DOE Management: DOE Needs to Improve Its Analysis of Carryover Balances
Published: 1996-04-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO reviewed the Department of Energy's (DOE) approach for identifying carryover balances from previous years' budgets that may be available to reduce budget requests for new fiscal years.
section_title: What GAO Found
paragraphs: GAO found that: (1) DOE does not use a uniform, effective method of identifying carryover balances; (2) DOE makes separate, general estimates of excess funds in its individual programs; (3) some DOE programs have reduced their carryover balance while others have allowed their carryover balances to increase; (4) the DOE annual report on uncosted obligations is not used to identify potential carryover balances because it does not identify all of the carryover balances, identify all of the uncosted obligations that are available to reduce DOE budget request, or include enough information to be useful during the formulation of DOE budget; (5) within DOE, the Office of Waste Management has studied the operations of DOE programs and developed standard expectations for their levels of uncosted obligations; (6) the Office of Waste Management has determined that balances in excess of one month's worth of operating activities funding may indicate carryover balances and should be investigated; (7) within DOE, the Office of the Chief Financial Officer has suggested estimating the uncosted obligations at the start of each fiscal year using estimates of yearly costs or past costs; and (8) the various plans developed in DOE have not been implemented departmentwide and would need to be altered to fit individual programs.

section_title: Letter
paragraphs: This report examines the effectiveness of the Department of Energy’s (DOE) approach for identifying the funding balances remaining from prior years’ budgets that exceed the requirements of the Department’s programs and thus may be available to reduce the budget request for the new fiscal year. The report also examines whether the process for analyzing these balances, known as carryover balances, could be improved.
This report contains a recommendation to you for developing a more effective approach for analyzing the carryover balances. As you know, 31 U.S.C. 720 requires the head of a federal agency to submit a written statement of the actions taken on our recommendations to the Senate Committee on Governmental Affairs and the House Committee on Government Reform and Oversight not later than 60 days after the date of this letter and to the House and Senate Committees on Appropriations with the agency’s first request for appropriations made more than 60 days after the date of this letter.
Please call me at (202) 512-3841 if you or your staff have any questions. Major contributors to this report are listed in appendix II.
subsections: section_title: Introduction
paragraphs: Each fiscal year, the Department of Energy (DOE) requests new obligational authority from the Congress to meet the costs of running its programs. During a fiscal year, new obligational authority can be adjusted to reflect changes in authority, such as a rescission of authority. These adjustments result in an adjusted new obligational authority for DOE, representing the net amount of new resources available to DOE in a fiscal year. In fiscal year 1995, DOE received about $17.8 billion in adjusted new obligational authority. The Congress provides DOE with its obligational authority through two major appropriations acts—Energy and Water Development Appropriations and Interior and Related Agencies Appropriations. The Energy and Water Development appropriation provides the bulk of DOE’s funding—about $16.2 billion in fiscal year (FY) 1995. In comparison, the Interior and Related Agencies appropriation provided about $1.6 billion in FY 1995. These two major appropriations acts are further broken down into more specific appropriations for DOE’s programs. The programs can receive funding from more than one specific appropriation but usually receive a majority of their funding from one or two specific appropriations.
When appropriating funds for an agency—providing the authority to incur obligations—the Congress sets the amount and purpose of the funds and the time frame during which the funds will be available. When a specific time frame is defined, referred to as a fixed appropriation, the period is typically 1 to 5 years. However, some appropriations do not restrict the time in which the funds must be obligated but state that the funds are “to remain available until expended” or to “remain available without fiscal year limitation.” This is generally referred to as “no-year” authority. DOE receives no-year authority for most of its activities. With no-year authority, DOE may retain unexpended balances (both unobligated balances and uncosted obligations) indefinitely. In contrast, under a fixed appropriation, unobligated balances are no longer available for new obligations after the appropriation has expired. Both unobligated balances and uncosted obligations are cancelled, and the expired account is closed 5 years after the period in which the funds were available.
subsections: section_title: DOE’s Accumulation and Use of Carryover Balances
paragraphs: DOE has accumulated significant carryover balances from prior years’ appropriations but still receives new obligational authority each year under congressional appropriations. These carryover balances grew from $7.7 billion in fiscal year 1991 to $12 billion in fiscal year 1995. The carryover balances have come to represent a significant portion of the total resources DOE has available to meet the costs of its programs. In fiscal year 1995, DOE had $29.8 billion in total resources available, consisting of $12 billion in carryover balances and another $17.8 billion in adjusted new obligational authority. (Fig. 1.1 compares the sources of DOE’s total available resources—DOE’s adjusted new obligational authority and carryover balances—over the last 5 complete fiscal years.)
