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DoD Financial Management Regulation Volume 13, Appendix C

APPENDIX C

ACCOUNTING PROCEDURES FOR NAVY NONAPPROPRIATED FUND

This appendix of the DoD FinancialManagement Regulation is for use by all non-appropriated fund accounting offices which usesystems developed by the Department of Navy.The appendix contains policies and proceduresspecific to those systems. General or non-systemspecific policies and procedures are included inthe core regulation and have been excluded fromthis appendix. For example, the requirementthat nonappropriated fund instrumentalities(NAFIs) conform to generally acceptedaccounting principles is not system-specific andapplies to all DoD NAFIs. Therefore, it isincluded in the core regulation and excludedfrom this appendix.

This appendix supersedes all previouslypublished policies and procedures. Therefore, inthe event of conflicting instructions, the policiesand procedures in the regulation itself should befollowed.

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Volume 13, Appendix C DoD Financial Management Regulation

CHAPTER 1

GENERAL INFORMATION

C0101 GENERAL

C010101 Purpose. This appendixprescribes financial management policies and auniform accounting system for allnonappropriated funds within the Department ofthe Navy. These provisions are intended toincrease efficiency and effectiveness, permitgreater control by management, facilitate theconducting of audits by proper authority, andprovide guidance to all participants in thesystem.

C0102 SCOPE

C010201 Policies.

A. Scope. The policies setforth herein are applicable on a worldwide basisto all nonappropriated fund instrumentalities(NAFIs) within the Department of the Navy,including the Navy and Marine Corps Morale,Welfare, and Recreation Support Activity and areto be followed unless specific request fordeviation is submitted through and approved bythe appropriate chain of command and theDefence Finance and Accounting Service (DFAS).The Navy Exchange and the Marine CorpsMorale, Welfare, and Recreation Support ActivityManuals contain accounting procedures for theirrespective systems and are subject to DFASreview and approval. The Bureau Of NavalPersonnel Recreation and Mess CentralAccounting System (RAMCAS) Users Handbookcontains detailed accounting procedures forNAFIs participating in the RAMCAS and issubject to DFAS review and approval.Recommendations for improvements,modifications and/or additions to this appendixare encouraged and should be submitted to theDFAS.

B. Private Organizations.Private organizations and funds thereof,established and operated by individuals acting

outside the scope of any official capacity asofficers, employees, or agents of theGovernment, and which are established toprovide desirable morale enhancing facilities andservices, are subject to DOD guidelines. Thefinancial management policies and proceduresset forth in this appendix are not applicable toprivate organizations, however, they maybe usedas guidelines.

C. This appendix is notintended to approve the establishment oroperation of any of the activities referred toherein. Military and civilian NAFIs areestablished and operated in accordance withinstructions issued by the applicable programmanager.

C010202 Basic Policies.

A. Establ ishment andOperation. The Department of the Navyadvocates the establishment and operation ofwell-rounded morale, welfare, and recreationalprograms to insure the mental and physical well-being of its personnel. Adequate programs andfacilities to carry out this policy should beprovided, operated, and maintained throughfinancial support tendered by the Department ofthe Navy. Appropriated and Nonappropriatedfunds will be used as appropriate to fund thecost of these programs and facilities. Provisionswill be made to account for appropriatedexpenses by categories and activity types.

B. I m m u n i t i e s a n dPrivileges. The programs and facilities providedthrough morale, welfare, and recreationfunctions are deemed by the Department of theNavy to be essential to the performance of itsfunctions. As such, they are necessary adjunctsof the department. Morale, welfare, andrecreation activities operated as NonappropriatedFund Instrumentalities (NAFIs) are entities of theGovernment and as such are entitled to all the

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immunities and privileges which are available tothe departments and agencies of the FederalGovernment under the Constitution and statutes.

C. Civilian Employees.Morale, welfare, and recreation programsestablished primarily for civilian employees ofthe Navy are intended to provide food and otherservices where required, and to offer certainrecreational activities as inducement torecruitment and retention of the civilian workforce.

D. A d m i n i s t r a t i o n o fPrograms. Morale, welfare, and recreationprograms will be administered in compliancewith applicable Federal laws and operate inconcert with certain state and municipal laws.Questions involving jurisdiction and compliancewhich cannot be resolved locally, should besubmitted to the appropriate authority forresolution.

E. Nondiscrimination. Thefacilities and/or services of morale, welfare andrecreation programs will not be made availableto any group which practices discrimination onthe basis of gender, race, creed, color, age,physically/mentally handicap, or national origin.This will not prohibit the establishment ofcultural or ethnic private organizations,providing membership is not restricted ordiscriminatory. Private organizations whosememberships are restricted on the basis ofreligion may be authorized to operate on DODinstallations provided authorization is alsoapproved for requests by similar organizationswithout preference.

F. Nonappropriated Fundsare Government Funds. All nonappropriatedfunds are government funds dedicatedexclusively to the collective welfare andrecreation of military and civilian personnel andtheir dependents. These funds will not bedonated to any individual, firm, group, ororganization, charitable or otherwise, to thedetriment of the joint welfare and recreation ofall personnel and their dependents.

G. Cross-Service Borrowing.To the extent funds are not available from withinthe Department of the Navy, cross-serviceborrowing of nonappropriated funds isencouraged. Commercial borrowing will beobtained only as a last resort. Approval of eithercross-service or commercial borrowing must beobtained in advance from the applicable programmanager.

C0103 SYSTEMS APPROVAL. DFAS-HQ has the responsibility for final review andapproval of financial management processingsystems prior to implementation.

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CHAPTER 2

FINANCIAL MANAGEMENT

C0201 GENERAL

C020101 Basic Functions of Management.The basic functions of management includeplanning, coordinating and controlling. Planningis directed toward the establishment of desirablefuture objectives and the formation of anorganizational structure to be followed in theirachievement. Coordination consists ofintegrating individual and group effort with theover-all objectives. Controlling results from theevaluation of individual and group effort interms of the predetermined goals.

C020102 Discharge of ManagementFunctions. The effective discharge of thesefunctions is essential to sound businessmanagement and successful operations. In smallactivities the manager may personally superviseevery phase of operations and the basic functionsof management may be performed with littlerecourse to accounting data. In larger entities,direct personal supervision by one individual isseldom possible and it is necessary to establisha chain of command from top management todepartmental supervisors. Under suchcircumstances, accounting becomes an indis-pensable tool of management. Accounting notonly provides each level of management withrelevant financial data, but it also furnishes basicfacts required in planning, coordinating, andcontrolling.

C0202 B U D G E T I N G A N DMANAGEMENT

C020201 Nature of Budgeting. Budgetingconsists of establishing specific future goals andperiodically measuring actual results against theplanned objectives. A budget is a formal writtenstatement of management’s plans for the future,expressed in financial terms. A budget chartsthe course of future action. Thus, it servesmanagement in the same manner that thearchitect’s blueprints assist the builder and thenavigator’s flight plan aids the pilot. A budget,

like a blue-print and a flight plan, should containsound, attainable objectives based on a realisticplan of operations rather than mere wishfulthinking.

A. A c c o u n t i n g a n dManagement. Probably no other instrumentcontributes more directly to management than abudget. A budget embraces both accountingand management functions. It is a managementfunction because it is an expression ofmanagement’s plans and an accounting functionbecause plans are translated into financial termsfor subsequent comparison with actualperformance. Each of management’s primaryfunctions is directly served by budgeting.Planning is encouraged because careful study,investigations, and research must be given toexpected future operations if the budget is tocontain sound, attainable goals. Advancedplanning, in turn, increases the reliance ofmanagement on fact finding in making decisionsand lessens the role of hunches and intuition inmanaging a business enterprise.

B. P r e p a r a t i o n .Coordination is facilitated as each level ofmanagement participates in the preparation ofthe budget. In addition, a budget enables topmanagement to explain its objectives to eachstratum of management. For example, plannedmerchandise purchases are developed inaccordance with anticipated sales. Manpowerrequirements and salary costs can be correlatedwith anticipated income from services to berendered.

C. C o n t r o l . W h i l emanagerial planning and coordination areimportant, they must accompanied by control.Budgeting contributes to effective managementcontrol through the preparation of frequentbudget reports in which actual performance andbudget of objectives are compared and variationsare revealed. The disclosure of variationsenables management to focus attention on the

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areas which require immediate corrective action.Budget objectives act as a deterrent against wasteand serve to encourage efficiency and costsavings.

D. Budget Revisions. Forthe budget to remain an effective managementtool, revised budgets incorporating significantprogram changes for the balance of anaccounting period should be prepared.Revisions should not be made solely to eliminatevariations from planned performance.

C0203 BUDGETING PROCEDURES.

C020301 Responsibility for Preparation.

A. Budget Officer. Theresponsibility for actual preparation of thebudget is assigned to the local budget officer andthe MWR Director. Budgets are prepared forboth appropriated and nonappropriated fundsrequirements in accordance with guidanceestablished by the program manager.

B. Budget Input. Requestsfor budget estimates should be extended to thelowest level in the chain of command to enlistthe participation and cooperation of all strata ofmanagement. After the estimates have beenreceived, they are reviewed and incorporatedinto a master plan. This process usuallynecessitates a revision of some of the estimates,and each supervisor is given an opportunity todefend his estimates and requests. The variousbudgets are then agreed upon and approved bythe commanding officer. Finally, the budgets aredistributed and explained to each responsiblesupervisor as the operating plan against whichtheir performance will be compared.

C. Sources of Information.Budgets are dependent upon the preparation oftimely, clear, and accurate financial statementsreporting operational results and financialcondition of the business entity. The financialcondition of an activity is presented in itsbalance sheet, while its earnings are reported inthe income statement. The items appearing inthese statements are major considerations inplanning.

D. Elements of FinancialPlanning.

1. Management ofWorking Capital. The efficient administrationand control of capital used in an activity.

2. Financial Plan.Determining the sources and required amount ofinitial or additional capital. This is an estimatebased on past experience.

3. O p e r a t i n gBudget. The projection of income and expensefor a future period. Permits comparison andanalysis of projected data with actual data. Thisis an estimated view of future income andexpense based on past experience. The estimatewill be influenced by management policies suchas a reduction of personnel costs which couldincrease the net profit. It could also beinfluenced by an anticipated reduction inpatronage through military transfers which couldresult in a decrease in level of operations and netprofit.

4. Cash Budget. Aprojection of cash receipts and disbursements fora specified future period. It is necessary toknow how much cash will be necessary tooperate during the coming months and at whattimes and in what amounts cash will be availableto meet payment needs. Cash budget shall bederived from and reconciled with the operatingand capital budgets.

5. Capital Budget.The projection of expenditures for acquisition,construction, renovation, and expansion ofcapitalized fixed assets such as furniture,fixtures, equipment, and building improvements.The source of funding and estimated completiondate shall be indicated.

6. A n n u a lAppropriated Fund Budget. An itemized listingof required appropriated fund support.

7. Balance SheetProjection. The projection of assets, liabilities,

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and net worth at a future date based on plannedoperational results.

C0204 OPERATING BUDGET

A. General. In its simplest,the operating budget is expected receipts lessdesired profits. Planning is designed to increasereceipts or reduce allowable costs and expenses,or both, to achieve the desired profit objective.For instance, once the desired profit isdetermined, there must be planning to obtainthis profit. It may be reached by increasingreceipts through more aggressive promotion,additional facilities, or a rise in prices. Theprofit objective, through more effectivemanagement, may also be approached by cuttingcosts (allowable costs) through a reduction inpersonnel, tighter control on costs, or reductionof administrative expenses.

B. Profit Objective. Theprofit objective should be consistent with theneed for maintaining the lowest possible price tocustomers, expansion requirements, and othermanagement needs. An activity which hasacquired elaborate, or even adequate facilities,may be in a position to budget profits at or nearthe break-even point, and pass along the usualoperating gains to customers through reducedprices, dues, or other service charges. Thepurpose of the budget under such circumstancesis to limit administrative expenses so as toincrease the direct benefit accruing to customersthrough lower charges.

C. Forecasting Receipts.Forecasting future receipts is the most importantelement in the operating budget since all otherelements are dependent upon this figure andmust vary accordingly.

1. B a s i cManagement Unit. A basic unit of measurementmust be determined to forecast future receipts.This unit of measurement is obtained from datacollected from past operations. Themeasurement unit may be selected from suchdata as the number of customers, meals, andguests applicable to each major activity (bar,dining room, golf course, barber shop, or any

other department). Dollar amounts may beapplied to measurement units upondetermination of pricing and rate standard.

2. F o r e c a s t i n gProcedure. Future receipts from the sale ofgoods should be computed separately fromincome from other activities such as roomservice, greens fees, and member-ship dues, etc.

3. Other forecasts.Income from similar activities may forecast in alike manner. Income from nonresale activitiesmay be forecast directly in terms of measuredunits and by the application of rates asdetermined by the board or council, or asprescribed in the by-laws in the case ofmembership dues and assessments.Consideration should be given to such factors asnumber of dependents, training schedules,seasonal variations, and holidays.

D. Limiting Expenses.When the total gross income from sales andother activity sources has been forecast, thedollar amount of net profit needed to supportfuture requirements may be determined. Thedifference between these two figures (grossincome and net profit) represents the maximumamount which may be used to defray allexpenses during the budget period. Major costssuch as cost of goods sold, wages and salaries,personnel benefits, utilities, and depreciationshould be forecast separately for each month ofthe budget period. General and administrativeexpenses representing smaller amounts may beconsolidated. The distribution of expense byactivity should be accomplished whenpracticable. Prior experience should be the basisfor apportioning expense allowances to thevarious activity accounts. Past expenses,however, should be examined closely as topropriety and necessity. Savings accomplishedand reflected in greater profits may be convertedto lower prices in subsequent periods. Thisfactor actually may induce greater dollar volumegross income through increased patronage.Conversely, it may be found that the budgetedgross income is so low as to result in the forcedreduction of essential expenses, adversely

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affecting sales volume and patronage. Thesematters cannot be resolved by a predeterminedformula but must be resolved by goodmanagement.

E. Presentation of OperatingBudget. The final form of the operating budgetis the same as the income statement, except thatprovision is made for monthly comparisons. Allitems should be expressed in terms ofpercentages of total sales for analysis andcomparative purposes.

C0205 CASH BUDGET

C020501 General. A cash budget is aneffective tool in planning cash requirements andresources of a business. It is important to notethat the excess or deficit of cash receipts overdisbursements for a given accounting periodmay not equal the amount of net profit or loss asreported in the income statement for the sameperiod. Sales on credit, purchases on credit, andother accruals reflected in the income statementsprevent a direct comparison.

C020502 Purpose. The primary purposeof the cash budget is to identify existing andanticipated cash resources to finance operations,pay debts as they mature, pay for desiredexpansion, and maintain the business in asatisfactory or liquid position. Sales volume,inventory levels, pricing, credit policies, andplans for replacement and expansion of fixedassets, should be critically reexamined in thelight of the cash budget, and modified asnecessary. When the cash budget indicates adeficit during all or part of the budget period,the entire plan of operations may be tooambitious for the resources available. Certainbudgeted activities may have to be curtailed ordeferred until additional capital can be accruedfrom future earnings.

C020503 Preparation. In estimating cashreceipts and disbursements, other budgets mustbe carefully studied. Appropriate considerationshould be given to future plans of managementwhich will affect cash. After cash receipts anddisbursements have been estimated, a minimumcash balance is established that will be adequate

to meet cash requirements. The cash budgetshould be prepared progressively by monthlyrevision to provide a perpetual forecast. Theperiod of time covered by a cash budget varieswith the type of business and the activity’s cashposition. When the supply of cash is short, aweekly or even a daily cash budget may benecessary. Ordinarily, however, twelve separatemonthly budgets are prepared for the year.Cash budgets are usually accompanied bydetailed schedules of the major itemssummarized in the budget. Forecasts of totalincome as reflected in the operating budget mustbe adjusted for cash transactions. Cash receiptsarising from credit sales and other charges willnecessitate preparation of accounts receivableaging schedules, actual and projected. Monthlycomparison should be made with actual cashreceipts and disbursements for the purpose ofplanning future operations.

C0206 CAPITAL BUDGET

A. General. The capitalbudget is a summary of proposed expendituresof cash for depreciable assets for the followingpurposes:

1. Additions andextensions to property and equipment.

2. New propertyand equipment.

3. Replacement ofproperty and equipment unit.

4. F u r n i t u r e ,fixtures, and office equipment.

B. Purpose. The objectiveof the capital budget is to increase or at leastmaintain future profits without jeopardizing thefinancial stability of the activity. Expansion orreplacement proposals that do not further salesvolume are not in themselves a sufficient basisfor expanding capital investment, unless it is tobe supported by a continuing high volume.

C. Long Range Planning.

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1. Planning forcapital expenditure must be considered from along-range viewpoint to include the followingconsiderations:

a. L o n g -term estimate of revenue, cost of operations, andprofits.

b. Possiblyserve an increased patronage without expansionof fixed assets.

c.Determine expansion of property and equipmentrequired to serve increased patronage in terms ofphysical units.

d. Ability toobtain the required amount of capital whenneeded.

2. T h e c a p i t a lbudget may be forecast by calendar quarters for1 year in advance, and for each year thereafterup to 5 years.

D. Sources of Capital.Failure to carefully budget capital expendituresis likely to result in the diversion of cashrequired for working capital to the acquisition offixed assets, thereby impairing the ability of thefund to meet its current financial obligations. Ifcash required for operations is used for thispurpose, it results in a diversion of workingcapital into fixed capital. The maximum fundsavailable for capital expenditures, withoutimpairment of working capital, are measured by:

1. R e i n v e s t e d(Retained) earnings for a given period.

2. A n n u a lallowances for depreciation (accumulateddepreciation accrued through monthly charges).

3. Proceeds fromloans (ultimately to be repaid from futureearnings).

E. Financing Replacementsand Expansion. Capital expenditures forreplacement of fixed assets as a general ruleshould be limited to the accumulated allowancesfor depreciation, while expansion of amountsrequired as additions to working capital.

F. Preparation. The capitalbudget should be prepared in two forms.

1. A listing ofindividual projects or fixed asset items to beacquired during a future period stating theestimated cost of each, the date and amount ofactual expenditures, and the unexpended balanceof budgeted expenditure.

2. Summarized byPeriod. Capital budget summarized by period.The budgeted project may be summarized foreach budget period and computation made ofthe total funds estimated to become available forcapital expenditures.

C0207 BALANCE SHEET PROJECTION

A. General. The balancesheet projection is a preview of the financialcondition on a specified future date, based onthe plan of operations adopted. The balancesheet projection may be prepared as aculmination of other forecasts and budgetsspecified in other sections of this Chapter.

B. Purpose. The balancesheet projection may be used to:

1. Note the flow ofreinvested profits into current and fixed assets.

2. Check on theaccuracy of the operating budgets.

3. Aid in planningcapital expansion.

4. Forecast cashbalances and requirements.

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5. A i d p r o f i tplanning designed to secure an adequate returnon the total investment.

6. Maintain theratio of current assets to current liabilities andother financial ratios at a desirable level.

C. Preparation. The balancesheet projection should be maintained forperiods coinciding with those of the operatingbudget. It should be prepared in substantiallythe same form as the balance sheet except that itmay be condensed to show only the moresignificant items. If other budgets discussed inthis chapter are regularly prepared, very littleadditional effort will be required for preparationof the balance sheet projection since most of theprojected items have already been ascertained.Only a few additional items such as prepaidexpense must be projected. Accounts receivableare estimated by adding to the opening balancethe amount of estimated sales on account, lessestimated collections during the period.Similarly, other balance sheet items are projectedbased on data contained in the operating, cash,and capital expenditure budgets.

D. Use of Financial Ratios.Financial ratios referred to in the followingparagraph should be used in the analysis of thebalance sheet projection. Comparisons of desiredfinancial ratios with projected ratios may resultin modification of operational plans and budgetelements.

C0208 MANAGEMENT OF WORKINGCAPITAL

A. General. Working capitalmanagement includes the following terms:

1. Current Assets.Cash and other assets that may reasonably beexpected to be realized in cash, sold orconsumed, within 1 year through the normaloperations of the business. In addition to cash,the assets usually found in this group areaccounts receivable, loans receivable,merchandise inventory, short-term investments,and prepaid expenses. They are customarily

listed in order of liquidity, which is the order oftheir expected conversion to cash.

2. C u r r e n tLiabilities. Debts that in the ordinary course ofbusiness will be liquidated within a year such asaccounts payable, loans payable, salaries andwages payable, and collections received inadvance for which goods or services will begiven within a year.

3. Working Capital.The excess of current assets over currentliabilities.

4. Fixed Capital.That portion of total capital (additional toworking capital) consisting of relativelypermanent assets acquired for use in the conductof the business. Such capital is not intended fordisposal in the ordinary course of events, andincludes items such as furniture, fixtures,equipment, and building improvements.

B. Flow of Working Capital.Upon establishing a business, cash may comprisethe total capital. A part of cash is invested infixed assets such as equipment, furnishings,building improvements, etc. The remainder isretained in part as cash to meet operatingexpenses, and in part to purchase foods as thestock in trade. These goods are sold andconverted into cash or accounts receivable, whichare ultimately collected in cash, to complete theworking capital cycle. Each time the cycle ismade, from cash to goods to cash, it should yielda return. A constant and rapid circulation(cycling) of working capital is desirable tocompound the yield and increase the return, inrelation to the amount of working capitalrequired.

C. A d m i n i s t r a t i o n o fCurrent Assets.

1. Cash. A cashbalance on hand and in banks should bemaintained at the minimum amounts requiredfor change funds, petty cash and payables due inthe next succeeding month. Additional amountsnot used in current operations should be

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invested in securities redeemable when cash isdesired, and yielding maximum interest.

2. Receivables. Thevolume of receivables is determined by sales andcredit policies and by the effectiveness ofcollection of outstanding accounts. The efficientcollection of receivables is a vital part of workingcapital management. Laxity in this regard maytie up an undue amount of cash otherwiseneeded as working capital as well as increaselosses from bad debts. It may be necessary toimpose customer credit limits on accounts thatare in excess of a reasonable period or amount.

3. I n v e n t o r i e s .Inventory management involves regulation of thesize of the invest-ment in goods on hand, thetypes of goods carried in stock, and turnoverrates. The investment in inventory should bekept at a minimum consistent with maintenanceof adequate stocks of proper quality to meetsales demand. Increases or decreases in theinventory investment must be tested against theeffect on profits and working capital. Standardlevels of inventory should be established asadequate for a given volume of business, andstock control procedures applied so as to limitpurchase as required. Such controls should notpreclude volume purchase of nonperishableitems when price advantages may be obtainedunder unusual circumstances. The rate ofinventory turnover is a valuable test ofmerchandising efficiency and should becomputed monthly.

D. Required WorkingCapital.

1. The followingfactors generally affect the amount of workingcapital required:

a. T u r n -over rate of inventories.

b. T u r n -over rates of accounts receivable.

c. Terms ofpurchase.

d. Terms ofcredit sales.

e. Overallexpansion.

f. Seasonalvariations.

g. Changesin customer strength.

2. The approximateamount of working capital required to operate ata given date, and the amount of working capitalexcess or deficit, may be calculated as follows:

Current AssetsLess: Current LiabilitiesEquals: Working CapitalLess: One Inventory TurnoverLess: Net of 1 Month’s Expenses and

Revenues from other than SalesActivities

Equals: Working Capital Excess orDeficit

E. Working Capital Ratios.The ratio analysis or working capital can be usedby management as a means of checking upon theefficiency with which working capital is beingapplied. Important ratios for working capitalmanagement analysis are the working capitaland inventory turnover rations and the turnoveror average collection period for accountsreceivable. The behavior of ratios, over a seriesof accounting periods, is indicative of trendswhich may signal the need for adjustments inthe future. Some of the working capital ratioswhich may be computed are described below.

1. Capital Ratio.The relationship between current assets andcurrent liabilities is called the current ratio. Thisratio measures the ability to pay short term debtsand is computed by dividing the total of currentassets by the total of current liabilities.Marketable securities, receivables, andinventories may decline in value and there is nocertainty as to when they will be converted intocash. On the other hand, current liabilities must

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be paid at their face value and at specific dates.It is desirable, therefore, that current assetsalways be materially in excess of currentliabilities. The excess of current assets overcurrent liabilities is also frequently used as anindex of current financial condition. It isreferred to as working capital or net currentassets. There is general rule that a current ratioless than a 2:1 is unsatisfactory. Like mostgeneralities this one is subject to modification incertain specific cases. A ratio that is smallerwould indicate that debts may be too high. Onthe other hand, if the current ratio is too largethis means more current assets should beconverted to other useful purposes.

2. Acid-Test Ratio.This ratio is the sum of cash, receivables, andmarketable securities (called quick assets)divided by current liabilities. The acid-test ratiois a supplemental measure of liquidity. A ratioof 1:1 indicates that for every dollar of currentdebt there is available one dollar of quick assetsto meet current liabilities. As a general rule, theacid-test ratio should be no less than 1:1. Whileit is generally desirable that the acid-test be highand improving, it is possible for it to be too highfor the good of the business. Cash and mostreceivables are not earning interest and thereturn on most temporary investments is notlarge. Neither too little nor too much workingcapital is desirable. One of the arts of businessmanagement is the ability to determine andmaintain the optimum amount of each type ofasset.

