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1 1 (December 23, 2019)

handle is hein.crs/govbfxv0001 and id is 1 raw text is: &~ ~ riE SE .$rCh &~ ~ ~ p\w -- , gnom goo mppm qq\ , q I aS 11LULANJILiN, Updated December 23, 2019 Defense Primer: Defense Working Capital Funds Since 1870, the U.S. military has used working capital funds to procure and provide materiel and commercial products and services to its forces. Authorized under 10 U.S.C. §2208, a Defense Working Capital Fund (DWCF) is a type of revolving fund that is intended to operate as a self- supporting entity to fund business-like activities (e.g., acquiring parts and supplies, equipment maintenance, transporting personnel, research and development) for the Department of Defense (DOD). DWCF transactions move hundreds of billions of dollars within DOD annually. According to DOD Financial Management Regulation (FMR) 7000.14-R, revolving fund accounts finance a continuing cycle of business-type operations by incurring obligations and expenditures that generate receipts. DWCFs are designed to break even over the long term through fees charged for products and services provided. These funds are widely used across the DOD in an effort to provide continuous base-support services, utilities, and industrial capabilities. DWFCs offer benefits and flexibility to government procurement. They generally operate without fiscal year limitations (i.e., amounts in a DWCF account do not expire); they facilitate the aggregation of orders, allowing the government to leverage its purchasing power; and they allow for the establishment of product inventories that can reduce delivery time. When establishing a DWCF, Congress typically provides a direct appropriation to the fund. This initial appropriation and positive fund balance is called a cash corpus. Using the corpus, fund managers purchase products and services, usually in advance of an anticipated requirement (e.g., a depot overhaul of an aircraft platform), then establish a product catalog (e.g., an aircraft parts and supplies catalog) for its customers. Fund managers then set product prices and stabilized rates for services that typically do not change until the next fiscal year. Once a DWCF-funded organization (e.g., a depot) is open for business, the customer-normally a military unit or DOD organization (though a private party can be a customer)-orders the product or service through a reimbursable agreement. Upon receipt of the product or service, the government customer then reimburses the DWCF with operation and maintenance funds appropriated for that specified purpose. If the customer is a private party, they typically prepay for products and services. Figure I. How a DWCF Operates 3 .. Source: CRS Graphics. Notes: The process illustrated above is a general example of how a DWCF operates. Variations can exist (e.g., private party customers). Fund managers typically establish rates 18-24 months ahead of schedule, locking in rates for the specified future fiscal year. DWCFs are expected to be self-sustaining after the initial appropriation. Fund managers establish rates taking into account all costs associated with each anticipated transaction, including the cost of the goods and services and a surcharge that includes overhead, operating, and administrative expenses. DWCFs are typically organized by budget activity (i.e., a category within each fund that identifies the purposes, projects, or types of activities financed by the fund). In a supply-oriented budget activity fund, a surcharge is generally added to items provided in order to cover management and other overhead expenses such as shipping costs. For budget activities that are not supply-oriented (e.g., maintenance or information technology services), fund managers establish surcharge rates based on an estimated unit cost of the service provided plus overhead costs. In general, fund managers budget to recover all operating expenses including * direct costs, such as labor and materials; * indirect costs, such as facilities operation and maintenance; * hardware costs, such as acquisition and repair of equipment needed to support operations; * operations costs, such as labor, travel, training, transportation of personnel; and * other general and administrative costs. :!K.:$:OOK~2$' ~dN

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