The Letter of the Law

DHS might have funded shared services illegally by pooling earmarked funds.

The Homeland Security Department has been directed to reassess how it paid for shared services in 2006 to support the now defunct Preparedness Directorate after a Government Accountability Office review found that the directorate did not follow guidelines and might have violated the Antideficiency Act.

The department established the Preparedness Directorate in 2005 to coordinate efforts across federal, state and local agencies to prevent and respond to emergencies. The shared services transfers in question were drawn from a variety of DHS accounts and were used primarily to pay for infrastructure protection and information security programs. The exact amounts were not well-documented, but DHS reported about $60 million in shared services spending in 2006.

The appropriations process designates dollars for specific accounts for specific purposes. Agencies generally are not allowed to transfer funds among accounts, even to pay for services that cut across departments, component agencies or appropriations accounts. Agencies not given authority to pool funds for certain shared services still have some flexibility under the Economy Act or the account adjustment statute. The Economy Act allows agencies to place orders with other agencies if justified; the adjustment statute permits an agency to use funds from an account to cover the cost of a common service and then to charge all benefiting accounts for the service.

In a letter to GAO, Homeland Security said it relied on the principles of the Economy Act to allocate the cost of shared services across various appropriations under the Preparedness Directorate's control. "Care was taken to ensure that no [Programs, Projects and Activities account] augmented any other PPA," wrote Michael Russell, DHS' deputy associate general counsel.

But DHS did not properly justify, record or report pooling transactions, according to the report (B-308762), a concern especially for auditors. "People say, 'I satisfied the spirit of the statute,' but how do you know, particularly if you're an auditor?" GAO General Counsel Gary Kepplinger says. "My response is 'I can't see ghosts; I don't believe in ghosts.' " He believes the flexibility of the account adjustment statute would have made it the best option. "I think they were searching for an explanation of what they did and the Economy Act principles were what came to mind," he says.

GAO directed DHS to adjust its fiscal 2006 accounts so the value of all services received is deducted from the proper places. This essentially would be retroactive use of the account adjustment statute. If any accounts do not have enough unobligated funds, GAO instructs DHS to report an Antideficiency Act violation. The law prohibits agencies from making or authorizing expenditures in excess of the amount available.

If DHS' adjustments show an overobligation, the agency must file a violation report with the president, Congress and GAO, delineating where and why the violation occurred, the amount, who was responsible, and what steps have been taken to address the cause.

Homeland Security reorganized the Preparedness Directorate in March, moving many of its functions to the Federal Emergency Management Agency. "This directorate has modified the way they're doing things, so I'm not going to assume there is a continuing problem unless we have some indication of that," Kepplinger says.

In general, federal agencies do not seem to be struggling to fund shared services legally. According to Kepplinger, there have been very few violations reported during the last decade. "There is more than enough adequate authority out there to accomplish what they wanted to accomplish; they just need to be thoughtful in advance about what they are doing," he says.

While it will likely take DHS some time to re-examine all pooling transactions, Kepplinger is confident the agency will address the issues under the watchful eye of the DHS inspector general and the appropriations committees.

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