2013 Sequestration and Shutdown: Selected Agencies Generally Managed Unobligated Balances in Reviewed Accounts, but Balances Exceeded Target Levels in Two Accounts
Released: 2015-10-30T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: Both the 2013 sequestration and government shutdown highlighted the importance of actively managing public funds. Effective management of unobligated balances that are carried over for use in the next fiscal year presents agencies with an opportunity to better respond to unexpected events in the future. GAO was asked to review how balances have changed since 2012. This report evaluates how selected agencies managed and used unobligated balances in reviewed accounts, focusing on fiscal years 2012 through 2014, which covers the 2013 sequestration and shutdown.

GAO selected a nongeneralizable sample of eight accounts from four agencies for this review—Commerce, Energy, NASA, and State—based on their use of balances to address sequestration and large or significant changes in the balances. GAO analyzed data on the size and composition of unobligated balances, reviewed agency documentation on managing the balances, and interviewed budget officials responsible for the accounts.

section_title: What GAO Found
paragraphs: GAO found that the selected agencies—the Departments of Commerce, Energy, and State, and the National Aeronautics and Space Administration (NASA)—generally managed and tracked unobligated balances to ensure the effective use of program resources in the eight reviewed accounts. Agency estimation and management of unobligated balances in the reviewed accounts involved the following activities:

Regular review of unobligated balances . Agency officials for all of the eight reviewed accounts reported having a process for managing unobligated balances throughout the year. For example, officials managing NASA's Science account reported that they monitor unobligated balances monthly by considering obligations from the prior months.

Tracking the appropriation year of unobligated balances . Officials reported that agencies tracked the year of appropriation for the five reviewed accounts that receive multi-year budget authority. This action is important to help ensure that the agency obligates the authority in the order appropriated to maximize resources. All five accounts had balances that expired during fiscal years 2012 through 2014; however, there can be various reasons for an agency to not obligate funds late in the fiscal year, and in some cases, special authority expands the use of certain budget authority. For example, for State's Diplomatic and Consular Programs (D&CP) and International Narcotics Control and Law Enforcement accounts, State has the authority to use expired funds beyond their initial period of availability for specific purposes and to extend the availability of certain funds.

Estimating and identifying needed unobligated balances . Officials managing three of the eight reviewed accounts identified a need to retain unobligated balances to sustain agency operations and manage financial risk. For example, officials responsible for managing Energy's Western Area Power Administration (WAPA) Construction, Rehabilitation, Operation and Maintenance (CROM) account said that two of the account's four use categories have a target to carryover equal to or up to 25 percent of funds against unexpected environmental factors that could introduce financial risk to their mission of marketing hydroelectric power. However, in fiscal year 2014, the balance for one category exceeded its target by approximately $40 million. WAPA officials reported that they have drafted a strategy to manage excess balances, but the strategy has not been fully implemented. Similarly, in fiscal year 2014, within State's D&CP account, officials reported exceeding the target to carryover about 25 percent of projected program expenditures for the next year to manage complex global visa and passport operations for the Consular and Border Security Programs (CBSP) by approximately $440 million. State officials said that they have developed a draft strategy for reducing excess unobligated balances. Officials said that they plan to finalize the strategy by June 2016. In the meantime, they reported taking steps to reduce unobligated balances for CBSP. These steps include decreasing fees or delaying fee increases when unobligated balances were adequate to cover costs.

In accordance with Office of Management and Budget guidance, the selected agencies used unobligated balances in four of the reviewed accounts to mitigate the effects of the 2013 sequestration. The agencies also used unobligated balances to fund operations in six of the accounts during the October 2013 government shutdown.

section_title: What GAO Recommends
paragraphs: GAO is recommending that Energy finalize and implement a strategy and that State finalize its strategy and continue efforts to ensure more effective management of unobligated balances in the WAPA CROM account and CBSP within the D&CP account, respectively. Energy and State concurred with GAO's recommendations. Commerce, Energy, and State provided technical comments which GAO incorporated; NASA had no comments.

section_title: Letter
paragraphs: During two recent events—the fiscal year 2013 sequestration and  government shutdown at the beginning of fiscal year 2014—federal  agencies faced significant challenges related to managing and executing  their budgets. Sequestration—the cancellation of budgetary resources  under a presidential order—required agencies to carefully scrutinize  spending on nonexempt programs, projects, and activities to manage  these budget reductions. The government shutdown in October 2013  required agencies to make multiple, complex decisions about whether  and how to continue funding mission-critical activities. In the months  following sequestration, agencies were faced with reduced budgets and  reduced capacity for carrying out regular activities, which continued after  the shutdown. This resulted in altered priorities and the need to consider  reallocating available funds between and within budget accounts. Both  sequestration and the government shutdown highlighted the importance  of active management of public funds, as well as the importance of using  available resources effectively. In addition, effective management of  unexpended account balances that carryover for use in the next fiscal  year—and especially, unobligated balances—present agencies with an  opportunity to better respond to unexpected events in the future. An  unexpended balance is the sum of obligated and unobligated balances.  An obligated balance is the amount of obligations already incurred for  which payment has not yet been made. This could include obligations  through a contract for which payment may be made as services are  rendered over time or milestones met. An unobligated balance is the  portion of available budget authority that has not yet been obligated. This  could include a balance in a multi-year appropriation or held in a  business-like account to help mitigate the risk of environmental factors  that may affect collections.

In fiscal year 2014, unexpended balances in federal budget accounts  were about $2.3 trillion, of which about $870 billion had not yet been  obligated. In 2014, we reported that agencies used unobligated balances  to help manage the effects of sequestration and the government  shutdown on their operations and services, and to protect mission-critical  activities by providing funding for the continuation of such activities. In  our September 2013 report on unexpended balances carried forward in  federal budget accounts, we concluded that answering key questions  during a review of unexpended balances would provide insights into why  a balance exists, what size balance is appropriate, and what opportunities  (if any) for savings exist. We also noted that a review of unexpended  balances may provide opportunities for enhanced oversight of agencies’  management of federal funds, and for the identification of areas where  the federal government can improve and maximize its use of resources.  Further, we stressed that, given the complexity of the federal budget, a  case-by-case analysis at either the account or program level is necessary  to better understand opportunities for achieving budgetary savings or  redirecting resources to other priorities.

You asked us to build on our prior work on unexpended balances by  reviewing how such balances have changed since our 2013 report and by  evaluating how agencies are managing unexpended balances. Our  objective was to evaluate how selected agencies managed and used  unobligated balances in reviewed accounts, focusing on fiscal years 2012  through 2014, which covers the fiscal year 2013 sequestration and fiscal  year 2014 government shutdown. In addition, we analyzed the size and  composition of unexpended balances in the federal budget from fiscal  years 2012 through 2014, and compared those balances to previously  reported balances for fiscal years 2007 through 2012.

To address this objective, we examined selected agencies’ management  of unobligated balances in reviewed accounts both during fiscal years  2012 through 2014 and the current management of the reviewed  accounts. For this review, we selected a nongeneralizable sample of four  agencies—the National Aeronautics and Space Administration (NASA)  and the Departments of State (State), Commerce (Commerce) and  Energy (Energy). To select these four agencies, we first identified all  budget accounts having unobligated balances in fiscal years 2012, 2013,  or 2014 in the Office of Management and Budget (OMB) MAX database.  We found the data to be sufficiently reliable for the purpose of our report.  We selected the four agencies based upon whether they had accounts  with significant unobligated balances as well as whether they used or  were planning to use reprogramming of funds, transfers among accounts,  and/or multi-year funding to mitigate the effects of sequestration, as  reported in our previous work on the 2013 sequestration.

Within the four selected agencies, we identified a nongeneralizable  sample of eight budget accounts. To select the eight accounts, we  reviewed OMB MAX data for every budget account in the four agencies  for fiscal years 2012 through 2014. From these accounts, we selected  eight accounts for in-depth review based on whether the agencies  reprogrammed funds within accounts, transferred funds among accounts,  and/or used multi-year funds to mitigate the effects of the 2013  sequestration. We also selected accounts that had particularly large  unobligated balances or significant changes in unobligated balances  during fiscal years 2012 through 2014. We selected only accounts with  discretionary appropriations and split authority—a combination of  discretionary appropriations and mandatory budget authority—and  excluded mandatory accounts from our review to avoid duplication with  our concurrent review of mandatory accounts. See table 1 for a list of  accounts selected.