3. Ratio of NetSales to Assets. The ratio of net sales to assets isa measure of the effectiveness of the utilizationof assets. Assume that two similar activitieshave equal amounts of assets but that the salesof one are double the amount of the sales of theother. Obviously, the former is making betteruse of its assets. In computing the ratio, anylong-term investments should be excluded fromtotal assets as they make no contribution to sales.The units of product sold may also be used inplace of the dollar amount of sales, if sales canbe stated in a common unit. Assets used indetermining the ratio may be the total at the end

of the year, the average at the beginning and endof the year, or the average of monthly totals.

4. A c c o u n t sReceivable Turnover. The relationship betweensales volume and accounts receivable is stated asthe accounts receivable turnover. It is calculatedby dividing net sales on account by the averageaccounts receivable. The average of the monthlybalances of accounts receivable should be usedin the computation, as it gives recognition toseasonal fluctuations. When such data are notavailable it is necessary to use the average of thebalances at the beginning and end of the year.Accounts receivable yield no revenue hence it isdesirable to keep the amount invested in them ata minimum and the number of turnovers as highas possible. Prompt collection reduces theamount of loss from bad debts. The compositionof accounts receivable changes continuallyduring the business cycle. Accounts receivableare increased when charge sales are made anddecreased when collections are received.Increases or decreases in the volume of sales willalso affect the amount of outstanding accounts.Another method of expressing the result is todivide 365 (days) by the receivable turnoverfigure to get the average number of days that thereceivables were on the books.

5. M e r c h a n d i s eInventory Turnover. Most of the observationsabout receivables discussed in the precedingsubsection (d. above) are also applicable tomerchandise inventory. Inventory in excess ofthe needs of the business ties up funds thatcould be used in other ways to better advantageand may increase the amount of insurance,storage, and other related expenses. There isalso added risk of loss through price declinesand deterioration or obsolescence of themerchandise. The merchandise inventoryturnover rate is computed by dividing the cost ofgoods sold by the average cost price value of theinventory. If monthly data are not available, itis necessary to use the average of the inventoriesat the beginning and end of the year.

F. Turnover of WorkingCapital. A close relationship exists between salesand working capital. As sales volume increases,

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the investment in inventories and receivablesincreases and therefore, a larger amount ofworking capital is necessary. The turnover ofworking capital reflects the extent to which thebusiness is operating on a small or large amountof working capital in relation to sales. Thisturnover or ratio is composite of number ofrelationships (inventories, receivables, currentliabilities, etc.). These various componentelements should be analyzed individually toaccount for changes from period to period. Theturnover of working capital is computed bydividing the net sales for the year by the averageworking capital.

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CHAPTER 3

OPERATIONAL STANDARDS

C0301 GENERAL

C030101 Responsibility.

A. Assistant Secretary of theNavy (Manpower and Reserve Affairs). As theoverall policy director for NAFIs, authorizes theestablishment of new type activities and assignstheir program classification.

B. Program Manager. Theprogram manager, as the administrative managerfor morale, welfare, and recreation functionsunder his command, is responsible for thetechnical and administrative directives whichwill:

1. S e t f o r t hrequirements for establishment of the programsand activities.

2. Insure imple-mentation of budgeting, accounting analysis andevaluation, and auditing.

3. Implement reportrequirements and time frames.

4. Aid in thepreparation of budgets for both appropriatedand nonappropriated funds.

5. S p e c i f ymanagement policies.

6. Specify formatsand provisions of contracts.

7. I m p l e m e n tpolicies for the disposition of surplus property.

8. Establish policiesfor purchasing, contracting, investing,administering and protecting assets inaccordance with this handbook.

9. S e t f o r t hliquidation and closing procedures fordisestablishment activities consistent with thishandbook.

10. Establish andmaintain adequate systems of internal controlthat provide reasonable assurance that theobjectives of internal control are met andreviewed periodically (for all functions; notsolely financial management).

11. Establish auditprograms and management review cycles forNAFIs under his command.

C. Commanding Officer.Fund administration and supervision arecommand functions. Consequently,commanding officers have the sameresponsibility for the proper administration ofnonappropriated funds as for any otherfunctional element of their command. Under thetechnical supervision of the appropriate programmanager, and in accordance with applicabledirectives, the commanding officer hasjurisdiction over, and is responsible for, theestablishment, administration, operation, andfinancial condition (including solvency, stability,and dissolution) of NAFIs and will:

1. D i r e c t t h eactivity operation in accordance with policiesand procedures set forth by the programmanager and as delineated herein.

2. Review andevaluate financial statements and whereapplicable forward as directed to higherauthority.

3. Appoint qualifiedmanagers and insure that an advisory group isdesignated for each morale, welfare, andrecreation program to act in an advisory capacityto the commanding officer by observing the

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overall operation of the activity and makingrecommendations to the commander for itsimprovement. Individuals responsible for eitherthe receipt or disbursement of appropriatedfunds will not be appointed as a manager orcustodian of nonappropriated funds. Thecustodian/treasurer or Other MembershipAssociations, such as, flying clubs, rod and gunclubs, etc., should be elected or appointed fromthe memberships of such activities, subject to theapproval of the commanding officer.

4. B u d g e t f o rappropriated funds which are authorized tosupport morale, welfare, and recreationalactivities.

5. I n s u r e t h a ttechnical advice and assistance in the supervisionof activity functions is obtained from other staffmembers on matters in which they havefunctional responsibility.

6. Effect correctiveaction on recommendations made by audit,program managers, and/or advisory personnel.

7. Disapprove anyrecommendation of the manager/custodian oradvisory group which is deemed not to be in thebest interest of the Department of the Navy.

8. Ascertain thateach activity is being properly administered andits monies and property safeguarded, that allincome has been received in full, and insure thatall disbursements are made only for authorizedpurposes.

9. D i r e c t t h a tinventories are taken as required by governingdirectives.

10. Des ignate asuccessor manager:

a. When themanager is absent by order, leave of absence, orany other cause for more than 30 days (and thereis no designated assistant), the commander willdesignate a successor manager and require a

physical inventory to be made in support of astatement of assets. Such inventory will becertified by the manager as correct to the best ofhis knowledge, and signed as a receipt by hissuccessor subject to such exceptions, if any, asmay be noted therein. The signed statement willbe retained as a part of the activity’s records. Inthe case of Navy Exchanges, successor managers(Navy Exchange Officers) are appointed by theCommander, Naval Supply Systems Commandand relieving procedures are provided by theNavy Exchange Manual.

b. A ninventory of the complete system is notnecessary when the manager of a morale,welfare, and recreation activity (consisting ofbranches which have assigned managers withspecific duties and responsibilities set forth inwriting by the commander) is relieved at a timeother than the normal termination of anaccounting period. All cash on hand, however,to include receipts for petty cash and changefunds rendered by branch managers, the bankaccounts and any property with the centraloffice, will be verified by both parties andinvoice and receipt accomplished.

c. Un l e s sthere is an assistant manager, an acting managerwill be appointed by the commanding officerwhen a manager is to be absent from duty for alimited period of 5 to 30 days. The actingmanager becomes responsible by signed receiptfor all assets as shown in the records as of thetransfer date, subject to confirmation within 30days thereafter. In the case of Navy Exchanges,an acting Navy Exchange Officer is designatedby the commander as provided by the NavyExchange Manual.

D. Manager. The manageras a direct representative of the commandingofficer exercises executive control over themorale, welfare, and recreation function and ischarged with the following responsibilities andspecific duties and will:

1. Receive, andsafeguard monies and other assets in accordance

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with this handbook and other applicableregulations, directives and/or manuals.

2. Cause to be putinto effect all management policies as directed bythe program manager, the commanding officer,and other competent authorities.

3. Employ, train,supervise, and discharge personnel, and establishrates of pay and working hours, subject to theapproval of the commanding officer, minimumwage legislation, and DOD wage surveys,

4. E s t a b l i s h acontinuous training program for all personnel.

5. D e v e l o p ,implement, and maintain an internal controlsystem in accordance with this handbook.

6. Be financiallyliable for losses of monies and property when hisdishonesty, fraud, or culpable negligence isestablished.

7. I n s u r e t h eadequate protection of cash (including bankdeposits) and proper investment of monies is inconformity with this handbook and applicabledirectives issued by the program manager. (seeAppendix B).

8. P r e p a r enecessary budgets in accordance with thishandbook and as prescribed by the programmanager.

9. I n s u r e t h a tinventories are taken as required by governingdirectives.

10. Be responsiblefor all purchasing and contracting and insurecompliance with SECNAVINST 7043.5(series)and other pertinent directives.

11. Be responsiblefor all financial operations of the activity toinclude all income-producing or servicefunctions.

12. Insure that eachfund maintained in support of a retirementprogram is regularly reviewed by one or morequalified actuaries.

C0302 A P P R O P R I A T E D A N DNONAPPROPRIATED FUNDS

C030201 Guidance. Guidance for the useof appropriated and nonappropriated fundssupport to military morale, welfare, andrecreation (MWR) programs and activities iscontained in NAVCOMPT Man. Vol 7. BaseComptrollers will prepare budgets for annualappropriated and nonappropriated fund supportfor morale, welfare and recreation programs inaccordance with major claimant guidanceconsistent with the fund use rules prescribed andannual budget guidance provided inNAVCOMPT Notice 7111.

C030202 Use of APF. As prescribed onNAVCOMPT Man. Vol.7, appropriated fundsmay be used to provide support to morale,Welfare and Recreation Programs. The followingoutlines procedures used in accounting forappropriated fund support to morale, welfareand recreation activities.

A. Comptrollers will issuequarterly/yearly operating targets (OPTAR) toeach Morale, Welfare and Recreation programmanager permitting obligation of appropriatedfunds within the specified monetary limits.

B. The morale, welfare andrecreation manager will initiate typical obligatingdocuments (such as travel orders, DD Form1348’s, purchase orders, labor cards forAppropriated fund paid morale, welfare andrecreation employees, etc.) when intending todirectly cite OPTARED appropriated funds.

C. Order for Work andServices (NAVCOMPT Form 2275) may beissued against unobligated OPTAR balances tomorale, welfare and recreation activities to coveranticipated reimbursements of nonappropriatedfund costs by appropriated funds for authorizedsupport. The NAVCOMPT Form 2275 should beissued in an amount based on estimated

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reimbursement needs and carry an expirationdate consistent with the OPTAR. The issuingactivity must assign a Navy Standard DocumentNumber to the NAVCOMPT Form 2275 andupon its acceptance, have it recorded as anobligation in the appropriated accountingrecords. The total OPTAR availability includesboth the direct cite obligations and theanticipated reimbursements obligated under theNAVCOMPT Form 2275 (See Appendix C-2).

D. An APF entity maycontract with the NAFI for services, functions, orgoods that the NAFI is in the unique position toprovide. Work and services must be processedby contract, activities will no longer be able touse reimbursable orders to pay for goods orservices provided by NAFI.

E. At year-end, basecomptrollers prepare reports of appropriatedfund support to morale, welfare and recreationactivities in accordance with this appendix.

F. When morale, welfareand recreation activities request supplies andservices as authorized by NAVCOMPT Manual,Volume 7, they may use NAVCOMPT Form 2275Order For Work and Services. The requestingMWR activity must completely fill the applicableblocks on NC Form 2275 except that block 12will be annotated to indicate that the order is tobe paid by nonappropriated funds. When anMWR activity requests work and services usingOperating Target (OPTAR) appropriated funds,block 12 of NC Form 2275 will be annotated withapplicable appropriated accounting data. In bothcases, billings will be sent to the activityindicated in block 11.

C0303 F R A U D O R O T H E RDISHONEST ACTS. Any employee or personconnected with a morale, welfare, and recreationactivity will report to the proper authority anysuspected misappropriation, embezzlement,larceny or robbery of property or funds, or otherimproper matter for action in accordance withArticle 1139, U.S. Navy Regulations, 1973 andapplicable instructions.

C0304 INSURANCE

C030401 Self Insurance. The ComptrollerGeneral has consistently held that unlessotherwise provided by law, appropriated fundsare not available for insurance of governmentproperty as the government is a self insurer.This prohibition does not extend tononappropriated funds used to insurenonappropriated fund purchased property. Oneof the most effective means of protecting assetsis through insurance. Certain insurancecoverage is mandatory while other types ofprotection are at the option of the fund or asspecified by the program manager.

C030402 Morale, Welfare, and RecreationActivity Insurance Requirements. Activities willnormally carry as a minimum the followinginsurance:

A. Worker’s Compensationas required by state and territorial laws, and inthe employment of foreign nationals as requiredby local laws. Where no provisions for worker’scompensation are applicable, employer’s liabilityinsurance shall be provided.

B. G r o u p l i f e a n dcomprehensive medical/health insurance.

C. Property insurance,including fire and extended coverage, sprinklerleakage, robbery, theft, and securities coverage.When the insurable value exceeds $10,000 it willbe provided by commercial insurance or on aself-insurance basis. Insurance may be providedon an optional basis for insurable values of lessthan $10,000.

D. Bodily injury andproperty damage liability insurance (general andautomobile) will be provided by commercialinsurance or on a self-insurance basis.

E. The methods by whichassets are protected will encompass sound riskmanagement principles that will satisfy allapplicable insurance laws (both domestic andforeign) while providing the broadest most cost-effective protection available.

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F. Amounts of coverageand the techniques of handling risk of lossshould be based on risks involved in transactionsnot protected by internal control procedures andas may be determined by the program managerand/or commanding officer.

G. A plan to providefunding for retirement payments. ProgramManagers will ensure that retirement plans arefunded in accordance with sound actuarialprinciples. Independent external actuarialreview is required every two years. Alsorequired is an examination by a certified publicaccounting firm during scheduled audits everytwo years.

C030403 Concessionaire InsuranceRequirements

A. Adequate InsuranceCoverage. Morale, welfare, and recreationactivities which carry on business throughconcessionaires within the United States willprovide in their contracts that adequate worker’scompensation, employers’ liability, bodily injuryand property liability insurance will be carried toprotect the interest of the concessionaire, theactivity, and the Federal Government. Inoverseas areas concessionaire contracts willprovide that the concessionaire will comply withthe local laws or customs of the country orpolitical subdivision in which the concession islocated.

B. Named As AdditionalInsured. With respect to bodily injury andproperty damage liability insurance, theconcessionaires contract must contain a clausewhich provides that the activity concerned andthe United States of America are named asadditionally insured parties, in addition to theconcessionaires. The activity will obtain fromthe concessionaire, a certificate of compliance,signed by the insurer, which clearly indicatesthat the type and amount of insurance stipulatedin the agreement, has been issued to theconcessionaire.

C030404 Performance Bond. Contractorsor vendors under contract for construction or for

the furnishing of supplies or services may berequired to post a collateral or performance bondin order to protect the activity from loss byinsuring the fulfillment of such contract.

C030405 Insurance and Federal TortClaims. Procedures for processing insurance andtort claims will be in accordance with JAGManual, Chapters XX and XXIII.

C0305 CONCESSION OPERATIONSAND CONTRACTS

C030501 Direct Operation. So far aspracticable, all facilities, services, and functionsshould be a direct operation. Wherecircumstances would preclude realizingcomparable service and a reasonable financialreturn, contractual agreements may be enteredinto between individuals or commercialorganizations and activities with the consent ofthe commanding officer and/or programmanager.

C030502 Utilities. A concessionaire isresponsible for payment of the cost of all utilitiesin connection with his operations. Whereutilities are furnished by the Government on areimbursable basis, charges will be made inaccordance with NAVCOMPT Manual, Vol. 3,Chapter 7, Part D or Navy Industrial FundProcedures, as applicable and NAVCOMPTManual, Vol. 7 paragraphs 075260 and 075261.

C030503 Policies. Policies regarding thecontrol of concessionaire operations areprescribed in SECNAVINST. 7043.5A(series).

C030504 Commissions. Commissionsfrom concessionaires to the nonappropriatedfunds will be based on a percentage of sales.

C0306 AUDIT AND INSPECTION

C030601 All Levels. Activities at all levelsof command are subject to audit and/orinspection. Activity managers will cooperatewith auditing and inspecting personnel.Mishandling of nonappropriated funds andproperty, and violations of standards of conductin connection therewith, will be referred to the

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commanding officer, and when deemedappropriate, to the Naval Investigative Service.Irregularities of a potentially serious nature willbe reported through command channels to theAssistant Secretary of the Navy (FinancialManagement).

C030602 Audited Annually. Activitieswill normally be audited annually or as directedby the program manager whenevercircumstances warrant and directives requiresuch action in discharge of his responsibility.

C030603 Policies Regarding Audit.Policies regarding the audit of nonappropriatedfunds and related activities are prescribed inSECNAVINST 7510.7C(series).

C0307 RECORDS MANAGEMENT

C030701 Records Maintenance AndDisposition. All records pertaining to theadministration of nonappropriated funds will bemaintained and disposed of in accordance withSECNAVINST 5212.5C(series).

C030702 Audit Trails. Computerizedrecords are authorized so long as the requireddata are maintained and necessary audit trailsare established.

C0308 LIQUIDATION AND CLOSING

C030801 Liquidation. Upon receipt ofnotification that an installation and/or activity isto be inactivated or placed in a standby status,the program manager, major claimant and thecommanding officer will take such action as isdeemed necessary to preclude careless orextravagant expenditure of assets prior to thedissolution of the fund. During the periodbetween proposed inactivation and actualclosing, disbursements will be limited to normalessential expenses, future commitments canceled,and the contractual agreements canceled orrenegotiated when necessary. Theseresponsibilities and procedures will apply also inthe event a fund is dissolved for reasons otherthan inactivation of an accomplished: Applicabledetailed liquidation procedures for exchanges arecontained in the Navy and Marine Corps

Exchange Manuals. Applicable detailedliquidation procedures for morale, welfare andrecreation funds are provided by the programmanager.

A. Question all creditors,past and present, to determine whether anyliabilities exist and accordingly liquidate anyoutstanding payables.

B. Collect all accountsreceivable, or charge off to operating expensesthose found to be uncollectible.

C. Obtain settlement of alltransportation and insurance claims owed to theactivity.

D. Remit final withholdingtax and social security payments and furnishemployees with statements of earnings anddeductions.

E. Convert all Governmentsecurities into cash. (Note: Some Governmentsecurities require time notices beforeredemption.)

F. Advise the depository toforward final bank statement to the applicableprogram manager, cognizant auditor, or otherdesignated authority, as appropriate.

G. Perform a terminal auditof the activity.

C030802 Time Period. Within 60 dayssubsequent to receipt of notification to whichreference is made in C030801 above, alloutstanding payables will be liquidated andmonies remaining forwarded as directed by theprogram manager.

C030803 Disposition of Property andRecords. Upon the disestablishment of anactivity the property and records thereof will bedisposed of in the following manner unlessotherwise prescribed by the program manager:

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A. Merchandise may be soldto other activities or returned to vendors forcredit, if possible.

B. Transfer merchandiseand property to other activities as prescribed bythe program manager. Receiving activities willbe responsible for payment of all expensesincident to packing, crating, and movements ofmerchandise of property.

C. All records and relatedcorrespondence remaining after the terminalaudit will be forwarded to the major claimant forsubsequent forwarding to the nearest FederalRecords Center.

C030804 Final Disposition of ResidualAssets. Upon final dissolution, all residualassets which remain after the transfer of moniescited above, including proceeds from sale ofproperty and merchandise, will be forwardedpromptly by check as directed by the applicableprogram manager. Residual assets will beaccompanied by a certified copy of the terminalaudit of funds and, if appropriate, by notation ofcorrective actions taken hereon. Fixed assetdisposal entries are normally based on the bookvalues existing at the close of the last month ofbusiness operations for the dissolving NAFI andnot the last month of the NAFI’s existence as afiscal entity, ie., a fixed asset is not depreciatedover the final accounting periods required forliquidation and closing if normal businessoperations have ceased and the fixed asset is nolonger being used or providing service.

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CHAPTER 4

UNIFORM CHART OF ACCOUNTS

C0401 GENERAL

C040101 Uniform Chart of Accounts.

A. This Chapter establishesa uniform chart of accounts for recordingtransactions of all nonappropriated funds withinthe Department of the Navy with exception ofthose accounted for by the Navy and MarineCorps Exchange Systems. All NAFIsparticipating in the (RAMCAS) shall use thechart of accounts listed in the RAMCAS UsersHandbook. All classes of transactions arenormally first entered in books of original entryand subsequently posted to the ledger accounts.

B. Each type of accountcoding is listed, described, and categorized inparagraphs 401 and 402. Subclassifications maybe established where needed provided all suchsubclassifications are standardized at theprogram manager level.

C040102 Schedule of Accounts.

A. To classify the accountsin an orderly manner in accordance with adefinite plan for control of operations andfacilitate analysis of operating results, a series ofthree digit account numbers has been assigned tothe following major classifications appearing inthe general ledger.

Account Categories

Series Category

100 Assets200 Liabilities and Net Worth300 Sales Income400 Cost of Sales500 Activity Income600-700 Operating Expenses800 Other Income900 Other Expense

C0402 U N I F O R M C H A R T O FACCOUNTS. General ledger accounts will benumbered and titled to conform to the belowUniform Chart of Accounts. These accounts arenumbered in such a manner as to provide for theuniform addition of subaccounts by programmanagers. For example, account 100 Cash canbe expanded with 101 Concentration BankAccount; 108 Imprest Bank Account-Payroll; 114Petty Cash; etc. Program managers will alsoassign two-digit individual Activity/DepartmentCodes to asterisked accounts so that they areuniform for each morale, welfare, and recreationprogram category. Some activities will needonly a minimum number of accounts to maintaintheir records in an adequate manner, whereas,large funds may necessarily need to augment thenumber of accounts listed. Program managersmay assign additional detail accounts nototherwise prescribed by this handbook that areconsistent with its accounting policies. Requestsfor approval of any deviations will be submittedto the DFAS-HQ via the appropriate programmanager.

ASSETS

CURRENT:

100 Cash

120 Investments130 Inventories

*150 Receivables160 Prepayments

NON-CURRENT:

170 Fixed Assets

171 Vehicles/Aircraft173 Furniture, Fixtures, and

Equipment175 Buildings and Facilities177 B u i l d i n g a n d F a c i l i t i e s

Improvements

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178 Construction in Progress

180 Accumulated Depreciation

181 Vehicles/Aircraft Depreciation183 Furniture, Fixtures and

Equipment Depreciation185 Buildings and Facil it ies

Depreciation187 B u i l d i n g a n d F a c i l i t y

Improvements Depreciation

190 Other Non-Current Assets

LIABILITIES AND NET WORTH

CURRENT:

200 Accounts Payable210 Salaries and Wages, Personnel

Benefits and Taxes Payable230 Allocations240 Loans Payable250 Unearned Income260 Other Current Liabilities

LONG-TERM:

270 Loans Payable (Long Term)280 Other Long-Term Liabilities290 Net Worth291 Net Worth Beginning of Fiscal

Year293 Net Income (Loss)295 Transfers In297 Transfers Out299 Distributions

INCOME AND EXPENSES

SALES INCOME:

*300 Sales Revenue*310 Sales Returns and Allowances

COST OF SALES:

*400 Cost of Sales

ACTIVITY INCOME:

*500 Participation Fees and ChargesRevenue

530 Dues and Assessment Revenue550 Mission Support Revenue560 Distribution Revenue590 Concessionaire Revenue

OPERATING EXPENSES:

*600 Salaries and Wages*620 Personnel Benefits*640 Utilities and Rents*660 Communications*680 Maintenance and Repair (incl.

Minor Construction)*700 Supplies and Equipment

(Expense Type)*720 Transportation of Persons*730 Transportation of Things*740 Common Services*760 Depreciation*780 Other Operating Expenses

OTHER INCOME:

800 Interest Income810 Miscellaneous Income890 Extraordinary Income

OTHER EXPENSES:

900 Interest Expense910 Miscellaneous Expense950 Late Payment Penalty Expense990 Extraordinary Expense

CLEARING ACCOUNT:

999 Profit or Loss Clearing Account

* R e q u i r e s 2 - d i g i t i n d i v i d u a lActivity/Dept. CodesUse Code 99 for G&A Indirect Expenses.

C0403 DESCRIPTION OF GENERALLEDGER ACCOUNTS

A. This paragraph describesthe accounts within the General Ledger structureand explains the purpose for which each typeaccount is normally used. Accounts herein are

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described only to a three-digit level. Programmanagers may assign and describe additionalspecific detail accounts not otherwise prescribedby this appendix.

100 CASH. This series of debit balance assetaccounts is used to record cash balances, such aschecking accounts; savings accounts; petty cash;change funds; etc. Accounts maintained inforeign currencies must be converted toequivalent U.S. dollars for financial statementreporting purposes.

120 INVESTMENTS. This series of debitbalance asset accounts is used to show the valueof temporary interest bearing investments, suchas certificates of deposit; federal securities; etc.;that will be converted back into cash within oneyear. Supporting securities registers will bemaintained to record details as to cost, purchasedate, yield, maturity date, and other pertinentinformation.

130 RECEIVABLES. This series of debitbalance asset accounts is used to record amountswhich are owed to an activity and are expectedto be collected within one year, such as accountsreceivable-customers; accounts receivable-dues;accounts receivable-returned checks; commutedrations; etc. Subsidiary ac counts identifyingamounts owed by individual debtors aremaintained in support of these control-typeaccounts. When receivables are subsequentlypaid, this series of accounts is credited and cashrecorded in the appropriate 100 series ofaccounts.

