Misappropriation is the intentional and illegal use of funds for another use or other unauthorized purpose than its intended purpose. The Misappropriation Act (31 USC, Section 1301) requires that funds appropriated by Congress be used only of the programs and purposes for which the appropriation was made.

The three (3) major legal provisions that concern funds execution are the: [1]

  1. Bona Fide Need Rule
  2. Anti-deficiency Act
  3. Misappropriation Act (also known as the “purpose statute”)

31 USC § 1301 – Application
(a) Appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law.
(b) The appropriation and diversion of the unexpended balance of an appropriation for a purpose other than that for which the appropriation originally was made shall be construed and accounted for as a new appropriation. The unexpended balance shall be reduced by the amount to be diverted.
(c) An appropriation in a regular, annual appropriation law may be construed to be permanent or available continuously only if the appropriation:
(1) is for rivers and harbors, lighthouses, public buildings, or the pay of the Navy and Marine Corps; or
(2) expressly provides that it is available after the fiscal year covered by the law in which it appears.
(d) A law may be construed to make an appropriation out of the Treasury or to authorize making a contract for the payment of money in excess of an appropriation only if the law specifically states that an appropriation is made or that such a contract may be made.

DAU Misappropriation Act Examples [1]
Generic examples of violations of the Misappropriation Act include the use of one of the procurement appropriations for an effort that should properly be funded with an RDT&E appropriation or the use of an Operations and Maintenance (O&M) appropriation to buy an item for which one of the procurement appropriations should have been used. Following are two specific examples of ways in which violations of the Misappropriation Act can occur; these involve exceeding a Congressionally set dollar threshold for an item:

  • Using an O&M appropriation instead of a procurement appropriation to buy an item whose system unit cost exceeds $250K. By an amendment in PL 108-7 (Consolidated Appropriations Resolution for FY 2003), Congress stated Defense O&M appropriations may be used to purchase items having a unit cost of not more than $250K; previously, that dollar limit was $100K for a system unit cost. Generally, $250K is the dollar cut-off point between an expense (i.e., funded with O&M) and investment (i.e., funded with procurement). For example, an activity urgently needs a computer system that costs more than $250K, but there isn’t time to request procurement funds. That activity violates the Misappropriation Act if it splits the system’s purchase order into amounts less than $250K and uses O&M appropriation funds to buy the system. The $250K cut-off between an expense and an investment is more fully described in Chapter 1, Volume 2A of the FMR.
  • Using an O&M appropriation for a construction effort with a total cost equal to or greater than $750K instead of a Military Construction (MILCON) appropriation. Congress allows DoD to use O&M funds for “minor construction”, which is defined as less than $750K for the entire project; a project costing more should be funded with MILCON. For example, an activity was denied MILCON funds for construction of a helicopter pad. The activity violates the Misappropriation Act if it splits the project into minor construction projects (e.g., a series of side-by-side “sidewalks”) each costing less than $750K and uses O&M appropriation funds to buy each of the “sidewalks.” The $750K cut-off between the “minor construction” properly funded in O&M and a construction project properly funded in the MILCON appropriation is more fully described in Chapter 6, Volume 2A of the FMR.

Violations of the Misappropriation Act can be avoided by either initially budgeting for the requirement in the proper appropriation or, if circumstances change after the President’s Budget is submitted to Congress, by properly reprogramming funds during the execution year. [1]

AcqLinks and References:

Updated: 7/18/2017

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