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PRUDENT PLANNING OR WASTEFUL BINGE? 

ANOTHER LOOK AT END OF THE YEAR SPENDING 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FEDERAL SPENDING 

OVERSIGHT AND EMERGENCY MANAGEMENT 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 20, 2017 

Available via http://www.fdsys.gov 

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

RON JOHNSON, Wisconsin, Chairman 

JOHN MCCAIN, Arizona 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JAMES LANKFORD, Oklahoma 

MICHAEL B. ENZI, Wyoming 

JOHN HOEVEN, North Dakota 

STEVE DAINES, Montana 

CLAIRE MCCASKILL, Missouri 

THOMAS R. CARPER, Delaware 

JON TESTER, Montana 

HEIDI HEITKAMP, North Dakota 

GARY C. PETERS, Michigan 

MAGGIE HASSAN, New Hampshire 

KAMALA D. HARRIS, California 

CHRISTOPHER R. HIXON, Staff Director 

MARGARET E. DAUM, Minority Staff Director 

LAURA W. KILBRIDE, Chief Clerk 

BONNI DINERSTEIN, Hearing Clerk 

SUBCOMMITTEE ON FEDERAL SPENDING OVERSIGHT AND EMERGENCY 

MANAGEMENT 

RAND PAUL, Kentucky, Chairman 

JAMES LANKFORD, Oklahoma 

MICHAEL B. ENZI, Wyoming 

JOHN HOEVEN, Montana 

GARY C. PETERS, Michigan 

MAGGIE HASSAN, New Hampshire 

KAMALA D. HARRIS, California 

GREG MCNEILL, Staff Director 

ZACHARY SCHRAM, Minority Staff Director 

KATE KIELCESKI, Chief Clerk 
(III) 

C O N T E N T S 

Opening statement: Page 

Senator Paul ..................................................................................................... 1 

Senator Peters .................................................................................................. 2 

Prepared statement: 

Senator Paul ..................................................................................................... 21 

Senator Peters .................................................................................................. 23 

WITNESSES 

WEDNESDAY, SEPTEMBER 20, 2017 

Jason J. Fichtner, Ph.D., Senior Research Fellow, Mercatus Center at George 

Mason University ................................................................................................. 5 

Hon. Allan V. Burman, Ph.D., Commissioner, Section 809 Panel ....................... 7 

Heather Krause, Director, Strategic Issues, U.S. Government Accountability 

Office ..................................................................................................................... 9 

ALPHABETICAL LIST OF WITNESSES

Burman, Hon. Allan V. Ph.D.: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 66 

Fichtner, Jason J. Ph.D.: 

Testimony .......................................................................................................... 5 

Prepared statement with attachment ............................................................. 26 

Krause, Heather: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 73 

(1) 

1The prepared statement of Senator Paul appears in the Appendix on page 21. 

PRUDENT PLANNING OR WASTEFUL BINGE? 

ANOTHER LOOK AT END-OF-THE-YEAR 

SPENDING 

WEDNESDAY, SEPTEMBER 20, 2017 

U.S. SENATE, SUBCOMMITTEE ON FEDERAL SPENDING, OVERSIGHT AND EMERGENCY MANAGEMENT, OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:30 p.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Rand Paul, Chairman of the Subcommittee, presiding. 

Present: Senators Paul, Peters, and Harris. 

OPENING STATEMENT OF SENATOR PAUL1

Senator PAUL. I call this hearing of the Federal Spending Oversight Subcommittee to order, exactly at 2:30, not a second before 

or a second after, which is unusual to start on time. 

Today we are looking at a phenomenon known as ‘‘use it or lose 

it’’: the practice of going on a spending binge at the end of the year 

before funds expire and go back to the Treasury. 

We had a hearing on this same subject two years ago, and what 

we heard was shocking. Our witness then, Dr. Fichtner, who is 

back to testify today, told us that September spending nearly doubles as compared to August, which is already higher than average. 

Another study showed, on average, spending jumps nearly 500 

percent in the last week of the fiscal year (FY) as compared to the 

preceding 51-week average. Not only that, we have seen data indicating that on the last day of the fiscal year, money actually moves 

to the West as the sun sets and they continue to spend it as 5 

o’clock approaches on the west coast. 

That is the data, but the stories we have heard may be even 

more telling. We have been told of the military hovering aircrafts 

at the end of runways just to burn off fuel and soldiers sent to the 

shooting range sometimes for an entire day just to expend ammunition. 

Of course, I cannot forget when we took over this Subcommittee 

we found toner cartridges for an obsolete printer stacked to the 

ceiling of the Subcommittee’s office space because the Chairman 

preceding had said, ‘‘We have to expend it, we have to spend it, we 

got this money, we got to get rid of it.’’ So I am not sure exactly 
2 

1The prepared statement of Senator Peters appears in the Appendix on page 23. 

what happened to those cartridges, but I know that they were a 

waste of money. 

There is no question this happens, but some argue it is solely 

caused by continuing resolutions (CR) and that the purchases really are not bad, just delayed. I do not like continuing resolutions 

and have never really voted for one, and I agree they play a part 

in the end-of-the-year spending, but the data does not support that 

this is ‘‘good’’ spending that is just simply delayed to the end of the 

year. 

Studies have shown that the quality of contracts written at the 

end of the year are of almost five times lower quality than those 

written during the rest of the fiscal year. 

We discovered that while the State Department and the United 

States Agency for International Development (USAID) spend 

roughly 25 percent of their budget in September, more than a third 

of the waste we found in these agencies seemed to be found in September. This includes funding for such things as Ultimate Frisbee 

in China, a bird-watching strategy for Honduras, and something 

called ‘‘Skateistan.’’ You do not want to know what that is, I do not 

believe. None of these can be simply chalked up to delays caused 

by late appropriations. These have been going on decade after decade. 

How do we fix this problem? I think a part of the solution could 

be the Bonuses for Cost-Cutters Act. This is a bill that I have put 

forward that is a bipartisan bill that simply gives bonuses to Federal employees that find wasteful spending that can be eliminated. 

In the last Congress, this bill passed out of Committee with bipartisan support. The House version passed out of the Government 

Oversight Committee on a voice vote. 

It would seem like a simple, noncontroversial bill that should sail 

through Congress and save the taxpayers money. 

Reining in and controlling end-of-the-year spending binges 

should be a bipartisan priority. Hopefully, our hearing today will 

renew interest on both sides of the aisle to address accelerated 

wasteful spending at the end of the fiscal year. 

With that, I would like to recognize Ranking Member Peters for 

his opening statement. 

OPENING STATEMENT OF SENATOR PETERS1

Senator PETERS. Well, thank you, Chairman Paul, for convening 

this hearing to examine end-of-year spending and explore options 

for mitigating wasteful spending. Regardless of when it occurs, 

wasteful spending is simply inexcusable, and I appreciate the opportunity to gather experts today to search for solutions and to do 

what we can to protect taxpayer dollars. 

I would like to also give a sincere thank you to our distinguished 

panel of guests for taking the time to participate in this discussion 

today. The insights from your work are helpful in framing our discussion and allowing us to focus on some very central issues. 

Among those central issues is the question of what is really happening as agencies routinely ramp up their spending volume toward the end of each fiscal year. First, what drives this behavior? 
3 

And, second, are there risks involved that make this spending particularly vulnerable to waste and abuse? 

Concerning the high volumes of spending on certain purchases in 

August and September, I think we can all relate to the phenomenon of rushing to complete a task before an impending deadline. As a Senator, I can certainly relate to that fact, and oftentimes my schedule, as I know Senator Paul’s schedule, revolves 

around the most time-sensitive issues that we are facing on any 

particular given day. And deadlines serve a purpose and create a 

sense of urgency that we sometimes need to finish our work, particularly for long-term projects. 

But deadlines are no reason to become sloppy, or worse, negligent. If we find that our year-end deadlines are causing agencies 

to make poor spending decisions, then we need to diagnose this 

problem while we are also ensuring that we discipline those responsible for making these poor decisions. 

Of course, there are also outside factors that might exacerbate 

the year-end spending surge, like the continuing resolutions that 

Congress keeps settling on or the hiring freeze that the current administration implemented this year. Budget uncertainty can hamper an agency’s ability to effectively plan it’s purchases. 

We have to keep in mind that many Federal purchases require 

more than a simple wave of a wand to complete. Depending on the 

purchase, agencies must consider the required specs for the service 

or the product, request and evaluate bids from vendors, negotiate 

prices, obtain managerial approval on purchase orders, and draft 

contracts detailing the terms of the agreements. 

A lot of work goes into making purchases before a final contract 

is signed, and this series of steps is not merely for show. These 

steps serve as internal controls to mitigate opportunities for individuals to act in bad faith. 

It takes time to go through these steps, which are designed to ensure that funds are spent appropriately. If agencies get a late start 

in that process because Congress or the White House continually 

meddles with their appropriations, it could lead to delays in completing purchases. 

We should do our part in Congress by passing timely budgets 

that limit the uncertainty agencies face in making spending decisions. 

But beyond the factors that might be encouraging end-of-year 

spending binges, let us focus on the extent to which these binges 

lead to wasteful spending. We know spending levels for some purchases increase at the end of the year, but do we know why it 

might lead to increased levels of waste? Why would our internal 

controls fail to prevent wasteful spending as we reach the end of 

the year? 

Do we see evidence that purchasing rules are put aside in September? Are contracts ignored? Do oversight activities become more 

lax? The fundamental question becomes: Are existing internal controls sufficient to prevent wasteful spending at year’s end? And if 

not, where are those failures taking place? 

If it turns out that agencies do not fully adhere to purchasing 

controls at year-end, we have a much larger issue than wasteful 
4 

spending. And I sincerely hope this is not the case, but we need 

to see definitive evidence one way or the other. 

But, please, if any of the witnesses have reason to believe that 

internal controls are weaker at year’s end than at other times of 

the year, please share your findings with us today. It is very important for us to know that. This would be critical information during 

our discussion. 

Dr. Fichtner’s study shows that certain types of spending generally increase in most agencies in August and September every 

year, but it does not go so far as to say that the higher volume of 

spending taking place results in wasteful spending. So let us talk 

about the distinction there a little bit and what we need to focus 

on today. 

There is a distinction between, A, a bad spending decision and, 

B, a bad spending decision that was brought about specifically by 

rushed year-end spending. This is an important distinction because 

it speaks to the focus of this hearing: Does our existing system of 

expiring appropriations instigate wasteful spending decisions? 

This requires more than just identifying a purchase or two that 

we do not like, and I would rather not focus on something as benign as the purchase of a little extra printer paper before the end 

of September. We should spend our time on much larger issues 

than that. 

I would rather focus on the kinds of waste that are blatant, 

where the person responsible for the spending knows that what 

they are doing is simply wrong. I am talking about reports of agencies intentionally burning through fuel on runways for the sole purpose of being able to spend more money later. That is clearly 

waste, and if it actually happens, we should go after these perpetrators to the full extent of the law. 

The most complicated purchases to debate will be those that go 

through all of the existing approval channels and still are thought 

to be wasteful. In those cases, management approved the purchases 

and hypothetically gave an appropriate amount of consideration in 

approving them. If managers are to blame for poor decisions, it 

could be that the expiring appropriation is not so much the issue 

as it is the judgment of the officials approving those purchases. 

But in instances where we believe that the expiring appropriation caused wasteful spending, that is where we will need to focus 

on ways to improve the internal controls in place for year-end 

spending decisions. What should we be doing better to prevent poor 

spending decisions? What has been attempted and what has proven 

successful? Do we need to consider options that will lessen the 

sense of urgency created by an end-of-year spending deadline? 

While internal controls ideally will stop wasteful spending before 

it happens, we also have to consider our options for catching wasteful spending as it occurs. As a member of the Senate Whistleblower 

Protection Caucus, I co-signed letters to 18 agencies in March this 

year asking them to remind employees that they are protected 

when they disclose fraudulent, wasteful, or abusive practices and 

to further remind employees and managers that whistleblowers 

may not be retaliated against. 

The easier it becomes for whistleblowers to report the kind of 

wasteful spending we are concerned about here today, the more 
5 

1The prepared statement of Dr. Fichtner appears in the Appendix on page 26. 

likely we are to root out such spending. Just as we are free to question spending decisions in settings like this, whistleblowers should 

be free to ask questions about and report potentially wasteful actions in their workplace without fear of retaliation. 

And much like we hope and expect for whistleblowers, I hope 

that all of our witnesses feel welcome and comfortable today in 

sharing your insights and experiences as we work together to combat this problem. Please use this forum to give us your honest assessment. I look forward to your testimony and, again, I appreciate 

you being here today. 

Senator PAUL. Thank you, Senator Peters. 

I think as we begin this hearing, to put it into context, we are 

facing this year a $700 billion deficit. If we eliminate all of the endof-the-year spending and fix the problem completely, we are still 

not going to fix the deficit. Some say, ‘‘Well, why bother? It is just 

one or two percent or three percent.’’ Well, you have to start somewhere, and we should try to spend our money more wisely and less 

wastefully. It is not the whole solution, but it could be a stepping 

stone toward trying to be more fiscally responsible. 

With that, I would like to begin by introducing our first witness, 

Dr. Jason Fichtner. He is a senior research fellow at Mercatus Center at George Mason University (GMU). He holds a Ph.D. from Virginia Tech, a Master’s in Public Policy from Georgetown, where he 

is now an adjunct professor, and did his undergrad work at the 

University of Michigan. Dr. Fichtner has studied end-of-the-year 

spending extensively. He is one of the first academics to use online 

Federal spending data to study this phenomenon and testified 

about his research before this Subcommittee two years ago. I think 

it is safe to say that he is one of the foremost experts on this subject, and we are happy to have him back. At this point we would 

like to hear from Dr. Fichtner. 

TESTIMONY OF JASON J. FICHTNER, PH.D.,1 SENIOR RESEARCH FELLOW, MERCATUS CENTER AT GEORGE MASON 

UNIVERSITY 

Mr. FICHTNER. Thank you. Good afternoon, Chairman Paul, 

Ranking Member Peters, and Senator Harris. Thank you for inviting me to testify today, and, Senator Peters, it is good to be here 

with a fellow Detroiter. So thank you for having me. 

My testimony focuses on two key issues: first, the extent to 

which perception of a year-end spending problem is reality; and, 

second, how various reforms would improve the efficiency of spending by Federal Government agencies and departments. 

From this discussion I hope to leave you the following takeaways: 

First, while anecdotes and media stories of year-end spending 

surges are widespread, empirical evidence for year-end spending 

surges and ‘‘use it or lose it’’ spending—or the motivation behind 

this spending—is significantly less available. However, my research 

and recent research by other scholars is beginning to demonstrate 

empirical evidence that a year-end spending phenomenon is real 

and potentially wasteful. 
6 

Two, allowing Federal agencies limited rollover or carryover authority could reduce wasteful year-end spending surges. Similar reforms at the State level and internationally have shown promise, 

but, again, more research is still needed. Additionally, programs 

providing cash bonuses to agency employees whose identification of 

unnecessary expenses results in cost savings for the agencies may 

hold promise. But, again, further research is needed. 

The ‘‘use it or lose it’’ phenomenon refers to the propensity of 

U.S. Government agencies to spend unused fiscal resources toward 

the end of the fiscal year. This spending is allegedly driven by fear 

that leftover resources will be returned to the Department of the 

Treasury and will prompt future congressional budget cuts for the 

agency. My research analyzed publicly available data from 

USASpending.gov related to spending on prime contracts awarded 

by executive departments. My analysis focused on this type of 

spending—which comprised roughly 11 percent of total Fiscal Year 

2015 Federal spending—because the data are readily available. My 

research shows that a remarkably large percentage of Executive 

Branch contract spending occurred near the end of the fiscal year. 

If an agency were to spread its contract spending evenly over a 12- 

month period, roughly 8.3 percent of spending would occur in each 

month. However, in the last month of fiscal year 2015, the Department of State spent 34.9 percent of its contracting expenditures, 

and the Department of Housing and Urban Development (HUD) 

spent 32.6 percent. 

Not all agencies exhibited a year-end spending surge. For example, the Department of Energy spent only 5.7 percent of its annual 

contract expenditures. But as the data show, most Federal agencies 

were well above eight percent, and over one-half of all agencies 

were above 16 percent. Between 2003 and 2015, across all executive departments, 16.3 percent of obligated contract expenditures 

occurred during the last month, September—more than twice what 

we would expect if spending were evenly split over 12 months. 

Focusing on the fiscal year 2015 data, the number of contracts 

signed steadily increases throughout the month of September. In 

the last three days of September, agencies signed 2.5 percent of 

their contracts, and 0.9 percent were signed on the last day. If contracts were evenly distributed, one would expect to see 0.5 percent 

of contracts signed each day. Now, while 0.9 percent of contracts 

may not appear excessive, for some agencies this number amounted 

to a lot of dollars. For example, the State Department signed 2.18 

percent of its total contracts on the last day of the fiscal year; this 

accounted for 7.75 percent of the agency’s total obligated contract 

dollars for the year. 

It is important to point out that the pattern of year-end spending 

surges is evident across all fiscal years analyzed and is not unique 

over the past few Congresses or administrations. Year-end spending surges have become the norm, regardless of administration, 

party control of Congress, or delays in finalizing agency appropriations. 

Academic research and some anecdotal evidence suggest that the 

current budget rule of ‘‘use it or lose it’’ is not optimal and may be 

encouraging wasteful spending of taxpayer dollars. The question re-
7 

1The prepared statement of Dr. Burman appears in the Appendix on page 66. 

mains, as Senator Peters points out: If such spending is indeed 

wasteful, what can be done to reduce it? 

One idea is to allow agencies limited rollover authority—also 

known as ‘‘carryover’’—for funds not spent by the end of the fiscal 

year. The Federal Government could begin with a pilot exercise to 

test the merits of limited rollover authority. Within certain Federal 

departments, agency subcomponents could be given the authority 

to roll over up to five percent of contracting budget authority into 

the next fiscal year. To avoid lengthy delays in the spending and 

to discourage large accumulations, such funds should be spent 

within two years. 

Departments or agencies that wish to participate in the pilot 

could request Congress to do so and could direct the Government 

Accountability Office (GAO) to oversee, audit, and evaluate the program. A pilot program that gives limited rollover authority to several departments, combined with congressional and GAO oversight 

of rollover accounts, would be a useful experiment to see whether 

these changes to the Federal budget process would reduce wasteful 

year-end spending. 

Another potential reform is to create a cash bonus program, as 

Senator Paul has recommended, for agency employees who identify 

savings and return the unspent budget authority to the Treasury. 

A program for bonuses for waste reduction could be included in a 

limited rollover pilot program to test the efficacy of the new initiatives. 

Thank you again for your time and for this opportunity to testify 

today. I look forward to your questions and the continued discussion. 

Senator PAUL. Thank you, Dr. Fichtner. 

Our next witness is Dr. Allan Burman. He is Commissioner of 

the Section 809 Panel. He was also Administrator for Federal Procurement Policy for the U.S. Government under Presidents Reagan, 

Bush, and Clinton. The 809 Panel, on which he serves, was created 

as part of last year’s defense authorization bill and is tasked with 

finding ways to streamline and improve the defense acquisition 

process. I am very interested to hear from you what you have been 

finding, and we hear from former soldiers all the time about the 

military hovering helicopters or driving trucks around in circles to 

burn fuel and all sorts of other wasteful exercises designed to artificially create a justification for September spending. So we are 

very interested in hearing from you about your findings at the Department of Defense (DOD). 

Dr. Burman, you are recognized. 

TESTIMONY OF THE HONORABLE ALLAN V. BURMAN, PH.D., 

COMMISSIONER, SECTION 809 PANEL 

Mr. BURMAN. Thank you very much, Chairman Paul, Ranking 

Member Peters, and Senator Harris. I am pleased to be here today 

to speak on end-year spending surges. I would like to submit my 

statement for the record1 and briefly summarize it, if I may. 

Senator PAUL. Without objection. 
8 

Mr. BURMAN. As you said, the 809 Panel has been charged to 

provide recommendations on defense acquisition reform, including 

ways to maintain Defense’s technological edge, and we have formed 

a number of research teams to look at key issues in trying to 

achieve those objectives, including eliminating unnecessary regulations, identifying barriers to entry for high-tech firms, and improving budgeting practices, and I lead the budgeting team. Of course, 

a key topic of our team is what the subject of this hearing is today, 

incentives that produce end-year spending and their effects on acquisition effectiveness and efficiency. I will present some of the 

issues that the panel is considering. We are in the process of looking at these, so this is still an ongoing effort on our part. 

Just to put defense spending in context, in Fiscal Year 2016 De- fense spent $568 billion, and of that, $298 billion was obligated for 

the purchase of goods and services, products and services. 