150 INVENTORIES. This series of debitbalance asset accounts represents the monetaryvalue of various types of merchandise on hand.The balance of warehouse/central storeroomcontrol accounts must be in agreement withdetail stock record cards. Differences betweencontrol totals in these central accounts andofficial physical inventories are adjusted toinventory shortages/overages accounts asGeneral & Administrat ive expenses(Activity/Dept Code 99). Retail inventoryaccounts will be identified with programmanager assigned 2-digit Activity/Dept codesuniform within the MWR category. Depart-

mental inventory account overages/shortages areadjustment to cost of sales accounts.

160 PREPAYMENTS. This group of debitbalance asset accounts is used to record theunused or unexpired portion of items other thanfixed assets whose benefit extends beyond thecurrent accounting period such as prepaidsupplies; prepaid insurance; advances; etc.

179 FIXED ASSETS. This series of debitbalance asset control accounts is used to recordthe cost value of fixed assets of durable or costlynature that have been purchased withnonappropriated funds. Detail property recordcards will be maintained for each asset item insupport of the value of these accounts.(Excepting Acct. 178). Designated accounts (171-177) group assets into depreciable life spangroupings (See para. 572). Account 178 is used toaccumulate the capitalized value of constructionin progress until an item is financially complete.The value is the transferred to account 175 or 177as appropriate.

180 ACCUMULATED DEPRECIATION.This series of credit balance control assetaccounts is used to record the total accumulateddepreciation on the assets recorded in the 170series of accounts to show their diminished valuedue to usage, obsolescence, or passage of time.These accounts are credited with the amount ofdepreciation charged to operations during anaccounting period.

190 OTHER NON-CURRENT ASSETS. Thisseries of debit balance asset control accountsincludes interest bearing investments that will beconverted back into cash for more than a yearand other receivables owed to an activity but notdue or collectible within one year. This series ofaccounts also includes investments established tofund reserves for acquisitions to be made morethan a year in the future. Subsidiary accounts orregisters will be maintained in support of thesecontrol accounts.

200 ACCOUNTS PAYABLE. This series ofcredit balance liability control accounts is used torecord amounts owed trade creditors ororganizations for goods or services received

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which will be paid within a year in the normalcourse of business. Also included are accountsfor customer security deposits; payables dueemployees; collections due U.S. Treasury;assessments payable (e.g., on slot machines); etc.At the end of each accounting period supportingschedules and subsidiary ledger accounts will bereconciled to these accounts.

210 SALARIES AND WAGES, PERSONNELBENEFITS, AND TAXES PAYABLE. This seriesof credit balance liability accounts is used torecord the amounts for salaries, wage, andannual leave earnings of employees that havebeen accrued but not paid at the end of anaccounting period. Accrued payroll and leaveschedules will be prepared to support entries tothese control accounts. Also included areaccounts used to record accrued payroll relatedexpenses such as taxes withheld or otheramounts deducted from employees wages to payfor a variety of benefits. Employer contributionsowed for any of these taxes or programs areincluded in the appropriate account with theemployee portion.

230 ALLOCATIONS. This series of creditbalance liability accounts is used to record theamount of monies held but available to bedrawn upon by another activity such as for theuse of units which are not authorized tomaintain separate recreation funds. The value offunds allowed to activities is credited to theseaccounts with a debit to prepaid expenses andindividual account amounts are supported bysubsidiary records. As expenditures are made,by/or in behalf of the units, cash is credited andthese accounts and the supporting subsidiarybalances are decreased. An equal portion of thedeferred (prepaid) expense is credited and anapplicable program expense account is charged.

240 LOANS PAYABLE. This series of creditbalance liability accounts shows the amountsowed on loans and notes which will be paid infull within one year. For payables with terms ofmore than a year, only the portion to be paid inthe current year will be recorded in theseaccounts and the remainder of the liability willbe recorded as a long-term payable in the 270account series.

250 UNEARNED INCOME. This series ofcredit balance liability accounts is used to recordamounts of dues, deposits, or other collectionsaccepted in advance but not yet earned. Asamounts are earned, they are transferred to anincome account. Subsidiary records aremaintained to determine the source ofprepayments and when amounts will becomeearned.

260 OTHER CURRENT LIABILITIES. Theseaccounts are used to classify and record amountsof other current short-term payables notcategorized or described by any of the abovespecified liability accounts (e.g., bonuses).

270 LOANS PAYABLE (LONG TERM). Thisseries of credit balance liability accountsrepresents the amount owed on loans and noteswhich are not due to be paid within one year.The portion of any of these payables that is to bepaid within one year will normally be recordedas a current liability in an account in the 240series.

280 OTHER LONG-TERM LIABILITIES.These accounts are used to classify and recordamounts of long-term payables other than loans,such are retirement and severance allowances;unearned income/dues; advance collections; etc.

290 NET WORTH. This account series islimited to the recording of retained equity; netincome (loss); entries associated withestablishments, disestablishments, orconsolidations of funds; and the distribution ofcapital (dividends/distributions) by Category C-Business Activities. The periodic closing of thenominal accounts (300 through 900 series ofaccounts) is made to account 293.

300 SALES INCOME. This series of creditbalance income accounts is used to recordrevenues earned from the sale of merchandise.Two-digit individual Activity/Department codesare maintained for each retail activity/function(such as dining, hobby shop, bar, wine sales,etc.) with related cost of sales accounts in the 400series, related inventory accounts in the 150series, and related direct expense accounts in the600-700 series; suffix codes 00 through 98. Sales

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returns are recorded separately in the 310account and not netted against the 300 salesrevenue account for fuller disclosure of grossand adjusted sales revenue.

400 COST OF SALES. This debit balanceaccount is used to record the cost of resalemerchandise sold. Separate two-digitActivity/Department codes are maintainedrelating to each resale income account in the 300series. The cost of free meals furnished toemployees will not be charged to cost of goodssold but charged as either a direct or G & Aexpense in the 620 account series.

500 PARTICIPATION FEES AND CHARGESREVENUE. This series of credit balance incomeaccounts is used to record use, rental,participation fee, or admissions revenue forvarious sports, recreation or other programservices. Separate suffix accounts are assignedwith related direct expense accounts in the 600-700 series.

530 DUES AND ASSESSMENT REVENUE.This series of credit balance income accounts isused to record revenues derived frommembership dues and interfund assessmentslevied on particular activities (such as apercentage of slot machine or mess sales/profits,consolidated accounting offices revenue earnedthrough the performance of services, etc.)

550 MISSION SUPPORT REVENUE. Thisseries of credit balance income accounts is usedto record revenues earned from the performanceof appropriated funded mission responsibilities(janitorial services for common areas, etc. whichare other than reportable morale, welfare, andrecreation support costs by appropriated funds).

560 DISTRIBUTION REVENUE. This seriesof credit balance income accounts is used torecord regular recurring revenue derived by adistribution or transfer from other units (such asexchange profit distributions, cafeteriaallocations, package store profits) and/or centralfund transfers or grants to field activities. It isdeemed to be income to the recipient as distinctfrom amounts (such as initial establishment

capitalizations) creditable as direct increases tonet worth in the 290 series of accounts.

590 CONCESSIONAIRE REVENUE. Thisseries of credit balance income accounts is usedto record revenues earned from concessionaireagreements of sales functions contracted out viceperformed in-house, such as tour desk, ticketservices, cafeteria concessions, etc.

600-799 OPERATING EXPENSE. These debitbalance expense accounts are used to record bytype the direct and/or indirect nonappropriatedfund costs of operations (based upon the natureof the services, articles, or other items involved).They parallel appropriated fund classificationsand definitions described in DODI7000.12(series), Financial Management of Morale,Welfare, and Recreational Activities and arestructured to meet its reporting requirements.These accounts require the use of two-digit suffixcodes 00 through 98 for identifying them asdirect activity/department operating expenses.Suffix code 99 is assigned to identify indirect(G&A) operating expenses within these seriesclassifications. Where expenses can be identifiedto a particular activity/department, they must berecorded as a direct expense.

600 SALARIES AND WAGES. This seriesincludes the NAF cost of personnelcompensation such as regular salaries andwages, overtime pay, severance pay, differentialsfor service abroad, and contract labor. (Excludescosts that are reported under another expensecaption e.g., maintenance and repair labor).

620 PERSONNEL BENEFITS. This seriesincludes payroll related costs of benefits andemployer contributions for payroll taxes lifeinsurance/health insurance/retirement contri-bution costs, awards, employee meals, cost ofliving allowances, relocation expenses ofemployees, etc.

640 UTILITIES AND RENTS. This seriesincludes the cost of heat, light, power water, gas,electricity, steam and other utility servicesexclusive of transportation and communicationsservices. Includes rental of equipment (excepttransportation equipment) and rental of real

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property and charges under Purchases RentalAgreements for equipment prior to the time thatthe title to the equipment is acquired.

660 COMMUNICATIONS. This seriesincludes charges for the transmission ofmessages, postal charges, (other than parcelpost), messenger service, teletype service andtelephone service including installation chargesand use of telephone instruments andswitchboards.

680 MAINTENANCE AND REPAIR (INCL.MINOR CONSTRUCTION). This series includesexpenses for the maintenance and repair ofequipment, facilities, and real propertypurchased through commercial contracts or basecivil engineers. Maintenance and repairperformed in-house will include direct labor andmaterials. Overhead allocation for G&A expense(supplies, miscellaneous materials, equipmentusage) will only be allocated where such isnecessary to prevent a gross underestimation ofmaintenance and repair costs. Minormaintenance and repair not separately identifiedas a maintenance and repair expense need not beallocated to this expense element series as longas such costs are included under other expenseseries of accounts (such as salaries, supplies,etc.). Minor construction costs are expensed inthese accounts only if less than amounts to becapitalized and reported in the Fixed Assetsseries of accounts.

700 S U P P L I E S A N D E Q U I P M E N T(EXPENSE TYPE). This series includes costs(other than significant maintenance and repairsupplies) of operating supplies (e.g., china,glassware, silver, linens, uniforms, and kitchenutensils), equipment, printing and duplicating,and materials ordinarily consumed in use, suchas sports gear, office supplies, fuels, punchedcards and checks, subscriptions, hand tools, etc.Includes expensed materials used to form aminor part of equipment or fixed property (suchas repair parts).

720 TRANSPORTATION OF PERSONS.This series includes charges (such as commercialtransportation fares, rental cars fees, per diemallowances, mileage allowances, tolls, charges for

use of passenger carrying vehicles, etc.) fortemporary duty (TDY) and permanent change ofstation (PCS) travel and subsistence for travelersconducting MWR program functions.

730 TRANSPORTATION OF THINGS. Thisseries includes charges (such as those commoncarriers, parcel post, drayage, cartage,transportation of PCS household goods, rentalsof truck and transportation equipment, etc.) forthe transportation of things and for the care ofsuch things while in the process of beingtransported for MWR programs (Where feasiblesuch freight-in costs should be included inResale Inventory or Fixed Assets accounts).

740 COMMON SERVICES. This series ofexpenses includes charges received from MWRSupport Service Offices by any other benefitingcategory MWR for such services as accounting,procurement, personnel support, etc.

760 DEPRECIATION. This series includesthe annually expiring cost value of fixed assetscapitalized in the 170 account series. Expensescharged to these accounts are aligned to thevarious 180 series of accounts - AccumulatedDepreciation.

780 OTHER OPERATING EXPENSES. Thisseries includes all other charges for direct orindirect operating expenses not classifiable inany of the above 600-779 series of accounts (e.g.,inventory shortage/overages, spoilage,uncollectible accounts, advertising, insurancepremiums, etc.).

800-890 OTHER INCOME. These creditbalance accounts are used to record sundry andextraordinary income gained from exceptionalnonrecurring nonstandard business operationsand not recordable as operating income (e.g.,interest income, insurance proceeds, cashoverage, bonus merchandise, gains ondisposition of fixed assets, income frominstallation sale of recyclable materials, etc.).

900-998 OTHER EXPENSES. These debitbalance accounts are used to record sundry andextraordinary expenses not recordable as director indirect operating costs (e.g., lawsuit losses,

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fines, cash shortages, losses on disposition offixed assets, etc.).

999 PROFIT OR LOSS CLEARINGACCOUNT. This account is used to accumulateall revenues and expenses for the purpose ofdetermining the net profit/net loss for anaccounting period. After all revenue andexpense accounts (nominal accounts) have beenclosed to this account the final balance istransferred to account 293. A credit balancerepresents a net profit for the period and a debitbalance represents a net loss for the period.

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CHAPTER 5

PROCEDURES

C0501 TAXES

C050101 General. Taxable wagesgenerally consist of all earnings (regular,overtime, service charges, and reported tips) byan employee for services performed for hisemployer. Managers should obtain each year acopy of "Employer’s Tax Guide, Circular E", andcomply with applicable provisions thereof.Other helpful information may be found in thepublications "Your Federal Income Tax" and "TaxGuide for Small Business." These publicationscan be obtained from the Internal RevenueService. Copies of circular covering state incometaxes should also be obtained from appropriatestate authorities.

C0502 FEDERAL TAXES

C050201 Reporting And Remittance.Reporting and remittance of Federal taxes will beas prescribed by the Director of InternalRevenue.

A. Federal IncomeTaxes - Withholding. Withholding taxes arebased on the rate established by the InternalRevenue Service and are published in the"Employers Tax Guide, Circular E." Federalincome tax will be withheld fromnonappropriated funded compensation ofcivilian and off-duty military personnelemployees in conformance with the InternalRevenue Code.

B. Social Security Tax. TheFederal Insurance Contributions Act (FICA) taxon wages, imposed by section 3101 of theInternal Revenue Code, will be deducted fromthe wages of civilian and off-duty militaryemployees; and the excise tax imposed by

section 3111 on employers will be paid on suchwages as follows:

1. Within CONUS,Alaska, Hawaii, Puerto Rico, and the U.S. VirginIslands - on wages of all civilian employeesirrespective of their citizenship.

2. Within otherareas - on wages of civilian employees who arecitizens of the United States.

3. Deduction willbe made from the wages of military personnelemployed during off-duty hours.

4. Sickness or injurypayments made under worker’s compensationlaw or contract insurance or certain employerplan are exempt from Social Security tax. In theabsence of an employer’s sick pay plan,payments will not be exempt from SocialSecurity tax until the lapse of six calendarmonths subsequent to the last calendar monththe employee worked for the employer.Applicable rates and computation tables arepublished in NAVCOMPT Manual, Volume 3Chapter 3, and "Employers Tax Guide, CircularE." Provisions must be made to discontinuedeductions when the maximum annualdeduction amount has been reached.

5. Social Securitytaxes should be withheld from the pay ofNonappropriated Fund Instrumentalityemployees for periods during which they are onsick leave.

C. Federal UnemploymentTax Act - FUTA. It has been determined thatemployees of Navy paid with nonappropriatedfunds are considered employees of the Navy forunemployment compensation and are covered byTitle XV of the Social Security Act as amended 1September 1954 (42 U.S.C. 1361 et seq.).Accordingly, filing unemployment tax returnsand the payment of unemployment taxes areunnecessary. (See Appendix B concerning theFederal Unemployment Compensation Programfor nonappropriated fund paid employees.)

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D. Meals, Lodging andOther Facilities. The fair cost of furnishingemployees with meals, lodging, or other suchfacilities, for the convenience of the employeeswill be considered paid to the employees forpurposes of Federal income, FICA, and FUTAtaxes. Conversely, the fair cost of furnishingemployees such facilities for the convenience ofthe employer will not be considered wages paidif:

1. In the case ofmeals, they are furnished on the businesspremises of the employing NAFI, and

2. In the case oflodging, it is furnished on the business premisesof the employing NAFI and acceptance of thelodging provided is a condition of employment.

E. Federal OccupationalTaxes. Morale, welfare, and recreation entitieslocated in the continental United States, Alaska,and Hawaii are subject to the followingoccupational taxes imposed by the InternalRevenue Code. (For the purpose of these typetaxes, each category of MWR activity on aninstallation is subject to the followingoccupational taxes irrespective of the number ofoperational locations on the installation.)

1. The tax on awholesale dealer in beer, imposed by section5111(b).

2. The tax on awholesale dealer in liquor, imposed by section5123.

3. The tax on aretail dealer in beer, imposed by section 5121(a).

4. The tax on aretail dealer in liquor, imposed by section5121(a).

5. The tax on fuel,imposed by section 4041

6. The tax on heavytrucks, imposed by section 4051

7. All other excisetaxes that may be imposed as a result of changesto applicable tax laws.

C0503 STATE, TERRITORIAL, ANDLOCAL TAXES

C050301 Immunity. Morale, welfare, andrecreation activities of the Navy Department areentitled to immunity from the taxes of states, theDistrict of Columbia, territories and possessionsof the United States, the Commonwealth ofPuerto Rico, and political subdivisions thereof.

C050302 Income Taxes Withheld FromCivilian Employees. Income taxes of states andterritories will be withheld from thecompensation of all civilian employees whoseregular place of employment is within the stateor territory, when an agreement exists betweenthe Secretary of the Treasury and the state orterritory made pursuant to the Act of 17 July1952 (66 Stat. 765, 5 U.S.C. 84b, 1952 (17 Fed.Reg. 10131). Upon the request by, andauthorization of, a civilian employee nototherwise subject to withholding of pay underthese agreements, voluntary withholding ofincome tax may be made in favor of the state ofresidence if that state has entered into such awithholding agreement.

C050303 Income Taxes Withheld FromOff-Duty Military. State income tax must bewithheld from off-duty military employees forthe state in which the MWR activity is located.State and local income tax withholding for activemilitary duty will be in accordance with the DoDPay Manual.

C050304 State W-2. Copy of the W-2 willbe filed with the state indicating taxable wagespaid.

C050305 Requests for Rulings. Requestssubmitted to federal, state, territorial, or localauthorities, such as pertaining to requests forrulings, interpretations of tax law, and advice asto procedures in tax matters, shall be cleared viaofficial channels with the applicable programmanager. Routine inquiries, for tax forms, filingdates, and such general information that do not

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affect determination as to particular applicabilityor construction of tax laws in conjunction withNavy activities may be made directly to the localInternal Revenue Office and need not be clearedvia the program manager unless so directed. Instates where applicable, personal income taxeswill be withheld and submitted as required bythat state’s law except as noted above.

C050306 Provisions of 4 U.S.C. 5104.Taxes of a state, the District of Columbia, or aterritory of the United States upon, or measuredby sales, purchases, storage, or use of gasoline orother motor fuels will be collected and paidaccording to the provisions of 4 U.S.C. 5104.

C050307 Enforcement. Commandingofficers will prescribe and enforce necessarycontrols, including reasonable quantitylimitations where appropriate, to insure thatrestrictions and limitations governing the saleand disposition of state tax-free items are strictlyobserved. Commanders will cooperate withstate tax officials; will investigate all complaints;and will take prompt and appropriate correctiveand disciplinary action with respect to anyviolation or abuse of the tax exemption privilege.

C050308 Report To State or LocalGovernment. State tax office copies of theInternal Revenue Service Form W-2 will besorted into groups as determined by theresidence address of the employee andforwarded with a letter of transmittal to theappropriate address furnished in NAVCOMPTManual, Volume III, paragraph 033010. Inaddition to the taxing authorities listed, navalactivities are authorized to furnish withholdingstatements to any other city or taxing jurisdictionwhich requests such information provided suchcity or taxing jurisdiction is actually levying atax on income and provided that the city ortaxing jurisdiction will furnish a copy of itsordinance to the activity so it can be determinedwhether or not any employees are liable fortaxes. When an employee is a resident of a statein which compensation for personal services issubject to income tax and is also subject to a taxlevied by a city, county, or other taxing unit,extra copies of the Internal Revenue ServiceForm W-2 should be prepared for the use of the

taxing units. These instructions are not to beconstrued as constituting a legal interpretationby the Navy Department of an employee’sresidence for purpose of taxation. The State TaxOffice Copy of the W-2 form covering employeesresiding in a state, city, or any other taxingjurisdiction not listed nor otherwise requestingsuch information will be destroyed.

C0504 FOREIGN TAXES Activitieslocated in foreign countries, including occupiedareas and the Trust Territory of the PacificIslands, will not pay to, nor collect for, anyforeign country or political subdivision any taxunless the United States has consented to suchlevy collection by treaty, convention, or executiveagreement.

C050401 Federal Income Taxes RelatingTo Guam Or The Northern Mariana Islands(NMI).

A. General.

1. Guam: 48 U.S.C.1421h provides that Federal income taxeswithheld from the compensation of employees ofthe U.S. Government employed in Guam shall bepaid to the government of Guam.

2. Northern Mari-ana Islands (NMI): 48 U.S.C. 1681 note (P.L. 94-241, Section 703(b)) contains provisionsapplicable to NMI which are similar to those forGuam.

B. Defining Income TaxesDerived from Guam or NMI. The term "Federalincome taxes" is interpreted to include theFederal income taxes imposed upon thecompensation of civilian and military personnelof the U.S. Government for services performed inGuam, or NMI. This include the Federal incometaxes imposed upon the compensation of thosewho are employed on a part-time basis.

C. Certifying of FederalIncome Taxes Creditable to Guam. Alldepartments and agencies of the FederalGovernment and service and social organizationsassociated with a military or civilian morale,

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welfare, and recreation entity, having Federalcivilian or military employees stationed in Guamor NMI, must certify each calendar quarter thetotal amount of Federal income taxes withheldfrom salaries or such employees, to theCommissioner of Internal Revenue, Attn:TX:R:R, Washington, D.C. 20224. Separatecertifications will be required for taxes creditableto Guam and those creditable to NMI. Thecertification(s) may be in the form of a letter,citing as authority for the certification(s) Section3-4085 of the TFRM (I TFRM 3-4000) andidentifying the certifying entity, the employeridentification number, the calendar quartercovered by the certification(s), and the dollaramount withheld. The certification(s) should besubmitted as soon as possible after the close ofthe calendar quarter but not later than the end ofthe month after the close of the calendar quartercovered by the certification(s). The amountshown in the certification(s) must agree with theamount of income tax withheld included in thequarterly Federal tax return of the employer(Form 941).

C0505 T A X R E P O R T I N GPROCEDURES

C050501 Negotiations With TaxingAuthorities. Except as consistent with the aboveparagraphs, all matters involving the attempt toimpose taxes upon, or require collection frommorale, welfare, and recreation activities by theFederal Government, a state, the District ofColumbia, a territory or possession of the UnitedStates, the Commonwealth of Puerto Rico, aforeign nation, or any political subdivisionthereof, will be reported through appropriatechannels in detail prior to payment or collectionto either The Judge Advocate General or TheOffice of the General Counsel as appropriate.Negotiations with taxing authorities will not beconducted by any Department of the NavyPersonnel without the express authorization ofthe Judge Advocate General or The Office of theGeneral Counsel as appropriate.

C050502 1099 Requirement. Activitiesmaking payments under personal servicescontracts aggregating $600 or more to anyoneother than a corporation during a calendar year

will report the aggregate amount paid, the name,address, and the social security account numberof the recipient of such payments on IRS Form1099. Contracts with entertainers are within thedefinition of a personal services contract. If anemployee, to whom wages or salaries are paidand reported on IRS W-2, also engages in apersonal services contract with his employingactivity and receives compensation under suchcontract, it is the responsibility of the activity toreport on IRS Form 1099 the total of suchcontractual payment (even though less than$600) if the combined total of the wages and thecontract compensation was $600 or more in thecalendar year.

C050503 P r i z e s a n d / o r A w a r d s .Individual prizes and/or awards which total$600 or more will be reported on IRS Form 1099.One-game winnings of $1200 or more from abingo game or slot machine will be reported onIRS FORM W-2G.

C050504 IRS Forms 1096, W-2G, and 1099.Returns made on IRS Forms 1096, W-2G, and1099 for a calendar year will be filled on orbefore 28 February of the following year with theappropriate Internal Revenue Center. In addition,a copy of IRS Form 1099 and W-2G will be sentno later than 31 January of the year followingpayment by the activity to the individual whorendered services or received awards orwinnings.

C050505 Collection, Reporting andPayment. Managers must collect, report, andpromptly pay all taxes required by law whendue.

C0506 CASH

C050601 General. Cash includes: pettycash funds, change funds, bank accounts, andcash receipts. Purpose, policy, and procedure foruse of cash are set forth in this part. Cashreceipts are covered in paragraph C050702 of thischapter.

C050602 Petty Cash Fund.

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A. Imprest Fund. Where avolume of small cash purchases is necessary, apetty cash fund operated under the imprestmethod may be established to be used for smallpayments, not to exceed $150 for any onetransaction ($300 for emergency conditions).Petty cash funds shall not be used for paymentof employee’s or entertainer’s wages. All otherpurchases shall be processed using purchaseorders or contracts. Splitting of purchases tocircumvent the limitation is prohibited. Thecommanding officer will authorize in writing theestablishment of this fund, if needed, and specifythe amount authorized. The manager willdetermine the Individual responsible for thepetty cash fund.

B. Reimbursement. Theamount of cash on hand plus the total ofauthorized paid petty cash vouchers mustalways equal the amount shown in the pettycash fund account. For example, the petty cashfund has been established in the amount of$200.00. The fund is inspected at month endand $151.25 in cash and vouchers totaling $48.75are found. To reimburse the petty cash fund acheck for $48.75 would be written. Thus, at alltimes cash or cash plus vouchers will equal$200.00. Before reimbursement is made, thevouchers are examined and it is determinedwhich expense accounts are to be debited. Ifexpenditures were made for minor repairs$20.75, supplies $8.00, and miscellaneous expense$20.00, the following entry would be required:

680-XX Maintenance and Repair $20.75700-XX Supplies 8.00780-XX Other Operating Exp 20.00

100 Cash $48.75

NOTE: The credit goes to cash, not to pettycash.

