Department of Veterans Affairs

Recommendations and Actions

DVA07: Establish a Working Capital Fund


Working capital funds (WCFs) have been used across the federal government to accomplish many objectives. In general, they provide managers with greater flexibility through the consolidation of similar activities (without institutional reorganizations) to reap the benefit of economies of scale.

A WCF can facilitate the replacement of equipment by enabling managers to (1) spread the cost of equipment purchases over several years, thereby avoiding the impact of large, one-time budget requests; and (2) procure replacement equipment when needed rather than in the year when budgeted funds may be available. No other mechanism is available to federal managers to accomplish these objectives. Taking advantage of opportunities and fostering the search for new ones is at the heart of the WCF concept.

The Department of Veterans Affairs (VA) would like to establish a WCF to achieve greater efficiencies and cost savings in several common activities. For example, in the VA's case, VA personnel security clearances traditionally have been funded by separate organizational components. This requires duplicate accounting mechanisms, as well as additional staff dedicated to this activity. Accounting processes and personnel training would be greatly simplified by the use of a central funding method.

VA now operates 23 general funds, 21 revolving funds, six trust funds, five deposit funds, five clearing accounts, and one special fund.(1) While the operation of these funds has given VA a valuable experience base in funds management, none of the existing funds can be used to serve the purposes of a WCF, and modifying the charter of an existing fund is not recommended by VA.

The department has proposed the creation of a WCF to begin operations in fiscal year 1994 to support four service activities: personnel security, data processing training, records management, and office supplies. VA believes that such a fund would provide a mechanism to manage scarce resources more effectively while maintaining high service delivery standards by:

--- providing businesslike incentives for productivity enhancement, customer focus, and management efficiency;

--- stimulating cost awareness in both the service activities and users of their goods or services through the buyer-seller relationship, with the option for buyers of seeking goods and services from other providers; and

--- providing managers of the service activities with the financial authority and flexibility required to effectively procure and use personnel, materials, and other resources.

As a so-called no-year or multi-year fund, the use of its operating funds would not be subject to traditional fiscal year limitations (i.e., one-year funding). The charter proposed for the planned WCF would guarantee the flexibility needed for its operations by the lifting of apportionment controls and full-time equivalent limits.(2)

The charter also incorporates safeguards against abuses of concern to the Office of Management and Budget (OMB). Specifically, it would provide for the following, among other controls:

--- a board of directors to ensure openness of operation and representation of those serviced;

--- a director specifically responsible for establishment of productivity measurements and evaluations of all departmental operations covered by the fund;

--- an annual audit by the inspector general to ensure that services provided by the fund are competitive with equivalent services available from other governmental and nongovernmental providers; and

--- a requirement that the VA secretary must approve of any amendments to the fund's charter.

The VA proposes to fund fiscal year 1994 WCF operations at a level of $2.1 million, from the following sources: Office of Inspector General personnel security investigations ($864,000); Austin Data Processing Center training ($185,000); Records Depository, Neosha, Missouri ($228,500); and VA Central Office supplies ($772,000). At this time, no new budget authority would be requested to implement the fund. All necessary funding would be transferred from existing appropriations. However, the fund cannot be established without congressional approval.


Legislation should be enacted to amend Title 38 of the United States Code to permit VA to establish a working capital fund.

In general, such an amendment would need to authorize the establishment of such a fund, define its purposes, uses, and operations (e.g., how funds are added to or removed from the fund, how the fund is reimbursed, how assets are capitalized, and what management controls need to be incorporated).


Legislation would be required to establish the fund. Its establishment would enable selected needs, common to more than one VA component, to be provided more efficiently than would otherwise be possible.

Fiscal Impact

VA plans for the establishment and operation of the WCF to be essentially budget neutral. It proposes to start the fund on a small scale, using existing resources to test the efficacy of the overall approach.


1. U.S. Department of Veterans Affairs, Financial Statements, Fiscal Year 1992 (Washington, D.C., March 31, 1993), p. 2-1.

2. U.S. Department of Veterans Affairs, The Department of Veterans Affairs Working Capital Fund Charter (Washington, D.C., undated).

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