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 over amounts that remain legally available for new obligations from one fiscal year to the next. Carryover balances are composed of two elements: (1) unobligated funds and (2) obligated funds for which payment has not yet been made. While attention is focused on the unobligated portion, looking at both elements provides a fuller reflection of what is happening in an account. It also provides insights into opportunities for potential budgetary savings. 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), which may provide multi-year or no-year funds. Under certain legal authorities, some discretionary accounts are funded entirely, or in part, through the collection of user fees, interagency transactions, or dedicated excise taxes. Specifically, the level of discretionary funding in an account is provided by, and controlled through, the annual appropriations process. In contrast, mandatory spending accounts, which include “entitlements,” receive budget authority through laws other than appropriations acts. Many mandatory programs receive budget authority for an unspecified amount made available as the result of previously enacted legislation, with no need for further legislative action. For example, Medicare, veterans’ pensions, Social Security, and federal crop insurance are mandatory programs. By statute, funding to these programs is driven by eligibility rules and benefit formulas, which means that funds are made available as needed to provide benefits to those who are eligible and wish to participate. Over the last several years, mandatory accounts have represented an increasing share of total unobligated balances across the federal government. Figure 1 shows how budget authority is provided and how authorized funds may accumulate, ultimately leading to a carryover balance. In any given year, the total budgetary resources available in an account consist of unobligated funds carried forward from previous years, if applicable, plus funds newly available for obligation in that fiscal year. Based on the level of total available budget authority in the account, agencies may then obligate funds throughout the fiscal year. An obligation is a definite commitment that creates a legal liability of the federal government for the payment of goods and services. For example, an agency incurs an obligation when it places an order, signs a contract, awards a grant or purchases a service. Payment may be made immediately or in the future. Only when funds are actually disbursed for payment—that is, the obligation is liquidated—does an obligation become an outlay. The total carryover balance in a given account consists of two parts: Obligated balance: the amount of funds which have been obligated but for which payment (outlay) has not yet been made; these funds are obligated but unliquidated. Unobligated balance: the amount of funds still legally available for obligation that have not yet been obligated. The two components represent different phases of budget execution and present different opportunities for budgetary savings. For a detailed glossary of budget terms, see appendix V. For our first objective, to identify key questions to consider when evaluating balances, we identified common themes and factors that generally contribute to fluctuations in carryover balances.the list of questions from our analysis of government-wide guidance on budget preparation, budget execution, and internal controls. In addition, we met with federal budget specialists, agency officials responsible for managing the eight accounts selected as part of our second objective, and staff within the Office of Management and Budget (OMB) to obtain their views on the use of these questions to guide the examination of carryover balances. All agreed that the questions were reasonable. Our We developed prior work on federal budgeting, user fees, budget triggers, and managing under continuing resolutions also informed the development of the key questions. Our second objective was to describe how answering these key questions provides information about why carryover balances were reported in selected accounts during fiscal years 2007 through 2012, and how agencies estimated and managed these balances. To do this, we selected a nongeneralizable sample of eight accounts with multi-year or no-year funds to use as case illustrations. To start our selection process, we collected and compared end-of-year actual unexpired unobligated balances plus obligated balances for which payment had not yet been made. We queried this data from OMB’s MAX database for all accounts in the federal budget for fiscal years 2007 through 2012. We found the data to be sufficiently reliable for the purpose of our report. We identified the 100 accounts with the largest average unobligated balance during fiscal years 2007 through 2012.eight accounts representing a variety of characteristics, including the size of the average unobligated balance, budget function, type of account, agency, and whether the account was composed of mandatory funds, discretionary funds, or a combination of both. We reviewed the selected agencies’ estimates as they were reported in the President’s Budget Appendices for fiscal years 2007 through 2012. Table 1 lists the selected accounts. For the purpose of this report, we did not seek to identify specific savings related to the selected accounts. To assist congressional and agency-level decision makers as well as other reviewers in their evaluation of agencies’ carryover balances, we identified four overarching key questions to consider: 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? Each of the four key questions leads to a set of second-tier, more specific questions that can help frame the analysis of carryover balances. Answering each of the four overarching questions and their second-tier questions provides insight into why a carryover balance exists, what size balance is appropriate, and what opportunities, if any, for savings exist. In addition, it may provide opportunities for enhanced oversight of agencies’ management of federal funds and identify areas where the federal government can improve and maximize its use of resources. These questions can be applied when evaluating carryover balances at either the account or program level. A single account may support a single program or multiple programs. Conversely, a single program may be supported by multiple accounts. Further, the balance in a single year may reflect events particular to that year and so present an incomplete or possibly misleading view of what is happening in a given account or program over time. Therefore, a longer view is preferable. Since the many accounts that make up the federal budget vary greatly and individual accounts have their own unique characteristics, we do not suggest that the following set of questions represents all the questions that could be considered when evaluating carryover balances. As congressional committees, managers, and other reviewers apply these evaluative questions, additional questions may arise. In some cases, however, a few of the questions may provide sufficient information to understand the nature of the balance. The following sections discuss the questions in more detail. In addition, all of the questions are presented as an evaluative guide in appendix II. Understanding the mission activities, goals, and programs the account supports provides information about whether a program needs to maintain a 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 carryover balances and what effect a reduction would have on the agency’s ability to carry out its mission. For example, an account established to provide stability in the financial or housing market needs a balance to ensure the agency has sufficient resources to respond quickly to adverse events. Similarly, we have previously reported on agency intragovernmental revolving funds for which a balance is needed to maintain price stability for customer agencies or to ensure that the providing agency has funding available to complete services or work being performed for customer agencies that cross fiscal years. Examples of specific questions to understand how the mission affects balances include What are the primary mission and goals the account or program is intended to achieve? What is the nature and purpose of the balance and how does it support the mission and goals (e.g., counter economic crisis, sustain business-like activities, emergency funding needs)? Have there been changes to the program or mission that may affect balances (e.g., additional responsibilities, major reorganization)? What type of activity (e.g., grants, procurement, direct services) is the account used for to achieve the agency’s mission and goals? What are the implications of carryover balances? What programs are funded by the account and how much does each contribute, if at all, to the carryover balance (i.e., does a large portion of the balance result from any particular programs)? Is it a new account or program or have the program goals and objectives changed? How has this affected the agency’s ability to obligate funds? The sources and fiscal characteristics of the funding influence what opportunities may exist for budgetary savings. Discretionary and mandatory funds present different issues in changing the size of any balance. Since discretionary accounts are controlled by the annual appropriations process, the size of any carryover balance can also be controlled through that process. Mandatory funding is budget authority provided in laws other than appropriations acts, such as authorizing acts. In such cases, to change or reduce the size of carryover balances, changes need to be made to authorizing language affecting program or eligibility requirements, for example. Moreover, since mandatory funds are often provided in “such sums as may be necessary” to make payments to those eligible, reducing the balance in such an account may have no practical or economic benefit and instead could impose unnecessary administrative costs. In other words, the action or effort to rescind a portion of mandatory balances would be countered by the action or effort to restore those funds because individuals are entitled to payments.