C. Establishment. Establish-ment of this fund and replenishment thereof willbe made by checks drawn on the regularchecking account. The individual responsible forthe petty cash fund will obtain signed receiptsfor all funds advanced. No disbursement will bemade from the petty cash fund without a

supporting voucher approved by a responsibleofficial and signed by the person receiving thecash. To prevent alteration, these vouchersshould be typewritten, or made out inpermanent ink, dated, and the amount writtenout in full in words, i.e., ten dollars, not $10.00.Each petty cash voucher will indicate the natureof the expense and be supported by vendor’sreceipts or invoices where appropriate.

D. Vouchers. Petty cashvouchers will be prenumbered in sequence. Thisfund will be reimbursed as of the last businessday of each accounting period and at any othertime when necessary. At the time ofreimbursement, the petty cash vouchers shall beexamined for possible evidence of fraud andcanceled by perforation, date stamp, or someother satisfactory manner so as to prevent theirpossible reuse.

E. Commingling. Cashreceipts shall never be commingled with thepetty cash fund.

C050603 Change Fund.

A. Authorizations. Thecommanding officer will authorize in writing theestablishment of each fund, if needed, specifyingthe amount authorized. The individualresponsible for each fund will be determined bythe manager and designated in writing,specifying the amount each individual isresponsible for. The establishment of the changefund will be by check. This fund is establishedprimarily for the purpose of making change.With proper documentation, it may be used toissue refunds. Other expenditures from changefunds are prohibited. Should the commandingofficer authorize cashing of checks from thechange fund, the following information will beplaced on the checks: name, rank, currentaddress, social security number, organization,and telephone number.In the case of membershipactivities, (and for members only not guests) theabove information is not required on each checkif already on file within the activity. If theperson cashing the check is a dependent, theinformation should be given on the sponsor. Asrequired by the Privacy Act, of 1974, any request

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made to an individual for disclosure of a socialsecurity number or other personal informationmust be accompanied by a privacy act statementat all check cashing locations consistent with thefollowing:

"Note to check cashiers: disclosure of socialsecurity number and other personal informationis mandatory if you wish to cash a check. Allinformation furnished will be used to identify, tothis activity, writers whose checks have beenreturned unpaid. Request for this information ismade pursuant to the authority of Title 5, U.S.C.,Section 301 and Title 10, U.S.C., Section 5031."

B. Establishment, Operation,Disestablishment. The manager provides eachactivity cashier with a separate fixed amountchange fund and obtains a signed receipt induplicate from the custodial cashier. When theactivity cashier is reassigned or relieved, thecustodian returns the change fund and obtainsthe original of his receipt. To preclude dailyturn-in of change funds, a locked box in whichto store change until the next duty day may beprovided. When this procedure is used, thelocked boxes containing cash should be stored inthe activity’s safe.

C. Employee Checks .Employee checks, including payroll checks, willnot be cashed by the issuing activity exceptwhen the employee is utilizing the activity as anauthorized patron.

D. Change Fund Balance.In keeping with the principle that the place forexcess cash is in the bank, the change fundshould be in the absolute minimum amountsufficient for normal operations.

E. Audit. The entirechange fund must be available for audit and/orverification at all times.

C050604 Cash Counts.

A. Daily Verification. Allfunds and cash receipts must be verified daily.Surprise counts of all cash receipts and funds incustody of cashiers will be made on a periodic

and at least quarterly basis (the designee must beindependent of the cash function). This includespetty cash, change funds, and all cash receiptsfor deposit on hand. This count will beaccomplished during duty hours while the fundis in operation and the cash counted reconciledto the applicable general ledger accounts and thedaily activity records. Any checks included insuch surprise counts shall be deposited by thecounter or under his supervision. The bankshould be requested to notify the counterdirectly if any such checks are returned forinsufficient funds.

B. Surprise Counts. Thisrequirement does not preclude additionalsurprise cash counts by disinterested personnelas may be prescribed by the program manageror the commanding officer.

C. Certification. A datedand signed certification of each cash count willbe kept on file for at least one year to attest thefact that this requirement was accomplished.

C050605 Bank/Credit Union Accounts.

A. Purpose. Accounts witha local bank or credit union are primarilyestablished for depositing daily receipts, makingdisbursements by check and obtaining change.

B. Policy. Local accountswill be established where necessary for eachactivity in accordance with policies andstandards prescribed by the program managerand in accordance with this handbook. Theseaccounts will be carried in the name of theactivity. Activities are permitted to openchecking accounts with financial institutions thatdo not return canceled checks.

C. Deposits. All cashreceipts will be deposited daily in the bank.Where authorized, refunds and cash prizes maybe made from change funds or cash receipts ifproper safeguards are instituted with properdocumentation. Weekend and holiday receiptswill be deposited daily when there is access to anight depository, or if no night depository on thenext first business day. Daily activity records

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will be prepared daily to substantiate anydeposit. When the amount to be deposited isless than $100 or exception is authorized by theprogram manager, an activity is permitted todefer the deposit of such small amounts until theamount to be deposited reaches $100. However,all undeposited receipts will be recorded atmonth end and be deposited on the last businessday of the accounting period. In these cases,only one deposit slip is necessary. The regulardeposit slips furnished by banks will beprepared for all deposits made. The activityidentification will be indicated on each depositslip. The original of the deposit slip will beretained by the bank. The duplicate, properlyvalidated by the bank teller, will be returned andattached to the daily activity records.

1. R e m o t eLocations. In instances where the location of thedepository precludes daily deposits, agovernment check will be obtained from thelocal disbursing officer or arrangements made topurchase money orders from the nearest U.S.Post Office in exchange for cash. The cost ofsuch money orders will be paid from petty cash;not subtracted from the daily deposit amount.

2. AuthenticatedReceipt. An authenticated receipt shall beobtained from the bank for each deposit andshall be retained on file as part of the officialrecords. Normally, this will be a receipted copyof the bank deposit slip, but it may also be aprinted receipt if a machine record system isused by the bank. The receipted copy of thedeposit slip shall be signed by the personmaking the deposit and retained by the activityuntil the deposit slip/receipt, authenticated bythe bank, has been returned and found correct.Cash, or deposits containing cash, shall not beentrusted to anyone for transmittal to banksunless a fidelity insurance bond covers suchrisks.

3. R e c e i v i n gChecks. Each activity receiving checks shallinsure that the following information is placedon personal checks by the person presenting thecheck prior to receiving cash or merchandise:name, rank, social security number, organization,

and phone number. In the case of membershipactivities (and for members only - not guests) theabove information is not required on each checkif already on file within the activity. If theperson cashing the check is a dependent, theinformation should be given on the sponsor.Immediately upon receipt, checks will beendorsed "For Deposit Only to Account of (Titleof Activity)", thereby limiting the negotiability ofthe instruments.

4. Securing Cash.Cash on hand will be kept in locked receptaclesand cash receipts must be physically segregatedfrom petty cash and change funds. Classifiedmaterial or personal property will not be kept insafes with cash.

5. Signed Receipts.Persons entrusted with cash will obtain signedreceipts for funds turned over to other persons.Custodians of cash will be furnished with lockedreceptacles for the safekeeping of the funds andwill be the only persons to have access to suchfunds.

D. Deposits By Mail. Sincecash is not to be deposited by mail, an"Exchange for Cash" check from the localdisbursing officer or money order from the localpost office will be obtained. This check andpersonal checks included in the deposit will belisted individually, as required by the depositslip. Only checks that are payable in U.S. dollarsand drawn on banks of the United States will beincluded in the deposit.

E. Bank Service Charges. Inthe event a bank levies a service charge, thecharge will be debited to a miscellaneous generaland administrative expense account.

F. Returned Checks. Whenthe local bank returns a check, the activity willprepare an entry to show the decrease (credit) inthe bank account and an increase (debit) to thereturned checks account (accounts receivable).The bank should be instructed to mail returnedchecks directly to the activity manager or hisdesignee, who is independent of the cashier andbookkeeping functions. Returned checks that

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remain uncollectible for a 6-month period willbe written off (after the manager is satisfied thatall efforts to collect the amounts have been madeand the commanding officer has approved suchwrite-offs in advance). The general journal entrywill be a debit to a bad debt expense accountand a credit to the returned checks accounts(accounts receivable).

G. Replaced Or RedepositedReturned Checks. When the returned check isredeposited or replaced by cash or a new check,it will be included in the applicable daily depositand reported on the daily activity record as adebit to cash and a credit to the returned checksaccount (accounts receivable).

H. Check Cashing. Theprogram manager will be responsible forprescribing policy for the cashing of checks.Where practicable, arrangements should be madewith banking facilities for automatic redeposit ofchecks returned for insufficient funds the firsttime. Checks returned as nonnegotiable will becharged to an accounts receivable-returnedchecks account until subsequent collection orapproved for write-off by the commandingofficer and/or program manager.

I. C o l l e c t i o n F o rDishonored Checks. All debts arising as a resultof dishonored checks issued to activities orinstrumentalities shall be vigorously pursued bythe activities or instrumentalities which havebeen issued the dishonored checks. Thisvigorous pursuit of the debt must be evidencedby issuing a written demand for payment; byaffording the indebted member the due processrights prescribed by Title 37 USC 1007(c); and byassessing of interest, penalties, andadministrative costs when permitted by law.

1. Debt Collections.In the case of debts owed by active duty andreserve personnel, notification of the member’scommanding officer is also required in mostinstances. The offset of a member’s pay may beundertaken only when all other reasonablecollection action has failed. In those instances,the activity or instrumentality which holds thedishonored check will be responsible for

preparing the forms necessary to effect thewithholding from their pay and for certifying tothe member’s disbursing officer that theprovisions of the Title 37 USC 1007(c) asapplicable, have been fulfilled.

2. Debt CollectionFrom Retirees. In the case of retired and reservemembers, this certification should be made to theNavy or Marine Corps Finance Center, asapplicable. The disbursing officer or financecenter shall be responsible for executing thewithholding and for informing the member ofthe reason for the withholding. Application ofthe proceeds of the charge will be by eithercredit to an appropriation or fund or byremittance of a U.S. Treasury check, dependingupon instructions furnished to the disbursingofficer by the activity or instrumentality.

3. P o l i c i e sregarding Collection of Dishonored ChecksAccepted by Commissaries, Ships’ Stores, andNonappropriated Fund Instrumentalities areprescribed in SECNAVINST 7200.18(series).

C050606 Reconciliation Of Bank/CreditUnion Balances.

A. Monthly Reconciliation.A monthly reconciliation will be made betweenthe checkbook, bank statement, and the generalledger cash account. The reconciliation shouldbe performed by a person who is not a checksigner and who is independent of the cashierand cash recording functions. This personshould receive directly from the bank or creditunion a statement and the canceled bank checksor equivalent listings. The standard procedurefor reconciling a bank account is as follows:

1. Arrange checksin numerical sequence;

2. Compare checksor listings with list of checks outstanding at closeof previous month as shown on thereconciliation statement and with checks issuedduring the month as shown in the cashdisbursement journal, noting all checksoutstanding or issued which are not reported or

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returned. This comparison should include checknumber, name of payee, and amount;

3. List by date,number, payee, and amount, all checks whichhave not been paid by the bank. Stop paymentorders should be filed with the bank, or, otherappropriate action taken on checks outstandingfor more than six months;

4. Determine thatany amounts appearing in the previous month’sreconciliation as deposits not credited by thebank are shown by the bank as credits on thecurrent month’s bank statement. Such creditsshould be dated within one or two days of thedate deposited as shown by the books. Intervalslonger than 2 days should be investigated by thereconciler and satisfactorily resolved;

5. Ascertain that allreconciling items other than checks outstandingand deposits not credited by the bank shown inthe previous month’s reconciliation areaccounted for either as corrections by the bankduring the current month or by appropriateentry to the general ledger cash account;

6. C o m p a r eamounts listed in the cash receipts journal withdeposit amounts shown by the bank statementsand list any amounts which have not beencredited by the bank;

7. Determine whatcharges and credits, if any, have been made bythe bank during the month which have not beenentered in the accounting records;

8. If necessary,compare paid checks returned by bank withdebits shown on the bank statement; and

9. Summarize theabove information on the statement, or aseparate sheet attached to the statement.

10. The person whomakes the reconciliation will sign it and showthe date the reconciliation was completed.

11. Reconciliationsshould be reviewed, approved, and dated by anofficial whose duties do not normally include thehandling of cash. After such review andapproval, appropriate entries in the accountsshould be prepared for all reconciling itemsother than deposits not credited and checksoutstanding, unless such items represent errorsby the bank. Any such disclosed errors shouldbe reported to the bank immediately forcorrection.

12. Savings accountpassbook balances shall be reconciled with thegeneral ledger balance and the bank records eachmonth for the purpose of timely recording ofinterest earned.

13. Bank statements,the bank reconciliation, canceled checks andcredit union listings shall be filled inchronological and/or numerical order as part ofthe permanent records of the activity.

C050607 Foreign Currency.

A. P r o h i b i t e d F r o mSpeculating. Morale, welfare, and recreationactivities are prohibited from speculating inforeign currencies. They may however, acquirelocal foreign currency in accordance with theNAVCOMPT Manual, paragraph 042552,provided:

1. Currency held ins u p p o r t o f c o n s t r u c t i o n a n dseverance/retirement liabilities, as approved byprogram managers, is for the purpose ofavoiding or minimizing losses due to currencyfluctuations or revaluations;

2. Currency to paypayrolls and related costs is obtained as needed;

3. C u r r e n c yholdings to pay the cost of supplies andinventories is held to an absolute minimum anddoes not exceed that amount required forexpenditures occurring in a 30-day period.(Program managers may approve the holding of

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a 45-day foreign currency requirement underexceptional conditions);

4. Activities shallnot have direct access to the disbursing officer’saccounts as means of converting any foreigncurrency into dollars; and

5. F o r e i g ncurrencies on deposits are in accounts meetingthe requirements set forth in this appendix.

B. Investing of Funds inForeign Areas. If military banking facilities offersubstantially less interest, other U.S. banks in thesame foreign area may be utilized for thepurpose of holding foreign currencies, whenauthorized under host country law. Factors toconsider in making decisions regarding foreigncurrency include probability of fluctuations,revaluations, and the comparative rate of returnon foreign currency holdings as opposed todollar instruments. U.S. Military bankingfacilities or other financial institutions designatedby the Treasury Department are to be used tohold currencies when authorized under hostcountry law. In the absence of such institutions,funds shall be held in Foreign banks, asdesignated by the Treasury Department.

C050608 Borrowing Policies. The NAFIprogram managers will base all borrowingdecisions on sound economic and financialmanagement factors for the best possiblecost/benefit relationship for both borrower andlender. To the extent funds are not availablefrom within the Navy, interservice borrowing atDOD component level will be considered as analternative to commercial borrowing. Applicableprogram managers will establish procedures toconsummate interservice borrowing transactionswhen the services concerned determine that suchloans are mutually advantageous.

C0507 INCOME

C050701 General.

A. Income Defined. Incomeis money or money equivalents (checks, moneyorders, bank credit cards, e.g., Bankamericard)

earned or accrued during an accounting period.Receipts can take various forms: sales in thevarious departments, collections for surcharges,collections of accounts receivable, repayment ofreturned checks, loans received by the activity,etc. In most cases, income will be received bypersons designated as cashiers.

C050702 Cash Receipts.

A. Control. Cash receiptsrequire the fullest possible measure of control.Cash receipts of an entity relate to the receipt ofcurrency, coins, checks, bank drafts, and moneyorders.

B. Records. It is vital thataccurate and timely records be kept of cashreceipts. Cash receipts accountability applies tomoney and charge documents. In order tosegregate the functions of handling money andcash items and keeping the records, someoneother than the bookkeeper prepares a list ofdepartmental receipts. Cash registers will beused if available and feasible and each sale rungup in view of the customer. Employees receivingcash shall not be permitted to work out of anopen register drawer. The drawer must beclosed after every deposit of cash to insureproper ring-up and prevent pilferage. Wherecash registers are not available, sales must berecorded on prenumbered sales tickets. Theoriginal copy of the sales tickets will be attachedto the daily activity record as support.

C050703 Cash Registers.

A. Purpose. The cashregister is used to safeguard activity funds in thecustody of the individual cashiers during hoursof operation and to furnish a record of eachindividual sale.

B. Policy. Each transactionwill be recorded on the register at the time of thesale in conformance the internal controls cited inthe Volume 13, Chapter 9.

C050704 Cashiers.

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A. Individual Cashiers.Each individual cashier will be provided with achange fund. Sales will be recorded on theregister and the cash deposited in the cashdrawer and the drawer closed after each sale.Daily, upon completion of the cashier’sscheduled working period, the cashier will countthe receipts, prepare applicable parts of a dailyactivity record, and either turn in receipts andthe daily activity record to a person designatedby the manager, or deposit them in a nightdepository-type sale as directed. In thoseinstances where daily receipts cannot be turnedin at the close of business, each day the dailyactivity record and the receipts will be deliveredthe following workday prior to the opening ofthe day’s business. The manager will designatea safe place where those receipts may be keptovernight.

B. Central Cashier. Thecentral cashier will either receive the receipts andthe daily activity record from the individualcashier or will obtain them from the nightdepository safe. The receipts will be verifiedand appropriate certification will be recorded onthe daily activity record. This form will beforwarded to the person designated to read theregister.

C. Person Designated ToRead Register. The person designated by themanager (generally an assistant manager andnever the individual cashier) will read theregister upon completion of the cashier’sscheduled working period but in all cases priorto another cashier’s utilizing the register. Thetape should be removed from the register andattached to the daily activity record. The registerreadings and appropriate certifications should beentered on the daily activity record. Cashiersshall not be permitted, at any time, to see cashregister readings. The central cashier shouldnever be designated to read the register.

D. Cash Boxes. When theuse of cash registers is not practicable, thecashier will be furnished a cash drawer or metalbox. When in use, the cash drawer or box willbe in custody of the cashier at all times. In thoseinstances when the cash drawer or box is also

used to turn in the daily receipts, the cashdrawer or box will be placed in a safe or othersecure place until the cashier is able to presentthe receipts for verification and removal by themanager or his designated representative.

C050705 Credit Card Sales.

A. Purpose. Credit cardsales reduce the amount of cash handling atactivities and afford patrons the privilege ofpaying for their purchases on a delayed basis.

B. Policy. Appropriateregulations authorize certain activities andindividuals to have credit card sales. The totalof credit card sales will be recorded on a creditdraft or invoice (furnished by the credit agency).The patron’s credit card (furnished by the creditagency) will be used to imprint the necessaryidentification and the patron will sign the draftor invoice. The cashier will verify the signaturewith that on the credit card. The cashier willverify, reconcile, and ensure that the individualcredit card sales total, agrees the register tapecard sales. These drafts or invoices will beforwarded as directed by the credit card agencyand will be recorded as charges on the DailyActivity Record.

C050706 Cash Receipt Vouchers.

A. Prenumbered cashreceipt vouchers will be used for receipts of cashnot recorded in cash registers or on sales slips.The receipt voucher will be prepared in triplicatefor each cash collection. The receipt voucherwill be distributed as follows:

Original--to the patron or the individualmaking the payment

First Copy--attached as support to theDaily Activity Record (used to post CashReceipt Journal)

Second Copy--retained in numericalsequence

C050707 Cash Received In Mail.Provision must be made to record all cash

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(checks, money orders, etc.) received through themail by a person other than the cashier. Asfrequently as such cash is received a listing willbe prepared in sufficient copies as deemednecessary to provide the required internalcontrol. The person preparing the listing and theperson receiving the cash receipts must both signthe form in acknowledgement of accountability.

C050708 Coin Operated Machines.

A. Vending and AmusementMachines. The keys to vending and amusementmachines operated by the activity will be held inthe custody of the manager or his designatedrepresentative. Machines should be emptied bythe manager or his designated representativewith another person as witness. Cash takenfrom vending machines will be reconciled withstock needed for refilling such machines. Themanager or his designated representative and thewitness will sign the daily activity records.Amusement machines will be controlled bynonresettable coin counters and the cash receiptsreconciled with the meters each time themachines are serviced.

B. Slot Machines. Due tothe sensitive nature of slot machines, closecontrol and supervision over all aspects ofoperations must be exercised at all times. Slotmachines must be owned by the activity inwhich located or another activity of the sameinstallation and recorded on the appropriateproperty records in detail to include such itemsas make, model, serial number(s), and token orcoin denomination. Commanding officers andmanagers must take all measures to insure that:

1. Slot machines areprocured in accordance with the proceduresprescribed by the program manager.

2. All keys to cashboxes, meter boxes, coin receivers, or internalmechanisms of slot machines are entrusted tocarefully selected personnel. At no time shallany one person have available for his use or inhis possession sufficient keys which will permithim to have access to either internal or externalcash boxes.

a. T h ecasement, meter boxes, and coin receiver keys toall slot machines and one key to one of the lockson the slot machine cash box (for those machinesequipped with double locks on the cash box) willbe entrusted to the custody of an officerdesignated by the command such as a commandduty officer or other designated officer from alist that provides a frequent, preferably dailychange. The designated officer will record eachopening of a slot machine and must verify thecash count. One key to the other lock on thecash box shall be retained by the activitymanager;

b. For thosemachines with only one lock to the cash box andaccess is through the casement, the key to thecash box shall be retained by the activitymanager;

c. A sindicated above, all keys except the one cash boxkey in custody of the activity manager shall beretained in the custody of the officer designatedby the command such as a command dutyofficer or other designated officer. However, forthose commands maintaining a separate officerlist for the purpose of observing cash collections,keys will be transferred directly to and from theplace of safekeeping. Control over keys will beestablished by maintaining a record of the name,social security account number (SSAN), andorganization of the persons to whom issued.The record will also state the specific purpose forthe issue;

3. Dis interestedpersons are appointed to collect cash, witnessrepair work, or free jams. This duty should berotated to prevent collusion or compromise.

4. A l l f u n d scollected from slot machines are propertysafeguarded and accounted for in accordancewith provisions of this handbook.

5. The verificationof cash removed from slot machines is made bytwo members of management and the officerdesignated above.

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6. All slot machinesare emptied as often as required, but not lessthan once weekly. Cash must always becollected on the last day of each month in orderthat income can be credited in the appropriateaccounting period.

C050709 Bingo.

A. Bingo Receipts. Receiptswill be controlled through the use of a cashregister and/or the use of prenumbered couponsor tickets. The tickets will be issued by serialnumbers to bingo cashiers, who will beresponsible for missing numbers when turningin receipts. When cards are sold at a reducedprice, management must take a reading of theticket numbers or use tickets of a different coloror series before the reduced price sale begins. Aspecial Event Report will be prepared for eachbingo event as required by this handbook.

B. Bingo Cards. Bingo cardsshould be marked or date stamped to indicatepayment has been received for a card. Before aprize is presented to a bingo winner, the cardwill be checked to insure that payment has beenreceived.

C. Bingo Awards. Everyaward shall be properly signed for by therecipient. For additional verification, include therecipient’s name, rank (if applicable), socialsecurity number, organization, and telephonenumber. Cash prizes will be paid by check orfrom an imprest fund established for thatpurpose. For this purpose the fund limitation iswaived.

D. Bingo Merchandise PrizeControls.

1. Procurement .Bingo prizes may be procured on a consignmentbasis when authorized by the program manager.The consignment basis is similar to amemorandum receipt where the activity hasresponsibility for the items not present atperiodic inventories. The purchase agreementfor bingo prizes should permit the return ofunaccepted prizes to the vendor for full credit.

2. Inventory. Aperpetual inventory of merchandise prizes shallbe kept current at all times, and a properidentification number shall be affixed to eachmerchandise prize. Prizes should not be in astoreroom where employees have easy access.They must be kept under lock and key. Smallexpensive prizes require additional safeguards.When the display table is set up for the game,the manager or a designated responsible personshould personally check the prizes out of thestorage area, using the inventory records as achecklist.

3. Sale. The retailsale of bingo prizes is prohibited. Surplus orslow-moving bingo prizes should be returned tovendors for credit or disposed of as a special orconsolation prize.

C0508 PURCHASING

C050801 General.

A. Prenumbering. Prenum-bered purchase orders or consecutivelynumbered contracts will be issued for allpurchases (including entertainment) made fromcommercial sources except for purchases paidfrom the petty cash fund. In certain instanceswhere orders are placed with the vendor bytelephone, a confirmation purchase order will beprocessed and forwarded to the vendor with thenotation, "Confirming - Do not duplicate thispurchase." Purchase orders will be used todocument performance during a merchandisecontract relationship. Purchase orders will notbe used when purchasing merchandise fromNaval Supply Systems sources or whenrequisitioning documents are prescribed by localsupply activities. Sufficient copies will beprepared to enable the activity to process therequisition document in the same manner asprescribed for purchase orders.

1. Purchasing WithNAF. To purchase merchandise withnonappropriated funds from the GeneralServices Administration, either one of thefollowing forms must be used: Single line ItemRequisition System Document (DD Form 1348),

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or Multiuse Standard Requisition/Issue SystemDocument (Standard Form 344). A local fundcode established by the Supply Department willbe cited on each document to distinguish thetransaction from a similar trans action utilizingappropriated funds.