The Congress, recognizing the growing significance of carryover balances, has begun to consider these balances when making decisions about providing new obligational authority. Over the last 5 years, the Congress has recommended that DOE use its carryover balances in lieu of new obligational authority. However, the Department’s carryover balances continue to be significant. (See fig.1.2.)
DOE’s increasing budget needs have also heightened the Department’s and the Congress’s efforts to analyze why these carryover balances exist and whether they exceed the requirements for DOE’s programs and are therefore available to reduce the need for new obligational authority. Although attention has focused on uncosted obligations ($8.4 billion in fiscal year 1995), unobligated balances also contribute significantly to carryover balances ($3.6 billion in fiscal year 1995). Figure 1.3 shows the contribution of both uncosted obligations and unobligated balances to the total carryover balances over the last 5 years. Appendix I provides details on the carryover balances, DOE’s use of them, and the adjusted new obligational authority for DOE’s appropriations over the last 5 years.
section_title: Unobligated Balances
paragraphs: At the beginning of fiscal year 1995, DOE had $3.6 billion in unobligated balances—an increase from $1.7 billion at the beginning of fiscal year 1991. Unobligated balances can result from the “pooling” of funds as they move through DOE’s funding process, which is depicted in figure 1.4. At the beginning of the process, the Congress appropriates obligational authority to DOE through its appropriations acts. During the fiscal year, the Office of Management and Budget (OMB) apportions the appropriations to DOE. Once DOE receives the apportionment from OMB, it may allot the funding to its programs.
DOE allots funding to its programs on the basis of approved financial plans for each program. These plans, developed by the programs in conjunction with the Office of the Chief Financial Officer (CFO), provide direction on the amount of funding to be allotted to the programs and the timing of those allotments. Not all the funding is allotted to the programs at once. Typically, some funds are held in reserve for various reasons, including the need to hold funding back because of direction from OMB or the Congress. Thus, unallotted appropriations are the first area where funding can pool.
After receiving their allotment, DOE’s programs then make obligations within their organizations and to contractors to conduct the programs’ activities. However, not all the allotments are obligated. For example, funding may not be obligated if a program cannot yet proceed with an activity because it is awaiting completion of some legal proceeding or compliance with an environmental requirement. These unobligated allotments at the program level are the second area where funding can pool.
Unobligated allotments and unallotted appropriations are the two categories of unobligated balances held by DOE. DOE must ask OMB to “reapportion” any unobligated balances remaining at the end of the fiscal year for the next year, but that step is typically only a formality, and DOE retains its unobligated balances from year to year.
Unobligated balances can also be created by deobligating funding that had been obligated but for which the funding’s original purpose no longer exists—for example, a construction project that is cancelled or reduced in scope. This funding is held in reserve either by the program (as an unobligated allotment) or by the CFO (as an unallotted appropriation). Typically, this funding includes the excess funding that DOE has identified and is (1) holding to reduce the following year’s budget request or (2) proposing that the Congress allow the Department to reallocate to a use that differs from the funding’s original purpose. With no-year authority, DOE can request reallocation of unobligated funds indefinitely. DOE notifies the Congress of its intent to reallocate funds for purposes other than those specified in the appropriation by reprogramming within an existing appropriation or by transferring the funds between appropriations.
section_title: Uncosted Obligations
paragraphs: DOE typically obligates the majority of its obligational authority for a new fiscal year to the various contractors that implement its programs at facilities throughout the nation. As the contractors receive goods and services, they liquidate or “cost” the obligations. However, not all the obligations are costed during a given year, and these uncosted obligations can accumulate from one fiscal year to the next. This accumulation represents the final area where DOE’s funding can pool and contribute to carryover balances, as figure 1.4 showed.
In 1992, we testified that DOE’s uncosted obligations were growing—totaling over $7 billion at the beginning of fiscal year 1992—and that DOE did not have an effective system for analyzing these uncosted obligations to determine the extent to which they could be used to reduce DOE’s budget requests. At the beginning of fiscal year 1995, the uncosted obligations remained significant, at about $8.4 billion.