Now, if you were obligating money evenly throughout the year, 

you would expect that you would be obligating about eight percent, 

a little more than eight percent of your funds every month. Instead, in our research on what is happening with Defense, we find 

more than 14 percent of the total was spent in 2016 in September, 

and in the final week of the fiscal year, seven percent of the funding. So it is very much in line with what we have heard from Dr. 

Fichtner. 

The surges appear to be concentrated in certain areas, for example, information technology (IT) and building construction and 

maintenance. The three key questions that we are addressing are: 

Are these surges bad? Why do they happen? And what can be done 

about them? 

Some of the preliminary findings we are getting from our data 

analysis and interviews are: With regard to are they bad, we have 

had some stakeholders say no, they do not see any issues with regard to quality. Others say, yes, you are buying lower-priority 

things at the end of the year, but these things, these goods and 

services, are still something that is needed and it is prudent to 

hold off spending in case there should be some kind of an emergency. Many, however, including the work that Dr. Fichtner has 

done, suggest that you get less efficient acquisition outcomes as a 

result of that end-year spending. 

There was another major study done on this subject a couple of 

years ago that shows a very clear correlation between lower-quality 

IT products and end-year spending. We have heard anecdotal comments from many people that support this point. 

What causes these surges? We need to look at the many tiers of 

obligation authority going from Congress to Office of Management 

and Budget (OMB) to service comptrollers, and these various 

spending organizations put constraints on when people can spend. 

But the key result, though, is that people want to spend that by 

the end of the year, or they fear that those funds will be taken or 

they will be lost. 

How have we responded in the past to these kinds of surges? 

There are two mechanisms that have traditionally been 

used—among others. First, multiyear appropriations. For example, 

for research and development (R&D) and procurement accounts, 

there you can obligate money beyond the end of the first year, so 
9 

1The prepared statement of Ms. Krause appears in the Appendix on page 73. 

you are not seeing the same kind of effects that you might see in 

one year money. There is also the 80/20 rule, which says that you 

should spend no more than 20 percent of your operations and 

maintenance funds in the last two months of the fiscal year. That 

appears to just more or less push the spike back a couple of months 

but not necessarily deal with the problem itself. 

So other measures for addressing end-year surges include: 

The Bonus for Cost-Cutters Act that you mentioned, Chairman 

Paul, that directly targets wasteful spending. Here we would want 

to make sure that the incentives between leadership and employees 

are aligned, but we are definitely looking at that as a factor to consider; 

Using working capital funds, which allow an activity to operate 

more like a business, and in that case funds are not tied to endyear deadlines, and some agencies have used those, and Defense 

has a number of them; 

And then, finally, carryover authority, similar to what Dr. 

Fichtner has mentioned, and, in fact, there was an opportunity to 

do that in the Defense Health Agency last year, and it appears that 

it is reducing spikes. 

So we are looking at all of these areas and approaches in terms 

of the recommendations that our committee will be making to the 

Congress. 

This concludes my prepared remarks, and I am happy to answer 

any questions the Committee might have. 

Senator PAUL. Well, thank you, Dr. Burman. 

Our final witness today is Heather Krause, who is Director in 

the U.S. Government Accountability Office, Strategic Issues team. 

In this role Ms. Krause is responsible for developing and leading 

portfolio work on cross-cutting agency budget, regulatory, and 

intergovernmental relations issues. Of interest to us today is her 

work on continuing resolutions and uncertainty in the appropriations process. Ms. Krause holds an M.A. in Public Policy from the 

University of Minnesota and a B.A., also from the University of 

Minnesota. Ms. Krause. 

TESTIMONY OF HEATHER KRAUSE,1 DIRECTOR, STRATEGIC 

ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. KRAUSE. Thank you, Chairman Paul, Ranking Member Peters. Thank you for the opportunity to discuss our work on agency 

responses to budget uncertainties and the effects on year-end 

spending. 

Congress exercises its power of the purse by appropriating funds 

and prescribing conditions governing their use. Federal funding 

may be available to obligate for one year, multiple years, or have 

no time limit. For example, expenses like payroll generally must be 

obligated in one year, while capital investments such as IT modernization efforts can involve funds available for multiple years. 

As funds approach the end of their period of availability for obligation, a ‘‘use it or lose it’’ mentality, as my fellow panelists have 

talked about, can set in among agencies. This can create an incentive to rush to obligate funds. Agencies may also fear that if they 
10 

do not use all the funds in a given year, it could reduce the next 

year’s appropriation. 

On the other hand, there may be good reasons, including reasons 

intended by Congress, for agencies to have higher levels of spending in the fourth quarter. Our prior work on year-end spending emphasized the importance of accurate and available data to effectively monitor how agencies execute their budget. Our body of work 

on Federal budgeting has continued to stress the need for quality 

and available data as agencies manage their budgets and Congress 

oversees them. 

My statement today focuses on: first, how agencies spend their 

funds in response to budget uncertainty; and, second, on the legal 

and other considerations managers must balance in spending funds 

throughout the year. 

Our prior work has shown that agency spending patterns are affected by budget uncertainty and disruptions. For example, in all 

but four of the last 40 years, Congress has passed continuing resolutions, when all regular appropriation bills have not been enacted 

on time. In many cases CRs have extended past the first quarter 

of the fiscal year into February or March. While CRs allow agencies 

to continue operations until their final appropriations are determined, in 2009 we reported agencies changed their spending patterns during the CR period. 

For example, agencies limit their spending early in the year because the final funding may be less than anticipated. Also, agencies 

delayed hiring or contracts during a CR. Such delays reduced the 

level of services agencies provide and increased costs. 

Longer CRs in particular can contribute to agencies rushing to 

obligate funds at the end of the year. Agency officials told us that, 

following a lengthy CR, they can end up spending funds on lowerpriority items that can be procured quickly if they do not have 

enough time to spend funds on higher priority needs. 

There are also important legal constraints on agencies as they 

manage their funds throughout the year. When Congress provides 

funding to agencies, they put certain requirements on those funds. 

Such requirements include: what agencies can spend their funding 

on, how much funding they will receive, and when they have to use 

those funds. 

In addition, an agency may not obligate money from the current 

year for the needs of future fiscal years. Commonly referred to as 

the ‘‘bona fide needs rule,’’ an agency must point to a genuine need 

for the expense in that year, not just use up dollars before the end 

of the fiscal year. 

It is also important to recognize that some factors affecting the 

timing of spending are within the agency’s control and some are 

not. For example, agencies may choose to award contracts or grants 

annually at the end of the fiscal year. Conversely, an agency may 

be compelled to spend at the end of the fiscal year due to external 

events beyond their control, such as natural disasters. 

In close, there is always a delicate balance in budgeting between 

offering agencies sufficient flexibility to operate efficiently while 

also ensuring adequate oversight and accountability. In an era of 

increasingly constrained Federal resources, the need to manage 
11 

agency budgets prudently has become even more critical to the success of Federal agencies and the missions that they support. 

This concludes my statement. I look forward to answering your 

questions. 

Senator PAUL. Thank you all for your testimony. 

I think we will let Senator Peters start, if you are ready. 

Senator PETERS. Well, that is fine. Thank you, Chairman Paul. 

I appreciate that. Thank you for the testimony, all three of you. I 

appreciate that. 

Dr. Burman, your studies of DOD spending I believe also indicate some spikes in spending both in March and September 2016, 

and for that matter, it looked like December and June also appeared to be a little higher than other months in the year as we 

looked at it tracked out. It appears that the DOD has a variety of 

deadlines throughout the year that lead to corresponding spikes in 

spending at those various times. My concern is whether that increased volume might be comprised of wasteful spending as well in 

those periods. 

My question is: Does the DOD have an epidemic of wasteful 

spending in March every year similar to what we are hearing may 

be happening in September? 

Mr. BURMAN. I do not think so, Senator. I think what is happening is that people are concerned about the end-of-year spikes, 

and particularly for the Navy and the Air Force, we are seeing that 

some of these funds, it appears, have been moved forward where 

they can do that, where they can take into account the overall 

needs for whatever the system is that they are procuring or working on to try to avoid this end-of-year issue. The Army, on the 

other hand, has a very much higher spike, something like 20 percent at the end of the year. So I think we are seeing some policy 

actions taking place to try to address the problem. You still have 

the question of what is the overall value of what it is that you are 

buying. 

Senator PETERS. Dr. Fichtner, how did August and September 

spending volumes compare to March spending in your study? And 

were there other months that showed spending spikes as well? 

Mr. FICHTNER. That is an excellent question, Senator Peters. 

Generally, we saw some spikes throughout agencies, some here, 

some there, but not necessarily consistent with what we saw with 

the year-end spending. But to your point that you asked Dr. Burman, I think it is very important. One of the things he pointed to 

in his testimony and you mentioned in your opening statement was 

whether or not the process is designed in some ways that we are 

forcing people to rush to the end. I do not know if that is something 

we should look into, but OMB apportions money sometimes on a 

quarterly basis. So if there is an apportionment issue from OMB 

that is forcing agencies to spend up to the end of the quarter to 

get the next apportionment, that could also be an issue. Whether 

that is wasteful spending or just rushed spending is a good question. But to your point at the beginning of the hearing was: Is the 

process set up in a way that is creating a perverse incentive and 

not giving folks enough time to make proper decisions and allocation of resources? That is a very good question which we are all 

starting to look at, too. 
12 

Senator PETERS. Well, I guess to follow up on that point, in your 

analysis in your study, do you know approximately what percentage of purchases would have been subjected to a long-term planning procedure such as developing requirements, requesting bids, 

negotiating prices, which is something you cannot do overnight, obviously? Do you know what percentage that may have been? 

Mr. FICHTNER. I do not, Senator, and it is a very good question 

because when we started looking at the data, we were looking first 

at whether there is an issue, is there something we can point to. 

Again, as my testimony points out, there are a lot of anecdotal evidences, but we do not want to make policy by anecdote. We were 

one of the first, my colleagues and I, looking at this issue empirically, and we were not able to dive into each contract specifically 

to figure out whether it was even a wasteful spending, a good 

spending. We had to sort of let the data sort of drive the aggregates, and that creates the results. But your point is very valid and 

important. If a lot of these contracts require long-term planning, 

whether it is several months or more, just having a year-end deadline without having any carryover authority could force a decision 

to be made or not made that we would not want otherwise. 

Senator PETERS. So that is going to be part of future studies that 

you are going to do going forward, because just thinking it through, 

if you know you have to get this stuff out by the end of the year, 

you start a contract process in February, and you say, it has to be 

done by the end of September, then you do another one in March, 

it has to be done by the end of September, it continues, and it can 

build up. I do not know what that number is, but we have to figure 

that out because that is going to be a part of analyzing what we 

may have here. 

Mr. FICHTNER. Yes, Senator, that is correct, and I am hoping also 

Dr. Burman’s panel starts looking at this, too, because they have 

a nice bigger team than just me to look at the data. But the point 

you make is very valid, and I think we want to just hit something 

home that—I do not want to speak for my fellow panelists, but I 

think they would agree no one here is saying there is malintent 

going on or it is evil intentions of civil servants. The infrastructure, 

the process, the incentives right now are misaligned. If there are 

projects that take several months to plan, the ones that take less 

time are going to naturally be put off to the end. And that was Dr. 

Burman’s point as well. 

So if you get to the point where you are planning for all the ones 

that take a lot of your time and attention, then you get down to, 

say, September and you have still got all this extra money you 

have to spend, well, I do not have time for the three or four month 

planning process anymore, but I have to spend this money or it 

goes back to the Treasury. Now I am going to fill in those blanks 

with the smaller, less time-consuming—they still may be relevant 

and important contracts, but that is where the attention goes; 

whereas, if we allow for some sort of rollover, at least we would 

have more time to make decisions past the fiscal year. 

Senator PETERS. Well, I know you do not want to speak for the 

other panelists, so I am going to ask them to speak for themselves 

based on Dr. Fichtner’s comments. Dr. Burman, then Ms. Krause 

afterwards. 
13 

Mr. BURMAN. Sure, Senator Peters. In the contracting field, there 

is something called procurement administrative lead time (PALT). 

It is the time that you need to actually conduct the entire procurement. Once a requirements package has been given to the contracting folks—and when you are talking about open market procurements, we are looking at taking 150 days or more actually for 

some major contract actions. So anything that disrupts that process 

or where you get a CR that comes late in the year where you have 

some uncertainty as to whether you can proceed, then you could 

end up pushing folks to make judgments and make contract 

awards by the end of the year, if it is one year money, or otherwise 

they may be waiting two years because of the budget process. You 

have to put these things in the budget well in advance of when you 

are actually going to be able to provide the obligations. 

So that is another issue that causes people perhaps to do things 

that they should not be doing in terms of rushing, using a different 

kind of a contract type, or perhaps going sole-source, using less 

competition so that you can move that process and make that 

award by the end of the year so the money does not expire and 

then you have to wait another 18 months before you can get back 

into pursuing that project again. 

Senator PETERS. Thank you. Ms. Krause. 

Ms. KRAUSE. Thank you. I would just add you mentioned the carryover balances and when we have done different work looking at 

budget uncertainty in terms of whether it is the CRs or sequestration, we have certainly heard agencies say that having some of that 

carryover balance and flexibility when in a CR environment does 

help address some of those incentives. 

But I guess one of the things—and we have looked at carryover 

balances—is really thinking about as I was saying, the tension between sort of giving them flexibility but making sure you have adequate oversight over that kind of authority, asking them, what are 

your plans for the balances you are carrying over, what kind of— 

especially looking at what kind of changes over time for that kind 

of money and spending that you are holding, whether the agencies 

have capacity to use that money. So I think in that context of carryover balances, the oversight piece is really important. 

Senator PETERS. Great. Thank you. 

Senator PAUL. Well, thank you all, and thank you, Senator Peters. 

We have talked about increased spending at the end of the year, 

and so I think there are sort of, I guess, two possibilities. One is 

that government, which often has a reputation for not doing things 

very well, just cannot spend the money fast enough, and so they 

have a bunch left because they did not spend it fast enough because they just could not get to what they were doing. But the 

other possibility is maybe we gave them too much, and so they 

spend it to get rid of it to make sure they get it the next year. And 

I think there is probably some truth to both of those, that procurement and deadlines and wait periods, and uncertainty add to the 

fact that it takes a long time to get to September, then they have 

to spend it all. But it could also be the argument we have appropriated too much, and that ought to be at least one of the considerations. 
14 

So when we look at sort of the idea of rolling over, I think it does 

address the idea that you get rid of hurried decisions and that 

maybe buying the wrong stuff or just buying something—we have 

to buy something, we have to do something with the money, you 

might get rid of that and you might get rid of some waste. But I 

think there is an equally bigger picture when you have a $700 billion deficit every year that maybe we have appropriated too much. 

We talked about the cost-cutter bill a little bit, the idea that we 

could give incentives to people who can find cost savings that still 

allow the agency to do what it is supposed to do but are able to 

find savings. That would be sort of a positive thing to give to workers. Let us comment first on that, and then I will ask you maybe 

about the opposite, whether we should have some punishment for 

people who are actually spending it unwisely and if there would be 

a way we could do that. 

First, the idea of bonuses, and I know you all mentioned it, but 

if you could each give a comment. We will start with Heather and 

work our way down. 

Ms. KRAUSE. I think in the context, I have not seen your current 

bill that you have introduced, but looking at other similar bills or 

prior bills, I think the one important element of that in terms of 

from a congressional standpoint would be really that Congress has 

visibility over how that program is being implemented and that the 

agencies are actually demonstrating that there are savings that are 

occurring and sort of having thoughtful evaluation on the types of 

savings, and also just that, the other aspect of it, that, employees 

are being rewarded if that is what is occurring. 

Senator PAUL. Dr. Fichtner. 

Mr. FICHTNER. Let me answer this in two parts. 

First, regarding the cost-cutters, I think it is a fantastic idea that 

also should be done as part of a pilot; and not to throw my GAO 

colleague under the bus, but GAO is the right organization that 

can do an evaluation of pilots in the government to let us know 

whether they are designed properly, working properly, and what 

the effects are, and also what we could learn from these type of pilots. 

Second, in the spirit of bipartisanship, let me sort of square the 

circle with you and Senator Peters. Senator Peters has made the 

point again in some ways that it is hard for some agencies to make 

the decisions. If you have a CR, you are pushing some things back. 

If you do not have political appointees in place, no one is going to 

stick their neck out to make a spending decision that costs a lot 

of money over a few years without a manager or a political appointee there to give them cover. There is also rollover authority 

you could do that does not have to last one or two years. You could 

make it two or three months, especially if you have a CR. Right 

now if you do not have a budget passed until the end of December, 

why not add three months of carryover and do that as part of a 

pilot with cost-cutters. You give people the incentive to say, ‘‘I do 

not have to rush anymore to spend this, and I have some carryover. 

But if there is wasteful spending, then I actually can now get an 

incentive to save money for the government and get some bonus at 

the same time.’’ I think we can merge these two incentives into one 

pilot program, and that would be very effective. 
15 

Senator PAUL. Dr. Burman. 

Mr. BURMAN. I think that the issue is, again, incentives and 

aligning incentives in the organization to make sure that the organization itself sees that there is real benefit here and makes the 

point that we are not looking for spending money on wasteful 

things and making it clear that that is a goal and a motivation of 

the organization, so people who are rewarded for doing these kinds 

of things are actually recognized for doing good things as well. 

There are lots of opportunities over the course of a year, presumably, for leadership and staff to be looking at what are they spending their money on. Are they spending it on the right things? Are 

they getting value for what they are spending on? 

I would say the one thing that would be important is trying to 

figure out a way to make sure that those interests are aligned and 

those incentives are aligned. 

Senator PAUL. We have legislation on the bonuses. I do not have 

legislation on this other idea, but the opposite side of the coin 

would be could we or do we have any way of punishing people who 

make terrible decisions on wasteful things. The thing that frustrates both me and other taxpayers is I can remember as a kid 

reading William Proxmire’s Golden Fleece Awards, and you know 

what? My staff still finds all of that stuff. I mean, Ultimate Frisbee 

in China, I do not know why we are sending any money to China. 

All right? We trade with them. They are doing great. They are 

growing at 7 to 10 percent a year. We should not be sending them 

any money. And somebody who is sending money for Ultimate 

Frisbee ought to be fired. 

There has to be somebody reviewing the spending decisions. Do 

we have something in place where someone reviews it and says, 

‘‘That is outrageous’’? In a company, if they found that you spent 

$1 million going to Las Vegas on September 30th, you might be 

fired, particularly if the company did not do very well. This company is the country. It is not doing very well, $700 billion in the 

hole, low growth rates. Someone should be fired for the waste. Is 

anybody accountable? Is there a way of making people accountable 

where someone looks back up here and says, ‘‘Why did you do 

that?’’ and there is some accountability? 

We will start with Ms. Krause. 

Ms. KRAUSE. I think as there has been some discussion, I mean, 

internal controls are really important in terms of having those 

processes in place to identify wasteful spending throughout the 

year. Again, I think you do have to create, as we found from some 

of our organizational transformation work, a culture that encourages employees to bring these types of issues to the forefront that 

they, really the employees are the ones that know their agencies, 

and they know where there are, ideas and opportunities for improvement. It is really important that agencies are sort of setting 

up programs and cultures that help encourage that kind of behavior from employees. 

Senator PAUL. All right. We had a study—and a lot of these are 

from the National Science Foundation (NSF) which I am upset 

with almost on a daily basis: $300,000 spent studying Japanese 

quail to see if they are more sexually promiscuous on cocaine. All 

right. I use that in speeches across the country because it brings 
16 

a guffaw and then laughter and then anger at government. But we 

have been doing this since the 1970s. I can point to a similar study 

from the 1970s, the same kind of stuff, that nobody in their right 

mind with any common sense thinks we should spend a penny on. 

But are we fixing any of it? I know you try to do a good job. You 

are looking at waste in government. You are trying to make us accountable, so I do not blame you. But I think we have to do something different because year after year we keep seeing this waste. 

Dr. Fichtner. 

Mr. FICHTNER. Thank you, Senator. This is a very important 

question, and I want to try to answer this in a nuanced fashion. 

First of all, I think there are also some agencies that have problems with leadership. It starts at the top. If an agency head or the 

political appointees are not actually taking care and sending the 

right message that they do not want wasteful spending, then they 

are going to get wasteful spending. It starts at the top. So when 

you have Commissioners, Secretaries up in front of you testifying, 

you should ask them about wasteful spending and what they are 

doing about it. Make it something that if you care, they care, then 

the agency is going to care. 

The second is the Inspectors General (IG). That is part of their 

role and their job. If there is wasteful spending that we are identifying, whether it is anecdotal or evidentiary, we should have the 

IGs looking at it. 

And we should probably have some sort of reform to the civil 

service rules to make it easier to fire people that are actually wasting money in a nefarious manner. 

