Financial Management of Security Cooperation Cases Overview

1. Financial Management of Security Cooperation Cases Overview Lesson #0410 5 January 2017

2. Funds Management

3. USG SC/SA Financial Management Responsibilities

4. Department of Defense (DoD) SC Case Financial Management Responsibilities • DoD Comptroller • Financial Management Regulation (FMR) • Defense Security Cooperation Agency (DSCA) • Portfolio and Finance Directors / Managers • Implementing Agencies (IAs) • Country, Program, Case, and Finance Managers • Defense Finance Accounting Service (DFAS) Security Cooperation Accounting (SCA) • Country Manager and Accountant • Security Cooperation Organizations (SCOs)

5. Foreign Purchaser • Budget funds as required • Timely payment of bills • Communicate/coordinate with USG their requirements for any unique / special Financial Plans or waivers • Participate in Case Reviews • Financial Discrepancy Reporting

6. Industry (i.e. Procurement) • Coordinate with USG on development of P&A and LOA price estimates • Negotiate and sign contracts for procurement of LOA materials and/or services • Coordinate with USG IAs, contracting officers and auditors on delivery of LOA materials and/or services • Timely and accurate billing of contracted provided materials and/or services

7. Flow of Case Funds LOA (with Initial Deposit/Payment Schedule) Purchaser Implementing Agency (IA)

8. How Much and How Soon Will the USG Collect on the LOA? LOA initial deposit and payment schedules are based on CALCULATED amounts of costs that the USG expects to incur in case execution Calculations factor in LOA Term(s) of Sale, line’s Period of Performance, costs, etc.

9. LOA Initial Deposit and Payment Schedules Goods & Services from Stock Goods & Services from Procurement Progress Payments Termination Liability & Contractor Holdback Admin Surcharge (amount dependent upon case, funding, etc.) Other Authorized Surcharges (e.g. PC&H, Transportation, CAS, etc.) IA is responsible for providing accurate data, reviewing, AND updating LOA Payment Schedule if required SAMM C9.9, C9.9.1.5.1, GB pp. 12-12 to 12-13

10. How Much and How Soon Will the USG Collect on the LOA? • LOA initial deposit and payment schedules are based on CALCULATED amounts of costs that the USG expects to incur in case execution • The time period for those cost calculations are done per the AECA, FMR, and SAMM requirements Calculations factor in LOA Term(s) of Sale, line’s Period of Performance, costs, etc.

11. Time Period for LOAs Initial Deposit and Payment Schedules For Period Covering Earliest Quarterly Payment Schedule Date Offer Expiration Date (OED) 11 Sep – 10 Dec 15 Mar Apr-Jun 11 Dec – 10 Mar 15 Jun Jul-Sep 11 Mar – 10 Jun 15 Sep Oct-Dec 11 Jun – 10 Sep 15 Dec Jan-Mar 31 October 2014 What’s the OED for case YCY? LOA Initial Deposit PeriodDepends upon the LOA OED FMR VOL 15 CH4 040304, SAMM C9.T12, Green Book p. 12-13

12. BN-D-YCY LOA Initial Deposit Period O N D J F M A M J J A S O Whatis the YCY Initial Deposit period coverage? 31 October 2014 through 31 March 2015 Initial Deposit must cover the outlays and/or deliveries anticipated until the first quarterly payment is received SAMM C9.9.1.5.1 Green Book pp. 12-12 through 12-13 BN-D-YCY pp. 11 and 15

13. How Much and How Soon Will the USG Collect on the LOA? • LOA initial deposit and payment schedules are based on CALCULATED amounts of costs that the USG expects to incur in case execution • The time period for those cost calculations are done per the AECA, FMR, and SAMM requirements • LOA Term of Sale is an extremely important factor in those calculations Calculations factor in LOA Term(s) of Sale, line’s Period of Performance, costs, etc.