In response to our testimony, the Congress, in the Energy Policy Act of 1992, directed DOE to submit with each annual budget request a report of its uncosted obligations at the end of the previous fiscal year. The report was to (1) show what portions of the uncosted obligations were committed and uncommitted, (2) describe the purposes for which all such funds were intended, and (3) explain the effects that the information in the report had on the annual budget request that DOE was submitting. As required by the act, DOE has issued three reports on the status of its uncosted obligations for the end of fiscal years 1992, 1993, and 1994.
section_title: Objectives, Scope, and Methodology
paragraphs: Our objectives in this review were to determine whether (1) DOE has an effective approach for identifying the carryover balances that exceed its programs’ requirements and may be available to reduce its budget request and (2) opportunities exist to develop a more effective approach for analyzing these carryover balances. This report is based in large part on a series of reviews that we have conducted over the past 3 years. (See a list of our related reports at the end of this report.) To obtain information on DOE’s unobligated balances and uncosted obligations, we obtained and reviewed internal reports from DOE’s accounting and financial systems that track how DOE manages and monitors its funding. We did not attempt to verify the data in these reports or reconcile the data to published sources. We obtained separate reports on the level of the unobligated balances and the status of the uncosted obligations for DOE’s programs to provide a complete picture of the total amount of carryover balances available for DOE’s programs.
To examine the effectiveness of DOE’s approach for identifying the carryover balances that exceed the requirements of the Department’s programs and may be available to reduce the request for new obligational authority, we first reviewed DOE’s process for tracking and reporting on carryover balances and any analysis by DOE of what causes unobligated balances and uncosted obligations. Specifically, in reviewing the unobligated balances, we discussed with officials from DOE’s CFO how the funding moves from the congressional appropriations through DOE to the various programs and how unobligated balances are created in this process. We also obtained accounting reports from DOE’s CFO that track unobligated balances and discussed with that office DOE’s funding process and the reasons that unobligated balances exist. We examined reports from the current and past fiscal years to track the status of these balances over the last several years. We talked to budget officials for DOE’s programs and officials from DOE’s CFO to understand how, in developing its budget, DOE considers unobligated balances as a potential way to reduce its annual budget request.
In examining the uncosted obligations, we reviewed DOE’s reports on uncosted obligations for the past 3 years. In reviewing these reports, we attempted to verify the accuracy of the characterization by DOE’s contractors of the uncosted obligations as committed or uncommitted to meeting the programs’ requirements. In our reviews over the first 2 years, we focused on the uncosted obligations relating to DOE’s Defense Programs and Environmental Management programs because they represent about half of DOE’s budget. However, in our most recent review, we expanded our scope to include other DOE programs: Energy Efficiency and Renewable Energy, Energy Research, Nuclear Energy, and Fossil Energy. Together, these six programs account for about 85 percent of DOE’s annual budget. Over the last 3 years, we have reviewed at least once the uncosted obligations held by M&O contractors at 17 different DOE sites.In our most recent review, we also examined some of the uncosted obligations held by the smaller, nonintegrated contractors. We talked to budget officials for DOE’s programs and officials from DOE’s CFO to understand how DOE develops its proposals for using uncosted obligations to reduce its budget request. In particular, we discussed the role that DOE’s report on the uncosted obligations plays in the process.
To identify opportunities to develop a more effective approach for analyzing the carryover balances, we discussed current problems with the process and potential improvements with representatives from DOE’s programs and officials from DOE’s CFO. We also reviewed a 1994 report on uncosted obligations by a subcommittee of DOE’s Budget Stakeholders Group that attempts to provide greater assurance that the uncosted balances will not exceed what is necessary to pay for program commitments made in prior years. We further discussed with representatives from DOE’s programs and the CFO ideas within DOE for improving the Department’s approach to analyzing carryover balances and capacity to effectively identify available balances that may be used to reduce requests for new obligational authority. We conducted our review from June 1995 through March 1996 in accordance with generally accepted government auditing standards.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOE for its review and comment and discussed the draft with officials from DOE’s CFO, including the Director of the Office of Budget. In general, the officials agreed that the report was accurate and factual. Where appropriate, we made several changes to the report in response to specific comments on the facts presented.
In commenting on the draft, DOE officials noted that as the report was being developed, recent data on the carryover balances at the beginning of fiscal year 1996 have become available and that these data show an overall reduction of $2.4 billion in carryover balances from fiscal year 1995. Thus, over the most recent 2 years, carryover balances declined from a high of $12.9 billion at the beginning of fiscal year 1994 to $9.6 billion at the beginning of fiscal year 1996. While DOE officials agreed that a more structured approach for analyzing carryover balances is needed and will improve the analysis of these balances, they believe that DOE efforts have had a positive impact on the levels of carryover balances.
