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Growback the other side of obligation management: reducing growback is a challenge that financial managers can meet head on by implementing certain measures and paying attention to fundamentals.

As resource and financial managers, we traditionally strive to obligate 100 percent of our current (execution) year direct funding authority in our "one-year" military personnel and operation and maintenance (O&M) accounts. We do this for a variety of reasons. First, it allows us to gain as much value as possible in the form of training, recruiting, and readiness of units from the funding the Congress appropriates each year. Second, we can demonstrate adherence to (supposedly) sound fiscal management and proper stewardship of our entrusted resources. Finally, full obligation demonstrates to our senior-level leadership (including the Congress) that we, in fact, properly forecasted for, and needed, all the money we were given--in essence, protecting our ability to ask for at least the same level of funding in future years. Satisfied at our virtually 100 percent obligation rates at fiscal year (FY) end, we go on to the next year and start executing with exactly the same goal in mind.

Meanwhile, the O&M and Personnel appropriations that we just closed live on for five more years. What normally happens in that period? Disbursements continue, adjustments are made, of course, and the occasional call is answered to satisfy the need in another organization for "prior"-year funds to fill an unforeseen requirement. Most financial managers, however, are much more involved--as many would say they should be--in the priority mission of managing the current-year budgets. Therefore, in practice, little overall attention is paid to prior-year balances--they are left to the accountants to reconcile (or, in other words, prior- or expired-year accounts are "out of sight and out of mind").

But something else is often happening in those expired account years: the growing or "growback" of unobligated balances. These balances, which eventually must be returned to the Department of the Treasury at the end of the canceling year, represent a portion of lost opportunities to accomplish missions, improve readiness, and better serve our military members and civilian employees, their families, and the national defense. Additionally, budget formulators at appropriation-sponsor levels may see an effect from growback through top-line congressional reductions to core budgets. Appropriation committee staffers monitor the prior years as part of their appropriation account and program analysis, and growing unobligated balances imply that programs may get by with reduced future-year appropriations if financial management (FM) personnel applied better "year of execution" management.

Our intent with this article is to define, discuss, and identify the constraints of growback and look at examples through the lens of the National Guard Personnel, Army (NGPA) and Operation and Maintenance, Army National Guard (OMNG) appropriations. Similar analyses could be performed for the other one-year military appropriations; the authors submit that similar results to those depicted here might be seen. Once the analysis is presented and discussed, we will present for consideration some measures for reducing growback and better managing our precious budget resources.

Growback in the Army National Guard (ARNG)

To illustrate the concept of growback, we analyzed obligated and unobligated balances against the direct program total amount available from inception for the 2004 NGPA (basic symbol 2060) and OMNG (basic symbol 2065) appropriation accounts. We looked at the balances remaining at the end of FY 2004 (the "current" year or year of execution), each fiscal year end in the expired years (2005, 2006, 2007, and 2008), and the fiscal year end in the canceling year (2009). Our data came from the Appropriation Status by Fiscal Year Program and Subaccounts, Report Control Symbol AR (M)--1002, commonly referred to as the "1002 Report," produced by the Defense Finance and Accounting Service (DFAS)-Indianapolis Center (reports for the periods ending September 30 for the years 2004 through 2009, inclusive). Readers should note that execution in the ARNG personnel appropriation is fully decentralized, with each state and territory receiving annual funded program and allotment for their pay, allowances, and other programs in much the same manner as the operation and maintenance appropriation.

Figure 1 shows the pattern of growback that existed for FY 2004. At the end of 2004, the ARNG achieved obligation rates of 99.89 percent and 99.88 percent, respectively, in its NGPA and OMNG accounts. This high rate, however, immediately worsens by the end of the next fiscal year (the first expired year) by more than a factor of 10 in each account and continues to worsen through the remainder of the expired years. By the end of 2008, the NGPA account had 1.85 percent of the original total obligation authority (TOA), representing over $97 million, and the OMNG account had 2.74 percent of the original TOA, representing over $122 million, in unobligated balances. (Data in the canceling year 2009 reflect that unobligated balances essentially were zero, as all remaining funds were transferred to the U.S. Treasury.)
Figure 1: 2004 ARNG Growback

      2004 NGPA $5.3 Billion TOA   2004 OMNG $4.3 Billion TOA

2004                       0.11%                        0.12%

2005                       1.05%                        1.23%

2006                       1.63%                        1.98%

2007                       1.64%                        2.33%

2008                       1.85%                        2.74%

2009                       0.00%                        0.00%

Current, Expired, and Canceling Years

Note: Table made from bar graph.


This example of one fiscal year clearly shows how funding can grow back in the prior expired years. A cursory analysis of the following fiscal years in the same appropriations shows a similar pattern, particularly in the O&M accounts. (1) We surmise that like results would be seen in other Army O&M accounts as well as those of the other DoD Components. The end result is that hundreds of millions of dollars of obligation authority potentially are wasted each execution year--money that otherwise could have procured vital goods and services for our warfighters.

