TITLE: B-308762, Department of Homeland Security's Use of Shared Services within the Preparedness Directorate, September 17, 2007
BNUMBER: B-308762
DATE: September 17, 2007
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B-308762, Department of Homeland Security's Use of Shared Services within the Preparedness Directorate, September 17, 2007

   B-308762

   September 17, 2007

   The Honorable Robert C. Byrd
   Chairman
   The Honorable Thad Cochran
   Ranking Minority Member
   Committee on Appropriations
   United States Senate

   The Honorable David R. Obey
   Chairman
   The Honorable Jerry Lewis
   Ranking Minority Member
   Committee on Appropriations
   House of Representatives

   Subject: Department of Homeland Security's Use of Shared Services within
   the Preparedness Directorate

   This letter is in response to the conference report accompanying the
   Department of Homeland Security Appropriations Act for fiscal year 2007,
   Pub. L. No. 109-295, 120 Stat. 1355 (Oct. 4, 2006), directing the
   Government Accountability Office (GAO) to review the Department of
   Homeland Security's use of shared services within the Preparedness
   Directorate and its compliance with appropriations law and the proper use
   of the Economy Act. H.R. Rep. No. 109-699, at 150 (2006).

   Our practice when rendering legal opinions is to obtain the views of the
   relevant federal agency to establish a factual record and to elicit the
   agency's legal position in the matter.[1] In this case, we wrote to the
   Acting General Counsel of the Department of Homeland Security (DHS) to
   solicit the Department's views. Letter from Susan A. Poling, Managing
   Associate General Counsel, GAO, to Gus P. Coldebella, Acting General
   Counsel, DHS, Mar. 20, 2007. The DHS Office of General Counsel responded
   to our letter. Letter from Michael D. Russell, Deputy Associate General
   Counsel for General Law and Appropriations Counsel, DHS, to Susan A.
   Poling, Managing Associate General Counsel, GAO, May 22, 2007 (DHS Counsel
   Letter). We also submitted questions directly to Preparedness Directorate
   officials and met with Preparedness Directorate and other DHS officials to
   obtain factual information about the Preparedness Directorate's use of
   shared services.

   As discussed below, the Preparedness Directorate developed a complex
   system whereby it pooled its appropriations to fund what it refers to as
   "shared services." Pooling funds across appropriations is a form of
   transfer, and, unless otherwise authorized by law, transfers of funds
   between agency appropriation accounts are prohibited by law. 31 U.S.C.
   sect. 1532. As explained below, the Preparedness Directorate had
   authority, pursuant either to the Economy Act or to 31 U.S.C. sect. 1534,
   referred to as the "account adjustment" statute, to pool appropriations to
   fund shared services. The directorate, however, did not enter into valid
   Economy Act agreements and thus could not rely on the Economy Act to
   justify the shared services transactions. In addition, it appears that the
   directorate did not properly record allocated charges against each of the
   benefiting appropriations, as required by the account adjustment statute.
   DHS should adjust the expired fiscal year 2006 directorate appropriations
   so that each benefiting appropriation is charged for the value received.
   If any of the appropriations that funded the directorate do not have
   available unobligated balances to cover the adjustments, the directorate
   should report an Antideficiency Act violation. 31 U.S.C. sect. 1351.

   BACKGROUND

   The Homeland Security Act of 2002, Pub. L. No. 107-296, 116 Stat. 2135
   (Nov. 25, 2002), which created the Department of Homeland Security,
   brought together 22 federal agencies within a single department. The Act
   placed the 22 agencies in one of four major directorates: (1) Information
   Analysis and Infrastructure Protection (IAIP), (2) Science and Technology,
   (3) Border and Transportation Security, and (4) Emergency Preparedness and
   Response. During fiscal year 2005, DHS reviewed its policies, operations,
   and organizational structure in a process it called the "Second Stage
   Review." The Secretary of Homeland Secretary has the authority to
   establish, consolidate, alter, or discontinue organizational units within
   the department but must first submit a reorganization plan, or provide
   notice and an explanation of the rationale for the reorganization, to the
   appropriate congressional committees. Pub. L. No. 107-296, sect. 872.

   In July 2005, the Secretary transmitted an organization restructuring plan
   to Congress. Because the President had already submitted his budget
   request for fiscal year 2006, the Administration submitted a revised
   fiscal year 2006 budget request amendment supporting the plan.
   Communication from the President of the United States, Request for FY 2006
   Budget Amendments for the Department of Homeland Security, H.R. Doc.
   109-50 (2005). In fiscal year 2006, DHS abolished IAIP and moved the
   programs within the IAIP Evaluation and Assessment appropriation into a
   new component--the Preparedness Directorate. DHS also transferred the DHS
   Grants and Training Program into this new directorate.[2] DHS established
   the Preparedness Directorate to consolidate and unify preparedness
   activities throughout DHS. Preparedness efforts included preparing for
   natural disasters as well as chemical, nuclear, biological, and
   radiological disasters and explosive attacks or accidents.