14. Terms of Sale • Important financial entry on every LOA • All eight (8) terms defined in references • “Cash Prior to Delivery” and “Dependable Undertaking” are most common • Some countries have “Cash with Acceptance” SAMM C9.8, C9.T11 Green Book pp. 12-10 and 12-11

15. LOA Payment Schedules • Budget/forecast information • IA is responsible for providing accurate data, reviewing, AND updating if required • Basis for forecast in DD form 645 • One payment schedule per LOA (if required) • See example on Bandaria case BN-D-YCY) pages #15 through #16

16. Flow of Case Funds LOA (with Initial Deposit/Payment Schedule) Trust Fund (DFAS - SCA) $ Purchaser $ Implementing Agency (IA) $ FMF / BPC $ (DSCA controls)

17. Sources of Case Funds • Country’s (e.g. Bandaria) funds • USG funds (i.e. grants or loans) • USG Security Cooperation funds (e.g. Building Partner Capacity (BPC) funds for ‘pseudo’ cases) • Will discuss more in BPC lesson • Foreign Military Financing Program (FMFP) • “FMS Credit (Non Repayable)” is the most common • For all FMF loans (“FMS Credit”), the IAs must use a stand-alone LOA for the implementation and utilization of funds SAMM C9.7, DSCA Policy Memo 16-17, Green Book p. 12-6

18. Foreign Military Financing (FMF) • Annual appropriation – USG responsibilities from ‘cradle-to-grave’ • USG $$....not a ‘blank check’ for Bandaria • Coordinate LORs requesting use of FMF • Must have funds within approved scope • Constraints (unless approved exceptions) • Transportation on U.S. flag vessels and aircraft • Defense Articles and Services That Should Not be purchased with FMF (SAMM C9.T10) • FMS only except for potentially 10 countries SAMM C9.T10, C9.7.3, Green Book pp. 12-8 through 12-10

19. BPC Programs and Authorities Program execution (e.g. logistic and financial) constraints vary depending upon the program Refer to SAMM C15.T2 for each applicable program

20. Example of BPC Programs and Authorities Yikes! Afghanistan Security Forces Fund (ASFF)

21. Financial Time Limits for BPC “J8” DSCA directed closure date New Obligations FY15 ASFF “J8” program is a two-year appropriation per the law Refer to SAMM C15.T2 for each applicable program Obligation Adjustments Disbursements 30 Sep 2021 30 Sep 2016 31 July 2021 1 Oct 2014 Funds Cancel for Expenditures Funds expire for new obligations DSCA Policy Memo 11-06 “Execution and Closure guidance for Pseudo cases and DSCA Financial Management Class are great tools to assist!

22. Flow of Case Funds LOA (with Initial Deposit/Payment Schedule) Trust Fund (DFAS - SCA) $ Purchaser $ Implementing Agency (IA) $ $ FMF / BPC $ (DSCA controls) $ $ Interest Bearing Accounts at FRB NY - SAMM C9.11.2 Commercial Banking Account – SAMM C9.11.3

23. FMS Trust Fund • U.S. Treasury account at the Federal Reserve Bank of New York for FMS & BPC case funds • No interest is earned by depositors • DSCA “manages” the funds • DFAS SCA is the “accountant” • All funds identified and accounted for (e.g. country / program, case, line) • SCIP provides partial visibility on case and country funds in the FMS Trust Fund for each of the FMS and BPC cases SAMM C9.3.9, C9.11.1, Green Book pp. 12-4 and 12-5

24. Flow of Security Cooperation Case Funds LOA (with Initial Deposit/Payment Schedule) Delivery Transactions Trust Fund (DFAS - SCA) $ Purchaser $ Implementing Agency (IA) Financial Authority FMF / BPC $ (DSCA controls) $ $ $ $ USG reimbursements Contractor direct cite payments Interest Bearing Accounts at FRB NY - SAMM C9.11.2 Commercial Banking Account – SAMM C9.11.3 $