Why Growback?

In our experience, growback is a multi-dimensional factor that consists of programs that the FM community can influence (the growback we can control) and those that contribute to growback because of statutory, regulatory, or policy guidance (the growback we cannot control). An example of programs that contribute to growback that we can predict, but not control, are canceled military personnel bonuses and contracts that cross FYs that are executed at a lower cost in successive years. Permanent change of station moves are another example, especially those made by retiring Soldiers. These moves often occur after the close of the FY, and obligations must be posted to cover the worst-case possibilities, a conservative approach.

By contrast, the growback over which we have control are programs still active in the current FY, such as orders for individual duty for training/annual training and associated travel and contracts that end in that FY. The biggest cause of growback in these programs is due to low-quality obligations (bulk funding, miscellaneous obligations, or worst-case estimates that are left on the books throughout the FY and not reconciled prior to the close of the FY).

Additionally, the FM community is very familiar with the year-end close rush to obligate every possible penny. There also has been increasing pressure, especially over the past decade of Global War on Terror/other contingency operations funding and execution, to adhere rigidly to obligation and spend plans throughout the year. This rigidity can encourage low-quality obligations made primarily to meet a target. Another contributing factor is prolonged periods of execution under Continuing Resolution Authority (CRA), since organizations have less time to ensure full obligation of current-year budgets.

All of these factors contribute to the propensity to get obligations on the books--obligations that may be of a lesser quality are not properly reconciled and relate to poorly defined needs. Further, even if this strategy is deliberately executed with the intent to clean up poorly defined obligations before the end of the fiscal year, good intentions often are overcome by other events and higher-priority missions. The result is higher obligation rates in the current year, with the risk of growback as the obligations are reversed or unliquidated balances are canceled in the expired years.

Growback Reduction

The reality of growback does not present a lost cause. There are a number of measures that may be considered and implemented to reduce the growback of expired-year available balances.

Execution Flexibility

Commands and organizations that have the flexibility to move monies between sub-activity groups (SAGs) often are able to improve execution in the current year by spending money that may become available in some accounts on more pressing and legitimate needs in others. This has the potential of ensuring better overall mission accomplishment while also better utilizing current-year resources and reducing potential growback. Organizations that employ this strategy. however, must understand that high levels of SAG migration risks decrementation to the donating accounts in future budget years, primarily because of the perception that the accounts from which the funding came did not need to be fully funded.

Check Your Work

An old test-taking motto can have applicability in the FM world as well. While periodic obligation reviews are required by regulation many organizations in the real world don't devote the time required to conduct full and comprehensive reviews that would capture and eliminate many potential problem obligations that could contribute to growback. A recent Government Accountability Office report highlighted this fact, stating "[t] he lack of review. ... can be a significant problem in managing budgetary resources because unneeded funds are not identified in a timely manner, and once the related appropriation accounts expire, unneeded funds that were obligated cannot be used for other priorities." (3) It is a tall order for many overworked and understaffed FM and larger program management staffs to accomplish. But full and timely reviews will ensure regulatory compliance (thereby contributing to audit readiness) and help reduce growback by freeing resources for more important uses--something from which every organization can benefit.

Build a Cost Culture

This initiative is already under way within the Army and other organizations in the Department of Defense (DoD), aided in large part by the financial enterprise resource planning (ERP) systems currently being developed and implemented. The Army, including the ARNG, is leading the way through adoption of the General Fund Enterprise Business System. This ERP system, which reached full deployment on July 1, 2012, with over 50,000 users across 28 Army Component and other commands, will give users insight into how, where, and why money is spent. It also should allow the aggregation of reliable and timely cost data at all organizational levels throughout the Army, a heretofore unprecedented capability. Armed with these data, financial managers can recommend--and commanders and leaders can make--better decisions on the application of funds, thereby driving higher-quality obligation and reducing growback. Leaders at all levels across the DoD should endeavor to do the same with their ERP efforts.

Pay Attention to the Fundamentals

The recommendations outlined previously can help reduce growback, but improving a basic budget execution can do so as well--again, it is all about improving the quality of obligations to reduce what can grow back in the expired years. For example, improved communication between the program management and budget formulation and execution activities will help generate better requirements and ensure that monies are allotted and executed in the right place at the right time. Cost accounting data can be leveraged to develop better spend plans so that monies are spent as planned on legitimate and fully documented needs. In short, effectively using data from ERPs and imaginative thinking are important, but so are the fundamental policies and procedures of the financial management craft.