To evaluate how the selected agencies managed and used unobligated  balances in the reviewed accounts, we reviewed agency budget reports  and guidance, congressional budget justifications, congressional  notifications, and financial and annual reports. We interviewed agency  officials at the department (or agency), the bureau, and account levels  about account management policy and practice with regards to  unobligated balances, using analysis from our prior work (described in  detail below) as criteria.

We conducted our review from December 2014 to October 2015 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. For more detailed information  on scope and methodology, see appendix I.
subsections: section_title: Background
paragraphs: Congress provides budget authority to federal agencies to incur financial  obligations through annual appropriations acts or other legislation. An  obligation is a definite commitment that creates a legal liability of the  government for the payment of goods and services, or a legal duty that  could mature into a legal liability by virtue of actions that are beyond the  control of the United States. Based on the authority provided in  legislation, agencies obligate and expend funds. For example, an  agency incurs an obligation when it places an order, signs a contract,  awards a grant, or purchases a service. Expenditures or outlays occur  when funds that have been obligated are transferred for payment. See  figure 1 for an overview of this process.

One of the limits set by appropriations acts is the period of availability of  budget authority: periods of availability include one-year, multi-year, and  no-year. Although federal funding may be available to obligate for one  year, multiple years, or until expended (no-year), only accounts with multi- year or no-year funds may carry forward amounts that remain legally  available for new obligations from one fiscal year to the next. Such  amounts are referred to as unobligated balances. Agencies may also  carry forward obligated balances. As shown in figure 1 and previously  described, obligated balances are the amount of obligations already  incurred for which payment has not yet been made while an unobligated  balance is the portion of available budget authority that has not yet been  obligated. If the agency does not obligate one-year or multi-year funds  by the end of the period of availability, the budget authority will expire.  The agency may not incur new obligations using expired budget authority,  unless otherwise provided by law. The sum of unobligated and obligated  balances is referred to as unexpended balances.

Federal spending is categorized as discretionary or mandatory. This  distinction refers to the way budget authority is provided. Discretionary  spending is controlled through annual appropriations acts (plus, in some  cases, supplemental appropriations acts). In contrast, mandatory  spending accounts, which include “entitlement authority,” receive budget  authority through laws other than appropriations acts. This distinction  affects the management of unobligated balances because mandatory  funding may require programmatic changes to authorizing legislation to  affect unobligated balances, while discretionary accounts are controlled  through the annual appropriation process.

In 2013, we reported that reviewing unexpended balances—and in  particular, unobligated balances—may provide an opportunity to identify  potential budgetary savings and direct those resources towards other  programs or priorities. We identified four key questions that agencies  and decision makers should answer during a review of unexpended  balances, and used those questions for this review to evaluate  unobligated balances at selected agencies. These questions can provide  insights into why a balance exists, what size balance is appropriate, and  what opportunities (if any) for savings exist (see text box).

Unobligated balances can provide agencies with flexibility when  responding to unexpected budget events. For example, agencies faced  with reduced budget authority—such as during a sequestration—or with a  lapse in annual appropriations may choose to use unobligated balances  from prior year appropriations that remain available for new obligations to  ensure continuity of agency activities. In 2014, we reported that  unobligated balances that remain legally available from prior year  appropriations could provide agencies with funding flexibility to respond to  sequestration. Similarly, in September 2013, OMB issued guidance to  agencies that said unobligated balances could be used to fund activities  during the government shutdown.

Sequestration. On March 1, 2013 the President ordered a sequestration  of $85.3 billion across federal government accounts. Final  appropriations enacted on March 26, 2013 had the effect of reducing this  amount to $80.5 billion. The reductions were to be split evenly between  defense and nondefense functions. Under current law, a sequestration of  mandatory spending will occur through fiscal year 2024, and another  sequestration of discretionary appropriations could occur in any fiscal  year through 2021. The fiscal year 2013 sequestration reduced funding  to selected components of federal agencies and their program partners— such as state and local governments—that assist in carrying out agency  missions. As a result, the selected components and their partners  reduced or delayed some services to the public and operations in 2013.  As we found in March 2014, agencies reported that sequestration  reduced assistance for education, housing, and nutrition, as well as  health and science research and development grants. We also found  that agencies delayed investments such as information technology and  facilities projects.

In 2013, both mandatory spending and discretionary appropriations were  subject to sequestration. In accounts with budgetary resources classified  as defense spending, prior year unobligated balances were also subject  to sequestration. Prior year unobligated balances in nondefense accounts  were exempt. This means that only prior year balances for some  agencies’ accounts were affected by sequestration, while others were not.  Figure 2 shows the breakdown of unobligated balances by different types  of accounts and how these different balances were treated under  sequestration in fiscal year 2013.

In fiscal year 2013, agencies had the ability to reprogram funds and had  various transfer authorities to respond to sequestration. Reprogramming  is the shifting of funds from one program activity to another within an  appropriation account for purposes other than those contemplated at the  time of appropriation. Generally, no statutory authority is necessary for  agencies to reprogram funds, but in some instances the ability to  reprogram funds may be limited by law for certain purposes or amounts.  A transfer is the shifting of funds between appropriation accounts.  Agencies must have statutory authority to transfer funds, and that  authority may also be limited by purpose or amount.

Government Shutdown. The federal government partially shut down for  16 days in October 2013 because of a lapse in appropriations. According  to OMB, about 850,000 federal employees were furloughed for part of this  time, and agencies furloughed federal employees for a combined 6.6  million work days. Over the past 20 years, there have occasionally been  federal lapses in appropriations that led to government shutdowns.

During a government shutdown, one of the key issues OMB and agencies  must determine is what activities and programs an agency is permitted or  required to continue when faced with a funding gap. The Antideficiency  Act generally restricts agencies from continuing operations funded by  annual appropriations during a government shutdown. However, there  are some categories of activities that are permitted to continue during an  appropriations lapse. This includes activities funded through multi-year  appropriations that did not expire at the end of the fiscal year or no-year  appropriations.

section_title: Selected Agencies Vary in Their Management of Unobligated Balances, Including Use of Balances to Mitigate Effects of the 2013 Sequestration and Government Shutdown
subsections: section_title: In Reviewed Accounts, Agencies Generally Addressed Key Questions for Evaluating Unobligated Balances
paragraphs: As described earlier in this report, in September 2013 we identified four  key questions for evaluating balances in budget accounts, including  unobligated balances or the portion of the available budget authority that  has not yet been obligated, to help agencies more effectively manage  public funds. For the eight accounts we reviewed across the four  agencies, the agencies generally addressed the key questions in their   management and ongoing review of unobligated balances. We describe  the four key questions below and provide examples of how the selected  agencies applied the questions to the reviewed accounts (see text  boxes).
subsections: section_title: What Mission and Goals is the Account or Program Supporting?
paragraphs: Understanding the mission activities, goals, and programs the account  supports provides information about whether a program needs to  maintain an unobligated balance to operate smoothly, what size balance  is appropriate, and whether opportunities for savings exist. Such context  can inform assessments of whether, and how, to reduce unobligated  balances and what effect a reduction would have on the agency’s ability  to carry out its mission. The text box below describes two examples from  the reviewed accounts.

Mission Activities and Goals and Unobligated Balances  Western Area Power Administration (WAPA) Construction, Rehabilitation,  Operation and Maintenance (CROM). Energy’s WAPA CROM account supports  critical energy function across the central and western region of the United States. The  agency holds unobligated balances in the account from one year to the next to maintain  operations in case unexpected events, such as a droughts or economic downturns,  lead to lower than expected power sales.