2. S c o p e . A l lsegments of the Department of the Navyprocuring with non-appropriated funds willcomply with SECNAVINST 7043.5A.

B. Authorization. Themanager or other person specifically authorizedin writing to be the purchasing/contractingofficer will be responsible for all purchasing forthe activity. The manager must approve thepurchase of equipment and furnishings and/orservices which will be recorded as fixed assets.The person designated should not be authorizedto receive such merchandise, operating supplies,equipment, or furnishings. The commandingofficer will establish a monetary limit thepurchasing/contracting officer can expend at onetime for a specific purpose without his prior andspecific written approval. Activities shall notmake purchases on the installment plan.Lease/purchase agreements, conditional salescontracts, and time contracts are not permittedunless authorized by the program manager.

1. Forms Control.All purchase orders will be numberedconsecutively and strictly controlled andaccounted for. They will be completed in theirentirety before signature and will not be signedin blank.

C050802 Blanket Purchase Orders.

A. Tangible Goods. Apurchase order may be issued as a blanket orderfor tangible goods. It may be used in thefollowing instances where the purchase priceremains the same:

1. No competition(one source of supply, e.g., Coca Cola) andfrequent deliveries are required.

2. Source of supplyis accepted on basis of bids and frequentdeliveries are required.

3. When such apurchase order is used, all of the descriptive andunit price information except quantity and totalcost should be included. In addition, thefollowing type statement should appear on thepurchase order: "You are hereby authorized todeliver the following products in the unit sizespecified and for the unit price indicated, duringthe period _____________ to ___________".Increments of delivery will be determined on aneed basis by the purchasing/contracting officeror by the manager. Purchase action of acontinuing nature must be documented by acontract.

C050803 Blanket Purchase Agreement.

A. Open Ended ChargeAccount. A blanket purchase agreement isessentially an open ended charge account keptwith a supplier for goods which are usuallyprice volatile in nature, and which necessitatefrequent deliveries. Among the advantages ofthis type agreement are the invoicing terms (onebilling a month vice frequent billings andpayments) and the ability to "call-in" orders ona frequent basis. The use of blanket purchaseagreements is to be limited to tangible goodsmeeting the criteria stated above (e.g., produce)where a fixed unit price order is not possible(i.e., the use of a blanket purchase is notfeasible).

B. Calls. Calls againstblanket purchase agreements generally will bemade orally. Written calls may be executed oninformal correspondence. Documentation ofindividual numbered calls (such as recording thecalls in a log) is required but shall be limited toessential information. Memorandum type formsmay be developed locally for this purpose.

C050804 Contracts, Agreements, Leases,Licenses, and Permits.

A. C o n t r a c t s a n dAgreements. All contracts for construction

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projects will be negotiated by the Public WorksDepartment and will cite a single source offunds either appropriated or nonappropriatedfunds. Contracts for other than constructionprojects, negotiated on behalf of the activity, willbe charged directly to the respective activity’snonappropriated funds and state that noappropriated fund of the United States will becharged or held liable thereunder. Each contractor agreement, other than construction contracts,will be signed by the manager or his designatedrepresentative, and the representative of theperson or firm furnishing such work or services.

B. E x a m i n a t i o n o fContractor’s Records. A standard "Examinationof Records Clause" will be incorporated in allnonappropriated fund contracts except thosewith foreign contractors where precluded by thelaws of the country involved or where theSecretary of the Navy determines that theinclusion of the clause would not be in thepublic interest. The wording of the clause will bei n a c c o r d a n c e w i t h S E C N A V I N S T .7043.5A(series).

C. Leases, Licenses, andPermits. Instruction concerning the issuance ofleases, licenses, and permits for use ofgovernment property or facilities, includingproperty and facilities under the control ofmorale, welfare, and recreation activities, isgiven in Real Estate Administration,NAVDOCKS P-73.

C050805 P u r c h a s e D i s c o u n t s . I ndetermining the cost of purchased property,discount shall be deducted from the price billed.Such discounts are reductions of costs thatrepresent savings achieved through payments ofbills within vendor’s stipulated time limits. Theyare not income and shall not be accounted for assuch, since they do not produce an increase inassets based on the sale of goods or services. Indetermining the cost of purchased property, theamount to be recorded shall be net of discounts.The value of discounts not taken shall becharged to operations as "discounts lost". Thisinstruction applies to inventory accountingsystems maintained at cost value.

C0509 RECEIVING

C050901 Policy. Persons other than thepurchasing agent or bookkeeper will bedesignated in writing to be responsible forreceiving.

C050902 Procedures For Receiving.

A. Delivery. When deliveryis made, the receiving clerk will:

1. Withdraw bothfiled copies of the purchase order from the "openorder" file.

2. I n s p e c t t h emerchandise to assure it is of the quantity andquality ordered.

3. Record on bothcopies of the purchase order the quantityreceived.

4. Record on bothcopies of the purchase order the serial numbersof all equipment received.

5. If satisfactory,certify both copies of the purchase order in thespaces provided on the bottom and mark on thevendor’s delivery slip the purchase ordernumber.

6. If any varianceexists between quantity and/or quality of themerchandise ordered and that delivered, bring itto the attention of the purchasing agent prior toaccepting delivery of the merchandise.

7. Record on bothcopies of the purchase order the storeroom ordepartment where the merchandise is placed sothe bookkeeper can record the correct account.

8. O b t a i ncountersignature of departmental personnel towhom merchandise is turned over on deliveryon both copies of the purchase order and thevendor’s delivery slip.

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9. Forward a copyof the annotated purchase order and vendor’sdelivery slip to the bookkeeper as evidence ofreceipt to support the bill-paying process.

10. Retain a copy ofthe purchase order at the receiving activity forfuture reference.

B. Receiving Procedures.Receiving procedures for partial or incompleteshipments are the same as those prescribed forblanket purchase orders.

C050903 Special Procedures. When ablanket purchase order or agreement is used, oras partial shipments occur, vendors deliveryslips and the receiving copies of the purchaseorder will be certified and processed as outlinedabove. In addition, the receiving activity mustindicate that the receiving documents are for apartial shipment, delivery increments (of ablanket purchase order or agreement), or thefinal increment of a partial shipment beforeforwarding the documents to the bookkeeper. Acopy of the receiving documents will be retainedat the receiving activity for ready referenceconcerning merchandise received. When a finalshipment is received or when it is determinedthat no further shipment can be expected, thereceiving activity will indicate final shipment orcancellation information on both copies of thepurchase order and send a copy to thebookkeeper.

C050904 Procedures For Bookkeeper.

A. Receiving Documents.Upon receipt of receiving documents thebookkeeper will:

1. P a r t i a l o rIncomplete Shipments. In the case of a partialshipment or uncompleted blanket purchases,delivery slips or invoices will be filed in theopen order file pending shipment completion.Invoices will be inspected to insure merchandisereceived complies with the terms of purchase.When the receiving documents for the finalshipment are received, all invoices or delivery

slips will be compared with the final receivingcopy of the purchase order.

2. C o m p l e t e dShipments. In the case of a completed shipment,withdraw the open order file copy of thepurchase order and compare it with the finalreceiving copy of the purchase order andattached invoices or delivery slips.

3. R e c e i v i n gDocuments. Compare the receiving documentswith the open order file of the purchase orderand the dealer’s invoice. If the documents agree,an annotation of accuracy will be made on thedocuments, a check prepared and all documentssubmitted to the person designated to signchecks. If a discrepancy appears, it should bebrought to the attention of the purchasing agentfor resolution. After resolution the check will beprepared and documentation forwarded as notedabove. When several purchases are made froma vendor and separate payments are notrequired, payments may be made by theissuance of one check.

C050905 Storing, Recording and Issuing.

A. Policy. Each storagefacility will be kept locked under the custodianof one person designated by the activitymanager. Access to the storage area will begoverned so as to prevent unauthorizedwithdrawals. Stock records will be maintainedto show perpetual inventory of each type itemheld in a warehouse or storeroom. Receipts andissues will be posted daily. Custodians andmanagers will be held responsible for thereceiving and issuing of all merchandise.Receiving Reports will be executed promptly andforwarded to the accounting department to takeadvantage of any discounts. Damaged and shortshipments will be investigated promptly to effectadjustments or replacements.

B. Procedure. Merchandiseand operating supplies, when received, will behandled in one of two ways:

1. Future Use .Stored in a storeroom when purchased for future

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use. The initial positioning of such material willbe indicated by the receiving clerk on thereceiving/bookkeeper copy of the purchaseorder and the bookkeeper will debit anapplicable storeroom inventory account. Whenresale items (food, beverages, etc.) aresubsequently issued to a department for sale,entries on a requisition will show a debit to theapplicable departmental cost of sales account anda credit to the applicable storeroom inventoryaccount. When operating supplies orreplacements are issued to a department, entrieson a requisition will show a debit to theapplicable departmental expense account and acredit to the applicable storeroom inventoryaccount.

2. Delivered toDepartment. Delivered directly to an operatingdepartment (for example, gymnasium, stables,etc.) for immediate use. The initial positioningof such material will be indicated by thereceiving clerk on the receiving/bookkeepercopy of the purchase order and the bookkeeperwill debit an applicable departmental cost ofsales or departmental expense account, asappropriate. If items are subsequently transferredfrom one department to another, entries on arequisition will show a debit to the appropriatecost of sales or departmental expense account ofthe department gaining the items and a credit tothe appropriate account of the departmenttransferring the items.

C0510 DISBURSING

C051001 Cash Disbursements.

A. Prenumbered Checks.Disbursements will be made by printedprenumbered checks that are maintained undermaximum security and issued in strict numericalsequence, however, minor miscellaneousexpenditures may be made from a petty cashfund. Also, refunds and cash prizes may bemade from change funds or cash receipts ifproper safeguards are instituted with properdocumentation. All checks will bear the name ofthe activity and be secured in a lockedreceptacle. All checks issued should be written inpermanent ink preferably by a computer, check-

writing machine, or typewriter. If an error ismade in writing a check, the check shall bevoided and another issued. Under nocircumstances should checks be signed inadvance or made payable to cash or bearer.Advance payments are authorized only whenspecifically approved by the program manageror designated representative. The routing andprocessing of check payments is vital and shouldinclude the following independent anddocumented steps:

1. Authorization ofpayment,

2. Preparation ofchecks,

3. S i g n i n g o fchecks,

4. M a i l i n g o rdelivering of checks, and

5. Reconciliation ofchecking account.

B. Validity Check. Prior tothe signing of any check, the person designatedto sign will determine the validity of the voucherintended for payment. Validity shall bedetermined by comparing the amount of thevoucher to the supporting documents (purchaseorder, receiving report and the vendor’s invoice).All supporting documents will then be stampedwith a "Paid/Date" stamp and the voucherannotated with the check number. Aftersignature, the check will be mailed or deliveredto the payee. It should not be returned to thebookkeeper or person who prepared it. Spoiledchecks will not be destroyed but will beretained, marked "void", and renderednonnegotiable by at least mutilating thesignature area. Voided checks will be held untilthe account statement is received and then filedtherewith. The general ledger cash balance willbe reconciled monthly with the balance in theaccount statement.

C. Designation of signatory.Individuals authorized to sign checks will be

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designated in writing by the commanding officeror his designated representative. A datedsignature card will be filled with the financialinstitution for each person authorized to signchecks. Controls may be reinforced by requiringcountersignatures. Rubber stamp signatures arenot authorized.

C051002 Processing of Bills or Invoices.

A. Bookkeeping Procedures.Upon receipt of a bill, the bookkeeper will placeit in the file with a copy of the purchase order,pending receipt of the material or services. Thebill will be verified with the quantity orderedand received, unit price, extension, and terms ofpayment. Any transportation charges on theinvoice are to be checked with the terms on thepurchase order. Priority in processing paymentswill be given to all bills offering cash discountterms. After the bill has been matched to theorder, the bookkeeper will indicate in writing onthe bill that it is correct, initial the bill, preparea check and submit the check with the order andall documents attached, to the person designatedto sign checks. Any differences will be called tothe attention of the person designated to signchecks. No bill will be paid unless covered byan order on which appears a certification ofreceipt and acceptance signed by the designatedrepresentative of the receiving activityconcerned. Only invoices fulfilling the followingrequirements are acceptable for payment:

1. Original,

2. Formal invoiceformat,

3. Unaltered,

4. Addressed to the

activity,

5. I f c o v e r i n gmultiple deliveries supported by delivery slips,

6. D a t e d a n dstating terms,

7. Quant i ty orquantities,

8. Description ofmerchandise or services,

9. Unit price orprices,

10. Extension ofquantities and unit cost price,

11. Total amount ofinvoice.

B. Subsidiary Accounts. Aseparate account of each creditor will bemaintained in a subsidiary ledger supporting thegeneral ledger accounts payable controllingaccount. An appropriate ledger sheet (procuredlocally) will be maintained for each creditor inalphabetical order. Each month these subsidiaryledger sheets shall be totaled and reconciled tothe general ledger control account. In a smallactivity where the number of creditors isminimal, the maintenance of a subsidiary ledgermay be waived by the commanding officer.

C0511 PAYROLL

C051101 Control of Payroll.

A. Payments of Salaries andWages. All salaries and wages will be paid bycheck except in those foreign countries where aformal working agreement indicates that subjectemployees must be paid in cash. In the case ofa requirement to pay cash, one check will bedrawn for the net payroll amount and employeeswill sign for the amount of cash received.

B. Notification Schedules.Written notification schedules must be made ofthe exact hours each employee is expected to beon the job each day.

C. Authorizations. Themanager or designated representative mustauthorize, in writing, all employment, separationactions, changes in the approved work schedule,

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or other changes that affect the pay ofemployees.

D. R e p o r t i n g H o u r sWorked. A system will be devised locallywhereby hours worked by each employee can bereported to the payroll clerk. Such a systemmight be as follows: Employees hours ofattendance for work are punched on a time clock(smaller activities may use time sheets or asimilar type log). Departmental supervisorscertify in writing on the time card, time sheet, ortime log, the number of hours worked duringthe period. These time records are thensubmitted to the payroll clerk, who computes theemployees’ wages and keeps their individualearnings records.

E. Pay and EarningsStatement. A check will be prepared for eachemployee, and when feasible, an individualearnings statement (format developed locally)itemizing information contained on theindividual earnings record for each employee.Each check will be signed by the manager orother authorized person.

F. Accuracy Checking. Themanager will appoint someone other than thepayroll clerk to check the accuracy of the payroll.The manager or his designee will then approvethe payroll and sign and distribute the paychecks and the individual earnings statements.

G. P a y r o l l C h e c k i n gAccount. Whenever the size of the payrollwarrants, a separate checking account should beestablished for payroll disbursements.

H. Items Not To Be UsedFor Payroll Payments. Current cash receipts,petty cash funds, or change funds shall never beused for payroll purposes.

I. Unclaimed PayrollChecks. After an appropriate interval (usually 2weeks) all unclaimed payroll checks should bevoided and recredited to the bank account.Checks issued but not presented for paymentwithin one year will be canceled and uponproper notification to the bank recredited to the

bank account. It is highly important thatunclaimed pay be investigated to disclose anyirregularities that may exist as the result of"payroll padding" and pocketing of unclaimedwages. Payroll checks should be marked "Notnegotiable after 60 days from date of issue."

J. Abnormalities. Themanager shall continually examine any abnormalincreases in the number of employees, rates, andlabor costs.

K. Signing of Blank ChecksNot Authorized. Managers will not sign payrollchecks in blank for emergency use during theirabsence.

L. Controls on Time Cards.Payroll time cards/sheets will be canceled ordated in order to prevent their possible reuse.

M. Verification. From timeto time, the payroll should be checked to makesure that the number of names corresponds tothe number of employees, that W-4’s are on filefor each employee and that gross pay anddeductions are consistent with applicable lawsand the employee’s desired deductions fromgross pay. At least once a year a person notnormally associated with the payroll functionwill distribute the pay, requiring identification ofeach employee before distributing the check, anddocument the results.

C051102 Service Charge, Gratuities, andCash Tips.

A. Service Charges. Aservice charge is an amount of moneyautomatically added to a patron’s bill by theactivity. If the service charge is to be retained bythe activity, it should be credited to theappropriate revenue account. If the servicecharge is to be paid to an employee, credit aSalaries & Wages, Personnel Benefits and TaxesPayable Account. The employee shall be paid theservice charge on his regular payroll check.Service charges are subject to both theemployee’s and employer’s share of FICA tax.

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B. Gratuities. Gratuities areconsidered to be any charge tip voluntarilyadded by the patron to his bill. Gratuities shallbe credited to a Salaries & Wages, PersonnelBenefits and Taxes Payable Account. This typeof income is not subject to the employer’s shareof FICA tax.

C. Cash Tips. Cash tipsrefer to tips given directly by the patron to theemployee.

D. Reporting Gratuities andCash Tips. Gratuities and cash tips are requiredby law to be reported by the employee to theemployer on or before the tenth of the monthfollowing the month the tips were received bythe employee if $20.00 or more for the month.These "Reported Tips" are posted andaccumulated for purposes of determining incomeand FICA tax withholdings. Services charges arenot to be included in this reporting as they areincluded as regular wages. Managers shouldobtain copies of "Reporting Your Tips ForFederal Tax Purposes" (Publication 51) from theDistrict Director of Internal Revenue fordistribution to affected employees.

E. Reporting by CertainLarge Food or Beverage Establishments withRespect to Tips. To promote full reporting ofemployee tip income, food and beverageestablishments must estimate expected tips inrelation to levels of gross receipts from food orbeverage cash sales, charge receipts, and theretail value of complimentary food or beveragesserved to customers. Such establishments (asdetermined by program managers) are required,under Section 6053(c) of the Internal RevenueCode of 1954, to file an annual tip informationreturn on or before the last day of February ofthe year following the calendar year for which itwas made to the District Internal RevenueService Center on Form 8027 with TransmittalForm 8027T. Required attachments to the returninclude photocopies of each employees’ W-2 forwhom an allocation is made and a copy of anywritten employer/tipped employees’ good faithagreement applicable for the reporting year.Reporting establishments shall assign a unique15-digit activity reporting number on each Form

8027 report. Additionally, employers shallfurnish to each employee to whom a tip amountis allocated a written statement on theemployees’ Form W-2 showing the aggregateamount allocated to the employee for thecalendar year.

C0512 PROPERTY ACCOUNTABILITYAND CONTROL

C051201 General.

A. Recording. Fixed Assets(nonexpendable property) procured withnonappropriated funds will be recorded atoriginal acquisition cost less cash discount plusfreight-in and installation cost plus the cost ofadditions, modifications, or enhancementsthereto. If the original cost is not known, anestimated value will be assigned. In determiningthe estimated value, reference should be made,where possible, to manufacturers; price lists, costof similar items, and such other sources ofinformation as may be available. When thesource of funds for the original procurement ofproperty cannot be determined, it will beconsidered to have been purchased withappropriated funds. Property on loan will becontrolled through use of appropriate issue andsigned receipt documents. A Certificate ofDisposition must be approved by thecommanding officer or his designatedrepresentative before a fixed asset may bedropped from a Property and DepreciationRecord (NAVCOMPT Form 742). Some fixedasset types:

1. Fixed Assets(Title Remains With Morale, Welfare, andRecreation Activity). To reflect acquisition cost(or estimated value if acquired by other thanpurchase), allowance for depreciation, and netbook value.

2. Other FixedAssets (Government real property facilities,improvements, and equipment procured withnonappropriated funds, title to which istransferred to the government). To reflectnonappropriated funded acquisition cost,allowance for depreciation, and net book value.

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An explanatory footnote will be included in thebalance sheet as follows: "The title of realproperty financed with nonappropriated fundsand reported hereon is vested with the U.S.Government."

3. Fixed Assets(Purchased with Nonappropriated Funds to bereimbursed with appropriated funds). As of 1October 1990 appropriated funds may not beused to reimburse a NAFI. In those instanceswhen property is purchased withnonappropriated funds to be subsequentlyreimbursed with appropriated funds, suchproperty will not be recorded on the books ofthe nonappropriated fund instrumentality(NAFI).To record a transaction of this nature, the NAFIwill debit accounts receivable and credit cash oraccounts payable.

B. Diversion of Assets. Abuilding or structure constructed or purchasedusing nonappropriated funds will not bediverted to a use other than in direct support ofthe MWR purpose for which it was acquiredwithout the prior concurrence of the programmanager.

C. Proceeds From Sale. Inaccordance with U.S.C. 485(C) the net proceedsfrom the sale of a building or structure, acquiredor constructed using nonappropriated funds andsubsequently sold upon disposition ofGovernment property, will be credited to theapplicable fund as determined by the programmanager. When it is uneconomical orimpractical to ascertain the amount of netproceeds, the proceeds will be credited toMiscellaneous Receipts of the U.S. Treasury.

C051202 Classes of Property.

A. Nonexpendable Property.Nonexpendable property (minor fixed tangibleassets) is that which ordinarily retains its originalidentity during its period of use, is not fullyconsumed in normal use, has a unit acquisitionvalue of $1,000 or more and has a lifeexpectancy of more than two years. Examplesinclude furniture, fixtures and office equipment.When purchases are made in bulk for like items

(example, a set of chairs) and the total cost is$1,000 or more, regardless of the unit cost, theitems may be capitalized and depreciated.Nonexpendable property will be recorded in thegeneral ledger as fixed assets and capitalized.Property and depreciation records will bemaintained as subsidiary records to the generalledger controlling account. Only one item orgroup of like items will be recorded on eachproperty and depreciation recorded. At leastannually, the total value recorded on thesubsidiary records will be reconciled to thecorresponding general ledger account balance.Each nonexpendable item will be given a uniqueidentification number which shall bepermanently affixed with a tag or by some othermethod, to identify activity property. Assets inthis group will be considered fixed assets fordepreciation purposes.

B. Expendable Property.Expendable property consists of any propertywith a life expectancy of less than 2 yearsacquired by purchase, gift, or transfer that has aunit acquisition value of less than $1,000 such as:

1. Supplies andmaterials which after issue are immediatelyconsumed in use or become incorporated inother property, thus losing their separateidentities (examples: paints, glue, fuel,preserving materials, radio and TV tubes, etc.);or

2. Articles which,when issued for immediate installation, are usedto repair or complete other articles and therebylose their identity (examples: spare and repairparts and components).

a. Propertyobtained for immediate use will be chargeddirectly to operating expense. However, ifexpendable supplies are purchased by adepartment to be consumed in future periods,such items must be recorded as prepaid supplies.

b. T h o s eexpendable property items in use having a unitvalue of $300 or more will be recorded on aconsolidated property record with each item

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supported by a separate property anddepreciation or stock record. Each item in thisgroup shall be permanently affixed with anumber tag or identified by some other method.These items will not be recorded in the generalledger as assets but expensed upon receipt.

c. All otherexpendable property purchased and stored in thewarehouse or storeroom will be recorded onstock records. Issues from the storage area willbe based on numbered and controlledrequisitions and expensed from prepaid supplies.

C. Appropriated FundedProperty. Appropriated funded propertypurchased for or assigned to morale, welfare,and recreation activities will be accounted forand controlled in accordance with NAVCOMPTManual, Volume 3, Chapter 6. The fundmanager will provide guidance to insure thatthis property is safeguarded from theft, abuse,waste, and unauthorized use.

D. Resale Merchandise.Merchandise purchased and placed in storage forthe purpose of resale is considered an asset ofthe activity and will be recorded by debiting theapplicable general ledger inventory account.When merchandise is delivered to a resaledepartment, the cost of goods sold will becharged to the appropriate account series. Stockrecords (NAVCOMPT Form 742-1) will bemaintained for all merchandise carried inwarehouses or central storerooms. Issues fromthe storage area will be based on numbered andcontrolled requisitions. Frequent reviews shouldbe made to determine if stock is being purchasedin economically sufficient but not excessquantities. Stock record cards will be reconciledwith the general ledger inventory account atleast monthly.

E. S u r p l u s P r o p e r t y .Surplus/excess items are deemed to be thoseitems which have been screened in accordancewith current disposal regulations. Itemsacquired through surplus/excess programsremain appropriated funded property and willbe accounted for and controlled as such in

accordance with current regulations and asdirected by the program manager. When nolonger needed, these items will be turned in tothe nearest Defense Reutilization MarketingOffice (DRMO) with a statement that they werepreviously obtained from appropriated fundedsurplus/excess sources and that no part of anyproceeds from sale or other disposition are duethe returning activity. Likewise, when theDefense Property Disposal Office sellsnonappropriated funded property the proceedsare returned to the activity disposing of theproperty.

F. Loss or Damage ofProperty. In instances involving loss or damageto insurable interests of nonappropriated fundedproperty, insurance procedures, as prescribed bythe program manager, will be adhered to. Inthose situations where the recovery involvesboth insured nonappropriated funded property,and other insured Government property, therecovery of nonappropriated funded propertyremains with the morale, welfare, and recreationactivity. Recovery for appropriated damagedproperty should be deposited to the NavyGeneral Fund Receipt Accounts as indicated in2416A of the JAG Manual. Appropriatedocumentation should be included in everyclaims file.

G. Donated Property.Includes those assets that are given to an MWRactivity at no cost by another MWR activity or aprivate donor (in accordance with SECNAVINST4001.2F(series). Excludes property obtained fromappropriated funds surplus sources as describedabove.

