SDAF.2.1. Account Funding and Capitalization. The Special Defense Acquisition Fund (SDAF) operates as a financially-independent revolving fund. When title of SDAF-purchased assets are transferred to a foreign government or international organization, the proceeds from the transaction are reimbursed to the SDAF and used to finance subsequent purchases. The account is capitalized using selected proceeds from Foreign Military Sales (FMS), as authorized in Section 51(b) of the Arms Export Control Act (AECA), 22 U.S.C. 2795(b). Congress approved the Administration’s request to recapitalize the fund with the enactment of the Department of State (State), Foreign Operations, and Related Programs Appropriation Act, 2012 (Division I, Public Law 112-74), which authorized the Department to conduct a one-time transfer of up to $100 million from the FMS Administrative Surcharge Account to the SDAF and obligate up to $100 million from the account through September 30, 2015.

SDAF.2.1.1. Fund Classification. In accordance with the Financial Management Regulation (DoD FMR), Volume 12, Chapter 1, Section 6.2 the SDAF is a DoD Public Enterprise Fund.

SDAF.2.1.2. Fund Symbol. The SDAF account symbol assigned by the Department of Treasury is 11-4116.

SDAF.2.1.3. Obligation Authority. The SDAF operates within the limits established by the Congress (see 22 U.S.C. 2795). None of the funds in the account may be obligated without prior Congressional approval of an obligation limitation determined in appropriation acts during the annual budgeting process. Since the SDAF was reconstituted in 2012, the obligation authority for the Fund has been annually provided in the State, Foreign Operations and Related Programs Appropriation Act.

SDAF.2.1.4. Capitalization Limit. The capitalization limit for the fund is provided in 10 U.S.C. 114(c). This amount is calculated as the sum of the original $100M cash balance in the account provided from Fiscal Year (FY) 2012 plus the total monetary value of the offsetting collections received. The capitalization limit may not exceed $3.5B per the FY23 National Defense Authorization Act (NDAA), P.L. 117-263.

SDAF.2.1.5. Account Capitalization. The primary source of funding to grow or capitalize the SDAF is the monetary collections received from the sale and transfer of FMS-procured defense articles and services to partners and international organizations where funds are identified as excess. Section 51(b) of the AECA, as amended (22 U.S.C. 2795), authorizes the transfer of offsetting collections received under FMS Letters of Offer and Acceptance (LOAs) that are executed under the authority of section 21 of the AECA to the SDAF. In accordance with this authority, the Fund may be capitalized with monies authorized and appropriated or otherwise made available for the purposes of the SDAF for the following charges on export sales by the USG and its contractors:

SDAF.2.1.5.1. Definition of Section 51(b) Criteria.

SDAF.2.1.5.1.1. Items not Requiring Replacement. Items not requiring replacement are articles on FMS cases that will be requisitioned and delivered to the foreign partner from DoD stock and are not intended to be replenished or replaced. This includes all Excess Defense Articles (EDA) sold directly by an Implementing Agency (IA), or via a Defense Logistics Agency (DLA) Disposition Services case, via FMS LOAs under the authority of Section 21 of the AECA. Funds collected from the transfer of equipment from DoD stock pursuant to Title 10 or Title 22 BPC (listed in SA/SC Programs) and FMF authorities are not legally authorized to be deposited into the SDAF. Proceeds from BPC and FMF-funded transfers of equipment not intended or unable to be replaced must be deposited into Miscellaneous Receipts. IAs will use the correct FMF Type of Assistance (TA) code ("N") found in Figure C5.F5. to ensure funds collected pursuant to FMF-funded sales are properly identified. See DSCA Policy Memo 23-14.

SDAF.2.1.5.1.2. Non-Recurring Cost Recoupment Charges. NC recoupment charges are valued based on research, development, and production costs, and should be included as a portion of the item's value on an FMS case to be paid by the foreign partner to the USG. Section 2761 of the AECA (22 U.S.C. 2761) requires the recoupment of NC from FMS customers. DSCA may waive collections under the authorities provided in Sections 21(e)(1)(B) and 21(e)(2) in the AECA, but all non-waived costs are to be collected into the SDAF account.

SDAF.2.1.5.1.3. Asset Use Charges. Asset-use charges relate to revenue derived from U.S. industry or private interests as a result of their use of government property in the performance of an FMS case. These charges are wholly different from those derived from leases with foreign countries or international organizations under Section 61 of the AECA. An asset use charge is when the USG assesses a charge against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public. Congress authorized capitalization of SDAF with asset use charges in 1985. Prior to November 30, 1989, DoD charged a one percent asset use charge for FMS cases. However, this type of administrative charge was canceled with the “Fair Pricing” Legislation in the DoD Appropriations Act, 1990 (Public Law 101-165, Section 9104). Since asset use charges are no longer assessed as part of the FMS price, in accordance with DoD FMR, DoD 700.14R, Volume 15, Chapter 7, Section 071308), SDAF capitalization from an asset use charge is uncommon and is not a significant source of SDAF capitalization. Asset use charges are almost exclusively associated with the use of USG-owned industrial plants and associated USG-owned real estate by commercial entities.