On the flip side of my third point—because I want to make sure 

that I put this forward because Senator Peters mentioned and it 

is very important about culture—we have to protect whistleblowers. There is no way around this. The front-line people for protecting the taxpayers’ dollars are our civil servants. They are the 

face of the public. They are our Social Security representatives. 

They are the ones you talk to when you have the Internal Revenue 

Service (IRS) problems. They are the ones who are identifying 

fraud, waste, and abuse. If we do not stand by them, they are not 

going to come forward. We have to make sure we protect them. 

Senator PAUL. What do you think is the idea—it has been said— 

and I am not sure if this is absolutely true or not, but contractors 

are not covered under the whistleblower? Is that true or not true? 

Mr. FICHTNER. I do not know, but if they are—— 

Senator PAUL. Because a lot of government is whistleblower, and 

I know you are interested in it. I just throw it out as an idea that 

maybe we should think about whether contractors ought to be, because contractors are spending a lot of the money, too. And they 

actually might be a little freer to give us information, but they are 

also worried about the next contract, whether we could include 

them under the whistleblower statutes. 

Mr. FICHTNER. That is good to look into, Senator. 

Senator PAUL. Dr. Burman. 

Mr. BURMAN. There are provisions, qui tam provisions, that 

would allow someone who identifies waste as a contractor to go and 

bring that to the Department of Justice (DOJ) and be able to ad-
17 

dress that issue under protection. That is something that actually 

does already occur. 

I agree with my fellow panelists that you need to hold leadership 

accountable for making good decisions, and when they are not making good decisions, then hold them accountable again for that result. As a procurement administrator, frequently when these kinds 

of issues would come up for me, I would ask the IG to look into 

them, and I would use the IG as the appropriate agency to try to 

get to the bottom of these kinds of problems. 

Senator PAUL. And you think people in—civil servants have a 

sufficient—I do not know is ‘‘fear’’ is the right word, but respect for 

the IG when they come into the situation and they are addressing 

it, that it is not just seen as, ‘‘We do not really care’’? Do you think 

people are concerned when the IG comes and investigates? 

Mr. BURMAN. I think they are. I think they are definitely concerned if the IG is looking into an issue or a problem. 

Senator PAUL. I have one more question, but if Senator Peters 

has another question, I will let you go again. Do you have anything? 

Senator PETERS. Just a couple of follow ups, and then I will let 

you wrap it up, Mr. Chairman. 

Back to the whistleblower idea, which I think is one that we 

have to make sure we are looking at for the reasons that were 

mentioned by the witnesses here, we have to make sure they are 

protected. I am just curious, from your studies or working in this 

area, do you believe that people are not adequately protected now, 

that there is a culture that people are still concerned about coming 

forward? And are there things that we need to be thinking about 

that we should be doing to strengthen that? Dr. Fichtner. 

Mr. FICHTNER. So, again, and I hate to have anecdote drive policy, but there has been enough anecdotal evidence that people say 

they are fearful of retaliation. Just having those anecdotes be 

spread in the media, be spread in public, creates a culture of fear. 

So my answer would be, even if it is not a problem, if people think 

it is a problem, then it is a problem. So, yes, this is something the 

Committee should look into. How to strengthen that, I am not a 

lawyer. I am not sure what should be done. But I am all in favor 

of strengthening whistleblower protection so they are not fired, facing retaliation, and they have protections and, if possible, if they 

need anonymity in forwarding things on fraud, waste, and abuse, 

that they have that as well. 

Senator PETERS. Any other comments? 

Mr. BURMAN. Again, I would say on these kinds of issues, for trying to promote what we are looking for is for people to get rid 

of—not do unnecessary spending or wasteful spending, it makes 

sense to make sure that they are in line with a leadership that 

says that is what they want to do as well. 

Senator PETERS. Ms. Krause. 

Ms. KRAUSE. I would just say—we have not looked specifically at 

sort of whistleblowers’ cost savings, but definitely support strong 

programs to allow employees to come forward. 

Senator PETERS. Because as we are looking at the differences 

that we have talked about, the example that the Chairman mentioned of just burning fuel on the tarmac, obviously that would be 
18 

a case ripe for a whistleblower saying this is ridiculous that this 

kind of thing is happening, which is different than the other issues 

that we have talked about of just long-term contracting, they get 

piled up for all the various reasons. We need to get that kind of 

information as well to see how we can refine some of those processes. 

One of the ideas that you have all talked about is granting carryover authority and how powerful that is. I understand that Congress approved the use of carryover within the Department of Defense in Fiscal Year 2016, approved a one year, one percent carryover authority for the operation and maintenance spending by Defense Health Agency. I do not know if you have looked at that in 

2016. I am just curious as to what the results were. Did we see differences? It looks as if they did see a three percentage-point drop 

in some of that surge spending during that time. But if you have 

had a chance to look at that, if there is some qualitative lessons 

that came out of that one percent carryover in 2016? 

Mr. BURMAN. Senator Peters, we are looking at that, and we did 

see some results. But in terms of the effort itself, it seems like it 

was some sort of a pilot approach to see whether or not there might 

be some success along those lines. Frankly, our commission is very 

much looking at a similar kind of thing with a limited amount of 

carryover money, because we have heard lots of people say if you 

do a large amount, it is basically going to cause people to procrastinate; they are just going to delay. So, similar to what Dr. Fichtner 

is recommending, we are analyzing that and would likely make 

some recommendations along those lines to the Congress. 

Mr. FICHTNER. I have not looked into it directly except for Dr. 

Burman’s testimony, but I echo his sentiments. 

Senator PETERS. Ms. Krause. 

Ms. KRAUSE. We have not looked at that specifically, but we have 

looked at other agencies’ carryover balances. As I said, we have a 

series of questions that, as you are managing and overseeing 

whether it is Congress or agencies themselves asking the questions 

of what are the plans for the amount, rates, changes over time, etc, 

to make sure they are managed efficiently. 

Senator PETERS. All right. Thank you. 

Senator PAUL. On the question of contractors and whether they 

are covered as whistleblowers, it sounds like maybe some are, but 

there have been—the most widely reported one was of Edward 

Snowden, who said that when he saw James Clapper giving misinformation or not telling the truth to Congress about the bulk collection of our information, the reason he went public is he did not feel 

he was covered by the whistleblower. I think we are going to look 

into it, our staff is going to look into it, if there is any interest with 

Senator Peters on covering contractors, not only for waste but also 

for someone not telling the truth in government and they want to 

expose that untruth, protecting them somehow. Obviously, I think 

we would have all been a lot happier if Edward Snowden would 

have reported as a whistleblower instead of going to China or Russia. But that is at least one of his arguments, that he was not covered as a contractor. So maybe we can look at that some. 

Senator PETERS. I would welcome that. In fact, as you know, we 

had in a full Committee hearing talked about the Lifeline program 
19 

and where you have individual companies that were claiming that 

they had customers when, in fact, they did not, which is inexcusable. 

Senator PAUL. Absolutely. 

Senator PETERS. You had contractors there scamming the government. I am sure there are employees within those companies 

that saw that and were outraged by it. We want to make sure that 

they are protected to come forward so we can take action. 

Senator PAUL. I agree completely. 

On one finishing note, and this is kind of a different subject, but 

it goes along the same way of how we make government less wasteful or most cost efficient, is the idea of auditing, and I think GAO 

has something to do with audits. If you will maybe give us some 

general information about what you do with audits, and then 

maybe a comment on half of our discretionary spending is defense 

spending, and the fact that they do not have an audit, and whether 

it would be a good idea or not. We will start with Ms. Krause, but 

you can all add to the same question. With that, then we will sort 

of get to a conclusion. Thanks. 

Ms. KRAUSE. No, absolutely—the fact that DOD is not in a position for GAO to do an audit, keeps us from rendering an opinion 

on the overall audit of the Federal Government. That is something 

that GAO has been working closely on in terms of trying to make 

progress on that or work with DOD to make progress on that. It 

is very important. 

Senator PAUL. But the public reports have been that they have 

responded they are too big to be audited, or at least someone said 

that. What is the big hangup right now in doing an audit of Defense? 

Ms. KRAUSE. I think it is the data and the systems do not support accurate information for doing a financial audit. 

Senator PAUL. Dr. Fichtner. 

Mr. FICHTNER. I have always been surprised that the Department of Defense has a qualified audit. When I was at Social Security, we had one every year that was unqualified. So I think there 

is—it is a big agency. There is a lot of money that goes through. 

But to say you cannot tell me where your money is going is a bad 

sign of management. 

One of the things about auditing that I think is very important 

is the word ‘‘transparency,’’ and in some ways, we the public now 

have become auditors of government. I need to give credit to President Obama and the Obama Administration because all the work 

that I have been doing on this issue is because they put information on data.gov and Federalspending.gov. We need to make sure 

that Federal agencies continue to put data online available for the 

public, for the researchers, for Members of Congress, for staff, for 

Senators to look at directly because some of these issues do not 

come up until researchers start looking at it and bring it to your 

attention. 

We need to make sure we continue to have agencies put data online in a transparent way, and that would also help with, I think, 

generally then pushing agencies toward better audits at the same 

time. 
20 

Mr. BURMAN. I would support the same points that both Dr. 

Fichtner and Ms. Krause mentioned. I think everybody thinks it 

would make a great deal of sense to make sure that the Defense 

Department can, in fact, go through the same kind of audits that 

any other government agency can. I know that they have been trying to do that for a number of years. The number of financial systems and the variety of those systems and the ability to get them 

to interact has been a significant problem, but it certainly is something that would be a goal that we would all support. 

Senator PAUL. The only response I would have to that is it has 

been a number of years—I think some have said 17-some-odd years 

we have been waiting for an audit, and there is nothing like a 

mandate, a deadline, or a law to force you to do it that might 

change things. There is—and I am not sure if you are aware of the 

bill, but Senator Manchin and I are on a bill that is for auditing 

the Pentagon. I am also for auditing the Fed. I am for auditing all 

of government to make sure we have more transparency. But these 

are just thoughts of things that we might look at. This is already 

a bipartisan bill to try to-—instead of just waiting for the Pentagon 

someday to say they are going to audit it, we spend a lot of money, 

and we do have to have a strong national defense. But we need to 

make sure it is being spent wisely. 

I think the hearing has been very useful, hopefully, for both of 

us, and for the testimony. I thank you for spending the time with 

us and also feel free to communicate with us or our offices at any 

time if you have ideas or suggestions. The one thing I would ask 

you to look at is whether or not there is something we could do legislatively—we are talking about giving bonuses for people who 

come forward, talking about waste or savings, but whether or not 

we could do something legislatively to actually change where, when 

we hear something outrageous, we find out, oh, yes, that person no 

longer works there or that person got demoted or that person no 

longer is allowed to make those decisions. This is the frustration 

of taxpayers, is they hear about these terrible, wasteful, crazy 

things that are being done with their money, but they never hear 

that there were any ramifications, that it is getting better. It does 

not seem to get better sometimes. If you can think of any solutions 

or any kind of influence or ideas for us on that. I know GAO does 

that, and they said they have recommendations, and then they 

come back and say a lot of these were adhered to. I think it is not 

completely without that we are not changing government. But I 

think we all want more. 

Thank you all for your testimony. 

Mr. FICHTNER. Thank you. 

Mr. BURMAN. Thank you. 

[Whereupon, at 3:26 p.m., the Committee was adjourned.] 
(21) 

A P P E N D I X 
22 

It would seem like a simple, noncontroversial bill that should sail through 

Congress and save the taxpayers money. 

Reigning in and controlling end of year spending binges should be a bipartisan 

priority. Hopefully our hearing today will renew interest on both sides of the aisle to 

address accelerated wasteful spending at the end of the fiscal year. 

With that, I'll recognize the Ranking Member Peters for his opening statement. 
23 

Thank you, Chairman Paul, for convening this hearing to examine end of year spending and 

explore options for mitigating wasteful spending. Regardless of when it occurs, wasteful 

spending is inexcusable and I appreciate the opportunity to gather experts today in search of 

solutions that better protect taxpayer dollars. 

1 

I'd like to also give a sincere "thank you" to our distinguished panel of guests for taking the time 

to participate in our discussion today. The insights from your work are helpful in framing our 

discussion today and allowing us to focus on the central issues. 

And among those central issues is the question of what's really happening as agencies routinely 

ramp up their spending volume toward the end of each fiscal year. First, what drives this 

behavior? And second, are there risks involved that makes this spending particularly vulnerable 

to waste and abuse? 

Concerning the high volumes of spending on certain purchases in August and September, I think 

we can all relate to the phenomenon of rushing to complete a task before an impending deadline. 

As a Senator, often times my schedule revolves around the most time-sensitive issues I'm facing 

on a given day. Deadlines serve a purpose and create the sense of urgency that we sometimes 

need to finish our work, particularly for long-term projects. 

But deadlines are no reason to become sloppy, or worse- negligent. If we find that our year end 

deadlines are causing agencies to make poor spending decisions, then we need to diagnose this 

problem while also ensuring that we discipline those responsible for making these decisions. 

Of course, there are also outside factors that might exacerbate the year end spending surge, like 

the continuing resolutions that Congress keeps settling on or the hiring freeze that the current 

administration implemented this year. Budget uncertainty can hamper agencies' ability to 

effectively plan their purchases. 

We have to keep in mind that many federal purchases require more than a simple waive of a 

wand to complete. Depending on the purchase, agencies must consider the required specs for the 

service or product, request and evaluate bids from vendors, negotiate prices, obtain managerial 

approval on purchase orders, and draft contracts detailing the terms of the agreements. 

A lot of work goes into making purchases before a final contract is signed and this series of steps 

isn't merely for show. These steps serve as internal controls to mitigate opportunities for 

individuals to act in bad faith in spending federal funds. 

It takes time to go through these steps, which are designed to ensure that funds are spent 

appropriately. If agencies get a late start in that process because Congress or the White House 

continuously meddle with their appropriations, it could lead to delays in completing purchases. 
24 

We should do our part in Congress by passing timely budgets that limit the uncertainty agencies 

face in making spending decisions. 

But beyond the factors that might be encouraging end of year spending binges, let's focus on the 

extent to which these binges lead to wasteful spending. We know spending levels for some 

purchases increase at the end of the year, but do we know why it might lead to increased levels 

of waste? Why would our internal controls fail to prevent wasteful spending as we reach year's 

end? 

2 

Do we see evidence that purchasing rules are put aside in September? Are contracts ignored? Do 

oversight activities become more lax? The fundamental question becomes- "Are existing 

internal controls sufficient to prevent wasteful spending at year's end?" And if not, where are 

those failures taking place? 

If it turns out that agencies don't fully adhere to purchasing controls at year's end, we have a 

much larger issue than wasteful spending. I sincerely hope that this is not the case and I have yet 

to see definitive evidence that it is the case. 

But please, if any of the witnesses have reason to believe that internal controls are weaker at 

year's end than at other times of the year, share your findings with us today. This would be 

critical information to have during our discussion. 

Dr. Fichtner's study shows that certain types of spending generally increase in most agencies in 

August and September every year. But it doesn't go so far as to say that the higher volume of 

spending taking place results in wasteful spending. So let's talk about the distinction there a little 

bit and what we want to focus on today. 

There's a distinction between (A) a bad spending decision and (B) a bad spending decision that 

was brought about specifically by rushed year end spending. This is an important distinction 

because it speaks to the focus of this hearing - does our existing system of expiring 

appropriations instigate wasteful spending decisions? 

This requires more than just identifying a purchase or two that we don't like. And I'd rather not 

focus on something as benign as the purchase of a little extra printer paper before the end of 

September. We should spend our time on larger issues than that. 

I'd rather focus on the kinds of waste that's blatant, where the person responsible for the 

spending knows that what they're doing is wrong. I'm talking about stories of agencies 

intentionally burning through fuel on runways for the sole purpose of being able to spend more 

money replacing the fuel. That's clearly waste, and if it actually happens we should go after the 

perpetrators to the full extent of the law. 
25 

The most complicated purchases to debate will be those that go through the all of the existing 

approval channels and still be thought of as wasteful. In those cases, management approved the 

purchases and hypothetically gave an appropriate amount of consideration in approving them. If 

managers are to blame for poor decisions, it could be that the expiring appropriation is not so 

much the issue as it is the judgement of the officials approving the purchases. 

3 

But in instances where we believe that the expiring appropriation caused wasteful spending, 

that's where we'll need to focus on ways to improve the internal controls in place for year end 

spending decisions. What should we be doing better to prevent poor spending decisions? What 

has been attempted and what has proven successful? Do we need to consider options that will 

lessen the sense of urgency created by an end of year spending deadline? 

While internal controls ideally stop wasteful spending before it happens, we also have to 

consider our options for catching wasteful spending as it occurs. As a member ofthe Senate 

Whistleblower Protection Caucus, I cosigned letters to 18 agencies in March this year asking 

them to remind employees that they are protected when disclosing fraudulent, wasteful, or 

abusive practices and to further remind employees and managers that whistleblowers may not be 

retaliated against. 

The easier it becomes for whistleblowers to report the kind of wasteful spending we're 

concerned about today, the more likely we are to root out such spending. Just as we are free to 

question spending decisions in a setting like this, whistleblowers should be free to ask questions 

about and report potentially wasteful actions in their workplace without fear of retaliation. 

And much like we hope and expect for whistleblowers, I hope all of our witnesses feel welcome 

and comfortable in sharing their insights and experience today as we work together to combat 

wasteful spending in a bipartisan setting. Please use this forum to give us your honest assessment 

of these challenges and potential enhancements that can improve our procurement processes. 

We greatly appreciate your time today and I look forward to our discussion. 

Thank you. 
26 

TESTIMONY 

CURBING WASTEFUL YEAR-END FEDERAL GOVERNMENT 

SPENDING: REFORMING "USE IT OR LOSE IT" RULES 

Jason J. Fichtner, PhD 

Senior Research Fellow, Mercatus Center at George Mason University 

Senate Committee on Homeland Security and Governmental Affairs 

Subcommittee on Federal Spending Oversight and Emergency Management 

Hearing: Prudent Planning or Wasteful Binge? Another Look at End of the Year Spending 

September 20, 2017 

Good afternoon, Chairman Paul, Ranking Member Peters, and members of the subcommittee. Thank 

you for inviting me to testify today. 

My name is Jason Fichtner, and I am a senior research fellow at the Mercatus Center at George Mason 

University, where I research fiscal and economic issues. I am also an affiliated professor at Georgetown 

University and Johns Hopkins University, where I teach courses in economics and public policy. 

Previously I served in several positions at the Social Security Administration, including deputy 

commissioner (acting) and chief economist. All opinions I express today are my own and do not 

necessarily ret1ect the views of my employers. 

I would like to begin by thanking Chairman Paul and Senator Peters for the leadership you provide this 

committee to ensure that important public policy issues involving the federal budget and the 

stewardship of federal tax dollars get the attention and debate they deserve. I also appreciate that you 

ensure ideas and viewpoints from all sides are shared in a collegial and respectful manner. It is a 

privilege for me to testify before you today. 

My testimony focuses on two key issues: first, the extent to which perception of a year-end spending 

problem is reality, and second, how various reforms would improve the efficiency of spending by 

federal government agencies and departments. 

From this discussion, I hope to leave you with the following takeaways: 

l) While anecdotes and media stories of year-end spending surges are widespread, empirical 

evidence for year-end spending surges and "use it or lose it" spending-or the motivation 

behind this spending·-is significantly less available. However, my research and recent research 

by other scholars is beginning to demonstrate empirical evidence that a year-end spending 

phenomenon is real and potentially wasteful. 

For more information or to meet with the scholar, contact 

Jessica 

The ideas presented in this docvment do not represent official positions of tho Nercatus Center or George Mason University< 
27 

2) Allowing federal agencies limited rollover or carryover authority could reduce wasteful yearend spending surges. Similar reforms at the state level and internationally have shown promise, 

but more research is still needed. Additionally, ideas to provide cash bonuses to agency 

employees whose identification of unnecessary expenses results in cost savings for the agency 

may hold promise. Again, further research is still needed. 

