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. 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). 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. 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.