1. Donating MWRActivity Accounts to be Recorded

a. W h e ninitially purchased:

Debit: Fixed AssetsCredit: Cash

b. W h e ndonated to another activity:

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Debit: Miscellaneous ExpenseDebit: Accumulated Depreciation (whereappropriate)

Credit: Fixed Assets

2. R e c e i v i n gActivity. The receiving activity will record thereceipt of donated property as follows:

a. When receivedfrom another activity:

Debit: Fixed AssetsCredit: Miscellaneous IncomeC r e d i t : A c c u m u l a t e dDepreciation (where appropriate)

b. W h e nreceived from a private donation:

Debit: Fixed AssetsCredit: Miscellaneous Income

C051203 Depreciation.

A. General. Depreciation is theallocation of asset acquisition value or cost topresent and future operations on the basis ofsome equitable and rational mathematicalsystem. Although the purchase or acquisition ofan asset occurs at one time, the benefits derivedfrom an asset’s use are received in futureperiods. Therefore, an asset’s value or cost mustbe allocated to the periods that receive beneficialuse. The income would be distorted if the totalcost were charged to expense in any oneaccounting period.

To show these assets in the financial statementsat their adjusted real value, (book value, or assetacquisition cost less accumulated depreciation)the amount of such depreciation is recorded inan accumulated depreciation account and isoffset from the fixed asset account on the balancesheet.

B. Policy. The followingaccounting policy is applicable with respect todepreciation.

1. Fixed Assets.Fixed assets will be depreciated in accordancewith the following schedule, until theaccumulated depreciation account shows 100% ofthe cost of such assets. Local commanders orappointed designee will determine the estimateduseful life of each fixed asset within theguidelines set forth in the following schedule.

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Fixed Assets Value Useful Life Span(years)

Assets Depreciation

$1,000 or more 2-10 Furniture, Fixtures,Equipment &Livestock

Straight Line, NoSalvage Value

$1,000 or more 2-10 Vehicles & Aircraft Straight Line, NoSalvage Value

$1,000 or more 20-40 Buildings & Facilities Straight Line, NoSalvage Value

$1,000 or more 5-20 Buildings & FacilityImprovements

Straight Line, NoSalvage Value

2. DepreciableAssets. Assets with remaining depreciable livesexpensed in previous years will be capitalized inthe general ledger by debiting the fixed assetsaccount for the acquisition cost, crediting theaccumulated depreciation account for the totalaccumulated depreciation since acquisition andcrediting prior period income adjustment for thedifference between the acquisition cost and theamount posted to accumulated depreciation.These assets will be depreciated during theremaining life of the assets by debitingdepreciation expense and crediting accumulateddepreciation.

3. Contributed orDonated Assets. Assets acquired from outsidesources by contribution or donation will berecorded in general ledger fixed assets accountfor their fair market value and credited toMiscellaneous Income.

4. Used Assets.Used assets acquired including donated propertywill be initially recorded in the financial recordsand depreciated over their estimated remaininguseful lives.

5. C o m p u t i n gDepreciation. Assets maintained on computerfile are depreciated beginning in the monthfollowing acquisition. Assets on non-computerfile are depreciated beginning in the first month

of the fiscal year following the fiscal year ofacquisition.

C. Method of ComputingDepreciation. Within the Department of theNavy, all fixed assets will be depreciated by thestraight-line method. Under this method, anequal portion of the cost of the asset is allocatedto each accounting period of use; consequently,this is most appropriate when usage of an assetis fairly uniform from year to year. Thepossibility of a salvage value is ignored and theannual depreciation charge is computed merelyby dividing the total cost of the assets by thenumber of years of estimated useful life.

D. R e c o r d i n g o fDepreciation. At the end of each accountingperiod the following entries will be required torecord depreciation:

Debit - Depreciation ExpenseC r e d i t - A c c u m u l a t e dDepreciation

Depreciation is not recorded as a decrease to thefixed asset account but as an increase to a contra-asset account, accumulated depreciation. Thefixed asset account will always show theacquisition cost of the fixed assets. Theaccumulated depreciation account will show theestimated decrease in value of the fixed assets.The difference between the two accounts is bookvalue. Accumulated depreciation is shown on

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the asset side of the balance sheet as a reverse ofnorm amount.

1. Cash Sale of aFixed Asset. Cash sales of fixed assets are notcombined with the operating income from thesales of inventory or services because the activityis not in business to sell fixed assets. When afixed asset is sold, everything relating to thatspecific asset must be eliminated from the books.The fixed asset and accumulated depreciationaccounts will always be involved.If the marketvalue (amount received) of the asset differs fromthe book value, a profit or a loss occurs.

2. Trade-ins. Whenone asset is traded in for another, the acquisitioncost of the new asset is the cash value of theconsideration parted with; that is, the cash paidand the amount that could be obtained by a saleof the old asset. Unless known, market value forassets traded in will be net book value. If thecash purchase price of the new asset and themarket value of the asset to be traded areunknown, the book value of the asset traded willbe considered as its market value.

C051204 Disposition of Unserviceable orExcess Property.

A. Navy Plant PropertyProcured With Appropriated Funds. Propertyrecorded on the Navy Plant Property Records,including nonappropriated procured buildingsand improvements, which have becomeunserviceable or excess to the needs of theactivity will be returned to the appropriateaccountable officer for disposition in accordancewith existing regulations.

B. Other Property ProcuredWith Nonappropriated Funds.Other property procured with nonappropriatedfunds which has become unserviceable or excessto the needs of the activity will be disposed of asfollows:

1. Used as a trade-in on a similar item.

2. S o l d t o o rtransferred to another MWR activity.

3. If not desired byanother MWR activity within reasonableshipping distance or if it is deemed unfit forredistribution by the Program Manager, it will bedisposed of in accordance with current Navyand base disposal regulations. To avoidcollusion or chance for private gain atgovernment expense, items for disposal must beadvertised or announced using the currentestimated price as a basis for the selling price.

C. Recyclable Material.Morale, Welfare and Recreation (MWR) activitiesare authorized to use the installation MWRcontracting service to sell nonappropriatedrecyclable scrap such as aluminum cans, bottlesand newspapers directly to local recycling firmsor continue to use the Defense ReutilizationMarketing Office (DRMO). However, prior toselling locally, get assurance from the servicingDRMO that no long term collection or surplussales contracts are in effect for the installation forthe specific types of recyclables. If a DRMOcontract exists for this type of property, thecontract takes precedence until expiration unlessexception is granted by the servicing DRMO.All appropriated recyclable materials shallcontinue to be processed through the DRMO.

C051205 Inventories.

A. Inventory Systems.There are two systems of determining quantitiesof goods in the inventory, periodic andperpetual. The periodic system relies upon anactual inventory taken at the end of anaccounting period to determine the cost of itemssold during the period. The revenue from goodssold during the period is recorded in the salesaccount, but no concurrent entries are made torecord the decrease in the inventory. It istherefore only by a count at the end of theperiod that the inventory can be determined.The perpetual inventory system uses accountingrecords that continuously disclose the amount ofthe inventory. Increases in inventory items arerecorded as debits to the appropriate accounts

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and decreases are recorded as credits. Thebalance is the book inventory of items on hand.

B. Valuation of Inventories.All inventories are valued at cost which isdefined as invoice price plus freight charges lessdiscounts. Inventory items received at no costare recorded as a debit to the inventory accountand a credit to Bonus Merchandise. End-of-period physical inventories are valued or pricedon the weighted average or first-in first-out(FIFO) basis. In FIFO, requisitions are priced atthe earliest invoice cost at which the items wereplaced in stock. Quantities on hand at theinventory date are considered to be those itemsmost recently purchased. Under the weightedaverage method of inventory valuation, goodsare valued at an average cost. Cost of goods onhand at the end of a period is assumed to be theweighted average of the inventory cost of goodson hand at the beginning of the period and allgoods purchased during the period. Physicalinventories of fixed assets are valued or priced atoriginal acquisition unit costs including freight-inand related installation charges.

C. Inventory Frequency.Inventory frequency will be prescribed byappropriate program managers. However, as aminimum requirement, all merchandise,consumable supplies, fixed assets, and propertyon loan require an annual physical inventory;and, cash and resale merchandise will require aninventory at the close of each accounting period.The results of the inventory will be reconciledwith property records and the general ledgercontrolling accounts.Upon the relief of theresponsible person, as determined by theprogram manager, inventories as set forth abovewill be accomplished.

D. Types of Inventories.

1. Warehouse orcentral storeroom resale merchandise.

2. Departmentalresale Merchandise.

3. Prepaid Suppliessuch as china, silver, glassware, and maintenancesupplies.

4. Fixed Assets,capitalized nonexpendable property (includessuch items as furniture, fixtures, and equipment).

5. E x p e n d a b l eproperty items which are recorded on propertyrecords although expensed at time of receipt.

6. Cash, whichincludes all cash at an activity (such as pettycash funds, change funds, and undepositedreceipts).

E. Procedures For Taking APhysical Inventory.

1. G e n e r a l . Aphysical inventory, when possible, will be takeneither before or after regular operating hours. Ifthis is impractical, it will be taken at a time thatwill be least inconvenient to patrons. Sales willbe made during inventory count only in the caseof an emergency. Such sales will be included inthe count and treated as sales of the subsequentaccounting period.

2. Pre-inventoryProcedures. Specific inventory instructions willbe issued to employees at least ten days prior tothe physical inventory. These instructions willdescribe:

a. Countingand listing procedures that will be utilized;

b. Inventorycount forms

c. Pricing ofinventory; and

d. Transac-tion cutoffs.

A pre-inventory meeting will be held with allemployees who are to participate in the countingof the inventory. Inventory instructions and

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procedures, personnel assignments, and workinghours will be reviewed and discussed duringthis meeting.

3. Personnel. Themanager will designate experienced personnel asinventory supervisors who will be responsiblefor a complete and accurate inventory. Infulfilling these responsibilities, supervisors willselect and train the counters and verifiers andmake certain that all preliminary preparationsare made prior to counting the stock.

4. Layout Sketch.To assure accurate and expeditious inventorytaking in the store, warehouse, stockroom, etc.,layout sketches should be prepared in whicheach fixture (i.e., shelves, gondolas, bins, tables,etc.) is illustrated and identified by a number.Large areas will be prepared by inventorysupervisors well in advance of the inventorydate. A number, identical to the one entered onthe layout sketch will be affixed to each fixture.

5. Cut-off Time.

a. A cut-offdate for sale and receipt of merchandise will beestablished by the accounting office. The cut-offdate for the receipt of retail merchandise may beset two or three days earlier than the close ofthe accounting period to permit arrangement andcounting of stock prior to the inventory date.All merchandise received prior to the receivingcut-off will be included in inventory.Merchandise received after the cut-off date willbe excluded. Vendors and transportationcompanies may be requested to delay deliveriesuntil after completion of the physical inventory.If merchandise is delivered during the inventory,do not include or record its receipt. If any saleis permitted, the item must be entered on theinventory sheet.

b. A propercut-off time (date and hour) will be establishedfor each activity by the accounting branch forthe return of merchandise to vendors and thetransfer of merchandise from the warehouse orstorerooms. All branch and activity locations willbe notified by the warehouse at cut-off time of

the number of the last requisition against whichmerchandise was transferred prior to inventorycount. This will enable the activities to ascertainwhether all the merchandise charged to them hasbeen received.

6. Stock.

a. General.All merchandise on the selling floor andwarehouse will be arranged, sorted, andconsolidated by identical merchandise and priceline to facilitate counting and listing.Merchandise sold but being held for pick-up willbe segregated from regular stock and will not beincluded in the inventory.

b. R e t a i lmerchandise will be properly marked with theretail selling price. All other merchandise willbe properly marked with the cost price.

c. A l lmerchandise returned by patrons and for whichcredit has been given will be properly remarkedand included in the appropriate departmentalinventory.

d. A l lmerchandise in the receiving room that has beenreceived prior to the inventory cut-off date willbe marked and sent to the warehouse, or sellingfloor, as appropriate, for consolidation withidentical merchandise.

e. With theexception of cartons retained for packaging ofmerchandise on display, all empty cartons willbe removed from the selling floor andwarehouse, and collapsed so that they will notbe included in the inventory count.

f. All slowmoving, damaged, and obsolete stock will beproperly marked down to the retail price atwhich it is expected to be sold and the changeswill be effected prior to the inventory cut-offdate.

G. Inventory Sheets. Themanager will cause type written inventory sheets

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to be prepared by department for all items. Tothe maximum extent possible inventory sheetswill list the items according to the manner inwhich they are physically arranged at theinventory site. Nomenclature shall identify theitems to be inventoried. Inventory numbers,manufacturer’s serial numbers, and componentparts of sets shall be shown on the inventorysheet, All sheets will be dated, pre-numbered,and accounted for. Only one department’smerchandise or property will be listed on anyone inventory sheet. Inventory sheets shall bedistributed to the individuals assigned toconduct the inventory. Upon completion of thephysical inventory, all sheets will be signed byeach person participating in the inventoryprocess.

F. I n v e n t o r y T a k i n gProcedures.

1. Counting theMerchandise.

a. General.Merchandise will be counted only aftercompletion of all pre-inventory preparations.When possible, individuals familiar withdepartmental stock will be assigned to takinginventory. Counter will be indoctrinatedthoroughly not only in the method of countingbut also in the system of recording the count, forexample, the count proceeds from left to right,top to bottom, in book-reading fashion.Normally, the work is done by a team of twopeople. One should call and inspect theinventory while the other enters (in ink) thequantities on the sheets. Each department willbe inventoried separately. During the course ofthe inventory, independent test checks will beconducted to insure the maximum of accuracy.Items found to be on hand, which were omittedfrom the inventory sheet, will be recorded by theinventory team, provided such items can bepositively identified as activity-owned property.

b. U n i tPrices. Unit prices for retail departmentmerchandise will be taken from price tickets atthe time of count. All merchandise will be listedand counted in the same unit category as priced

for sale; for example, if cakes of soap sell for 3for 25 cents, the multiple retail sales prices willbe used and recorded "25 cents for 3," (not"3/25"). Only the unit cost price will be shownfor service department items. This will be takenfrom the unit cost price shown on the outside ofthe case or container or from the last invoice.The same person inserting the unit price amountalso records the unit "type" such as dz., ea., gr.

c. Inven-tory Count. All counts, identification, andpricing of inventories are to be adequatelyrechecked by a disinterested party other than theone who recorded the original data. Allinventory counts are to be supervised andaudited by the accounting personnel.

d. Exten-sion of Inventory Sheets. Inventory count sheetswill be extended by personnel in the accountingoffice. All inventory sheets will be extended andfooted.

e. Depart-mental Inventory Worksheets. After theinventory work sheets have been extended andfooted, inventory sheets will be summarized invalue by department. These values will then becompared against the book inventory. Retailvariances will be converted to cost bymultiplying retail variances by departmentalcost ratios.

2. Items Excluded.

a. M e r -chandise on Order. Merchandise ordered butnot received will not be included in theinventory even if the invoice is received prior tothe inventory date.

b. M e r -chandise Sold--Held for Pickup. Merchandisebeing held for pick-up which has been sold priorto inventory time, including all lay-aways, willbe removed from the regular stock so that it willnot be included in the inventory count.

c. I t e m sCharged to Expense Accounts. Items charged to

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expense accounts, when received, will not beincluded in the physical inventories.Merchandise on hand that is to be returned tovendors will not be counted unless it has beencharged to an inventory account.

3. Items Included.

a. All mat-erials and parts used for rendering a service, allingredients used for preparing a finishedproduct, and all unsold resale merchandise instock will be included in the physical inventoryof the various departments.

b. T h evalue of containers, empty or full, for whichdeposits have been placed with vendors will beincluded in the inventory of the applicabledepartment. Containers which are so damagedthat they cannot be returned to the vendor willbe inventoried and a notation will be made oftheir condition so they may be disposed of.Items out on loan for which activity holdscustody receipts will be counted as items onhand, after a reasonable sample of custodyreceipts are verified. Discrepancies will beinvestigated as required by the inventory team.

4. Cash Counts. Amember of the inventory team shall verify byactual count the petty cash fund, the changefund, and undeposited receipts. The totalamounts of each fund will be accounted for. Allnoncash items should be documented on alocally devised form and retained. I.O.U.’s andpost dated checks will not be regarded as cash.The manager or designee will be continuouslypresent during the count, and will affirm thereturn of the cash funds to his possession. Traceamounts of the petty cash and change funds tothe general ledger balance. The amount ofundeposited receipts should equal the amountsreported on the daily activity sheet since the lastdeposit plus current sales. Management andCommand Evaluation Staffs/Audit Boardsshould make surprise counts as appropriate.

5. I n v e n t o r yDiscrepancies. All inventory variances will beinvestigated to the satisfaction of the

commanding officer. The investigation willinclude, but not be limited to:

a. Reviewof inventory counts for proper quantity,measure, identification, and price;

b. Inventoryextensions;

c. Footingand recapitulation of inventory sheets;

d. Physicalinspection of facilities for inventory not countedor double counted;

e. Reviewof sales cut-off;

f. Reviewof purchase cut-off;

g. Reviewof price changes;

h. Reviewof departmental transfers; and verification ofInventory Summary worksheets and variancecomputation, Physical inventory variances willbe charged or credited to the inventoryshortages/overages account and the inventoryaccount charged or credited to reflect thephysical inventory value. The adjustment willbe made based upon the physical inventoryextended value after investigation ofdiscrepancies has been completed.

C0513 ADJUSTING AND CLOSINGENTRIES

C051301 General.

A. End Of AccountingPeriod. At the end of an accounting period,before the financial position of an activity can bedetermined, it is necessary to make variousaccruals, adjustments, and closings to certainaccounts to effect corrections, and to recordtransactions not previously made.

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B. Accrual Method. Underthe accrual method of accounting various incomeand expense items that have accrued(accumulated) from day to day must be recordedat the end of a period. It is not practical orconvenient to record this information daily, butthe complete information is needed at the end ofa period. These end of period entries are called"adjusting entries". Adjusting entries are neededto record:

1. Prepaid itemsused and/or consumed during the period.

2. Salaries andwages earned but not paid.

3. Income earnedbut not received.

4. Decrease in thevalue of equipment, buildings, and vehicles.

5. Transactions notpreviously made.

C051302 Adjusting Entries.

A. Prepaid expense accountswill be adjusted by entries debiting the expenseaccounts for the amount that has been consumedduring the accounting period and crediting theapplicable asset account. When an activity buysand stores an asset which will be consumed orused in the future, the value of the item will bemaintained in an asset account until it is used.When it is consumed or used, the asset accountwill be decreased (credited) and an expenseaccount will be increased (debit).

B. Many activities will paytheir employees in one month for hours workedin a prior month. This situation occurs whenemployees are paid every two weeks, regardlessof calendar date. Using the accrual method ofaccounting, an expense must be recorded in themonth it occurs.

C. The accrual of interestincome is accounted for by an entry debitingreceivables and crediting interest income.

Investments earn interest on a periodic basisalthough the cash may not be received.

D. Whenever the activityreceives an asset that it has not earned, theindividual or business that gave the asset has alegal claim to either services or assets.Therefore, a liability exists, not income. Whenthe activity has performed the service or giventhe assets to this individual or business, thusearning legal title to the original asset received,an entry will be made transferring the respectiveownership from a liability account to an incomeaccount. All accrued liability accounts will beadjusted with entries to the appropriate incomeand expense accounts.

E. It may be necessary toadjust the General Ledger balances of thedepartmental resale inventories because ofphysical inventory valuations. These accounts,when approved by the commanding officer, willbe adjusted to show only the annual closinginventory. When the closing inventory is greaterthan the opening inventory, it is apparent thatmore merchandise was received than was sold.The applicable cost of goods sold account will bedecreased, and the inventory account increasedby the amount that the closing inventory exceedsthe opening inventory. An entry will be madedebiting the inventory and crediting cost ofgoods sold. As a result the inventory accountswill be adjusted to the value of inventoryactually on hand and the cost of goods soldaccount will show the cost of merchandise sold.The above entries will be reversed when theclosing inventory is less than the openinginventory.

F. Issues and directdeliveries to a department will be charged to itscost of goods sold, not to an inventory account.At the end of the period, an adjusting entry willbe required if the department has used more orless inventory than has been issued during theperiod.

G. If an activity’s inventoryincreases, the value of all of the goods receivedhas not been used; if it decreases, the value of allof the goods received and part of the beginning

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inventory have been used. This procedure issummarized in the cost of goods sold section ofthe profit and lost statement.

H. Warehouse or storeroomperpetual inventory records normally shouldagree with the value of the merchandise on handin storage. However, if the value of the physicalinventories is greater than the value of theperpetual inventory, an entry will be madedebiting warehouse inventory and crediting aninventory overage account for the difference. Ifthe value of the perpetual inventory is greaterthan the value of the physical inventory, anentry will be made debiting an inventoryshortage expense account and creditingwarehouse inventory for the difference. Alladjustments will be investigated to thesatisfaction of the Commanding Officer.Appropriate documentation for the adjustingentries will be retained for subsequent utilizationduring investigations or disciplinary actions.

C051303 Closing The Books.

A. Income and expenseaccounts (nominal accounts) are used toaccumulate information concerning currentperiod changes to net worth. At the end of theperiod, the net worth account does not reflect thetrue balance. It is necessary to transfer theamount in the income and expense accounts tothe net worth account. This process is called"closing the books," and accomplishes twoobjectives.

1. Clears incomeand expense accounts of transactions of the pastperiod.

2. Shows the properbalance in the net worth account.

B. To close the books, thefollowing entries are required:

1. Decrease eachincome account by the full amount with a debitand a credit to Account 999 Profit or LossClearing Account.

2. Decrease eachexpense account by the full amount with a creditand a debit to Account 999.

3. Credit net worthby debiting Account 999 with the differencebetween income and expense (net profit). Ifexpenses exceed income, the amount of the losswould be a debit to net worth and a credit toAccount 999.

C. Notice the accountsclosed are the income and expense accounts.Closing the books eliminates the balances in allaccounts on the profit and loss statement - theincome and expense accounts are thussummarized to arrive at a net profit or lossfigure. The profit or loss is transferred to the networth section of the balance sheet. Formalclosing is not required at the end of each month.However, all income and expense accounts mustbe closed at least annually.

C051304 Post-Closing Trial Balance. Afterthe closing entries have been posted to theaccounts, another trial balance is prepared toprove debits equal credits. This is necessary toinsure the ledger is in balance before posting thenext month’s transactions.

C0514 SPECIAL PROCEDURES

C051401 General. The procedurescontained in this Section are applicable to thegroups or types of activities indicated. They aresupplemental to procedures contained elsewherein this appendix.

C051402 B a c h e l o r O f f i c e r sQuarters/Billeting Fund.

A. Room Registration. Aregistration record (NAVCOMPT Form 2104) willbe used to register each guest of the activity. Asaccountable documents, forms will beprenumbered to control occupancy and revenue.

B. Room Rental Charges.Certain individuals (as designated by BUPERS)authorized to utilize housing are required to paya user fee while occupying quarters. These rents

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are collected and accounted for and deposited ina billeting fund. These collections will be used topartially defray operational and facility costsnormally paid from appropriated funds.

C. Housekeeping Services.Housekeeping services, including maid andjanitorial services or common use areas, will beprovided initially through the use of anonappropriated funded cleaning service.Nonappropriated funded costs for the commonuse areas will be reimbursed by stationoperations and maintenance funds to theBilleting Fund. The costs of services forindividual room cleaning will be supported withnonappropriated funds derived from chargesupon the residents of the activity.

D. Linen Charges. Thelaundering or dry cleaning of government-owned room linens and equipment will be at theexpense of appropriated funds. Certainindividuals (as designated by BUPERS) arerequired to reimburse the activity for theseexpenses. These costs shall be included in servicecharges levied upon the individuals asmentioned above and will be retained in thebilleting funds.

C051403 Military Student Subsistence andCommuted Rations.

A. NROTC Midshipmen,Contract Students, and Third Class USNAMidshipmen. NROTC midshipmen, contractstudents, and Third Class USNA midshipmenwhile on training under orders away from theirunit are entitled to rations in kind only.Accordingly, when they are ordered to subsist ina nonappropriated funded mess, the mess willbe reimbursed for their subsistence by the hostactivity submitting a bill to the local disbursingofficer for the cost of meals consumed inaccordance with the procedures outlined inNAVCOMPT Manual, par. 046397.2.

B. First and Second ClassUSNA Midshipmen and Aviation Cadets. Firstand Second Class USNA midshipmen and allNaval Aviation Cadets will either join the messor pay cash for meals consumed.

C. Army and Air ForceCadets. Payment for subsisting Army or AirForce cadets will be accomplished by submittinga bill to the appropriated military academy formeals consumed following the general guidancecontained in NAVCOMPT Manual, par 046397.2for Naval midshipmen.

D. Commuted Rations.Commuted rations for assigned enlistedpersonnel detailed to work at the activity will bepaid in the manner prescribed in NAVCOMPTManual, par. 046397.1.

C051404 Guest Houses, Hostess Houses,and Navy Lodges.

A. Room Registration. Aregistration record will be used to register allguests of Marine Corps temporary lodgingfacilities and Navy lodges.

B. Room Charges. Eachguest will be given a receipt for funds collectedfor room charges. Receipts will be procuredlocally, prenumbered, and used in numericalsequence with each number accounted for.

C051405 T r a n s i e n t F a m i l yAccommodations.