Economic Development Assistance Programs (EDAP). Among its missions,  Commerce’s Economic Development Administration (EDA) provides grants to public  and private non-profit organizations to mitigate sudden and severe economic impacts,  such as natural disasters, through the EDAP account. According to EDA officials,  funding in this account that is appropriated for specific disaster relief programs cannot  be spent for other activities. A delay in assistance applications for EDA’s grants could  result in unobligated balances for those program funds. For example, EDA officials  attributed the majority of the $185 million unobligated balance at the end of fiscal year  2012 to the additional $200 million appropriated by Congress in fiscal year 2012 to fund  disaster relief efforts in areas with major disaster designations in 2011, which included  areas affected by Hurricane Irene. According to officials, communities eligible to apply  for this relief were focused on short-term recovery in 2012 and were not in a position to  apply for EDAP funds until long-term recovery plans were in place, generally after the  end of fiscal year 2012.

section_title: What Are the Sources and Fiscal Characteristics of the Funding?
paragraphs: The sources and fiscal characteristics of the funding influence what  opportunities may exist for budgetary savings. Sources of funding include  appropriations acts (i.e. discretionary spending) and laws other than  appropriations acts (i.e. mandatory spending). Budget accounts can have  both discretionary and mandatory amounts: these are known as split  accounts. Discretionary and mandatory budget authority presents  different issues for Congress in its oversight of the size of any balance.  Specifically, if amounts are mandatory, Congress must make  programmatic changes to authorizing legislation in order to begin to affect  the size of any unobligated balance. Fiscal characteristics include the  period of availability for new obligations and are also important to  evaluating unobligated balances. If an account receives multi-year or no- year appropriations, an unobligated balance can be expected in some  accounts or programs. Accounts that receive funding primarily from  outside sources, such as fees, have their own unique considerations  when evaluating unobligated balances. The text box below describes  three examples from the reviewed accounts.

Sources and Fiscal Characteristics of Funding and Unobligated Balances  Diplomatic and Consular Programs (D&CP). State’s D&CP account is composed of  both discretionary and mandatory authority that come from various sources including  annual appropriations, Overseas Contingency Operations appropriations, offsetting  collections derived from services to the public for visas and passports, and  reimbursements from other agencies. Almost all of the unobligated balances support  activities funded by discretionary appropriations. The account includes no-year, multi- year, and one-year appropriations. In fiscal year 2014, D&CP’s appropriation did not  provide multi-year authority as in previous years, but rather, permitted the extension of  up to about 15 percent of new one-year authority to two-year authority. State officials  reported that this change led to greater scrutiny of the balances, as well as closer work  with the Department of the Treasury to transfer funds into the two-year portion of the  account.

International Narcotics Control and Law Enforcement (INCLE). State’s INCLE  account receives two-year appropriations. Therefore, these funds must be obligated  within the two-year period or they will expire. INCLE officials said that they strive to  obligate all funds within this period of availability.

United States Patent and Trademark Office (USPTO) Salaries and Expenses (S&E).  The USPTO S&E account at Commerce is composed of receipts from patent and  trademark fees. USPTO receives congressional authority in annual appropriations acts  to spend a fixed amount of these receipts. Funds are obligated in this account as  salaries are earned and expenses incurred. The unobligated balance in this account  therefore depends on the volume of fee collections going in and salaries and expenses  going out.

section_title: What Factors Affect the Size or Composition of the Carryover Balances?
paragraphs: It is important to consider which factors affecting unobligated balances  are within the agency’s control and which are not. The rate at which  obligations are incurred and subsequently liquidated in a fiscal year can  vary with the nature of the activity. External events beyond agencies’  control—such as natural disasters or economic crises—can also affect  unobligated balances. The text box below describes two examples from  the reviewed accounts.

Factors Affecting Size and Composition of Unobligated Balances  Science. NASA officials said that while they attempt to obligate funds during the first  year of appropriation within the Science account, a delayed project may result in an  unobligated balance in the account. For example, in fiscal year 2014, the Europa  mission funding for the Jet Propulsion Laboratory was delayed while officials conducted  a July progress review, resulting in a delay of obligations and an unobligated balance at  the end of the year.

Defense Environmental Cleanup (DEC). Officials managing Energy’s DEC account  said that unobligated balances in fiscal year 2014 resulted from a variety of reasons,  including contracts that could not be awarded before the end of the fiscal year, delays  in hiring employees, and funding allocated for a finished construction project.

section_title: How Does the Agency Estimate and Manage Carryover Balances?
paragraphs: Understanding an agency’s processes for estimating and managing  carryover balances provides information to assess how effectively  agencies anticipate program needs, and ensure the most efficient use of  resources. Agency management and estimation of unobligated balances  also helps to ensure that any amounts carried over into the next year  meet the targets the agency has determined are necessary to continue  activities. The text box below describes three examples from the reviewed  accounts.

Management and Estimation of Unobligated Balances  Economic Development Assistance Programs (EDAP). In managing the EDAP  account, EDA tracks expended, obligated, and unobligated balances, and reports  weekly on these fund balances to program staff. The budget office estimates the  likelihood of the remaining unobligated funds being obligated during the fiscal year, and  continually revises these estimates, putting forward a final estimate of the unobligated  balance that is expected to be carried over at the end of the fiscal year.

Energy Efficiency and Renewable Energy (EERE). EERE officials monitor  unobligated balances monthly, with a more thorough analysis at the end of the fiscal  year. According to officials, there is no set formula for estimating unobligated balances  in future years; project managers are asked in the fourth quarter for their expected level  of obligations which helps the agency estimate current year unobligated balances.

Science. Unobligated balances for NASA’s Science account are monitored monthly.  Specifically, budget analysts compare actual and planned spending, and monitor the  level of unobligated balances. If an analyst believes that there is a significant difference  between expected and actual unobligated balances, then he or she can flag those  balances for further review.

section_title: For Reviewed Accounts, Agencies Actively Estimate and Manage Unobligated Balances; However, for Two of the Accounts, Balances Exceeded Target Levels
paragraphs: Of the four key questions, agency management of balances is especially  important in that it highlights how ongoing, routine estimation, and agency  management of unobligated balances throughout the year is critical to  help ensure the effective use of program resources. Our work shows that  actively managing unobligated balances involves (1) regular review of  unobligated balances, including ongoing monitoring and tracking,  throughout the year; (2) tracking the appropriation year of the balances;  (3) estimating projected annual unobligated balances and identifying the  amount of unobligated balances that may be necessary to retain the  following year; and (4) recognizing how unobligated balances may result  from, or be affected by, events outside of an agency’s control.

If an agency does not have a robust strategy in place to manage  unobligated balances, or is unable to adequately explain or support the  reported unobligated balances, then a more in-depth review is warranted.  In those cases, balances may either fall too low to efficiently manage  operations, or rise to unnecessarily high levels. This produces potential  opportunities for those funds to be used more efficiently elsewhere.
subsections: section_title: For Reviewed Accounts, Officials Reported Having a Process to Regularly Review Unobligated Balances throughout the Year
paragraphs: For all of the eight accounts we reviewed, agency officials reported  having a process for managing unobligated balances throughout the year,  including ongoing monitoring and tracking of the balances. Having a  process to regularly review unobligated balances throughout the year  allows agencies and decision makers to better understand the size and  nature of their balances and determine if actions should be taken to  increase or reduce these balances. Specific examples include the  following:

Officials for State’s D&CP account reported that they monitor  unobligated balances monthly to ensure that program spending is on  track, with more frequent monitoring of some subaccounts with large  balances, such as the Overseas Contingency Operations (OCO)  subaccount. Frequent monitoring may make it easier to identify  whether unobligated balances will meet program needs.

Officials managing NASA’s Science account said their monthly  monitoring of unobligated balances begins the first day of each month  when obligations are transferred from the agency’s accounting system  into a project management system, which is used to compare planned  and actual expenditures. Budget analysts monitor the level of  unobligated balances, taking into account obligations from the prior  month. NASA officials said it is the responsibility of the budget analyst  for the account to raise significant differences between planned and  actual levels of unobligated balances for further review by the Budget  Director, the Deputy Chief Financial Officer, and the Chief Financial  Officer.

Commerce’s USPTO finalized an operating reserve policy on  September 25, 2015. This policy includes a regular process for  monitoring unobligated balances within the S&E account. In the S&E  account, which is funded through fees that are paid by customers to  obtain and renew patents and trademarks, USPTO sets aside its  unobligated balances as an operating reserve. In April 2012, we  recommended that the Secretary of Commerce direct the USPTO  Director to finalize an operating reserve policy, including the expected  level of reserves, to smooth economic downturns on operations and to  ensure its use aligns with agency goals. The finalized policy was  developed in response to our recommendation. The policy requires  monthly monitoring of the operating reserve balance compared to the  established minimum level, among other things.

section_title: Although Agencies Tracked the Appropriation Year of Unobligated Balances for Reviewed Accounts with Multi- Year Funds, Some Funds Expired in All Such Accounts during Fiscal Years 2012 through 2014
paragraphs: We have previously reported that the time limits imposed upon the budget  authority are important when evaluating unobligated balances. If an  account receives multi-year or no-year appropriations, an unobligated  balance can be expected in some cases. Similarly, if an account receives  multi-year supplemental appropriations late in the fiscal year or for long- term projects, there is an increased likelihood of, and perhaps expectation  for, an unobligated balance in the account. It is important to track the year  of appropriation for accounts with multi-year budget authority to obligate  the authority in the order appropriated to maximize resources for program  implementation and prevent budget authority that otherwise could have  been used from expiring. There may be different periods of availability for  funds within the same agency, program, or account. As shown in table 2  below, six of the eight accounts we reviewed received no-year funds,  which do not expire, and two of the accounts received only multi-year  funds. One account received no-year, multi-year, and one-year funds.