Reward Saving

Finally, another way to minimize growback, albeit a bit out of the box, would be to grant organizations the ability to keep a portion of current-year unobligated balances for use in the next or future years. Forgetting for a moment the major paradigm shift this would represent for our FM community, not to mention the changes that would be required in the congressional appropriation process or even the Constitution, this approach would be a bold way to remove much of the "obligate at all costs" mentality that currently exists and contributes to growback. Since the DoD currently must live with one-year appropriations for the majority of its funding, multi-year personnel and O&M accounts would allow the President and the Department and its Components more time and flexibility in execution (albeit at the loss of some congressional control). This could also start to build a "culture of savings" that would complement the cost culture efforts currently under way and potentially help drive down future spending, benefiting overall government economization efforts.

In conclusion, in an era of declining budgets, growback can be a challenging issue for the DoD FM community. It represents lost purchasing power, erodes confidence in the ability to manage budgets in a sound and proper manner, and potentially jeopardizes future-year program funding. Even so, if we apply the sound management tools already in place, as well as leverage new capabilities or those to come, we can go a long way to reducing growback and maximizing available resources in support of our commanders, organizations, and forces.

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ENDNOTES

(1.) Personnel accounts traditionally experence lower levels of growbacl.. since Service Members want to be fully paid in a timely mariner. Indeed, some personnel accounts have actually experienced the opposite In recent years through over-obligations that resulted In Anti-Deficiency Act violations (e.g.. Government Accountability Office (GAO), Department at the Army--The riscal Year 2C09 kfiritary Personnel, Army Approprzhan and the Antideficiency Act, B-318724 (Washington, D.C. June 22, 2010); and Under Secretary of Defense (Comptroller/CFO). March 16. 2011. letter reporting a Department of the Navy violation of the Antideficiency Act, case number 10-03).

(2.) For example, Defense Finance and Accounting Senece-Indianapolis Regulation 37-1, Finance and Accourraw Policy Implementation, Chapter 27 (updated May 2008), "Analysis, Review, and Reconciliation," Paragraph 2707, "Obligation Reviews and Reconciliations." contains a detailed discussion of how various accounts should be reviewed, including in subparagraph 270701E the analysis of "... prior year obligation adjustment trends to determine if obligation estimating practices were reasonable." Additionally, paragraph 2708, "Triannual Reviews," mandates that "... commitment and obligation transactions recorded In the official accounting systems be reviewed tor accuracy, completeness, and timeliness at least three times each fiscal year."

(3.) Government Accountability Office (GAO), DOD Financial Management: Marine Corm Statement of Budgetary Resources Audit Results and Lessens learned. GAO-11-830 (Washington, D.C.: September 15, 20111. page 16.

(4.) As an aside, prior-year lunding may also be "saved" and transferred to the foreign currency fluctuation fund in the first two years of an appropriation's expired state. From our example, real Fund balances could be transferred to this account In FY05 or FY06. However, this course also comes with risk: if you underestimate the disbursements that might occur in the remaining expired years, an ADA violation could result.

(5.) The United States Constitution, Article 1, Section 8, slates: The Congress shall have Power ... To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Termn than two Years ..."

Armies, but no Appropriation of Money to that Use snail be for a longer Term than two Years. ..."

BY COLONEL (PROMOTABLE) TIMOTHY WOJTECKI, CDFM; JIM BLACKMAN, CDFM; AND CHRIS BABCOCK, CDFM-A

COLONEL (PROMOTABLE) TIMOTHY WOJTECKI, CDFM

Colonel Timothy Wojtecki is currently the Deputy Comptroller, Office of the Chief, National Guard Bureau. He integrates, coordinates, and justifies resources across the Army National Guard, Air National Guard, and NGB Joint Staff. Colonel Wojtecki holds a bachelor's degree in chemical engineering from Fenn College, Cleveland State University, and a master's degree in engineering management from George Washington University. His major military schools include Operations Resource and Systems Management--Military Applications Course, Force Management, and Comptroller schools. Colonel Wojtecki also recently graduated from the National War College with a master's degree in national security strategy.

JIM BLACKMAN, CDFM

Jim Blackman is a program analyst in the Office of the Comptroller and Director of Administration and Management at the National Guard Bureau. He is a retired Army Financial NCO; his last assignment was Finance NCO in the Budget Execution Branch within the Army National Guard Comptroller Division. He has a bachelor's degree from Strayer University, holds the Certified Government Financial Management designation and is a member of ASMC's National Guard Chapter.

CHRIS BABCOCK, CDFM-A

Chris Babcock is a Principal with Accenture, where he supports a variety of defense and intelligence community projects and initiatives. He is a retired Army Financial Management Officer, his last assignment being an Army staff position within the Army National Guard Comptroller Division, where he served as a senior budget officer and the deputy chief of the budget formulation branch. He has a bachelor's degree from The Ohio State University and is a graduate of the Army Cornptrollership Program at Syracuse University. He also holds the Project Management Professional and Certified Government Financial Management designations.
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Author:Wojtecki, Timothy; Blackman, Jim; Babcock, Chris
Publication:Armed Forces Comptroller
Geographic Code:1USA
Date:Jun 22, 2012
Words:2793
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