1.35.24 Establishing IRS Commitments and Obligations

Manual Transmittal

August 07, 2015

Purpose

(1) This transmits new IRM 1.35.24, Financial Accounting, Establishing Commitments and Obligations.

Material Changes

(1) This is a new IRM that establishes policies and procedures for establishing financial commitments and obligations.

Effect on Other Documents

This IRM incorporates and supersedes the reissued Interim Guidance on the Timely Recording of Obligations, dated September 30, 2014.

Audience

All Divisions and Functions.

Effective Date

(08-07-2015)

Robin L. Canady
Chief Financial Officer

Overview

  1. This Internal Revenue Manual (IRM) provides Internal Revenue Service (IRS) policy regarding the establishment of commitments and obligations recorded in the Integrated Financial System (IFS).

  2. The Chief Financial Officer (CFO), Financial Management (FM), Financial Management Policy Office developed and maintains this IRM.

Background

  1. Each fiscal year, the IRS receives appropriated funds from Congress providing budget authority to carry out IRS assigned programs. Budget authority equates to the authority provided by law to incur financial obligations that will result in immediate or future outlays (payments) for the procurement of goods and services. The IRS refers to this process of spending budget authority for goods and services as the purchasing chain.

  2. The purchasing chain is a series of validation and approval processes (with associated accounting transactions) used to spend budget authority on purchasing necessary goods and/or services. The purchasing chain is comprised of four stages each with a different purpose. Each stage requires the recording of a distinct accounting transaction to accurately report the IRS’ financial position to external and internal management and stakeholders. The four stages of the purchasing chain are: 1) creating a commitment, 2) establishing an obligation, 3) validating an accounts payable, and 4) approving an expenditure.

  3. This IRM is concerned with the first two stages of the process; creating commitments and establishing obligations. There are four critical elements in the creation of commitments and obligations:

    • They must be created and validated by an authorized official.

    • They must be in the correct form.

    • They must be fully funded.

    • They must be recorded in the appropriate financial reporting system to ensure accurate and up-to-date information is displayed for internal/external financial reports.

  4. These spending transactions must be recorded and monitored throughout the year to ensure the IRS remains compliant with U.S. fiscal law, including the Antideficiency Act statutes relating to the purpose of purchases, period of funding availability, and remaining within amounts appropriated through Congress (or in support of valid Economy Act orders).

Authorities

  1. The authorities used for this IRM include:

    1. United States Code, Title 31, Money and Finance.

    2. Antideficiency Act, Pub. L. 97-258, 96 Statute 923.

    3. Chief Financial Officers Act of 1990, Pub. L. 101-576.

    4. Federal Managers Financial Integrity Act of 1982, Pub. L. 97-255.

    5. Federal Financial Management Improvement Act of 1996, Pub. L. 104-208.

    6. Code of Federal Regulation, Title 48, Chapter 1, Federal Acquisitions Regulation.

    7. Government Accountability Office Principles of Appropriation Law (3rd edition), GAO-06-382SP (commonly referred to as the “GAO Red Book”).

    8. Government Accountability Office Government Auditing Standards, GAO-12-331G.

    9. Statement of Federal Financial Accounting Concepts 1, Objectives of Federal Financial Reporting.

    10. Statement of Federal Financial Accounting Standard 4, Managerial Cost Accounting Standards and Concepts.

    11. Statement of Federal Financial Accounting Standard 5, Accounting for Liabilities of the Federal Government.

Related Resources

  1. The following are related resources for this IRM:

    1. Office of Management and Budget Circular A-123, Management’s Responsibility for Internal Control.

    2. Office of Management and Budget Circular A-134, Financial Accounting Principles and Standards.

    3. Office of Management and Budget Circular A-136, Financial Reporting Requirements.

    4. IRM 1.35.3, Receipt and Acceptance.

    5. IRM 1.13.15, Annual Close Guidelines.

    6. IRM 1.33.4, Financial Operating Guidelines.

    7. Interim Internal Revenue Manual, Internal Revenue Service Acquisition Procedure.

    8. Procurement Policy and Procedures Memorandum No. 13.3, Purchase, Delivery and Task Order Preparation Guidelines.

    9. Procurement Policy and Procedures Memorandum No. 32.7(A), Processing Requisitions for the Upcoming Year.

Definitions

  1. In this IRM, the terms below have the following meaning:

  2. Accounts Payable - A recorded liability once the IRS acknowledges receipt of goods and/or services. Accounts payable signifies an amount owed by the IRS for goods or services received, ongoing contract performance received, and rents due to other entities.

  3. Apportionment - The act by which the Office of Management and Budget (OMB) distributes amounts available for obligation, including budgetary reserves established pursuant to law, in an appropriation or fund account. An apportionment divides amounts available for obligation by specific time periods (usually quarters), activities, projects, objects, or a combination thereof. The apportioned amounts limit the amount of obligations that may be incurred. The apportioned amounts may be subdivided by the agency.

  4. Appropriation - Authority given to Federal agencies to incur obligations and make payments from Treasury for specified purposes. The classification is based on availability for new obligations:

    • Current or unexpired appropriation: an appropriation that is available for incurring new obligations.

    • Expired appropriation: an appropriation that is no longer available to incur new obligations, although it may still be available for the recording and/or payment (liquidation) of obligations properly incurred before the period of availability expired. Annual appropriations remain available for an additional five fiscal years beyond expiration, however, to adjust and make payments to liquidate liabilities arising from obligations made within the fiscal year for which the funds were appropriated. 31 USC § 1553 (a).

    • Canceled appropriation: an appropriation which is closed and no longer available for obligation or expenditure for any purpose.

  5. Commitment - The reservation of a portion of a Business Unit's (BU’s) budgeted funds signifying the future intent to purchase goods and/or services. The commitment process includes the submission of the requirement (requisition), the validation and approval of the requirement (authorization), and the reservation of funds (commitment).

  6. Disbursement - Amount paid by a Federal agency, by cash or cash equivalent, during the fiscal year to liquidate Government obligations.

  7. Economy Act Order (31 USC § 1535) - The general authority for one agency or unit to obtain goods and services from another agency or unit. Payment may be made in advance or upon the provision of the goods and services ordered.

  8. Expenditure - The actual spending of money, i.e., an outlay. Outlay is used interchangeably with the term disbursement. This stage of the purchasing chain includes the actual payment and liquidation of the accounts payable amount.

  9. Financial Plan - A business unit plan for executing approved budget authority in meeting assigned missions and responsibilities.

  10. Interface - The transfer of data between two or more data systems.

  11. Liquidation (or liquidated) - The payment(s) to vendors associated with IRS obligations until the obligation is fully received/accepted/paid and/or eventually closed.

  12. Obligation - As defined by the GAO, a definite commitment that creates a legal liability of the Government for the payment of goods and services ordered or received, or a legal duty on the part of the U.S. Government.

  13. Purchasing Chain - The four potential accounting stages associated with IRS purchases: commitment, obligation, accounts payable, and expense.

  14. Requisition - A request for goods or services submitted by a business unit.

Responsibilities

  1. This section provides responsibilities for:

    1. Chief Financial Officer

    2. Associate CFO for Corporate Budget

    3. Associate CFO for Financial Management

    4. Director, Beckley Finance Center

    5. Director, Financial Reports Office

    6. Director, Financial Management Policy Office

    7. Director, Financial Management Systems Office

    8. Director, Office of Procurement

    9. Division Finance Officer (DFO)

    10. Business Unit Managers

    11. Financial Plan Managers

Chief Financial Officer

  1. The Chief Financial Officer (CFO) is responsible for:

    1. Managing all IRS financial management responsibilities on behalf of the IRS Commissioner.

    2. Establishing policies, procedures, standards, and controls for establishing obligations and commitments.

    3. Achieving the efficient execution of Federal appropriated funding.

    4. Accurately reporting of IRS financial compliance.

Associate Chief Financial Officer for Corporate Budget

  1. The Associate Chief Financial Officer (ACFO) for Corporate Budget (CB) is responsible for:

    1. Executing the IRS budget in an integrated and cohesive manner.

    2. Managing and distributing IRS budget authority to the appropriate BU or central program manager.

    3. Ensuring compliance with Federal apportionments and allocated funding limitations.

    4. Providing budget and analytic expertise to business units and corporate management in support of IRS goals.

    5. Conducting a mid-year review to review and assess commitments and obligations.

Associate Chief Financial Officer for Financial Management

  1. The Associate Chief Financial Officer (ACFO) for Financial Management (FM) is responsible for:

    1. Developing all IRS internal processes regarding the accounting, recording and reporting of IRS administrative financial processes.

