AP10.C1.1.1. Overview.

AP10.C1.1.1.1. Security Cooperation. Security Cooperation (SC), which includes DoW-administered Security Assistance (SA) programs and international armaments cooperation, is undertaken to achieve specific ends in support of defense and national security strategy, rather than serving as an end unto itself. SC will be used to develop allied and partner defense and security capabilities and capacity for self-defense and multinational operations, provide the U.S. forces with peacetime and contingency access to host nations, build defense relationships that promote specific U.S. security interests, and take other actions in support of U.S. objectives.

AP10.C1.1.1.2. Security Assistance. SA refers to a group of programs authorized by Title 22, U.S.C., Foreign Relations and Intercourse, or other legal authorities under which the United States provides defense articles, military training, and other defense-related services by grant, loan, credit, cash sales, or lease, in furtherance of national policies and objectives. DoW does not administer all SA programs. Those SA programs administered by DoW are a subset of SC. The SAMM provides guidance on the major programs DoW administers in Appendix 8 “Security Assistance and Security Cooperation Programs.”

AP10.C1.1.1.3. Building Partner Capacity Programs. Building Partner Capacity (BPC) programs refer to SC and SA activities funded with USG appropriations. When executing BPC programs, DoW may enter into agreements for provision of defense articles and/or services to other USG departments and agencies for the purpose of:

AP10.C1.1.1.3.1. Building the capacity of partner’s security forces and enhancing their capability to conduct counterterrorism operations, counter-weapons of mass destruction operations, counter-illicit drug trafficking operations, counter-transnational organized crime operations, maritime and border security operations, military intelligence operations, and operations or activities that contribute to an international coalition operation that is determined by the Secretary to be in the national interest of the United States per 10 U.S.C. 333, “Foreign security forces: authority to build capacity”; or

AP10.C1.1.1.3.2. Supporting U.S. Military and stability operations, multilateral peace operations, and other programs. See Chapter 15, “Building Partner Capacity Letter of Offer and Acceptance and Training Grant Development, Implementation, and Execution Process,” for a detailed discussion of BPC programs.

AP10.C1.1.2. Purpose. 

AP10.C1.1.2.1. The purpose of this chapter is to provide DoW accounting policy for SC transactions to ensure compliance with all requirements for the administrative control of SC programs. In addition to established accounting policy, as defined elsewhere in existing law and regulation, SC transactions must follow DoW accounting policy in Appendix 10, unless specifically exempt. Proposed changes must be submitted to the Defense Finance and Accounting Service (DFAS) Accounting and Finance Policy Directorate as soon as practical for consideration. However, DoW Components must first submit proposed changes through the DSCA (Office of Business Operations (OBO)). All proposed chapter updates must be submitted to the appropriate approving authority, and if approved, will be incorporated into this appendix as soon as possible.

AP10.C1.1.3. Authoritative Guidance. 

AP10.C1.1.3.1. SA authorities include the Arms Export Control Act (AECA) (22 U.S.C. 2751) and the Foreign Assistance Act (FAA) (22 U.S.C. Chapter 32), as amended, and 10 U.S.C. Chapter 16.

The Foreign Affairs/Foreign Relations Committees of the Congress (rather than the Armed Services Committees) authorize Security Assistance (SA) funds. The Executive Branch, Office of the President, identified by Treasury Index (TI) 11, receives SA funds. Funds and accounts authorized by Acts originating in the Armed Services Committees of the Congress and appropriated to DoW are identified by: TI 97, “Defense Department;” TI 17, “Navy;” TI 21, “Army;” and TI 57, “Air Force.”

AP10.C1.2.1. Treasury Accounts Applicable to Foreign Military Sales Trust Fund Operations. Treasury account 11X8242, “Advances, Foreign Military Sales (FMS), Funds Appropriated to the President,” is the FMS Trust Fund account used for centrally recording contract authority and collections. Under Section 3 of Executive Order (E.O.) No. 13637, “Administration of Reformed Export Controls,” dated March 2013, responsibility for the execution and administration (e.g., obligations and disbursements) of the FMS Trust Fund was delegated from the Executive Branch, Office of the President, identified by TI 11, to the Secretary of War, identified by TI 97. The complete fund cite 97 11X8242, though not required for execution of consolidated financial statements and reports, identifies funds under the control of DoW. Only 11X8242 is reported to the Bureau of Fiscal Service (Fiscal Service) and the Office of Management and Budget (OMB). Fiscal Service has established trust fund receipt and expenditure accounts to account for cash collections, budget authority (BA), and cash disbursements resulting from the FMS Program.

