The U.S. Department of Agriculture (USDA) recently faced scrutiny over its method of recording obligations for Supplemental Nutrition Assistance Program (SNAP) benefits. The Government Accountability Office (GAO) reviewed the USDA’s accounting practices, particularly its shift in how and when it recorded SNAP benefit obligations. The key issue centered on compliance with three major financial statutes: the recording statute, the bona fide needs statute, and the Antideficiency Act. The GAO determined that the USDA’s previous and revised practices both violated the recording statute, and that the revised practice further violated the bona fide needs statute. This decision has broader implications, not only for USDA but also for federal contractors and agencies that must adhere to strict financial regulations when managing appropriated funds.

SNAP, an appropriated entitlement program, provides monthly food assistance to millions of low-income households. The funding for these benefits comes from one-year appropriations allocated annually. Prior to September 19, 2023, USDA recorded daily obligations for SNAP benefits based on the actual amount issued each day. On that date, USDA changed its approach and obligated its entire fiscal year (FY) 2023 appropriation for October 2023 SNAP benefits, a move that effectively pre-funded benefits that were to be issued in FY 2024. The GAO found both practices to be legally problematic.

The recording statute requires federal agencies to record obligations at the time they legally incur liabilities, supported by sufficient documentary evidence. GAO determined that for SNAP, the obligation occurs when appropriations become available, not when USDA takes administrative actions such as issuing a letter to the Federal Reserve Bank or processing individual benefit payments. USDA’s previous practice of recording obligations daily underestimated its total liability, failing to capture the full fiscal year obligation when appropriations became available. Conversely, the revised approach improperly obligated FY 2023 funds for benefits to be issued in FY 2024, violating both the recording statute and the bona fide needs statute.

The bona fide needs statute restricts agencies from using appropriations for expenses outside the fiscal year in which they were legally incurred. Since USDA’s FY 2023 appropriation should have been used only for benefits distributed within that fiscal year, applying it to October 2023 benefits in FY 2024 was an improper use of funds. As a corrective measure, GAO directed USDA to adjust its accounts, ensuring that the October 2023 benefits were charged to the FY 2024 appropriation instead. If the agency lacks sufficient FY 2024 funds to cover the misallocated amounts, it must report a violation of the Antideficiency Act.

For federal contractors, this decision serves as an important reminder of the legal and financial risks associated with misaligned funding obligations. Contractors working with government agencies must ensure that they understand and adhere to the fiscal rules governing contract funding, particularly when dealing with multi-year appropriations or funding shifts across fiscal years. Missteps in recording obligations or incurring costs in the wrong fiscal year can lead to contract modifications, funding gaps, or even liability for violations of federal financial management laws.

Additionally, government contractors should be aware that GAO decisions like this can influence agency procurement practices, particularly in how agencies structure their budget obligations and contract payments. This case highlights the necessity for clear alignment between contract periods of performance and the fiscal year funding streams that support them. If a federal contractor is engaged in work funded through appropriations, they must carefully track obligation points and ensure invoicing aligns with the available and intended fiscal year’s funds.

The GAO’s decision also reinforces the critical importance of maintaining accurate financial records and ensuring compliance with federal financial statutes. Agencies and their financial officers must correctly estimate their fiscal year obligations and ensure they are recorded properly from the outset. The failure to do so can result in funding shortfalls, compliance audits, and potential violations of the Antideficiency Act, which carries serious consequences for agency officials.

Disclaimer: This blog post is a summary of the GAO decision and is intended for informational purposes only. It does not constitute legal advice, nor does it guarantee accuracy or completeness. Readers should consult appropriate legal and financial professionals for guidance on specific compliance obligations.