   While DHS had intended to consolidate preparedness activities, DHS
   officials stated that it was difficult to integrate the various components
   of the directorate, which continued to be funded through separate
   appropriations. GAO Meeting with DHS Officials, Dec. 7, 2006 (December
   Meeting). In fiscal year 2006, the Preparedness Directorate was financed
   by eight separate appropriations: (1) Management and Administration (M&A),
   (2) Salaries and Expenses for the Office of Domestic Preparedness,[3] (3)
   State and Local Programs, (4) Firefighter Assistance Grants, (5) Emergency
   Management Performance Grants, (6) Radiological Emergency Preparedness
   Program (REPP),[4] (7) U.S. Fire Administration and Training (USFA), and
   (8) Infrastructure Protection and Information Security (IPIS).

   In addition, the DHS congressional budget justification for fiscal year
   2006, submitted prior to the completion of the Second Stage Review
   reorganization plan, was based on the structure of the department prior to
   its reorganization. While the Administration submitted an amended budget
   request, DHS officials stated that the funds the Congress appropriated to
   the directorate's M&A appropriation did not meet the directorate's actual
   post-Second Stage Review budget needs. December Meeting. Preparedness
   Directorate officials stated, for example, that the new directorate did
   not have adequate funds in its M&A appropriation to cover its salaries,
   Working Capital Fund charges, and other administrative expenses. Id. When
   preparing its budget request for fiscal year 2007, the Preparedness
   Directorate calculated that for fiscal year 2007 it would need $55,465,000
   more appropriated to its M&A appropriation than it received in fiscal year
   2006 in order to be able to fund all of the directorate-wide management
   and administration requirements. Preparedness Directorate, Briefing for
   Appropriations Staff (Sept. 6, 2006) (Directorate Briefing), attachment 6.

   In fiscal year 2006, Congress provided the directorate with management and
   administration  funds in two separate appropriations: the M&A and IPIS
   appropriations. It appropriated $16,079,000 to the directorate's M&A
   appropriation for management and administration of the Preparedness
   Directorate. Pub. L. No. 109-90, 119 Stat. 2064, 2075 (Oct. 18, 2005). The
   conference report accompanying the DHS fiscal year 2006 appropriation
   directed the Preparedness Directorate to use $13,187,000 of this for the
   Office of the Under Secretary for Preparedness, which provided management,
   administrative, and business operations support to all of the components
   within the directorate. H.R. Rep. No. 109-241, at 63 (2005). The conferees
   also directed the Preparedness Directorate to use $83,342,000 of the IPIS
   appropriation (which totaled $625,499,000) for management and
   administration of IPIS programs and activities. H.R. Rep. No. 109-241, at
   70.

   DHS and Preparedness Directorate officials stated that because the
   directorate did not have adequate management and administrative funds in
   the M&A appropriation to cover its directorate-wide requirements, the
   directorate "pooled" Programs, Projects, and Activities (PPA)[5] from
   different appropriations throughout the directorate to fund contracts and
   interagency agreements for services that were common across the
   directorate. December Meeting. These crosscutting services included human
   capital management, budget justification preparation, budget execution,
   program review and analysis, guard services, facilities management,
   systems maintenance and development, security certification and
   accreditation, system re-engineering, and rental cost of directorate
   facilities.[6] Preparedness Directorate, Answers to Appropriations
   Committee Staff, Questions on DHS Preparedness Shared Services Costs
   (Sept. 14, 2006) (Directorate Answers to Committee).

   While the Preparedness Directorate obtained most of its crosscutting
   services by directly contracting for these services, it also used the DHS
   Working Capital Fund (WCF) for this purpose. The DHS WCF is available to
   DHS "for expenses and equipment necessary for maintenance and operations
   of such administrative services as the Secretary of Homeland Security
   determines may be performed more advantageously as central services." Pub.
   L. No. 108-90, sect. 506, 117 Stat. 1137, 1153 (Oct. 1, 2003); DHS Office
   of the Chief Financial Officer, Directorate for Management, DHS WCF
   Charter (Dec. 1, 2003).

   A directorate official stated that the directorate contracted directly for
   certain crosscutting services instead of using the WCF because the WCF was
   unable to meet the specific internal needs and requirements of the
   directorate. GAO Meeting with Director of Administration, Business
   Operations, Preparedness Directorate, DHS, Feb. 21, 2007. For example, the
   Preparedness Directorate's local area network (LAN) had its own
   architectural requirements that differed from the DHS LAN. Id. A
   directorate official also stated that because Congress directs DHS to
   report on its proposed use of the WCF in the department's budget
   justification up to 18 months prior to the year in which the funds will be
   used, it was difficult for the directorate to plan for all of its WCF
   needs months in advance.[7] Id.

