Misappropriation is the intentional and illegal use of funds for another use or other unauthorized purpose than its intended purpose. (31 USC, Section 1301) requires that funds appropriated by Congress be used only for the programs and purposes for which the appropriation was made.
Definition: Misappropriations is applying funds to the objects for which the appropriation was not made and not exempted by the law.
31 U.S.C. 1301(a): that public funds may be used only for the purpose or purposes for which they were appropriated.
Funding Legal Provisions
The three (3) major legal provisions that concern funds execution are the: [1]
- Bona Fide Need Rule
- Anti-deficiency Act
- Misappropriation (also known as the “purpose statute”)
Misappropriation (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.
Misappropriation 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:
Misappropriation Example #1
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.
Misappropriation Example #2
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 the 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.
Avoid Misappropriation
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]
Appropriations and Authorizations Definitions
Authorization is an act of Congress that permits a federal program or activity to begin or continue from year to year. It sets limits on funds that can be appropriated but does not grant funding which must be provided by a separate congressional appropriation.
Misappropriation Legal Language (31 U.S.C. 1301)
31 U.S.C. 1301 was enacted in 1809, this statute is one of the cornerstones of congressional control over the Federal purse. Because money cannot be paid from the Treasury except under an appropriation, and because an appropriation must be derived from an act of Congress, it is for Congress to determine the purposes for which an appropriation may be used. Simply stated, 31 U.S.C. 1301(a) says “that public funds may be used only for the purpose or purposes for which they were appropriated”. It prohibits charging authorized items to the wrong appropriation, and unauthorized items to any appropriation. Anything less would render congressional control largely meaningless.
31 U.S.C. 1301(a)
Appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law.
Requires that appropriated funds only be used for the purposes and programs set forth by Congress in the appropriation. The agency’s budget request is an important reference standard for determining proper purpose and the relationship of expenditure to an appropriation. A three-part test for proper purpose to expend appropriated funds are:
- the expenditure must make a direct contribution to carrying out either a specific appropriation or an authorized agency function for which more general appropriations are available;
- the expenditure must not be prohibited by law; and
- the expenditure must not be otherwise provided for, that is, it must not be an item that falls within the scope of some other appropriation or statutory funding scheme.
If an agency has a specific appropriation for a particular item, and also has a general appropriation broad enough to cover the same item, it does not have an option as to which to use. It must use the specific appropriation. Were this not the case, agencies could evade or exceed congressionally established spending limits.
31 U.S.C. 1301(b)
The reappropriation 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.
31 U.S.C. 1301(c)
An appropriation in a regular, annual appropriation law may be construed to be permanent or available continuously only if the appropriation:
- is for rivers and harbors, lighthouses, public buildings, or the pay of the Navy and Marine Corps; or
- expressly provides that it is available after the fiscal year covered by the law in which it appears.
31 U.S.C. 1301(c)
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.
AcqLinks and References:
- Website: U.S. Code Title 31 Section 3101 – Misappropriation
- Website: U.S. Code Title 31 Section 1341 – Anti-deficiency
- Website: U.S. Code Title 31 Section 1502 – Bona Fide Need Rule
- Website: U.S. Code Title 31 Section 1517 – Anti-deficiency
Updated: 7/17/2021
Rank: G44