    2. Processing and validating the accuracy of financial transactions into IRS financial systems.

    3. Reporting the financial transactions of the IRS (internally and externally) through the use of IRS generated financial reports and regulatory required financial statements.

    4. Developing regulations and guidance necessary to support IRS administrative financial processes.

Director, Beckley Finance Center

  1. The Director, Beckley Finance Center (BFC), manages the central administrative financial processing center for the IRS. The Director, BFC, is responsible for:

    1. Processing and recording accounting transactions timely.

    2. Reviewing IFS transaction activity and working with BUs and Procurement to clear rejected financial system interfaces.

    3. Processing validated and approved manual obligations received from the BUs.

    4. Reviewing aged obligations and commitments from IRS financial systems and working with BUs to ascertain current status including taking appropriate accounting actions based on research.

    5. Conducts recurring reviews and analysis of BU commitments and obligations providing compliance results to BU managers and CFO leadership.

    6. Providing customer support assistance to BU finance staffs related to obligations and commitments.

Director, Financial Reports Office

  1. The Director, Financial Reports Office, is responsible for:

    1. Preparing and recording entries for commitments, obligations, accounts payable, accounts receivable, contingent liabilities, accruals, account adjustments, and/or reclassifications.

    2. Establishing IRS accounting processes to meet regulatory and statutory compliance.

    3. Establishing accrual methodology and preparing annually for financial reporting.

    4. Preparing, reviewing, and approving work papers in support of the financial statements.

    5. Researching, validating, documenting and posting necessary accounting adjustments including accrued expenses.

Director, Financial Management Policy Office

  1. The Director, Financial Management Policy Office, is responsible for:

    1. Developing administrative accounting policies including the establishment of obligations and commitments.

    2. Assisting managers and other employees in interpreting and applying policies regarding commitments and obligations.

Director, Financial Management Systems Office

  1. The Director, Financial Management Systems Office, is responsible for:

    1. Maintaining overall management of the IRS system of official record, the Integrated Financial System (IFS).

    2. Scheduling and monitoring all IFS systemic interfaces with external systems.

    3. Providing staff, support, and systems availability for interfaced transactions.

Director, Office of Procurement

  1. The Director, Office of Procurement, is responsible for:

    1. Planning, directing, coordinating, and controlling the IRS procurement program.

    2. Ensuring all contractual obligations for BU requisitions are made within the framework of Federal statutes and regulations, internal policy and sound business judgement.

    3. Providing staff, support, and systems availability for interfaced transactions.

    4. Administering reviews, providing guidance, monitoring, and tracking open awards including contract closeout and/or termination.

    5. Providing guidance, policies, and procedures relating to Procurement's role in the obligation and commitment process.

    6. Educating employees on their responsibilities as they relate to the IRS requisition procurement process.

Division Finance Officers

  1. The Division Finance Officers (DFOs) are responsible for:

    1. Managing their business units' funds in accordance with sound, prudent, and lawful financial management practices.

    2. Establishing reasonable internal controls within unit purchasing processes, ensuring that all requisitions are approved by an appropriate manager, include adequate funding, and comply with current fiscal law and regulations.

    3. Overseeing the establishment of BU commitments and obligations.

    4. Maintaining supporting documentation for all financial commitments and obligations.

    5. Forwarding all documentation in a timely manner to meet IRS obligation and financial reporting requirements as established within this IRM.

    6. Establishing processes to continually monitor and manage unit obligations and commitments to ensure that available balances are adequate for the goods and/or services still to be received.

    7. Validating that all open commitments and obligations are valid and/or provide supporting material to maintain, revise, or close open documents.

Financial Plan Managers

  1. Financial Plan Managers are responsible for:

    1. Managing the overall spending within the financial plans under their control.

    2. Ensuring funds are available and used for proper purposes.

    3. Ensuring overspending does not occur within the financial plan(s) under their control.

    4. Ensuring correct accounting codes are recorded on the commitments and/or obligations.

    5. Ensuring commitments and obligations are recorded and processed accurately and on a timely basis.

    6. Ensuring outstanding commitments and obligations are properly reviewed and validated until liquidated.

Business Unit Managers

  1. Business Unit (BU) managers are responsible for:

    1. Ensuring all requisitions are validated by the appropriate approving official and input into the appropriate financial system, or forwarded to BFC.

    2. Ensuring adequate supporting material is available (or included in the requisition package) to support the proper use of funds and that the purchase is a bona fide need of the funds being used.

    3. Ensuring funding is provided to fully fund BU requisitions.

    4. Ensuring all purchases support BU missions and are adequately protected from fraud, waste, and abuse.

    5. Ensuring all goods and services are received according to the terms of the obligating documents and proper receipt and acceptance is annotated within the appropriate financial system.

    6. Ensuring all outstanding (open) commitment and obligation balances are validated and adjusted, as required, until the obligation document is properly closed.

Congressional Authority

  1. Each year, Congress creates Federal budget authority to fund the various Federal missions. This budget authority is referred to as appropriated funds. The authorization and appropriation bills, submitted to the President, establish Congressional authorization for a particular fiscal year(s) and represent Congressional "power of the purse" . The power to appropriate is a legislative power provided under the Constitution, which states, "No money shall be drawn from the Treasury, but in consequence of appropriations made by Law."

  2. Congress enforces its "power of the purse" through enactment of certain laws. The Antideficiency Act strengthens this authority, in part, by explicitly prohibiting Federal employees and officers from making contracts or other obligations in advance of, or in excess of an appropriation, unless authorized under law. Additionally, public funds may only be used for the purpose(s) for which Congress appropriated the funds.

  3. Once appropriation and authorization bills are enacted into law, they are sent to the Department of the Treasury for assignment of an appropriation warrant and to the Office of Management and Budget (OMB) for apportionment. The apportioned funds are then made available for the various Federal agencies to execute their assigned missions.

IRS Budget Authority

  1. The CFO's Corporate Budget (CB) Office manages the overall IRS budget authority on behalf of the Commissioner. The IRS receives budget authority predominantly from Congressional appropriations, negotiated Economy Act orders (with other Federal agencies), and user fees for requested services.

  2. The CB Office establishes BU funding levels through the annual plan development process. Financial plan levels are approved by IRS leadership and entered into IFS as initial funding levels for the BUs. Levels are adjusted accordingly once an appropriation bill is signed and apportionments are received. These approved BU budget authority limits must be strictly adhered to throughout the fiscal year to ensure the IRS remains compliant within OMB apportionments.

Business Unit Financial Plans

  1. The BU financial plans are the approved operational strategy that the BU intends to execute in accomplishing assigned missions and responsibilities. It is critical for the financial plan managers to oversee and approve BU spending throughout the year to ensure execution follows approved strategies or, to notify leadership as soon as funding issues are identified.

  2. Financial plans are "point in time" plans and must be adjusted throughout the year to account for operational realities and emerging issues. BUs should adhere to approved budget authority and pay careful attention to any relevant Economy Act order(s). BUs should adjust their financial plans throughout the fiscal year ensuring BU budget authority lasts for the entire fiscal year. The CB Office should be immediately notified any time an issue emerges that is beyond the capability of the BU to resolve.

  3. Reimbursable agreements, sometimes referred to as Economy Act orders, are equally important to monitor. Reimbursable projects are funded according to joint agreements and funded solely for that particular reimbursable project. Project overruns need to be funded by the participating parties ensuring IRS budget authority is not diverted from direct missions to support other Federal agencies. Equally important is the timely return of unused budget authority allowing other Federal agencies to obligate their other agency priorities.

Commitment Process Overview

  1. BUs use commitments as an administrative reservation of funds, in anticipation of an obligation. This process begins with a BU inputting and approving the requisition within the Integrated Procurement System (IPS) and ends as IPS systemically interfaces with the Integrated Financial System (IFS) recording the commitment.

