The Treasury accounts behind Foreign Military Sales

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1. Two sets of committees, two sets of accounts

Security assistance money follows a different path from ordinary defense money. The Foreign Affairs and Foreign Relations Committees of Congress, rather than the Armed Services Committees, authorize security assistance funds (FMR Vol. 15, Ch. 1, para. 2.0). Those funds are received by the Executive Branch, Office of the President, which carries Treasury Index 11. Funds authorized by acts from the Armed Services Committees and appropriated to the Defense Department carry other indexes: 97 for the Department, 17 for the Navy, 21 for the Army and 57 for the Air Force.

Volume 15 of the Defense Department Financial Management Regulation sets out the Treasury accounts used for this work. This piece walks through them in the order the regulation gives them. How cash moves in and out of the trust fund on a single case is covered in the trust fund, and getting money back out of it.

2. The trust fund account

The Foreign Military Sales Trust Fund is Treasury account 11X8242, the account used for centrally recording contract authority and collections (FMR Vol. 15, Ch. 1, para. 2.1). Executive Order 13637 of March 2013 delegated the execution and administration of the fund, such as obligations and disbursements, from Treasury Index 11 to the Secretary of Defense. The full fund cite, 97 11X8242, identifies funds under Defense Department control. Only 11X8242 is reported to the Bureau of the Fiscal Service and the Office of Management and Budget.

Cash from sales under sections 2761, 2762, 2769 and 2796 of title 22 goes into receipt account 8242.001 (FMR Vol. 15, Ch. 1, para. 2.1.1). The Security Cooperation Accounting Directorate of the Defense Finance and Accounting Service processes those collections. They include cash transferred from appropriations to finance credit sales, and the proceeds of guaranteed commercial loans.

The trust fund does not treat a signed order as money to spend in full at once. "BA is recognized only to the extent it is estimated that orders will be executed within a fiscal year (FY)" (FMR Vol. 15, Ch. 1, para. 2.1.2). BA stands for budget authority. The part of an order that cannot be executed in the year is classified as an uncommitted acceptance.

Money leaves the account in two ways (FMR Vol. 15, Ch. 1, para. 2.1.3). Contractors are paid directly from 97 11X8242 when direct cite procedures are used. Defense Department components are paid through intragovernmental payments when reimbursable procedures are used, for example for services or items from inventory. Recoveries from running the program go to a separate miscellaneous receipts account, 3041 (FMR Vol. 15, Ch. 1, para. 2.1.4). Among other items, that account receives lease rental payments and collections of unfunded civilian retirement and benefit costs.

3. Reimbursable and direct cite financing

The regulation recognizes two types of financing for the trust fund: reimbursable and direct cite (FMR Vol. 15, Ch. 1, para. 3.0). Reimbursable financing is required where the President has determined that deferring payment is in the national interest, so that the buyer is billed on or after delivery (FMR Vol. 15, Ch. 1, para. 3.1). In those cases an appropriation with reimbursable authority finances the outlays until the purchaser pays.

Direct cite is the default for new buying. New procurements started because of sales orders under sections 2762 and 2769 of title 22 "must be accomplished, to the maximum extent feasible and appropriate, through direct citation of the FMS Trust Fund" (FMR Vol. 15, Ch. 1, para. 3.2). The contract documents cite 97 11X8242 or 97 11X6147.

4. The Special Defense Acquisition Fund

The Special Defense Acquisition Fund is a revolving fund controlled by the Defense Department. It is used to buy defense articles and services in anticipation of their sale to eligible countries and international organizations (FMR Vol. 15, Ch. 1, para. 2.2.1). The regulation states that the fund may not exceed $3.5 billion, and that its size includes offsetting collections from sales.

Three kinds of offsetting collection now go into the fund’s account, 97 11X4116: asset use charges, items not requiring replacement, and recoupment of nonrecurring research, development and production costs (FMR Vol. 15, Ch. 1, para. 2.2.2). Charges for leases under section 2796 of title 22 are excluded. Proceeds from Building Partner Capacity transfers of equipment from stock may not be deposited into the fund, and go to miscellaneous receipts instead. Budget authority for an approved fund procurement exists only for orders obligated before September 30 of the year its funds expire (FMR Vol. 15, Ch. 1, para. 2.2.4).

5. Loans, grants and training money

Separate accounts capture the appropriations behind credit sales, guaranties and training (FMR Vol. 15, Ch. 1, para. 2.3.1). Older loans, disbursed before fiscal year 1992, run through account 11X4121, the Foreign Military Loan Liquidating Account (FMR Vol. 15, Ch. 1, para. 2.3.1.1). Direct loans first disbursed on or after October 1, 1991 run through a program account, 11 (FY) 1085, and a financing account, 11X4122 (FMR Vol. 15, Ch. 1, para. 2.3.1.3). Rescheduled loans sit in 11X4174, the Military Debt Reduction Financing Account (FMR Vol. 15, Ch. 1, para. 2.3.1.4).

Foreign Military Financing grants are recorded in account 11 (FY) 1082 (FMR Vol. 15, Ch. 1, para. 2.3.1.5). Under annual appropriations language, these funds are considered obligated upon apportionment and are available for expenditure for five years, plus an additional four. Transfers from this account into the trust fund are expenditure transfers. Budget authority also moves from it to Defense Department components to pay administrative expenses of Foreign Assistance Act programs, such as end use monitoring. International Military Education and Training has its own account, 11 (FY) 1081 (FMR Vol. 15, Ch. 1, para. 2.3.1.6).

6. The deposit account and the rest

Account 11X6147, the Security Assistance and International Programs Deposit Account, was set up in 1978 for the deposit account of the NATO E-3A program (FMR Vol. 15, Ch. 1, para. 2.3.3). It now also records collections from foreign governments for goods and services not bought through sales cases, and collections from sales customers who use two Air Force ordering systems to acquire nonstandard items. It has been included in the security assistance financial statements since fiscal year 2021.

Other accounts serve Building Partner Capacity cases, humanitarian assistance and mine action (FMR Vol. 15, Ch. 1, para. 2.4). The regulation’s list includes peacekeeping operations, the Iraq Train and Equip Fund, the Counter-ISIS Train and Equip Fund, and Overseas Humanitarian, Disaster, and Civic Aid. It also includes Operation and Maintenance, Defense-Wide. The list is stated to include these accounts but not to be limited to them.

Key terms

11X8242	The Treasury account of the Foreign Military Sales Trust Fund, cited in full as 97 11X8242.
Budget authority (BA)	Authority recognized in the trust fund to the extent orders are expected to be executed within the fiscal year.
Uncommitted acceptance	The part of an accepted order that cannot be executed within the fiscal year.
Direct cite	Financing in which contract documents cite the trust fund itself, and contractors are paid from it.
Reimbursable financing	Financing through an appropriation with reimbursable authority, required where payment is deferred.
Special Defense Acquisition Fund	A revolving fund used to buy articles in anticipation of sale, capped at $3.5 billion.

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.

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