Corporation for National and Community Service: Amount of Obligations, B-300480.2, June 6, 2003

B-300480.2 Jun 06, 2003 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights That we review the conclusion of the Office of Management and Budget (OMB) that the Corporation for National and Community Service (Corporation) may continue to record obligations based on the Corporation's estimates of "the amount of funds [it] will actually have to pay for the [national service educational] awards that are earned and used" rather than recording its maximum potential liability. OMB's position is. We continue to disagree with OMB's legal conclusion that the Corporation may record its obligations for education benefits on the basis of estimates of what it will have to pay when education awards are earned. Since the amount of the government's obligation is under the control of the grantees and those they enroll. View Decision Corporation for National and Community Service: Amount of Obligations, B-300480.2, June 6, 2003 The Honorable Christopher Bond Chairman The Honorable Barbara Mikulski Ranking Minority Member Subcommittee on VA, HUD, and Independent Agencies Committee on Appropriations United States Senate This responds to your request of May 20, 2003, that we review the conclusion of the Office of Management and Budget (OMB) that the Corporation for National and Community Service (Corporation) may continue to record obligations based on the Corporation's estimates of "the amount of funds [it] will actually have to pay for the [national service educational] awards that are earned and used" rather than recording its maximum potential liability. See Letter of May 2, 2003 from Phillip Perry, General Counsel, OMB, to Frank Trinity, General Counsel, Corporation for National and Community Service. OMB's position is, as you know, at variance with our prior advice on this matter. B-300480, April 9, 2003. Specifically, you asked whether OMB has offered a legal basis for the Corporation to deviate from the requirement to record obligations according to fiscal law requirements upon grant award. As noted below, we continue to disagree with OMB's legal conclusion that the Corporation may record its obligations for education benefits on the basis of estimates of what it will have to pay when education awards are earned, i.e., its probable accounting liability, rather than according to fiscal law requirements, i.e., its maximum potential liability. At the same time, we note that Congress has provided specific statutory flexibility to address situations where certain probable accounting liabilities may likely be greater or less than the real economic costs to the government, for example, the Federal Credit Reform Act of 1990 (Pub. L. No. 101-508, title XIII, Sec. 13201(a), i.e., credit reform. Congress may wish to provide similar flexibility to the Corporation in obligating national service education awards. BACKGROUND As we explained in our April 9 opinion, at the time the Corporation awards a grant, it enters into a binding agreement authorizing the grantee to enroll a specified number of new participants in the AmeriCorps program without any further action by the Corporation. Because the Corporation, at time of grant award, accepts a legal duty to cover the education benefits of the new participants, it incurs, and must record, an obligation at that time. 42 Comp. Gen. 733, 734 (1963). Since the amount of the government's obligation is under the control of the grantees and those they enroll, not the Corporation, the Corporation must obligate funds to cover its maximum potential liability. See, e.g., B-238581, Oct. 31, 1990; B-197274, Sept. 23, 1983. As more information is known, for example, when an approved participant fails to enroll or a volunteer drops out of the program, the Corporation may adjust the obligation, i.e., deobligate funds or increase the obligational level, as needed. Because funds in the Trust are available without fiscal year limitation, the deobligated funds can be reobligated and used for future education benefits. At the time of grant award, the Corporation's obligation for the education benefits is equal to the number of approved positions in a grant award multiplied by the total value of a national service educational award. In its May 2 letter, OMB agrees that the Corporation incurs a recordable obligation at the time of grant award. OMB apparently, however, does not consider the amount of the recordable obligation for the education benefits to be defined as the maximum potential liability reflected in the grant agreement. OMB finds a distinction between obligations based on "reasonable and conservative estimates that reflect historical experience" and obligations based on what OMB calls "theoretical maximums." OMB argues that the Corporation may use historical experience and modeling to estimate its obligation for national service educational awards because the Congress contemplated that the Corporation would record obligations based on estimates.