YEAR-END SPENDING: ANECDOTAL VS. EMPIRICAL EVIDENCE 

The "use it or lose it" phenomenon refers to the propensity of US government agencies to spend unused 

financial resources toward the end of the fiscal year. This spending is allegedly driven hy fear that 

leftover resources will be returned to the Department of the Treasury and will prompt future 

congressional budget cuts for the agency. Anecdotes and media stories of year-end spending surges are 

widespread,' but empirical evidence for year-end spending surges and "use it or lose it" spending, or the 

motivation behind such spending, is significantly less available. 2 

Recent research suggests that year-end spending surges exist and may facilitate wasteful spending. For 

example, in their 2013 paper, economists Jeffrey Liebman and Neale Mahoney analyze data from the 

Federal Procurement Data System and the White House's IT Dashboard to show that not only is there a 

surge in federal spending at the end of the year, but also this spending is of lower quality.3 According to 

Liebman and Mahoney, at the end of a fiscal year, "the prospect of expiring funds" causes agencies to 

spend all their remaining resources, "even if the marginal value is below the social costs of funds (our 

definition of wasteful spending).''4 A 2009 International Monetary Fund report found that year-end 

spending surges are a "commonly observed phenomenon in government administrations.''' Such surges 

have occurred in Canada, Taiwan, and the United Kingdom, to name a few countries.6 On the US state 

level, a 2012 report by Missouri's state auditor indicates that an annualized budget process does impact 

annual agency expenditure patterns and that a "use it or lost it" phenomenon exists to a certain extent.' 

Given how few empirical analyses of year-end US agency spending exist, I developed my own analysis 

of federal contract spending trends with my colleagues Robert Greene and Adam Michel," using 

publicly available data from USASpendiug.gov on prime contracts awarded by executive departments. 9 

1 For example, see David A. Fahrenthold, "As Congress Fights over the Budget, Agencies Go on Their 'Use It or Lose It' 

Shopping Sprees," Washington Post, September 28, 2013; Matthew Sa bas, "'Use It or Lose It' Shows There's More Room to Cut 

Spending," Heritage Foundation, November 14, 2013; Josh Hicks, "Two Charts that Suggest Use-It-or-Lose-It Federal Spending 

Is Real," Washington Post. April17, 2015. 

'Jeffrey B. Liebman and Neale Mahoney. "Do Expiring Budgets Lead to Wasteful Year-End Spending? Evidence from Federal 

Procurement" (NBER Working Paper No. 19481, National Bureau of Economic Research, Cambridge, MA, September 2013). 3 Liebman and Mahoney, "Expiring Budgets." 4 Ibid., l "Our definition of wasteful spending" refers to Liebman and Mahoney's definition. 5 ian Uenert and Gbsta Ljungman, "Carry-Over of Budget Authority" (Public Financial Management Technical Guidance Note. 

Fiscal Affairs Department, International Monetary Fund, Washington, DC. 2009). 3. 6 Rowena Crawford et al., "A Survey of Public Spending in the UK" (IFS Briefing Note BN43, Institute for Fiscal Studies. London, 

September 2009); Noel Hyndman et al.. "Annuality in Public Budgeting: An Exploratory Study" (research report, Chartered 

Institute of Management Accountants. London, 2005); Internal Audit Branch, Treasury Board of Canada Secretariat, 

Government Wide Review of Year-End Spending, June 1995; Jinn~Yang Uang and Chlng-Wan Liang, "Does Monitoring 

Frequency Affect Budget Execution Patterns?," Asia Pacific Management Review 17, no. 1 (2012): 59-75. 7 Thomas A. Schweich, "Statewide Year End Spending Practices" (Report 2012-44, Office of the Missouri State Auditor, 

Jefferson City, 2012). 8 Jason J. Fichtner and Robert Greene, "Curbing the Surge in Year-End Federal Government Spending: Reforming 'Use It or 

Lose It' Rules" (Mercatus Working Paper, Mercatus Center at George Mason University. Arlington, VA, September 2014); Jason 

J. Fichtner and Adam N. Michel, "Curbing the Surge in Year-End Federal Government Spending: Reforming 'Use It or Lose It' 

Rules-2016 Update" (Mercatus Research, Mercatus Center at George Mason University. Arlington, VA. September 2016). 9 Data for FY 2003 through FY 2013 were accessed on June 30, 2014. All data used from FY 2003 through FY 2013 were last 

updated by USASpending.gov on June 17, 2014. Data from FY 2000 through FY 2002 were last updated on July 15, 2013. Data 

from FY 2014 were accessed and last updated on May 13, 2016, and data from FY 2015 were accessed and last updated on April 

17,2016. 

2 
28 

My analysis focused on this type of spending-which comprised roughly 11 percent of total2015 federal 

spending10 -because the data are readily available through the USASpeuding.gov data archive. Data 

were downloaded containing detailed information on all contracts executed by each executive branch 

department for fiscal years 2000 through 2015. 

My research shows that a remarkably large percentage of executive branch contract spending occurred 

near the end of the fiscal year. If an agency were to spread its contract spending evenly over a 12-month 

period, roughly 8.3 percent of spending would occur in each month. However, in the last month of fiscal 

year 2015, September, 11 the Department of State spent 34.9 percent of its contracting expenditures and 

the Department of Housing and Urban Development spent 32.6 percent. Not all agencies exhibited a 

year-end surge in spending. For example, the Department of Energy spent only 5.7 percent of its annual 

contract expenditures in the final month. But as the data show, most federal agencies were well above 8 

percent, and more than one-half were above 16 percent. Between 2003 and 2015, across all executive 

departments, 16.3 percent of obligated contract expenditures occurred during the month of 

September-almost twice what we would expect if spending were split evenly over 12 months at 8.3 

percent per month. 

A closer look at daily September contracts and contract expenditures lends further support to the trend 

that shows how agencies rush to spend down their budgets at the end of the fiscal year. In the last three 

days of the month, agencies spent more than 5 percent of their total yearly contract expenditures. On 

the last day of September, they spent 2.2 percent-the highest daily expenditure in September. 

Focnsing on FY 2015 data, the number of contracts signed steadily increased throughout the month of 

September. In the last three days of September, agencies signed 2.5 percent of their contracts, and 0. 9 

percent were signed on the last day. If contracts were evenly distributed, one would expect to see 0.5 

percent of contracts signed each day. While 0.9 percent of contracts may not appear excessive, for some 

agencies, this number amounted to many dollars. For example, the State Department signed 2.18 

percent of its total contracts on the last day of September; this amount accounted for 7.75 percent of the 

agency's total obligated contract dollars for the year. 

The pattern of year-end spending surges is evident across all the fiscal years analyzed and is not unique 

to the current administration or the past few Congresses. Year-end spending surges have become the 

norm, regardless of administration, party control of Congress, or delays in finalizing agency 

appropriations. 

POLICY RECOMMENDATIONS 

Academic research and some anecdotal evidence suggest that the cnrrent budget rule of "use it or lose 

it" is not optimal and may be encouraging wasteful spending of taxpayer dollars. The question remains: 

if such spending is indeed wasteful, what can be done to reduce it? 

One idea is to allow agencies limited rollover (also known as carryover) authority for funds not spent by 

the end of the fiscal year. The federal government could begin with a pilot exercise to test the merits of 

limited rollover authority. Within certain federal departments, agency subcomponents should be given 

the authority to roll over np to 5 percent ofthe contract budget authority into the next fiscal year. To 

10 Percentage is calculated by dividing the total amount of contract spending across the entire federal government in FY 2015 

($401 billion, as reported by USASpending,gov) by the total amount of federal government outlays during FY 2015 ($3.69 

trillion, as reported by the Office of Management and Budget). USASpending.gov, "Data Feeds, Data Archives for Prime Award 

Spending Data," accessed April17, 2016, http://www.usaspending.gov/data; Office of Management and Budget, Executive 

Office of the President, "Summary of Receipts, Outlays, and Surpluses or Deficits (-) in Current Dollars, Constant (FY 2009) 

Dollars. and as Percentages of GDP: 1940-2021," table 1.3, https://www.whitehouse.gov/omb/budget/Historicals. 

" The federal fiscal year runs from October 1 to September 30. 

3 
29 

maximize success in reducing waste, the rollover accounts of agency subcomponents should be 

segregated. The separation of accounts increases the incentive to save, because only the agency 

subcomponents that achieve cost savings will be able to deploy those savings in subsequent fiscal years. 

Departments or agencies that wish to participate in the pilot program could submit a request to 

Congress, which could direct the Government Accountability Office (GAO) to oversee, audit, and 

evaluate the program. 

A legitimate concern regarding carryover accounts is that they could have the perverse consequence of 

decreasing government accountability by serving as annual "rat holes."12 Requiring midyear budget 

reviews could help address this concern and would further curb year-end spending surges. Executive 

departments should be required to submit midyear budget reviews to Congress and the GAO. These 

reviews would detail, by agency subcomponent, the anticipated expenditures for the remainder of the 

fiscal year, the anticipated surpluses at the end of the fiscal year, and the reasons for these surpluses. 

Midyear reports with similar components have yielded success in reducing "use it or lose it" pressures 

and year-end spending surges when tried at home in Oklahoma and overseas in Taiwan.13 Of course, 

these midyear reviews would have limited value if Congress fails to conduct appropriate oversight. If 

Congress fails to do so, these reports may become mere paperwork exercises. 

To further curb waste, an agency would be allowed to carry over up to 5 percent into a rollover account, 

but agencies would be permitted to carry over only 50 percent of any remaining balance in those 

accounts into the subsequent fiscal year. To avoid lengthy delays in the spending of rollover fund savings 

and to discourage large accumulations of rollover funds, such funds should be spent within two years. 

These reforms may create undesirable new administrative burdens and could disrupt existing 

budgeting practices. However, the short-term costs would be outweighed by long-term benefits. These 

benefits include relieving agencies of a perceived pressure to spend remaining resources at the end of 

the fiscal year to protect their budgets from cuts, along with the public benefit of reducing wasteful 

expenditures associated with that pressure to spend. Furthermore, even if year-end spending spikes 

were not inherently wasteful, enabling executive departments to manage their budgets without 

artificial deadlines would likely improve the efficiency of spending by the departments and their 

subcomponents. 

A pilot program that gives limited rollover authority to several departments, combined with 

congressional and GAO oversight of rollover accounts, would be a useful experiment to see whether 

these changes to the federal budget process would reduce wasteful year-end spending. 

12 L. R. Jones, "Outyear Budgetary Consequences of Agency Cost Savings: International Public Management Network 

Symposium," International Public Management Review 6, no. 1 (2005): 156. 

"James W. Douglas and Aimee L. Franklin, "Putting the Brakes on the Rush to Spend Down End-of-Year Balances: Carryover 

Money in Oklahoma State Agencies," Public Budgeting & Finance 26. no. 3 (2006): 54 (Oklahoma); Uang and Liang, "Does 

Monitoring Frequency Affect Budget Execution Patterns?" (Taiwan). 

4 
30 

Lastly, another potential reform is to create a cash bonus program for agency employees who identify 

savings and return the unspent budget authority to the Treasury (a portion of the saving is used for the 

bonuses). The proposal is intended to realign the incentives of individual employees who save public 

money. If properly implemented, these incentives could be similar to those in the private sector, where 

rigorous attention to costs, expenditures, and better budget management is often rewarded using 

bonuses. A program for bonuses for waste reduction conld be included in a limited rollover pilot 

program to test the efficacy of the new incentives. 

Thank you again for your time and this opportunity to testify today. I look forward to your questions. 

Sincerely, 

Jason Fichtner, PhD 

Senior Research Fellow 

Mercatus Center at George Mason University 

ATTACHMENT 

Cutting Wasteful Year-End Federal Government Spending: Reforming "Use It or Lose It" Laws 

(Mercatus Research) 

5 
31 

Curbing the Surge in Year-End Federal 

Government Spending: Reforming 

"Use It or Lose It" Rules-2016 Update 

Jason J. Fichtner and Adam N. Michel 

-~· MERCATUS CENTER -~·George Mason University 

3434 W<Jshington Blvd., 4th Floor. Arlington, Virginia 22201 

www.mercutus.org 
32 

Jason J. Fichtner and Adam N. Michel. "Curbing the Surge in Year-End Federal Government Spending: Reforming'Use It or Lose It' Rules-2016 Update." Mercatus Research, 

Mercatus Center at George Mason University, Arlington, VA, September 2016. 

ABSTRACT 

The "use it or lose it" phenomenon refers to the propensity of US government 

agencies to spend unused financial resources toward the end of the fiscal year out 

of fear that leftover resources will be returned to the Department of the Treasury 

and will prompt future congressional budget cuts for the agency. While anecdotes and media stories of year-end spending surges are widespread, empirical support for such surges or the motivation behind them is significantly less 

available. The budget and spending literature has examined the efficacy of policy 

solutions designed to curb year-end spending surges, but these studies have often 

been done without empirical evidence. In this update of the 2014 version of this 

paper, we examine existing literature on the prevalence, consequences, wastefulness, and causes of year-end spending surges. We then update the expenditure 

patterns we identified for executive departments' year-end obligated federal 

contracts using data obtained from USASpending.gov. We review literature on 

purported solutions to curb year-end spending surges and recommend a pilot 

program to give limited budget rollover authority to select agencies. 

JEL codes: Hl, H6 

Keywords: federal budget, budget reform, year-end spending, use it or lose it, 

government accountability 

Copyright© 2016 by Jason J. Fichtner, Adam N. Michel, 

and the Mercatus Center at George Mason University 

Release: September 2016 

The opinions expressed in Mercatus Research are the authors' and do not 

represent official positions of the Mercatus Center or George Mason University. 
33 

T he "use it or lose it" phenomenon refers to the propensity of US 

government agencies to spend unused financial resources toward 

the end of the fiscal year. Such spending is done out of fear that 

leftover resources will be returned to the Department of the Treasury and will prompt future congressional budget cuts for the agency. While 

anecdotes and media stories of year-end spending surges are widespread/ 

empirical evidence for such surges and "use it or lose it" spending or for the 

motivation behind them has been significantly less available.' The first iteration of this paper was published in 2014. Here we have updated the data 

and expanded our analysis. As we discuss in the next section, the budget and 

spending literature that examines the efficacy of various policy solutions 

designed to curb year-end spending surges often lacks supporting empirical 

evidence. In this paper, we examine existing literature on the prevalence, consequences, wastefulness, and causes of year-end surges in spending. We then 

report executive departments' year-end obligated federal contract expenditure patterns, using data obtained from USASpending.gov. 3 We review literature on purported solutions to curb year-end spending and conclude with a 

policy recommendation. 

1. For example, see David Fahrenthold, uAs Congress Fights over the Budget, Agencies Go on Their 

'Use It or Lose It' Shopping Spree," Washington Post, September 28, 2013; Matthew Sabas, "'Use It or 

Lose It' Shows There's More Room to Cut Spending," Daily Signal, November 14, 2013. 

2. Jeffrey B. Liebman and Neale Mahoney, "Do Expiring Budgets Lead to Wasteful Year-End 

Spending? Evidence from Federal Procurement'' (NBER Working Paper 19481, National Bureau of 

Economic Research, Cambridge, MA, 2013). 

3. USASpending.gov compiles data from the General Services Administration, from the US Census 

Bureau, and directly from 31 departments and agencies of the executive branch through various government sources. 

MERCATLJS CENI"ER AI" GEORGE MASON UNIVERSITY 

3 
34 

"Economists 

Jeffrey Liebman 

and Neale 

Mahoney analyze 

data ... to show 

not only that a 

surge in federal 

spending occurs 

at the end of the 

year, but also that 

this spending is of 

lower quality." 

LITERATURE SURVEY ON 

YEAR-END SPENDING SURGES: 

IS "USE IT OR LOSE IT" TO BLAME? 

Research suggests that year-end spending surges may 

result in wasteful spending. In a 2007 survey of Department of Defense financial management and contracting 

careerists, 95 percent of the respondents believe there is 

a problem with year-end agency spending! In their 2013 

paper, economists Jeffrey Liebman and Neale Mahoney 

analyze data from the Federal Procurement Data System 

and the White House's IT Dashboard to show not only that 

a surge in federal spending occurs at the end of the year, 

but also that this spending is of lower quality.' According 

to Liebman and Mahoney, at the end of a fiscal year, "the 

prospect of expiring funds" causes agencies to spend all 

their remaining resources, "even if the marginal value is 

below the social costs of funds (our definition of wasteful 

spending)."6 

In 1998, the US General Accounting Office (GAO)? 

reported that the number of year-end spending surges 

had declined since 1980, when Congress and the GAO 

first looked at the issue.' Among more than 3,200 Inspectors General reports, the GAO found only one that linked 

poor contracting practices with a high rate of year-end 

spending? However, the GAO cautions that its analysis is 

limited because of "agencies' widespread reporting noncompliance" and "the absence of complete and accurate 

4. Michael F. McPherson, "An Analysis of Year-End Spending and 

the Feasibility of a Carryover Incentive for Federal Agencies" (MBA 

Professional Report, Naval Postgraduate School, Monterey, CA, 2007). 

5, Liebman and Mahoney, "Do Expiring Budgets Lead to Wasteful YearEnd Spending?" 

6. Ibid., 1. "Our definition of wasteful spending" refers to Liebman and 

1\1ahoney's definition. 

7. On July 7, 2004, the General Accounting Office's name was changed to 

the Government Accountability Office by the GAO Human Capital Reform 

Actof2004. 

8. US General Accounting Office, Year-End Spending: Reforms Underway 

but Better Reporting and Oversight Needed, GAO/ AIMD-98-!85 

(Washint,rton, DC: United States General Accounting Office, 1998). 

9. Ibid., 7. 

4 
35 

reporting" of agencies' spending.'0 A 2007 study partially confirmed the existence of year-end spending surges on the federal level by analyzing the spending patterns of military hospitals that are completely reliant on congressional 

appropriations for funding. 11 

However, some observers point out that little empirical evidence exists to 

prove that there is a link between year-end spending surges and the US federal 

budget process. A panel ofbudget experts at the International Public Management Network Symposium largely concluded that while year-end spending 

surges exist, little empirical evidence supports the "use it or lose it" phenomenon.12 Panel member Fred Thompson ofWillamette University calls the "use 

it or lose it" phenomenon's key premise-that fears of future budget cuts drive 

exhaustive spending-an urban legend." He points to the timing of the budget process, explaining that budget proposals are "formulated during the prior 

fiscal year and enacted into law well before the books [close] on the current 

year."14 He also argues that because year-end spending surges exist at agencies 

in state governments and in Canada, US federal budgeting patterns cannot be 

a unique source.'' Panel member Robert D. Behn of Harvard University argues 

that year-end spending surges may in fact be "socially optimal" and doubts the 

assumption that they are inherently wasteful.16 

A 2009 International Monetary Fund report found that year-end spending 

surges are a "commonly observed phenomenon in government administrations."17 

Such surges have occurred in Canada, Taiwan, and the United Kingdom, to name 

a few examples.18 

10. Ibid., 13. 

ll. Ramji Balakrishnan et al., "Spending Patterns with Lapsing Budgets: Evidence from U.S. Army 

Hospitals," Journal ofManagementAccountingResearch 19, no.! (2007): 1-23. 

12. Lawrence R. Jones, "Outyear Budgetary Consequences of Agency Cost Savings: International 

Public Management Network Symposium," International Public Management Review 6, no.l (2005): 

139-68. 

13. Ibid., 144. 

14. Ibid. However, it is worth noting that congressional action on appropriations is rarely comp1ete by 

the start of the new fiscal year on temporary and limited continuing resolutions, which might disrupt 

any normal spending patterns. 

15. Ibid. 

16. Ibid., 150-51. 

17. Ian Lienert and Gosta Ljungman, "Carry-Over of Budget Authority" (Public Financial 

Management Technical Guidance Note, Fiscal Affairs Department, International Monetary Fund, 

Washington, DC, 2009), 3. 

18. Rowena Crawford eta!., "A Survey of Public Spending in the UK" (IFS Briefing Note BN43, 

Institute for Fiscal Studies, London, 2009); Noel Hyndman et al., Annuality in Public Budgeting: An 

Exploratory Study (London: Chartered Institute of Management Accountants, 2005); Internal Audit 

Branch, ';Treasury Board Secretariat Government Wide Review of Year-End Spending," Treasury 

Board of Canada Secretariat web archive, 1995, http://www.tbs-sct.gc.ca/report/orp/1995/gwr 

l'-1E~CATUS Af ~ .. JASON UN1VERSITY 

5 
36 

On average, according to a 2009 study, 9.5 percent of UK central government funds are spent in the final month of the fiscal year.19 UK public-sector 

expenditures were disproportionately high in the last quarter of fiscal year (FY) 

1998 to FY 2003.20 However, there may be positive, waste-reducing reasons 

for the late spending surge, such as ensuring that funds are available throughout the year. 21 Thus, while budgetary constraints similar to those in the United 

States may be facilitating year-end spending in the United Kingdom, the surge 

may not be entirely wasteful. 

Some empirical evidence suggests that surges in year-end spending result 

in lower-quality outputs and are the result ofless competitive contracting. Liebman and Mahoney examine data from the federal IT Dashboard, which tracks 

measured performance offederal IT projects of the 27largest agencies. The data 

show that contracts initiated in the last week of the fiscal year have "substantially 

lower" overall project performance ratings!' The authors also find that yearend contracts have a "modest increase in 'risky' non-competitive and one-bid 

contracts!''' The increase in risky contracts may partially explain the low performance ratings of projects contracted during the year-end spending surge. 

