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1 1 (December 9, 2022)

handle is hein.crs/govejrw0001 and id is 1 raw text is: Congresson D Research Service nfo rmrng e lsatve debate sin e 1914 Defense Primer: Defense Working Capital Funds Since 1870, the U.S. military has operated various types of working capital funds to procure and provide materiel and commercial products and services to its forces. Codified 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 of the Department of Defense (DOD) (e.g., acquiring parts and supplies, maintaining equipment, transporting personnel, conducting research and development). 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. DWCFs are broadly categorized as intragovernmental revolving funds a type of revolving fund whose receipts derive primarily from other government agencies, programs, or activities (see 2021 Fiscal Law Deskbook). DWCFs and other types of revolving funds are widely used in DOD to support recurring requirements and to ensure the continuous delivery of goods and services such as utilities, fuels, food, clothing, and an assortment of industrial base capabilities. DWFCs offer certain procurement benefits and flexibilities to DOD. They generally operate without fiscal year limitations (i.e., funds in a DWCF account do not expire); facilitate the aggregation of orders, allowing DOD to leverage its purchasing power; and allow for the establishment of inventories that can reduce delivery times. Fund Basics 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 or ship), then establish a product catalog (e.g., a 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 and/or service, the DOD customer then reimburses the DWCF with funds appropriated for that specified purpose. Private- party customers typically prepay for the products and services. Updated December 9, 2022 Figure I. How a DWCF Operates Initial 1111111A n a ~~~~~~Appropriation , pr ci£t7. (Cash Corpus} U.S. Congress cutromer Reimburses Pu dnPrudit:S~vice DOD0Customers aa Ju Ser it Support Provider 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). Rates and Budgeting DWCFs are expected to be self-sustaining after the initial cash corpus, and this is managed through rate setting and budgeting. Fund managers typically establish rates 18-24 months in advance, locking in rates for a specified future fiscal year. Fund managers establish each rate 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 costs, and any other 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., equipment 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 (e.g., labor and materials); * indirect costs (e.g., facilities operation and maintenance); * hardware costs (e.g., acquisition and repair of equipment to support operations); * operations costs (e.g., labor, travel, training, transportation of personnel); and * general and administrative costs.

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