AP10.C1.2.1.1. Cash Receipts. Cash collected from sales authorized under Arms Export Control Act, Section 21 (22 U.S.C. 2761), AECA, Section 22 (22 U.S.C. 2762), AECA, Section 29 (22 U.S.C. 2769), and AECA, Section 61 (22 U.S.C. 2796) is deposited into Trust Fund Receipt Account 8242.001, “Deposits, Advances, Foreign Military Sales, Executive.” The Defense Finance and Accounting Service ,Security Cooperation Accounting (DFAS-SCA) Directorate processes cash collections into this account, including cash transfers from appropriations provided by the USG to finance credit sales under AECA, Section 23 (22 U.S.C. 2763) and the proceeds from guaranteed commercial loans under AECA, Section 24 (22 U.S.C. 2764). Collections must reflect account 8242.001 on DoW reports issued to the Fiscal Service and be listed under “Proprietary Receipts From the Public” in the Fiscal Service system.

AP10.C1.2.1.2. Budget Authority. The BA resulting from FMS or BPC orders is also recognized in account 97 11X8242. BA is recognized only to the extent it is estimated that orders will be executed within a fiscal year (FY). The portion of the order that cannot be executed is classified as an uncommitted acceptance.

AP10.C1.2.1.3. Cash Expenditures. Cash disbursements are made from account 97 11X8242 to contractors when direct cite procedures are used. Intragovernmental payments are made to DoW Components when reimbursable procedures are used for services, items from inventory, and to reimburse for procurements financed by DoW appropriations or other fund accounts.

AP10.C1.2.1.4. Miscellaneous Receipts. Amounts recovered from the operation of the FMS programs are deposited into Account 3041, “Recoveries Under the Foreign Military Sales Program, Army, Navy, Air Force, Defense.” This account includes proceeds from the collection of unfunded civilian pay retirement and benefits, military pay Medicare-Eligible Retiree Health Care accruals, and lease rental payments.

AP10.C1.2.2. Special Defense Acquisition Fund. 

AP10.C1.2.2.1. The Special Defense Acquisition Fund (SDAF), established under the authority of 10 U.S.C. 114, is a DoW-controlled revolving fund used to acquire defense articles and services in anticipation of their sale to eligible foreign countries and international organizations. Pursuant to 10 U.S.C. 114(c)(1), the SDAF may not exceed $3.5 billion. In accordance with AECA, Section 51(b) (22 U.S.C. 2795(c)), the size of the fund includes funds acquired through FMS sales, also known as offsetting collections.

AP10.C1.2.2.2. Offsetting collections identified in AECA, Section 51(b) (22 U.S.C. 2795(c)), that were previously collected into the Miscellaneous Receipt account, are now collected and deposited into the SDAF account, 97 11X4116, “Special Defense Acquisition Fund, Funds Appropriated to the President,” by DFAS. Offsetting collections consist of asset use charges; items not requiring replacement; and charges for the proportionate recoupment of nonrecurring research, development, and production costs, excluding charges for FMS leases authorized under AECA, Section 61 (22 U.S.C. 2796). Items not requiring replacement are from the sale of defense articles not intended to be replaced under FMS Letters of Offer and Acceptance (LOA) that are executed under the authority of AECA, Section 21 (22 U.S.C. 2761). This includes residual or excess funds from the sale of defense articles not intended to be replaced under FMS LOAs. These residual funds are to be transferred to the SDAF account because they cannot be used for their intended purpose of replacing the defense articles sold under the FMS LOA. Funds collected from the transfer of equipment from DoW stock pursuant to Title10 or Title 22 Building Partner Capacity (BPC) authorities are not legally authorized to be deposited into the SDAF. Proceeds from BPC transfers of equipment not intended, or unable to be replaced, should be deposited into Miscellaneous Receipts. Offsetting collections will reside in the parent 11X4116 account for future SDAF procurements; however, the offsetting collections will first be posted as outlined in Table AP10.C1.T1.

