CDFM Working Capital Fund Management 2 — Questions and Answers
Question 1: What is the key distinction between a WCF appropriation and a direct appropriation?
- WCF appropriations expire at the end of the fiscal year, while direct appropriations do not
- WCF appropriations are revolving and replenished by customer receipts; direct appropriations are one-time congressional grants (Correct answer)
- Direct appropriations require OMB approval before obligation; WCF appropriations do not
- WCF appropriations can only be used for personnel costs
Correct answer: WCF appropriations are revolving and replenished by customer receipts; direct appropriations are one-time congressional grants
WCFs revolve because revenues from customer charges replenish the fund continuously, whereas direct appropriations are discrete funding grants from Congress that do not automatically replenish.
Question 2: In DoD WCF management, what does 'break-even' mean?
- The fund's total assets equal total liabilities
- Revenues collected equal total costs incurred over a two-year budget cycle (Correct answer)
- The number of customers equals the number of employees
- Operating costs are split equally between the Army, Navy, and Air Force
Correct answer: Revenues collected equal total costs incurred over a two-year budget cycle
WCFs are designed to break even over the long run, meaning total revenues collected from customers should equal total costs incurred, typically measured over a two-year budget cycle.
Question 3: Which entity sets the prices (stabilized rates) charged by WCF business areas to their customers?
- The Office of Management and Budget (OMB) alone
- Congress through the annual defense authorization act
- The DoD Comptroller in coordination with each Military Department (Correct answer)
- The Federal Acquisition Regulatory Council
Correct answer: The DoD Comptroller in coordination with each Military Department
The DoD Comptroller (OUSD(C)) works with the Military Departments and Defense Agencies to set stabilized rates that recover full costs while maintaining customer budget predictability.
Question 4: What happens when a WCF business area accumulates a large net operating gain (surplus)?
- The surplus is transferred to the General Fund of the Treasury
- Rates must be reduced in future years to return the surplus to customers (Correct answer)
- The surplus is used to fund new weapon system development
- The surplus is distributed to WCF employees as bonuses
Correct answer: Rates must be reduced in future years to return the surplus to customers
Consistent with the break-even principle, large surpluses must be returned to customers through rate reductions in future years to prevent the WCF from operating as a profit center.
Question 5: The Defense Logistics Agency (DLA) Supply Chain activity group primarily finances its operations through:
- Annual direct appropriations from Congress
- Revolving fund revenues from sales of supplies and materiel to customers (Correct answer)
- Grants from the Department of Commerce
- User fees collected at military commissaries
Correct answer: Revolving fund revenues from sales of supplies and materiel to customers
DLA Supply Chain operates as a WCF activity, financing operations through sales of wholesale supplies and materiel to military services and other authorized customers.
Question 6: Which financial statement is most critical for assessing the cash position and liquidity of a DoD WCF business area?
- Statement of Net Cost
- Statement of Changes in Net Position
- Statement of Budgetary Resources
- Statement of Cash Flows (Correct answer)
Correct answer: Statement of Cash Flows
The Statement of Cash Flows shows inflows and outflows of cash, making it the primary tool for evaluating whether a WCF has sufficient liquidity to meet operating obligations.
Question 7: Under DoD WCF policy, capital assets purchased by a WCF activity are generally funded through:
- A separate line item in the Military Construction appropriation
- Operating costs recovered through customer rates over the asset's useful life (depreciation) (Correct answer)
- One-time congressional supplemental appropriations
- Transfers from the Defense Emergency Response Fund
Correct answer: Operating costs recovered through customer rates over the asset's useful life (depreciation)
WCF capital asset costs are recovered over time through depreciation charges included in stabilized rates, spreading the cost across the customers who benefit from the asset.
CDFM Working Capital Fund Management 2
What is the key distinction between a WCF appropriation and a direct appropriation?