1. 0421 / WEB 19 February 2016 1 Financial Management of Security Cooperation Cases Overview

2. 0421 / WEB 19 February 2016 2 Lesson Goal and Objectives  Lesson’s goals are for you to be capable of identifying and explaining:  The references that document the financial aspects of U.S. law, USG regulations, and Department of Defense (DoD) policy that govern Security Cooperation (SC) Case financial management including funds management, pricing, performance/delivery reporting, and billing.  The responsibilities of the organizations (e.g. DoD, purchaser, etc.) responsible for SC case financial Management.  8 Learning Objectives

3. 0421 / WEB 19 February 2016 3 MILSTRIP Requisition Payment Schedule Termination Liability Computation Obligation Authority Contract Training/ Services LOA Terms of Sale Letter of Request Stock Pricing Data LOA Procurement Data Services Data Contract Payment Expenditure Authority Performance/ Delivery Report CARGO DFAS BANDARIA Billing Statement DD-645 Reimbursement & Reconciliation Documents $ SC Financial Management

4. 0421 / WEB 19 February 2016 4 Security Cooperation Financial References 1. U.S. Law:  Arms Export Control Act (AECA)AECA  Foreign Assistance Act (FAA)FAA 2. DoD (Comptroller) Regulation:  Financial Management Regulation (FMR), Vol. 15 Financial Management Regulation (FMR) 3. DoD (DSCA) Policy:  Financial Policies and Procedures (SAMM Chapter 9)SAMM Chapter 9 4. Textbooks – Help understand all of the above  DISAM ‘Green’ book CH 12 (Financial Management) DISAM ‘Green’ book CH 12 (Financial Management)  DISAM ‘Red’ book (Billing) DISAM ‘Red’ book (Billing)  FMS Admin Surcharge Account Handbook for the SCO FMS Admin Surcharge Account Handbook for the SCO Learning Objective #1

5. 0421 / WEB 19 February 2016 5 Agenda 1. Funds Management 2. Pricing 3. Performance / Delivery Reporting and Billing Overview only – Other DISAM finance lessons go much more in-depth for these topics plus others

6. 0421 / WEB 19 February 2016 6 USG SC/SA Financial Management Responsibilities Learning Objective #2

7. 0421 / WEB 19 February 2016 7 DoD Financial Management Responsibilities (‘Green’ book Chapter 12 pages 12-1 through 12-3)  DoD Comptroller  Defense Security Cooperation Agency (DSCA)  Country, Program, and Finance Directors/Managers  Implementing Agencies (IAs)  Country, Program, Case, Line, and Financial Managers  Defense Finance Accounting Service (DFAS) Security Cooperation Accounting (SCA)  Country Managers, Accountants  Security Cooperation Organizations (SCOs) Learning Objective #2

8. 0421 / WEB 19 February 2016 8 Foreign Purchaser Financial Management Responsibilities (‘Green’ book pages 12-3 through 12-4)  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 Learning Objective #2

9. 0421 / WEB 19 February 2016 9 Industry Financial Management Responsibilities  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 Learning Objective #2

10. 0421 / WEB 19 February 2016 10 Sources of Case Financing (‘Green’ book page 12-5) 1. Purchaser’s (e.g. Bandaria) funds 2. USG Funds  Foreign Military Financing Program (FMFP)  Other USG Security Cooperation funds (e.g. Building Partner Capacity (BPC) funds for ‘pseudo’ cases

11. 0421 / WEB 19 February 2016 11 Foreign Military Financing (FMF) (SAMM C9 Table 10, C9.7.3; ‘Green’ book pages 12-7 through 12-9)  Annual appropriation – SCO management responsibilities from ‘cradle-to-grave’  USG $$....not a ‘blank check’ for Bandaria  DSCA County Program Director (CPD) and Finance Manager (CFM) are SCO POCs for FMF questions  Coordinate LORs requesting use of FMF  Must have funds within Congress/State approved scope  State PM “GRANT MILITARY ASSISTANCE GUIDE”  Constraints (unless DSCA approves exceptions)  Transportation on U.S. flag vessels and aircraft  Defense Articles and Services That Should Not be purchased with FMF (SAMM C9.T10)  FMS with exception of 10 countries – DCS/FMS lesson