   This opinion only addresses the contracts and interagency agreements for
   crosscutting services that the Preparedness Directorate entered into
   directly. We also note that information we obtained based on our review of
   relevant documents and discussions with agency officials was not always
   consistent. Despite numerous efforts, we were unable to reconcile all the
   inconsistencies.[8] The Preparedness Directorate no longer exists.

   Shared Services

   The Preparedness Directorate Office of the Under Secretary (OUS), which
   was funded by the M&A appropriation, provided leadership, management,
   information technology, and business operations support to all components
   within the directorate. DHS, Fiscal Year 2007 Congressional Budget
   Justification, Preparedness Directorate, OUS, at 1; Preparedness
   Directorate Response to GAO Questions, Feb. 9, 2007 (Directorate Response
   to GAO). The directorate provided some of this support through government
   employees; however, it provided most of this support through
   contractors.[9] DHS Response to Questions from GAO, Feb. 2, 2007 (DHS
   Response to GAO).

   According to directorate officials, in order to fund all of its management
   and administrative requirements, the Preparedness Directorate pooled PPAs
   from various appropriations throughout the directorate to fund contracts
   and interagency agreements for crosscutting services for its components.
   December Meeting. DHS Counsel explained that "in order for Preparedness to
   fulfill its missions, it was required to leverage the funds of the PPAs
   together in order to provide required services. Only by sharing the
   services, and sharing the costs of the services, was Preparedness able to
   fund the services." DHS Counsel Letter. The directorate also used the
   pooled funds to pay for certain management and administrative support that
   OUS federal employees provided directly to the directorate. Directorate
   Answers to Committee.

   The Preparedness Directorate referred to the charges for crosscutting
   services as "Program Administration Costs" in a briefing it provided to
   Appropriations Committee staff. Directorate Briefing, attachment 3.
   However, DHS personnel generally refer to these allocated costs as "shared
   services assessments." See Memorandum from Michael D. Russell,
   Appropriations Counsel and Acting Associate General Counsel for General
   Law, DHS, to Sharon Hardie, Chief of Staff, Preparedness Directorate,
   Taxes, Fees, and Administrative Costs, Aug. 23, 2006 (Russell Memorandum).

   The Preparedness Directorate provided detailed information to
   Appropriations Committee staff on how it used the shared services
   assessments. Directorate Answers to Committee. The directorate, through
   OUS, used most of the shared services assessments to provide support to
   the IPIS appropriation, but at the same time that it provided support to
   IPIS, it also provided support efforts across the directorate. For
   example, the directorate used $18,529,380 to provide contractor services
   to support the directorate's Chief Information Officer (CIO) operations:
   75 percent of the CIO's operations supported IPIS, while 25 percent
   supported other directorate appropriations. Id. In addition, the
   directorate used $12,842,445 for contract administrative support and
   procurement of basic information technology equipment and furniture
   necessary to occupy directorate facilities: 85 percent of these facilities
   build-out requirements were in support of IPIS, while 15 percent supported
   other directorate appropriations. The directorate also used $3,303,877 to
   fund general operations of OUS in management support of directorate
   programs: 75 percent of this effort supported IPIS, while 25 percent
   supported other directorate appropriations. Id.

   The directorate, however, did not provide Appropriations Committee staff
   with the associated costs charged against all of the appropriations. Id.
   The directorate instead provided Appropriations Committee staff material
   stating that the directorate obligated all of the shared services
   assessments--$59,199,000--against PPAs in the IPIS appropriation. [10]
   Directorate Briefing, attachment 3.

   In response to our questions, directorate officials stated that the
   directorate allocated the shared services costs to the benefiting PPAs
   within the directorate appropriations using the same methodology used by
   the DHS WCF to allocate the WCF costs to the various DHS components.
   Directorate Response to GAO. Directorate officials also stated that six
   directorate appropriations received benefits from the program assessments,
   and that only two PPAs that received benefits were not charged a shared
   services assessment fee.[11] Id. The requirements of these two PPAs "were
   so diminutive, that they did not warrant the expense of capturing the
   costs." Id.