AP10.C1.2.2.3. Cash receipts for the anticipated collections, reimbursements, and other income related to the SDAF are collected into the Revolving Fund account “Special Defense Acquisition Fund, Funds Appropriated to the President,” 11X4116. DFAS-SCA processes cash collections into account 11X4116, including cash transfers of reimbursements made under the proceeds from the sale or transfer of SDAF procured articles and services.

AP10.C1.2.2.4. BA from approved SDAF procurements is recognized in account 97 11 FY/FY 4116. BA exists only for orders that will be executed; i.e., funds obligated before September 30 of the FY when the funds period of availability expires. The portion of the approved SDAF procurements that cannot be obligated must be returned to the Treasury account 11X4116.

AP10.C1.2.2.5. Cash disbursements are made from account 97 11 FY/FY 4116 to contractors when direct cite is used and for DSCA approved procurements financed by the SDAF. Expenditures must be consistent with the funding years in which the original funding on the Funding Authorizing Document was provided.

AP10.C1.2.2.6. For more information on SDAF, see Table AP10.C3.T1., “Cost Elements;” and the Appendix 8 - Special Defense Acquisition Fund.

AP10.C1.2.3. Treasury Accounts Applicable to Credit Sales, Guaranties, and International Military Education and Training. 

AP10.C1.2.3.1. Receipt and Utilization of Appropriations. The accounts described in Section AP10.C1.2.3.1.1. through Section AP10.C1.2.3.1.6. are used to capture the receipt of SA appropriations.

AP10.C1.2.3.1.1. Account 11X4121, “Foreign Military Loan Liquidating Account, Funds Appropriated to the President (FMLLA),” is used to record the receipt and use of appropriated funds to finance credit sales under AECA, Section 23 (22 U.S.C. 2763)and credit sales guaranties for pre-FY 1992 loan obligations under AECA, Section 24 (22 U.S.C. 2764). Foreign Military Loan Liquidating Account (FMLLA) excess collections are returned to Miscellaneous Receipts account 11R2814, “Other Repayments of Investments and Recoveries.”

AP10.C1.2.3.1.2. Account 11 (FY) 1085, “Foreign Military Financing, Direct Loan Program Account, Funds Appropriated to the President,” is used to record the appropriation that subsidizes the estimated long-term cost to the USG of post-FY 1991 foreign military direct loan obligations.

AP10.C1.2.3.1.3. Account 11X4122, “Foreign Military Financing, Direct Loan Financing Account, Funds Appropriated to the President,” is used to receive the payments for the subsidy cost from the program account, 11 (FY) 1085, and includes all other cash flows to and from the USG resulting from post-FY 1991 foreign military direct loans. This appropriation is for new loans with original disbursement dates on or after October 1, 1991.

AP10.C1.2.3.1.4. Account 11X4174, “Military Debt Reduction Financing Account,” is used to record the rescheduling of loans and to collect loan payments on those loans rescheduled from 11X4121. These loans have pre-FY 1992 original disbursement dates.

AP10.C1.2.3.1.5. Account 11 (FY) 1082, “Foreign Military Financing Program, Funds Appropriated to the President,” is used to record the receipt and use of appropriated funds to finance U.S. defense sales to selected foreign friends and allies, primarily through the FMS program. Based on annual appropriations bill language, the funds are considered obligated upon apportionment, are available for expenditure for 5 years, and must remain available for an additional 4 years from the date on which the availability of such funds would otherwise have expired. These funds, transferred to the FMS Trust Fund, are expenditure transfers. BA is transferred from this account to DoW Components to fund administrative expenses of FAA programs (e.g., International Military Education and Training (IMET)and End-Use Monitoring (EUM)).