A. Occupancy Procedures.

1. General. Aregistration record will be prepared for ansigned by each tenant and filed by tenant’sname, for ready reference, until the unit isvacated. A visible index file is preferred. Whenthe unit is vacated the registration record will beremoved, completed, and filed by month ofvacancy for audit purposes. Each tenant will befurnished an inventory of the contents of theunit occupied, and the condition thereof, andwill acknowledge receipt in writing.

2. O c c u p a n c yRecord. The accommodations officer ordesignated representative will maintain anoccupancy record of each unit. The record willindicate the move-in date and the intended dateof vacancy. The intended date of vacancy will

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be changed to the actual date of vacancy whenthe tenant actually vacates. The accommodationsofficer, or designated representative, will verifythat the unit is vacated on the date specified andinspect the unit and its contents for loss ordamage before the tenant receives a refund orleaves the premises.

B. Charges.

1. General. Eachtenant is required to pay rent for the premisesoccupied which will include furniture, fixtures,and utilities. In addition, each tenant is requiredto pay for the loss of or damage to the premisesoccupied, including contents when such loss ordamage is caused by deliberate or negligent actsof the tenant, members of his household, or hisguests. The tenant will sign an agreement thathe accepts financial responsibility.

2. Unit Rental Rate.A daily fixed unit rental rate for each type ofunit will be established by the accommodationsofficer and approved by the commanding officer.The rate will include the following items:

a. E s t i -mated cost to maintain each unit,

b. E s t i -mated depreciation cost of the contents of theunit,

c. A one-time cleaning and linen charge,

d. E s t i -mated cost of common services,

e. E s t i -mated cost of utilities furnished, and

f. Amountto cover the cost of overhead expenses.

3. Direct Charges.The tenant will be required to pay directly forservices furnished from sources other than thosefurnished by the transient familyaccommodations officer.

4. A d v a n c ePayments and Security Deposits. The tenant willbe required to pay, in advance, for the estimatednumber of days he intends to occupy thepremises. The establishment of a securitydeposit to forestall delinquencies, or to cover lossor damage of government property, will beoptional and within the discretion of thecommanding officer, and, if required, will be inaddition to the advance rental payment. Theamount of the security deposit, when required,will be established by the accommodationsofficer and approved by the commanding officer.

5. Refunds. Thetenant will be refunded the difference betweenthe advance payment made and the actual rentalcharge, and the amount of the security deposit orthe difference between the amount of thesecurity deposit and any charges assessed forloss or damage to government property. Suchrefunds will be made in cash from the departurefund, cash receipts, or a change fund whenaccompanied by proper, documentation. Inthose instances where the charges for loss ordamage to government property exceed theamount of the security deposit, the additionalfunds will be collected from the tenant before heleaves the premises.

C051406 Host Nation Support-MasterLabor Contract (MLC) Cost Sharing. In thosecases where a foreign country is committed tofund part of the personnel allowances for itsnationals, then the NAFI shall be obligated onlyfor the NAFI portion of the cost.

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CHAPTER 6

RECORDING FINANCIAL TRANSACTIONS

C0601 GENERAL

C060101 Journals, Ledgers and Forms.This chapter describes basic journals, ledgers,and forms which will be maintained locally forthe purpose of recording and accumulatingfinancial data and preparing related statementsand reports. MWR activities participating incentralized accounting systems under the controlof the Bureau of Naval Personnel will useprogram manager prescribed forms andprocedures.

C060102 Illustrative Examples. Thevarious records described, and in some instancesshown herein, are presented as illustrativeexamples and, as such, may be modified to fitthe type of accounting equipment utilized, thetype and volume of transactions processed, andthe requirements of program managers. Thediversity of operations makes it impractical toprescribe internal records to meet the operationalrequirements of all morale, welfare, andrecreational activities. Commercial type journals,ledgers, and forms may be procured or devisedlocally.

C060103 Journalizing Rules. Thefundamental rules for journalizing are listedbelow:

A. Debit entries are torecord:

1. Increases inassets;

2. Decreases inliabilities;

3. Expenses orlosses;

4. Decreases in networth.

B. Credit entries are torecord:

1. Decreases inassets;

2. Increases inliabilities;

3. Income or gains;

4. Increases to networth.

C0602 JOURNALS.

A. General Journal. Thegeneral journal is the form for recording allfinancial occurrences and value changes notwithin the scope of the other books of originalentry. Activities in a centralized accountingsystem submit a general journal voucher to anaccounting unit rather than post to this journal.Most financial transactions will be recorded inone of the special journals, limiting the use ofthe general journal to the recording of unusualtransactions. Unlike the special journals,postings from the general journal to the generalledger may be made as they occur and not at theend of an accounting period. NAVCOMPT Form730 may be used for this purpose.

B. Cash Receipts Journal.The cash receipts journal is the daily record forrecording all cash receipts and bank deposits foractivities not participating in a centralizedbanking system. The journal will containcolumnar headings to show the date, description,total amount received, amount deposited, andseparate columns to provide credits to the mostcommonly used accounts. All cash receivedregardless of source will be recorded in thisjournal. The journal will also include a generalledger credit column for receipts that are notprovided for under the separate columnar

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headings. At the end of the accounting period,all columns will be totaled and balanced. Eachcolumn total is then posted to the general ledger,except the general ledger credit column forwhich individual entries are posted by accountclassification. NAVCOMPT Form 732 may beused for this purpose.

C. Cash DisbursementsJournal. The cash disbursements journal is usedby activities not utilizing a central bankingsystem to record all disbursements. Columnarheadings will be provided for the date,description, check number, voucher number, theamount of the check, discounts earned, andseparate columns to provide for debits to themost commonly used accounts. This journal willalso include a general ledger debit column torecord disbursements other than those providedfor in the separate columns. At the end of theaccounting period, all columns will be totaled,balanced, and posted to the general ledgerexcept the general ledger debit column for whichindividual entries are posted by accountclassification.

D. Purchase Journal. Thepurchase journal is used to record the liability(accounts payable) and make distribution ofcharges at the time goods or services arereceived. Columnar headings will be providedfor the date, the name of the vendor, invoicenumber, purchase order or voucher number,accounts payable credits, and separate columnsto provide for distribution to the most commonlyused accounts. A general ledger debit columnwill be included for distribution to accounts notprovided for under the separate columnarheadings. At the end of the accounting period,each column will be totaled and posted to thegeneral ledger except the general ledger debitcolumn for which individual entries are postedby account classification. Activities in acentralized system post all unpaid bills to anaccrual journal voucher at the end of anaccounting month.

E. Purchase Journal - CheckRegister. The purchase journal check registermay be used in lieu of the purchase and cashdisbursement journals. The NAVCOMPT Form

734 serves to combine the functions of these twojournals. A section is provided to record theliability for purchases and make distribution ofcharges at the time goods or services arereceived. The disbursement section is used todocument the payment of funds. Columnarheadings are provided for dates, description,name of vendor, invoice, voucher and checknumber, and separate columns are provided forthe most commonly used accounts.

F. Payroll Journal. Apayroll journal is used to record all theinformation necessary for the preparation of anactivity’s payroll. The use of a payroll journal isnot mandatory but is prescribed as an optionalprocedure where the number of employees issufficient to justify its maintenance as a desirablepractice. Activities employing a small number ofemployees may record the payment of salariesdirectly in the cash disbursements journal. Thedata concerning each employee contained in thepayroll journal or the cash disbursements journalare posted to individual earnings records, whichmust be maintained for each employee.Summary totals from this form are posteddirectly to applicable accounts in the generalledger or onto a payroll summary form used bya mechanized system. When the use of a payrolljournal is deemed appropriate it must contain asa minimum the information recorded when aNAVCOMPT Form 2210 is used.

1. When utilized,this form is prepared for each payroll period.This form consists of two parts; Part A (which isused to record employee work and leaveinformation and gross earnings (including freemeals received and tips reported by employees))and Part B (which is used to record deductioninformation, net wages, check number andexpense distribution). To complete the form, ifan employee works more than one shift or morethan one job in a single pay period, theinformation should be recorded for each job orshift on separate lines of the form. Anadditional line should then be used as a totalline for columns (15-29). Part B will then befilled out for this total line only. Though it takesup additional space, this procedure eliminatesthe most common payroll errors made by payroll

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clerks. For example, if an employee works twoseparate jobs, two individual lines and a totalline would be used. Similarly if an employeeworks two different shift differentials a total ofthree lines would be used. If an employeeworks only one job or one shift and worksovertime, only one line is used.

2. Note that annualleave expense is the dollar amount for thenumber of hours of annual leave earned duringthe pay period (column 6 x column 14) whilesick leave expense is the amount of sick leavepaid during the pay period (column 21). Ingeneral an employee’s wages are charged to thedepartment in which he works. If the employeeperforms an administrative function, record thatemployee’s wages under Salaries and WagesAdministrative.

G. Combination Journal -Ledger. This is an alternative record used as abook of original entry. Activities that have alimited number of transactions may utilize thecombination journal-ledger. All receipts anddisbursements are recorded daily. All entriesmust be supported by valid receipt anddisbursement vouchers. Columnar headings areprovided to show the date, explanation, checkand voucher numbers. Debit and credit columnsare incorporated to meet the operational needs ofthe activity. As a minimum, the format containsthe following three sections: cash in bank,general ledger and net worth. The total of alldebit columns must always equal the total of thecredit columns. A separate general ledger is notrequired. Prepare the trial balance and financialstatements directly from the informationcontained in the combination journal-ledger.Subsidiary ledgers for accounts receivable andaccounts payable must be maintained.

C0603 LEDGERS.

A. General Ledger. Thegeneral ledger is the record in which allaccounting entries are ultimately summarized.The accuracy of the information recorded mustbe absolute in all details. The data contained inthis record is used as the basis from which thefinancial statements are constructed. A separate

ledger sheet will be maintained for each accountused. NAVCOMPT Form 733 may be used asthe general ledger. At the end of the accountingperiod, a trial balance will be prepared and eachcontrol account reconciled with its relatedsubsidiary ledger.

B. Subsidiary Ledger. Asubsidiary ledger is used to support a generalledger account balance. It is mandatory thatsubsidiary ledgers be maintained for accountsreceivable and accounts payable and any otheraccount which management deems necessary forcontrol purposes. The NAVCOMPT Form 733may also be used as a subsidiary ledger form.

C0604 FORMS.

A. Expenditure Voucher(NAVCOMPT Form 740). This form will be usedfor recording all purchases and other expenseswhen a voucher system is desirable. Wheninvoices are payable separately under discount,a voucher will be prepared for each. Onevoucher is prepared for each vendor when allinvoices for that vendor are paid by one check.

B. P r o p e r t y a n dDepreciation Record (NAVCOMPT Form 742)The property and depreciation record is used torecord nonexpendable property (property valuedat $1000 or more per item or set of items) andrelated depreciation, and may be used to recordexpendable property and special property itemswhen deemed necessary for control purposes.As a minimum, this record must show acomplete description of the asset. Only one itemor number of like items will be recorded on eachform. Property and depreciation recordssupporting the fixed assets general ledgeraccounts must be maintained separately fromstock record cards for merchandise inventory.

C. S t o c k R e c o r d(NAVCOMPT Form 742-1). The stock record(NAVCOMPT Form 742-1) is used to recordresale merchandise and supplies in a warehousefor storeroom. It may be used to recordexpendable property. The form is designed toaccommodate recording of like items ofmerchandise and supplies. The stock record

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must show a complete description of themerchandise and all pertinent informationregarding receipt and issues.

D. Petty Cash Voucher(NAVCOMPT Form 743). This form is used tosupport all disbursements made from the pettycash fund. Vouchers are prenumberedsequentially and controlled. When the paymentis to be charged to more than one controlaccount, the amount applicable to each accountis shown on a separate line. These separate linesmust total to the amount paid. Personsrequesting reimbursement from the petty cashfund must complete a petty cash voucher signingthe "Received By" block and attach a validreceipt.

E. Individual EarningsRecord (NAVCOMPT Form 2209). This form isused to accumulate payroll information for eachemployee on a quarterly and annual basis andfacilities the preparation of social security andW-2 earnings statements, which must befurnished as required by federal law. A signedstatement of working conditions or a contract ofthe terms of employment should be obtainedfrom each employee.

F. Daily Activity Record(NAVCOMPT Form 2211). The daily activityrecord is used to record all activity income, andwhen properly used creates a built-in internalcontrol system which protects the cash assets.All individual cashiers responsible for receivingcash and charge sales record the requiredinformation on a daily activity records uponcompletion of their assigned work schedule andturn the cash and the NAVCOMPT Form 2211 into the designated person. The person designatedto receive the cash verifies the cash and chargesales and records the required additionalinformation on the NAVCOMPT Form 2211. Theperson designated reads the register, records thereadings on NAVCOMPT Form 2211, andcomputes cash overage or shortage. All entrieson the daily activity record must be made in ink.No corrections may be made to lines 1 through6. If errors are made on these lines, the cashiermust either destroy the form (or if locallyrequired void and surrender the erroneous form)

and prepare a new one. Authorized correctionson other lines of the form are made by drawinga single line through the error and writing thecorrect amount immediately above. Correctionsmay be made only by the person making theoriginal and must be initialed and dated.

G. Certificate of Disposition(NAVCOMPT Form 2212). Nonappropriatedfund procured property that is controlled by useof a property and depreciation or stock recordwhich has become unserviceable or missing maynot be dropped from an activity’s records untila certificate of disposition is prepared by theactivity and approved by the commandingofficer or his designated representative.Annotations are made on the form to indicatethe cause of the condition and substantiatingdocuments including custody receipts areattached. In the cases where individualculpability is known or suspected, aninvestigation concerning the property should beconducted. The safeguards of the Uniform Codeof Military Justice (UCMJ) Article 31 must befollowed if the individual is a member of theArmed Forces and is suspected of any offense.

H. P u r c h a s e O r d e r(NAVCOMPT Form 2213). A purchase ordermust be used for all purchases of supplies,services, materials and equipment fromcommercial sources except for purchases madeby contract or from the petty cash fund. Whenrequisitioning merchandise from the NavalSupply System, forms are prescribed by the localsupply activity. The activity’s designatedpurchasing agent completes NAVCOMPT Form2213 to initiate the purchasing process. Aftercompletion, the original is sent to the vendor.The duplicate is forwarded to the bookkeeper forinclusion in the numerical "open order" filemaintained in that department. The triplicateand quadruplicate copies are forwarded to thearea where the merchandise will be received,where an "open order" file will be maintained byvendors’ name until delivery. The last copy isretained by the purchasing agent for referencepurposes. After receipt of goods, the purchaseorder copies are circulated as described inChapter V. Activities participating in acentralized system use 2147 in lieu of

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NAVCOMPT Form 2213. NAVCOMPT Form739 may be used by all other activities untilpresent stocks are exhausted.

I. R e q u i s i t i o n(NAVCOMPT Form 2214). A requisition mustbe used to document the transfer of allmerchandise or operating supplies from onedepartment of an activity to another department(warehouse to resale location or resale location toresale location). It may also be used todocument transfers from one activity to another.Requisitions are prepared by the department oractivity requesting the items in a sufficientnumber of copies to provide copies for theissuing activity, the requesting activity, theaccounting department of each of these activities,and an additional copy for a stock control pointif different from the issuing or requestingactivity. In most instances, requisitions betweendepartments of a single activity are preparedusing the three copies of the form. Forrequisitions between activities, an extra copymust be prepared so that both bookkeepingdepartments have documentation to support theaccounting records. The forms are sequentiallyprenumbered by stamping, overprinting, ortyping and are issued in blocks to the individualdepartments. Continuation sheets, wherenecessary, are prepared by the use of a locallydeveloped form that utilizes the same format asthe requisition, or by voiding the nextsuccessively numbered requisition andannotating it with the requisition number of theoriginal, the words "continuation page" andindicating the number of each page. Forexample, if three sheets are used in a requisition,the tops of all copies of the first sheet aremarked "1 of 3", the second "2 of 3", and third "3of 3". DD Form 1149 may also be utilized forthis purpose.

J. I n v e n t o r y R e c o r d(NAVCOMPT Form 2215). An inventory recordis used to list the value and quantity of anactivity’s inventory as shown by stock records ora physical sighting and count of the resale items,operating supplies, and replacements. Thislisting is then reconciled with the valuation forthese accounts shown in the general ledger.Valuation is made on a first in, first out basis for

both cost and retail values. Last invoice pricemay be used to price merchandise located insales outlets. Discrepancies between thevaluations shown on the inventory record andthe general ledger and/or stock records must beinvestigated and proper adjustments to theaccounting records made. This investigationshould ascertain the cause of the discrepancyand the corrective action necessary to prevent it.Investigation results must be documented andmade a part of the official records of the activity.Locally developed or procured forms may besubstituted as an inventory sheet, provided theinformation shown is equivalent to theinformation requirements of the NAVCOMPTForm 2215.

K. Property Receipts. Tofacilitate control and to insure maximum use ofproperty, the commanding officer or hisdesignated representative will specify time limitsfor the use of items of property in great demand.

1. T e m p o r a r yPeriods. A signed custody receipt (NAVCOMPTForm 744) will be obtained from each individualborrowing property without charge. This receiptwill be returned to the individual when theproperty is returned. Prenumbered salesvouchers for rentals (such as boats, trailers, golfclubs, etc.) should be used. Returns should beannotated on customer’s voucher.

2. Issues for anIndefinite Period. The custodian will maintain afile of signed custody records (NAVCOMPTForm 745) obtained from individuals chargedwith the accountability of property issued for anindefinite period.

L. Consolidated PropertyRecord. This memorandum record will bemaintained to show a complete listing of eachexpendable item purchased by the activity andstored in the warehouse or storeroom, andspecial items as defined in Chapter V. Propertyand depreciation records (NAVCOMPT Form742) or stock records (NAVCOMPT Form 742-1)will be maintained as subsidiary records to thememorandum consolidated property record.

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M. Receipt Voucher. Areceipt voucher (procured locally) will be usedfor receipts of cash not recorded in cash registersor on sales slips. These forms will be preparedin triplicate for each cash collection. The originalreceipt voucher will be given to the individualmaking payment. The second copy will be usedto post the cash receipts journal. The third copywill be retained for numerical accountability. Asa minimum, the form will contain the date ofreceipt, number of receipt, amount received,received from, received by and received for.

N. Special Event Reports. Aspecial event report (procured locally) will beprepared in ink for each special event and willshow the date of the event, collections made,tickets sold, list of prize winners, prizes won,dollar value, signature of persons winningprizes, and any other pertinent data deemednecessary by management. The report will besigned by the individual in charge of the eventand one other person who will verify sales andcash collected. If the special event is of arecurring nature, i.e. weekly bingo, then thereport is unnecessary provided equivalent datais maintained through Daily Activity Records,Receipt Vouchers, etc. to enable construction ofthe report if need be.

O. Registration Record(NAVCOMPT Form 2104). The registrationrecord must be prepared for and signed by thetenant of BOQ’S transient accommodations, guesthouses, etc.

C0605 REPORTS. In order to providemanagement with current information pertainingto the financial condition of the activity, thesubmission of financial statements periodically isof utmost importance. Financial statements areprepared at the end of each accounting period;monthly, quarterly, or as prescribed by theprogram manager. The accounts prescribed inthis handbook have been designed to facilitatethe preparation of such statements. All financialstatements are prepared from the officialaccounting records. Financial statements mustbe submitted by each activity in accordance withinstructions issued by the applicable programmanager. A sample balance sheet and income

statement are shown in chapter VII, forillustrative purposes only. Reportingrequirements and formats for MWR programmanagers are specified by the Secretary of theNavy and the Comptroller of the Navy,respectively. SECNAVINST 7000.22(series) andAppendix H provide guidance for reportingrequirement and formats.

C0606 PROCUREMENT OF FORMS.

A. NAVCOMPT Forms.NAVCOMPT forms prescribed or mentioned inthis handbook may be obtained by submitting aDOD Single Line Item Requisition (DD Form1348), citing the ordering number of the formdesired to:

Commanding OfficerNaval Publications and Forms Center5801 Tabor AvenuePhiladelphia, Pennsylvania 19120

The names, form numbers, and orderingnumbers of NAVCOMPT Forms commonlyused in morale, welfare and recreation programsare listed on the following page.

B. Other Forms. All other formsdeemed necessary at morale, welfare andrecreation activities must be procured and/ordeveloped locally, except as prescribed or madeavailable by applicable program managers.

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Form Name NAVCOMPT FormNumber

Ordering Number

General Journal 730 0104-701-1900

Cash Receipts Journal 732 0104-701-2100

General Ledger 733 0104-701-2200

Purchase Journal-CheckRegister

734 0104-701-2302

Budget Record 735 0104-701-2400

Expenditure Voucher 740 0104-701-3000

Property and DepreciationRecord

742 0104-701-3200

Stock Record 742-1 0104-701-3250

Petty Cash Voucher 743 0104-701-3300

Custody Receipt 744 0104-701-3400

Custody Record 745 0104-701-3500

Status of NonappropriatedFund Balances

2062 0104-702-3601

Registration Records 2104 0104-703-8300

Retail Price Change 2145 0104-704-2500

Purchase Order 2147 0104-704-2700

Individual Earnings Record 2209 0104-706-5100

Payroll Journal 2210 0104-706-5150

Daily Activity Record 2211 0104-706-5200

Certificate of Disposition 2212 0104-706-5250

Purchase Order 2213 0104-706-5300

Computer Purchase Order 2213 0104-706-5330

Mess Requisition 2214 0104-706-5350

Inventory Record 2215 0104-706-5400

Order for Work and Services 2275 0104-702-2751

Voucher for Disbursementand/or Collection

2277 0104-702-2770

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CHAPTER 7

INVESTMENTS

C0701 GENERAL

C070101 Policies. This chapter establishesNAF investment policies as prescribed by DoDprogram policies and assigns the programmanagers’ responsibilities for financialmanagement of their NAF investment programs.DFAS-HQ/A will annually review and monitorselected investment information provided byprogram manager.

C070102 Applicability. The policies setforth herein apply to exchanges and all militaryand civilian Morale, Welfare, and Recreational(MWR) investments within the Department ofthe Navy, except retirement funds. Policiespertaining to the management, investment andadministration of retirement plans are containedin SECNAVINST 5300.22A(series), Navy andMarine Corps Personnel Policy Manual forNonappropriated Fund Instrumentalities(NAFIs).

C070103 Limitations. Nonappropriatedfunds may be invested, only as provided for inDoD program policy. The size of the investmentprogram must not exceed the projected need tofund otherwise unfunded MWR requirements.Funds will not be accumulated solely forinvestment income. However, cash assets inexcess of immediate operational needs will beinvested as soon as possible after receipt.Program Manager will ensure that adequateinvestments are established to fund replacementof tangible fixed assets, employee severance pay,pension plans, constructing and alteration offacilities, mobilization contingencies, and newoperational programs that may be introduced.

C0702 RESPONSIBILITIES.

C070201 Program managers. Programmanagers (Commandant of the Marine Corps,Commander, Naval Supply Systems Command,Commander, Naval Military Personnel

Command; and Commander, Military SealiftCommand) will:

A. Establish and maintainadequate systems of internal control that providereasonable assurance that the policies set forthherein are complied with.

B. Establish an investmentsteering committee and appoint competentmembership.

C. Appoint investmentofficers who are financial management specialistswith training in investment banking.

D. Review and approve, atleast annually, an investment plan (strategy)prior to authorizing funds to be invested. Theplan should also identify the projectedrequirements for which the funds are beinginvested. Such annual plan will be modified bythe Program Manager as internal and/or marketconditions require.

E. Establish a system toreview, evaluate and track the investmentportfolio performance.

F. E n s u r e t h a t t h eprocurement and/or sale of investmentinstruments is conducted on a competitive basis.This process, at a minimum, requires obtainingmultiple telephonic quotes and rotation amongqualified bidders to assure:

1. Maximum yieldssubject to risk evaluations and forecasted cashpositions;

2. E q u i t a b l etreatment of bidders. All bids and consummatedtransactions will be documented.

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G. Require an annualreview and/or inspection of investment funds toinclude the evaluation or internal controls andfollow-up on corrective action taken onrecommendations in Naval Audit Service(NAVAUDSVC) and private sector audits andany other inspection recommendations.

C0703 REPORTING REQUIREMENTS

C070301 Annual Report. Annually,program managers will be requested to submita summary of NAF investments to DFAS-HQ/Afor review.

A. The annual report will beas of 30 November.

B. The report will besubmitted for each year in time to reach DFASby the 5th workday in January.

C. The report will includeidentification of:

1. I n v e s t m e n t splaced with financial institutions and acertification that they are properly insured andcollateralized as required by DoD programpolicy.

2. I n v e s t m e n t smade with foreign financial institutions; and

3. I n v e s t m e n t smade by field activities.

C070302 Format. In addition to thereports, addressees will provide a copy of allaudits performed, by internal as well as externalauditors.

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ATTACHMENT C.1

RULES RELATIVE TO THE PROTECTION OF BANK DEPOSITS(CHECKING ACCOUNT)

1. Responsibility. The manager as a directrepresentative of the commanding officer isresponsible for the protection of allnonappropriated funds including deposits withfinancial institutions and the associated collateralrequirements.