   In contrast, the Head of Finance of the Preparedness Directorate Finance
   Branch stated to us that only PPAs in the IPIS and M&A appropriations were
   assessed a shared services fee. GAO Meeting with Head of Finance Branch,
   Preparedness Directorate, Feb. 28, 2007 (Finance Branch Meeting). He
   stated that other directorate appropriations may have minimally benefited
   from the contract services but they were not assessed a shared services
   fee. Id. As stated above, however, directorate officials provided
   information to us and to Appropriations Committee staff indicating that
   the directorate provided measurable and more than nominal benefits to the
   other directorate appropriations. Directorate Response to GAO; Directorate
   Answers to Committee.

   The Head of Finance explained that the Preparedness Directorate financed
   the contracts for shared services by directly committing funds from only
   two appropriations, the directorate's IPIS and M&A appropriations, using
   multiple lines of accounting from each contract to the various PPAs within
   the IPIS and M&A appropriations. (Finance Branch Meeting). For example,
   one line of accounting from a contract might identify, among other things,
   an appropriation, a PPA, a funding organization code, and a budget project
   code. Preparedness Directorate, Account Classification Code Structure,
   Fiscal Year 2006 Quick Reference Card (as of March 6, 2006). A second line
   of accounting from the same contract might identify the same
   appropriation, but a different PPA than that identified above. Id.

   The Head of Finance explained that as part of the Second Stage Review DHS
   consolidated three separate accounting systems to support the new
   Preparedness Directorate: (1) the Federal Financial Management System
   (FFMS), which supported the IPIS and M&A appropriations, (2) the Justice
   Department Accounting System, which supported the State and Local
   Programs, and Firefighter Assistance Grants, and (3) FEMA's accounting
   system, which supported the USFA, Chemical Stockpile Emergency
   Preparedness Program and REPP appropriations. Finance Branch Meeting. The
   appropriations covered by Justice's and FEMA's accounting systems were not
   completely incorporated into the Preparedness Directorate in fiscal year
   2006, and the Finance Branch had access only to FFMS and the IPIS and M&A
   appropriations. Id. Accordingly, the Finance Office allocated and
   obligated the shared services only against PPAs within the IPIS and M&A
   appropriations. Id.

   DHS officials stated that the Preparedness Directorate stopped using this
   method of sharing services in response to the language in the conference
   report directing GAO to examine the Preparedness Directorate's use of
   shared services. December Meeting.

   DISCUSSION

   While the facts involved are complex, convoluted, and sometimes
   inconsistent, the legal principles are clear. Preparedness Directorate
   officials stated that the directorate pooled funds from programs within
   its various appropriations to fund crosscutting services benefiting the
   directorate as a whole. This sharing of funds across appropriation
   accounts, in effect, constitutes a transfer between appropriations. 70
   Comp. Gen. 592 (1991). In general, unless authorized by law, transfers of
   funds between agency appropriation accounts are prohibited by law.
   31 U.S.C. sect. 1532. We have previously considered joint financing
   arrangements in which an agency drew on multiple appropriations of a
   department or agency component to support projects benefiting a department
   or agency component as a whole. See, e.g., 70 Comp. Gen. 592 (Department
   of Labor purchased equipment for an Executive Computer Network in order to
   facilitate communication between the Secretary and the Department's
   Executive Staff and funded the purchase by initiating obligations against
   appropriation accounts of Labor Department's various agencies); 60 Comp.
   Gen. 686 (1981) (Treasury Department charged various bureaus and offices
   within the department to implement the legal division's executive
   development program on an agencywide basis); B-195775, Sept. 10, 1979 (to
   implement a merit pay system on an agencywide basis, the Office of
   Personnel Management used funds set aside by agency heads in a common
   fund). Those decisions recognized that such "pooling" arrangements, as
   they were referred to, required statutory authority to overcome the
   limitation on transfers between appropriation accounts.

   Transfer authority may be specific to an agency, or more generally
   available to the government as a whole. See, e.g., 70 Comp. Gen. 592.
   Congress has established some general transfer authority to promote
   economy and efficiency. For example, the Economy Act, 31 U.S.C. sect.
   1535, provides that if amounts are available and it is in the best
   interest of the government, an agency may place an order with another
   agency for goods or services that the other agency can provide, or can
   procure by contract, more conveniently or economically than through direct
   commercial acquisition by the ordering agency. 31 U.S.C. sect. 1535(1).
   The Economy Act also applies to transfers between appropriations within an
   agency. 70 Comp. Gen. 592.

   Another provision that authorizes agencies to pool resources between
   appropriations is 31 U.S.C. sect. 1534, the so-called "account adjustment
   statute." This statute was intended to facilitate "common service"
   activities. See generally S. Rep. No. 89-1284 (1966). An agency generally
   has the discretion to use either the Economy Act or the account adjustment
   statute to share resources across appropriations. 70 Comp. Gen. 592.