Requesting Goods or Services

  1. The commitment process starts when a requester of goods and/or services completes a Form 1334 Worksheet, Requisition for Equipment, Supplies or Services, in IPS. Once the request is validated and approved within the BU, the accounting strip information and amounts recorded in IPS are used to establish the commitment through a systemic interface with IFS, which also decreases the BU's availability of funds.

Recording Commitments

  1. Once a commitment is approved and recorded in IFS, the BU's funding is reserved while IRS obligating offices, such as Procurement, complete the necessary actions to establish and record the obligation. Therefore, it is important for BU financial managers to continually review outstanding commitment balances to ensure they are still valid. All commitments should be obligated timely, or if not needed, de-committed. All commitments must be obligated or de-committed before the end of the fiscal year (or the period of availability for multi-year funds).

  2. If a BU requires the committed funds for higher priority requirements and wishes to de-commit the funds, they should immediately notify the responsible obligating office. This allows for either a downsizing or elimination of the obligation and ensures an unfunded obligation is not created, helping to minimize the IRS risk of violating the Antideficiency Act.

Obligation Process Overview

  1. Federal agencies execute assigned missions with appropriated funds based on the two central concepts of "obligation" and "disbursement" of public funds. An obligation is a "definite commitment that creates a legal liability of the Government for the payment of goods and services ordered or received, or a legal duty on the part of the U.S. Government." The creation of the obligation creates the legal agreement between the Government and the vendor for goods and/or services. Disbursing is the process that ensures that the Government acts in good faith for accomplishing its responsibilities identified in the obligating document. This section focuses on the obligation process.

  2. There are two distinct steps in the obligation phase:

    • The act of legally creating an obligation, and

    • The timely recording of the obligation in reporting systems.

  3. It is important to emphasize the relationship between the existence of an obligation and the act of recording. Recording evidences the obligation but does not create it. If a given transaction is not sufficient to constitute a valid obligation, recording it will not make it one (e.g. B-197274, Feb. 16, 1982). Conversely, failing to record a valid obligation in no way diminishes its validity or affects the fiscal year to which it is properly chargeable (e.g. B-226782, Oct. 20, 1987).

Creating the Obligation

  1. The IRS process of creating an obligation begins with the business unit determining that there is a need to purchase a good and/or service to accomplish an assigned mission and validating that the purchase is a legal use of appropriated funds. The business unit also ensures that it has an adequate amount of budget authority to support the obligation, which is normally accomplished through an internal validation by the financial plan manager. The business unit will then either:

    1. Complete the purchase if it is within the micro-purchase threshold delegated to the business unit (usually below $3,000),

    2. Input the requisition or travel authorization into the appropriate internal financial system,

    3. Validate the accuracy of an impending IRS obligation in an external financial system, or

    4. Forward the appropriate "approved" manual obligating documentation to the Beckley Finance Center (BFC).

  2. In all circumstances, the business unit must retain the appropriate supporting documentation to validate the legality of the obligation to eventually be recorded in IFS. Additionally, all business unit managers must ensure that purchased goods and/or services are protected against fraud, waste, and abuse utilizing the appropriate internal control measure.

  3. The following subsections of 1.35.24.11 list the legal and regulatory requirements for establishing a valid obligation.

Requirements for Recording Contract Obligations

  1. A contract obligation must be all of the following:

    • A binding agreement.

    • For a purpose authorized by law.

    • Executed before the expiration of the period of availability.

    • In writing.

    • In a (contract) form calling for specific goods, real property, work, or services.

  2. The Federal Acquisition Regulation (FAR) defines “contracts” as including “all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, in writing” 48 CFR § 2.101 (2005).

Binding Agreement
  1. A legally binding agreement requires all of the following:

    • An offer.

    • An acceptance.

    • With consideration.

    • Made by an authorized official.

Offer, Acceptance, and Consideration
  1. An offer and acceptance is sometimes referred to as a “meeting of the minds.” It simply means that both parties involved in the transaction have reached some level of mutual assent about the services and/or goods to be provided including agreement to all inclusive terms. Consideration simply means an exchange of something of value. Therefore, a valid obligation must show that the parties involved agree to exchange something of value according to inclusive terms.

Authorized Officials
  1. The FAR, subpart 1.6, identifies the "Agency Head" as the responsible official for acting on behalf of the Government in creating obligations for procuring goods and services. The agency head may (and does) delegate these responsibilities, in writing, to the agency Procurement Office (for large purchases) and selected individuals (for micro-purchases).

  2. The FAR states, "The agency head may establish contracting activities and delegate broad authority to manage the agency’s contracting functions to heads of such contracting activities. Contracts may be entered into and signed on behalf of the Government only by contracting officers (FAR § 1.601)." Additionally, "Agency heads are encouraged to delegate micro-purchase authority to individuals who are employees of an executive agency or members of the Armed Forces of the United States who will be using the supplies or services being purchased (FAR 1.603-3(b))."

  3. Only authorized individuals have the authority to legally obligate (and/or commit) the IRS. Examples of these authorized individuals include: Procurement Officials awarding contracts according to their warranted limitations, authorized BU Government Purchase Card (GPC) holders completing authorized unit purchases, authorized supervisors and managers approving official travel, and authorized supervisors and managers approving employee timesheets. There are many other examples of delegated obligation authority but the one thing in common is that these individuals have been assigned the responsibility (in writing) and have inherent knowledge and/or have received adequate training to execute the delegated responsibilities.

Unauthorized Commitment and Ratification
  1. The term used when an unauthorized individual attempts to create an obligation on behalf of the Government is referred to as “unauthorized commitment.” The FAR § 1602-3 describes an unauthorized commitment as "an agreement that is not binding solely because the Government representative who made it lacked authority to enter into that agreement on behalf of the Government." The Government can still approve an unauthorized commitment by using requirements established by the agency and supported in the FAR. The FAR § 1602-3 describes "ratification" as the "act of approving an unauthorized commitment by an official who has authority to do so." For more information regarding IRS ratification and unauthorized commitment procedures refer to Interim Internal Revenue Manual, Internal Revenue Service Acquisition Procedure (IRSAP), v.2, 1001.602-3

Validation and Approval
  1. The starting point for ensuring Government purchases meet all requirements of law, executive orders, regulations, and all other applicable IRS procedures is validation and approval. The GAO Red Book states that determining whether appropriated funds are legally available for something depends on three things:

    • The purpose of the obligation or expenditure must be authorized.

    • The obligation must occur within the time limits applicable to the appropriation.

    • The obligation and expenditures must be within the amounts Congress has established.

  2. These three basic tenants (purpose, time, and amount) are described as cornerstone legislation referred to as the Antideficiency Act (ADA).

Antideficiency Act
  1. The compilation of laws and Federal regulations establish the ground rules that managers must abide by regarding the "availability of an appropriation" in making purchases to accomplish assigned missions. To restrict agencies from over-obligating, or over-spending, cornerstone legislation referred to as the ADA was established. The ADA is one of the major laws in which Congress exercises its constitutional control of the public purse.

  2. The ADA prohibits:

    • Making or authorizing expenditure from, or creating or authorizing an obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund unless authorized by law. (31 USC § 1341 (a)(1)(A)).

    • Involving the Government in any contract or other obligation for the payment of money for any purpose in advance of appropriations made for such purpose, unless the contract or obligation is authorized by law. (31 USC § 1341 (a)(1)(B)).

    • Accepting voluntary services for the United States, or employing personal services in excess of that authorized by law, except in cases of emergency involving the safety of human life or the protection of property. (31 USC § 1342).

    • Making obligations or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted by agency regulations. (31 USC § 1517(a)).

Availability of Appropriations - Purpose
  1. The first step managers accomplish when spending appropriated funds is ensuring that every purchase meets the authorized purpose for the appropriation.

  2. The process of purchasing begins with the BU approving and establishing the initial commitment of funds. The BUs approving official decides whether the requisition is appropriate. This approval process considers the legal determination that there is a specified purpose within the language of the appropriation Act, or in agency regulations/guidance. In the absence of specific language authorizing a purchase, there is a reasonable acceptance of "common sense" in determining whether a requested purchase conforms to the "purpose" of the appropriation. The GAO Red Book, Volume I, Chapter 4B states that the spending agency has reasonable discretion in determining how to carry out the objects of the appropriation. This concept is known as the "necessary expense doctrine."