SDAF.2.1.5.1.3.1. A lease depreciation cost is not synonymous with an asset use charge. Foreign Military Lease proceeds recouped under Section 61 of the AECA cannot be deposited into the SDAF. DoD FMR, 700.14R, Volume 15, Chapter 1, Section 010202.

SDAF.2.1.5.2. Examples of Collections that Satisfy Section 51(b) Criteria.

SDAF.2.1.5.2.1. Defense Articles Not Requiring Replacement Pursuant to Section 51(b)(1) of the Arms Export Control Act:

SDAF.2.1.5.2.2. Nonrecurring Cost Recoupment Charges under Section 51(b)(2) of the Arms Export Control Act. These include all applicable and charged NC recoupment charges on Major Defense Equipment (MDE) sold via an FMS case. If the waiver is not granted to the foreign partner for the MDE items, then the NC recoupment charges associated with the sale of the MDE items must be collected into the SDAF as proceeds from the FMS case.

SDAF.2.1.5.2.3. Asset Use Charges under Section 51(b)(2) of the Arms Export Control Act. Asset use charges are revenue-generating activities payable to the SDAF when executed pursuant to an FMS LOA for the benefit of a foreign partner. Asset-use charges that may capitalize the SDAF include, but are not limited to, the below examples.

SDAF.2.1.5.3. Section 51(b) Criteria Coding. Table SDAF.T1. lists codes that the IAs must use to identify and properly code offsetting collections from an FMS case line. DSCA established these codes to 1) differentiate collection types to be deposited into the SDAF and 2) identify case lines that include proceeds that should be deposited into the SDAF. Per Section SDAF.2.1.5., funds from these FMS case lines are required to be transferred to the SDAF. These codes are in the Defense Security Assistance Management System (DSAMS) RP030 report and are classified as either Primary Category Codes (PCCs) or Indirect Pricing Components (IPCs). Periodically, the table will be reviewed and updated as necessary. MILDEPs and IAs are responsible for communicating updated coding information to DSCA (Office of Business Operations, Comptroller Directorate, Security Assistance Division (OBO/CMP/SA)).

SDAF.2.1.5.4. Processing Offsetting Collections. Before processing offsetting collections, IAs must verify if charges have been billed to the customer for NC recoupment charges and/or if title has transferred for items not requiring replacement. Reporting the shipment of articles must remain in compliance with the DoD FMR 7000.14-R Volume 15, Chapter 8, Section 2.3.2.

SDAF.2.1.5.4.1. DSCA established the SDAF collection receipt account 97-11X 4116 for all three sources of offsetting collections listed in Section SDAF.2.1.5., and the IAs are to post SDAF collections into this account for capitalization purposes. To transfer funds to 97-11X 4116, an IA must prepare a Standard Form (SF) 1080, a voucher for transfers between appropriations and/or funds. The appropriate case or financial manager will send the SF 1080 to DSCA within 30 calendar days of title transfer or when NC recoupment charges are billed to the foreign partner. IAs should submit the vouchers to the DSCA (OBO/CMP/SA) SDAF shared mailbox: dsca.ncr.bpc.mbx.sdaf-financials@mail.mil. DSCA (OBO/CMP/SA) will review the SF 1080 voucher for errors and record the Case Identifier (ID), MILDEP, Line of Accounting, PCC/IPC, Offsetting Collection Type and Date of Submission for tracking purposes. If the package contains no errors, DSCA (OBO/CMP/SA) will approve the package and forward it to the appropriate Defense Finance and Accounting Service (DFAS) office for processing.

SDAF.2.1.5.4.2. Foreign Military Sales Offsetting Collection Packages. IAs must provide complete and accurate offsetting collections packages to DSCA. The guidance below is intended to standardize each offsetting collections package developed by the IAs to enable more efficient processing. Complete packages include the following items.

