Chapter 3 focuses on reconciliation requirements once a case is Supply/Service Complete (SSC) and preparing a case for closure. This chapter discusses closure types, closure inhibitors and verifications required to prepare a case for closure.

A7.C3.1.1. Foreign Military Sales (FMS) cases/lines become Supply/Service Complete (SSC) pursuant to meeting eligibility requirements prescribed in Section A7.C2.13. A line is reconciled for closure when it is SSC. A case becomes a candidate for closure when all lines are SSC. Reconciliation requires an in-depth review of the case/line commitments, obligations, deliveries and expenditures in various financial and logistical systems. Reconciliation is an iterative and continual process from implementation of the case through to closure. Members of the FMS community perform SSC reconciliation to determine if unresolved financial and logistical conditions exist. This includes a thorough review of the case/line to determine if excess funds exist on a case that would justify a modification to drawdown the appropriate amount of funds. This chapter addresses the various processes performed when a case/line becomes SSC that include, but are not limited to, determining closure types and closure method, assigning closure priorities, performing closure verifications, making Letter of Offer and Acceptance (LOA) changes, assigning closure inhibitors and reconciling Unliquidated Obligations (ULOs). This chapter also outlines the various issues associated with each of those overlapping processes that occur when a case/line becomes SSC.

The following serves as a general categorization of Supply/Service Complete (SSC) reconciliation functions by organization:

A7.C3.2.1. The Implementing Agency (IA) performs all SSC functions prescribed in the DoD Financial Management Regulation (DoD FMR) Volume 15 and the SAMM, reconciles SSC cases and lines, ensures the completion of delivery reporting to Defense Integrated Financial System (DIFS), resolves Supply Discrepancy Reports (SDRs), performs annual case and payment schedule reviews and reconciliations in accordance with the requirements for SSC cases as shown in Figure A7.C2.F5, ensures timely notification of case logistical and financial status to purchasers by updating systems, processes Letter of Offer and Acceptance (LOA) amendments and modifications and realigns funds. In addition, the IA notifies the purchaser of SSC status, processes/accepts all funding documents (e.g., Military Interdepartmental Purchase Requests (MIPRs)) and associated documentation and adheres to audit trail requirements, completes verification steps required based on closure type (for Accelerated Case Closure Procedure (ACCP) cases, to the maximum extent possible while meeting closure standards, this involves preparing the case for direct final ('C3') closure), meets with stakeholders (to include purchasers) to resolve issues, resolves problem disbursements in coordination with Defense Finance and Accounting Service (DFAS), validates and adjusts the Unliquidated Obligation (ULO) value, as appropriate, and conducts Foreign Military Sales (FMS) reviews (internal and external with purchaser).

A7.C3.2.2. DSCA publishes, updates, and disseminates SSC policies, maintains a roster of ACCP participating countries, serves as the final arbiter for case reconciliation issues raised by IAs and DFAS, reviews SDRs valued over $50K for final resolution and meets with stakeholders (to include purchasers) to resolve issues.

A7.C3.2.3. Defense Finance and Accounting Service – Indianapolis (DFAS-IN)works with IAs on reconciling cases, to include identifying and clearing closure inhibitors on SSC cases, performs all accounting functions as prescribed in the DoD FMR Volume 15 and the SAMM, meets with stakeholders (to include purchasers) to resolve issues, resolves Problem Disbursements (PDs) in coordination with the IA and provides systemic feedback reporting to the IA.

A7.C3.2.4. Purchasers may advise IAs/DSCA as to which cases are desired for closure and those that should remain open, advise whether SDRs shall be submitted for SSC cases/lines, remit any final payments due to process the case for closure, coordinate closure decisions between Ministry of National Defense (MND) or equivalent level and Service/program office level, indicate if case reductions are desired prior to closure and meet with the USG to resolve issues presented throughout the case.

Two types of closure exist: Accelerated Case Closure Procedure (ACCP) and non-ACCP. Refer to Figure A7.C3.F1.