12. 0421 / WEB 19 February 2016 12 Afghanistan Security Forces Fund (ASFF) BPC Programs and Authorities (SAMM C15.1.4, C15.T2) C15.T2 Yikes! Click a Program/Authority to jump to the corresponding table 120312061207 2282Afghan Train & Equip Afghanistan Security Forces Fund (ASFF) Afghanistan Security Forces Fund (ASFF)/CTRB Coalition Readiness Support Program (CSRP) DoD Counter Narcotics European Reassurance Initiative (ERI) Global Peacekeeping Operations Initiative (GPOI) Global Security Contingency Fund (GSCF) International Narcotics Control and Law Enforcement (INCLE) Iraq Security Forces Fund (ISFF)Iraq Train and Equip Fund (ITEF) Nonproliferation, Anti-terrorism, Demining, and Related Programs (NADR) Pakistan Counterinsurgency Capability Fund (PCCF) Pakistan Counterinsurgency Fund (PCF) Peacekeeping Operations (PKO)PKO and GPOIOther non-DoD Programs

13. 0421 / WEB 19 February 2016 13 01 Oct 2014 30 Sep 2016 31 Jul 2021 30 Sep 2021 New Obligations Obligation Adjustments Disbursements DSCA directed closure date ASFF FY15 “J8” program is a two year appropriation per the law. Funds “cancel” (i.e. “no expenditures for any purpose”) Funds “expire” for new obligations Financial Time limits for BPC “J8” money! (Just one example – Refer to SAMM C15.T2) SAMM C15.T2SAMM C15.T2 DSCA Policy Memo 11-06 “Execution and Closure guidance for Pseudo cases DSCA Policy Memo 11-06 “Execution and Closure guidance for Pseudo cases and DSCA Financial Management Class are great tools to assist!DSCA Financial Management Class

14. 0421 / WEB 19 February 2016 14  U.S. Treasury account at the Federal Reserve Bank of New York for FMS and BPC case funds  DSCA “manages” the funds  DFAS SCA is the “accountant”  All funds identified and accounted for (e.g. country / program, case, line, etc.)  No interest paid to purchaser – once in the Trust Fund FMS Trust Fund (SAMM C9.3.9, C9.11.1, ‘Green’ book pages 12-4) Learning Objective #3

15. 0421 / WEB 19 February 2016 15 FY’16 2282 BPC Program (U5) Trust Fund Account Zastavia (ZS) Trust Fund Account FMS Trust Fund (DFAS SCA) FMS Trust Fund (DFAS SCA) Bandaria (BN) Trust Fund Account BN-P-THM BN-D-YCY Credit Holding Account BN-B-KCG Cash Holding Account ACC Suspense Account FMS Trust Fund DFAS SCA is ‘Accountant’ DSCA ‘manages’ funds at a country / program level but DFAS SCA ‘accounts’ for those funds at the case/line level Learning Objective #3 DFAS SCA accounts for all country/program funds….even those not in case accounts See DISAM ‘Red’ book (Billing), and ‘Green’ book Chapter 12 pages 12-4, and 12-32 through 12-33 for Holding and ACC Suspense Accounts information and reference SCIP provides partial visibility on case and country funds in the FMS Trust Fund

16. 0421 / WEB 19 February 2016 16 Flow of Funds (‘Green’ book pages 12-4 through 12-7) Learning Objective #4 Refer to graphic on ‘Green’ book page 12-5  Funds are deposited (i.e. credits) in the FMS Trust Fund  DFAS SCA issues financial authority to the Implementing Agency (IA) for them to execute the case  IA executes (e.g. requisitions and/or contracts) and reports actions and progress back to DFAS SCA  DFAS uses collected FMS Trust Fund to pay the bills  DFAS SCA accounts for all case/program credits, debits, and performance reports and provides bills & records to customer  Additional required funds are deposited (i.e. credits) as required to the FMS Trust Fund to continue flow of funds cycle