   The account adjustment statute allows an agency to temporarily charge one
   appropriation for an expenditure benefiting other appropriations within
   the same agency, as long as (1) amounts are available in both
   appropriations and (2) the accounts are adjusted to reimburse the
   appropriation initially charged during or as of the close of the same
   fiscal year. 31 U.S.C. sect. 1534. In addition, an agency must charge the
   benefiting appropriations an amount that is commensurate with the value
   received. 70 Comp. Gen. at 596.

   Working capital fund authorities also authorize agencies to pool resources
   across appropriations. Working capital funds are a type of revolving fund.
   GAO-05-734SP, at 101. Revolving funds are authorized to receive advances
   and reimbursements from other agencies' appropriation accounts and use
   these receipts to finance the operation of the revolving fund. Id. at 88.

   And, of course, an agency also may transfer funds using transfer authority
   specific to that agency. Congress has provided DHS with limited transfer
   authority in the DHS annual appropriations acts. See, e.g., Pub. L. No.
   109-90, sect. 503(c). DHS components have authority to transfer up to five
   percent of an appropriation to another DHS appropriation, but the transfer
   may not increase the receiving appropriation by more than ten percent. Id.
   This funding flexibility is limited by a strict statutory notification
   requirement for both reprogrammings and transfers.[12] For example,
   pursuant to section 503(c) of the DHS Appropriations Act for fiscal year
   2006, transferred funds were not available for obligation unless the
   Appropriations Committees were notified 15 days in advance of the
   transfer. [13] Id. These limitations do not apply to transfers DHS makes
   under a separate transfer authority, for example, the account adjustment
   statute or the Economy Act. See, e.g., B-239031, June 22, 1990 (advance
   notification requirements and percentage limits in section 103 of the
   Treasury, Postal Service, and General Government Appropriations Act for
   fiscal year 1990 applied only to transfer authority granted by section
   103).

   As explained above, the Preparedness Directorate chose not to use the DHS
   WCF to provide shared services across the directorate because the WCF was
   unable to meet the specific internal needs and requirements of the
   directorate. The DHS Counsel advised us that:

     "The administrative services that Preparedness obtained through
     contracts were not covered under the umbrella of DHS' Working Capital
     Fund. The services provided were for direct support of Preparedness
     programs. Moreover, the lead time required to utilize the DHS Working
     Capital Fund, particularly as it relates to adding new programs,
     precludes the use of the DHS Working Capital Fund as a traditional
     Working Capital Fund."

   DHS Counsel Letter.

   The directorate also did not use its own specific transfer authority to
   pool resources across the directorate, which would have required it to
   notify the Appropriations Committees prior to transferring funds. As
   explained above, transferred funds are not available for obligations
   unless a DHS component has notified the Appropriations Committees of the
   proposed transfer. See, e.g., Pub. L. No. 109-90, sect. 503(c).

   DHS relied instead on what it called Economy Act principles as authority
   to allocate the costs of the shared services across various appropriations
   in the directorate. DHS Counsel stated that the directorate carried out
   the shared services transactions pursuant to Economy Act principles; thus
   the amounts paid by the benefiting PPAs for services received were not
   assessments but payments for benefits received. See Russell Memorandum.

   Pursuant to an Economy Act agreement, one appropriation account orders
   goods or services from another appropriation account. 31 U.S.C. sect.
   1535(a)(1). The appropriation providing the services, the "performing"
   appropriation, can provide the goods or services directly, or it can
   procure the goods or service by contract, if it can do so more
   conveniently or economically than through direct commercial acquisition by
   the ordering agency. Id. If the performing appropriation fills the
   ordering appropriation's requirement through a contract, the performing
   appropriation may obligate the contract directly against the ordering
   agency's appropriation. B-301561, June 14, 2004. DHS Counsel stated that
   "There was no direct ordering entity and performing entity. However, the
   Preparedness Business Office, much like a performing entity provided the
   services. . . . By analogy [to the Economy Act], the [OUS] Business Office
   provided the services to the programs that provided the funding." DHS
   Counsel Letter. Accordingly, DHS treated the M&A appropriation as the
   performing appropriation and the appropriations receiving the services as
   the ordering appropriations.

   The Preparedness Directorate, however, did not actually enter into Economy
   Act agreements. DHS instead used what it called "de facto Economy Act"
   agreements as authority to carry out the shared services transactions.[14]
   DHS Counsel Letter; Russell Memorandum. DHS Counsel stated that the
   directorate pooled the resources of the various PPAs but was able to track
   on a pro rata basis the amounts contributed by the PPAs for the services
   received. Russell Memorandum. According to DHS, this resulted in the
   creation of "de facto Economy Act agreements." Id. In response to our
   questions regarding the meaning of the term de facto Economy Act
   agreement, DHS Counsel stated:

     "An official (de jure) Economy Act agreement is set forth in writing.
     The Preparedness Directorate did not reduce any of the shared services
     arrangements into official Economy Act agreements. Rather, the
     intra-directorate arrangements were based upon the principles of the
     Economy Act and care was taken to ensure that no PPA augmented any other
     PPA."

