Accounting for administrative funds

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1. The money that runs the program

Budget authority for Foreign Military Sales administrative expenses is built from actual collections for those expenses, including the administrative surcharge (FMR Vol. 15, Ch. 2, para. 3.6). Chapter 3 of Volume 15 of the Financial Management Regulation sets how those funds are allotted, reported and closed out. The same rules cover the budget of the security cooperation organizations (SCOs) (FMR Vol. 15, Ch. 3, para. 6.2). How the budget itself is requested is covered in how the administrative budget is built.

2. One allotment per component

After reviewing the budget requests sent in answer to its budget call, the Defense Security Cooperation Agency (DSCA) approves a single budget amount for each Defense Department component (FMR Vol. 15, Ch. 3, para. 6.1.2). It then issues an allotment that funds the approved budget. The recipient reports actual administrative uses on a Status-of-Allotment report, and allotments must be fully funded to cover obligations.

Administrative expenses are priced under the pricing chapter and charged directly to that allotment (FMR Vol. 15, Ch. 3, para. 6.1.1). Two limits follow. Administrative expenses may not be incurred above the allotment. Components are also not authorized to obligate their own appropriated operating accounts to finance administrative budgets. Each Status-of-Allotment report is supported by subsidiary reports from the executing organizations (FMR Vol. 15, Ch. 3, para. 6.1.3).

3. Six fiscal years at once

Administrative money keeps its fiscal year identity. The monthly reports show allotment authority, obligations and disbursements for the current fiscal year and the five years before it (FMR Vol. 15, Ch. 3, para. 6.2.1). Accounts stay open to liquidate and adjust valid obligations until the end of the canceled year, which the regulation describes as five expired years and one canceling year. Every fund holder must keep the fiscal year identity of its obligations, disbursements and authority for those six years (FMR Vol. 15, Ch. 3, para. 6.2.2).

The regulation gives a worked example with fiscal year 2024 as the current year (FMR Vol. 15, Ch. 3, para. 6.2.3). Fiscal years 2019 to 2023 are expired years. At the end of fiscal year 2024, after the year-end closeout, all unliquidated obligations are canceled and the amounts are withdrawn effective September 30, 2024 (FMR Vol. 15, Ch. 3, para. 6.3). Fiscal year 2019 then cancels on October 1, 2024, the day fiscal year 2025 begins.

4. Changes to old obligations

The treatment of an increase to an old obligation depends on its cause. DSCA will not raise a prior year’s authority to record an increase caused by an out-of-scope change (FMR Vol. 15, Ch. 3, para. 6.3.1). Such a change is a new obligation, funded from current year authority. An increase caused by a within-scope change under the contract is usually charged to the year of the original obligation. Valid increases that belong to a canceled year are charged to the current year.

Fund holders review and validate their unliquidated obligations for the current year and the five before it every month (FMR Vol. 15, Ch. 3, para. 6.3.2). Obligations that are no longer valid are deobligated and the funds returned to DSCA for withdrawal. Additional funding for a valid within-scope increase may be requested from DSCA. The request gives the original obligation amount, the additional authority needed, the reason with any calculations, supporting documents and a point of contact.

One practice is barred outright. "Deobligation of prior year funds, and the subsequent reobligation of these same funds in the current or one of the five preceding FYs, is not authorized" (FMR Vol. 15, Ch. 3, para. 6.3.3). Expired funds may be used only for within-scope adjustments until they cancel.

5. Closing the fifth year

Administrative and SCO accounts remain available to liquidate valid obligations until the end of their fifth expired year (FMR Vol. 15, Ch. 3, para. 6.4.1). No new obligations can be started for the current year after September 30 of that year. Each month, fund holders compare the departmental position shown on their Status-of-Allotment reports with their installation records (FMR Vol. 15, Ch. 3, para. 6.5.1). Where disbursements differ, the departmental records reconciled with Treasury cash set the withdrawal amount.

DSCA issues annual end-of-year closeout guidance to all holders of these funds (FMR Vol. 15, Ch. 3, para. 6.5.2). When the fifth expired year is canceled, allotment authority is cut on September 30 to equal the reconciled disbursements (FMR Vol. 15, Ch. 3, para. 6.5.3). Before closeout of the canceling year, the fund holder makes sure obligations and disbursements are equal and that no further disbursements are processed (FMR Vol. 15, Ch. 3, para. 6.5.4). Fund holders tell DSCA in writing when budget authority can be reduced. DSCA then issues an allocation document withdrawing the unobligated authority, citing that correspondence (FMR Vol. 15, Ch. 3, para. 6.5.5).

6. After an account cancels

The Defense Finance and Accounting Service (DFAS) adjusts expenditure authority to match the DSCA allocations for the expired and canceling years (FMR Vol. 15, Ch. 3, para. 6.6.1). Unobligated balances are treated as expired and cannot support new obligations. At each year end DFAS updates the canceling year’s obligated and disbursed balances and keeps the supporting documents (FMR Vol. 15, Ch. 3, para. 6.6.2).

A canceled account is no longer available for obligation (FMR Vol. 15, Ch. 3, para. 6.6.3). If a valid obligation from a canceled year must later be paid, it is charged to and paid from the current year account. DFAS keeps memorandum records of canceled obligations so they can be recognized as valid when they are finally disbursed. A separate rule applies to capacity building transportation accounts (FMR Vol. 15, Ch. 3, para. 6.6.4). Once every Building Partner Capacity case tied to the account is closed, the unliquidated balances go to Treasury miscellaneous receipts, account 11X3230.

Key terms

Allotment	The funding DSCA issues to each component for its approved administrative budget.
Status-of-Allotment report	The monthly report of administrative authority, obligations and disbursements by fiscal year.
Fiscal year identity	The rule that obligations and disbursements stay tied to the year of the authority used.
Unliquidated obligation	An obligation recorded but not yet paid, reviewed every month by fund holders.
Memorandum record	An offline record of a canceled but valid obligation, used when it is later paid.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

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