25. Notional View of FMS Trust Fundand Delivery Transactions Reporting FMS Trust Fund (DFAS SCA) Delivery Transactions DSCA ‘manages’ funds at a country/ program level but DFAS SCA ‘accounts’ for those funds at the case/line level Credit Holding Account BN-P-LHL BN-B-URK ACC Suspense Account Cash Holding Account BN-D-TAD FY-16 2282 Program (U5) Trust Fund Account Zastavia (ZS) Trust Fund Account IAs to DFAS SCA within 30 days of occurrence Bandaria (BN) Trust Fund Account FMR VOL 15 SEC 080401, Green Book pp. 12-29 through 12-31

26. Bandaria Case BN-B-URK Outflows from FMS Trust Fund Example D A N R A B Cost = Clearing Accounts Delivery Transaction Outflows to Cost Clearing Accounts determined by Delivery Source Codes (DSCs) reported by IAs to DFAS SCA I A BN-B-URK IA/Treasury Reimbursements Contract Administration Services (CAS) Contract Payments Administrative Charge Transportation FMR VOL 15 080402, Green Book pp. 12-29 through 12-31, and 12-46 through 12-50

27. Security Cooperation Pricing

28. Security Cooperation (SC) PricingKey Concepts • Systematic and not arbitrary • DoD pricing procedures IAW AECA, FMR Volume 15 CH 7 Pricing, and SAMM C9.5 (FMS Charges) • Correlation to provided materials and services • Transparent • RECOVER COSTS (unless waived or granted) • Same pricing methodology per FMR and SAMM for LOA development and execution • LOA prices are an estimate subject to future adjustment per LOA Terms & Conditions

29. Direct and Indirect Charges(‘Above and Below the LINE’) Direct Charges (‘Above the LINE’) “THE LINE” Indirect Charges (‘Below the LINE’) • Net Estimated Cost equals the total of all the LOA Line values • Direct Charges: Included in the materiel and/or services cost • Indirect (i.e. accessorial) Charges: Not included within a line item value and usually computed as a percentage of costs SAMM C9.3.6, BN-D-YCY p. 15

30. Security Cooperation (SC) Price Formula AUTHORIZED CHARGES (to recover applicable USG Total Costs unless waived per SAMM C9.6) SC PRICE BASE PRICE (calculations based on multiple factors) LOA BILLING STATEMENT DD-645 FMR Volume 15 Chapter 7 SAMM C9.5, Green Book 12-16 through 12-28

31. SC Base Price Calculation Factors • Funding Source (FMF, BPC, WCF, etc.)? • Materiel: • Procurement (for what country)? • Stock? • Excess Defense Article (EDA)? • Non-excess inventory item? To be replaced? • Services: Contractor (country?) or Military? • Training by DoD? Key Points: Pricing is complex with lots of factors. Refer pricing questions to your DoD Case financial POCs and/or come back for the DISCS CF course! FMR VOL 15 CH 7, SAMM C9.5, Green Book pp. 12-17 through 12-21

32. Security Cooperation (SC) Price Formula AUTHORIZED CHARGES (to recover applicable USG Total Costs unless waived per SAMM C9.6) SC PRICE BASE PRICE (calculations based on multiple factors) Investment Costs • Nonrecurring Cost Operating Costs • Contract Admin. Services • Packing, Crating, Handling • Transportation • Administrative Costs “THE LINE” FMR Volume 15 Chapter 7; SAMM C9.5 Green Book 12-16 through 12-28

33. Administrative Charge • Percentage (changed periodically) charged per LOA line and delivery transaction • Provides the financial ‘foundation’ for the USG to conduct SC responsibilities including funding for (not all inclusive) • USG SC functions (e.g. DSCA, ISCS, SCOs, etc.) • Information technology initiatives (e.g. SCIP, etc.) • USG Security Cooperation “Standard Level of Service” FMR Vol. 15, 0706, SAMM C9.T4, SAMM C9.T2, Green Book pp. 12-26 through 12-27

