Financing and the Trust Fund · 3 of 3
The financial shape of a case follows from one statutory rule. "The Arms Export Control Act (AECA) normally requires Foreign Military Sales (FMS) monies to be collected in advance of delivery, service performance, or contractual progress payments" (SAMM C9.11). A partner pays first and receives afterwards, which means money sits somewhere in between.
The manual is equally clear that it should not sit there in quantity. "Accumulation of large balances in purchaser Trust Fund accounts for substantial periods should be avoided, except for contract holdbacks and other accrued or potential liabilities, or when the purchaser requests an accelerated payment schedule" (SAMM C9.11). Both halves of that instruction matter to a program office trying to read a balance.
Payments go to the finance and accounting service in Indianapolis for deposit into the trust fund. That fund is carried under a single treasury symbol with two subsidiary accounts, one for receipts and one for disbursements to suppliers (SAMM C9.11.1). Wire and mailing details travel attached to the offer document itself.
Deposits have to be identifiable. Payments must name the case designator and the reason for the payment, and "Each deposit made into the FMS Trust Fund is recorded to the appropriate FMS case" (SAMM C9.11.4). Anything that cannot be matched is placed in the partner's holding account until it can be.
Accounting sits close to the work. "Accounting for FMS transactions is at least at the case level (many accounting transactions are recorded at the line level)" (SAMM C9.12.1). A partner asking where a payment went can be answered at that level of detail.
Some partners hold money elsewhere. A country may open an interest bearing account at the Federal Reserve Bank of New York, governed by an agreement that binds four parties. "An agreement between the FMS purchaser's defense organization, the purchaser's central bank (or an acceptable equivalent), FRB New York and DSCA identifies the terms, conditions, and mechanics of the account's operation" (SAMM C9.11.2).
A commercial bank account is also possible, and needs two separate agreements rather than one, the first between the partner and the bank and the second between the partner and the agency (SAMM C9.11.3). The agency chief financial officer signs for new agreements of either kind. Neither type of account holds financing funds except where law or agency policy allows it.
What a partner has available is not the same as what it has deposited. "The total DoD available cash for each FMS purchaser is equal to the amount of undisbursed and/or unreserved monies on deposit for the purchaser in the FMS Trust Fund" (SAMM C9.12.2), and that figure is reduced by every reservation against it, including termination liability.
The consequence is a hard stop rather than a warning. "If a country does not have enough available cash, expenditure authority is not approved and the disbursement is placed on hold" (SAMM C9.12.2). A contractor waiting to be paid on a case can be held up by a balance that has nothing to do with that contract.
The same logic appears at the very start of a case. "If DFAS-IN receives a signed LOA or Amendment without the required initial deposit, they shall follow-up within 10 working days per the procedures that follow" (SAMM C9.11.7). Implementation is then held. If the deposit is still missing when the offer expires, prices can change, delivery dates can change, materials and services can become unavailable, and the case can be cancelled (SAMM C9.11.7.1).
Collections can exceed what a case turns out to need. "Upon closure, excess funds are retained in the purchaser’s Holding Account pending further instructions" and "Excess case collections can be applied only to another case at the purchaser’s request" (SAMM C9.11.5). Nothing moves on the initiative of the government.
Where those funds came from decides where they go. National funds move to a cash holding account on closure, cancellation or request. Credit funds move to a credit holding account, and before each billing cycle are applied first to financed cases with overdue payments and then to those falling due next (SAMM C9.11.5.2). Merged assistance program funds have a holding account of their own.
Returning national funds to a partner is conditional. The partner must be off the current arrearage report, have no collection delinquencies outside a special billing arrangement, and retain enough cash to meet the next quarter, termination liability included (SAMM C9.11.5.1). What happens to leftover money specifically at the end of a case is covered in closure deadlines and leftover funds.
A return is requested by a designated representative through the security cooperation portal, and "Returned FMS funds will be sent to a partner’s authorized bank account only when requested by a designated representative" (SAMM C9.11.9). Requests arriving by email are redirected to the portal.
Behind that sit written bilateral procedures recording who may ask, their signatures and the authorized bank details. Those procedures are signed by the agency deputy assistant director and two representatives of the partner, one at flag officer, general officer or senior executive level, and the American military group attests as witness (SAMM C9.11.9.1.1.1). Where the portal cannot be used, a face to face process authenticates the requester instead.
Approval then depends on size. The regional execution division chief approves up to $250M, the deputy assistant director from $251M to $1,000M, and the chief operating officer or chief financial officer above $1,000M (SAMM C9.11.9.1.1.3). Denials are notified with a reason, and the finance director reports quarterly on activity and unresolved issues.
Wrong payments have their own path. "In the event of an erroneous or fraudulent payment, the DSCA CFD must be notified immediately, who will inform the FMS partner and the in-country MILGRP to initiate corrective actions" (SAMM C9.11.10). Where fraud is suspected the payment goes to the defense inspector general (SAMM C9.11.10.2).
| Trust fund | The account holding purchaser money between payment and disbursement to suppliers. |
|---|---|
| Holding account | Where unmatched deposits and excess funds wait for instructions from the partner. |
| Available cash | Deposits less every reservation against them, including termination liability. |
| Expenditure authority | The approval to disburse, withheld when available cash is short. SAMM C9.12.2. |
| Bilateral operating procedures | The signed record of who may ask for money back, and to which account. |
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.
An account balance is the quiet constraint behind a delivery schedule. Sentfore supports defense programs at the delivery end, providing secure movement, protective security, accommodation and site support in complex environments. Requirements can be sent through the contact page.