SDAF.2.1.5.4.2.1. The below Standard Financial Information Structure (SFIS) attributes must be included in the "Office Receiving Funds" portion of the voucher. These attributes are shown in Table SDAF.T2.:

SDAF.2.1.5.4.2.2. Standard Financial Information Structure Line of Accounting and Fiscal Station Number on Offsetting Collection Vouchers. Starting October 1, 2021 (FY 2022), IAs and MILDEPs identifying offsetting collections and preparing vouchers to transfer funds to the SDAF must use appropriate SFIS attributes in the line of accounting consistent with Table SDAF.T2. If an IA or MILDEP cannot use SFIS attributes in a SF 1080's line of accounting due to the use of non-compliant systems, then the IA or MILDEP can reference SFIS attributes in the "Article and Services" field of the SF 1080. DSCA will use these lines of accounting to review and reconcile the SDAF offsetting collection data monthly. FMS cases implemented prior to FY 2022 do not require an amendment.

SDAF.2.1.5.4.2.3. Special Defense Acquisition Fund Account Crosswalk. The limits (sub-allocations) previously used to identify offsetting collections eligible for collection to the SDAF account will be updated for FY 2022 and going forward. Previous offsetting collections limits (sub-allocations) from FY 2012-FY 2021, referenced in Table SDAF.T4., will remain active to account for all offsetting collections transferred to the SDAF account. Table SDAF.T3. identifies the new limits and the appropriate SFIS attributes to use when completing an SF 1080 voucher for offsetting collections. For questions related to Table SDAF.T3. or the SFIS attributes referenced in the DFAS Manual 7097, please contact DSCA's SDAF shared mailbox: dsca.ncr.bpc.mbx.sdaf-financials@mail.mil.

SDAF.2.1.5.4.2.4. In addition to a line of accounting with SFIS attributes, the SF 1080 must contain a Fiscal Station Number (FSN), also referred to as an Authorization Accounting Activity (AAA) in the Navy, and an Accounting and Disbursing Station Number (ADSN) in the Air Force. The FSN used for the SDAF is 843000. Although the new SFIS line of accounting does not contain an FSN, MILDEPs should still enter FSN 843000 in the "Office Receiving Funds" section of the SF 1080. FSN 843000 enables DFAS to know where to route offsetting collections.

SDAF.2.1.5.4.3. Reporting Offsetting Collections. Table SDAF.T4. provides a comparison of the previous receipt accounts and limits (sub-allocations) where offsetting collections were sent prior to when DSCA directed the use of new SFIS compliant lines of accounting in September 2021. Table SDAF.T4. is for reference and reporting purposes only for offsetting collections sent mistakenly to 3041 or 97-11X 4116 using old lines of accounting. Table SDAF.T3. provides guidance on the new lines of accounting to be included on offsetting collection SF 1080 vouchers. All SF 1080 vouchers completed prior to the implementation date of the new lines of accounting will remain as processed, certified, and complete with no corrections necessary or required. The IAs shall not take action to initiate or process a correction voucher for previously submitted vouchers. If an IA determines that a correction to a previously submitted voucher is needed, it should contact DSCA (OBO/CMP/SA) SDAF budget analyst for guidance.

SDAF.2.1.5.4.3.1. The FMS case lines involving the sale of items not requiring replacement will be tracked as available for expenditure and collection via a monthly offsetting collection reconciliation report. The report will be created by DSCA (OBO/CMP/SA), pulled monthly from DSAMS, and provided to all MILDEPS for status updates. If title has transferred on sold assets, the FMS case line is then eligible for collection into the SDAF account. If a line is outstanding, the MILDEP shall provide an update on when the offsetting collection package will be submitted to DSCA (OBO/CMP/SA). MILDEPs shall prepare offsetting collection packages using guidance from Section SDAF.2.1.6.2.

SDAF.2.1.5.4.4. In the event there is an FMS case line where a credit to the SDAF needs to be returned to the FMS case as a correction to the offsetting collections, the MILDEP must first contact DSCA (OBO/CMP/SA) for guidance. Correction vouchers shall be routed through the DSCA (OBO/CMP/SA) SDAF shared mailbox dsca.ncr.bpc.mbx.sdaf-financials@mail.mil. DSCA requires IAs to keep a copy of the certified offsetting collection vouchers and to provide a copy of them if requested.

SDAF.2.1.6. Administrative Costs. SDAF administrative operating costs are included in the FMS administrative budget. However, the SDAF does have the authority to pay for additional administrative operating costs, if necessary.

SDAF.2.1.7. Cost Recovery. SDAF defense articles and defense services should be procured, transported, receipted, stored, maintained, physically inventoried, and disposed of (if needed) using SDAF only, and at no cost to other appropriated funds or other Security Assistance Account (SAA) funds, unless a case line is identified. The intent is to begin to utilize case funds as soon as practical. Any future obligations incurred for a specific partner requirement should be funded from their associated case. SDAF case lines will be priced to recover all proportionate costs to SDAF for the associated SDAF defense article or defense service.