The Government Accountability Office’s Review of Agencies’ Canceled Funds Doesn’t Address Wasteful “Use It or Lose It” Incentives

In the last century, the U.S. Government Accountability Office (GAO) has examined government expenditure and has provided Congress and other federal agencies with research on how to improve governmental spending. Often referred to as the “congressional watchdog,” the GAO’s research  has saved taxpayers billions of dollars. 

The GAO recently released a report on unspent federal agency funds that get cancelled. As detailed in a previous NTUF study,  departments and agencies are incentivized by financial procedures to use the remainder of their budget before the end of the fiscal year. If a department opts to spend less than their allotted budget, Congress is more likely to grant them less funding in the future. This characteristic of the budgetary process pressures governmental agencies and departments to engage in “use it or lose it” spending. 

GAO found that 1.6 percent of the total available budget government-wide was scrapped from 2009 to 2019. These cancellations total to a whopping $23.9 billion per year. The four agencies that were responsible for the most budgetary cancellations were the departments of Defense, Agriculture, Health and Human Services, and the Treasury. 

GAO found that most cancellations were due to program-specific factors:

  • Actual program needs being less than estimated 

  • Agencies not having authority to redirect funds 

  • Unpredictable program costs

Among the four departments, these budgetary reductions represent 86 percent of the total government-wide cancelled appropriations. In other words, these departments compose a large percentage of the budgetary reductions across all government entities. 

GAO pointed out reforms and processes that the agencies have implemented to reduce the amount of cancelled funds. For example, the Army created a system that tracks program areas with higher levels of cancelled funds. By closely monitoring transactions that are likely to be deobligated, “Army leadership has a greater chance of being able to redirect the funds toward another expense before they expire.”

Unfortunately, this doesn’t get to the underlying problem of the “use it or lose it” incentives that lead to wasteful spending. NTUF found that federal  departments and agencies will spend frugally for the first portion of the year to account for unpredictable expenses. This conservation of resources encourages departments to focus on higher priority issues and their popular programming. Once the department covers its normal yearly expenses, the department is pressured to spend the remainder of the funds on miscellaneous objects and low-quality projects. 

NTUF also compiled a list of questionable “Miscellaneous Expenses” from similar departments mentioned in the GAO report. 

A few examples of end-of-year splurges:

  • $412,008 on paint brushes for the DoD, DoS, and Department of Homeland Security (2018)

  • $73,276 for new Department of Agriculture UTVs (2018)

  • $40,429 for iMac computers for the Department of Health and Human Services (2019)

These purchases act as prime examples of the reckless spending that takes place at the end of the fiscal year. The use-it-or-lose-it mentality of government departments and agencies have inspired legislators and citizens to take a stand against government waste.

Reform Options to Stop Reckless End-Of-Year Spending

Fourth quarter spending spikes flush away taxpayer dollars. As such, legislative action is necessary to reform the use-it-or-lose-it system. For instance, Senator Joni Ernst (R-IA) introduced S. 1238, the End-of-Year Fiscal Responsibility Act in 2019. Representative Dan Crenshaw (R-TX) introduced the House companion bill as H.R. 4559. This reform seeks to curtail Q4 spending spikes by removing the incentives that contribute to the problem. The Act would force agencies to normalize their spending rates by limiting their discretionary spending in the last two months of the fiscal year to the average it spent per month during the preceding 10 months. NTUF expects that the bill will be introduced again during the current 117th Congress.

Looking Forward

Governmental bodies and agencies should not be incentivized by a use-it-or-lose-it system to spend the remainder of their fiscal budgets on unnecessary programs and goods. Instead, these departments must ensure that they accurately forecast expenses and that their spending aligns with their mission. All federal spending should serve a clear national interest that is valuable to the public.

Furthermore, these departments and agencies must take steps to create more accurate budgetary projections. Government entities need to perform an internal audit on their programming, ensuring that each program is unique in its public service. This evaluation would encourage that all spending is meaningful and reaches its intended recipient as well as GAO’s. Congressional oversight is also needed, but the growing levels of spending on “zombie” programs with expired budget authorizations indicate that lawmakers are not adequately performing this crucial function. 

The GAO report comes at a time where the U.S. budget deficit is at an all-time high of $3.4 trillion. Broad reforms are needed to rein in agency spending. Reforming these departments would enable them to provide better, fairer services to the public that does not involve spending their hard-earned tax dollars.