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1 1 (November 30, 2020)

handle is hein.crs/govdcru0001 and id is 1 raw text is: * ~ ~ tiE>sct~rch $3c ~ .................. >30 ~1$ d ~ Th~c.)Mk~ Updated November 30, 2020 Defense Primer: Defense Working Capital Funds Since 1870, the U.S. military has operated various forms of working capital funds to procure and provide materiel and commercial products and services to its forces. Authorized under Title 10, Section 2208, of the United States Code (U.S.C.), 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 the 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. These funds are designed to break even over the long term through fees charged for goods and services provided. Working capital funds are broadly categorized as intragovernmental revolving funds revolving funds whose receipts come primarily from other government agencies, programs, or activities (see 2020 Fiscal Law Deskbook). DWCFs and other types of revolving funds are widely used across DOD to support recurring requirements and ensure the continuous delivery of goods and services such as utilities, fuels, food, clothing, and an assortment of industrial base capabilities. DWFCs offer benefits and flexibility to DOD procurement and disposal of materiel. They generally operate without fiscal year limitations (i.e., funds in a DWCF account do not expire); they facilitate the aggregation of orders, allowing the DOD to leverage its purchasing power; and they allow for the establishment of product inventories that can reduce delivery times. 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 cash 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 also be a customer)-orders the product or service through a reimbursable agreement. Upon receipt of the product or service, the DOD customer then reimburses the DWCF with 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 rd £103) Ctt1ane - 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). 'R ate&s and kudsg in-g 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. According to the DOD FMR, DWCFs are organized by chartered activity groups (i.e., categories within each fund that identify the purposes, projects, or types of activities financed by the fund). In a supply-oriented activity group, a surcharge is generally added to items provided, to cover management and other overhead expenses (e.g., shipping costs. For activities that are service-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. \\\\'\\ \ \N \ \I \ \ N,\ \\ \ \ Q\\ \\\ \\\

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