We were not able to include the details of these recent data in our report because complete data for fiscal year 1996 were not available at the time of our review. However, we agree that DOE’s overall carryover balances had decreased to $9.6 billion at the beginning of fiscal year 1996. We believe this downward trend should be recognized as a positive development and can be attributed, in part, to continued scrutiny by DOE, the Congress, and GAO. However, $9.6 billion in carryover balances still represents significant resources. The second of DOE’s overall comments on the report and our evaluation of this comment are discussed in chapter 2.
section_title: DOE Lacks an Effective Approach for Analyzing Carryover Balances
paragraphs: In formulating a budget request, DOE officials do not use a standard, effective approach for identifying excess carryover balances. Instead, DOE relies on broad estimates of potentially excess balances in its individual programs. As a result, DOE cannot be sure that these estimates appropriately reduce future years’ budget requests. DOE’s required annual report on the status of uncosted obligations is limited and not used to propose how much in carryover balances should be used. The report is limited because it does not (1) provide detailed analysis of all of the sources of carryover balances—namely, uncosted obligations at DOE’s nonintegrated contractors and unobligated balances; (2) accurately identify the available balances; and (3) provide relevant information that can be used for consideration in formulating the budget.
subsections: section_title: DOE’s Proposed Use of Carryover Balances Is Based on Broad Estimates
paragraphs: Budget officials for DOE’s programs and representatives from the CFO told us that DOE relies on broad estimates in proposing the amount of excess carryover balances that can be used to reduce the budget request. Without any specific guidance, DOE arrives at its estimates of the carryover balances available for its various programs in a variety of ways, according to these officials. Some programs arbitrarily establish a goal for the use of excess carryover balances. For example, DOE’s Environmental Management program proposed the use of $300 million in carryover balances for the fiscal year 1996 budget. According to program officials, however, that amount was not based on any detailed analysis of the program’s balances to determine what might be available. Only after the amount was proposed did this program attempt to identify where the available balances might be found. CFO officials noted that DOE requires its field offices and M&O contractors to certify that uncosted balances have been considered in formulating their budget requests. These officials said they did not have the resources to verify these certifications. However, they thought the requirement was important and should continue.
According to the CFO officials, the amount of carryover balances proposed to reduce a program’s new obligational authority is often simply a number “plugged in” at the end of the budget formulation process in order to meet an overall budget target. Many DOE program officials concurred that the use of carryover balances was simply another way to justify a reduction in new obligational authority. Most programs do not study their carryover balances to identify specific areas where excess balances exist and move these balances to meet other needs. Typically, a program simply reduces its new obligational authority by the amount proposed for the use of carryover balances. Often, the total amount of the reduction is simply prorated among program areas regardless of the status of the existing carryover balances. For example, within the Nuclear Energy program, some fiscal year 1995 obligational authority for some program areas—such as isotope support and test reactors—was reduced to compensate for the use of carryover balances, even though these program areas did not have any carryover balances.
In 1994, a subcommittee of DOE’s Budget Stakeholders Group reported on DOE’s uncosted obligations. The report noted that budget balances must be carefully analyzed to ensure they do not exceed the amount of work that can be performed. The subcommittee found that “hoarding” of financial resources in excess of actual needs is a common management behavior. The report noted that while DOE has continued to use carryover balances to reduce its request for new obligational authority, it is unclear whether the carryover balances have been minimized. The almost $1 billion in carryover balances actually used in fiscal year 1995 to reduce DOE’s budget request represented only 8 percent of the $12 billion in carryover balances DOE held going into that fiscal year. Another concern within DOE is whether too much is being offered in carryover balances without a clear picture of the programs’ requirements. While overall balances grew by $4.3 billion between fiscal year 1991 and fiscal year 1995, the status of DOE’s many programs varies. Programs such as Defense Programs and Environmental Management have used large portions of their carryover balances, thus reducing their balances, while other programs, such as Energy Efficiency and Renewable Energy and Energy Research, have not used significant amounts of their carryover balances and have experienced growing balances, as figure 2.1 shows.