A7.C3.3.1. Accelerated Case Closure Procedure. ACCP is the most common closure process. The USG goal is to close ACCP cases within 24 months following Supply/Service Complete (SSC) as indicated in the Letter of Offer and Acceptance (LOA). The USG goal for training cases is 36 months following SSC. This type of closure allows a case to be closed after SSC, even if there are outstanding ULOs on the case (refer to Section A7.C3.13. for the details). For the purpose of this process, ULOs can be either contractual or miscellaneous/non-contractual. Purchaser funds are placed in a Case Closure Suspense Account (CCSA) pending final resolution of the ULOs. ACCP is voluntary, except for those countries with Foreign Military Financing (FMF)-funded cases, which require mandatory participation in ACCP for all Foreign Military Sales (FMS) cases regardless of the funding source. Most countries/international organizations participate, or are automatically included, in the ACCP process. The DSCA (Office of Business Operations, Financial Policy & Regional Execution Directorate (OBO/FPRE)) maintains the master list of countries participating in the ACCP program. Refer to Table Table A7.C3.T1. for a list of participating purchasers. There are two categories of ACCP closure: the standard process, and DSCA-directed force closures. The following are conditions necessary for a case to be closed utilizing ACCP:

A7.C3.3.1.1. Cases are typically SSC for at least one year. The one year allows for final reconciliation actions and considers the purchaser's right to submit an Supply Discrepancy Report (SDR) associated with the final delivery. However, the one-year timeframe can be reduced if the purchaser confirms in writing (e-mail or meeting minutes are acceptable) that no additional SDRs shall be submitted.

A7.C3.3.1.2. No outstanding SDRs exist when the case is submitted for closure.

A7.C3.3.1.3. All accrued costs and the amount of estimated ULO to be expended after interim closure were determined.

A7.C3.3.1.4. The case is paid in full, i.e., collections equal the expected case closure value. If the case is not yet paid in full, the Implementing Agency (IA) shall continue processing the case for closure and shall forward the closure certificate (and associated 'C1' transaction) to Defense Finance and Accounting Service – Indianapolis (DFAS-IN).

A7.C3.3.1.5. Costs of articles and services have been reimbursed from FMS Trust Funds to DoD appropriations or USG equity accounts.

A7.C3.3.1.6. Foreign Military Sales Accounting Balances. IA and DFAS-IN accounting balances have been reconciled and all performance and disbursements have been properly reported and accounted for.

A7.C3.3.1.7. A case is usually direct final closed (i.e., not interim closed) if the ULO equals zero, even if supporting contracts remain open, unless a contract associated with the case is the subject of pending litigation as set forth in Section A7.C3.3.1.9. Direct final closures should be utilized to the fullest extent possible.

A7.C3.3.1.8. On an exception basis, DSCA may enter into special arrangements with specific purchasers regarding the ACCP process for their FMS cases. Only DSCA (OBO/FPRE)) can approve these arrangements. The formal notification on these arrangements is transmitted via a written memorandum signed by the Chief Operating Officer and Chief Financial Officer, DSCA (Office of Business Operations (OBO)). Copies of that memorandum are provided to all IAs DFAS-IN, Defense Contract Management Agency (DCMA) and the purchaser.

A7.C3.3.1.9. Cases with Associated Contracts in Litigation. FMS cases that meet the ACCP closure eligibility conditions set forth in Section A7.C3.3.1. may be interim closed (closure type 2) even if contracts associated with the relevant case are the subject of ongoing litigation. Such FMS cases shall be final closed after the litigation has concluded and a judgment has been issued.

A7.C3.3.1.9.1. If cases with contracts subject to litigation are eligible for interim closure in accordance with Section Section A7.C3.3.1.9., IAs shall notify partner nations of this fact, and that the case may not proceed to final closure until the litigation has been resolved.

A7.C3.3.1.10. Litigation Resolution.No case shall be final closed prior to the resolution of any litigation involving an associated or supporting USG contract. At such time that the litigation has been concluded the case shall be final closed if the litigation resolution did not have an adverse outcome for the relevant partner (see Section A7.C4.14.) or may be reopened as required to process any adverse judgments associated with the case in accordance with the criteria and procedures in Section A7.C4.15.).

A7.C3.3.2. Non-Accelerated Case Closure Procedure. Non-ACCP closure is the atypical closure process. The USG goal is to close non-ACCP cases within 36 months of SSC as indicated in the LOA. However, underlying long-running contracts often delay case closure by several years or more beyond the goal. The following are conditions necessary for a case to be closed utilizing Non-ACCP:

A7.C3.3.2.1. Cases are typically SSC for at least 12 months. The 12 months allows for final reconciliation actions and considers the purchaser's right to submit an SDR associated with the final delivery. The 12 month timeframe can be reduced, however, if the purchaser confirms in writing (e-mail or meeting minutes are acceptable) that no additional SDRs shall be submitted.