  3. The official doctrine contained in CG 619, 621 (1927) states, "It is a well-settled rule of statutory construction that where an appropriation is made for a particular object, by implication it confers authority to incur expenses which are necessary or proper or incident to the proper execution of the object, unless there is another appropriation which makes more specific provision for such expenditures, or unless they are prohibited by law, or unless it is manifestly evident from various precedent appropriation acts that Congress has specifically legislated for certain expenses of the Government creating the implication that such expenditures should not be incurred except by its express authority."

  4. When applying the necessary expense rule, the expenditure can be justified after meeting a three-part test:

    • The expenditure must bear a logical relationship to the appropriation sought to be charged.

    • The expenditure must not be prohibited by law.

    • The expenditure must not fall within the scope of some other appropriation funding scheme.

Availability of Appropriation -Time
  1. Congress can, and often does, impose its will by affixing terms of availability (time) associated with appropriations. When an appropriation is by its terms made available for a fixed period of time, the general rule is that the availability relates to the authority to create new obligations.

  2. Appropriations are categorized by the following time elements:

    • Annual Appropriations (also called one-year appropriations) are made for a specified fiscal year and are available for obligation only during the fiscal year for which it is made.

    • Multiple-Year Appropriations are available for obligation for a definite period in excess of one fiscal year.

    • No-Year Appropriations are available for obligation without fiscal year limitation. For an appropriation to be considered a no-year appropriation, the appropriating language must include a no-year statement. The standard language used to make no-year appropriations is "to remain available until expended."

  3. An important rule affecting the recording of obligations is the "bona fide need" rule. It states that a fiscal appropriation may be obligated only to meet a legitimate, or bona fide, need arising in the year to be obligated. Although the bona fide need rule remains a bedrock principle of fiscal law, it has evolved over time. In the 1990s, Congress enacted laws providing for more flexibility allowing for service contracts to cross fiscal years. Today, there is general authority permitting agencies to acquire goods and services via multiyear acquisitions, and to enter into one-year contracts for severable services that cross fiscal years.

Availability of Appropriations - Amount
  1. Under the Constitution, Congress makes laws and provides money for the Executive Branch agencies to implement them. Congress has the final word on how much money and on which programs. This is referred to as the "power of the purse."

  2. The IRS controls the budget authority provided by Congress by distributing funds according to financial plans approved through the Corporate Budget Office. These funds are “loaded” into IFS creating budget authority and limitations for the BUs. Each BU financial plan has a Financial Plan Manager that monitors and approves requisitions according to approved financial plans. These financial plans are very important documents controlling and measuring operational progress throughout the fiscal year. All BUs must adhere to the limitations established in their financial plans or submit unfunded requirements through approved leadership channels to Corporate Budget.

Prior Year Obligation Adjustments
  1. Upon expiration of a fixed appropriation, the obligated and unobligated balances retain their fiscal year identify in an “expired account” for that appropriation for an additional five fiscal years.

  2. The purpose of an "expired" appropriation is to limit transactions to expenses, or adjust properly recorded obligations made during the period of availability. The expired account balance remains available to make legitimate adjustments which include the recording of previously unrecorded obligations and to make upward adjustments in previously under recorded obligations.

  3. The IRS predominantly makes prior year obligation adjustments to:

    • Adjust previously recorded obligations without a change in scope to the nature of the original obligation performance,

    • Record a valid prior year obligation that was erroneously de-obligated through administrative (or system) error, or

    • To record a valid prior year obligation that was not recorded (by error) and mandated by legal authority or verified audit authority.

  4. In all instances, the adjusting of prior year obligation balances requires a separate and unbiased review process ensuring that the adjustment is a proper use of prior year funds. Business units must provide sufficient supporting documentation (and approval) that the requested obligation adjustment is "not a change in scope" to the original obligation. The documentation should be of sufficient detail to be validated by a third party review. Business units need to ensure that they forward requested prior year obligation adjustments with sufficient time to complete a thorough review of the upward adjustment, including a review by Chief Counsel and/or Procurement (if required).

  5. BFC validates that all prior year obligation adjustments possess supporting documentation, proper validation and approval, and a statement supporting that there is "no change in scope" to the original obligation before posting the prior year adjustment in IFS.

  6. As a practical matter, agencies must maintain separate obligated and unobligated balances within the expired account, as part of their internal financial management systems, in order to insure compliance with the ADA. The CFO Financial Reports Office conducts quarterly reviews of prior year account balances to identify changes to these accounts and takes necessary actions.

  7. The IRS prior year approval process ensures that a comprehensive review is conducted for prior year adjustments validating the necessity of available prior year budget authority. An important point to remember is that these adjustments are valid obligations that were incorrectly recorded before the end of the period of obligation. Therefore, all efforts should be accomplished during the period of obligation to correctly record and fund obligations. Insufficient prior year funding places the IRS in jeopardy of violating the ADA.

"In Writing" Requirement
  1. Federal regulations and U.S. Code state that an obligation, or contract must exist "in writing" in some acceptable form. When either party disagrees to the interpretation of requirements in an obligation, U.S. Courts will provide rulings based on the written language contained within the obligating documentation.

  2. Not only does an obligation need to be in writing, it requires evidence of a binding agreement for specific goods or services. An agreement that fails this test is not a valid obligation. The Comptroller General (CG) found that a purchase order which lacks a description of the products to be provided is not sufficient to create a recordable obligation (CG, B-196109, Oct 23, 1979).

  3. For the IRS, obligating documentation must contain a description of the specific goods, real property, work, or services that are to be accomplished/received along with supporting documentation to validate the cost. The Procurement Office will assist business units in identifying other contract information for requisitions requiring obligation from a warranted contracting officer.

Recording the Obligation - Process Description

  1. The previous sections describe the processes involved with the business unit requesting, validating and establishing a legal obligation for the procurement of goods and/or services necessary to accomplish assigned missions during the appropriations period of availability. This section focuses on how the IRS records the obligation into the financial system of record, the Integrated Financial System (IFS).

  2. 31, USC, section 1501, states: "An amount shall be recorded as an obligation of the United States Government only when supported by documentary evidence of a binding agreement between an agency and another person (including an agency) that is – "

    • "In writing, in a way and form, and for a purpose authorized by law; and"

    • "Executed before the end of the period of availability for obligation of the appropriation or fund used for specific goods to be delivered, real property to be bought or leased, or work or service to be provided."

  3. The IRS processes and records obligations into IFS in two ways:

    • Through the use of systemic interfaces: IPS, Electronic Travel System (ETS), and other systems such as Purchase Card (PC) and Automated Lien System (ALS).

    • By manually inputting the obligations directly into IFS.

Systemic Obligation Interfaces

  1. The primary process of establishing IFS obligations is through a systemic interface. These obligations utilize a different data system for inputting obligation requests (requisitions). The systems currently feeding into IFS are IPS, Electronic Travel System (ETS), Government Purchase Card (PC) module, and Automated Lien System (ALS). These systems interface regularly with IFS.

  2. Systemic obligation interfaces are described in the following sections:

    • Processing Procurement System Obligations.

    • Processing Travel and Relocation Obligations.

    • Processing Other Systemic Obligations.

Processing Procurement System Obligations
  1. Once the BU identifies a need and creates a requisition in IPS for a procurement action, a Contracting Officer (CO) will perform a series of steps to obtain the goods or services resulting in the generation of an award.

  2. The generation of an award is an obligation to the Government. Obligation data is processed through the IPS/IFS interface recording a Procurement Award (PM), Invoice Processing Platform Relevant Award (FR), or Interagency Agreement (IM) obligation document in IFS. The transaction codes PM/FR /IM are used to uniquely identify Procurement System obligations from other IFS obligations.

  3. The IPS sends obligation information three times a day to IFS. The interface creates documents that are processed as part of the interface cycle. Any errors show as “rejected” on the Batch Document Communication (BDC) file in IFS. Procurement, BFC and the BUs must work together to correct the documents that reject. There are two main reasons that a document could reject:

    • Insufficient funds - As a purchase order is processed, the available funds on the accounting line(s) of the referenced requisition are reduced. The procurement system will not allow orders to be processed for more than the amount of the established commitment. If the committed amount will be exceeded, an amendment to the requisition must be completed to add additional funds before the order can be processed.