On the US state level, a 2012 report by Missouri's state auditor indicates 

that an annualized budget process does impact annual agency expenditure 

patterns and that a "use it or lose it" phenomenon exists to a certain extent.24 

Between 2009 and 2011, various state agencies spent more than one-quarter of 

their total general revenue fund expenditures in the last two months of each 

fiscal year.25 The audit finds that these expenditures resulted in expedited payments and higher inventory levels and that inventory was "not placed into 

service in a timely manner!"6 State employees expressed concern that lapsing 

funds would result in future agency budget cuts.27 

-1995-eng.asp; Jinn-Yang Uang and Ching-Wan Liang, 11Does Monitoring Frequency Affect Budget 

Execution Patterns?;' Asia Pacific Management Review 17, no.l (2012): 59-75. 

19. Crawford et al., "Survey of Public Spending,"l2. 

20. Hyndman et al., Annuality in Public Budgeting, 5. 

21. "It is natural for budget-holders to want, if possible~ to wait until the demands of the financial 

year are dearer before they spend their budgets/' and "many budgets are, by their nature, difficult to 

profile so exactly, not least because three months, and especially since those three months are in the 

middle of the UK's winter, can be an uncertain time." Ibid., 6. 

22. Liebman and Mahoney, "Do Expiring Budgets Lead to Wasteful Year-End Spending?," !8. 

23. Ibid., 24. 

24. Thomas A. Schweich, Statewide Year End Spending Practices (Report 2012-44, Office of the 

Missouri State Auditor, Jefferson City, 2012). 

25. Ibid., 5. 

26. Ibid., 18. 

27. Ibid., 7. 

MERCA1lJS CE:NTER _A.T MASON UN1VERStTY 

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37 

ANALYSIS OF YEAR-END OBLIGATED CONTRACT 

EXPENDITURES BY EXECUTIVE DEPARTMENTS 

Given how few empirical analyses of year-end US agency spending exist, we 

developed our own analysis of federal contract spending trends. To do so, we 

obtained publicly available prime contract award spending data for executive departments from USASpending.gov.28 We focused our analysis on this 

type of spending-which comprised roughly 11 percent of total 2015 federal 

spending'9 -because the data are readily available through the USASpending 

.gov Data Archive. USASpending.gov currently compiles data from the General 

Services Administration (GSA), from the US Census Bureau, and directly from 

31 departments and agencies of the executive branch through various government sources. 30 

From USASpending.gov, we downloaded files containing detailed information on all contracts executed by each executive branch department for FY 

2003 through FY 2015. We then summed obligated monthly contract expenditures based on the date the contract was signed and the amount obligated by 

the contract, by department. We also summed all obligated amounts by fiscal 

year to determine each year's total contract expenditures. Using these monthly 

and annual tallies, we calculated monthly obligated contract expenditures as 

a percentage of annual fiscal year obligated contract expenditures by department for the first and last two months of each fiscal year. For a full list of our 

findings for these monthly obligated expenditures from 2003 through 2015, see 

the appendix. 

28. Data from FY 2003 through FY 2013 were accessed on June 30, 2014. When downloaded, all data 

used from FY 2003 through FY 2013 were last updated by USASpending.gov on June 17, 2014. Data 

from FY 2014 were accessed and last updated on May 13, 2016, and data from FY 2015 were accessed 

and last updated on Aprill7, 2016. 

29. This percentage is calculated by dividing the total amount of contract spending across the entire 

federal government in FY 2015 ($401,326,431,229.80, as reported by USASpending.gov) by the total 

amount of federal government outlays during FY 2015 ($3,688.3 billion, as reported by the Office of 

Management and Budget). USASpending.gov, "Data Feeds, Data Archives for Prime Award Spending 

Data," accessed April17, 2016, httpo/ /www.usaspending.gov/data; Office of Management and Budget, 

Executive Office of the President, "Summary of Receipts, Outlays, and Surpluses or Deficits (-)in 

Current Dollars, Constant (FY 2009) Dollars, and as Percentages of GDP: 1940-2021" (table 1.3), 

https://www.whitehouse.gov/omb/budget/Historicals. 

30. For more information, see "Data Sources," USASpending.gov, accessed August 31, 2016, https:// 

www.usaspending.gov /about/Pages/TheData.aspx. Data reported from FY 2003-2013 were compiled from a longer list of sources. See discussion in Jason J. Fichtner and Robert Greene, "Curbing 

the Surge in Year-End Federal Government Spending: Reforming 'Use It or Lose It' Rules" (Mercatus 

Working Paper, Mercatus Center at George Mason University, Arlington, VA, September 2014). 

MERCATUS CENTER AT GEORGE MASON UNIVERSIIY 

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38 

FIGURE 1. AUGUST AND SEPTEMBER OBLIGATED CONTRACT EXPENDITURES FOR EACH EXECUTIVE 

DEPARTMENT, FY 2015 

40% 

~ • Seplernber .2 

'5 

~ 30% 0. 

iii 

20% 

10% 

0% DOC DHS DOl DOD DO£ DOJ DOL DOS DOT EO HHS HUD TREAS USDA VA 

executive department 

Note: Bars represent percentages of each department's total obligated contract expenditures for the year. See the 

appendix for a key for the executive department abbreviations_ 

Source: USASpending.gov. 

Figure 1 shows that a remarkably large percentage of executive branch 

contract spending occurred near the end ofFY 2015. If an agency were to spread 

its contract spending evenly over a 12-month period, roughly 8.33 percent of 

spending would occur in each month. However, in the last month of FY 2015 

(September)/' the Department of State spent 34.9 percent of its contracting 

expenditures, and the Department of Housing and Urban Development spent 

32.6 percent. Not all agencies exhibited a year-end surge in spending. For example, the Department of Energy spent only 5.7 percent of its annual contract 

expenditures in September 2015. But as the data show, most federal agencies 

were well above 8 percent and more than one-half were above 16 percent. The 

pattern of year-end spending surges is evident in other fiscal years as well, as 

figure2 fromFY 2014 shows." 

It is unclear why the Department of State consistently spends a high level of 

contract expenditures during the last month of the fiscal year. This spending may 

not be wasteful if the department is delaying spendingthroughout the fiscal year 

to ensure that it has enough funds to cover necessary end-of-year spending. How31. The federal fiscal year runs from October 1 to September 30. 

32. See Fichtner and Greene, "Curbing the Surge in Year·End Federal Government Spending/' 9-10, 

for similar figures showing FY 2012 and FY 2013 data. Data for years 2003-2015 are also included in 

the appendix of this paper. 

MERCATUS CENTER i\T GEORGE ~IASON UNIVE11SITY 

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39 

FIGURE 2. AUGUST AND SEPTEMBER OBLIGATED CONTRACT EXPENDITURES FOR EACH EXECUTIVE 

DEPARTMENT, FY 2014 

40% • 

~ 30% 

'6 

iii 

"-

@ 20% u 

~ 8 

0 

"' en 

%! 

1! 

"' "-

10% 

0% 

-10% 

• September 

·29 

DOC DHS DOl DOD DOE DOJ DOl DOS DOT ED HHS HUD iREAS USDA VA 

executive department 

Source: USASpending.gov, 

ever, news reports have suggested that some of this spending seems wasteful. 

For example, one article noted that the Department of State spent $1 million on a 

piece of granite artwork in September 2013 as the fiscal year was closing, 33 while 

another highlighted a $5 million expenditure on the eve of the 2013 government 

shutdown to enable high-end Vermont glassblower Simon Pearce "to provide 

20 different styles of custom handcrafted stem and barware to the State Department for use in American embassies around the world!'34 The following year, in 

September 2014, the Department of State spent more than $1.5 million in 73 contracts with one company, Bernhardt Furniture, to buy furniture for its buildings." 

An empirical study of reasons for the Department of State's high level of year33. Jeryl Bier, ifState Department Buys Million Dollar Granite Sculpture from Irish-Born Artist," 

Weekly Standard, December 3, 2013. 

34. Warren Johnston, usimon Pearce Gets $5 Million Contract," Valley News, October 6, 2013. 

35. Sarah Westwood, "Federal Bureaucracies Go on End-of-Year Spending Sprees to Avoid Budget 

Cuts," Washington Examiner, Aprill6, 2015. 

HERCATUS CENTER A I GEORGE HASON UNIVERSITY 

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40 

FIGURE 3. OCTOBER AND NOVEMBER OBLIGATED CONTRACT EXPENDITURES FOR EACH 

EXECUTIVE DEPARTMENT, FY 2015 

40% 

• November 

~ 30% 

~ u 

iii 20% 169 u 

"' c 

8 

0 10% 

"' 0> 

~ 

~ 0% Q. 

-10% 

16.0 

DOC DHS DO! DOD DOE DOJ DOL DOS DOT ED HHS HUD TREAS USDA VA 

executive department 

Source: USASpending.gov. 

end contract spending does not exist. To address the concerns highlighted in the 

various news accounts, the GAO or the Department of State Inspector General 

should investigate the department's unusual contract spending trends to determine why these patterns occur and whether they are unusually wasteful. 

Interestingly, some executive departments exhibit disproportionately 

high spending at the beginning of the fiscal year (see figures 3 and 4). This 

finding is likely due to agencies spending money as soon as budget resources 

become available. It could explain why some agencies spend a higher proportion of funds in the first month of the fiscal year than in the last. However, 

most departments spend very low proportions of their budgets in the first two 

months of the fiscal year. 

To better understand each department's monthly spending patterns, we 

summed monthly expenditures by department for FY 2003 through FY 2015 

and created a weighted average of each department's expenditures for every 

month as a percentage of its annual expenditures. As figure 5 shows, all but one 

executive department spent, on average, more than 8.33 percent (the percentage that would be spent by month if spending were divided evenly between 

~IE:RCATUS AT 

10 
41 

FIGURE 4. OCTOBER AND NOVEMBER OBLIGATED CONTRACT EXPENDITURES FOR EACH 

EXECUTIVE DEPARTMENT, FY 2014 

40% 

• November 

~ 30% 

:g 

"' a. 

@ 20% u 

~ 8 

0 10% 

"' "' 

~ 

~ 0% "' -0.4 a. 

-10% 

DOC DHS DOl DOD DOE DOJ DOL DOS DOT ED HHS HUD TREAS USDA VA 

executive department 

appendix for a 

tures in certain months when more contract doHars are deobligated than obligated 

Source: USASpending,gov. 

FIGURE 5. AUGUST AND SEPTEMBER OBLIGATED CONTRACT EXPENDITURES FOR EACH EXECUTIVE 

DEPARTMENT, FY 2003-2015 

40% II 

• September 

0% DOC DHS 001 DOD DOE 001 DOL DOS DOT ED HHS HUD TREAS USDA VA 

executive department 

obligated contract expenditures for rY 2003-2015. See 

Source: USASpending.gov 
42 

months) of annual expenditures during September, the final month of the fiscal 

year. On average, from 2003 through 2015, nine departments spent more than 

twice that much (over 16.66 percent) during September. 

Applying the same methodology, we find that between 2003 and 2015 

several departments spent, on average, more than 8.33 percent during October, 

the first month of the fiscal year. However, as a comparison of figures 5 and 

6 illustrates, September expenditures are consistently greater than October 

expenditures for all but two departments: the Department of Energy and the 

Department ofVeterans Affairs. 

Over the years and across departments, the trend of executive departments spending a disproportionately large amount of resources in the final 

month of the fiscal year is apparent, regardless of administration, party control of Congress, or delays in finalizing agency appropriations. Between 2003 

and 2015, across all analyzed executive departments, 16.3 percent of obligated 

contract expenditures occurred during the month of September (see figure 7)-

close to twice what one would expect if spending were split evenly over 12 

months (8.3 percent per month). 

The trend of year-end spending surges is also apparent in the analysis 

of quarterly contract expenditures. In FY 2015, every department, except the 

Department of Energy, spent more during the fourth quarter than the first 

and, in most cases, significantly more. Dividing spending evenly between the 

four quarters should result in 25 percent of the budget being spent each quarter. Figure 8 shows that two agencies spent more than SO percent of their 

budget in the fourth quarter of the year and that seven agencies spent more 

than 40 percent. 

Persistent surges in year-end spending should also be accompanied by 

similar increases in the number of signed contracts. To confirm this trend, for 

the updated FY 2015 data we analyzed the number of contracts signed by each 

agency in each month. Similar to the expenditure analysis, we should expect to 

see about 8.33 percent of contracts signed in each month. Confirming the trend, 

figure 9 shows that lO agencies signed close to 16 percent of their contracts in 

September, the last month of the fiscal year. Every single agency signed more 

contracts in September than in August. 

In comparison to figure 9, figure 10 shows that in FY 2015 most agencies 

signed proportionately fewer contracts at the beginning of the fiscal year than 

at the end. Only the Department of Veterans Affairs signed more contracts in 

October than in September. Most departments signed very low proportions of 

their total contracts in the first two months of the fiscal year, and eight departments signed fewer than 5 percent of their contracts in October. In the FY 2015 

MERCATUS CENTER AT GEORGE MASON UNIVERSiTY 

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43 

FIGURE 6. OCTOBER AND NOVEMBER OBLIGATED CONTRACT EXPENDITURES FOR EACH 

EXECUTIVE DEPARTMENT, FY 2003-2015 

40% 

• November 

30% 

20% 

10% 

0% DOC DHS DOl DOD DOE DOJ DOL DOS DOT ED HHS HUD TREAS USDA VA 

executive department 

Source: USASpending.gov. 

FIGURE 7. AUGUST AND SEPTEMBER EXECUTIVE DEPARTMENT OBLIGATED CONTRACT 

EXPENDITURES, FY 2003-2015 

Source: USASpendlng.gov 
44 

FIGURE 8. QUARTERLY OBLIGATED CONTRACT EXPENDITURES FOR EACH EXECUTIVE 

DEPARTMENT, FY 2015 

.03 .04 

0% DOC DHS DO! DOD DOE DOJ DOL DOS DOT ED HHS HUD TREAS USDA VA 

executive department 

Note: Bars represent percentages of each department's total obligated contract expenditures for the year. See the 

appendix for a key for the executive department abbreviations. 

Source: USASpending.gov. 

FIGURE 9. AUGUST AND SEPTEMBER SIGNED CONTRACTS FOR EACH EXECUTIVE DEPARTMENT, FY 2015 

30% .. \ 

•september 

~ 22.1 u 

.f'i 

c 20% 8 

"0 

'" c; 

0> 

v; 

0 

'" 

~ 10% 

Q. 

~ 

0% 

DOC DHS 001 DOD DOE OOJ DOL DOS DOT ED HHS HUD TREAS USDA VA 

executive department 

signed contracts for the year. See the appendix for a key 

Source: USASpending.gov. 
45 

FIGURE 10. OCTOBER AND NOVEMBER SIGNED CONTRACTS FOR EACH EXECUTIVE DEPARTMENT, 

FY 2015 

30% 

• November 

DOC DHS DOl DOD DOE DOJ DOL DOS DOT ED HHS HVD TREAS USDA VA 

executive department 

signed contracts for the year See the appendix for a key 

Source: USASpending_gov 

quarterly contract data (see appendix), every single department signed more 

contracts in the fourth quarter than in the first quarter of the fiscal year. 

A closer look at daily September contracts and contract expenditures 

lends further support to the trend that shows how agencies rush to spend down 

their budgets at the end of the fiscal year. Figure 11 plots FY 2015 daily obligated 

contract expenditures for alll5 agencies as a percentage of the year's total contract expenditures. Both trend lines show that agencies tend to increase expenditures throughout the month. There are relatively fewer obligations signed on 

the weekends.'6 The top trend line shows the non-holiday weekday trend; the 

bottom line shows the trend for all days. In the last three days of the month, 

agencies spent more than 5 percent of their total yearly contract expenditures. 

On the last day of September, they spent 2.2 percent-the highest daily expenditure in September. 

Figure 12 plots the number of contracts signed each day in September 

as a percentage of total FY 2015 contracts. Showing a similar trend to daily 

36. The first weekend in September is Labor Day weekend, which explains the three relatively lower 

data points in a row from September 5 to 7, 2015. 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 

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46 

FIGURE 11. DAILY SEPTEMBER EXECUTIVE DEPARTMENT OBLIGATED CONTRACT EXPENDITURES, 

FY 2015 

Note: The top trend line shows the non-holiday weekday trend. The bottom line shows the simple trend for all days tr 

the month 

Source: USASpending.gov. 

FIGURE 12. DAILY SEPTEMBER SIGNED EXECUTIVE DEPARTMENT CONTRACTS, FY 2015 

1.0% 

~ 0.8% u 

~ 8 

u 

1' 

"' ·;;; 

0 

10 15 20 25 

day of September 

30 

Note: The top trend line shows the non-holiday weekday trend. The bottom line shows the simple trend for all days in 

the month. 

Source: USASpending.gov. 
47 

expenditures, figure 12 indicates that the number of contracts signed steadily 

increased throughout the month. In the last three days of September, agencies 

signed 2.5 percent of their contracts, and 0.9 percent were signed on the last 

day. If contracts were evenly distributed, one would expect to see 0.5 percent 

of contracts signed each day." While 0.9 percent of contracts may not appear 

excessive, it represents more than double the expected number of contracts 

signed had they been evenly distributed. Additionally, for some agencies, this 

number amounted to a lot of dollars. For example, although the State Department signed 2.18 percent of its total contracts on the last day of September, 

this amount accounted for 7.75 percent of the agency's total obligated dollars 

for the year. 

WASTE-REDUCING SOLUTIONS FOR YEAR-END 

SPENDING SURGES 

Significantly more literature exists on how to curb year-end spending than 

empirical analyses on the extent to which such spending is wasteful. One of 

the most frequently discussed strategies is to grant agencies some degree of 

carryover authority in their budgets. 

Carryover authority allows agencies to move a certain percentage of 

unspent funds from the fiscal year in which they were appropriated to the 

subsequent year. Because many carryover programs have been implemented, 

a sizable amount of literature has assessed their impact on year-end spending 

surges. The results of these studies appear to be mixed. 

Because of a 1992 law, the Department of Justice (DOJ), unlike other 

federal agencies, is allowed to carry over unlimited portions of unobligated 

balances that remain at the end of the fiscal year into a working capital fund. 38 

These balances may accumulate and remain in the fund for an unlimited period 

and are used for "the department-wide acquisition of capital equipment, development and implementation of law enforcement or litigation related automated data processing systems, and for the improvement and implementation 

of the Department's financial management and payroll/personnel systems!'39 

As a result of this unique exception in the federal budgeting process, 

the DOJ's working capital fund has been the focus of multiple studies. In 

their recent paper, economists Liebman and Mahoney find that the DOJ's 

37. This calculation assumes 260 weekdays per year minus the 10 standard federal holidays. 

38. Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies 

Appropriations Act, 1992, Pub. L. No.I02·140, 28 U.S.C. § 527 note (1991). 

39.lbid. 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 

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48 

information technology expenditures (which can tap the working capital 

fund) exhibit a relatively insignificant spending surge at the end of the fiscal 

year.40 Year-end DOJ IT spending is also of relatively higher quality, suggesting that carryover spending authority improves quality!' However, Liebman 

and Mahoney "caution that our DOJ evidence on quality is based on a single 

agency and a small number of contracts."42 Including all DOJ expenditures, 

they find that the DOJ, on average, spends 17.9 percent of its budget in the 

final month of the year-more than six other executive departments and twice 

the monthly amount that would be spent if agency funds were spread evenly 

across each month.43 Liebman and Mahoney explain a potential problem with 

the DOJ's carryover arrangement: "Unless the rollover balances stay with the 

same part of the organization that managed to save them, agency subcomponents will still have an incentive to use up the entirety of their allocations!'44 

A 2008 study by the Senate Subcommittee on Federal Financial Management casts doubt on the effectiveness of the DOJ's carryover authority in curbing wasteful spending!' The study finds that the DOJ used this authority to 

accumulate and maintain unobligated fund balances in excess of $2.1 billion.46 

The study notes that the DOJ maintains a sizable working capital fund balance 

while realizing expansions in its congressionally appropriated budget.47 It recommends that DOJ accounts with large carryover balances be subject to congressional oversight and that only 50 percent of unobligated funds be permitted 

to be carried over between fiscal years.48 However, a 2012 GAO report finds that, 

although the DOJ's working capital fund has been unavailable for departmental 

priorities in recent years, it has been effectively managed in compliance with 

the law and has helped curb agency costs.49 

Michael McPherson's 2007 survey of Department of Defense financial 

management and contracting careerists finds that 75 percent favor a carryover 

40. Liebman and Mahoney, "Do Expiring Budgets Lead to Wasteful Year-End Spending'?/' 29. 

41. Ibid. 

42. Ibid., 3. 

43. Ibid., 46 (table 2). 

44. Ibid., 35. 

45. Tom Coburn, Justice Denied: Waste and Mismanagement at the Department of Justice 

(Washington, DC, Office of Senator Tom Coburn, 2008), 82-85. 