A7.C3.3.2.2. No outstanding SDRs exist when the case is submitted for closure.

A7.C3.3.2.3. No ULOs exist on Accounting Classification Reference Numbers (ACRNs) on underlying contracts associated to the applicable case even if those contracts remain open.

A7.C3.3.2.4. All costs are determined, final charged and collected.

A7.C3.3.2.5. All applicable IA systems are fully reconciled with DIFS.

A7.C3.3.2.6. Unused Obligational Authority (OA) is reduced to zero in the IA accounting system. The correct OA/Obligations (R4/RE transactions) balances are reflected in DIFS, unless an exception is granted by DSCA.

A7.C3.3.2.7. Performance reports, submitted to DFAS-IN to report all delivered articles and services, have been processed. All estimated billings have been converted to actual billings.

A7.C3.3.2.8. Costs of articles and services have been reimbursed from FMS Trust Funds to DoD appropriations or USG equity accounts.

A7.C3.4.1. The order of priority for case reconciliation and closure is:

A DSCA focus case is any case identified by DSCA (Office of Business Operations, Financial Policy & Regional Execution Directorate (OBO/FPRE)) that requires priority reconciliation and closure action.

A7.C3.4.2. Authorizing Officials. Only DSCA (OBO/FPRE) can authorize deviations to prioritizing closure for specific Foreign Military Sales (FMS) cases, countries or closure categories.

A7.C3.5.1. The mandatory requirements for case closure readiness are reflected in Figure A7.C3.F2. and Tables A7.C3.T2., A7.C3.T3., and A7.C3.T4.

A7.C3.6.1. Contracts. Contract status should be determined utilizing available tools and data such as entitlement records, shipping documentation (e.g., Defense Department (DD) Form 250 "Material Inspection and Receiving Report", etc.), Procuring Contracting Officer (PCO)/ Administrative Contracting Officer (ACO) records, and DD Form 1594/PK9 "Contract Completion Statement". The Foreign Military Sales (FMS) Case Review Matrix (Figure A7.C2.F5.) addresses the requirement to obtain current data for contracts supporting FMS cases. The type of contract determines what type of data required. At the Accounting Classification Reference Number (ACRN) or Contract Line Item (CLIN) level the Implementing Agency (IA) must verify that the obligations and disbursements are accurately recorded in the entitlement system as well as the IA accounting system. In addition, the IA must verify that the disbursements in the entitlement system match the contractor claimed paid amount at ACRN level, or at CLIN level, if the contract is CLIN specific. If discrepancies exist between the entitlement system and the IA accounting system, contract reconciliation must be performed. This may be done by the case manager (CM) or Defense Finance and Accounting Service (DFAS). Follow local procedures for registering contracts for reconciliation. If the contract is not closed out, obtain the contract estimated completion date. Further, inquire what actions are inhibiting contract closeout (e.g., contract litigation, Defense Contract Audit Agency (DCAA) audit, and/or DFAS reconciliation). This information is required as part of the supporting documentation accompanying the case closure certificate (Figure A7.C4.F4.). If the applicable contract has been closed out, and the validations have been completed, initiate actions to finalize records in the IA accounting system where contract reconciliation was not necessary.

A7.C3.6.2. Other Funding Documents. Upon notification of completion of work by the performing activity, obtain status of funding documents to finalize records in the IA system.

A7.C3.7.1. A Problem Disbursement (PD) is a transaction reported to the Treasury Department's Bureau of Fiscal Services, but upon receipt at the official accounting station cannot be successfully matched to the original obligation or accounts receivable amount for liquidation purposes. All PDs must be resolved prior to closure, the details related to the identification and resolution of these PDs is discussed further in Section A7.C2.10.

A royalty fee represents payment for the right to use a USG technical data package to manufacture defense articles outside the United States. Defense Finance and Accounting Service – Indianapolis (DFAS-IN) also collects royalty fees from a purchaser on behalf of a third party. DFAS-IN pays fees to that third party. Cases implemented on or after 1 January 1998 shall not include royalty fee processing requirements.