Multi-year Funds. Five of the accounts we reviewed receive multi-year  funds in the form of 2-year funds—NASA’s Science account, State’s  INCLE and D&CP accounts, and Energy’s EERE and DEC accounts.  Officials managing each of these five accounts reported tracking the  appropriation year of the funds to help ensure that the agency incurs new  obligations only during the appropriation’s period of availability. Since  funds are available for only 2 years, in most cases they will expire at the  end of the 2-year period. For example, officials managing State’s INCLE  account said that they divide responsibility for tracking funds between  budget execution analysts and program staff. While the budget execution  analysts are responsible for tracking funds in the accounting system and  highlighting any problems as they arise, it is ultimately the responsibility of  program staff to ensure that the agency incurs new obligations only  during the appropriation’s period of availability.

Although officials in the five reviewed accounts with two-year funds said  they track the appropriation year of funds to help ensure effective use of  current budget authority within the appropriation’s period of availability, all  of the accounts had unobligated balances that expired during fiscal years  2012 through 2014. Expiration of funds can occur for a variety of reasons  including contract adjustments, delays in entering contracts because of  continuing resolutions, or poor management. See table 3 for the amounts  of expired funds in five reviewed accounts and an explanation of the  expiration, according to agency officials.

State officials managing the D&CP account told us that they attempt to  avoid cancellation of expired funds and their unavailability for future use  by using four separate authorities to transfer expired funds for specific  uses such as offsetting overseas price inflation for projects and wages  paid to local employees, making reward payments for captured terrorists,  and reimbursing New York City for the protection of foreign missions and  officials at the United Nations. According to officials, State notifies OMB  and Congress regarding the Department’s intent to transfer expired funds  for such purposes. Officials said they transfer the oldest expired funds  first, such as those nearing the end of their expiration period, which would  be the first to be cancelled, before obligating the more recently expired  funds. In fiscal year 2014, D&CP’s appropriation consisted of primarily  one-year authority, of which State could extend up to about 15 percent for  an additional year, versus the primarily two-year authority generally  appropriated to D&CP. Officials said that all expired fiscal year 2014  funds ($369 million) were transferred to the two-year portion of the  account because the $369 million fell within the 15 percent limit.

For the INCLE account, State has the authority to extend the availability  of certain balances that would have otherwise expired after 2 years.  When funds are obligated during their initial period of availability, those  funds remain available to incur new obligations for an additional 4 years  from the date on which the availability of such funds would have  otherwise expired. To enter into new obligations during this extended  period of availability, State officials must deobligate previously obligated  funds. State reported that deobligated amounts are moved from an  expired account into what officials call an “extended account” and are  available to be reobligated. State officials said that expired funds reflected  in the President’s budget may actually be in a holding status awaiting  coordination, including coordination with Congress. However, State’s  Office of the Inspector General (OIG) also identified issues with the  process of tracking obligations within the INCLE account. State’s OIG  recommended that the agency should develop a list of bureaus’  requirements related to tracking and reporting foreign assistance funds by  program, project, and country, among other things, and develop and  implement a comprehensive plan with target completion dates to address  foreign assistance tracking and reporting requirements. State agreed  and initiated a working group to address the recommendation.

No-year Funds. In accounts with no-year funds, agencies may choose to  track the year in which such funds were appropriated, but such funds do  not expire. Officials managing the three reviewed accounts at Energy— DEC, EERE, and WAPA CROM—each reported tracking no-year funds  by the year of appropriation. In contrast, officials from the other three  reviewed accounts with no-year funds reported that they did not do this.  For example, at Commerce, officials managing EDA’s EDAP account  reported that the agency does not track the appropriation year of the  unobligated balances. Officials managing the EDAP account said they  track the funds by program, such as Economic Adjustment Assistance or  Public Works, but do not track funds by year because these are no-year  funds. When a grant funded from the account is completed, officials said  any remaining funds tied to that grant are deobligated, and may be used  to fund a new grant that would qualify under the parameters of the original  activity or subprogram.

section_title: Three Agencies Identified a Need to Retain Unobligated Balances in Three of the Reviewed Accounts, but Unobligated Balances Exceeded Target Levels in Two of These Accounts
paragraphs: As we have previously reported, both the necessity for and appropriate  size of minimum unobligated balances varies among agencies and within  agencies. It is important for agencies to estimate the projected  unobligated balances for the fiscal year and identify the amount of the  balances, if any, which may be necessary to carryover into the following  year to sustain agency operations. For five of our reviewed accounts— Energy’s DEC and EERE, Commerce’s EDAP, State’s INCLE, and  NASA’s Science—agency officials said a minimum level or consistent  target of unobligated funds was not necessary to maintain operations  across fiscal years. For example, Energy officials managing the DEC  account told us that a minimum level of unobligated funds was not  necessary for their operations and that their goal is to obligate all of their  funds in the first year. Energy officials reported they obligate more than  99 percent of DEC funds, on average, within the first year of  appropriations. Similarly, officials managing the INCLE account said they  would obligate all funds in the first year if possible. However, planning  and reporting requirements often delay obligations leading to significant  unobligated balances each year.

We have previously reported that unobligated balances in some instances  support an agency’s ability to carry out its mission by providing flexibility  for the agency to respond to contingencies or emergencies. In three of  the eight accounts we reviewed—USPTO’s S&E, State’s D&CP, and  Energy’s WAPA CROM—officials reported that a certain level of  unobligated balances was necessary to properly execute activities and  manage financial risk for certain programs within the accounts.

In our prior work, USPTO officials reported that maintaining an  operating reserve is important for the user fee funded agency  because, without an unobligated balance, its businesslike operations  would leave the agency vulnerable to financial risk and threaten long- term operational stability. All unobligated balances within USPTO’s  S&E account are considered part of this operating reserve. In  response to our 2012 recommendation, USPTO drafted and, as of  September 25, 2015, has finalized a policy to guide its management  of this operating reserve. The policy describes a method for  determining an acceptable minimum size for the operating reserve as  well as a model for determining its optimal size. This model takes into  account the likelihood and consequence of seven different spending  and fee collection risk factors such as economic uncertainty and  climate, unexpected costs, and fee and workload projection  uncertainties. Depending on the levels of risk and consequence, the  model calls for maintaining, in addition to the established minimum  reserve requirement, between 0- and 4-months of operating expenses  in its reserve.

Additionally, for the Consular and Border Security Programs (CBSP)  within the D&CP account, State officials said they have a target to  carryover approximately 25 percent of projected program  expenditures for the next year to manage complex global visa and  passport operations. CBSP is fully fee funded, which means that all  appropriations for the program are offsetting collections from consular  fees and surcharges. These fees and surcharges include the Passport  Security Surcharge, the Diversity Visa Lottery fee, and the Machine  Readable Visa fee. Congress has permanently appropriated these  collections to State as no-year authority for CBSP’s use. State set this  target of 25 percent based on activity-specific analysis using historical  data and projections. However, officials did not report using models or  formulas to help anticipate how certain factors would impact the  financial risk of the account. Our previous work has found that  unobligated balances in fee-based accounts should be subject to the  same scrutiny as unobligated balances in accounts funded by general  revenues. Based on our findings from this review, we continue to  believe that agencies need to understand the vulnerabilities of user  fees and to be deliberate in their design of a reserve fund to  effectively manage them.