    • Vendor code issues - On occasion, a purchase order vendor may not match the obligation vendor of record. All vendor code corrections are handled manually. If a vendor code issue exists, BFC will work with Procurement to resolve it before processing the modification from the BDC.

  4. The programs listed in table show IRS obligations using this method of obligation:

    Program / Process Obligating Documents Obligation Method The BU is responsible for: IFS Recording Requirement
    Contracts (TIR), Delivery Order (DO), Purchase Order (PO), Task Order (TO) SF 26, Award/Contract IPS Interface Submitting an IPS requisition with adequate funding and a clear description of required goods and services within a time period adequate for the Contracting Officer (CO) to complete award process prior to the start of services or receipt of goods. Obligations must be recorded within 5 business days of when the CO signs the award.
    SF 33, Solicitation, Offer, and Award IPS Interface
    SF 1447, Solicitation / Contract IPS Interface
    SF 1449, Solicitation / Contract / Order for Commercial Items IPS Interface
    OF 347, Order for Supplies or Services IPS Interface
    Contract, Delivery Order, Purchase Order, Task Order Modification SF 30, Amendment of Solicitation / Modification of Contract IPS Interface Obligations must be recorded within 5 business days of when the CO signs the amendment / modification.
    Delegated Leases OF 347 IPS Interface Submitting an IPS requisition with adequate funding and a clear description of required goods and services within a time period adequate for the CO to complete award process prior to the start of lease agreement. Obligations must be recorded within 5 business days of when the CO signs the lease agreement.
    Government Interagency Agreements (IAA) Form 12270, IRS Interagency Agreement Between Federal Agencies, or SF30 IPS Interface Submitting an IPS requisition with adequate funding and a clear description of required goods and services within a time period adequate for the CO to complete award process prior to the start of services or receipt of goods. Obligations must be recorded within 5 business days of when the CO signs the IAA.
Processing Travel and Relocation Obligations
  1. Travel authorizations are created and approved within ETS. Travel authorizations are input into the system and approved by authorized officials. The obligations are recorded in IFS through a regular scheduled interface.

  2. Relocation authorizations begin with the BU forwarding an approved authorization form to BFC. The BFC manually inputs the form’s data into ETS. The ETS then interfaces regularly with IFS creating the obligation.

  3. The ETS uses modules tracking different types of data. Examples include:

    • Authorization Modules: support the creation, modification, deletion, opening, closing, and viewing of relocation authorizations (obligations).

    • Voucher Modules: support the creation, modification, deletion, and viewing of relocation vouchers.

    • Third-Party Modules: support the creation, deletion, and viewing of third-party invoices.

    • Advance Modules: support the creation, modification, deletion, and viewing of relocation advances.

  4. Nightly, the ETS sends obligation information to IFS. The interface creates documents that are processed as part of the interface cycle. Any errors show as “rejected” on the BDC file in IFS. The BUs and BFC must work together to correct the documents that reject.

  5. There are several main reasons that a document could reject:

    • Insufficient funds - If a BU has exceeded available funds at the accounting level, the IFS system will not allow the obligation to be established. The BFC contacts the BU to increase the available funding.

    • Consumption exceeded - This occurs when tolerance is exceeded and additional funding is needed on one of the obligation lines.

    • Vendor code issues - A vendor record is not active in IFS. The Master Data Coordinator at BFC will correct the inactive vendor code in IFS for ETS.

    • Incorrect line of accounting – If the authorization contains an incorrect line of accounting, the IFS system will not allow the obligation to process. The BU must provide a valid line of accounting.

  6. The programs listed in this table show IRS obligations using Systemic Obligations: Travel and Relocation

    Program / Process Obligating Documents Obligation Method The BU is responsible for: IFS Recording Requirement
    Relocation and Related Centrally Billed Account (CBA) Activity, Basic Form 4253-A, Authorization for Basic Moving Expenses ETS Interface Forwarding an approved Form 4253-A to BFC no later than 10 business days after approval. Obligations must be recorded within 15 business days of approval of the Form 4253-A.
    Relocation, Basic Plus Form 4253-B, Authorization for Basic Plus Moving Expenses ETS Interface Forwarding an approved Form 4253-B AND an approved Relocation Request Form to BFC no later than 10 business days after approval of the Relocation Request Form by the appropriate Deputy Commissioner. Obligations must be recorded within 15 business days of approval of the Relocation Request Form by the appropriate Deputy Commissioner.
    Travel and Related Centrally Billed Account (CBA) Activity, if applicable ETS Trip Authorization ETS Interface Submit and approve required official travel in ETS before the beginning of the travel period. Obligations must be recorded before the beginning of the travel period.
Processing Other Systemic Obligations
  1. There are other systemic obligations where the payment process lends itself to an obligate-as-you-pay approach.

  2. Purchase card transactions are not obligated at time of order. Instead, Citibank sends a file of transactions each day to IPS to be downloaded into the PC Module. Once downloaded, transactions are available for reconciliation and approval.

    • Transactions that are both reconciled and approved are interfaced daily to IFS and an obligation is created.

    • At the end of the 10th business day after the download date (and each day thereafter) transactions that are reconciled or approved (but not both) are also interfaced to IFS and an obligation is created.

    • Transactions that have not been reconciled or approved remain unobligated until either the cardholder reconciles or the approving official approves. The BFC monitors the activity and performs outreach to the appropriate parties to inform them of pending action. Agency-Wide Shared Services (AWSS) Credit Card Services (CCS) provides timely information to each business unit of transactions that have not been reconciled/approved.

  3. Lien fee transactions are not obligated at the time of order. Instead, once confirmation occurs in ALS that the lien request has been mailed, the related payment request for the lien fee is automatically uploaded from ALS. This automatic upload occurs every Wednesday and Friday. Disbursement occurs the same day.

  4. The programs listed in this table show IRS obligations using Systemic Obligations: Other

    Program / Process Obligating Documents Obligation Method The BU is responsible for: IFS Recording Requirement
    Purchase Card / Convenience Checks (PC Module) Reconciled and/or Approved Transaction IPS Interface Ensuring cardholders and/or approvers reconcile and approve all transactions within 10 business days of the PC module file creation. Appropriate transaction should be recorded within 15 business days of the PC Module creation date.
    Lien Fees Confirmed ALS Lien Request ALS Interface Confirmation that the mailing of lien requests is conducted two times each week. The confirmation is recorded in ALS once mailroom confirms the lien request has been mailed. Appropriate transaction must be recorded within 5 business days of the confirmation that the lien request was mailed in ALS.

Manual Obligations

  1. Manual obligations are processed and posted into IFS by obligation technicians at BFC. The BFC manually enters the obligation after receiving the proper obligating documentation from the BU. The BUs are responsible for ensuring obligating documentation supports valid obligations, includes sufficient funding, is properly coordinated (if required), and sent to BFC in a timely manner before the start of service or ordering of goods. There are exceptions noted in the following charts for certain manual obligation programs.

  2. It is imperative that BUs resolve all funding issues (i.e., ensuring adequate funds are included for current year obligations or coordination with Corporate Budget for prior year obligation adjustments) before submitting documentation to BFC. Insufficient funding adversely affects the entire obligation process, jeopardizing the IRS’ ability to meet established recording requirements.

  3. To allow time for processing, BFC will post manual obligations into IFS within five business days after receipt of the obligation documents to meet established IFS recording requirements. Any exception to meeting this requirement due to extenuating circumstances will be documented and forwarded to BFC leadership.

  4. The IRS establishes and manages manual obligations using several different methodologies. The following sections describe the three manual methodologies the IRS uses along with associated obligating documentation and general recording requirements:

    • Manual Obligation Based on Pre-Established Rates or Professional Cost Estimates.

    • Manual Obligation Based on Historical Trends.

    • Manual Obligation Based on Actual Invoice or Claim.

Manual Obligation Based on Pre-Established Rates or Professional Cost Estimates
  1. There are many IRS requirements that can establish an accurate estimated obligation based on pre-established rates or professional cost estimates. In these instances, once BUs forward the proper obligating documentation to BFC, the BFC technician will manually enter the required information into IFS.

  2. In addition, during the year, BUs must periodically validate the estimated obligation to ensure that costs are expensed according to expectations. If not, revisions to the obligating document might be necessary. This includes adding funds in advance of service providers exceeding the existing document balance and/or deobligating funds once requirements are known to be lower than the obligation document balance.