A7.C3.8.1. DFAS-IN monitors all royalty fee lines on Foreign Military Sales (FMS) cases. It maintains a file of Letters of Offer and Acceptance (LOAs) for the production of items from the sale of a technical data package.

A7.C3.8.2. If no royalty fee has been received after a reasonable length of time (at least one year, but no later than two years after acceptance of the LOA), DFAS-IN contacts the Implementing Agency (IA) and asks them to query the country as to production and payment status.

A7.C3.8.3. When the charges are reported to the country manager, the performance transaction 'NU' is entered into the Defense Integrated Finance System (DIFS). When royalty payments are to be collected and paid by DFAS-IN to a third country, the IA, or the command responsible for the LOA or line, notifies the DFAS-IN of the number of items produced and the amount to be collected/paid. The performance transaction is then entered into DIFS.

A7.C3.8.4. DFAS-INs prepares a quarterly report to DSCA (OBO/FPRE) directorate of all royalty fee cases/lines (DSCA(Q)1146 "Unexpired Leases of DoD Property of Any Value").

A7.C3.9.1. Excess Obligational Authority (OA) must be drawn down prior to generating a 'C1' closure transaction to Defense Integrated Financial System (DIFS) on cases undergoing closure processing. The first step is to de-obligate all available OA balances to zero in the Implementing Agency (IA) accounting system. The IA sends an 'R' series transaction to DIFS. After the OA is drawn down in the IA system, the 'C1' transaction can be forwarded to begin the closure process.

A7.C3.10.1. In general, Letter of Offer and Acceptance (LOA) amendments are not required for Supply/Service Complete (SSC) cases. DSCA (Office of Business Operations, Financial Policy & Regional Execution Directorate (OBO/FPRE)) must approve development of amendments on SSC cases that are increasing scope and/or value that will reinstate logistical activity on the case.

A7.C3.10.2. Modifications are required if during reconciliation expenditures exceed 110% of LOA value. Modifications are not required for final expenditures that remain within or equal 110% of LOA value.

A7.C3.11.1. On occasion, a case may be prepared for closure when no expenditures for articles delivered or services performed were incurred. In this instance, the only accrued expenditure is the Foreign Military Sales (FMS) administrative surcharge collected in order to implement the Letter of Offer and Acceptance (LOA). The amount collected at that time is usually one-half of the total FMS administrative surcharge assessed on the basic LOA document. This is typically known as the "front-loaded" administrative cost.

A7.C3.11.2. The minimum non-refundable amount will be the greater of: (1) the value of the combined existing, non-zero value Small Case Management Line (SCML) amount and the estimated FMS administrative surcharge not to exceed $15,000 for cases accepted between August 1, 2006 and July 2, 2012; (2) one-half of the FMS administrative surcharge estimated on the case; or (3) the standard FMS administrative surcharge percentage of the expended value. The DSCA (Office of Business Operations, Financial Policy & Regional Execution Directorate (OBO/FPRE)) may approve a reduction of the minimum non-refundable amount when the actual administrative cost on the case is shown to be less than one of the three values above, or if the case is cancelled for the convenience of the USG.

A7.C3.11.3. Case Managers who want to certify a case for closure at a value that results in a reduction (to include $0) in the minimum, non-refundable required amount of FMS administrative surcharge funding must contact their Implementing Agency (IA) focal point to request DSCA (Office of Business Operations, Financial Policy & Regional Execution Directorate, Financial Policy Division (OBO/FPRE/FP)) approval. Requests should include the following information: term of sale code, case description, case identifier, date of case acceptance, value of the case, delivered amount, minimum amount of surcharge required per policy, recommended surcharge to be collected, a detailed justification for the amount, and any other information the IA deems applicable. The DSCA (OBO/FPRE/FP) reply is sent via email to the requestor and Defense Finance and Accounting Service - Indianapolis (DFAS-IN). Additionally, a case remark is added into Defense Security Assistance Management System (DSAMS) if the request is approved.

A7.C3.12.1. The following standardized inhibitors are shown in order of priority in Table A7.C3.T5. These inhibitors apply to cases not yet submitted to Defense Finance and Accounting Service - Indianapolis (DFAS-IN) for closure. To varying degrees, the existing Implementing Agency (IA) systems have corresponding inhibitors, as well.

