Budget and obligational authority on a case

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1. What budget authority is

A signed Letter of Offer and Acceptance (LOA) commits a buyer, but on its own it lets no one spend. Chapter 2 of Volume 15 of the Financial Management Regulation explains how an accepted case becomes authority to obligate money (FMR Vol. 15, Ch. 2, para. 1.1). It covers budget authority (BA) in the Foreign Military Sales Trust Fund, including obligational authority (OA) for implemented cases.

The regulation defines budget authority as the legal financial authority, provided by law, that lets government agencies spend federal funds (FMR Vol. 15, Ch. 2, para. 3.1.1). It allows the Department to enter into obligations that result in immediate or future outlays. For security cooperation, exercising it begins when the LOA is implemented. Before that, the implementing agency (IA) prepares up to five forms or their automated equivalents: the LOA, modifications, amendments, the DD 2060 and the DD 2061 planning directive.

2. Implementation comes first

The order of events is fixed. "The implementation of the LOA will occur only after the purchaser has forwarded a signed copy to the IA, with any required initial deposit received by DFAS" (FMR Vol. 15, Ch. 2, para. 3.1.2). DFAS is the Defense Finance and Accounting Service. Once the case is implemented, the IA records obligational authority in its accounting system of record.

Requests for budget authority are capped in one of two ways (FMR Vol. 15, Ch. 2, para. 3.1.3). They are limited to the total case value of approved LOAs, amendments and processed modifications, or to the amount expected to be obligated in the current fiscal year. At the end of each fiscal year DFAS reduces unused budget or obligational authority, and reversal entries after the closing restore the values for the new year (FMR Vol. 15, Ch. 2, para. 3.1.4).

Not every line hands authority to an implementing agency (FMR Vol. 15, Ch. 2, para. 3.1.5). Case lines other than contingency lines and small case management lines have their budget authority distributed to IAs. Authority for the charges below the line, the administrative surcharge and the packing, crating, handling and transportation charge, is not distributed.

3. The documents that carry it

The LOA is the basic source document for a case, but it does not itself create budget authority in the trust fund or in any Defense Department account (FMR Vol. 15, Ch. 2, para. 3.2.1). It is required in order to establish that authority. An amendment obtains the purchaser’s acceptance of a change in scope, and a modification notifies within-scope cost changes or other minor changes (FMR Vol. 15, Ch. 2, para. 3.2.2 and FMR Vol. 15, Ch. 2, para. 3.2.3). Both can provide the basis to change trust fund budget authority. The difference between the two instruments is covered in amendments and modifications.

The planning directive, the DD 2061, is a working paper kept by the installation that prepares the LOA data (FMR Vol. 15, Ch. 2, para. 3.2.4). It serves three purposes. It identifies the cost elements in the LOA prices, which helps ensure the case is priced under the Department’s pricing policies. It gives a time-phased plan for executing the case, and it identifies the appropriations or funds that will finance the LOA.

The OA Request, the DD 2060, is prepared from the planning directive (FMR Vol. 15, Ch. 2, para. 3.2.5). Part A works at case line level and is the basis for line-level control of obligational authority. Part B identifies the appropriations or funds that finance those lines.

4. How the trust fund recognizes it

To establish obligational authority, purchasers must return all accepted LOAs, amendments and processed modifications to the implementing agency (FMR Vol. 15, Ch. 2, para. 3.3.1). The IA then submits an automated request through the Defense Integrated Financial System (DIFS) and receives an automated acknowledgement once it is processed. Where the trust fund is cited directly, the OA Request acts as a control device (FMR Vol. 15, Ch. 2, para. 3.3.2). Commitments and obligations must be limited to the dollar value of the approved request.

Work done by a Defense Department component on reimbursement follows a different rule. "The approved OA Request is the reimbursable order" (FMR Vol. 15, Ch. 2, para. 3.4.1.1). The LOA, amendment or modification is not. The authority for each line within a case cannot be exceeded, and violations of that administrative limit are reported. The case management system does not track financial status while reimbursable work is under way (FMR Vol. 15, Ch. 2, para. 3.4.1.3). Logistics status reports serve that purpose instead, and they are not to be confused with financial status reports.

Where orders are subject to apportionment, obligations may not exceed the apportioned amounts (FMR Vol. 15, Ch. 2, para. 3.4.2.1). Orders above the apportionment are not available for obligation until a reapportionment is requested and received. An apportionment alone does not authorize obligations, since the actual purchaser orders must first be received and recorded (FMR Vol. 15, Ch. 2, para. 3.4.2.3).

5. Contract authority, and why appropriations cannot pay

The regulation defines contract authority as authority to incur obligations where liquidating them depends on a future act, such as receipt of an appropriation (FMR Vol. 15, Ch. 2, para. 3.5.1). Implemented sales documents, with the OA Request, create it. Funds appropriated by Congress for defense cannot be used to liquidate obligations arising from this contract authority, unless an appropriation act specifically allows it (FMR Vol. 15, Ch. 2, para. 3.5.2). Purchaser cash deposits liquidate those obligations instead.

6. The administrative budget and supply support cases

Budget authority for administrative expenses is built from actual collections, including the administrative surcharge (FMR Vol. 15, Ch. 2, para. 3.6). Prior allotments and a reserve for future expenses, called the Safety Level, are subtracted. The annual allotment should not exceed the limit in the annual State and foreign operations appropriations act, unless approved through the process the law requires.

Cooperative Logistics Supply Support Arrangements (CLSSAs) are handled in three financial parts (FMR Vol. 15, Ch. 2, para. 3.7). Part A of the first order funds on-hand stock in the United States, normally five months of demand, and its cash comes with the accepted LOA (FMR Vol. 15, Ch. 2, para. 3.7.1.1). Part B creates contract authority for pipeline resupply, normally 12 months of demand or the procurement lead time, whichever is greater (FMR Vol. 15, Ch. 2, para. 3.7.1.2). The second order is the consumption case, and it creates no budget authority for buying again until requisitions arrive and purchaser cash is deposited (FMR Vol. 15, Ch. 2, para. 3.7.2). The arrangement itself is explained in cooperative logistics supply support.

Key terms

Budget authority (BA)	Legal authority, provided by law, that lets an agency obligate and spend federal funds.
Obligational authority (OA)	The authority recorded for an implemented case, controlled line by line.
DD 2061	The planning directive: cost elements, a time-phased plan and the financing for a case.
DD 2060	The OA Request, which serves as the reimbursable order to a performing component.
Contract authority	Authority to obligate where payment depends on a future act, liquidated here by purchaser cash.
Safety Level	The reserve held back from administrative surcharge collections for future expenses.

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.

How Sentfore supports this

Once authority is in place, delivery depends on people, transport and support reaching the work. Sentfore works at the delivery end of defense programs in difficult environments, providing secure movement, protective security, facilities and life support. Requirements can be sent through the contact page.