  3. The following is a list of IRS programs that use this method of estimated manual obligations:

    Program / Process Obligating Documents Obligation Method The BU is responsible for: IFS Recording Requirement
    Blanket Purchase Agreement (BPA) Form 8567 - BPA Log Manual Forwarding the Form 8567 (BPA Log) to BFC no later than the 8th calendar day of the month following the month of the call log. Obligations must be recorded by the 15th business day of the month following the month of the call log.
    GSA Admin Autos Form 2785, Requisition / Obligation Estimate Adjustment Notice, and Motor Vehicle Order Manual Forwarding the approved Form 2785 and Motor Vehicle Order to BFC within 10 business days of completion of GSA motor vehicle order. Obligations must be recorded upon creation/approval of Form 2785 and within 15 business days of completion of GSA motor vehicle order.
    GSA Rent Form 2785 Manual Forwarding the approved Form 2785 monthly to BFC a minimum of five business days before the start of service. Obligations must be recorded monthly upon creation/approval of Form 2785 and prior to the start of service.
    Postage Form 2785 Manual Forwarding the approved Form 2785 to BFC a minimum of five business days before the start of service. Obligations must be recorded upon creation/approval of Form 2785 and prior to the start of service. Funding is added throughout the year as needed.
    GSA Fedstrip GSA Form 2957, Reimbursable Work Authorization Manual Forwarding an approved GSA Form 2957 to BFC within 10 business after approval AND five business days prior to the start of service or ordering of goods. Obligations must be recorded within 15 business days of the creation/approval of GSA Form 2957 and prior to start of service or ordering of goods.
    Reimbursable Work Authorization (RWA) GSA Form 2957 Manual Forwarding an approved GSA Form 2957 to BFC within 10 business days after approval AND five business days prior to the start of service or ordering of goods. Obligations must be recorded within 15 business days of the creation/approval of GSA Form 2957 and prior to the start of service or ordering of goods.
    Security Work Authorization (SWA) Form FPS 57, Security Work Authorization Manual Forwarding an approved FPS 57 to BFC within 10 business days after approval AND five business days prior to the start of service. Obligations must be recorded within 15 business days of the creation/approval of Form FPS 57 and prior to the start of service.
    Travel / Related Centrally Billed Accounts (CBA) Activity, if applicable Form 13635, Manual Travel Authorization Manual Forwarding an approved Form 13635 to BFC within 10 business days after approval AND five business days prior to the beginning of travel. Obligations must be recorded within 15 business days of the creation/approval of Form 13635 and before the beginning of the travel period.
Manual Obligation Based on Historical Trends
  1. Another way to establish an accurate estimated obligation is through analysis of prior year expenses to determine the estimated obligation amount. These estimates tend to have more risks as prior year cost factors fluctuate more than published fixed rates. The BFC will manually enter the required information into IFS once the BUs forward the proper obligating documentation.

  2. In addition, during the year, BUs must periodically validate the estimated obligation to ensure that costs are expensed according to expectations. If not, revisions to the obligating document might be necessary. This includes adding funds in advance of service providers exceeding the existing document balance and/or deobligating funds once requirements are known to be lower than the obligation document balance.

  3. The following is a list of IRS programs that use this method of estimated manual obligations:

    Program / Process Obligating Documents Obligation Method The BU is responsible for: IFS Recording Requirement
    Sales and Seizure Expenses Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Government Bill of Lading (IRBL) Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Commercial Bill of Lading (CBL) Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Administrative Summons Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Attorney Bar Association Dues Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Miscellaneous Employee Reimbursement Form 2785 or 1334, Requisition Worksheet Manual Forwarding an approved Form 2785 or 1334, Requisition Worksheet, to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Printing (Government and non-Government) Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the creation/approval of 2785 and prior to the start of service.
    Telephones (GSA & Public / Commercial) Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Consolidated American Payroll Processing System Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Foreign Service Accounts Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Motor Pool Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Unemployment Compensation for Federal Employees Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Witness Fees Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the creation/approval of Form 2785 and prior to the start of service.
    Travel Service Virtual Office Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after the start of a new fiscal year. Obligations must be recorded within 15 business days of the start of the new fiscal year and after creation/approval of the Form 2785. Funding is added throughout the year as needed.
    Investigative Advances Memo Manual Forwarding a valid Memo to BFC within 10 business days of approval. Obligations must be recorded within 15 business days of the creation/approval of Memo.
Manual Obligation Based on Actual Invoice or Claim
  1. This type of manual obligation includes IRS programs where the purchase of the goods/services being provided is infrequent, or the payment process lends itself to an obligate-as-you-pay approach. The BFC manually enters the required information into IFS in these instances once the BU forwards the proper obligating documentation.

  2. The following is a list of IRS programs that use this method of manual obligation:

    Program / Process Obligating Documents Obligation Method The BU is responsible for: IFS Recording Requirement
    Purchase Card / Convenience Checks (non-PC Module) Reconciliation Worksheet Manual Forwarding the Reconciliation Worksheet by the 21st of the month for which the statement cycle ends. Obligations must be recorded by the end of the month for which the statement cycle ends.
    Fuel and Maintenance Credit Cards Reconciliation Worksheet Manual Forwarding the Reconciliation Worksheet by the 27th of the month for which the statement cycle ends. Obligations must be recorded by the first week of the following month for which the statement cycle ends.
    Federal Tax Lien Revolving Fund (FTLRF) BU Authorizing Memorandum, Chief Counsel Opinion, and Form 4376, Report of Investigation Manual Forwarding the BU Authorizing Memorandum, Chief Counsel Opinion, and the Form 4376 to BFC within 10 business days after approval of the Form 4376 by the Territory Manager. Obligations must be recorded within 15 business days of the approval of Form 4376 by the Advisory Territory Manager.
    Training SF 182, Authorization, Agreement, and Certification of Training Manual Forwarding an approved SF 182 to BFC within 10 business days after approval AND five business days prior to the start of service. Obligations must be recorded within 15 business days of creation/approval of SF 182 and prior to the start of service.
    Government Bill of Lading (IRBLs) Form 12741, IRS Bill of Lading, or Form 2785 Manual Forwarding an approved Form 12741 to BFC within 10 business days after approval. Obligations are to be recorded within 15 business days of the approval of the Form 12741.
    Miscellaneous Employee Reimbursement Form 2785 or 1334, Requisition Worksheet Manual Forwarding an approved Form 2785 or 1334, Requisition Worksheet, to BFC within 10 business days after approval of SF 1034. Obligations must be recorded within 15 business days of the approval of the SF 1034, Public Voucher for Purchases and Services Other Than Personal.
    Attorney Fees Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after issuance of the Authorization Memorandum. Obligations must be recorded within 15 business days of the issuance of the Authorization Memorandum.
    Child Care Subsidy Form 2785 Manual Forwarding an approved 2785 to BFC within 10 business days after approval of the invoice. Obligations must be recorded within 15 business days of the approval of the invoice.
    Inter-governmental Personnel Act Agreement Form 2785 Manual Forwarding an approved 2785 to BFC within 10 business days after approval of the invoice. Obligations must be recorded within 15 business days of the approval of the invoice.
    Miscellaneous Medical Services (Foreign Medical) Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after approval of the Department of State Form, MED 254, Voucher for Medical Services. Obligations must be recorded within 15 business days of the approval of the Department of State Form, MED 254.
    Personal Property Claims 1334, Requisition Worksheet Manual Forwarding an approved 1334, Requisition Worksheet, to BFC within 10 business days after issuance of the Authorization Memorandum. Obligations must be recorded within 15 business days of the issuance of the Authorization Memorandum.
    Representation Fund 1334, Requisition Worksheet Manual Forwarding an approved 1334, Requisition Worksheet, to BFC within 10 business days after approval of the SF 1034. Obligations must be recorded within 15 business days of the approval of the SF 1034.
    Settlements Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after issuance of the Authorization Memorandum. Obligations must be recorded within 15 business days of the issuance of the Authorization Memorandum.
    Tort Claim 1334, Requisition Worksheet Manual Forwarding an approved 1334, Requisition Worksheet, to BFC within 10 business days after approval of the SF 1145, Voucher for Payment Under Federal Tort Claims Act. Obligations must be recorded within 15 business days of the approval of the SF 1145.
    Uniform Allowance 1334, Requisition Worksheet Manual Forwarding an approved 1334, Requisition Worksheet, to BFC within 10 business days after approval of the SF 1034. Obligations must be recorded within 15 business days of the approval of the SF 1034.
    Witness Fees Form 2785 or 1334, Requisition Worksheet Manual Forwarding an approved Form 2785 or 1334, Requisition Worksheet, to BFC within 10 business days after approval of the SF 1157, Claims for Witness Attendance Fees, Travel and Miscellaneous Expenses. Obligations must be recorded within 15 business days of the approval of the SF 1157.
    Attorney Bar Association Dues Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after approval of the SF 1034. Obligations must be recorded within 15 business days of the approval of the SF 1034.
    Certified Public Accountant License Renewal Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after approval of the SF 1034. Obligations must be recorded within 15 business days of the approval of the SF 1034.
    Disclosure of Information - Administrative Claims Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after approval of the Claim Letter. Obligations must be recorded within 15 business days of the approval of the Claim Letter.
    Hazardous Material Testing Claim Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after approval of the SF 1034. Obligations must be recorded within 15 business days of the approval of the SF 1034.
    Landlord Agreement Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after approval of the Certification of Landlord Compliance. Obligations must be recorded within 15 business days of the approval of the Certification of Landlord Compliance.
    Federal Government Flexible Spending Account (FSAFEDS) Administration Fees Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after approval of the invoice. Obligations must be recorded within 15 business days of the approval of the invoice.
    National Treasury Employees Union Attorney Fees Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after issuance of the Authorization Memorandum. Obligations must be recorded within 15 business days of the issuance of the Authorization Memorandum.
    Taxpayer Claims Form 2785 Manual Forwarding an approved Form 2785 to BFC within 10 business days after issuance of the Authorization Memorandum. Obligations must be recorded within 15 business days of the issuance of the Authorization Memorandum.