In its most basic form, the Unliquidated Obligation (ULO) is the difference between obligations and articles/services disbursements

A7.C3.13.1. Primary components of the ULO include unbilled amounts for contracts, miscellaneous/non-contractual obligations, unsettled indirect costs, such as general and administrative (e.g., overhead), unanticipated accounting transactions, unbilled amounts for reimbursable documents, unreconciled systemic accounting differences, and outstanding commitments for contracts involving incentive or award fees.

A7.C3.13.2. Determining the Unliquidated Obligation Value. The certified ULO is difference between obligations and articles/services disbursements recorded in the accounting system. Any ULO value that applies to a contract is assessed a ULO Contract Administration Services (CAS) value. The sum of the articles/services ULO and the CAS ULO is the total ULO.

A7.C3.13.3. Validating the Unliquidated Obligation Value. Prior to interim closing a case/line, the obligations in the accounting system are validated with the LOA values, funds holder or source document. Obligational Authority (OA) is adjusted at line level to the obligation value. Ensure that DLVR-ART-SVC-COST in Defense Integrated Financial System (DIFS) less CAS, Logistics Support Charge (LSC) and CAS ULO equals obligations. Reconcile Progress Payments in DIFS to the disbursements in the IA accounting system. For Contracts source documents must be researched to ensure obligations are accurate and ensure that no Negative Unliquidated Obligations (NULOs) exist at contract/line level.

A7.C3.13.3.1. Mechanization of Contract Administration Services -Paid Contracts. The following steps should be performed:

A7.C3.13.3.1.1. Obligations. When a difference is identified between Implementing Agency (IA) accounting systems and Mechanization of Contract Administration Services (MOCAS), perform a preliminary review to determine what corrective action is required, e.g., obligation, disbursement adjustment or disbursement in-transit. The case/line may be closed if the obligation values agree in MOCAS and the IA accounting system. If they do not agree, the obligations in MOCAS should first be balanced with accounting and contracting systems that may require a reconciliation of accounting system obligations with actual hard copy obligating documents, and then the case/line interim closed with the accounting system ULO.

A7.C3.13.3.1.2. Disbursements. If the disbursements do not agree between IA accounting systems and MOCAS, determine if the discrepancy was due to an internal adjustment (to include a ULO refund). If a case/line was implemented before 31 January 1989 and a disbursement imbalance exists, verify with Defense Finance and Accounting Service - Indianapolis (DFAS-IN) that the case level disbursement (CLD) upload amount in DIFS is correct. If disbursements cannot be balanced after review, close the line with the accounting system ULO value and give the contract to the IA/DFAS Contract Reconciliation Team. The IA/DFAS contract reconciliation team settles contracts according to the DoD Financial Management Regulation (DoD FMR) Volume 10, Chapter 20 DoD FMR Volume 15, Chapter 3 and the Defense Contract Management Agency (DCMA) Guidebook. Although the DCMA Guidebook does not mandate reconciliation between MOCAS and the accounting system, it does suggest this approach and contains valuable information on contract closeouts. Reconciling disbursements is primarily a DFAS function.

A7.C3.13.3.2. Non-Mechanization of Contract Administration Services-Paid Contracts. Query the accounting system to determine if the ULO is due to a DFAS internal adjustment or a credit voucher processed without a corresponding de-obligation. Final disbursement vouchers should be finalized in the accounting system. This also adjusts obligations to disbursements. After the corrections are processed, close the line with the accounting system ULO. For MOCAS managed contracts, the contract reconciliation team established by the contracting officer reconciles the contract to source documents from the contractor or paying office whenever possible.

A7.C3.13.3.3. For "Above-the-Line" Transportation. When there are no disbursements recorded in the accounting system, verify that the above-the-line transportation actually occurred. Request the transportation office to provide a Government Bill of Lading (GBL) number and obligate the final cost in the accounting system. Query the accounting system by the GBL number to determine where the disbursement is posted. If unable to find the disbursement, close the line with a ULO and put on a suspense log. If the transportation office is unable to provide a GBL, have them obligate an estimated cost and close the line with a ULO. Every three months, check the accounting system to determine if disbursements have been recorded. If there is a ULO on above-the-line transportation for packing, crating, and handling (PC&H) costs, then request the transportation office validate the estimated obligation in the accounting system, then interim close the line with the ULO. Every three months, check the accounting system to determine if disbursements have been recorded.

