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.