46. Ibid., 83. 

47.Ibid. 

48. Ibid., 85. 

49. US Government Accountability Office, Department of Jus tic"' Working Capital Fund Adheres 

to Some Key Operating Principles but Could Better Measure Performance and Communicate with 

Customers, GA0-12-289 (Washington, DC: US Government Accountability Office, 2012). 

MERCAfUS CENTER AT GEORGE MASON UNIVERSITY 

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49 

incentive. 50 And Robert McNab and Francois Me lese argue 

that carryover provisions enable departments to achieve 

cost savings by "defeating the 'use it or lose it' behavior 

associated with control-oriented budgets:'51 Lawrence R. 

Jones concludes that allowing agencies to obligate funds 

beyond the one year for which they are appropriated could 

enable increased efficiency. 52 In 1997, Oklahoma began to 

allow government agencies to retain unspent appropriated funds for as long as 16.5 months. 53 James Douglas and 

Aimee Franklin conducted a survey of Oklahoma agency 

officials, which found that 72.5 percent think carryover 

provisions reduce wasteful year-end spending. 54 Douglas 

and Franklin explain that the Oklahoma legislature grants 

certain state agencies the authority to carry over funds 

each fiscal year. 55 In early June, agencies are required 

to estimate the amount of surplus funds they will have 

at the end of the fiscal year and explain why the surplus 

occurred. 56 Generally, carryover surpluses "must be spent 

on nonrecurring items to prevent agencies from relying on 

this type of money for regular operating expenditures."" 

However, 17.5 percent of the survey respondents found 

that Oklahoma's carryover law creates a costly paperwork 

burden, 58 and 12.5 percent worried that the use of a carryover would lead to cuts in balances and appropriations. 5

9 

Robert D. Behn of Harvard University expressed a 

similar concern at the International Public Management 

Network Symposium, citing multiple examples in which 

50. McPherson, "Analysis ofYear-End Spending," 42. 

51. Robert McNab and Francois Melese, "Implementing the GPRA: 

Examining the Prospects for Performance Budgeting in the Federal 

Government," Public Budgeting and Finance 23, no. 2 (2003): 73-95,82. 

52. Jones, "Outyear Budgetary Consequences," 167. 

53. James Douglas and Aimee Franklin, "Putting the Brakes on the Rush to 

Spend Down End-of-Year Balances: Carryover Money in Oklahoma State 

Agencies," Public Budgeting and Finance 26 (2006): 46-64, 54. 

54. Ibid., 57 (table 1). 

55. Ibid., 54-55. 

56. Ibid., 55. 

57. Ibid., 65. 

58. Ibid., 57 (table 1). 

59. Ibid. 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 

19 

"In 1998, the 

United Kingdom 

enabled 

government 

departments 

to carry over 

funds from one 

fiscal year to the 

next. Research 

shows that this 

adjustment 

has had little 

effect on the 

disproportionately 

high level of 

spending that 

takes place at the 

end of the fiscal 

year." 
50 

agencies saved surplus funds only to be required to give them back.60 Thomas 

Gardner, administrative services director for the City of Ventura, California, 

from 2000 to 2005, also expressed reservations at the symposium about carryover spending authority.61 He explained that carryover programs can incentivize "saving from over budgeting," thereby leading to the creation of a "rat 

hole" in which the agency annually accumulates excess funds.'' This concern is 

similar to the concern expressed in the 2008 Senate subcommittee report over 

the DOJ's carryover authority.'' 

At the international level, the net effectiveness of carryover authority in 

curbing year-end expenditures and waste is similarly inconclusive. In 1998, the 

United Kingdom enabled government departments to carry over funds from 

one fiscal year to the next.64 Research shows that this adjustment has had little 

effect on the disproportionately high level of spending that takes place at the 

end of the fiscal year.65 In Canada, carryover authority was granted to all executive departments but was limited to 5 percent of fiscal year operating budgets. 66 

An audit found that while subsequent year-end expenditures remained disproportionately high, "these expenditures were not made based on decisions 

to incur expenditures at year-end, but were part of the Secretariat's annual 

planning process."67 

In a 2009 International Monetary Fund Technical Guidance Note, Ian 

Lienert and Gosta Ljungman counsel that "despite their popularity in [Organisation for Economic Co-operation and Development] countries, carry-over is 

generally not advisable for the vast majority of capacity-constrained countries 

operating basic budget systems:••• They warn that if the size of carryovers is 

too large, a conflict can quickly escalate between "the spending priorities of the 

government and the action pursued by the budget manager."69 For advanced 

countries such as the United States, the paper lists six conditions that must be 

met before the country implements carryover authority: (a) accurate appropriations, (b) well-developed accounting and reporting systems, (c) access to 

financing, (d) well-functioning internal control and external audit, (e) devolved 

60. Jones, "Outyear Budgetary Consequences," 151. 

61. Ibid., 156. 

62.Ibid. 

63. Coburn, Justice Denied, 82-SS. 

64. Crawford et al., "Survey ofpublic Spending," 11-12. 

65. Ibid., 12. 

66. Internal Audit Branch, "Treasury Board Secretariat Government Wide Review." 

67. Ibid. 

68. Lienert and Ljungman, "Carry-Over of Budget Authority," 13. 

69. Ibid., 6. 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 

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51 

budget management powers, and (f) medium-term approach to fiscal policy.70 

Even with these conditions met, the authors recommend that carryover be subject to a quantitative limit of3-5 percent of the appropriation." 

Heightened budget transparency also may curb year-end spending. In 

2002, Taiwan's government introduced a midyear budget execution review.72 

Government agencies determine the difference between amounts budgeted 

and actual results midway through the fiscal year (June in Taiwan, where the 

fiscal year ends in December)." The report is audited by the Ministry of Audit, 

then presented to the Congress, and then made public74 According to a 2012 

study of the Taiwan Ministry of National Defense's operations and maintenance budgets, the budget execution rate of the second half year significantly 

decreased after the imposition of the midyear budget review.75 

POLICY RECOMMENDATIONS AND CONCLUSION 

Although correlation is not causation, and the data presented in this paper do 

not prove that wasteful year-end spending exists, some anecdotal evidence suggests that the current budget rule of "use it or lose it" is not optimal and may 

encourage wasteful spending of taxpayer dollars. The question remains: If such 

spending is indeed wasteful, what can be done to reduce it? 

One idea expressed in the literature and discussed previously in this 

paper is to allow agencies limited rollover (also known as carryover) authority 

for funds not spent by the end of the fiscal year. But as Liebman and Mahoney 

point out, if subcomponent savings are aggregated at the agency level, subcomponents have a diminished incentive to save resources.76 

To test the merits of limited rollover authority, we recommend that the 

federal government begin with a pilot exercise. In certain federal departments, 

agency subcomponents should be given the authority to roll over up to 5 percent 

of the contract budget authority into the next fiscal year. McPherson notes that 

Canada "has had 5% carry forward limit for its federal agencies since 1987;"' 

and the 5 percent figure is along the lines suggested by Lienert and Ljungman 

70. Ibid., 11-13. 

71. Ibid., 14. 

72. Uang and Liang, f(Does Monitoring Frequency Affect Budget Execution Patterns? 

73. Ibid., 64. 

74.Ibid. 

75. Ibid., 73. 

76. Liebman and Mahoney, "Do Expiring Budgets Lead to Wasteful Year-End Spending?," 35. 

77. McPherson, "Analysis ofYear~End Spending," 28. 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 

21 
52 

"Even if yearend spending 

spikes were 

not inherently 

wasteful, enabling 

executive 

departments 

to manage 

their budgets 

without artificial 

deadlines would 

likely improve 

the efficiency 

of spending by 

the departments 

and their 

subcomponents." 

in outlining best practices for agency rollover authority in 

advanced countries.78 To maximize success in reducing 

waste, we recommend that rollover accounts of agency 

subcomponents be segregated. The separation of accounts 

increases the incentive to save, because only the agency 

subcomponents that achieve cost savings will be able to 

deploy those savings in subsequent fiscal years. Departments or agencies that wish to participate in the pilot 

program could submit a request to Congress, which could 

direct the GAO to oversee, audit, and evaluate the program. 

A legitimate concern regarding carryover accounts is 

that they could have the perverse consequence of decreasing government accountability by serving as annual "rat 

holes." 79 We think midyear budget reviews could help 

address this concern and would further curb year-end 

spending surges. We recommend that executive departments be required to submit midyear budget reviews to 

Congress and the GAO in which they detail, by agency subcomponent, anticipated expenditures for the remainder 

of the fiscal year, anticipated surpluses at the end of the 

fiscal year, and the reasons for these surpluses. Midyear 

reports with similar components have yielded success in 

reducing "use it or lose it" pressures and year-end spending surges in Oklahoma and Taiwan.80 Of course, such midyear reviews would have limited value if Congress failed to 

conduct appropriate oversight. If Congress does not conduct such oversight, these reports may just become mere 

paperwork-hardly our intended outcome. 

To further curb waste, all rollover accounts-including the DOJ's working capital fund-should be permitted 

to roll over only 50 percent of their balance into the subsequent fiscal year, as recommended by the 2008 Senate 

subcommittee report.81 To avoid lengthy delays in rollover 

78. Lienert and Ljungman, ucarry-Over of Budget Authority," 14. 

79. Jones, "Outyear Budgetary Consequences," 156. 

80. Douglas and Franklin, "End-of-Year Balances" (Oklahoma); Uang and 

Liang, ''Does Monitoring Frequency Affect Budget Execution Patterns?" 

(Taiwan). 

8!. Coburn, Justice Denied, 85. 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 

22 
53 

fund savings being spent and to discourage large accumulations of rollover 

funds, we also recommend that such funds be spent within two years. 

Another potential reform, presented in the Bonuses for Cost-Cutters Act 

of 2015 (S. 1378), is to create a cash bonus program for agency employees who 

identify savings and return the unspent budget authority to the Treasury (a portion of the saving is used for the bonuses). The proposal is intended to realign 

the incentives of individual employees who save public money. If properly 

implemented, these incentives could be similar to those in the private sector, 

where rigorous attention to costs, expenditures, and better budget management is often rewarded using bonuses. 

We suggest that bonuses for waste reduction be included in the limited 

rollover pilot program discussed previously to test the efficacy of the new incentives. We are unaware of any literature that directly investigates the effectiveness of a bonus system for year-end cost savings in the public sector.82 However, 

we suspect that coupling bonuses with rollover authority is crucial to keep the 

incentives of employees and managers aligned. A bonus-only program could 

create unproductive tension between employees who find cost savings and 

managers who still have a career incentive to protect their spending authority 

from budget cuts and who are rewarded through budget increases. In addition to bonuses and rollover authority, we also support testing the feasibility of 

rewarding managers who complete their programs in or under budget by scoring a high rating for fiscal responsibility on their annual performance reviews. 83 

These reforms may create undesirable new administrative burdens and 

could disrupt existing budgeting practices. However, we think that the shortterm costs would be outweighed by the long-term benefits of relieving government agencies of (a) a perceived pressure to spend resources at the end of the 

fiscal year to protect their budgets from cuts and (b) the wasteful expenditures 

associated with that pressure. Furthermore, even if year-end spending spikes 

were not inherently wasteful, enabling executive departments to manage their 

budgets without artificial deadlines would likely improve the efficiency of 

spending by the departments and their subcomponents. 

82. Incentive pay in the private sector is commonplace and, as a result, has a large literature. Similar 

incentive systems in the public sector face different constraints and would need to be appropriately 

designed to mitigate unnecessary year-end budget spending. There is a relatively small literature on 

incentive pay in public-sector services that almost exclusively investigates the provision of public 

services. We are unaware of any literature that investigates internal budget-based incentive pay in 

the public sector. 

83. Dean W. Sinclair, "Changing the Culture ofWasteful Spending in the Federal Workforce" (testimony before the Subcomm. on Federal Spending Oversight and Emergency Management of the S. 

Comm. on Homeland Security and Government Affairs, September 30, 2015). 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 

23 
54 

Although the Department of Justice already has limited rollover authority for projects associated with its unique working capital fund, the DOJ experience is not generalizable to the rest of the federal government. Furthermore, 

observers have pointed out potentially wasteful consequences of the DOJ's 

fund structure. A pilot program that gave limited rollover authority to several 

departments, combined with congressional and GAO oversight of rollover 

accounts, would be a useful experiment to see whether our proposed changes 

to the federal budget process would reduce wasteful year-end spending. 

MERCATUS CENTER AT GEORGE MASON UNIVERSITY 

24 
55 

APPENDIX 

Executive Department Abbreviations 

DOC 

DHS 

DOl 

DOD 

DOE 

DOJ 

DOL 

DOS 

DOT 

ED 

HHS 

HUD 

TREAS 

USDA 

VA 

Department of Commerce 

Department of Homeland Security 

Department of the Interior 

Department of Defense 

Department of Energy 

Department of Justice 

Department of Labor 

Department of State 

Department of Transportation 

Department ofEducation 

Department of Health and Human Services 

Department of Housing and Urban Development 

Department of the Treasury 

Department of Agriculture 

Department of Veterans Affairs 
56 

TABLE A1. OCTOBER, NOVEMBER, AUGUST, AND SEPTEMBER (LAST MONTH OF THE FISCAL YEAR) EXECUTIVE DEPARTMENT 

PRIME CONTRACT AWARD EXPENDITURES, FY 2003-2015 

DOD 

DOE 

DOJ 

DOL 

DOS 

DOT 

ED 

HHS 

HUD 

USDA 

DHS 

DPI 

DOD 

DOJ 

DOS 

HUD 

TRE<\5 

USDA 

DHS 

001 

DOD 

$212,858,910,762 

$3.374,272.982 

$3,472,713,808 

$1,125,490,495 

$1,062,135,157 

$4,533,267.440 

$7,880,856,596 

$231,083,116~30 

$4,062,623,308 

$4,161,816,700 

$4,091,605,935 

$12,786,767,783 

$270,868,494,757 

$17,568,503.908 (8.3%) $19,441,647,547 (9.1%) 

$532,917,530 (15.8%) $141,674,386 (4.2%) 

$47,440,741 (1.4%) $72,411,634 (2,1%) 

$5,753,040 (0.5%) $49,697,714 (4.4%) 

$7,275,677 (0.7%) $28,577,613 (2.7%) 

$372,099,234 (82%) $256.709.534 (5.7%) 

$569,490.108 $369,709,007 {4.7%) 

is.tse} 

$28,208,189~03 02.2%) $19,250.342,690 

$607,010,664 (14.9%) $152,701,33D (3.8%) 

$226,506,626 (5.4%) $175,187,804 (4.2%) 

$353,412,588 (R6%) $244,472,537 (6.0%) 

$468,089,764 (3]%) $944,266,932 (7.4%) 

$32,752,828,084 (12.1%) $21,323,491,890 (7.9%) 

$14,343.732,072 (6.7%) $30.055,153,140 (14,1%) 

$SBS,83l;243 (1.9:'1\) $1A40,667,'635 (4]%) 

$247,019.892 (7.3%) $777,941,524 (23.1%) 

$1dQ.630,855 (6.>%) 

$223,831,349 (6.4%) $1,875,207,654 (54.0%) 

~187.!80,645 (7,1%)' (~.6%) 

$93,387,667 (8.3%) $225,292,200 (20.0%) 

$203,014,088 (19.1%) $135,464,771 (12.8%) 

(9.3%) 

$469,056.573 (10.3%) $1,169,332,206 (25.8%) 

$865,812,057 (11.0%) $1,341,076,615 (17.0%) 

$44s,os3:1s2 (9.5%) (16,5%) 

$13,518,805,466 (5.9%) $26,560$69,693 (115%) 

(4.3'%) 

$322,411.996 (7.9%) $734,731,097 (18.1%) 

$293,079,037 (7.0%) $1,490,023,310 (35.8%) 

$208.110,662 (17.9%) 

$462,293,942 (11.3%) $721,553,300 (17.6%) 

$713,468.476 (5.6%) $5.334,019.706 (41.7%) 

(20.0%) 

$14,998,896,942 (5.5%) $36,517,838,883 (13.5%) 

continued on next page 
57 

--~-------

DOJ 

,DOL 

DOS 

ED $1,403,739,579 $1,607.226 (O.i%) $70,929,361 $148.097,419 (10,6%) $306,848,045 (21,9%) 

HHS 

HUD $1,077.171,472 $44,365,817 (4J%) $67,872.073 (63%) $56,772,632 (5,3%) $180,767,870 06.8%) 

USDA $4,062,941,929 $315,147,251 (78%) $251,006.522 (6,2%) $418,701,918 (10.3%) $636,932,617 (15.7%) 

DOD $300,588,766,778 $23,351,608,232 (Z8%) $17,678,562,570 (5,9%) $20,900,883,451 (70%) $46J27,648,955 (15,3%) 

DOJ $4,941,595,765 $1,361,765,797 (27.6%) $228,428,845 (4,6%) $338,602,758 (6,9%) $820,386,819 (16.6%) 

DOL 

DOS $5,400.422,326 $231,946,321 (4.3%) $241,516,784 (45%) $634,796.004 (118%) $1,606.737.400 (29B%) 

DOT' 

ED $1,416,793.552 $531,448 (0.0%) $71,188.291 (5.0%) $94,243,766 (6.7%) $279,060,819 (19,7%) 

~Hs' 

HUD $1,094,020,530 $60,052.358 (5.5%) $68.719,679 (63%) $52,795,239 (4,8%) $190,574.533 (1H%) 

USDA $4,159,688,645 $421,751,986 (10.1%) $291,091.752 (IO%) $425,189,002 (102%) $684,732,942 (165%) 

DHS $12.459,981,568 $616,632,827 (4.9%) $830,296.533 (6,/%) $1,832,786,523 (14.7%) $2,253,717,561 (18.1%) 

$1,057,772.438 (15,0%) 

ED $1,448,873,321 $1,894.923 (0.1%) $39,445,139 (2.7%) $68,291,167 (U%) $335,473,938 (232%) 

HUD $846,076.866 

USDA $4.622.481,039 

continued on next page 
58 

DHS $14,033.4S4,696 $691,S33,642 (4.9%) $571,732,840 (4.1%) $1,121,996.114 (S.O%) $3,216,972.430 (22.9%) 

riot 

DOD $397,497.817,762 $26,371,865,019 (6.6%) $2S.988,788,404 (6.5%) $29,120,595.768 (7.3%) $84,379,529.870 (212%) 

$1:Q~o;41tsS7 ·· (4.1%) 

DOJ $5,893.464.182 $874.784,863 (14.8%1 $316,637,822 (5.4%) $369,363.264 (6.3%) $1,083.218,426 (18.4%) 

.DOL 

DOS $6,1BS,436,092 $120,698,113 (2.0%) $168,247.144 (2.7%) $656,493,968 (10.6%) $2,119,023,863 (34.3%) 

.(19.2%1. 