   DHS Counsel Letter.

   The use of Economy Act principles, in lieu of valid Economy Act
   agreements, is not adequate to establish a valid intra-agency agreement.
   Documentary evidence of a binding agreement is necessary in order to
   record an obligation under 31 U.S.C. sect. 1501(a) (the recording
   statute). In addition, the Economy Act requires the head of the ordering
   agency or unit to determine that the order is in the best interest of the
   United States government and that the goods or services cannot be provided
   by contract as conveniently or economically by a commercial enterprise. 31
   U.S.C. sect. 1535(a). The Federal Acquisition Regulation requires agencies
   to prepare a written Determinations and Finding (D&F) supporting these
   determinations. 48 C.F.R. sect. 17.503. If the performing unit enters into
   a contract to provide the services, the D&F also must include an
   additional statement supporting the use of the contract.[15] The
   Preparedness Directorate did not execute any official documents to justify
   the use of the Economy Act. Directorate Answers to Committee. It is
   important that agencies adhere to the discipline imposed by preparing a
   D&F and documenting the intra-agency agreement. These controls ensure that
   an agency reviews and justifies transfers of funds between appropriations
   and is able to accurately record and track these obligations in its system
   of financial controls.

   The Preparedness Directorate, however, did have authority pursuant to 31
   U.S.C. sect. 1534, the account adjustment statute, to obligate the
   contracts and interagency agreements for the shared services directly
   against one appropriation and adjust the accounts of the benefiting
   appropriations before the end of the fiscal year based on the benefiting
   appropriations' use of the services. As explained above, the account
   adjustment statute allows an agency to temporarily charge one
   appropriation for an expenditure benefiting other appropriations within
   the same agency, as long as (1) amounts are available in both
   appropriations and (2) the accounts are adjusted to reimburse the
   appropriation initially charged during or as of the close of the same
   fiscal year. 31 U.S.C. sect. 1534. In addition, the agency must charge the
   benefiting appropriations an amount commensurate with the value each
   appropriation received. 70 Comp. Gen. at 596. The directorate, however,
   did not provide us with documentation showing that it either obligated
   shared services assessments against or adjusted the accounts of all the
   directorate appropriations that received benefits.

   Pursuant to the account adjustment statute, the directorate had authority
   to choose against which appropriation to temporarily obligate the
   contracts, as long as the appropriation had amounts available to cover
   these costs. 31 U.S.C. sect. 1534(a)(1). As stated above, Congress
   appropriated only $16,079,000 to the directorate's M&A appropriation in
   fiscal year 2006, while the shared services assessments totaled
   $59,199,000. Accordingly, the directorate could not obligate the full cost
   of the contracts against the M&A appropriation. In contrast, Congress
   appropriated $625,499,000 to the IPIS appropriation (of which $83,342,000
   was to be used for management and administration of IPIS programs). The
   directorate could, therefore, initially obligate the full cost of the
   contracts against the IPIS appropriation, as long as the directorate
   adjusted the accounts of the benefiting appropriations to reimburse the
   IPIS appropriation. 31 U.S.C. sect. 1534(b).

   Directorate officials stated, however, that in order to reduce the
   administrative workload, the directorate obligated the shared services
   only against PPAs within the IPIS appropriation. Directorate Response to
   GAO. Directorate officials stated that while the directorate obligated the
   shared services only against PPAs in the IPIS appropriation: "Preparedness
   could have recorded the shared service obligations against all of
   Preparedness appropriations on a prorate basis. This would have resulted
   in up to 13 lines of accounting on each contract or obligation. For the
   sake of efficiency we did not use multiple account strings to every
   contract." Id.

   These directorate officials appear to be saying that while the directorate
   did not obligate the contract costs against all of the benefiting PPAs, it
   was able to track on a pro rata basis the estimated assessments that it
   could have obligated against each benefiting PPA. This notwithstanding,
   the directorate did not have authority to charge all of the costs to one
   appropriation without subsequently allocating the costs to the other
   benefiting appropriations. The directorate improperly augmented the
   benefiting appropriations to the extent it did not record an obligation
   against each appropriation for the estimated value of the services each
   appropriation received. Agencies are generally prohibited from augmenting
   their appropriations with other funds without statutory authority to do
   so. An appropriation "establishes a maximum authorized program level,
   meaning that an agency cannot, absent statutory authorization, operate
   beyond the level that can be paid for by its appropriations." B-300248,
   Jan. 15, 2004.[16] While the directorate had authority to initially use
   one appropriation to fund the contracts and interagency agreements for
   shared services, it was required to adjust the account of each benefiting
   appropriation prior to the end of the fiscal year based on value received.
   31 U.S.C. sect. 1534. Accordingly, to the extent the directorate provided
   more than nominal benefits to other appropriations without recording an
   obligation against those appropriations, it must adjust its accounts to
   reflect the actual value of the benefits received.

   DHS should adjust the Preparedness Directorate's fiscal year 2006
   appropriation accounts such that each appropriation which received
   contractor services reflects the amount of the services received. If any
   of the appropriations that funded the directorate do not have available
   unobligated balances to cover the adjustments, the directorate should
   report an Antideficiency Act violation. 31 U.S.C. sect. 1351. The
   Antideficiency Act prohibits an officer or employee of the government from
   making or authorizing an obligation or expenditure "exceeding an amount
   available in an appropriation or fund for the expenditure or obligation."
   31 U.S.C. sect. 1341(a).

   CONCLUSION

   While the Preparedness Directorate did not enter into valid Economy Act
   agreements, the directorate had authority pursuant to 31 U.S.C. sect.
   1534, the account adjustment statute, to initially obligate the contracts
   against one appropriation and then adjust the account of each benefiting
   appropriation based on the value each appropriation received. It appears,
   however, based on the information that the Head of the Preparedness
   Directorate Finance Branch provided us, that the directorate did not
   properly record allocated charges against each of the benefiting
   appropriations, as required by the statute. DHS should adjust the expired
   fiscal year 2006 directorate appropriations to correct these errors. If
   any of the appropriations that funded the directorate do not have
   available unobligated balances to cover the adjustments, the directorate
   should report an Antideficiency Act violation as required by 31 U.S.C.
   sect. 1351.

   Sincerely yours,

   Gary L. Kepplinger
   General Counsel

   DIGEST

   The conference report accompanying the Department of Homeland Security
   Appropriations Act for fiscal year 2007 directed the Government
   Accountability Office (GAO) to review the Department of Homeland
   Security's (DHS) use of shared services within the Preparedness
   Directorate and its compliance with appropriations law and the proper use
   of the Economy Act.

   In a legal opinion in response to this directive, GAO found that the
   Preparedness Directorate pooled its appropriations to fund what it refers
   to as shared services. Pooling funds across appropriations is a form of
   transfer, and, unless otherwise authorized by law, transfers of funds
   between agency appropriation accounts are prohibited by law. The
   Preparedness Directorate had authority, pursuant either to the Economy Act
   or to the "account adjustment" statute, to pool appropriations to fund
   shared services. The directorate, however, did not enter into valid
   Economy Act agreements. In addition, it appears that the directorate did
   not properly record allocated charges against each of the benefiting
   appropriations, as required by the account adjustment statute. DHS should
   adjust the expired fiscal year 2006 directorate appropriations so that
   each benefiting appropriation is charged for the value received. If any of
   the appropriations that funded the directorate do not have available
   unobligated balances to cover the adjustments, the directorate should
   report an Antideficiency Act violation.

   ------------------------

   [1] GAO, Procedures and Practices for Legal Decisions and Opinions,
   GAO-06-1064SP (Washington, D.C.: Sept. 2006), available at
   www.gao.gov/congress.html.

   [2] On March 30, 2007, DHS implemented a second reorganization in response
   to the Post-Katrina Emergency Management Reform Act of 2006, which is
   contained in title VI of the DHS Appropriations Act for fiscal year 2007.
   Pub. L. No. 109-295, title VI, subtitle A. This act, among other things,
   restructured the Federal Emergency Management Agency (FEMA) and
   established it as a stand-alone agency within DHS. As part of this
   reorganization, DHS abolished the Preparedness Directorate and created a
   new directorate that combines some preparedness programs with the
   immigrant visitor tracking program. The new directorate is called the
   National Protection and Programs Directorate and consists of the Office of
   Cyber Security and Communications, the Office of Infrastructure
   Protection, the Office of Intergovernmental Programs, the Office of Risk
   Management and Analysis, and US-VISIT. See
   www.dhs.gov/xabout/structure/editorial_0794.shtm (last visited Sept. 6,
   2007).

   [3] The Office of Domestic Preparedness administered the grant programs
   that DHS transferred into the Preparedness Directorate.

   [4] REPP is a self-sustaining fee-for-service program.

   [5] Programs, Projects, and Activities refer to elements within an
   appropriation account that generally are identified in committee reports
   and agency budget justifications, but not in the appropriation act itself.
   See GAO, A Glossary of Terms Used in the Federal Budget Process,
   GAO-05-734SP (Washington: D.C.: Sept. 2005), at 80.