2. Deposits with Insured Institutions in theUnited States. Only banks insured by theFederal Deposit Insurance Corporation, savingsand loan associations insured by the FederalSavings and Loan Insurance Corporation, orcredit unions insured by the National CreditUnion Administration, shall be selected asdepositories for nonappropriated funds.Deposits up to $100,000 may be deposited insuch insured institutions for each time account(savings and certificate of deposits), and depositsup to $100,000 may be made for each demandaccount (checking).

a. Banks. A deposit in excess of$100,000 is required to be collateralized, prior tothe depositing of the funds, by the institutionpledging acceptable collateral with the districtFederal Reserve Bank or a third party custodianapproved by a Federal Reserve Bank. (Refer toparagraph 5 and 6 of this Attachment).

(1) Insurance coverage forany interest or dividends received during the lifeof the certificate will not be required until thecertificate expires. If the dividends are paidquarterly, then time certificates should only beexecuted for a one year period.

(2) Provision is made underSection 10 of the Act of June 11, 1974, 56 Stat.356 amended, (12 U.S.C. of 265) whereby banksinsured by the Federal Deposit InsuranceCorporation which have been designateddepositories by the Secretary of the Treasurymay deposit securities in the form of UnitedStates Treasury bonds or, otherwise, any other

Federal funds. The deposit is subject to thecontrol or regulation of the United States or anyof its officers, agents, or employees. Underregulations of the Treasury Department, suchbonds or securities must be deposited with aFederal Reserve Bank of the United StatesTreasury Department or a designated third partycustodian.

b. Credit Unions and Savings andLoan Associations. Although insured creditunions and savings and loan associations areeligible to receive deposits of nonappropriatedfunds, such deposits are limited to the maximumamount covered by insurancenamely, $100,000. Deposits in excess of insuredamounts must be collateralized in accordancewith paragraph 5 of this Attachment.

3. Deposits with Overseas Branches.Deposits in overseas branches of United Statesbanks are not insured when deposits are onlypayable in a foreign country or at an office of thebank located in areas outside the United States,District of Columbia, Puerto Rico, and the VirginIslands. Therefore, collateral in the full amountwill be required to cover such uninsureddeposits. Deposits in the currency indigenous tothe country may be made in branches of UnitedStates banks or in foreign depository bankswithout collateral but are limited to the amountsrequired for current operating expenses andconstruction and severance/retirement liabilities,as collateral cannot normally be obtained fromforeign banks.

4. Insured Deposits. The term "insureddeposit" contained in the Federal DepositInsurance Act means the net amount due to anydepositor for deposits in an insured bank, afterdeducting offsets, less any part thereof which isin excess of the maximum coverage. The netamount shall be determined according to suchregulations as the Board of Directors of the

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Federal Deposit Insurance Corporation mayprescribe. The above method also applies tofunds deposited in insured credit unions andsavings and loan associations.

In determining the amount due any depositor,there shall be added together all deposits in theinsured institution maintained in the samecapacity and in the same right for his/her benefiteither in his/her now name or in the name ofothers. Deposit maintained in the same insuredinstitution in different rights or capacities are notso added together for insurance computation.When a custodian has custody of severalfunds/accounts and each fund/account ismaintained in a different right or capacity, eachfund/account is entitled to the maximuminsurance coverage. The foregoing provides thatone or more funds/accounts can be administeredby a single custodian without impairing theinsurance protection.

Under Section 10 of the Act of June 11, 1942, andsubsection 2(m) of the Federal Insurance Act,each officer, employees, or agent of the UnitedStates having official custody of public fundsand lawfully depositing these funds in a bankinsured by Federal Deposit InsuranceCorporation is, for the purpose of determiningthe amount of the insured deposit, considered adepositor in such custodian capacity separateand distinct from any other official custody ofpublic funds, and lawfully depositing thesefunds in the same insured bank in custodialcapacity. Since nonappropriated funds undermilitary control have been held to be publicfunds within the meaning of this Act of June 11,1942, as amended, each person acting as officialcustodian of such nonappropriated funds andlawfully depositing then in any insuredinstitution will be insured up to the maximumlimit on such deposits maintained in eachdifferent right or capacity provided that separaterecords are maintained for each nonappropriatedfund account.

5. Pledge of Collateral. For deposits ofNavy or Marine Corps organizational funds inexcess of insured amounts, depositors shallrequest the bank, savings and loan association,or credit union to immediately pledge the

necessary collateral with a designated third partycustodian and require that the depositor benotified by message within two (2) days afterdeposit. If necessary collateral is not pledged asrequested, the funds should be removed and nofunds in excess of $100,000 should be depositedin the financial institution.

6. Third Party Custodians. The third partycustodian relationship is between the FederalReserve Bank and the financial institution and issupported by a standard third party agreement.Prior to using a third party custodian youshould obtain a copy of the Agreement andadvise the Federal Reserve of your intention touse the custodian. You should also have anagreement whereby the custodian will provideyou monthly statements which show the typeand amount of collateral pledged by eachinstitution for your account.

7. Utilization of Banking Facilities. Theservices of banking institutions operating onmilitary installations will be utilized to the extentthere is a need for such services and the servicesand the on-base banking institution can providethe types of service needed at a competitiveprice. The on-base banking facility wasestablished and justified, in part, as a means ofproviding convenient banking services tocustodians of nonappropriated funds. The use ofother banks would tend to defeat the purpose forwhich the facility was established by denying itthe support that comes from the maintenance ofdeposit accounts. This practice is necessary infairness to the banking facility and to avoidpossible subsidy by the Treasury Departmentand the Department of the Navy relating to suchaccounts. If an activity has approval to automateits payroll system with a commercial bank orservice center and such services are not availableat the installation banking facility, such limitedservice may be contracted for elsewhere.

8. The Investment of Funds. Theinvestment of funds in excess of currentoperating requirements in insured accounts or inthe U.S. Government securities is authorized,subject to theconditions described in paragraph 2 above. SeeChapter 8 for investments.

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9. Savings and Loan Associations. Savingsand Loan Associations which are insured by theFederal Savings and Loan Insurance Corporationare eligible to receive deposits ofnonappropriated funds up to a maximum of$100,000. Because there is no way to obtaincollateral from savings and loan associations,deposits are limited to the amount covered byinsurance - namely, $100,000.

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ATTACHMENT C.2

FEDERAL UNEMPLOYMENT COMPENSATION PROGRAM FORNONAPPROPRIATED FUND PAID EMPLOYEES

1. GENERAL

a. Authority. 5 U.S.C. 8501 to 8508amended the Social Security Act by adding anunemployment insurance program for Federalcivilian employees. The Secretary of Laboradministers the program through agreementswith state employment security agencies. Underterms of each agreement, the state agency, as anagent of the United States, takes claims and paysbenefits to eligible Federal service employeesunder the same terms and conditions of its stateunemployment compensation law which applyto industry employees who are covered by andfile claims under the state law. In thoseinstances where the Secretary of Labor does nothave an agreement with an individual state, theSecretary, under regulations prescribed by him,shall pay a claim in the same amount, on thesame terms, and subject to the same conditionsas would be paid under the unemploymentcompensation law of the State if an agreementdid exist.

b. Eligibility. Nonappropriatedfund paid civilian employees and militarypersonnel employed voluntarily during off-dutyhours are considered as having rendered"Federal Service" thereby entitling them tounemployment benefits. To be eligible forunemployment benefits under any state law, aclaimant must be ready, willing and able towork, in addition to meeting other conditionsprescribed under the state law.

c. Base Period. The amount ofunemployment benefits to be paid and thenumber of weeks for which benefits will be paidis based on the amount of "Federal Service" (andstate covered) wages earned in a 52 week period(base Period) preceding the claim. "Base period"is a 52 week period defined in each state law, isvariable among the state, and in most states isthe first four of the last five completed calendarquarters preceding the claim.

2. COVERAGE. All employees paidnonappropriated funds within the United States,Puerto Rico, Virgin Island, and all United Statescitizen employees wherever located perform"Federal Service" for unemploymentcompensation purposes. The program requiresno contributions from MWR employers oremployees and provides unemployment benefitssimilar to those provided to workers in privateindustry. The Department of the Navy pays thecost of any benefits paid to its employees.

3. NOTIFICATION TO EMPLOYEES.Standard Form 8, Notice to Federal Employeesabout Unemployment Compensation will beissued on or before the last day of active duty toemployees whose services terminate for anyreason, who transfer to an activity served by adifferent payroll office, or who are placed in anon-pay status for seven or more days.Additionally, a personnel separation statementwill be issued showing the employee’s name andsocial security number, salary rate, date ofseparation and specific reason(s) for separationor placement in a non-pay status. (Theemploying unit should maintain a copy of thislocally produced personnel action document forreference purposes.) Activities will ensure thatthe payroll unit designation and address andNavy MWR identification code 426 are insertedin the space provided on SF-8 is current andcomplete. On presentation of the SF-8 whenclaim is filed, the state agency addresses itsrequest for wage and separation information(Form ES-931) to the payroll unit address shownon the SF-8.

4. R E Q U E S T F O R W A G E A N DSEPARATION INFORMATION

a. Responsibility. Pursuant to 5U.S.C. 8501-8508 requirements, Navy activitieswill furnish information requested by stateemployment security agencies concerning civilian

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employees wages and employment to determineclaimant’s entitlement to unemploymentcompensation benefits.

b. Submission of Request. The stateagency will send Form ES-931, Request for Wageand Separation Information, to the payroll officeaddress shown on SF-8 when a claim is filed bya former employee. The activity will completeall Form ES-931 items on the basis of its payrollrecords and personnel action documents. NavyIdentification Code 426 will be entered in SectionII, Item 4, on all Forms-931. One complete formwill be retained in a separate alphabetical file byname and the remaining Form ES-931 copiesreturned to the state employment securityagency address shown on the form. The filecopy of the Form ES-931 copies and relatedunemployment compensation forms will beretained for a period of at least two years.

c. Control of Form ES-931. Acontrol (register or card file) will be establishedto ensure that the completed Form ES-931 andrelated forms (Form ES-934), Request forInformation or Reconsideration of FederalFindings (Form ES-936), and Request forVerification are returned to the state agencywithin four working days of receipt of the form.If the Form ES-931 cannot be completed andreturned within four working days of receipt, theactivity will immediately inform the state agencythat completion and return will be delayed andwill include an estimate as to when thecompleted form will be returned. If anotheractivity has the wage employment recordsrequired for completion of Form ES-931, theform should be sent to that activity forcompletion and the state agency should beadvised of the transfer. If there is no record ofemployment, all forms should be returnedpromptly to the state agency with the notation"No record of employment."

5. SOURCE OF INFORMATION TOCOMPLETE FORM ES-931. Informationfor completion of Form ES-931 will be obtainedfrom the individual pay record. The pay recordshould be retained for 30 days in the event thatthe state agency may request information inaddition to that reported on Form ES-931. If a

Request for Additional Information, Form ES-934is pending, the pay record should be retaineduntil such request has been processed.

6. COMPLETION OF FORM ES-931

a. Information furnished by stateagency. The state agency will have completedthe parts of the form which identify the claimantfor whom wage and separation information isbeing requested and which specify the baseperiod for which wage data are needed.

b. Completion of entries by activitypayroll office

(1) Item 1a, Federal Service.Check "yes" or "no" as applicable. If noemployment was performed during base periodspecified, briefly explain, complete item 3, signthe form and return to state agency. Anyquestion concerning whether or not a specifictype of service is "Federal service" will bereferred to the office of Civilian ManpowerManagement for determination.

(2) Item 1b, Location of lastemployment. Enter the state or foreign countryin which "duty station" was located as describedon Form ES-931.

(3) Item 2a, Base Period -Wage Information. Enter gross wageinformation before reductions for the base periodindicated. Complete the item in the manner andonly to the extent specified. Include in "basePeriod wages" all remuneration including cost ofliving allowances, post differentials, back-payawards, payments for sick leave, allowances inkind, and retroactive pay increases (allocated tothe period in which paid). Report lump-sumterminal leave payments exclusively in item 3a,Form ES-931.

(4) Item 3, Terminal Leaveand Separation Information

(a) Item 3a, enterinformation as to whether or not lump-sumterminal leave payment was made. If "yes",enter dates or period covered by terminal leave

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and enter the dollar amount of the lump-sumpayment for terminal leave and the date ofpayment. If "no", so indicate. Also enter thehourly rate of pay and the claimant’s hours ofregular duty per workday and basic work weekhours.

(b) Item 3b, enter thedate on which the employee was separated.

(c) Item 3c, enter thedate of the employee’s last day of active paystatus, if earlier than date of separation or ifemployee has not been separated.

(d) Item 3d, enterreason for separation or non-pay status. If pastexperience with Forms ES-934 in similar casesshows the information in "Remarks" isinadequate for state agency adjudicationpurposes (such as "Suspended", "Retired","Personal Reasons"), enter, in addition, clarifyingfindings obtained from the personnel office.

7. BACK PAY AWARDS. Back pay awardsmay require a redetermination of a claimant’sbenefit rights, or the recovery of benefits alreadypaid. Therefore, the state agency to which aForm ES-931 has been sent for such employeeshould be informed by letter of the date,amount, and period covered by the back payaward. Upon receipt of this information, thestate agency will determine whether such backpay wages are in the claimant’s base period. Ifthe back pay wages are in the claimant’s baseperiod, the state agency will request a correctedassignment of wages by Form ES-931 to includethe amount of back pay wages determined to bein the claimant’s base period along with otherwages for the period. The activity will notattempt to deduct unemployment compensationbenefit payments form back pay awards (35Comp. Gen 241). Recoveries will be madeexclusively by state agencies.

8. REQUEST FOR INFORMATION ORRECONSIDERATION OF FEDERAL FINDINGS,FORM ES-934. It is essential that the sate agencyhave adequate information on which to base itsdetermination of entitlement. If for any reasonthe information supplied on Form ES-931 is not

adequate, the state agency or state administrativeappeal authority will request additionalinformation. Provision is made also for aclaimant, within the time limits specified in thestate law, to request a Federal agency to supplyadditional information or to reconsider itsfindings. The claimant’s request will usually bemade through the state agency with which hisclaim was originally filed. These requests maybe made by Form ES-934, Request forInformation or Reconsideration of FederalFindings, by letter, or by other state forms. Toexpedite processing, all requests should besubject to the same control as Form ES-931. If ananswer cannot be made in 4 days, the stateagency should be notified when an answer canbe expected. The Federal agency shall furnishany relevant information requested which it isnot otherwise prohibited by law from releasing.If the request is for reconsideration of findings,the Federal agency should consider anyinformation supplied by the claimant, the stateagency, or the state administrative appealauthority, and should review its findings. Itshould promptly correct any errors or omissionsand should reverse, modify, or affirm itsfindings, and should advise the state agency ofits action and the basis thereof. The Forms ES-934 pertaining exclusively to separationinformation should be referred to the personneloffice for its action. The personnel office shouldreturn the completed Form ES-934 should beretained and the remaining completed formsreturned to the state agency.

9. VERIFICATION OF WAGE ANDSEPARATION REPORTS. Each state agency willrequest verification of a sampling of Forms ES-931. These requests will be made on VerificationLetter Form ES-936. This form should receive thesame prompt attention as Form ES- 931. Inorder to provide a proper check, it is desirablethat Form ES-936 be completed by an employeeother than the person who prepared the originalForm ES-931. The state agency will send arepresentative to visit any activity if a reply toForm ES-936 indicates that there has been a lackof understanding of the program, that errorshave been made, or that the activity desires todiscuss reporting problems.

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10. NOTICE TO STATE AGENCY OFREFUSAL OF WORK OFFER. When an offer ofreemployment is refused by a former employeewho worked for the activity in the area coveredby the personnel and payroll offices where theoffer is made, the personnel office shouldpromptly notify the payroll office of the refusal.On receipt of such notice, the payroll office willreview its alphabetical file of completed FormsES-931 to determine whether the file contains aform pertaining to the person who refusedreemployment. A copy of a completed FormsES-931 should be maintained in this file forevery former employee in the area covered bythe payroll office who filed a claim forunemployment compensation benefits. If the filereveals that the former employee filed claim forunemployment compensation benefits and if the"Date of Request" in the upper right-hand cornerof the Form ES-931 is within 12 months of thedate on which reemployment was offered, anotice should be sent to the state agency whichinitiated the Form ES-931, giving the followinginformation: The employee’s name and socialsecurity number, the date of the job offer, thenature, location and salary of the job offered,and the reasons for the refusal, if known.

11. OTHER STATE FORMS. In addition toreceiving Forms ES-931, 934, and 936, payrollunits will receive several types of state agencyforms furnishing information or requestinginformation. Two of these forms may be asfollows:

a. Notice to Claim Determination.Most state laws require mailing of this form toformer employers notifying them about a statedecision on a claim filed by a former employee.If it appears from the notice that the state agencymay pay benefits where, in the opinion of thepayroll or personnel officer, the facts concerningseparation should prevent such payment, theactivity should file an appeal from suchdetermination as instructed on the form.

b. Request for Wage Informationfor a Specific Week. When a claimant reportsearnings from part time work, state agencies willrequest employer verification of the amount ofsuch earnings. Request are also made when the

state believes that the claimant had earned wagesbut failed to report such earnings.

12. DISTRIBUTION OF UNEMPLOYMENTCOMPENSATION COSTS TO FORMEREMPLOYING NAFIS. The Department of Laborassigned Federal Agency Codes (FAC) toidentify "Bill to Navy Activities". Each "Bill toActivity" must identify each claimants formeremploying activity and work related information,i.e., wages earned, social security number, periodworked, job title, reason for dismissal, etc. Thefollowing FAC(s) are assigned to the Navy andshould appear on all documents used to processclaims.

Federal Includes NAFIsAgency Bill To Under theCode Activity Command of

807 Navy The Navy ExchangeExchange System and MilitaryService Sealift Command

808 Navy Rec. & Bureau of NavalClub System Personnel Command

and Chief of NavalOperations

809 Marine Corps The Marine CorpsMWR Support E x c h a n g e S y s t e mActivity

FAC 426 should not be used after 30 September1985.

13. BILLING PERIOD. Billing by theDepartment of Labor is accomplished on aquarterly basis and started on February 1986.The program manager has the discretion toreimburse the Department of Labor from eitherthe central activity or individual NAFI.

14. REPORTING REQUIREMENTS. TheBureau of Labor Statistics requires an initialidentification of all NAFI,s by name and addressthat fall under each FAC. Subsequent reportingis limited to additions or deletions of NAFIs.These reports should be forwarded to DFAS-HQ-A.

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15. REMITTANCE ADDRESS. Remittancechecks are payable to the U.S. Department ofTreasury and submitted along with theDepartment of Labor request for reimbursementvouchers to the following address:

U.S. Department of TreasuryTrust Fund BranchPennsylvania Avenue and Madison Place NWTreasury Annex No. 1, Room 326Washington, D. C. 20226

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ATTACHMENT C.3

NONAPPROPRIATED FUND INTERNATIONAL BALANCE OFPAYMENTS-TRANSACTION REPORTING

1. PURPOSE. These instructions prescribeIBOP reporting requirements for all Navynonappropriated fund activities located overseas.However, these instructions may be amplified tospecific additional requirements promulgated bythe Navy Civilian Personnel Instruction Par.280.12 for civilian morale, welfare, and recreationactivities, and the Naval Military PersonnelCommand instructions issued in the7010.7(series) for military morale, welfare, andrecreation activities.

2. SUBMISSION OF REPORTS

a. General. A Department of theNavy International Balance of PaymentsTransactions Report for Nonappropriated Fundtransactions will be prepared in triplicate by eachoverseas Naval morale, welfare, and recreationactivity (both civilian and military). The originalof each report will be submitted to theappropriate office in accordance with theNAVCOMPT Instruction 7020.10 series in time tobe received by the date specified in par. 2b. Acopy of the report will be furnished theresponsible commander and the second copywill be retained for reference.

b. Frequency of Reporting. Reportswill be prepared quarterly governingnonappropriated fund transactions during thequarter ending March, June, September, andDecember. The reports will be submitted nolater than twenty (20) calendar days followingthe close of the quarter. Except as modified inaccordance with additional requirementsspecified by responsible offices the reports willbe prepared in accordance with pars. 3 and 4.

3. REPORTING INSTRUCTIONS

a. General. This report will includeonly payments and receipts affectingnonappropriated funds in accordance withdefinitions and criteria delineated in the current

NAVCOMPT Instruction 7020.10(series).Payments and receipts affecting appropriatedfunds used in the operation of morale, welfare,and recreation activities will be excludedfrom this report. Morale, welfare, and recreationactivities aboard ship will include onlytransactions aboard which are with activitiesashore and enter the international balance ofpayments. All data reported will be stated indollars or dollar equivalents for payments madein foreign currencies. The amounts reported willcover the reported quarter only and will benoncumulative.

4. PREPARATION. Each activity reportwill be properly identified by the title of thereport, name and location of the reportingmorale, welfare, and recreation activity and thequarter which the report covers. Entries will bemade in the specified columns opposite theappropriate country as follows:

a. Column 1. Country. List eachcountry, international organization, andapplicable country code as provided in par.027002-3 of the NAVCOMPT Manual.

b. Column 3. Sales. Enter herereceipts from the sales of merchandise andservices, including commissions from conces-sionaires. Excluded are concessionaire sales andreceipts from any U.S. Government agency oractivity.

c. Column 3. Other Revenue. Enterhere receipts for membership dues, chaplainsfunds, net receipts from bingo, slot machines,and similar transactions.

d. Column 4. Total Receipts. Enterthe sum of the receipts shown in columns 2 and3.

e. Column 5. Net Pay, U.S.Personnel. Enter the net pay of U.S. civilian

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personnel (part time or full time), and U.S.military personnel employed while off duty.

f. Column 6. Gross Pay, ForeignNationals. Enter the gross pay of all direct orindirect hire, foreign nationals. Include allpayments to or on behalf of the foreignnationals.

g. Column 7 Foreign Payments forProcurement of Merchandise for Resale. Enterhere foreign payments for merchandisepurchases for resale but exclude payments forpurchases from any U.S. Government agency oractivity.

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ATTACHMENT C.4

FINANCIAL MANAGEMENT, OVERSIGHT AND AUDIT OF THENONAPPROPRIATED FUND (NAF) INVESTMENT PROGRAM

1. GENERAL. This Chapter amplifies andimplements the NAF investment policies andassigns Department-wide responsibilities forfinancial management, oversight and audit of theNAF investment program.

2. APPLICABILITY. The policy set forthherein applies to all military and civilian Morale,Welfare, and Recreational (MWR) investmentswithin the Department of the Navy, exceptretirement funds. Policies pertaining to themanagement, investment and administration ofretirement plans are contained in SECNAVINST5300.22 (series), Navy and Marine CorpsPersonnel Policy Manual for NonappropriatedFund Instrumentalities (NAFIs).

3. POLICY

a. General. Nonappropriated fundsmay be invested only as provided for inparagraph 5. The size of the investment programmust not exceed the projected need to fundotherwise unfunded MWR requirements. Fundswill not be accumulated solely for investmentincome. However, cash assets in excess ofimmediate operational needs will be invested assoon as possible after receipt.

b. Risk. Each MWR activity willexercise caution to ensure the protection of fundsinvested. The most important factor to considerin evaluating any investment is risk. Holding aninvestment exposes you to some degree of risk.Higher yields often mean more risk and lessliquidity. It is important to be informed aboutthe different options available so that the returnis maximized without accepting unnecessary riskor loss of liquidity. Investments authorized byparagraph 5 generally carry low levels of risk.

c. Liquidity. An asset is said to beliquid if it can be converted into cash easily and

rapidly without substantial loss in value.Liquidity is not an absolute property; it variesfrom asset to asset. MWR activities must haveaccess to their funds when needed to meetoperational or planned program requirements;therefore, investments must be readilyconvertible to cash. The maturity on investmentswill be limited generally to 36 months.However, investments up to 63 months areauthorized provided that they are in support ofa capital improvement program. Docu-mentation must be on file to substantiate theexistence of the capital improvement program.

d. Yield. In an effort to maximizethe expected return on funds within theconstraints of ensuring security and providingnecessary liquidity, prudent action must beexercised to pursueyields of at least equivalent rates of return onportfolios of similar low risk cash managementfunds. This objective is secondary to the riskand liquidity objectives.

e. Investment Planning. Investmentprogram plan (strategy) will be formulated andapproved by the investment steering committeeprior to investing funds. Emphasis must beplaced on fund allocation when constructing theinvestment portfolio. Fund allocation is theprocess of distributing monies among thevarious types of investments: treasury bills;certificates of deposit; bonds; repurchaseagreements; etc. This process requires a realisticassessment of the degree of risk that the MWRentity is willing to accept commensurate with therate of return they wish to earn. In order tominimize interest rate fluctuations, activitiesshould generally employ a hold-to-maturitystrategy. The maturity of instruments should bematched with planned capital improvements andother funding requirements to the maximumextent possible. The investment plan should alsoincorporate the subjective aspects of risk/returnmanagement that dominate rational planning

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without losing sight of the fact that (1) increasesin expected return are accompanied by increasesin risk and (2) investors should diversify toreduce risk. Characteristics of investmentinstruments are illustrated on page I-9 and areprovided as guidance in investment selection. Itis also a requirement that, at the annual DODNAF review of Investment Management, anannual update be provided outlining currentinvestment policies, procedures, and auditcompliance with Service and DOD IG findings.This information will also be due to ASD(FM&P)not later than the first day of the third monthfollowing the end of the organization’s fiscalyear.

f. Collateralization. Funds shallnot be maintained in a bank, savings association,or credit union unless they are insured by theapplicable Federal insurer, or notice is receivedthat the financial institution has pledged thenecessary collateral with the appropriate FederalReserve Bank or its designee:

(1) