Our second objective was to describe how answering these key questions  provides information about why carryover balances were reported in  selected accounts during fiscal years 2007 through 2012, and how  agencies estimated and managed these balances. We identified the  100 accounts with the largest average unobligated balance during fiscal  years 2007 through 2012.eight accounts representing a variety of characteristics, including the size  of the average unobligated balance, budget function, type of account,  agency, and whether the account was composed of mandatory funds,  discretionary funds, or a combination of both. Four Key Questions to Consider When Evaluating Carryover Balances

To assist congressional and agency-level decision makers as well as  other reviewers in their evaluation of agencies’ carryover balances, we  identified four overarching key questions to consider:
What mission and goals is the account or program supporting? Answering each of the four overarching questions and their second-tier  questions provides insight into why a carryover balance exists, what size  balance is appropriate, and what opportunities, if any, for savings exist. These  questions can be applied when evaluating carryover balances at either  the account or program level. A single account may support a single  program or multiple programs. Understanding the mission activities, goals, and programs the account  supports provides information about whether a program needs to  maintain a balance to operate smoothly, what size balance is appropriate,  and whether opportunities for savings exist. The sources and fiscal characteristics of the funding influence what  opportunities may exist for budgetary savings. Discretionary and  mandatory funds present different issues in changing the size of any  balance. Moreover, since mandatory funds  are often provided in “such sums as may be necessary” to make  payments to those eligible, reducing the balance in such an account may  have no practical or economic benefit and instead could impose  unnecessary administrative costs. Some factors are within an agency’s control and some are not. Understanding what drives this  “spendout rate” provides information on the size of the unobligated  portion of the balance versus the obligated portion; this in turn provides  insight into the composition of the carryover balance as a whole. The sources and fiscal characteristics of funding for an account or  program affect the timing of when funds are obligated and disbursed, and  provide insight into why amounts may be carried forward from one fiscal  year to the next. In the case of mandatory accounts, agencies focused on  future needs of the account and relied on economic indicators as well as  historical trends to estimate future balances of the account, including  carryover balances. Among the eight accounts we reviewed, the discretionary accounts used  historical data combined with current variables to estimate carryover  balances. Concluding Observations

Given the fiscal pressures facing the nation, examination of carryover  balances provides an opportunity for enhanced oversight of agencies’  management of federal funds. It also may help identify areas where the  federal government can improve and maximize the use of resources. All four departments generally agreed  with our findings and provided technical comments that were incorporated  as appropriate. Furthermore, HHS said  that any conclusions drawn from the report may not apply across the  board to all accounts with multi-year or no-year funds. A  single account may support a single program or multiple programs. If funds are discretionary,  balances can be controlled by the annual  appropriations process. How does the agency estimate and manage  carryover balances? Understanding an agency’s processes for  estimating and managing carryover balances  provides information to assess how effective  agencies are in anticipating program needs  and ensuring the most efficient use of  resources. What is the spendout rate after funds have been obligated? The eight accounts we reviewed as case illustrations were:
Department of Defense: Army Aircraft Procurement
Department of Defense: U.S. Army Corps of Engineers-Civil Works,
Department of Health and Human Services: Public Health and Social
Department of Housing and Urban Development: Community
Department of Housing and Urban Development: Federal Housing  Administration-Mutual Mortgage Insurance Capital Reserve
Department of Housing and Urban Development: Homeless
Department of the Treasury: Exchange Stabilization Fund
Department of the Treasury: Government Sponsored Enterprise  (GSE) Preferred Stock Purchase Agreements  Account Name:   Agency:   National Priority:   Department of Defense-Military   Aircraft Procurement, Army (APA)  Department of Defense  (Budget Subfunction 051)
What Mission and Goals Is the Account or Program Supporting? What Factors Affect the Size or Composition of Carryover  Balances?
Why GAO Did This Study

Given the fiscal pressures facing the nation, examination of balances carried forward into future fiscal years (carryover balances) provides an opportunity to identify areas where the federal government can improve and maximize the use of resources. GAO was asked to review issues related to federal carryover balances. GAO's objectives were to (1) identify key questions for congressional committees, managers, and other reviewers to consider when evaluating carryover balances, including whether to reduce them, and (2) describe how answering these key questions provides insight into why carryover balances may exist in selected accounts.
GAO reviewed carryover balances from fiscal years 2007 through 2012 in eight selected accounts from the Departments of Defense (DOD), Health and Human Services (HHS), Housing and Urban Development (HUD), and Treasury. Account selection was based on several characteristics, including the average size of the balance, budget function, type of account, agency, and whether the account was composed of mandatory or discretionary funds.
GAO is not making any recommendations. DOD, HHS, HUD, and Treasury generally agreed with our findings and provided technical comments that were incorporated as appropriate. HHS provided comments stating that conclusions drawn from the report may not apply across the board to all accounts.

What GAO Found

Carryover balances in fiscal year 2012 were $2.2 trillion, of which about $800 billion had not yet been obligated. Answering key questions during review of carryover balances provides insights into why a balance exists, what size balance is appropriate, and what opportunities (if any) for savings exist. Given that a single account may support a single program or multiple programs--or that multiple accounts may support a single program--these questions can be applied when evaluating balances at either the account or program level. Examination of balances may assist decision makers in identifying opportunities to achieve budgetary savings or redirecting resources to other priorities. However, the complexity of the federal budget is such that a case-by-case analysis is needed to understand how best to achieve these financial benefits.
What mission and goals is the account or program supporting? Understanding the mission activities, goals, and programs the account supports provides information about whether a program needs to maintain a balance to operate smoothly, what size balance is appropriate, and whether opportunities for savings exist. Accounts GAO reviewed maintained balances to support activities such as long-term acquisition of military aircraft and public health emergency preparedness.
What are the sources and fiscal characteristics of the funding? The sources and fiscal characteristics of the funding present different issues in changing the size of carryover balances. Accounts such as Treasury's Exchange Stabilization Fund, receive "such sums as may be necessary" and may require programmatic changes to effectively reduce balances. In such cases, simply reducing balances may have no economic benefit and could impose unnecessary administrative costs. If funds are discretionary, such as with HUD's Homeless Assistance Grants, balances can be controlled through appropriations acts.
What factors affect the size or composition of the carryover balances? Understanding factors within and outside an agency's control that affect its "spendout rate" provides insight to the composition of the carryover balance as a whole. Funds in accounts that support activities such as certain procurement or disaster relief may be obligated fairly quickly, but are expended over a longer period as milestones are met or as grantees draw down funds. Accounts with quick spendout rates, such as those that provide cash payments to government-sponsored enterprises, disburse funds soon after obligation.
How does the agency estimate and manage carryover balances? Understanding an agency's processes for estimating and managing balances provides information to assess how effectively agencies anticipate program needs and ensure the most efficient use of resources. For the mandatory accounts GAO reviewed, such as the Federal Housing Administration's Mutual Mortgage Insurance Capital Reserve account, agencies focused on future needs of the account and relied on economic indicators and historical trends to estimate future balances. For discretionary accounts GAO reviewed, such as the U.S. Army Corps of Engineers' Construction account, agencies used historical data combined with current variables to estimate carryover balances.