   [6] The directorate paid part of its rent through the DHS Working Capital
   Fund (WCF), and the General Services Administration directly billed the
   directorate for the remainder of its rent. Directorate Answers to
   Committee.

   [7] The conference report accompanying the DHS appropriations act for
   fiscal year 2005 directed DHS to provide a detailed report to the
   Appropriations Committees on all of the activities supported through the
   WCF for fiscal years 2004 and 2005, and to identify any crosscutting
   initiatives or activities that benefited more than one organization that
   were not acquired through the WCF for those fiscal years and explain the
   omission. The report required DHS to provide this same information for
   fiscal year 2006 in its fiscal year 2006 budget justification. H.R. Rep.
   No. 108-774, at 32 (2004). Agencies generally begin to prepare their
   budget justifications 18 months in advance of the budget year.  See
   GAO-05-734SP, at 103-04.

   In addition, the DHS Appropriations Act for fiscal year 2006 required that
   DHS use the WCF only for activities and amounts that it had reported using
   the WCF for in fiscal year 2005, unless the Appropriations Committees
   approved additional activities and amounts 30 days in advance of
   obligation. Pub. L. No. 109-90, sect. 504.

   [8] For purposes of this opinion, we did not audit the information DHS
   provided to us. Accordingly, we are not able to verify the accuracy of
   this information.

   [9] The Preparedness Directorate reported to us that in fiscal year 2006,
   OUS had 56 authorized full-time equivalent (FTE) federal positions. In
   addition, 128 contractor staff supported the directorate. Directorate
   Response to GAO.

   [10] While the directorate reported to Appropriations Committee staff and
   stated to us that it obligated the contracts only against the IPIS
   appropriation, based on the contracts the directorate provided to us, the
   directorate also obligated a small portion of at least one of the
   contracts against the M&A appropriation.

   [11] Preparedness Directorate officials stated that the following six
   appropriations received benefits and were charged shared services
   assessments: IPIS, Radiological Emergency Preparedness Program,
   Firefighter Assistance Grants, State and Local Programs, United States
   Fire Administration, Management and Administration (Office of the Under
   Secretary). Directorate Response to GAO.

   [12] A reprogramming is the movement of funds within a single
   appropriation between different budget items that does not typically
   require statutory authority; a transfer is the movement of funds between
   separate appropriations that does require statutory authority. 70 Comp.
   Gen. 592 (1991); B-206668, Mar. 15, 1982. The statutory limitations that
   Congress has placed on DHS's transfer and reprogramming authorities
   essentially require DHS to treat transfers between appropriations and
   reprogrammings between PPAs in the same manner. See, e.g., Pub L. No.
   109-90, sections 503(a) & (b). DHS, consequently, often uses these terms
   interchangeably.

   [13] Section 503(c) of the DHS Appropriations Act for fiscal year 2006
   provided that:

     "Not to exceed 5 percent of any appropriation made available for the
     current fiscal year for the Department of Homeland Security by this Act
     or provided by previous appropriations Acts may be transferred between
     such appropriations, but no such appropriations, except as otherwise
     specifically provided, shall be increased by more than 10 percent by
     such transfers: Provided, That any transfer under this section shall be
     treated as a reprogramming of funds under subsection (b) of this section
     and shall not be available for obligation unless the Committees on
     Appropriations of the Senate and the House of Representatives are
     notified 15 days in advance of such transfer."

   Pub L. No. 109-90, sect. 503(c).

   [14] The term de facto is a Latin phrase meaning having effect even though
   not formally or legally recognized. Black's Law Dictionary 448 (8^th ed.
   2004). In contrast, the term de jure means "as a matter of law." Id. at
   458.

   [15] Subsection (b) of 48 C.F.R. sect.17.503 states that

     "If the Economy Act order requires contract action by the servicing
     agency, the D&F must also include a statement that at least one of the
     following circumstances applies:

       "(1) The acquisition will appropriately be made under an existing
       contract of the servicing agency, entered into before placement of the
       order, to meet the requirements of the servicing agency for the same
       or similar supplies or services;

       "(2) The servicing agency has capabilities or expertise to enter into
       a contract for such supplies or services which is not available within
       the requesting agency; or

       "(3) The servicing agency is specifically authorized by law or
       regulation to purchase such supplies or services on behalf of other
       agencies."

   [16] See, e.g., 70 Comp. Gen. 592. In that case, the Department of Labor
   used an improper cost allocation method to allocate the cost of an
   Executive Computer Network among the Department of Labor's various
   agencies. The department overcharged eight agencies and effectively
   transferred the amount of the overcharges to the benefit of other
   agencies. These overcharges constituted improper augmentations.