section_title: DOE’s Report on Uncosted Obligations Provides Limited Information
paragraphs: Although DOE’s program and contractor officials work to categorize and report on uncosted obligations, DOE’s report on the uncosted obligations is limited and is not being used to determine the amount of carryover balances the Department proposes using to reduce its new obligational authority request. The report does not (1) provide detailed analysis of all of the sources of carryover balances, (2) accurately identify the available balances, and (3) provide relevant information on the carryover balances that is useful in formulating a budget.
subsections: section_title: Report Does Not Address All Carryover Balances in Detail
paragraphs: The annual report on uncosted obligations focuses primarily on those balances held by DOE’s integrated M&O contractors at the end of the fiscal year. While uncosted obligations at these contractors represent a significant portion of DOE’s carryover balances, another major portion of these carryover balances is represented by uncosted obligations at nonintegrated contractors and unobligated balances. At the beginning of fiscal year 1995, DOE’s integrated M&O contractors had $5 billion in uncosted obligations. However, the nonintegrated contractors had an additional $3.4 billion in uncosted obligations. Furthermore, DOE had unobligated balances of $3.6 billion at the start of fiscal year 1995. Table 2.1 provides a breakdown of DOE’s carryover balances over the last 3 years.
DOE’s report provides data on the amount of uncosted obligations held by nonintegrated contractors but assumes that all these balances are committed to meeting the programs’ requirements. According to CFO officials, DOE does not focus its analysis of uncosted obligations on the balances held by nonintegrated contractors because it is more difficult to deobligate excess funds from these contractors than from integrated contractors. Nonintegrated contractors perform specific tasks that must be examined individually, while integrated contractors are involved in broader tasks (referred to by DOE as “level of effort” tasks). DOE’s only recourse for the excess balances identified with a nonintegrated contractor is not to provide any additional funding to the contractor in the future or to terminate the contractor’s contract, which could result in financial penalties under the terms of the contract.
However, in reviewing selected balances held by nonintegrated contractors during our review of DOE’s uncosted obligations at the end of fiscal year 1994, we found that not all of these balances were needed to meet requirements. For example, we found that DOE’s Environmental Management program had about $5 million in excess balances for one consulting contract. This program, which was carrying over about 8 months’ worth of funding for the contract (about $11 million) at year-end, agreed that it did not need about $5 million of that amount and took action to reduce the balance. In addition, we identified some balances that were not committed to any contract but were simply being held by the program office. For example, at the Albuquerque Operations Office, we identified about $4 million being held to reimburse employees for moving expenses that were incurred between 1986 and 1991. In reviewing 30 cases, we found that all or portions of the funds held in each case were excessive and should have been deobligated.
Furthermore, while DOE’s report gives the amounts of unobligated balances used in a fiscal year, it does not provide any detailed information on the unobligated balances. According to officials from DOE’s CFO, the Energy Policy Act of 1992 requires DOE to report only on uncosted obligations. However, unobligated balances contributed $3.6 billion to DOE’s carryover balances at the start of fiscal year 1995, and these balances had grown from $1.7 billion at the beginning of fiscal year 1991. Valid reasons may explain why unobligated balances are not available to reduce future budget requests. For example, because DOE’s Nuclear Energy program received funding for a safety program for Russian reactors from the State Department late in fiscal year 1994, this funding was unobligated but was not available, according to program officials. Other balances represent uncosted obligations that DOE has identified as excessive and has deobligated (returned to unobligated status) to be used to reduce the new obligational authority the Department requests. For example, according to Defense Program officials, some funding was deobligated when activities were canceled because of the cutback in the demand for new nuclear weapons and materials.
These cases, however, do not explain all of the unobligated balances. The total unobligated balances at the beginning of fiscal year 1995 ($3.6 billion) exceeded the carryover balances used in fiscal year 1995 ($0.9 billion) by $2.7 billion. Nevertheless, DOE’s report does not provide any detailed analysis on these balances—information that could be used as budget decisions are made.
section_title: Report Does Not Always Identify Available Balances
paragraphs: In an attempt to define the needs for uncosted obligations for its programs, DOE’s report, as required by the Energy Policy Act of 1992, divides uncosted obligations into two overall categories: (1) encumbered (or committed) uncosted obligations and (2) unencumbered (or uncommitted) uncosted obligations. Generally, encumbered uncosted obligations are balances committed under legally enforceable agreements entered into by DOE’s contractors, such as purchase orders or contracts. Unencumbered uncosted obligations are balances that have not yet been encumbered or committed by the contractors and that are thus potentially available to reduce DOE’s budget request. DOE’s report further divides the unencumbered uncosted obligations into three categories: (1) “approved work scope,” (2) “prefinancing,” and (3) “remaining unencumbered.” Generally, approved work scope consists of the funds for work, such as work under a purchase requisition, that is clearly defined and specific in scope but that does not yet represent a legal commitment; prefinancing is the funding maintained to ensure that operations at the facilities continue if funding lapses at the beginning of a fiscal year; and the remaining unencumbered funds are the balance of the uncosted obligations.
