Fund Cite Swap on a Year-End Services Contract
During a quarterly review at an Army installation, an accountant discovers that a $6.4 million firm-fixed-price contract for base operating support was awarded on 30 June, the last day of the fiscal year, and recorded against a fund cite with only $4.1 million of remaining obligation authority. To get the transaction past the automated edit check, a budget analyst changed the fund cite to a different budget subactivity that had $7.8 million available; the payment was subsequently certified and disbursed. The contract's period of performance runs 1 July through 30 June of the following year and contains no severable-services clause. The installation's total obligational authority for the appropriation was not exceeded and there was no apportionment shortfall at the appropriation level. The contracting officer's file contains a bona fide need determination dated 28 June and signed by the requiring activity.
1. Identify each potential statutory violation in this fact pattern and explain why each does or does not apply.
Read the worked answer
1. Bona fide needs rule - 31 U.S.C. 1502. Likely violated. The need for base operating support begins 1 July. That is a need of the next fiscal year, not of the year being executed, so the prior year's funds cannot pay for it. The 28 June need determination does not cure this unless the record shows the government actually required the services to begin before 1 October; a document signed before year-end is not the same as a need arising before year-end.
2. Severable vs. nonseverable services. If the services were genuinely severable, 10 U.S.C. 2410a / 31 U.S.C. 1502 would permit a 12-month increment crossing fiscal years. The absence of a severable-services clause and the single 12-month performance period make this a nonseverable requirement, which must be fully funded from the appropriation current when the need arises. That points to next year's funds.
3. Anti-deficiency - 31 U.S.C. 1341(a)(1)(B). Likely violated. Even though the appropriation total was sufficient, the budget subactivity was a lawful administrative subdivision of the fund. Recording an obligation that overruns the subdivision by $2.3 million is an overobligation unless the comptroller had documented authority to realign between subactivities before the obligation was recorded. Editing the fund cite after the fact is not realignment authority.
4. 31 U.S.C. 1517 (apportionment) - not violated. There was no apportionment shortfall at the appropriation level.
5. Record integrity. Altering a fund cite to defeat an edit check is a control failure that may also trigger a fraud referral and an accountable-officer review, separate from the anti-deficiency question.
2. Describe the reporting obligations and the timeline, and explain what happens to the contract and the disbursed payment.
Read the worked answer
Reporting chain. Under 31 U.S.C. 1351 and DoD 7000.14-R, Volume 14, the responsible official must report the apparent violation immediately through the chain of command to the head of the agency. The agency head then reports to the President (through OMB) and to Congress, with the facts, the amount, the responsible officials, and the corrective action. DoD practice sets a 30-day target for the formal report after a completed investigation; the important exam point is that reporting is immediate and mandatory - a comptroller does not get to decide whether a violation is 'worth reporting.'
The contract. An anti-deficiency violation does not void the government's contract with an innocent contractor. The obligation must be recorded and the contractor paid for work accepted; refusing to pay would create a separate breach and further liability.
The disbursement. The payment stands or is adjusted, but the underlying overobligation remains a reportable deficiency. The disbursing officer is generally entitled to relief where the payment was made on a properly certified voucher and there was no knowledge of the deficiency; liability questions focus on the officials who created the deficiency, not the disbursing officer.
Follow-through. The report must state the amount, the cause, the responsible officials, and the corrective actions taken. Do not reopen or 'clean up' the record by adjusting the contract; preserve the file for the investigation.
3. Recommend the internal control changes that would have prevented this, prioritized by what stops the specific failure here.
Read the worked answer
Root cause first. The failure was not the award by the contracting officer; it was the budget analyst's ability to change a fund cite unilaterally to beat an edit check. Controls should target that authority, not just year-end volume.
Priority 1 - Fund cite changes require comptroller approval. Any change of fund cite or subactivity after obligation requires a documented, signed determination showing available authority. The edit-check override should be a separate, logged permission held by one or two people, with weekly review by the resource management officer.
Priority 2 - Segregate recording from certifying. The person who enters obligations should not be the person who can change accounting classifications. This is a classic segregation-of-duties gap.
Priority 3 - Manage the year-end surge deliberately. Require a 30-day look-ahead of awards over a materiality threshold, and a formal review of any obligation recorded in the last ten days of the fiscal year that has a future-year start date.
Priority 4 - Bona fide need training and a checklist. Requiring activities and contracting officers should apply a written test: when does the need arise, are the services severable, does the period of performance cross 1 October, and is there a clause permitting it?
Priority 5 - Detection. Quarterly sample testing of obligations at subactivity level, with edit-check overrides as a mandatory sample stratum, plus an annual anti-deficiency training requirement for certifying officials and budget analysts.