Budget Execution Summary

The following learning objectives are covered in this lesson:

• Given a scenario, track budget execution through the commitment, obligation, and expenditure process.
• Identify the use and importance of obligation and expenditure plans.
• Assess the impact of the failure to execute funds in accordance with program plans.
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1. In the budget execution process, the following steps are taken:

• Commitment - an administrative reservation of funds, made upon receipt of a request for spending. Commitment occurs upon certification that funds are available in the correct appropriation, in the correct fiscal year, and in the correct amount to cover the anticipated obligation.
• Obligation : a "legal reservation" of funds, tying the government to a liability, such as a contract for goods or services. Obligation occurs when a contract is signed or when orders are placed.
• Expenditure - a payment of some part or all of an obligation. Expenditure occurs when a check is issued, or when funds are electronically transferred, to a contractor in response to an invoice or bill for costs incurred, services rendered, or products delivered.
• Outlay - a payment by the U.S. Treasury to the contractor. Outlay occurs when a check is cashed or when funds are electronically transferred from the Government to the contractor. (In electronic funds transfer, expenditure and outlay happen simultaneously.)

2. A number of players are involved in the execution of funds. After the Comptroller commits the funds by certifying their availability, the Contracting Officer obligates the funds by awarding the contract or signing purchase orders. Then the contractor performs the work and submits a Material Inspection and Receiving Report to the Quality Assurance Representative from the Contract Management Office, if deliverables are received at the contractor's plant, or to the Contracting Officer's Representative (COR), if deliverables are received at the program management office. The Quality Assurance Rep or COR verify that the deliverables were received and accepted and inform the Administrative Contracting Officer (ACO). The contractor submits an invoice to the ACO.

The ACO certifies that the invoice is correct, then forwards the invoice to the finance office to make payment. The ACO also assures that the contractor gets paid in a timely manner. The Finance and Accounting Office in turn expends the funds by check or electronic funds transfer. Finally, the U.S. Treasury outlays the funds when the cash is provided to the contractor.

3. Failure to make timely payment to a contractor can cause serious cash flow problems for the contractor. In addition, poor expenditure or outlay rates are a bad reflection on a program and may jeopardize a program's current and future funding. To minimize this risk, the Program Management Office prepares a spending plan that projects and tracks obligations and expenditures on a month-by-month basis.

A spending plan is required for each Procurement line item, RDT&E program element, and Operations and Maintenance sub-activity group in the program. The PMO creates an obligation plan for each fiscal year of funding that is available for new obligations and an expenditure plan for each fiscal year of funding that has not been completely expended, even if the period of obligation availability has expired.

Spending plans serve as a tool to analyze program execution, an indicator of potential problems, and a predictor of future program performance. Generally, a history of poor obligation, expenditure, or outlay will cause a program to come under increased scrutiny, or worse, lose funding. When a program deviates from its spending plan, it risks becoming a source of funding for other programs through reprogramming and runs the risk of having its funding cut in future years.