The report’s detailed analysis of the uncosted obligations focuses on those balances held by DOE’s integrated M&O contractors. However, DOE relies on its M&O contractors to provide the detailed breakdown of their uncosted obligations into the categories of encumbered, approved work scope, prefinancing, and remaining unencumbered. DOE verification of the accuracy of the data reported by the contractors has been limited. Over the last 3 years, we have identified almost $500 million in uncosted obligations that was available but that the contractors had reported as not available. We have also found some balances reported as encumbered and approved work scope that were actually unencumbered. For example, we identified $46.2 million reserved for 15 projects at the Savannah River Site at the end of fiscal year 1994 that were no longer needed because of cost underruns, reductions in the projects’ scope, or cancellation of projects.
In addition, we have found the contractors inconsistent in characterizing and reporting the status of their uncosted obligations. While the distinction between encumbered and unencumbered uncosted obligations is fairly straightforward, the contractors have not been consistent in how they break down the unencumbered obligations into the categories of approved work scope, prefinancing, and remaining unencumbered. For example, some contractors believed that congressional intent (i.e., the fact that the Congress provided the obligational authority) constituted approved work scope, while others thought that a specific directive from a DOE office was necessary. In addition, the quality and ability of the contractors’ systems to track uncosted obligations by these three categories has varied in the past, contributing to reporting inconsistencies and an additional burden to the contractors as they try to interpret DOE’s definitions and apply them to their balances. As a result, DOE’s report is inconsistent in its characterization of uncosted obligations, making it difficult to determine what balances are needed to meet the programs’ requirements and what balances are available.
section_title: Report Does Not Provide Enough Useful Information
paragraphs: Although DOE provides a report on its uncosted obligations along with its congressional budget request, DOE officials said that this report is not very useful to them in determining the amount of carryover balances to propose for use in a given fiscal year. The report consists only of historical data and does not contain projections of what balances may be for the future budget under consideration. Using the development of the fiscal year 1996 budget—which began on October 1, 1995—as an example, DOE began receiving budget submissions from its field offices in the summer of 1994 and subsequently conducted internal budget reviews. After OMB’s review and approval, DOE’s fiscal year 1996 budget request was submitted to the Congress in February 1995. However, DOE’s report on uncosted obligations accompanying the fiscal year 1996 budget request was limited to reporting on the status of uncosted obligations at the end of fiscal year 1994 (Sept. 30, 1994)—a full year before the beginning of fiscal year 1996, whose budget was under development. The lack of any projections of what the balances might be for fiscal year 1996 limited the usefulness of this report in proposing an amount of carryover balances to use to reduce the budget request for fiscal year 1996.
section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on a draft of this report, DOE officials noted that the draft report discussed at length the limitations of DOE’s annual report to the Congress on uncosted obligations. While the officials agreed that DOE did not have a standard, effective approach for analyzing carryover balances, they did not believe that the draft’s in-depth discussion of the limitations of DOE’s annual report on uncosted obligations was germane to this issue because the report is not used to analyze carryover balances. The report is provided to the Congress only to meet the requirement of the Energy Policy Act of 1992 for information on uncosted obligations. Instead, DOE relies on its field offices to take into account all of the budget resources that may be available in a budget year, including potential carryover balances, when formulating their requests for new obligational authority.
We believe the discussion of the report on uncosted obligations is relevant to this issue because the purpose of the report, which is required by the Energy Policy Act of 1992 and submitted along with DOE’s budget request, is to analyze uncosted obligations to assist in the development of DOE’s budget. We believe it is important to identify the limitations of this report to explain why DOE does not use this report and to demonstrate that, by itself, this report does not provide DOE with an effective option for analyzing carryover balances.