ED $1,379,118,056 $11,147,769 (0.8%) $62,136,141 (4.5%) $61,440,814 (4.5%) $189,413,235 (13.7%) 

HUD $990,128,306 $98,522,280 (10.0%) $6,069,500 $56,687.S03 (5.7%) $213,480,220 (2!.6%) 

USDA $5,337,927,668 $440,702.437 (8.3%) $377,239.173 (7.1%) $670,207,124 (12.6%) $857.107,711 (16.1%) 

DHS $14.286,606,249 $865,06S,29S (6.1%) $1,172,024.433 (82%) $1,017,378,667 (7.1%) $3,068,370,674 (21.S%) 

DOD $373,208.441.472 $30,527,212,743 (8.2%) $26.968,720,107 (7.2%) $26,141,856,854 (7.0%) $61,S28,278.813 (16.5%) 

DOS $7,479,746,6S7 $S7,026,507 (0.8%) $216,6S3.492 (2,9%) $716,998,2S3 (9.6%) $2,73S,641,007 (36.6%) 

ED $1,S07,616,631 $7.917,332 (0.5%) $114,255,653 (7.6%) $101,911,673 (6,8%) $181,398,030 (12.4%) 

HUD $868,86S.796 $100,482,655 (11.6%) $31.528,664 (3.6%) $51.168,509 (6.0%) $216,452,214 (24.9%) 

DOD $367.962,894,340 $21,904,811,763 (6.0%) $25,169,667.3S3 (6.8%) $2S,693,994.437 (1.0%) $6S,43l.S00,254 (17.8%) 

continued on next page 

s \ \ ' ,\1 
59 

Total 

DOS $8,137,422,558 $64,099,785 (0.8%) $2~6,125,669 (2,8%) $905,392,852 $3,152,027.024 (38,7%) 

ED $1,835,448,675 $1,145,496 $86,007,380 (4.7%) $67,409,746 (3,7%) $361,416,076 (19,7%) 

HH~ 

HUD $1,673,229,217 $6,612,930 (0,4%) $7,?45,967 $223,394,639 (13,4%) $228,790,523 (13.7%) 

USDA $6,136,997,239 $282,341,906 (4,6%) $407,105,251 (6,6%) $736,140,656 (12,0%) $937,736,411 (153%) 

DHS $14,240,554,935 $580,594,566 (4,1%) $1,384,454,854 (9.7%) $1,435,874,871 (10.1%) $3,507,241,766 (24,6%) 

l)Q) 

DOD $374,160,151,829 $23,750,771,433 (6,3%) $26,115,939,042 (7,0%) $29,564,937,020 (7.9%) $64,668,063,888 (17,3%) 

DOS $9,179,887,383 $42,843,107 (0,5%) $241,882,000 (2,6%) $1,146,582,096 (125%) $3,238,722,075 (35,3%) 

QUl'J 

ED $1,864,906,980 $19,940,528 (U%) $181,000,965 (9,7%) $91,784,482 (4.9%) $355,295,902 (19,1%) 

B~s 

HUD $1,697,197,350 $9,958,532 (0.6%) $225,933,629 (13.3%) $67,011,087 (3.9%) $279,665,707 

DOJ $6,648,176,935 $901,336,403 (13.6%) $380,071,195 (5.7%) $487,639,677 (7.3%) $1,363,142,562 (20.5%) 

DOS $8,315,467,866 $53,454,888 (0,6%) $478,842,365 (5,8%) $721,670,698 (8.7%) $3,646,548,452 (43.9%) 

ED $2,061,985,966 $918,806 (0,0%) $154,894,411 (7.5%) $197,721,998 (9.6%) $352,159,338 (17,1%) 

HUD $1,451,823,200 $80,347,664 (5.5%) $33,700,154 $182,257,525 (12.6%) $297,304,988 (20,5%) 

TR~AS, 

USDA $5,248,763,530 $304,071,951 (5,8%) $332,975,385 (6.3%) $699,076,084 (13.3%) $1,178,881,401 (22.5%) 

continued on next page 

·\I ''l 

29 
60 

DHS 

DOJ 

oOL' 

DOS 

HUD 

USDA 

DH5 

DOl· 

DOD 

o.OE' 

DOJ 

,OOL 

DOS 

opT 

ED 

HHS. 

HUD 

USDA 

DH5 

DOD 

DOE 

OOJ 

$12,230,567,804 $589.479,567 (4.8%) 

$7,267,817,297 $1,063.497,250 (14.6%) 

$7,334,415,105 $90,891,163 (1.2%) 

$1,582,129,780 $2,503,937 (0.2%) 

$5,145,656,679 $391,367,791 (7.6%) 

$12,860,174,183 $509,006.700 (4.0%) 

$284,313,879,940 $15,333,892,6S9 (5.4%) 

$9,068,469,889 $24,853,581 (0.3%) 

$1,206,066,431 ·$5,086,919 ·(0.4%) 

$5,387,142,318 $189,459,240 (35%) 

$13,411.456,145 $546,147,198 

$273,503,736,574 $20,792,205,534 (7.6%) 

$7,697,901,884 $801,536,620 (lOA%) 

$1,360,716,558 (11.1%) $1,208,787,907 (9.9%) $2,429,640,659 (19,9%) 

$333,896,624 (4.6%) $736,421,256 (10.1%) $1,211.767,270 (16.7%) 

$214,457,398 (2,9%) $857,767,119 (11.7%) $2,843,646,433 (38.8%) 

$57,306,621 (3.6%) $71,692,234 (4.5%) $142,642,021 (9.0%) 

$526,479,728 (10.2%) $698,223,719 (13.6%) $861,217,033 (16.7%) 

$860,594,892 (6.7%) $1,139,385,561 (8,9%) $2,610,438,033 (20.3%) 

$17,230,666,849 (6.1%) $19,848,385,866 $47,443,783,091 (16.7%) 

$289,918,074 (3.2%) $719,934,841 (79%) $3,311,801,73S (36.5%) 

$65,378.755 (5.4%) -$34,887,158 ·(2.9%) $146,942,757 (12.2%) 

$400,427,192 (7.4%) $655,223,846 (12.2%) $1,096,665,835 (20.4%) 

$711,663,563 (5.3%) $903,354,608 (6.7%) $2,859,731,693 (21.3%) 

(2}7%) 

$21,559,412,800 (7.9%) $20,105,213,366 (7.4%) $41,100,951.550 (15.0%) 

$383,632,604 (5,0%) $522,824,851 (6.8%) $1,345,912,698 (17.5%) 

continued on next page 
61 

September 

(9.9%) $2,920,821.187 (34.9%) 

(l{):S~j 

ED $2,669,682,267 $53,822,909 (2.0%) $451,843,979 (16.9%) $140,743,011 (5.3%) $648,133,484 (24.3%) 

HUD $1,169,796,297 $62,028,028 (5.3%) -$8,674,851 $29.767,290 (2,5%) $380,949,367 (32.6%) 

DHS $161,647,101,944 $7,747,711.334 (4.8%) $11.024,983,924 (6.8%) $14,002.710,345 (8.7%) $35,972,164,926 (22.3%) 

DOD $311,764,107,726 (7.7%) $298,151,504,211 (7.4%) $285,007,492,864 (7.0%) $634,559.788,321 (15.6%) 

(~.0%) 

DOJ $80,231,614,831 $12.402,535,849 (15.5%) $4,012,715,271 (5.0%) $5,815,886,568 (7.2%) $15,228,411,171 (19.0%) 

ool <1:>%) 

DOS $89,352.696,649 $1,380,250,586 (1.5%) $2,651,956,529 (3.0%) $8,870,087,962 (9.9%) $33,441,921,610 (37.4%) 

DOT 

ED 

HH~ 

HUD $16,701,544,456 $548,725.449 (3.3%) $623,328,872 (3.7%) $1,248,891,936 (7.5%) $2,734,161,732 (16.4%) 
62 

TABLE A2. OCTOBER, NOVEMBER, AUGUST, AND SEPTEMBER EXECUTIVE DEPARTMENT PRIME CONTRACTS 

SIGNED, FY 2015 

Total 

contracts Agency signed 

DOC 

PHS 

DOl 71,528 

ooo. 

DOE 13.506 

oru. 152,347 

DOL 7,998 

095 s6,4s3 

DOT 22,351 

E,D 3,531 

HH5 90,550 

HUb 3,419 

TREA5 25,040 

uso~ 

VA 214,412 

October November August 

(3.7%) 1,308 (5.0%) 3,485 (13.4%) 

/<M~l 8,598 (10.5%) 

1,114 (1.6%) 3,099 (4.3%) 9,337 (13J%) 

,(1):5%) ~09;917 (14.8%)' 283,133 (!3.5%) 

566 (4.2%) 655 1,284 (9.5%) 

17.450 ·'(11.5%1 (8.2%) 

348 (4.4%) 425 (5.3%) 806 (10.1%) 

3;981, (4:1%) 9,885 (10.2%) 

1,295 (5.8%) 1,288 (5.8%) 2,273 (10.2%) 

165 (9.7%) 

3,851 4,891 (5.4%) 10,229 (11.3%) 

126 429 (12.5%1 

2,562 (10.2%) 1,543 (6.2%) 2,156 (8.6%) 

4,7Sa ·(5.39!) 9,394· (13.7%)· 

26,146 (6.3%) 17,785 (8.3%) 

MERCATUS CENTER AT GEORGE MASON UNIVERSiTY 

32 

September 

4,297 (16.5%) 

11,884 (16.6%) 

436,5!;7 •t16:0%) 

2.238 (16.6%) 

18,358 ·' 

1,477 (18.5%) 

21,297 (22.1%) ·• 

2,982 (13.3%) 

854' (24.2%) 

13,089 (14.5%) 

3,360 (13.4%) 

J0.411'. (1S.t%l 

23,416 (10.9%) 
63 

TABLE A3. QUARTERLY EXECUTIVE DEPARTMENT PRIME CONTRACT AWARD EXPENDITURES AND CONTRACTS SIGNED, FY 2015 

Pane! A. Expenditures 

Total 

Agency expenditures Q1 Q2 Q3 Q4 

DOC 

D,HS 

DOl $4,154,793,667 $412,445,181 (9.9%) $820,070,734 (19.7%) $916,240,994 (22.1%) $2,006,036,758 (48.3%) 

DOE $25,155,408,606 $5,606,074,283 (22.3%) $11,606,516,219 (46J%) $4,392,915,048 (17.5%) $3,549,903,056 (14.1%) 

!)QJ 

DOL $2,197,950,922 $285,339,042 (13.0%) $353,903.866 (16.1%) $418,239,567 (19.0%) $1,140,468,448 (51.9%) 

'$2,)25,385,95;1- C?5<4%)\ (53:4%) 

DOT $6,098,432,827 $823,684,496 (13.5%) $1,912,423,940 (31,4%) $1,433,123,024 (23.5%) $1.929,201,368 (31.6%) 

ED: 

HH5 $21,870,437,825 $2,903,944,000 (13.3%) $4,645.255.158 (21.2%) $5,105,275,264 (23.3%) $9,215,963,404 (42J%) 

:Huo (aCS')!l $37$,397,~42 

TREAS $5,692,397,246 $1,295,798.446 (22.8%) $1,141,664,136 (20.1%) $1,379,437,305 (24.2%) $1,875,497,359 (32.9%) 

V$QA <Z3.2'J!) 

VA (21.5%) 

Panel B. Contracts 

Total contracts 

Agency signed Q1 Q2 Q3 Q4 

·----·-----

DOl 71,528 8,883 (12.4%) 16,915 (23.6%) 16,897 (23.6%) 28,833 (40.3%) 

DO~ 

DOE 13,506 2,098 (15.5%) 3,076 3,637 (26.9%) 4,695 (34.8%) 

OOJ. (23,0%) 

DOL 7,998 1,417 (17.7%) 1,600 (20.0%) 1,959 (24.5%) 3,022 (37.8%) 

[lOS zl,:it£?< (23.1%) 

DOT 22,351 4,242 (19.0%) 5,593 (25.0%) 5,255 (23.5%) 7,261 (32.5%) 

939 (26-6%) 

HHS 90,550 14,976 (16.5%) 21,233 (23A%) 22,113 (24.4%) 32,228 (35.6%) 

704 

TREAS 25,040 5,924 (23.7%) 6,130 (24.5%) 5,675 (22,7%) 7,311 (29.2%) 

USDA •• 

VA 214,412 
64 

ABOUT THE AUTHORS 

Jason J. Fichtner is a senior research fellow at the Mercatus Center at George 

Mason University. He has previously served in several positions at the Social 

Security Administration, as senior economist with the Joint Economic Committee of the US Congress, and as senior consultant with the Office of Federal 

Tax Services of Arthur Andersen in Washington, DC. He has also worked on 

transfer pricing issues for large multinational corporations to ensure compliance with US and international tax regulations. Fichtner earned his PhD in 

public administration and policy from Virginia Tech. He serves on the adjunct 

faculty at Georgetown University's McCourt School ofPublic Policy, the Johns 

Hopkins School of Advanced International Studies, and Virginia Tech's Center 

for Public Administration and Policy, where he teaches courses in economics, 

public finance, the public policy process, public management, and public budgeting processes. 

Adam N. Michel is the program manager for the Spending and Budget Initiative 

at the Mercatus Center. He received his MAin economics from George Mason 

University and his BA in politics from Whitman College. He participated in the 

Mercatus Graduate Fellowship and previously worked at the Tax Foundation 

as a federal tax policy intern. Michel has also worked as a research associate at 

the Competitive Enterprise Institute. 

ACKNOWLEDGMENT 

We would like to thank Robert Greene for his contribution to this research in 

its current form and its previous publication. 
65 

ABOUT THE MERCATUS CENTER AT GEORGE MASON UNIVERSITY 

The Mercatus Center at George Mason University is the world's premier 

university source for market-oriented ideas-bridging the gap between academic ideas and real-world problems. 

A university-based research center, Mercatus advances knowledge about 

how markets work to improve people's lives by training graduate students, conducting research, and applying economics to offer solutions to society's most 

pressing problems. 

Our mission is to generate knowledge and understanding of the institutions that affect the freedom to prosper and to find sustainable solutions that 

overcome the barriers preventing individuals from living free, prosperous, and 

peaceful lives. 

Founded in 1980, the Mercatus Center is located on George Mason University's Arlington and Fairfax campuses. 
66 

809 PANEL TESTIMONY- END-YEAR SPENDING IN DOD 

Testimony for Dr, Allan Burman 

Senate Homeland Securihj and Gtmemment Affairs Committee (HSGAC) 

Federal Spending Oversight and Emergency Management (FSO) Subcommittee 

Hearing on End-Year Spending, 2017-09-20 

Chairman Paul, Ranking Member Peters, and other members of the subcommittee: Thank you 

very much for this invitation to speak about the important issue of end-year federal spending 

surges, I will provide the subcommittee with an overview of some of the trends the Section 809 

Panel has observed in Department of Defense (DoD) acquisition spending and briefly present 

some of the options the panel is considering for addressing the issue, 

A little about my background: I served as administrator for federal procurement policy under 

Presidents Reagan, Bush and Clinton, and served on the Section 800 Panel and Service 

Acquisition Reform Act Panel-predecessors to the Section 809 PaneL I am currently president 

of the firm Jefferson Solutions and chairman of the Procurement Round Table, 

Section 809 Panel 

I represent the Section 809 Panel, established by Congress under the FY 2016 National Defense 

Authorization Act to review and provide recommendations on defense acquisition reform. In 

the course of our work, we intend to provide specific, data-driven recommendations that will: 

Enable DoD to be more adaptable in the face of a rapidly d1anging threat environment; 

• Make DoD a more attractive customer in the new, dynamic defense marketplace; 

• Enable DoD to use scarce resources more efficiently; 

Simplify the acquisition process so goods and services can be purchased in a timely 

manner without unnecessary burden; and 

• lncentivize the defense acquisition workforce to make sound, mission-driven decisions.' 

Since the Section 809 Panel was established, we have formed about a dozen research teams to 

look at key issues affecting defense acquisition. These issues include barriers to entry, key 

characteristics of successful programs, IT acquisition, and budgeting practices, 

1 Advisory Panel on Streamlining and Codifying Acquisition Regulations, "Section 809 Panel Interim 

Report," May 2017, https:l/section809panel.oq;lwp-content/uploads/20.17/05/Sec809Panel InterimReport May2017 r!NAL-for-web.pdf, accessed September 7, 2017, 

Rev: 1115117 Page 1 
67 

I lead the team looking at budget issues. Key research topics for us include portfolio-level 

budget management and the reprogramming process. We have also focused in particular on the 

incentives that produce end-year spending and the effects of end-year spending on effectiveness 

and efficiency in defense acquisition. 

Defense Acquisition in Context 

To put defense acquisition spending into context, in FY 2016 the U.S. government expended 

approximately $3.8 trillion. Of this total, DoD spending accounted for about $565 billion, or 15 

percent. In FY 2016, DoD obligated $298 billion toward procurement of products and servicesmore than half of its total outlays for that year. In other words, defense acquisition on its own 

represented around 8 percent of all annual agency spending. 2 

End-Year Spending Surges in DoD 

If defense acquisition funds were obligated evenly across each point in the fiscal year, we would 

expect to observe about 8 percent in each month and about 2 percent in each week. Instead, we 

saw in September 2016- the final month of the fiscal year- obligations of more than 14 percent 

of the annual total. In the final week of the fiscal year- from September 24 to 30-DoD 

obligated about 7 percent of the annual total.' 

2 Office of Management and Budget Table 3.2, Outlays by Function and Superfunction 1962-2022, 

bttps://www.whitehouse.gov/omb/budget/Historicals, accessed September 7, 2017. 

Federal Procurement Data System, bttps:llwww.fpds,gov, accessed September 7, 20] 7. 

3 Federal Procurement Data System, https:ljwwwJpds,gov, accessed September 7, 2017. 

Rev: 1/15/17 Page 2 
68 

Weekly DoD contract obligations, average FY 2012 to FY 20164 

EndQ2 

2468WUM~WWllMUDm~NHD~~M~G~~ 

Week of fiscal year 

These end-year surges are particularly concentrated in certain areas of DoD. For instance, we 

observe relatively large surges in information technology as well as building construction and 

maintenance. 

Reasons for surges across different economic sectors vary. For instance, some stakeholders have 

suggested to us that IT surges exist because of the ease with which IT products can be 

purchased on short notice-allowing an easy way to obligate dollars at the last minute. 

With respect to building construction and repair, other stakeholders have told us that at any 

given time there are many facilities in need of repairs. This situation leads to a large and lengthy 

work backlog, and uncertainty about whether a given project will receive funding until the last 

minute-hence the end-year surges. 

For the Department of the Air Force and the Department of the Navy, September obligation 

surges in FY 2016 were much lower than for the Army. However, the absence of large end-year 

spending surges does not mean there are no end-period surges in mid-year. We see Air Force 

and Navy surges at the end of March, mid-way through the fiscal year, suggesting the existence 

of service-level policies that simply alter the dates at which surges occur. 

4 Data from Federal Procurement Data System, https://www.fpds.gov, accessed April28, 2017. Average of 

weekly totals from FY2012 to FY2016. To ensure comparability of data, each weekly period contains the 

same days of the week. The first day of the fiscal year (or first two days for leap years) are omitted. 

Figures in FY2017 USD, adjusted for inflation using DoD Non-Pay Deflators from Comptroller 

Green book. 

Rev: 1/15/17 Page 3 
69 

Key Research Questions 

Clearly, DoD faces a pattern of end-period spending surges similar to those we observe in many 

other agencies. This pattern raises three major questions, which the Section 809 Panel intends to 

further research and report on in coming months: 

Do end-year defense acquisition spending surges indicate a problem? Is end-year 

contract spending less effective or less efficient than contract spending at other points in 

the year? 

What incentives are spurring these surges? Are acquisition professionals incentivized to 

spend more at end-year by certain laws, regula lions, and policies? 

What can Congress and DoD do to mitigate any negative effects from end-year surges? 

These are all complex questions. The Section 809 Panel's budget research is ongoing, but at this 

point I can lay out the basics of existing research and provide some of our preliminary findings 

from data analysis and interviews with DoD stakeholders. 

Are End-Year Surges Bad? 

Are end-year sperzding surges a problem for DoD? 

It is our view that end-year spending surges are not a problem in and of themselves. TI1ey are 

produced by certain incentives, and it is those incentives that may represent problems for the 

government and DoD. If we wish to solve those problems, we must address the root causes of 

behavior. If we focus solely on smoothing out spending across the fiscal year, we run the risk of 

treating a symptom rather than the problem itself. 

We have spoken to individuals in DoD who do not believe end-year spending indicates a major 

problem. Some have stated that the quality of products and services procured at end-year is no 

different from any other time of year. 

Others suggest that end-year spending may be used to purchase lower-quality products and 

services than spending at other points in the year, but this may not be a problem. This argument 

presumes that acquisition professionals have high-priority and lower-priority lists of items, all 

of which are needed but some of which are more needed than others. Officials may buy highpriority items as soon as they are able, but avoid spending money on lower-priority items in 

case an emergency requires the rapid reallocation of that money. In this case, the end-year 

spending would buy items that are less immediately critical for DoD operations but will still be 

needed eventually. 

There is a substantial body of analysis- including work by Dr. Jason Fichtner-suggesting that 

end-year spending may provide less efficient acquisition outcomes than spending at other 

Rev: 1/15117 Page 4 
70 

points in the fiscal year-' A well-known study several years ago included analysis of federal IT 

spending that showed a correlation between lower-quality IT projects and end-year spending. 6 

We have heard anecdotal evidence and statements from senior defense officials that support 

this conclusion. 

What Causes End-Year Surges? 

What causes e:nd-year and end-period surges? Why does the DoD acquisition community obligate more 

money at the end of certain periods than within those periods? 

Answering these questions requires analysis of the many tiers through which obligation 

authority flows before it reaches the lowest level. Congress appropriates money for use by DoD 

from one fiscal year to the next. OMB, the DoD comptroller, service-level comptrollers, and 

lower-level resourcing authorities play roles in funding distribution as well. Once funding 

reaches a DoD contracting office, these tiered organizations may have divided obligation 

authority on a quarter! y, monthly, or even weekly basis. A program manager or contracting 

officer may be expected to ensure the spending of a specific amount of money within a specific 

month or week of the fiscal year. 