Specifically, we found that in fiscal year 2014 unobligated balances for  CBSP accounted for 38 percent, or approximately $1.3 billion, of  projected program expenditures for fiscal year 2015 for the program.  This exceeded the 25 percent target of approximately $850 million by  approximately $440 million. Similarly, in fiscal years 2012 and 2013,  unobligated balances for CBSP accounted for approximately 40  percent of program expenditures for the next fiscal year. State officials  reported that unobligated balances were higher than the  predetermined target, in part, because of limitations on the purposes  for which fees collected under CBSP may be used. In particular, fees  collected for fraud prevention and detection on certain types of visas  can only be spent on specific fraud activities. State officials reported  that annual revenue from this fee is usually higher than the cost of  these activities, resulting in an annual increase in unobligated  balances. However, this limitation on how fees can be spent accounts  for only a small proportion of the excess unobligated balances  (approximately $97 million of the total excess unobligated balance of  $440 million in fiscal year 2014).

State officials within the Bureau of Consular Affairs said that they  began drafting a plan in 2013 for managing and monitoring funding for  each program within CBSP. According to officials, this plan will  include a strategy on how unobligated balances will be tracked and  managed to reach the identified target of 25 percent. Officials said  that the plan is awaiting clearance by leadership and they anticipate  that it will be finalized by June 2016. While unobligated balances for  CBSP were greater than the 25 percent target in recent years, State  officials reported that they have taken steps to regulate and reduce  unobligated balances. According to officials, these steps included  decreasing fees or delaying fee increases when unobligated balances  were adequate to cover costs; realigning spending, consistent with  authorities, to better coincide with actual costs; and improving internal  coordination to better track and model revenues and obligations. For  example, officials reported that since fiscal year 2012, the cost of the  Passport Security Surcharge service was higher than the $40 fee  charged. In 2015, State announced that it intended to raise the fee to  $60. Officials said that this delay of the fee increase allowed them to  spend down existing unobligated balances. According to data  provided by State, unobligated balances for the Passport Security  Surcharge decreased from 95 percent of next year’s program  expenditures in fiscal year 2012, to 72 percent in fiscal year 2014.

Similarly, the unobligated balances in WAPA’s CROM account  exceeded the level officials said was necessary to maintain certain  activities and manage risk for those activities. Specifically, officials  said that for two of the account’s four use categories—the annual  expense fund, and purchase power and wheeling—they set a target  level of unobligated balances as contingency funds against  unexpected events. For the annual expense fund, officials set a target  to retain up to one quarter, or 25 percent, of the yearly budget  requirement. For purchase power and wheeling, the target was equal  to 25 percent of each region’s maximum annual receipts. WAPA  officials explained that WAPA’s mission to market hydroelectric power  to multiple regions across the western United States can be affected  by a number of environmental factors such as drought, animal  breeding seasons, and flood prevention—all of which may affect the  function of power generating dams and introduce financial risk. WAPA  officials reported addressing these environmental factors and potential  financial risks by carrying over unobligated funds. WAPA officials told  us that while a carryover of up to or equal to 25 percent in unobligated  balances is the current target for these two use categories, they are  continuing to refine and evaluate the necessary level of unobligated  balances. These officials added that they do not have a model or  formula to estimate anticipated environmental factors, and how those  factors would have a fiscal impact on the agency.

For fiscal year 2014, unobligated balances for purchase power and  wheeling fell below the 25 percent target. However, for the annual  expense fund, unobligated balances were above this previously  identified target. For the annual expense fund, officials estimated that  the 25 percent target for the unobligated balance would be about $52  million for fiscal year 2014. The unobligated balance, however, for the  annual expense fund was $92 million, or $40 million more than  officials deemed necessary to avoid risk. According to WAPA officials,  the annual expense fund’s unobligated balance for fiscal year 2014  was higher than the predetermined target partially because they  forecasted a 3 percent cost of living increase for personnel, which  never occurred. WAPA officials reported that they developed a  strategy in fiscal year 2013 for managing unobligated balances in the  annual expense fund within the CROM account. According to officials,  the draft strategy includes three alternatives for reducing unobligated  balances in the annual expense fund, including one to decrease future  budget requests and rely on existing unobligated balances to cover  expenses. Officials said that this alternative was approved by WAPA  senior management. However, officials acknowledged that this  strategy would not be fully implemented until officials assess the  outcomes of the strategy at the end of 2015. WAPA officials also  reported that they are considering other strategies for reducing  unobligated balances to required targets. As of October 2015, WAPA  had not finalized or fully implemented a strategy to reduce unobligated  balances.

Without a finalized and fully implemented strategy for reducing  unobligated balances in excess of the agencies’ predetermined targets for  necessary balances for the identified programs or activities in these two  accounts, Energy and State are missing opportunities to actively manage  unobligated balances. Thus, they should consider whether actions such  as reprogramming or transferring unobligated balances, reevaluating the  necessary threshold of unobligated balances, or reducing funding  requests in future appropriations for these accounts are appropriate  courses of action for using their resources effectively.

section_title: Agency Officials Said Unobligated Balances May Result from, or Be Affected by, Events outside an Agency’s Control
paragraphs: We have previously reported that the nature of some accounts may  routinely cause unobligated balances that result from events outside of an  agency’s control. Spending in some accounts may require processes to  be completed by state, local, or private entities that receive funds from  federal agencies. If these processes are not completed in a time frame  necessary to obligate the funds in the current fiscal year, funds may  remain unobligated at the end of the fiscal year and be carried over.  These events are separate from the active estimation of the necessary  size of unobligated balances described above. Nevertheless, as we have  previously noted, it is important for agencies to understand how these  events may influence the level of their balances.

For example, in EDA’s EDAP account, officials said that many of their  programs are driven from the bottom up in that funding cannot be  obligated until potential recipients apply for grants. Specifically, EDA  officials told us that unobligated balances for the Reshoring program have  been carried over for 3 years while the program waits to receive  applications from eligible public and private non-profit organizations. The  Reshoring program, a subprogram under EDA’s Economic Adjustment  Assistance program, provides aid to businesses bringing jobs from  overseas to the U.S. It received approximately $5 million each year for  fiscal years 2013 and 2014. However, funds cannot be obligated until  eligible recipients take actions outlined in programmatic rules and  regulations and these funds were carried over as unobligated balances.

As we have previously reported, for agencies that rely on user fees for  funding, economic factors may impact the amount of fees collected and  contribute to unobligated balances. For example, officials at USPTO  said that an economic downturn can decrease USPTO’s collected fees.  This would create an imbalance with planned spending, and lead to a  decrease in its operating reserve of unobligated balances.

Continuing resolution (CR): an  appropriation act that provides budget  authority for federal agencies, specific  activities, or both to continue operation when  Congress and the President have not  completed action on the regular  appropriations acts by the beginning of the  fiscal year. A CR may be enacted for a full  year, up to a specified date, or until regular  appropriations are enacted. CRs have been  passed in all fiscal years since 1997, the most  recent fiscal year that all regular  appropriations bills were completed on time.  During this time, CRs funded an average of 5  months each fiscal year.

Uncertain budget environments can also affect the level of unobligated  balances. As we reported in March 2013, under a continuing resolution  (CR) agencies may have difficulty making long-term decisions due to  uncertainty about, both, when they will receive their final appropriation,  and what level of funding ultimately will be available. Agencies are  directed to operate at a conservative rate of spending while CRs are in  effect, thus compressing the time period to obligate funds once final  appropriations decisions are made. State officials managing the D&CP  account said that they will limit the obligation of funds until full-year  appropriations are made. Officials said that higher obligation rates occur  in the third and fourth quarters of the fiscal year as the agency obligates  money for procurement purposes. On the other hand, obligations for  salaries and personnel expenses remain relatively consistent across  quarters. Depending on a number of factors, including the timing of  appropriations for the rest of the year, agencies may not be able to  obligate funds before the end of the fiscal year and so will carryover  unobligated funds. For example, although Energy has a goal for its EERE  account to obligate all funds in the first year of appropriations, in fiscal  year 2014 it carried over unobligated balances of $408 million. Energy  officials said that the majority of the unobligated balance resulted from  delays in issuing funding opportunity announcements associated with  EERE’s research and development programs in the areas of solar  energy, bioenergy, advanced manufacturing, and water power. Officials  said that they delayed the issuance of funding announcements during the  3-month continuing resolution of fiscal year 2014 following the  government shutdown.

section_title: Four of Eight Reviewed Accounts Used Unobligated Balances to Mitigate the Effects of Sequestration in Fiscal Year 2013
paragraphs: According to guidance for the fiscal year 2013 sequestration, OMB  recommended early budget planning to minimize the impact on essential  activities tied to an agency’s mission. These activities include identifying  opportunities for reprogramming or transferring funds (including  unobligated balances and new budget authority), and reviewing grants  and contracts for possible cost savings and reviewing reductions in  personnel costs, such as hiring freezes.

