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The Bona Fide Needs Rule

B. 3.  Prior Years’ Needs
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There are situations in which it is not only proper but mandatory to use currently available appropriations to satisfy a need that arose in a prior year.14 We refer to this as the “continuing need.” If a need arises during a particular fiscal year and the agency chooses not to satisfy it during that year, perhaps because of insufficient funds or higher priority needs, and the need continues to exist in the following year, the obligation to satisfy that need is properly chargeable to the later years funds. “An unfulfilled need of one period may well be carried forward to the next as a continuing need with the next periods appropriation being available for funding.” B-197274, Sept. 23, 1983. Thus, an important corollary to the bona fide needs rule is that a continuing need is chargeable to funds current for the year in which the obligation is made, regardless of the fact that the need may have originated in a prior year.

An illustration is B-207433, Sept. 16, 1983. The Army contracted for a specific quantity of thermal viewers. The contract provided for a downward adjustment in the contract price in the case of an “underrun,” that is, if the contractor was able to perform at less than the contract price. After the appropriation charged with the contract had expired, the contractor incurred an underrun and proposed to use the excess funds to supply an additional quantity of viewers. It was undisputed that the need for additional viewers could be attributed to the year in which the contract was entered into, and that the need continued to exist. GAO agreed with the Army that the proper course of action was to deobligate the excess funds and, if the Army still wished to procure them, to charge the obligation for the additional quantity to current years appropriations. The fact that the need arose in a prior year was immaterial. The decision, at pages 4–5, offered the following explanation:

“Certainly the Army could have used underrun funds to procure additional viewers at any time during the period those funds remained available for obligation. Also, we are of course aware that an unmet need does not somehow evaporate merely because the period of availability has expired. However, nothing in the bona fide needs rule suggests that expired appropriations may be used for an item for which a valid obligation was not incurred prior to expiration merely because there was a need for that item during that period … Once the obligational period has expired, the procurement of an increased quantity must be charged to new money, and this is not affected by the fact that the need for that increased quantity may in effect be a ‘continuing need’ that arose during the prior period.”

Another illustration is B-226198, July 21, 1987. In late fiscal year 1986, the U.S. Geological Survey ordered certain microcomputer equipment, to be delivered in early fiscal year 1987, charging the purchase to fiscal year 1986 funds. The equipment was delivered and accepted, but was stolen before reaching the ordering office. The decision held that a reorder, placed in fiscal year 1987, had to be charged to fiscal year 1987 funds. As with the thermal viewers in B-207433, the fact that the need for the equipment arose in 1986 was immaterial. See also B-286929, Apr. 25, 2001; B-257617, Apr. 18, 1995.

In another case, cost overruns caused the Army to delete certain items from a fiscal year 1979 procurement. The Army repurchased the canceled items in 1981, charging 1981 appropriations. GAO agreed that the repurchase was properly chargeable to 1981, rather than 1979 funds. B-206283-O.M., Feb. 17, 1983.

The essential requirements of the “continuing need” corollary are that (1) the need, unmet in the year in which it arose, must continue to exist in the subsequent obligational period; (2) the incurring of an obligation must have been discretionary with the agency to begin with; and (3) no obligation was in fact incurred during the prior year.

If the agency has no discretion as to the timing of an obligation (for example, in situations where the obligation arises by operation of law), or, even in discretionary situations, if the agency has actually incurred a valid obligation in the prior year (whether recorded or unrecorded), then the “continuing need” concept has no application and the obligation must be charged to the prior year. Absent statutory authority, current appropriations are not available to fund an obligation or liability (as opposed to an unmet and unobligated-for need) of a prior obligational period. If insufficient funds remain in the prior years’ appropriation, the agency must seek a supplemental or deficiency appropriation and must further consider the possibility that the Antideficiency Act, 31 U.S.C. § 1341(a), has been violated.

In an early case, for example, an agency had contracted for repairs to a building toward the end of fiscal year 1904. Since it was clear that the repairs were needed at the time they were ordered, they were chargeable to fiscal year 1904 appropriations, and the exhaustion of the 1904 appropriation did not permit use of 1905 funds. 11 Comp. Dec. 454 (1905). See also 21 Comp. Dec. 822 (1915).

In B-226801, Mar. 2, 1988, GAO considered various entitlement programs administered by the Department of Veterans Affairs (VA). Under these programs, the obligation arises when VA determines eligibility through its adjudication process and must be recorded at that time. If the obligations would exceed available funds, it is not proper to defer the recording and charge the following year’s appropriation. Since the obligations are required by law, overobligation would not violate the Antideficiency Act, but they must still be recognized and recorded when they arise. Congress subsequently began including an administrative provision in VA’s appropriation act permitting the use of appropriations for these programs to pay obligations required to be recorded in the last quarter of the preceding fiscal year.15 See also B-287619, July 5, 2001.

For additional cases, see 55 Comp. Gen. 768, 773–74 (1976) (current year’s appropriations not available to fund prior year’s Antideficiency Act violation); 54 Comp. Gen. 393, 395 (1974) (deficiency appropriation necessary to pay claims against exhausted appropriation); B-133001, Mar. 9, 1979 (fiscal year refugee assistance appropriation not available to pay for services performed in prior year); B-14331, Jan. 24, 1941; A-76081, June 8, 1936 (appropriations not available for past obligations unless clearly indicated by language and intent of appropriation act); B-221204-O.M., Jan. 31, 1986 (meals under child nutrition program served in September of one fiscal year may not be charged to subsequent year’s appropriation). Congressional denial of a request for a deficiency appropriation does not make current appropriations available to satisfy the prior year’s obligation. B-114874, Sept. 16, 1975 (postage charges under 39 U.S.C. § 3206).

Footnotes 14 See also 31 U.S.C. §1553(b), which requires that obligations and adjustments properly made to closed accounts may be charged to any current appropriation, and section D.4 of this chapter.  (BACK)

15 E.g., Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 1990, Pub. L. No. 101-144, title I, 103 Stat. 839, 843–44 (Nov. 9, 1989); Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 1997, Pub. L. No. 104-204, title I, § 105, 110 Stat. 2874, 2881 (Sept. 26, 1996); and Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 2002, Pub. L. No.107-73, title I, § 105, 115 Stat. 651, 657 (Nov. 26, 2001).  (BACK)

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