A7.C3.13.3.4. For Travel Orders. De-obligate excess funds on completed travel. For travel orders that do not have disbursements, determine if temporary duty (TDY) was actually taken, or if the trip was cancelled. Deobligate funds on trips that were cancelled. If the TDY occurred, query the accounting system to determine where the disbursement is posted. If the final voucher has not processed, finalize/bill the travel at a value equaling the obligation value. The ULO on a travel order should be liquidated prior to closure.

A7.C3.13.4. Unliquidated Obligation Reporting Transactions. ULO delivery performance is reported to DIFS via performance reporting. Final 'NA' performance transactions are sent to DIFS for each detail record containing a ULO value (Refer to Table A7.C3.T6.). The 'NA' reflects Price Codes, Delivery Source Codes and Reimbursement Codes consistent with requirements for delivery reporting by DFAS-IN . This transaction must precede transmittal of the 'C1' closure transaction to DIFS.

A7.C3.13.5. Documenting the Unliquidated Obligation Value. Supporting documentation for the ULO value is required as part of the case closure certificate for Accelerated Case Closure Procedure (ACCP) cases being closed in an interim status. Refer to the documentation requirements as part of the case closure certificate in Figure A7.C4.F4. This supporting documentation shall be provided to the purchaser, when asked.

A7.C3.13.6. Adjusting/Liquidating the Unliquidated Obligation. During interim closure, adjustments to the ULO value assessed at the time of interim closure can occur. The ULO value is adjusted (upwards or downwards) via the 'ND' performance transaction, based on actual post-closure expenditures.

A7.C3.13.6.1. Activities that adjust the ULO consist of contractor bills, finalized overhead rates, final incentive or award fee amounts, finalized audits, billing adjustments, and final charge processing.

A7.C3.13.6.2. ULO adjustments for disbursements occur by processing those disbursements through the Case Closure Suspense Account (CCSA). If the ULO adjustment exceeds the original ULO value assigned at interim closure by $100K or more, the IA may ask for written approval from DSCA to reopen the case (Refer to Section A7.C4.15. for more information).

A7.C3.13.6.3. ULO adjustments for obligations occur when additional disbursement processing remains or de-obligation exceeds $100K, request to reopen case to de-obligate and reduce deliveries. If no additional disbursement processing remains or de-obligation is less than $100K, de-obligation is deferred until the time of CCSA refund to purchaser. The final step is to ensure the accounting system records reflect de-obligation prior to the CCSA refund being made.

A7.C3.13.7. Disbursements after the 'NA' Transaction: On occasion, additional disbursements process after the ULO 'NA' transaction was submitted.

A7.C3.13.7.1. If the 'C1' closure transaction has not been sent to DFAS-IN:

A7.C3.13.7.1.1. Reverse the earlier 'NA' transaction and ULO CAS 'NA' transaction (if applicable), then

A7.C3.13.7.1.2. Resubmit revised 'NA' transaction (and ULO CAS 'NA' transaction, if applicable).

A7.C3.13.7.2. If the 'C1' closure transaction has been sent to DFAS-IN:

A7.C3.13.7.2.1. Submit 'C4' transaction to reverse 'C1' closure transaction (this rescinds/cancels the closure certificate).

A7.C3.13.7.2.2. Reverse earlier ULO 'NA' transaction (and ULO CAS 'NA' transaction, if applicable).

A7.C3.13.7.2.3. Resubmit revised ULO 'NA' transaction (and ULO CAS 'NA' transaction, if applicable).

A7.C3.13.7.2.4. Resubmit revised 'C1' closure transaction and closure certificate.

A7.C3.14.1. Table A7.C3.T8. displays the interfaces between the various systems.

A7.C3.15.1. The following manpower funding guidelines in Table A7.C3.T9. pertain to Supply/Service Complete (SSC) reconciliation efforts:

A7.C3.16.1. Figure A7.C3.F3. illustrates the processes described in this chapter.

A7.C3.17.1. Table A7.C3.T10. reflects the primary points of contact (POCs) for Supply/Service Complete (SSC) phase reconciliation.