ES, IG-99-059, Matching Disbursements to Obligations

MATCHING DISBURSEMENTS TO OBLIGATIONS
IG-99-059

Executive Summary

Background
To comply with fiscal law, NASA is responsible for ensuring that its appropriated funds are used for the purposes authorized by the Congress. This requirement necessitates implementation of sound management controls over obligations⁽¹⁾ and disbursements⁽²⁾ in order to maintain appropriation integrity. Obligations are established within the accounting system to control NASA's appropriated funds. Disbursements should be properly matched to, and recorded against, the applicable obligations to ensure that only authorized funds are disbursed and that contractor payments are accurately recorded in the financial statements. A disbursement is properly matched to an obligation if the obligation cites the correct appropriation and program year⁽³⁾ authorized to make the payment. Properly matching disbursements to obligations is particularly important in procurement actions involving multiple appropriations or multiple program years. NASA costs its obligations by recording contractor-incurred cost information against obligations in order to estimate accrued expenditures and associated liabilities.

Objective
The objective of the audit was to determine whether NASA organizational components were properly matching disbursements to the appropriate obligations. To accomplish this, we reviewed a total of 36 contract disbursements at NASA Headquarters and three Centers that involved multiple appropriations or multiple program years. Details on our scope and methodology are in Appendix A.

Results of Audit
NASA management has not ensured that authorized funds have been used for their intended purposes. Of the 36 reviewed disbursements totaling about $44.8 million, about $44.7 million may have been charged to the incorrect appropriation, which may have resulted in violations of fiscal law.

Recommendations
The Agency should revise NASA policy to establish procedures that enable financial management activities to properly match disbursements to obligations in the correct appropriation and program year.

Management's Response
Management did not concur with the recommendations. Management stated that the finding and recommendations were without legal or practical foundation or merit. NASA management, supported by a legal opinion from the NASA General Counsel, stated that its disbursing practices, including making disbursements against the oldest costed obligations for contracts funded with multiple appropriations, is an accepted method of charging appropriations and that the cost accrual process ensures disbursements are properly matched to obligations.

Evaluation of Management's Response
Management's comments are nonresponsive. We disagree that fiscal statutes permit the charging of the oldest obligations first on contracts funded with multiple appropriations. The Comptroller General stated in 17 Comp. Gen. 748 (1938) that an incorrect appropriation cannot be charged for administrative expediency. Doing so would violate the provisions of Title 31, United States Code Section 1301(a), which requires that appropriations be applied only to the objects for which the appropriations were authorized. We continue to hold that this decision is applicable to the NASA situation. Disbursements should be made only from appropriations available to pay for the work performed. Matching disbursements to underlying obligations ensures the correct appropriations are charged. We further disagree that NASA's costing process results in disbursements being matched to the correct obligations. Matching is a sound accounting practice and a key part of an effective internal control structure. We maintain our position on this issue and, therefore, request that management reconsider its position based on our evaluation and provide additional comments.

FOOTNOTES

1. Obligations are the amount of orders placed or contracts awarded that will require the disbursement of funds and represent a contractual agreement of NASA to pay for the items or services when they are received.

2. A disbursement is an outlay of public moneys and the rendering of accounts in accordance with laws and regulations governing the distribution of public moneys.

3. The program year is the fiscalyear in which a program is authorized.

Background	To comply with fiscal law, NASA is responsible for ensuring that its appropriated funds are used for the purposes authorized by the Congress. This requirement necessitates implementation of sound management controls over obligations⁽¹⁾ and disbursements⁽²⁾ in order to maintain appropriation integrity. Obligations are established within the accounting system to control NASA's appropriated funds. Disbursements should be properly matched to, and recorded against, the applicable obligations to ensure that only authorized funds are disbursed and that contractor payments are accurately recorded in the financial statements. A disbursement is properly matched to an obligation if the obligation cites the correct appropriation and program year⁽³⁾ authorized to make the payment. Properly matching disbursements to obligations is particularly important in procurement actions involving multiple appropriations or multiple program years. NASA costs its obligations by recording contractor-incurred cost information against obligations in order to estimate accrued expenditures and associated liabilities.
Objective	The objective of the audit was to determine whether NASA organizational components were properly matching disbursements to the appropriate obligations. To accomplish this, we reviewed a total of 36 contract disbursements at NASA Headquarters and three Centers that involved multiple appropriations or multiple program years. Details on our scope and methodology are in Appendix A.
Results of Audit	NASA management has not ensured that authorized funds have been used for their intended purposes. Of the 36 reviewed disbursements totaling about $44.8 million, about $44.7 million may have been charged to the incorrect appropriation, which may have resulted in violations of fiscal law.
Recommendations	The Agency should revise NASA policy to establish procedures that enable financial management activities to properly match disbursements to obligations in the correct appropriation and program year.
Management's Response	Management did not concur with the recommendations. Management stated that the finding and recommendations were without legal or practical foundation or merit. NASA management, supported by a legal opinion from the NASA General Counsel, stated that its disbursing practices, including making disbursements against the oldest costed obligations for contracts funded with multiple appropriations, is an accepted method of charging appropriations and that the cost accrual process ensures disbursements are properly matched to obligations.
Evaluation of Management's Response	Management's comments are nonresponsive. We disagree that fiscal statutes permit the charging of the oldest obligations first on contracts funded with multiple appropriations. The Comptroller General stated in 17 Comp. Gen. 748 (1938) that an incorrect appropriation cannot be charged for administrative expediency. Doing so would violate the provisions of Title 31, United States Code Section 1301(a), which requires that appropriations be applied only to the objects for which the appropriations were authorized. We continue to hold that this decision is applicable to the NASA situation. Disbursements should be made only from appropriations available to pay for the work performed. Matching disbursements to underlying obligations ensures the correct appropriations are charged. We further disagree that NASA's costing process results in disbursements being matched to the correct obligations. Matching is a sound accounting practice and a key part of an effective internal control structure. We maintain our position on this issue and, therefore, request that management reconsider its position based on our evaluation and provide additional comments.