Unobligated balances that remain legally available from prior year  appropriations could provide agencies with funding flexibility to respond to  sequestration. Agency officials for four of the eight reviewed accounts— Energy’s EERE and WAPA CROM accounts, State’s D&CP account, and  USPTO’s S&E account—reported using unobligated balances to mitigate  the effects of sequestration in fiscal year 2013.

Using prior year unobligated funds, Energy officials managing the  EERE account reported reprogramming approximately $80 million of  the unobligated balances. Officials reported deobligating previously  obligated amounts that had not yet been expended from various  projects and activities. They then reobligated these amounts for other  activities, such as the Weatherization Assistance Program, which  funds weatherization of homes through grants to states, territories and  some Native American lands.

Officials managing Energy’s WAPA CROM account reported using  unobligated balances to mitigate the effects of sequestration by  reprogramming approximately $4.7 million in funds within the account.  Reductions based on sequestration resulted in lower than needed  funds for construction projects related to WAPA’s delivery of cost- based federal hydroelectric power and related services across the  western United States. As a result, officials said they reprogrammed  approximately $4.7 million from the program direction portion of the  account (which supports activities such as personnel salaries) to  mitigate the effect of sequestration on the construction portion of the  account.

At State officials reported that they reprogrammed $64 million in  unobligated balances from non-Overseas Contingency Operation  (OCO) Iraq funding within the non-OCO portion of the D&CP account  to about 40 other activities within the account. These activities  included personnel salaries and benefits, facility operating and  maintenance costs, travel, and other operational requirements. They  said this decision was made because there was a reduction of needs  in Iraq due to lower than anticipated costs. This resulted in higher than  necessary unobligated balances that could be better used for other  activities. State officials said they notified OMB and Congress of this  reprogramming.

Officials managing other accounts we reviewed—State’s INCLE, Energy’s  DEC, and NASA’s Science accounts—reported that no unobligated  balances were used to mitigate the effects of sequestration.

For example, for State’s INCLE account, officials reported that  Foreign Assistance funds, including INCLE and other accounts, were  not reprogrammed to mitigate the effects of sequestration to maintain  fairness among the countries that receive assistance. As we  previously reported, officials said it would be easier to explain to  foreign partners that these cuts to programs and commitments were  mandated by U.S. law, and that they were being applied equally.

Officials managing Energy’s DEC account reported that they  reprogrammed funds from new budget authority for fiscal year 2013,  and did not use unobligated balances from previous years. Unlike  the other seven accounts we reviewed, the DEC account is  categorized as a defense account with its unobligated balances  subject to sequestration. Officials reported that $1 million was  sequestered from fiscal year 2012 unobligated balances in the DEC  account during the 2013 sequestration.

The funds in Commerce’s EDAP account were not subject to  sequestration. Therefore, unobligated balances did not need to be used  to mitigate its effects. As previously reported in our work on  sequestration, the account’s funding was not sequestered in fiscal year  2013 due to a reduction in funding for the account.

section_title: Six of Eight Reviewed Accounts Used Unobligated Balances to Fund Activities during the October 2013 Government Shutdown
paragraphs: In the event of a government shutdown, OMB is responsible for ensuring  agencies have taken the essential actions needed to manage the  shutdown effectively. It does so by providing policy guidance and  shutdown-related instructions. For example, OMB guidance to agencies  for the October 2013 government shutdown permitted them to use  unobligated funds to continue operations on activities.

Six of the eight accounts we reviewed—State’s INCLE and D&CP,  USPTO’s S&E, and Energy’s EERE, DEC and WAPA’s CROM  accounts—used unobligated balances to fund activities during the  October 2013 government shutdown. For these selected accounts,  agency officials reported that having no-year or multi-year funds made it  possible to continue to carry out agency missions, such as allowing  WAPA to continue providing electrical energy to customers and USPTO  to continue to review patent and trademark applications.

Officials at Energy reported that, in anticipation of the shutdown,  agency officials reviewed program data to assess how much of the  unobligated balances would be available for specific activities for the  next fiscal year. This would allow the funds to be obligated during the  shutdown to ensure operations could continue. This is consistent with  our prior work on the government shutdown in which we reported that  Energy reevaluated its budget priorities to have funds available to  meet payroll and to help ensure that the highest priority activities,  such as providing electrical power to customers, could continue during  the shutdown.

Officials from USPTO’s S&E and WAPA’s CROM accounts described  continuing normal activity for their business-like accounts. Both  accounts receive either all or most of their funding from customer  receipts. All appropriated funds for USPTO’s S&E account come from  receipts, while approximately 90 percent of appropriated funds for  CROM come from customer advances and receipts for services such  as construction improvements and providing electrical energy to  customers from federally owned dams and other infrastructure. For  these accounts, agency officials reported that they were able to use  unobligated balances to continue to operate and provide services  directly to their customers during the shutdown.

Two of our reviewed accounts, NASA’s Science account and EDA’s  EDAP account, did not use unobligated balances to continue to fund  activities or operations. For example, EDA officials reported that  account balances are specifically appropriated to support grant  funding, and, therefore, could not fund salaries and expenses for EDA  employees.

section_title: Conclusions
paragraphs: Given the significant events during the last 2 years—sequestration and  the government shutdown—and the potential for budget uncertainties in  the future, effective management of unobligated balances is critical for  agencies to ensure the most efficient use of resources and to effectively  respond to budget uncertainties. Understanding the justification for or  impact of unobligated balances requires a close look at individual  accounts and agencies, and how they manage unobligated balances. We  found that officials generally managed unobligated balances effectively by  tracking balances, having a process to estimate balances, and identifying  necessary balances to carryover each year to fulfill their missions.  However, there are opportunities for improvement in the way agencies  manage unobligated balances in two of the reviewed accounts.  Specifically, agency officials managing Energy’s WAPA CROM account  and State’s CBSP within the D&CP account are not taking sufficient steps  to ensure that the accounts only carryover the necessary unobligated  balances into the next year. Without proper management of unobligated  balances, opportunities for budgetary savings or funding activities may be  missed.

section_title: Recommendations for Executive Action
paragraphs: To ensure effective use of federal funds and management of unobligated  balances, the Secretary of Energy should direct WAPA’s Administrator  and Chief Executive Officer to finalize and implement a strategy to reduce  excess unobligated balances within the CROM account. Similarly, the  Secretary of State should direct the Assistant Secretary of State for  Consular Affairs to finalize Consular Affair’s strategy for the management  of its unobligated balances, and to continue efforts to reduce excess  unobligated balances allocated to CBSP in the D&CP account. For both  the CROM and D&CP accounts, as appropriate, these strategies may  include  reprogramming or transferring funds to other activities, as allowed by  appropriation law,  reevaluating fees to ensure fee revenues match program needs, or  reducing budget authority requests in future years.

section_title: Agency Comments
paragraphs: We provided a draft of this report to the Secretaries of Commerce,  Energy, and State; and the Administrator of NASA for comment. Energy  and State concurred with our recommendations and provided written  comments that are reproduced in appendixes IV and V, respectively. In its  letter, Energy said that it agrees with the need to avoid excess  unobligated balances and reported that WAPA is finalizing a plan to better  manage unobligated balances in the CROM account.

After receiving the draft report, officials from State discussed our findings,  conclusions, and recommendation with us and provided additional  information on unobligated balances. Based on these discussions and  information provided, we made minor revisions to the body of the report,  including the recommendation, to reflect actions taken by Bureau of  Consular Affairs officials to reduce unobligated balances. In its letter,  while State concurred with the revised recommendation, officials noted  that they disagreed with the use of the term “excess” to describe the  unobligated balances in CBSP. State said it will continue efforts to better  align unobligated balances and finalize the plan for CBSP to maintain  balances at optimal levels. We maintain that the unobligated balances for  CBSP are “excess” because they are above the agency’s own target of  25 percent of projected program expenditures for the next year. We  received technical comments from Commerce, Energy, and State, which  we have incorporated into the final draft where appropriate. NASA did not  have any comments on the draft report.

