete a term of service and earn an education award. 

It appears to us that the Corporation is confusing its accounting liability, projections 

booked in its proprietary accounting systems for financial statement purposes, with 

its legal liability, amounts to be recorded in its obligational accounting systems and 

tracked in order to ensure compliance with fiscal laws. For proprietary accounting 

purposes a liability is a probable and measurable future outflow or other sacrifice of 

resources as a result of past transactions or events. FASAB Statement of Federal 

Financial Accounting Standards Number 1. Some types of projections of accounting 

liability consider the same factors, such as historical trends, that are considered in 

the Corporation’s model. For purposes of tracking its obligations, the Corporation 

should be recording its unmatured legal liability for the education benefits, which is 

the value of an educational award multiplied by all approved positions. At the time of 

grant award, the Corporation should record an obligation incurred for the education 
Page 7 B-300480 

benefits against the National Service Trust and the obligation incurred for the related 

program costs awarded for each of the approved positions against the appropriate 

account in the VA-HUD Appropriations Act. As the grantees’ authority under the 

grant agreement to enroll participants in the AmeriCorps program expires or if the 

Corporation modifies the grantees’ authority, under the grant agreement the 

Corporation should deobligate previously obligated amounts to reflect the change in 

the Corporation and the Trust’s legal exposure. 

We trust this is responsive to your request. If you have any questions, please contact 

Susan A. Poling, Associate General Counsel, at 202-512-5644. 

Anthony H. Gamboa 

General Counsel 
Page 8 B-300480 

DIGEST 

The Corporation for National and Community Service incurs an obligation for 

education benefits when it enters into a grant agreement. At the time of grant award, 

in approving enrollment of a specified number of new participants, the Corporation 

incurs a legal duty that once fully matured, by action of the grantee and participants 

outside the Corporation’s control, will require the Corporation to pay education 

benefits to qualified participants. As the Corporation incurs an obligation for the 

education benefits, it must record the obligation against the budget authority 

available in the National Service Trust. The Corporation’s liability at time of grant 

award is equal to the number of approved positions in a grant award multiplied by the 

total value of a national service educational award plus the program costs awarded in 

the grant for each of the approved positions.