34. Standard Level of Service (SLS) • SLS activities are case-related activities covered by the Administrative Surcharge. • Develop and Write • Implement • Manage • Execute • and close a case • SLS activities/functions listed in SAMM Table C9.T2 under the “FMS Admin” column represent indirect charges funded by the Administrative Surcharge Sometimes, these activities are ‘Above’ Standard Level of Service SAMM C9.4.2.2 Green Book 12-26

35. Case-Related Manpower Functions and Funding Source Matrix Example Locate Case Activity(s) to determine if it should be paid by Admin or case line in SAMM C9.T2

36. Performance / Delivery Reporting and Billing

37. Flow of Case Funds LOA (with Initial Deposit/Payment Schedule) Trust Fund (DFAS - SCA) $ DD645 Quarterly Bill Delivery Transactions Purchaser $ Implementing Agency (IA) Financial Authority $ $ $ FMF / BPC $ (DSCA controls) USG reimbursements Contractor direct cite payments $ $ Interest Bearing Accounts at FRB NY SAMM C9.11.2 Commercial Banking Accounts SAMM C9.11.3

38. Security Cooperation Billing Key Points • By law, USG must normally collect in advance • Purchasers are billed quarterly (DD-645) • DD-645 quarterly bill summarizes activity accomplished plus forecast period • Applicable DD-645 attachments – will discuss • DD-645 data inputs includes Implementing Agencies (IAs) delivery transaction reports • Some countries have Special Billing Arrangements (SBAs) FMR VOL 15 Ch. 8, SAMM C6.1.2, C9.8 and C9.10, Green Book pp. 12-28 through 12-39

39. FMS Billing Statements and Reports • DD Form 645 • FMS Delivery Listing • FMS Financial Forecast • Holding account statements • ACC suspense account • FMS Reply Listing to Customer Requests for Adjustments (i.e. Supply Discrepancy Reports - SDRs) DISCS “Security Cooperation Billing Handbook” (i.e. Red Book) is a textbook to assist in understanding and interpreting all the billing reports and codes. FMR VOL 15 Chapter 8, SAMM C9.10, Green Book pp. 12-33 through 12-39

40. Billing Timeline Work Done in Just Completed Quarter FMR VOL 15 Chapter 8, SAMM C9.T16, Green Book pp. 12-32 and 12-34

41. Special Billing Arrangements (SBAs) • Unique billing arrangement(s) between FMS Purchaser Country and DoD (DSCA and DFAS SCA) • Compensate (e.g. county/multiple case programs) for individual case(s) payment schedule variances • Based on average cash requirements and required on-hand reserves • Minimizes excess cash deposits • Coordinate SBAs with DSCA Country Director and Finance Directors/Managers SAMM C9.10.2, Green Book p. 12-39

42. Bandaria SBA Example If a country has Special Billing Arrangements – SBA(s), they pay at Country/Program level vice the individual case DD-645 Column #14, BUT individual Case LOA Payment Schedules still need to be reviewed and updated as required!

43. Security Cooperation Financial References • U.S. Law: • Arms Export Control Act (AECA) • Foreign Assistance Act (FAA) • DoD (Comptroller) Regulation: • Financial Management Regulation (FMR) , Vol. 15 • DoD (DSCA) Financial Policies: SAMM Chapter 9 • Textbooks – Help understand all of the above • ISCS ‘Green’ book CH 12 (Financial Management) • ISCS ‘Red’ book (Billing) • FMS Admin Surcharge Account Handbook for the SCO • DoS PM “GRANT MILITARY ASSISTANCE GUIDE”

44. Lesson Summary • Financial POCs with different responsibilities at each of the DoD organizations managing the cases • Online references (FMR, SAMM, ISCS pubs, etc.) • USG required to recover TOTAL COST • Review and keep LOA payment schedules accurate • Timely and accurate delivery transaction reports • Case financials managed at Country/program Level but accounted for at a case and line level • USG provides quarterly billing statements to customer

45. Financial Management of Security Cooperation Cases Overview Lesson #0410 5 January 2017