We are sending copies of this report to the appropriate congressional  committees; the Secretaries of Commerce, Energy, and State; the  Administrator of NASA; and other interested parties. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  Susan J. Irving at (202) 512-6806 or irvings@gao.gov. Contact points for  our Office of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix VII.

section_title: Appendix I: Objective, Scope, and Methodology
paragraphs: Our objective was to evaluate how selected agencies managed and used  unobligated balances in reviewed accounts, focusing on fiscal years 2012  through 2014, which covers the fiscal year 2013 sequestration and fiscal  year 2014 government shutdown. In addition, we analyzed the size and  composition of unexpended balances in the federal budget from fiscal  years 2012 through 2014, and compared those balances to previously  reported balances for fiscal years 2007 through 2012. To address this  objective, we examined selected agencies’ management of unobligated  balances in reviewed accounts both during fiscal years 2012 through  2014, and the current management of the reviewed accounts. We  focused on unobligated balances because our prior work has shown that  agencies used unobligated balances to offset reductions from the 2013  sequestration and the government shutdown. For this review, we  selected a nongeneralizable sample of four agencies—the National  Aeronautics and Space Administration (NASA) and the Departments of  State (State), Commerce (Commerce) and Energy (Energy). To select  these four agencies, we identified all budget accounts having unobligated  balances in fiscal years 2012, 2013, or 2014 in the Office of Management  and Budget (OMB) MAX database. We then reviewed the data for each  of the 24 Chief Financial Officer Act agencies, as well as agency plans to  use unobligated balances to offset sequestration, according to our  previous work on the 2013 sequestration. We selected the four agencies  based upon whether they had accounts with significant unobligated  balances, as well as whether they used or were planning to use  reprogramming of funds, transfers among accounts, and/or multi-year  funding to mitigate the effects of sequestration.

Within the four selected agencies, we identified a nongeneralizable  sample of eight accounts. To select the eight accounts, we reviewed  OMB MAX data for every budget account in the four agencies for fiscal  years 2012 through 2014. In 2013, the most recent end of year data  available at that time of our initial selection, these four agencies had a  total of 157 budget accounts. From these accounts, we selected eight  accounts for in-depth review based on whether the agencies  reprogrammed funds within accounts, transferred funds among accounts,  and/or used multi-year funds to mitigate the effects of the 2013  sequestration. We also selected accounts that had particularly large  unobligated balances or significant changes in unobligated balances  during fiscal years 2012 through 2014. We selected only accounts with  discretionary appropriations and split authority—a combination of  discretionary appropriations and mandatory budget authority—and  excluded mandatory accounts from our review to avoid duplication with  our ongoing review of mandatory accounts. See table 4 for a list of  accounts selected.

To evaluate how the selected agencies managed and used unobligated  balances in the reviewed accounts, we reviewed agency budget reports  and guidance, congressional budget justifications, and congressional  notifications. We interviewed agency officials at the department (or  agency), the bureau, and the account levels about account management  policy and practice, especially with regard to unobligated balances, using  the four key questions from our prior work as criteria. To analyze agency  budget data from fiscal years 2012 through 2014, we asked agency  officials to explain the size of the balances, any balance changes, how  and whether balances were used to mitigate the effects of the 2013  sequestration and the government shutdown, discuss any expired funds,  and whether any transfers or reprogramming occurred during this time.  We discussed with agencies the four key questions described earlier from  our prior work, including the mission and goals of programs supporting  the accounts, sources and fiscal characteristics of the funding, factors  that affect the size and composition of unobligated balances, and agency  estimation and management of balances.

To describe unexpended balances—including unobligated balances—in  appendix III, we analyzed data on government-wide unexpended  balances across all federal budget accounts for fiscal years 2007 through  2014. For our analysis, we obtained government-wide data on obligated  and unobligated balances. We queried OMB’s MAX database for data by  account on obligated and unobligated balances, including budget  function, and composition of the account (e.g., mandatory, discretionary,  split), for fiscal years 2012 through 2014. We found the data to be  sufficiently reliable for the purpose of our report. We also drew from data  reported in our previous report on unexpended balances from fiscal years  2007 through 2012 to add context to the new analysis. Although we did  not attempt to identify causal links, two significant events occurred during  fiscal years 2013 through 2014—sequestration and the government  shutdown—which may have affected unexpended balances, possibly  causing agencies to use unobligated balances to mitigate effects of the  budget events.

We conducted our review from December 2014 to October 2015 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.

section_title: Appendix II: Key Budget Questions Applied to Reviewed Budget Accounts
paragraphs: In this appendix, we summarized how the selected agencies are  managing and using unobligated balances in the eight reviewed accounts  according to the four key questions from our prior work.

What Mission and Goals Is the Account or Program Supporting?

What are the Sources and Fiscal Characteristics of the Funding?

What Factors Affect the Size or Composition of the Carryover  Balance?

How Does the Agency Estimate and Manage Carryover Balances?

We also included analysis of the ways agencies used unobligated  balances to mitigate the effects of the 2013 sequestration and  government shutdown. Each template includes a graphic which shows  the unobligated balance as a percentage of budgetary resources.
subsections: section_title: Unobligated Balances as a Proportion of Total Unexpended Balances
paragraphs: Federal agencies reported unexpended balances—the sum of obligated  and unobligated balances—in 1,358 of 1,493 active budget accounts from  fiscal year 2012 through 2014. Total unexpended balances fluctuated  from $2.23 trillion in fiscal year 2012 to $2.27 trillion in fiscal year 2014.  This represents an overall increase of approximately $41 billion with a  decrease in 2013. About 91 percent of active accounts carried  unobligated balances with total unobligated balances increasing from  $788 billion to $872 billion during this period.

As shown in figure 11, unobligated balances were more than one-third of  total unexpended balances from fiscal year 2012 through 2014, which is  generally consistent with data from fiscal years 2007 through 2011.

section_title: Unobligated Balances by Category of Spending
paragraphs: Each budget account is assigned a category of spending—discretionary,  mandatory, or split, which is a combination of both discretionary and  mandatory. As shown in figure 12, mandatory accounts represent about  50 percent of total unobligated balances in fiscal years 2012 through  2014. From fiscal year 2009 through 2011 the share of unobligated  balances in mandatory accounts was relatively stable at about 52 percent  of total unobligated balances. This comes after a growth in the mandatory  share of the balances from about 25 percent in fiscal year 2007 to about  47 percent in fiscal year 2008.

The percentage of unobligated balances in split accounts remained at  about 32 percent in fiscal years 2012 through 2014, which has been  generally consistent since 2010.

From fiscal years 2012 through 2014, unobligated balances in  discretionary accounts were between approximately 16 and 19 percent of  all unobligated balances. As shown in figure 12, this has been the case  since 2010, before which discretionary balances represented higher  proportions of unobligated balances, including nearly 26 percent in fiscal  year 2007.

As shown in table 5, the three mandatory accounts with the largest  amount of unobligated balances in fiscal year 2014 were more than 12  times larger than the top three discretionary account balances.

section_title: Unobligated Balances by Budget Function
paragraphs: Each budget account appears in 1 of the 19 budget functions that best  reflects its major purpose or important national need. These functions  include income security, national defense, and transportation. Accounts  under a particular budget function may support programs and activities at  multiple agencies. For example, accounts that are categorized as within  the “national defense” budget function may support activities at multiple  agencies such as operations and maintenance at the Department of  Defense, infrastructure protection at the Department of Homeland  Security, and defense environmental cleanup at the Department of  Energy.