17. 0421 / WEB 19 February 2016 17 Flow of Funds (SAMM C6.1.1 (OA), C9.12.2 (EA); Green’ Book page 12-5) Implementing Agency (IA) Trust Fund (DFAS SCA) $ Purchaser FMF / BPC $ (DSCA controls) Interest Bearing Accounts at FRB NY - SAMM C9.11.2 Commercial Banking Account – SAMM C9.11.3 LOA (with Initial Deposit/Payment Schedule) Financial Authority (OA / EA) USG reimbursements Contractor payments $ $ $ $ Delivery Transactions DD 645 Quarterly Billing Statement Learning Objective #4 Graphic depicting what we just talked about! Purchaser’s Letter / Memorandum of Request (LOR / MOR) $ $ $ $ $ $ $ $ Legend $ $ Customer USG Funds Movement

18. 0421 / WEB 19 February 2016 18 How much, how soon, and who’s money will the USG collect on the LOA? (‘Green’ book pages 12-11 through 12-12)  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 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.

19. 0421 / WEB 19 February 2016 19  Important financial entry on cover page of every LOA  All eight (8) terms defined in references  “Cash Prior to Delivery” and “Dependable Undertaking” (Stock, Procurement, with payment schedules) are 2 most common  Some countries have “Cash with Acceptance” Terms of Sale (SAMM C9.T11; ‘Green’ book pages 12-9 through 12-10) Learning Objective #5

20. 0421 / WEB 19 February 2016 20 Final points IRT Terms of Sale (‘Green’ book pages 12-9 through 12-10)  Each LOA will have at least one, and there can be multiple ones if applicable  Direct correlation to Payment Schedule (i.e. whether there is even one)  Customer agreed when they accepted case to the Terms and Condition – including the financial ones (2.1 & Section 4)  Not all countries are authorized Dependable Undertaking….check with DSCA Country Financial Director and IA Country Director Learning Objective #5

21. 0421 / WEB 19 February 2016 21 Initial Deposit (SAMM C9.9.1.5.1; ‘Green’ book pages 12-11 through 12-12) Learning Objective #4

22. 0421 / WEB 19 February 2016 22 “TL is the potential cost for which the USG would be liable if a particular FMS case is terminated prior to completion. It applies to any FMS case that has procurement contracts.” Termination Liability (TL) (SAMM C9.9.1.5.3, C9.9.1.5.2.2; ‘Green’ book 12-12) YCY Line Items with Source Code of P or X Lines 001-004, 006-008, 012-014, 700, and 989

23. 0421 / WEB 19 February 2016 23 Why does USG need to include Termination Liability (TL) Costs for FMS LOAs? Buyer/Seller Relationships United States Government ForeignGovernmentForeignGovernmentDefenseContractorDefenseContractor LOA CONTRACT 1 2

24. 0421 / WEB 19 February 2016 24 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 IDM11J11S11D11M12J12 Total Payment by FMS Customer Estimated Disbursements to Contractor Termination Liability Reserve $ MILLIONS Termination Liability (TL) Example USG not collecting additional costs, but are collecting costs sooner per the contract(s) TL requirements

25. 0421 / WEB 19 February 2016 25 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 pages #15 through #16 on Bandaria case BN-D-YCY) Learning Objective #4

26. 0421 / WEB 19 February 2016 26 Agenda 1. Funds Management 2. Pricing 3. Performance / Delivery Reporting and Billing Overview only – Other DISAM finance lessons go much more in-depth for these topics plus others

27. 0421 / WEB 19 February 2016 27 Security Cooperation Pricing (‘Green’ book pages 12-14 through 12-26)  General USG pricing policy:  Systematic and not arbitrary  Correlation to USG provided materials and services  Transparent  Recover total cost (unless waived or granted)  DoD pricing procedures IAW AECA, FMR Volume 15 CH 7 Pricing, and SAMM C9.5 (FMS Charges)FMR Volume 15  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 section 4.1 Learning Objective #6

28. 0421 / WEB 19 February 2016 28 ‘Above the LINE’ (Direct Charges) ‘Below the LINE’ (Indirect Charges) Learning Objective #6 “THE LINE”

29. 0421 / WEB 19 February 2016 29 Security Cooperation (SC) Price Formula (FMR Volume 15 Chapter 7; SAMM C9.5; ‘Green’ book page 12-15) FMR Volume 15 Chapter 7FMR Volume 15 Chapter 7 SC PRICE BASE PRICE (calculations based on multiple factors) Learning Objective #6 LOA BILLING STATEMENT DD-645 AUTHORIZED CHARGES (to recover applicable USG Total Costs unless waived per SAMM C9.6)