Funding the Obligation

  1. As obligations are created, it is important to ensure that adequate funding is obligated to properly expense the IRS liability. The GAO states that, “The precise amount of the government’s liability should be recorded as the obligation where that amount is known. However, where the precise amount is not known at the time the obligation is incurred, an obligation amount must still be recorded on a preliminary basis. As more precise data on the liability becomes available, the obligation must be periodically adjusted, that is, the agency must deobligate funds or increase the obligation level as the case may be (7 GAO-PPM § 3.5.D; B-300480, Apr. 9, 2003). Adjustments to recorded obligations, like the initial recordings themselves, must be supported by documentary evidence.

  2. For all obligations, work should not begin unless appropriated funds have been made available to support the obligation. The following sections explain exceptions to this standard practice of fully funding an obligation as it is established.

Zero Dollar Requisition Process for New Fiscal Years

  1. The Federal Government's fiscal year begins on October 1 and ends on September 30 (of the following calendar year). Ideally, a new budget is passed by Congress and signed into law by the President for the upcoming fiscal year before September 30, funding Federal operations for the entire fiscal year. In the absence of such legislation, Congress usually creates temporary funding "bridges" known as a Continuing Resolution Authority (CRA).

  2. There are instances when the IRS must start the obligation process in advance of receiving an appropriation because the IRS cannot afford a disruption of contractor-delivered critical services that are due to be renewed by October 1. In these instances, the IRS starts the pre-award contracting process using a “zero dollar requisition” document. This document allows the Procurement Office to begin the pre-award contracting process ensuring that all contractual documentation are developed minimizing the risk of a break in required services. Procurement will always include FAR clause 52.232-18 "Availability of Funds" in the award:
    "Funds are not presently available for this contract action. The Government’s obligation under this contract is contingent upon the availability of appropriated funds from which payment for contract purposes can be made. It is anticipated that once an appropriation is enacted and the budget is received, funds in the amount of $______, will be provided"

  3. Therefore, it is critical that the obligation be immediately funded once appropriations are received and apportionments are approved to allow the contractor to continue services and allow the IRS to expense incurred liabilities. These instances occur as the IRS transitions from one fiscal year to the next fiscal year.

  4. There are additional circumstances that might cause or result in a slight delay in funding the obligation (i.e., system outages, funding approval process), but all zero dollar requisitions must be fully funded no later than 30 days after the beginning of the new fiscal year, or within 30 days of each subsequent CRA act (if the business unit chooses to incrementally fund the requirement because of CRA funding limitations).

  5. There are other instances when business units will start the pre-award contracting process with Procurement using the zero dollar requisition process, such as when there are long lead times in the procurement process. Additional instances include efforts with other agencies, or IRS business units, in developing joint agreements and/or Economy Act orders. In all of these instances, an obligation cannot be established without documentary evidence of a contract award and a fully funded purchase request.

  6. If a BU must start a manual obligation process for an upcoming fiscal year's services that cannot afford a break in service, then the use of a zero dollar requisition can also be used. Some providers of Economy Act service agreements mandate obligation documentation in advance of the IRS receiving appropriated funds. The same funding clauses utilized by Procurement must be included in the obligating documentation and the BU must ensure that zero dollars are identified in the field that lists amount to be obligated. These manual obligating documents will require an approved amendment with BU funding once an appropriation is received by the IRS.

  7. In instances when the full obligation requirement is unknown at the time of the award, the IRS must minimally fund the estimated IRS liability associated with the obligation. Refer to Procurement Policy and Procedures Memorandum No. 32.7(A) for current information on the use of Processing Requisitions for the Upcoming Fiscal Year using zero dollar requisitions.

Incremental Funding for IRS Liabilities

  1. The Federal Accounting Standards Advisory Board (FASAB) states that, "A liability arises from a reciprocal or “exchange” transaction (i.e., transactions in which each party to the transaction sacrifices value and receives value in return) and should be recognized when one party receives goods or services in return for a promise to provide money or other resources in the future." Therefore, a liability arises when one party takes action(s) causing a probable and measurable future outflow of resources resulting from the event. "Probability refers to actions which can reasonably be expected or is believed to be more likely than not on the basis of available evidence or logic with the exception of pending or threatening litigation and unasserted claims (SFFAS #5, (33)). " Therefore, a liability arises when one party takes actions(s) causing a probable and measurable future outflow of resources resulting from the event. Probability refers to actions which can reasonably be expected or is believed to be more likely than not on the basis of available evidence or logic with the exception of pending or threatening litigation and unasserted claims. For the IRS, these "reciprocal or exchange" transactions usually occur as a part of the authorized goods and services delivered within the performance work statements of awarded contracts. Once a contractor takes authorized action(s) as part of an awarded contract, and the IRS receives value, the IRS has likely incurred a liability. The IRS should recognize and fund these liabilities before the period of performance begins, even when using incremental funding.

  2. Liabilities directly affect incrementally funded obligations. IRS liabilities usually fall into two liability categories:

    1. Authorized Goods or Services: If the IRS has directed the contractor to proceed with services as part of an approved and valid obligation agreement, then the IRS must fund and expense the appropriate accrued liabilities.

    2. Potential Termination Costs: Additionally, the IRS must account for any termination cost associated with contracts that they choose not to continue "for the convenience of the Government" (if included as part of the obligated contract). These are also liabilities to the IRS.

  3. Remember, the key is that the IRS should fully fund the obligation, but minimally must fund all known (or estimated) IRS liabilities. The inability to timely fund obligations (and liabilities) places the IRS at risk for violating the ADA.

Incrementally Funding During Continuing Resolution Authority
  1. If the business unit must incrementally fund an obligation, due to CRA funding constraints, Procurement will include the following language in the award:
    "Funds in the amount of $______ are presently available. The Government’s obligation under this contract is contingent upon the availability of appropriated funds from which payment for contract purposes can be made. It is anticipated that once an appropriation is enacted and the budget is received, additional funds in the amount of $_______ will be added to the contract to fully fund the period of performance for which the funding is provided."

  2. Incremental funding due to a CRA is an approved strategy that doesn't require CFO leadership approval before implementation. It is important to remember that all unfunded obligations must be fully funded no later than 30 days after the IRS receives its enacted appropriations and approved apportionments.

