Cash management in the trust fund

← All Insights

1. Whose cash pays

Chapter 4 of Volume 15 of the Financial Management Regulation exists to make sure cash is on hand to liquidate trust fund obligations as disbursements fall due (FMR Vol. 15, Ch. 4, para. 1.1). Money Congress appropriates for defense may not pay off obligations that arise from trust fund contract authority, except where the law allows it. The cash has to come from the purchaser, from an American appropriation made available to finance the purchase, or from a third-party payer.

The general rule is payment before the work. The purchaser must deposit cash for articles and services sold under sections 21, 22 and 29 of the Arms Export Control Act (AECA) in advance of delivery, performance or payments to contractors (FMR Vol. 15, Ch. 4, para. 3.1). Foreign Military Financing (FMF) and other American appropriations that finance a sale through the trust fund must also make advance cash collections. The narrow exceptions for delayed payment are covered in terms of sale and the dependable undertaking.

2. Who does what

The Defense Security Cooperation Agency (DSCA) is responsible for adequate cash in the trust fund to meet the Department’s financial requirements (FMR Vol. 15, Ch. 4, para. 2.1.1). If a cash flow problem arises, it identifies the issue and the remedy (FMR Vol. 15, Ch. 4, para. 2.1.2). The regulation gives examples: collecting more funds, other financial arrangements, or adjusting ordered values, delivery timeframes or quantities. DSCA also calculates the termination liability reserve each quarter and builds the standard payment schedules (FMR Vol. 15, Ch. 4, para. 2.1.4 and FMR Vol. 15, Ch. 4, para. 2.1.6).

The Defense Finance and Accounting Service (DFAS) posts purchaser deposits within 2 business days of notification, when its system is available (FMR Vol. 15, Ch. 4, para. 2.2.1). It posts disbursements to case records by the 20th day of the following month (FMR Vol. 15, Ch. 4, para. 2.2.2). It also makes sure approved expenditure requests do not exceed the purchaser’s available cash (FMR Vol. 15, Ch. 4, para. 2.2.4).

Implementing agencies review every case payment schedule at least once a year, and whenever the case value changes by ten percent or more (FMR Vol. 15, Ch. 4, para. 2.3.3). If a schedule is inadequate, the agency must promptly notify DSCA, DFAS and the purchaser, and follow up with a revised schedule through a modification to the Letter of Offer and Acceptance (FMR Vol. 15, Ch. 4, para. 2.3.7.1). If a schedule overstates what is needed, because of a late contract award or a delivery slip, it must also be revised. "The IA is responsible for ensuring that the USG does not prematurely collect customer funds" (FMR Vol. 15, Ch. 4, para. 2.3.7.2).

3. One pool, many sources

The trust fund is managed as a single cash entity, whatever the source of the deposits (FMR Vol. 15, Ch. 4, para. 3.2). Every deposit is still accounted for at purchaser and case level by source of financing. Sources include FMF, the Military Assistance Program (MAP) Merger, a purchaser’s national funds, third-party funds and other Defense Department appropriations.

Where several sources exist, their order is set. DSCA normally draws down MAP Merger funds up to the amount reserved for each case first, then available FMF, and only then asks the purchaser to use other funds (FMR Vol. 15, Ch. 4, para. 3.3.1). Money on deposit is spent in the same order, with the purchaser’s national funds last. Security assistance funds made excess by a case reduction or closure may be reapplied to other cases with DSCA approval (FMR Vol. 15, Ch. 4, para. 3.3.2). FMS credit funds are refunded to a purchaser only if they came from loans that have been fully repaid, and no delinquent receivables exist.

Building Partner Capacity money is kept apart. Usually those funds cannot be mixed with security assistance funds on any case, and their original fiscal identity must not be lost (FMR Vol. 15, Ch. 4, para. 3.3.3).

4. Accounts outside the trust fund

A country that finances all or much of its program with national funds may hold them in an investment account at the Federal Reserve Bank of New York. The account rests on an agreement with DSCA (FMR Vol. 15, Ch. 4, para. 3.5.1). Such accounts are not normally considered for a country financed mainly with security assistance funds. DFAS draws down from the account as needed, usually monthly, so that enough is available for payments in the next 30 calendar days (FMR Vol. 15, Ch. 4, para. 3.5.3).

A purchaser may instead deposit payments in an interest-bearing commercial bank account, which works in a similar way (FMR Vol. 15, Ch. 4, para. 3.6). Money from American appropriations, including FMF and capacity building funds, may not go into it, and termination liability amounts may not be held in it. The United States is not liable for losses on the purchaser’s deposits. The deposits are still treated as public funds under the federal rules on depositaries.

5. Country cash stays with the country

Every disbursement must be identified by case and line, and must not exceed the cash in the purchaser’s trust fund account (FMR Vol. 15, Ch. 4, para. 3.7). One case may run a cash deficit funded by the same purchaser’s advances on its other cases. Cash deposited by one country may not pay for another country’s obligations, unless the depositing purchaser authorizes the use of its excess cash. A single purchaser’s cash summary account in deficit is a reportable adverse financial condition.

6. Expenditure authority

Payments against recorded obligations need expenditure authority, a country-level authority that formally sets trust fund cash aside so it is no longer available for anything else (FMR Vol. 15, Ch. 4, para. 9.0). Most country trust fund disbursements require it, including adjustments (FMR Vol. 15, Ch. 4, para. 9.1.1). DFAS can issue it only when the purchaser’s account holds sufficient cash (FMR Vol. 15, Ch. 4, para. 9.1.3).

Timing is strict. "EA must be obtained during the same calendar month in which the ensuing disbursement will be made" (FMR Vol. 15, Ch. 4, para. 9.1.4). If the payment slips into the next month, the authority is returned and reissued (FMR Vol. 15, Ch. 4, para. 9.1.5). Failing to request it before a disbursement is subject to reporting and disciplinary requirements (FMR Vol. 15, Ch. 4, para. 9.1.6). Where contractor bills cannot be paid by their due date for lack of unencumbered cash, DFAS notifies the DSCA Country Financial Director, who then acts (FMR Vol. 15, Ch. 4, para. 9.3).

Key terms

Expenditure authority (EA)	A country-level authority that sets trust fund cash aside for a specific payment against an obligation.
MAP Merger	A source of grant funds drawn down and spent ahead of FMF and national funds.
Federal Reserve Bank of New York account	An investment account for a purchaser that pays mainly with national funds.
Commercial bank account	An interest-bearing account for national funds that may not hold appropriated money or termination liability.
Adverse financial condition	A reportable state in which one purchaser’s cash summary account is in deficit.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

How Sentfore supports this

Contract payments on a case often fund work that has to be supported and secured where it happens. Sentfore works at the delivery end of defense programs in difficult environments, providing secure movement, protective security, facilities and life support. Requirements can be sent through the contact page.