AP10.C1.2.3.1.6. Account 11 (FY) 1081, “International Military Education and Training, Funds Appropriated to the President,” is used to record the receipt and use of appropriated funds for the training of selected foreign military and related civilian personnel in the United States and, in some cases, in overseas U.S. Military facilities.

AP10.C1.2.3.2. Cash Collections. The accounts described in Section AP10.C1.2.3.2.1. though Section AP10.C1.2.3.2.3. are used to capture collections made from foreign countries because of loans and loan guaranties.

AP10.C1.2.3.2.1. Account 11X4121 is used to collect foreign country repayments for outstanding pre-FY 1992 loan obligations. This account is also used to collect loan repayments to DSCA for default payments made by DSCA to the Federal Financing Bank or commercial banks holding pre-FY 1992 loans guaranteed by DSCA.

AP10.C1.2.3.2.2. Account 11X4122 is used for collections of foreign country repayments for post-FY 1991 direct loan obligations. This appropriation is used for loans with original disbursement dates on or after October 1, 1991.

AP10.C1.2.3.2.3. Account 11X4174 is used to reschedule loans from 11X4121, and 11X4122 is used for countries seeking debt relief. This account is also used to collect the payments from outstanding loans that have been rescheduled.

AP10.C1.2.3.3. Security Assistance and International Programs Deposit Account. Account 11X6147, “Security Assistance and International Programs, Deposit Account,” was originally established in 1978 to support the North Atlantic Treaty Organization (NATO) E3A Program deposit account. Subsequently, additional activities have used this account for purposes, such as to record collections received from foreign governments to reimburse DoW for goods and services not acquired through the FMS program, or FMS customers to use the Air Force Parts and Repair Ordering System and Worldwide Warehouse Redistribution System (WWRS) to acquire nonstandard items, and to provide advance funding to support the acquisitions. Beginning in FY21, the Security Assistance and International Programs (SAIP) Deposit Account is included in the SA Accounts financial statements.

AP10.C1.2.4. Other Treasury Accounts. Other Treasury accounts used in SC include those for BPC cases, Humanitarian Assistance, and Mine Action Programs. For more information on these programs, see the Chapter 11, “Special Programs and Services;” Chapter 12, “Overseas Humanitarian, Disaster, and Civic Aid (OUDACA);” Chapter 15, “Building Partner Capacity Programs;” and Table AP8.T2., “Security Assistance and Security Cooperation Programs Code Listing.” The Treasury accounts include, but are not limited to:

There are two types of financing associated with the Foreign Military Sales (FMS) Trust Fund, reimbursable and direct cite. The detailed budgeting and accounting policy for each type is discussed throughout the remainder of Appendix 10.

AP10.C1.3.1. Reimbursable Financing. Sales under Arms Export Control Act (AECA), Section 21 (22 U.S.C. 2761) and AECA, Section 22 (22 U.S.C. 2762), for which the President has determined it is in the National interest to defer payment (bill for defense articles and services on or after delivery), must be accomplished using reimbursable financing. When deferred payment is authorized under AECA, Section 21 (22 U.S.C. 2761) for 120 days, and for all authorized deferred payments for AECA, Section 22 (22 U.S.C. 2762) sales, an appropriation is required to finance any outlays until the purchaser makes payment. The appropriation cited must have reimbursable authority.

AP10.C1.3.2. Direct Cite Financing. New procurements initiated because of FMS orders under AECA, Section 22 (22 U.S.C. 2762) and AECA, Section 29 (22 U.S.C. 2769) (except as exempted in Section AP10.C1.3.1.) must be accomplished, to the maximum extent feasible and appropriate, through direct citation of the FMS Trust Fund (97 11X8242 or 97 11X6147) on applicable contractual documents.

AP10.C1.3.3. Accounting Classification Codes of the Foreign Military Sales Trust Fund. The agency code signifies the agency name executing FMS Trust Funds within the FMS accounting system. The accounting classification codes of the FMS Case Fund for cases executed within the FMS infrastructure are depicted in Table AP10.C1.T2. The accounting classification codes of the FMS Administrative Fund for cases executed within the FMS infrastructure are depicted in Table AP10.C1.T3.