As shown in figure 13, the majority of unobligated balances were in  accounts classified under three budget functions: (1) commerce and  housing credit, (2) international affairs, and (3) national defense. These  three functions combined accounted for around 65 percent of unobligated  balances in all budget accounts from fiscal years 2012 through 2014. This  is consistent with data from fiscal years 2008 through 2011.

section_title: Unobligated Balances by the Top Eight Agencies
paragraphs: From fiscal years 2012 through 2014 and consistent with earlier years,  the majority of unobligated balances were in eight agencies: Departments  of Defense, Health and Human Services, Housing and Urban  Development, State, Transportation, and the Treasury, and the Office of  Personnel Management and the Federal Deposit Insurance Corporation  (see figure 14). These eight agencies had between 81 and 83 percent of  unobligated balances across all budget accounts from fiscal years 2012  through 2014—approximately the same percentages since 2008. From  2008 through 2014, the agencies combined together in the “all other”  category represented between 16 percent and 20 percent of all  unobligated balances.

section_title: Appendix IV: Comments from the Department of Energy

section_title: Appendix V: Comments from the Department of State

section_title: Appendix VI: Glossary of Budget Terms
paragraphs: Apportionment: The action by which the Office of Management and  Budget distributes amounts available for obligation, including budgetary  reserves established pursuant to law, in an appropriation or fund account.  An apportionment divides amounts available for obligation by specific  time periods (usually quarters), activities, projects, objects, or a  combination thereof. The amounts so apportioned limit the amount of  obligations that may be incurred. An apportionment may be further  subdivided by an agency into allotments, suballotments, and allocations.

Appropriation: Budget authority to incur obligations and to make  payments from the Treasury for specified purposes. An appropriation act  is the most common means of providing appropriations; however,  authorizing and other legislation itself may provide appropriations.

Availability: Budget authority that is available for incurring new  obligations.

Budget authority: Authority provided by federal law to enter into financial  obligations that will result in immediate or future outlays involving federal  government funds.

Budget function: The functional classification system is a way of  grouping budgetary resources so that all budget authority and outlays of  on-budget and off-budget federal entities and tax expenditures can be  presented according to the national needs being addressed. National  needs are grouped in 17 broad areas to provide a coherent and  comprehensive basis for analyzing and understanding the budget.

Discretionary spending: Budget authority that is provided in and  controlled by appropriation acts other than those that fund mandatory  programs.

Expenditure: The actual spending of money; an outlay.

Expired budget authority: Budget authority that is no longer available to  incur new obligations but is available for an additional 5 fiscal years for  disbursement of obligations properly incurred during the budget  authority’s period of availability. Unobligated balances of expired budget  authority remain available for 5 years to cover legitimate obligation  adjustments, or for obligations properly incurred during the budget  authority’s period of availability that the agency failed to record.

Obligated balance: The amount of obligations already incurred for which  payment has not yet been made.

Obligation: A definite commitment that creates a legal liability of the  government for the payment of goods and services ordered or received,  or a legal duty that could mature into a legal liability by virtue of actions on  the part of the other party beyond the control of the United States. For  example, an agency incurs an obligation when it places an order, signs a  contract, awards a grant, or purchases a service.

Mandatory (or direct) spending: Budget authority that is provided in  laws other than appropriation acts and the outlays that result from such  budget authority. Mandatory spending includes entitlement authority (for  example, the Food Stamp, Medicare, and veterans’ pension programs),  payment of interest on the public debt, and nonentitlements such as  payments to states from Forest Service receipts.

Multi-year funds: Budget authority available for a fixed period of time in  excess of 1 fiscal year. This authority generally takes the form of 2-year,  3-year, and so forth availability, but may cover periods that do not  coincide with the start or end of a fiscal year.

No-year funds: Budget authority that remains available for obligation for  an indefinite period of time.

Reappropriation: Legislation permitting an agency to obligate, whether  for the same or different purposes, all or part of the unobligated portion of  budget authority that has expired or would otherwise expire if not  reappropriated.

Reprogramming: Shifting funds within an appropriation or fund account  to use them for purposes other than those contemplated at the time of  appropriation; it is the shifting of funds from one object class to another  within an appropriation or from one program activity to another.

Rescission: Legislation enacted by Congress that cancels the availability  of budget authority previously enacted before the authority would  otherwise expire.

Spendout rate: The rate at which budget authority becomes outlays in a  fiscal year.

Transfer: Shifting of all or part of the budget authority in one  appropriation or fund account to another. Agencies may transfer budget  authority only as specifically authorized by law.

Unexpended balance: The sum of obligated and unobligated balances.

Unobligated balance: The portion of obligational authority that has not  yet been obligated. For an appropriation account that is available for a  fixed period, the budget authority expires after the period of availability  ends. However, its unobligated balance remains available for 5 additional  fiscal years for recording and adjusting obligations properly chargeable to  the appropriations period of availability. For example, an expired,  unobligated balance remains available until the account is closed to  record previously unrecorded obligations, or to make upward adjustments  in previously under recorded obligations (such as contract modifications  properly within scope of the original contract). At the end of the fifth fiscal  year, the account is closed and any remaining balance is canceled. For a  no-year account, the unobligated balance is carried forward indefinitely  until (1) specifically rescinded by law, or (2) the head of the agency  concerned (or the President) determines that the purposes for which the  appropriation was made have been carried out, and disbursements have  not been made from the appropriation for 2 consecutive years.

section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Susan J. Irving, (202) 512-6806 or irvings@gao.gov.

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Janice Latimer, Assistant  Director; Mary C. Diop; Steve Berke; and Shelby Kain made major  contributions to this report. Also contributing to this report were Shari  Brewster, Deirdre Duffy, John Mingus Jr., Robert Robinson, and Cynthia  Saunders. In addition, the following individuals provided programmatic  and subject matter expertise: Johana Ayers, Allison Bawden, Carol Henn,  Jon Ludwigson, Christine Kehr, Farahnaaz Khakoo, Thomas James,  Judith McCloskey, Leah Q. Nash, Shelby Oakley, Michelle Sager, Robert  Sanchez, Roger Stoltz, and Matthew Ullengren.


Question-summary annotations: questions: question: According to officials, what did agencies track?
answer: Officials reported that agencies tracked the year of appropriation for the five reviewed accounts that receive multi-year budget authority.
child_questions: question: Why is tracking the year of appropriation important?
answer: This action is important to help ensure that the agency obligates the authority in the order appropriated to maximize resources.

question: What did officials find when tracking these accounts?
answer: All five accounts had balances that expired during fiscal years 2012 through 2014; however, there can be various reasons for an agency to not obligate funds late in the fiscal year, and in some cases, special authority expands the use of certain budget authority.
child_questions: question: What is an example of such special authority?
answer: For example, for State's Diplomatic and Consular Programs (D&CP) and International Narcotics Control and Law Enforcement accounts, State has the authority to use expired funds beyond their initial period of availability for specific purposes and to extend the availability of certain funds.

questions: question: What need did officials identify as important for sustaining agency operations?
answer: Officials managing three of the eight reviewed accounts identified a need to retain unobligated balances to sustain agency operations and manage financial risk.
child_questions: question: How was this demonstrated by officials managing WAPA's CROM account?
answer: For example, officials responsible for managing Energy's Western Area Power Administration (WAPA) Construction, Rehabilitation, Operation and Maintenance (CROM) account said that two of the account's four use categories have a target to carryover equal to or up to 25 percent of funds against unexpected environmental factors that could introduce financial risk to their mission of marketing hydroelectric power. However, in fiscal year 2014, the balance for one category exceeded its target by approximately $40 million.
child_questions: question: What steps have WAPA officials taken to manage excess balances?
answer: WAPA officials reported that they have drafted a strategy to manage excess balances, but the strategy has not been fully implemented.

question: How was this demonstrated by officials managing State's D&CP account?
answer: Similarly, in fiscal year 2014, within State's D&CP account, officials reported exceeding the target to carryover about 25 percent of projected program expenditures for the next year to manage complex global visa and passport operations for the Consular and Border Security Programs (CBSP) by approximately $440 million.
child_questions: question: What steps have D&CP officials taken to manage excess balances?
answer: State officials said that they have developed a draft strategy for reducing excess unobligated balances. Officials said that they plan to finalize the strategy by June 2016. In the meantime, they reported taking steps to reduce unobligated balances for CBSP. These steps include decreasing fees or delaying fee increases when unobligated balances were adequate to cover costs.

questions: question: What did the 2013 sequestration and government shutdown highlight?
answer: Both the 2013 sequestration and government shutdown highlighted the importance of actively managing public funds.
child_questions: question: Why is effective management of balances important?
answer: Effective management of unobligated balances that are carried over for use in the next fiscal year presents agencies with an opportunity to better respond to unexpected events in the future. GAO was asked to review how balances have changed since 2012.

question: What does this report evaluate?
answer: This report evaluates how selected agencies managed and used unobligated balances in reviewed accounts, focusing on fiscal years 2012 through 2014, which covers the 2013 sequestration and shutdown.