It appears that at both high-level and low-level tiers, these expectations are driven by a fear that 

budgets will be swept-in other words, reduced in a future appropriation-if funding is not 

fully spent by the end of the year. This fear incentivizes higher-tier authorities to create 

minimum obligation targets for lower-tier authorities, which in turn incentiviz.es the lower-tier 

authorities to create minimum obligation targets for the tiers below them. 

One consequence of these obligation targets may be that officials fear the prospect of being 

caught without sufficient funding to address an unexpected emergency in a specific quarter, 

month, or week. This prospect would create incentives to save money until the very end of the 

period to which spending targets are applied, producing the surges we observe at the end of 

time periods. 

How Should We Respond to End-Year Surges? 

What options might be available to Congress for addressing the issues raised l>y end-year spending 

surges? 

5 Jason Fichtner and Adam Michel, "Curbing the Surge in Year-End Federal Government Spending" 

(page 23), September 2016, ]illj~/.JY!eY.l:l!,Jllirr£11illliic&rl?,/JiJ§illmLJlli:W:n~ilillo:tidlllJ§L:~lL::l:mi:§J2!illd.l.ng.: 

vl.pdf, accessed September 6 Jeffrey B. Liebman and Neale Mahoney, "Do Expiring Budgets Lead to Wasteful Spending? Evidence 

from Federal Procurement," National Bureau of Economic Research, September 2013: 

http://www.nber.org/papers/wl9481.pdf, accessed April26, 2017. 

Rev: 1/15/17 Page 5 
71 

Congress has historically addressed defense acquisition end-year surges via several means. The 

two mechanisms regularly written into defense appropriation law are multiyear appropriations 

and the 80/20 rule. 

Multiyear appropriation accounts exist for R&D, procurement, and military 

construction. These accounts are partly meant to provide sufficient flexibility to mitigate 

the incentive to hoard money until the end of the year; however, DoD applies obligation 

targets to these accounts in ways that effectively make the majority of funding singleyear. In doing so, DoD may limit the effect that multiyear appropriations have on endyear surges. 

• The 80/20 rule, written annually into appropriations bills, requires DoD spend no more 

than 20 percent of operation and maintenance funding in the last 2 months of the fiscal 

year. By limiting spending in the last two months, end-year spending may be pushed 

back to the end of July instead of September. By targeting end-year surges rather than 

root incentives, it may also represent a treatment of symptoms rather than the problem 

itself. In the 1980s, the Government Accountability Office testified that the 80/20 rule 

could result in constraints that were difficult to administer at the agency-level and failed 

to address the real problem. 

Congress has considered-and, in some cases, implemented-other measures for addressing 

end-year surges. These include incentive pay for identifying wasteful spending, working capital 

funds, and carry-over (or rollover). 

• Incentive pay for government employees who identify wasteful spending has been 

supported in several bills, including of course the Bonuses for Cost-Cutters Act 

supported by several members of this committee. Such an incentive payment system 

would have the advantage of directly targeting wasteful spending rather than end-year 

spikes themselves. This focus on the problem rather than the symptom is admirable. To 

make such a system effective within the defense acquisition system, however, several 

concerns would need to be addressed: 

1) The concern that some employees could be incentivized to adopt overly-liberal 

definitions of waste in hopes of a cash bonus. 

2) The concern that such a program could lead to misaligned incentives between 

program leadership and lower-level employees. 

3) The many levels of review within the DoD programming and budget cycles on 

the funds appropriated to any program-suggesting that identification of 

wasteful spending should occur during these reviews, with both leadership and 

employees involved in the program. 

• In some instances, Congress has supported the establishment of working capital funds 

within the DoD acquisition system. By adopting a model of effectively selling products 

and services to the military departments, working capital funds allow for the use of nondirectly appropriated funds, which may mitigate the appearance of end-year spending 

surges. 

Rev: 1/15/17 Page 6 
72 

Congress has, in limited cases, approved the use of carry-over within DoD. In the FY 

2016 appropriations bill, Congress approved a 1-year, 1 percent carryover authority for 

operation and maintenance spending by the Defense Health Agency (DHA). Our 

analysis of DHA data showed that contract obligations in September 2016, as a 

percentage of the FY 2016 total, declined by approximately 3 percentage points relative 

to previous years. DHA's midyear obligation surge in March (which is consistently 

higher than the agency's September surge) also declined by about 3 percentage points.' 

The Section 809 Panel is examining all of these approaches as potential ways to address the endperiod and end-year spending problem. Thank you very much for the opportunity to testify 

today about this important issue. I look forward to answering any follow-up questions you 

might have. 

7 Federal Procurement Data System, https:Uwww.fpds.gov, accessed September 11, 2017. 

Rev: 1/15/17 Page 7 
73 

For Release on Delivery 

Expected at 2:30p.m. ET Wednesday, September 20, 2017 

GA0-17-807T 

United States Government Accountability Office 

Testimony 

Before the Subcommittee on Federal Spending 

Oversight and Emergency Management, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate 

BUDGET ISSUES 

Budget Uncertainty and 

Disruptions Affect Timing 

of Agency Spending 

Statement of Heather Krause, Director, Strategic Issues 
74 

BUDGET ISSUES 

Budget Uncertainty and Disruptions Affect Timing of 

Agency Spending 

What GAO Found 

Agency responses to budget uncertainties affect timing of spending. Due to 

uncertainties about the total funding ultimately available in a given year, prior 

GAO work has found that agency officials limit their spending early in the fiscal 

year because final funding decisions may be less than anticipated. GAO's prior 

work has identified three key sources of budget uncertainty and disruption. 

• Continuing resolutions. In all but 4 of the last 40 years, Congress has 

passed continuing resolutions (CR) to enable agencies to continue operating 

if all regular appropriation bills have not been enacted on time. In 2009, GAO 

reported that challenges caused by CRs continued at the selected agencies 

reviewed even after they had received their full year appropriations. Officials 

from selected agencies reported that they delayed hiring or contracts during 

the CR period, potentially reducing the level of services these agencies 

provided and increasing costs. Agency officials reported taking varied actions 

to manage inefficiencies resulting from CRs, including shifting contract and 

grant cycles to later in the fiscal year to avoid repetitive work. 

Sequestration. In 2014, GAO reported that agencies that historically 

obligated most of their funding in the latter half of the fiscal year had more 

flexibility to implement sequestration. 

lapse in appropriations. In 2014, GAO reported on the effects of a 2013 

lapse in appropriations (or government shutdown) on agencies' ability to 

manage their resources. In managing the implementation of the shutdown, 

the agencies GAO reviewed experienced budget and programmatic delays. 

GAO has also previously reported that while agency managers leverage 

ftexibilities available to them as they execute their budgets, Congress has 

established controls that agencies must follow throughout the year to ensure 

accountability and fiscal controL Legal constraints regarding the purpose, 

amount. and time of the funds available affect how the funds can be spent 

throughout the year. These include: 

The fiscal characteristics of the funding, including the period of availability of 

the funds, influence how agencies manage their resources. 

• An agency may not obligate current appropriations for the needs of future 

fiscal years. Commonly referred to as the bona fide needs rule, an agency 

must point to a genuine need for the expenditure, not a mere need to use up 

remaining dollars before the end of the fiscal year. 

• Two laws in particular require agencies to walk a fine line throughout the 

fiscal year, avoiding both over-obligating and under-obligating funds. The 

Antideficiency Act prohibits an agency from incurring obligations or 

expenditures in advance of or in excess of an appropriation. Conversely, the 

Impoundment Control Act generally bars agencies from refusing to obligate 

the amounts that Congress has appropriated for their use. Sometimes 

obligation delays are due to legitimate programmatic reasons or the result of 

outside forces not under the agency's controL 

-------------United States Government Accountability Office 
75 

Chairman Paul, Ranking Member Peters, and Members of the 

Subcommittee: 

Thank you for the opportunity to discuss our work on year-end spending 

and agency responses to budget uncertainties and disruptions. Given the 

fiscal pressures facing the nation, the need to identify opportunities for 

savings, better leverage resources, and increase accountability has 

become even more critical to the success of federal agencies and the 

programs they administer. At the same time, federal decision makers 

must effectively and efficiently manage federal resources in an era of 

considerable budget uncertainty. 

Congress exercises its constitutional power of the purse by appropriating 

funds and prescribing conditions governing their use. Federal funding 

may be available to obligate for one-year, multiple years, or until 

expended (no-year). As funds approach the end of their period of 

availability for obligation, a "use-it or lose-it" mentality can set in among 

agencies, creating an incentive to rush to obligate. Moreover, the 

incremental nature of budgeting-that is, using past years' appropriations 

levels to set new appropriations-can also create an incentive to fully 

obligate funds. On the other hand, higher obligations in the fOurth quarter 

of a fiscal year do not necessarily indicate a problem with wasteful 

spending-such spending may be the result of planned spending 

intended by Congress and the agencies. 

Our prior work on year-end spending has emphasized the importance of 

accurate and available data for effective monitoring of budget execution. 1 

Our body of work on federal budgeting has stressed the importance of 

budget data quality and availability for both management and oversight of 

budget execution. It also has focused on agencies' management 

strategies during budget uncertainty and disruption. 2 

My remarks today focus on {1) strategies federal managers have used to 

execute their budgets in response to various budget uncertainties and 

disruptions, and (2) the legal constraints and other considerations agency 

managers must balance when executing their budgets. My testimony 

today is primarily based on our prior reports and testimonies on agency 

Underway But Better Reporting and Oversight 

<.;A'UIA.IMlJ-"tF!tiO(Washington, D.C.; July 31, 1998). 

2

https:l/www.gao.gov/key_issues/federal_budgeting/issue_summary. 

Page1 GA0-17-807T 
76 

Agency Responses to 

Budget Uncertainties 

and Disruptions Affect 

Timing of Spending 

budgeting issued between 2009 and 2016. The examples we use in this 

statement illustrate the types of challenges agencies may encounter even 

today. We used multiple methodologies to develop the findings, 

conclusions, and recommendations for these prior products. A more 

detailed discussion of the prior reports' objectives, scope, and 

methodologies, including our assessment of data reliability, is available in 

the reports cited throughout this statement. 

The work upon which this testimony is based was conducted in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

Budget uncertainty and disruptions affect spending patterns. Due to 

uncertainties about the level of funding that will ultimately be available in 

a given year, our prior work has found that agency officials limit their 

spending early in the fiscal year because final funding decisions may be 

less than anticipated. 

Continuing resolutions (CR) provide funding that allows agencies to 

continue operations until agreement is reached on their final 

appropriations, but they also create uncertainty for agencies. This 

presents challenges for federal agencies continuing to carry out their 

missions and plan for the future. Moreover, during a CR, agencies are 

often required to take the most limited funding actions. In all but 4 of the 

last 40 years, Congress has passed CRs when all regular appropriations 

bills have not been enacted before the beginning of the new fiscal year. 

See figure 1 for the duration and number of CRs since 1999. 

Page2 GA0~17-807T 
77 

Figure 1: Duration and Number of Continuing Resolutions (fiscal Years 1999~2017) 

Fiscal year 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

2015 

2016 

2017 

10/1 

Duration 

1111 

Continuing resolutions 

Lapse in appropriation 

1211 111 211 311 411 511 

Source GAO ar.atys1s of CongreSSIOnal Resemch &lNice da!a I GA0-17-807T 

Notes: Modified from GAO~ 13-464T 

"The fifth CR, PL 108*185, amended the original CR with substantive provisions but did not extend 

the CR period. 

bin February 2007, Congress enacted a 227~day CR that provided funding for the remainder of the 

fiscal year: this CR is not included in the figure. 

cln April 2011, Congress enacted a 168-day CR that provided funding for the remainder of the fiscal 

year. This CR is not included in the figure. 

din March 2013, Congress enacted a 189-.day CR that provided funding for the remainder of the fiscal 

year; this CR is not included in the figure. 

eln October 2013, the federal government partially shut down for 16 days because of a lapse in appropriations. 

Page3 
78 

In 2009 we reported that challenges caused by CRs continued even after 

the agencies we reviewed had received their full year appropriations. 3 In 

general, we found that longer CRs can make it more difficult for agencies 

to implement unexpected changes in their regular appropriations, 

because agencies have a limited time to do so. In addition, longer CRs 

can contribute to distortions in agencies' spending as agencies rush to 

obligate funds late in the fiscal year. Agency officials said that if the 

agency does not have enough time to spend its funding on high-priority 

needs (such as hiring new staff) because of a lengthy CR, the agency 

ultimately may spend funds on a lower priority item that can be procured 

quickly. 

Officials from the selected agencies reviewed said that they delayed 

hiring or contracts during the CR period, potentially reducing the level of 

services agencies provided and increasing costs. Selected agency 

officials stated that, absent a CR, they would have hired additional staff 

sooner for government services such as grant processing and oversight, 

food and drug inspections, intelligence analysis, prison security, claims 

processing for veterans' benefits, or general administrative tasks, such as 

financial management and budget execution. Officials also said that if 

hiring was delayed during the CR period, it was difficult to fill positions by 

the end of the fiscal year, particularly after a longer CR period. Several of 

the selected agencies also reported delaying contracts during the CR 

period, which could increase costs. Some agency officials said that 

contracting delays resulting from longer CRs also affected their ability to 

fully compete and award contracts in the limited time remaining in the 

fiscal year after the agency had received its regular appropriation. Agency 

officials reported taking varied actions to manage inefficiencies resulting 

from CRs. These actions included shifting contract and grant cycles to 

later in the fiscal year to avoid repetitive work, and providing guidance on 

spending rather than allotting specific dollar amounts during CRs to 

provide more flexibility and reduce the workload associated with changes 

in funding levels. 

3

GAO, Continuing Resolutions,· Uncertainty Limited Management Options and Increased 

Workload in Selected Agencies, GA0-09-879 (Washington, D.C.: Sept. 24, 2009). The six 

agencies we reviewed were the Department of Health and Human Services' 

Administration for Children and Families and the Food and Drug Administration, the 

Department of Veterans Affairs' Veterans Health Administration and Veterans Benefits 

Administration, and the Department of Justice's Bureau of Prisons and the Federal Bureau 

of Investigation. 

Page4 
79 

Not only do agencies often limit their spending under a CR because final 

funding decisions for the fiscal year may be less than anticipated, but 

across the government in 2013, agency officials were directed to 

implement budget cuts under sequestration in the middle of the fiscal 

year. On March 1, 2013, pursuant to the Balanced Budget and 

Emergency Deficit Control Act of 1985 (BBEDCA), the President ordered 

an across-the-board cancellation of budgetary resources-known as 

sequestration-to achieve $85.3 billion in reductions across federal 

government accounts• 

Budget uncertainties may lead agencies to plan a higher level of 

obligations during the latter half of a fiscal year. In our 2014 report on 

agency actions to implement sequestration, we found that agencies that 

historically obligated mast of their funding in the latter half of the fiscal 

year had mare flexibility to implement sequestration? In 2016, when we 

again reported an sequestration, we found that in certain cases, 

according to officials, sequestration added further uncertainty to preexisting budgetary restrictions an agencies' programs? 

When regular appropriations or CRs are nat passed, it results in a lapse 

in appropriations (or government shutdown), which affects agencies' 

ability to manage their resources and resulting delays in budget and 

programmatic activities.r In 2014, we reported an the effects of the 2013 

shutdown an three agencies. 8 Same officials said time spent preparing far 

4

BBEDCA has been amended many times, including by the Budget Enforcement Act of 

1990, the Statutory Pay-As-You-Go Act of 2010, the Budget Control Act of 2011, and the 

American Taxpayer Relief Act of 2012. This body of law is classified in sections 900 

through 907d in title 2 of the U.S. Code. 

5

GAO, 2013 Sequestration: Agencies Reduced Some Services and Investments, While 

Taking Certain Actions to Mitigate Effects, GA0-14-244 (Washington, D.C.: Mar. 6, 2014) 

6GAO, 2014 Sequestration· Opportunities Exist to Improve Transparency of Progress 

Toward Deficit Reduction Goals, GA0-16-263 (Washington, O.C.: Apr. 14, 2016). 

7 Over the past 25 years, there have been federal lapses in appropriations that led to 

government shutdowns. The most recent government shutdown occurred at the beginning 

of fiscal year 2014 and lasted for 16 calendar days, from October 1 to 16, 2013. The 

Office of Management and Budget reported that 40 percent of the civilian federal 

workforce were furloughed for at least part of the shutdown. 

8

GAO, 2013 Government Shutdown: Three Departments Repotted Varying Degrees of 

Impacts on Operations, Grants, and Contracts, GA0-15-86 (Washington, D. C.: Oct. 15, 

2014). We reviewed the impacts of the 2013 shutdown on the Departments of Energy, 

Health and Human Services, and Transportation. 

Page 5 GA0-17-807T 
80 

Agency Managers 

Must Balance Multiple 

Considerations When 

Executing Their 

Budgets 

the shutdown led to a loss of productivity. Even the threat of a 

government shutdown may require planning that could serve as a 

distraction to obligating funds towards the end of the fiscal year. For 

example, officials at the Department of Energy's Office of Environmental 

Management estimated that budget, procurement, and management 

officials spent at least 50 percent of their time in September 2013 

preparing for the shutdown. Department of Energy officials told us that 

annually, during August and September, they prepare to address 

potential budget uncertainty that would impact their agency's operations 

and services in anticipation of a potential CR or other situations affecting 

funds. 

As we have previously reported, agency managers leverage flexibilities 

available to them as they execute their budgets, but Congress has 

established controls that agencies must follow throughout the year to 

ensure accountability and fiscal controL As agencies manage their 

budgets, there are certain legal constraints regarding the purpose, 

amount, and time of the funds available that affect how the funds can be 

spent throughout the year. 9 

Fiscal characteristics of funds: In any given year, the total 

budgetary resources available in an agency's budget account consist 

of unobligated funds carried forward from previous years, if 

applicable, plus funds newly available for obligation in that fiscal year. 

Based on the total available budget authority in the account, agencies 

may then obligate funds throughout the fiscal year. 10 The fiscal 

characteristics of the funding, including the time limits imposed upon 

the funds (period of availability for obligation) influence how agencies 

manage resources. Some factors that affect the timing of budget 

spending are within an agency's control and some are not For 

example, agencies may choose to award contracts or grants annually 

at the end of a fiscal year. However, an agency may be compelled to 

9

See generally GAO, Principles of Appropriations Law, available at 

www.gao.gov/!ega!/red-book 

10 An obligation is a definite commitment that creates a legal liability of the federal 

government for the payment of goods and services. For exampte, an agency incurs an 

obligation when it places an order, signs a contract, awards a grant or purchases a 

service. Payment may be made immediately or in the future. Only when funds are actually 

disbursed for payment-that is, the obligation ls liquidated-does an obligation become an 

outlay. 

PageS GA0-17-807T 
81 

Æ 

spend at the end of the fiscal year due to external events beyond the 

agency's control, such as natural disasters or economic crises. 

Bona fide needs: A fixed period appropriation is available only to 

fulfill a genuine or bona fide need continuing or arising during the 

period of availability for which it was made. Thus, an agency rnay not 

obligate current appropriations for !he bona fide needs of future fiscal 

years. This bedrock of appropriations law is commonly referred to as 

the bona fide needs rule. An agency must point to a bona fide need 

for the expenditure, not a rnere need to use up remaining dollars 

before the end of the fiscal year. 11 

Antideficiency Act and Impoundment Control Act: Two laws in 

particular require agencies to walk a fine line throughout the fiscal 

year, avoiding both over-obligating and under-obligating funds. The 

Antideficiency Act prohibits an agency from incurring obligations or 

expenditures in advance of or in excess of an appropriation. 12 

Conversely, the Impoundment Control Act generally bars agencies 

from refusing to obligate the amounts that Congress has appropriated 

for their use. 13 Sometimes obligation delays are due to legitimate 

programmatic reasons or the result of outside forces not under the 

agency's control; for example, if an agency administering a grant 

program receives no grant applications so no grants can be made. 

and members of the 

Subcommittee, my prepared remarks. I look forward to 

answering any questions you may have. 

1131 U.S.C. § 1502(a); B-322455, Aug. 16, 2013 (finding that an agency violated the bona 

fide needs rule when it modified a cost~reimbursement contract in the last few days of 

fiscal year 2008 to add services that did not begin until fiscal year 2009); B-309530, Sept 

17, 2007 {finding that an agency violated the bona fide needs rule when It obligated fiscal 

year 2006 funds to renew database subscriptions that were not due to explre until one 

month into fiscal year 2007). 

1231 U.S.C. § 1341(a)(1). 

13Pub. L No. 93-344, title X, 88 Stat 297. 332 (July 12, 1974), classified at 2 U.S. C.§§ 

681-688 

Page7 GA0·17-807T