30. 0421 / WEB 19 February 2016 30  Funding Source (FMF, BPC, Working Capital, etc.)?  Materiel:  Procurement (for what country)?  Stock?  Excess Defense Article (EDA)?  Non-excess inventory item? To be replaced?  Services:  Contractor (for what country)?  DOD: Military or Civilian government personnel?  Training by DoD? (FMR VOL 15 CH 7; SAMM C9.5; ‘Green’ book pages 12-16 through 12-20) Base Price Calculation Factors (FMR VOL 15 CH 7; SAMM C9.5; ‘Green’ book pages 12-16 through 12-20)FMR VOL 15 CH 7FMR VOL 15 CH 7 Key Points: Pricing is complex with lots of factors. Refer pricing questions to your DoD Case financial POCs and/or come back for the DISAM IF/CF courses!

31. 0421 / WEB 19 February 2016 31 SC PRICE BASE PRICE (calculations based on multiple factors) AUTHORIZED CHARGES (to recover applicable USG Total Costs unless waived per SAMM C9.6) Operating Costs Contract Admin. Services Packing, Crating, Handling Transportation Administrative Costs Investment Costs Nonrecurring Cost “THE LINE” Security Cooperation (SC) Price Formula (FMR Volume 15 Chapter 7; SAMM C9.5; ‘Green’ book pages 12-15 through 12-26) FMR Volume 15 Chapter 7FMR Volume 15 Chapter 7 Learning Objective #6

32. 0421 / WEB 19 February 2016 32 Administrative Charge (FMR Vol. 15, 0706; SAMM C9.T4; SAMM C9.T2, and ‘Green’ book pages 12-24 through 12-25)  Provides the financial ‘foundation’ for the USG to conduct Security Cooperation responsibilities  Provides funding for the following (not all inclusive):  Headquarters’ functions (e.g. DSCA, DISAM, etc.)  Security Cooperation Offices (SCOs)  Information technology initiatives  USG Security Cooperation “Standard Level of Service ”  Percentage charged per LOA line and delivery transaction:  Current:  3.5% after 1 NOV 12  5.0% for Foreign Military Sales Order (FMSO I) cases  Historical:  3.0% prior to 1 Jun 99  2.5% from 1 Jun 99 – 1 Aug 06  3.8% after 1 Aug 06 – 31 OCT 12 Waivers: (NSPA (SAMM 9.6.1.2), DoD Training (SAMM C10.14.1.2)

33. 0421 / WEB 19 February 2016 33 Standard Level of Service (SLS) (SAMM C9.4.2.2; ‘Green’ book page 12-24)  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 and should not be included and/or priced as direct charges on the LOA.SAMM Table C9.T2 Sometimes, these activities are ‘Above’ Standard Level of Service

34. 0421 / WEB 19 February 2016 34 If the responses require preparation of reports or other documentation; travel to meetings; etc. that are expected to exceed 1% of the IA annual Pre-LOR budget approved by DSCA for any effort toward a potenhttp://www.samm.dsca.mil/table/table- c9t2tial case. See Section C9.3.4.2. for additional information. This may be done as a new case/line or on an existing case with the scope to cover this requirement. X X 4 16 Row # Activities FMS Case FMS Admin Case-Related Manpower Functions and Funding Source Matrix Examples () Case-Related Manpower Functions and Funding Source Matrix Examples (SAMM C9 Table 2, http://www.samm.dsca.mil/table/table-c9t2 )http://www.samm.dsca.mil/table/table-c9t2 Case Development P.E.: 10 Responses to requests for information from foreign countries subsequent to receipt of an LOR but prior to an LOA. Case Execution P.Es.: 13, 14, 15, 16 Day-to-Day Case Analysis Review the individual FMS case execution (i.e. monitoring acquisition and training, tracking requisitions); Reviewing financial status, etc. continuously throughout the life of the case; Conduct meetings and/or prepare correspondence as determined by the USG to keep the case on track and keep the purchaser informed regarding cost, schedule, and performance of the individual case. Most aspects of day-to-day case analysis are automated and do not require face-to-face reviews, particularly when the case’s cost, schedule, and performance are on track. If at any time the customer asks for support that isn’t covered, it needs to be added to the case. The purchaser should be encouraged to utilize the SCIP for day-to-day information on one or more specific case(s). Case Activities listed from ‘cradle’ to ‘grave’