section_title: Opportunities Exist to Develop a More Effective Approach for Analyzing Carryover Balances
paragraphs: Within DOE, several ideas have been proposed to develop a more effective approach for determining the amount of carryover balances that are available to reduce budget requests for future years. To better determine the amount of carryover balances needed to meet its requirements, DOE’s Environmental Management program has proposed establishing goals for acceptable levels of uncosted obligations. In addition, to provide more useful information for budget decisionmakers, DOE’s CFO is exploring the idea of using cost estimates to project what the level of uncosted obligations will be at the beginning of the fiscal year under consideration. These ideas, if expanded throughout DOE’s programs, could form the basis for a more effective approach for analyzing carryover balances that (1) develops standard goals for all of the carryover balances in DOE’s programs on the basis of each program’s requirements, (2) projects what all carryover balances will be at the beginning of the fiscal year for which the budget is being developed, and (3) focuses on justifying the differences between the goals and the projected carryover balances. When the projected balances exceed the goals, DOE could analyze the cause of these differences and identify carryover balances that are available to reduce its budget request.
subsections: section_title: Developing Goals for Carryover Balances to Better Define Programs’ Needs
paragraphs: DOE’s Budget Stakeholders Group noted that the Department did not have a methodology for determining the “proper” amount of uncosted obligations. The group stated that management would have to make a concentrated effort to develop a methodology. Some programs, such as Defense Programs, had examined their balances to some extent in order to identify the specific reasons why carryover balances existed, but there was no DOE-wide effort to develop a methodology for determining the appropriate or “proper” amount of carryover balances. However, the Office of Waste Management, within DOE’s Environmental Management program, has undertaken an effort to determine the “proper” or “right” amount of uncosted obligations. In general, this office is assessing what its needs would be under normal business operations in order to establish goals or target levels for the amount of uncosted obligations needed to meet these requirements. The office has established separate benchmarks for funding operating activities, capital equipment procurements, and construction projects.
For operating funding, the office has estimated that, on average under normal operations, it would expect a 1-month lag between a commitment (or encumbrance) of the funding and the actual expenditure of the funding for that commitment. Thus, for a year’s operating funding, the office would expect a minimum of 1 month’s funding (or 8 percent of the total operating funding) at year-end to represent the uncosted obligations necessary to meet the program’s requirements. Using similar logic, the office has estimated that an average time of about 15 to 18 months is needed before procurements of capital equipment and construction projects are costed. Thus, for every dollar available for capital equipment and construction, the office would expect about 3 to 6 months’ worth of the funding (or 25 to 50 percent of the total) to be uncosted at year-end.
The office’s idea of establishing goals will need some adjustments if it is to be applied to all of DOE’s programs. First, major construction projects are unique in that they are line items in DOE’s budget, so that the funding is provided directly. The status of these projects is easier to assess because they have a clear scope of work, milestones, and budgets within which to work. Thus, as Defense Programs and other programs noted, there is no need to establish a target level of carryover balances for construction projects because each one is unique and its level of carryover balances can easily be measured against the remaining scope of work, milestones, and specific budget request. In addition, major construction projects can last more than 18 months and can be funded over several years.
Second, under the Office of Waste Management’s approach, the goals for uncosted obligations would be a certain percentage of the total resources that can be costed—including all of the carryover balances at the beginning of the year (uncosted obligations and unobligated balances) plus all of the adjusted new obligational authority received in a year. However, this approach assumes that a percentage of the uncosted obligations existing at the beginning of the year would again be carried over for an additional fiscal year. This assumption is inconsistent with the assumption made in developing the goal that uncosted obligations would be needed only for a certain amount of time (e.g., 1 month for operating funding) before the balances were costed. A more consistent alternative would be to set the goals in relation only to the total obligation authority. Thus, this approach would assume that all uncosted obligations carried into the beginning of a fiscal year would be used up before the end of the fiscal year.
Finally, the approach proposed by the Office of Waste Management focuses on establishing goals for the levels of uncosted obligations. To apply this approach to all carryover balances, some consideration needs to be given to what the programs would require for the other major part of carryover balances—unobligated balances. DOE program officials we talked to did not see any programmatic requirements for unobligated balances in the transition between fiscal years. Thus, the goal for unobligated balances for a program would normally be zero. It should be recognized, however, that unobligated balances can exist for legitimate reasons. For example, funding received late in the year may result in a program’s having unobligated balances.
section_title: Projecting Carryover Balances to Provide Useful Information
paragraphs: To provide more relevant information on carryover balances that can be used when formulating the budget, DOE could project what all carryover balances (unobligated balances and uncosted obligations) are going to be for its programs at the beginning of the fiscal year under consideration. Although DOE projects unobligated balances and unpaid obligations in its budget request, the projections are very broad—one gross number for the entire appropriation. Accurate projections of programs’ carryover balances are necessary to provide information that is relevant to the budget under consideration. In studying uncosted obligations, DOE’s Budget Stakeholder Group noted that the Department needs to project balances in order to improve the quality and timing of information on balances, which form the basis for management’s actions to reduce these balances.