Non-Continuing Resolution Authority Incremental Funding
  1. Obligations should be fully funded once established to ensure the IRS is compliant with the statutes associated with the ADA. There are circumstances that could limit the IRS' ability to fully fund the obligation even after the IRS budget authority has been enacted and received. In these unique circumstances, it is important for the BU to notify and gain approval from CFO senior leadership for using an incremental approach to fund these non-CRA affected obligations.

  2. Should a BU find it necessary to incrementally fund a non-CRA affected obligation during the fiscal year, the BU must forward the incremental funding request through their DFO to the ACFO for FM. The ACFO for FM will coordinate and approve in conjunction with the Director, Office of Procurement, and the ACFO for Corporate Budget, approval for using an incremental funding strategy.

  3. The approved incremental funding strategy must identify the relevant future funding sources for fully funding the obligation. These incrementally funded obligations must be closely monitored to ensure that planned funding sources are realized. If any of the funding sources are not realized, the BU must immediately notify the approval chain allowing IRS senior leadership, the DFO, and the BU to take necessary actions.

Advance Payment

  1. There are a few instances when a contractor, or Federal agency providing goods or services to the IRS, will request an advance payment. These are approved only under exceptional circumstances by the CFO's Financial Reports Office.

  2. The Office of Procurement will conduct the research to ensure that the requesting contractor qualifies under the FAR for advance payments. Once validated, Procurement will recommend advance payment to the CFO Financial Reports Office.

  3. The CFO Financial Reports Office will coordinate and approve all advances as necessary based on Procurement's recommendation.

  4. Where advances have been approved, the BU managers must ensure that services and/or goods have been received in a timely manner according to obligation terms. Any variance should be reported to Procurement and CFO Financial Reports Office as soon as possible.

Financial Reporting

  1. An inherently governmental responsibility is to develop an approved financial management system that reports the accurate and current status of assigned funds, assets and liabilities. 31 USC § 3512 states, agencies are required by law to “implement and maintain financial management systems that comply substantially with” the United States Standard General Ledger (USSGL). The IRS uses two different but overlapping accounting methods for reporting the status of appropriated funds. The two methods for reporting funds are generally known as “obligation accounting” and “proprietary accounting”. Both accounting method transactions are recorded in IFS and play an important part in meeting the IRS financial accountability to the federal government and the American people.

  2. IRS financial reports serve several purposes. They allow the Treasury, OMB, and Congress to monitor the status (obligations and expenditures) of appropriated funds. They support management decisions in managing assigned programs. They also allow managers to control the cost of operations.

  3. The ADA is codified in various sections of 31 USC (§§ 1341, 1514, and 1517, and the provisions of section 1501, commonly referred to as the recording statute). These sections of the U.S. code provide the fundamental components of obligation accounting. The ADA requires each agency head to establish an administrative system of funds control designed to restrict obligations or expenditures and to affix responsibility for obligations and expenditures. The recording statute requires agencies to account for obligations as a key mechanism for measuring compliance. The basic premise of obligation accounting is that if an agency controls its obligations, it is unlikely to overspend, or improperly use, its appropriations. Additionally, Treasury publishes guidance in the Treasury Financial Manual for agencies to follow in accounting for the use of funds and in preparing financial reports on their accounts. Reports on the status of funds obligated and expended are periodically reported through Treasury. The Comptroller General (CG) also has statutory authority to settle the accounts of the U.S. government that involves the review and determination that obligations and disbursements from an account were made in accordance with law.

  4. The key difference between budgetary and proprietary accounting is that budgetary accounts are used to recognize and track budget approval and execution, whereas proprietary accounts are used to recognize and track assets, liabilities, revenues, and expenses. Under budgetary accounting, the IRS records an obligation when the business unit places a purchase order or signs a contract. An obligation, once incurred, reduces the unit’s resources available for obligation. Budgetary accounting entries are required to record the amounts obligated and to reduce the available budget authority. For financial reporting purposes, liabilities are recognized when goods and services are received or are recognized based on an estimate of work completed under a contract or agreement (SFFAS #1, (152)).

  5. The IRS established various time requirements identified within the tables of this IRM ensuring compliance with applicable statutes, regulations and audit findings and opinions. The most important aspect of accurate financial reporting is that IRS managers make daily decisions based on information contained within IRS financial management systems. It is a leadership assumption that the data contained within the systems and reports is accurate. The quality of management's decisions is directly tied to the accuracy of the systems data. Not recording both timely and accurate obligations and commitments places the IRS in jeopardy of violating Federal statutes and regulations, predominantly the ADA.

Auditing and Supporting Documentation

  1. The supporting material required for recording obligations and any other posting as part of the IRS financial statements, financial systems and financial reports are governed by auditing standards referred to as Generally Accepted Government Auditing Standards (GAGAS), published by GAO in a publication known as Government Auditing Standards (2011 revision). Auditors utilizing the GAGAS standards during an audit review can assist the IRS in improving management's decision making and oversight, increasing operational efficiency and effectiveness, and increasing transparency and accountability for resources and results.

  2. The primary purpose of financial statement audits is to provide an opinion about whether the entity’s financial statements are presented fairly in all material respects in conformity with an applicable reporting framework. Reporting on financial statement audits performed in accordance with GAGAS also includes reports on internal control over financial reporting and on compliance with provisions of laws, regulations, contracts, and grant agreements that have material effect on the financial statements. That is why it is important that each item reported in IFS and on IRS financial statements has the required supporting document to validate the recorded amount for each transaction. Supporting documentation is also referred to as “source documents.” Source documents are the evidence that transactions have occurred, for the proper purpose, and for the posted amounts.

  3. If a given transaction does not meet the proper criteria for recording an obligation, then it is not a proper obligation and may not be recorded as one. Once the criteria for an obligation is met, the agency not only may, but must at that point, record the transaction as an obligation.

  4. BFC is the central internal inspection office supporting IRS compliance with the requirements established within this IRM. BFC conducts both regular and random inspections of obligating and commitment documents ensuring they meet proper legal recording requirements for IFS. BFC will interact with the appropriate BU anytime additional information or supporting documentation is required to recorded transaction in IFS.

Open Obligation Management

  1. To this point, a great deal of effort has gone into creating a legally compliant obligation for the IRS. The next step is the most important part of the entire process, ensuring that goods and/or services are received as stated in the obligation document. All obligations where goods and services have not been completely received and/or the contract has not been official closed, are known as an open obligations. Open obligations remain valid until officially closed. The funds associated with the obligation remain valid through the five years of "expired" appropriation status until the identified appropriation is cancelled. If all goods and services have not been received and billed once the appropriation is cancelled, then current year appropriations will be used to satisfy the remaining bills until the open obligation is officially closed.

  2. Funding cancelled year obligations with current appropriations has a detrimental effect on the IRS. First, all funding that was obligated to meet the cancelled requirement is lost. Next, a current year bill is now generated for a requirement that was not known, or expected, for a requirement that is minimally over six years old. Therefore, it is very important for BU managers to continually monitor the status of open obligations, ensuring goods and services are received and accepted in a timely manner and that associated bills are paid. Once all goods and services are received, accepted and paid, BU managers need to work with Procurement and BFC to close the associated open obligation.

  3. An important review conducted several times during each fiscal year involves the review and validation of aging unliquidated commitments (AUC) and aging unliquidated obligations (AUO). The review of AUCs and AUOs provides an effective management tool for validating recorded aging commitments and obligations for the potential recoupment of budgetary resources.

  4. The BFC runs periodic reports that identify aging open obligations and commitments. These open commitments (in the year of obligation) and open obligations have not had any transactions processed for an extended time period. It is important for BU managers to provide the current status of these open obligations and commitments as they highlight potential IRS funding that might no longer be required and can be used for other priorities.

  5. The reviews reaffirm the validity and accuracy of unliquidated balances. The reviews must be certified by senior management attesting to the continued validity of the open commitment and obligation balances based on substantive supporting documentation. Immediate actions must be taken to remove invalid commitments and obligations. Valid commitments must be obligated and obligations should be expensed promptly based on the certified validation.

  6. These BFC reports do not represent the total responsibility for BU managers in managing all open obligations and commitments, only those that meet the requirements for being identified as "aging" . The BU managers must continually monitor and update the status of all open obligations and commitments for their BU. The importance of the entire obligation process is for the IRS to validate that all goods and/or services have been received (and accepted) and that the IRS has properly paid the vendor(s) according to the terms in the obligation document.