35. 0421 / WEB 19 February 2016 35 Agenda 1. Funds Management 2. Pricing 3. Performance/Delivery Reporting and Billing Overview only – Other DISAM finance lessons go much more in-depth for these topics plus others

36. 0421 / WEB 19 February 2016 36 Flow of Funds (SAMM C6.1.1 (OA),C9.12.2 (EA); Green Book page 12-4) Implementing Agency (IA) Trust Fund (DFAS - SCA) $ Purchaser FMF / BPC $ (DSCA controls) Interest Bearing Accounts at FRB NY - SAMM C9.11.2 Commercial Banking Account – SAMM C9.11.3 LOA (with Initial Deposit/Payment Schedule) Financial Authority (OA / EA) USG reimbursements Contractor direct cite payments $ $ $ $ Delivery Transactions DD 645 Quarterly Billing Statement Learning Objective #7 Purchaser’s Letter of Request (LOR) $ $ $ $ $ $ $ $ Legend $ $ Customer USG Funds Movement

37. 0421 / WEB 19 February 2016 37 Security Cooperation Billing (FMR VOL 15 Chapter 8, SAMM C9.10, and ‘Green’ book page 12-26)FMR Key Concepts  By law, USG must collect in advance  Purchasers are billed quarterly (DD-645)  DD-645 quarterly bill summarizes activity accomplished plus forecast period  DD-645 data inputs includes Implementing Agencies (IAs) delivery transaction reports Learning Objective #7

38. 0421 / WEB 19 February 2016 38 Why the “Bill” is Important 4.3 Purchaser failure to make timely payments in the amounts due may result in delays in contract performance by DoD contractors, claims by contractors for increased costs, claims by contractors for termination liability for breach of contract, claims by USG or DoD contractors for storage costs, or termination of contracts by the USG under this or other open [LOAs] at the Purchaser’s expense. LOA Letter of Offer and Acceptance Standard Terms and Conditions

39. 0421 / WEB 19 February 2016 39 Why the “Bill” is Important 5.4 The Purchaser agrees to accept DD Forms 645 or other delivery documents as evidence that title has passed and items have been delivered. LOA Letter of Offer and Acceptance Standard Terms and Conditions

40. 0421 / WEB 19 February 2016 40 Billing Statements and Reports (FMR Vol. 15 CH 8, SAMM C9.10, ‘Red’ book, ‘Green’ book pages 12-30 - 12-34, Bandaria Sample Case Documents pages 96 through 98)  DD Form 645 Quarterly Bill and attachments described in DISAM ‘Green’ and ‘Red’ books  Refer to the DISAM ‘Red’ book Appendices to understand and interpret field definitions, codes, abbreviations, acronyms, etc.  Delivery Listing (bill attachment) provides details on delivered materials and/or services DISAM ‘Red book’DISAM ‘Red book’ is bill’s ‘secret decoder ring’ Refer to applicable Chapters and Appendices Learning Objective #8

41. 0421 / WEB 19 February 2016 41 Lesson Summary  Designated financial POCs (including purchasers) with different responsibilities at each of the organizations managing the security cooperation cases  Security Cooperation case financials are managed by DoD at a Country Level but accounted for at a case and line level  LOA costs are calculated and collected per the laws, FMR VOL 15 and SAMM Chapter 9 – bookmark references and use them  USG required to recover TOTAL COST = Base Price + Authorized charges  USG provides quarterly billing statements to customer to provide transparency, accountability, and ensure funds are collected in advance  One resource to respond to billing questions, is to use the DISAM ‘Red book’ (Billing) to decode billing statements and attachments  This lesson was only an overview – other DISAM finance lessons and classes go much more in-depth for these topics plus others

42. 0421 / WEB 19 February 2016 42 Financial Management of Security Cooperation Cases Overview