The key element in projecting carryover balances is estimating what the costs will be for a given year. DOE’s CFO has recently sought some programs’ estimates of costs in order to project uncosted obligations. DOE’s programs involve myriad contractors and efforts, and it can be difficult to develop overall cost estimates. However, DOE’s programs are in the best position to estimate their costs. Because some programs use multiple facilities, no individual contractor or site can address questions involving a program’s needs and the resources that may be available. Some programs have developed fairly accurate cost-tracking and estimating systems. For those programs that lack good cost-estimating systems, the use of historic costing experience is a viable alternative. DOE’s CFO has examined historical costing averages in order to develop cost estimates for the Department’s programs on the basis of historical data. In addition, the use of historic cost estimates can serve as a check on the reasonableness of the cost estimates generated by each program.
section_title: Focusing Analysis on Difference Between Projected Carryover Balances and Goals
paragraphs: Comparing the goals for carryover balances with the projected carryover balances for DOE’s programs at the beginning of the fiscal year for which the budget is being developed could provide current information that is more relevant to the budget process. In particular, such a comparison would enable DOE to identify the carryover balances that may exceed the programs’ requirements. Such a comparison also places the burden of justifying the carryover balances on DOE’s program managers as well as on DOE’s M&O contractors. Budget decisionmakers can review the programs’ goals, projected carryover balances, and justifications for deviations from the goals in the same way they consider the justifications for requests for new obligational authority.
DOE program officials we spoke to agreed with the general principle of establishing goals for and projecting the carryover balances. However, they noted that expanding this idea throughout DOE would require considering the unique characteristics of each program in establishing goals. For example, for research and development activities in the Fossil Energy program, grants are awarded on a 1- to 3-year funding cycle, so that this program’s expected level of carryover balances would differ from that of a program such as Waste Management. DOE program officials agreed that the programs should be able to explain and justify the unique aspects of their programs that may require adjustments to their goals for carryover balances. CFO officials suggested that their office may need to establish a DOE-wide working group to evaluate DOE’s programs and establish reasonable goals.
In general, the programs should be able to justify the differences between the goals and the projected balances. Officials of some major programs we spoke to outlined programmatic reasons that their programs’ projected balances could exceed the goals, citing the following examples:
The balances for Defense Programs were higher than normal in fiscal year 1995 because (1) operating funding was tied up in Cooperative Research and Development Agreements and (2) funding had been transferred to the Environmental Management program as sites were transferred from weapons activities to environmental cleanup.
Funding for environmental restoration is provided as operating funding, but the restoration activities actually involve many construction projects. Thus, the balances for environmental restoration can be expected to be higher than those needed for other operating activities.
The Nuclear Energy program received about $30 million in funding for a safety program for Russian reactors from the State Department late in fiscal year 1994. This funding was thus unobligated at year-end but was not available to reduce the program’s request for new obligational authority.
section_title: Conclusions
paragraphs: In an attempt to develop a more effective approach for analyzing carryover balances, offices within DOE have proposed several promising ideas that provide an opportunity to address the major problems with the Department’s current approach. These ideas involve (1) developing standard goals for carryover balances in order to define the programs’ needs for balances and (2) projecting the carryover balances to provide relevant information on the status of the balances. Without a more structured process for considering carryover balances in formulating the budget, it is unclear whether the amount of carryover balances DOE is currently proposing for use by its programs is adequate, too small, or possibly even too large.
section_title: Recommendation
paragraphs: We recommend that the Secretary of Energy develop a more effective approach for identifying the carryover balances that exceed the requirements for the Department’s programs and are thus available to reduce the annual budget request. Expanding on the efforts already being explored could lead to a process that establishes goals for each program for all of the carryover balances (including unobligated balances) needed to meet its unique requirements, projects the carryover balances for the beginning of the new fiscal year’s budget on the basis of each program’s cost estimates and cost history, and focuses analysis on justifying any differences between a program’s goals and the projected balances in order to identify the balances that exceed the program’s requirements and are thus available to reduce DOE’s budget request.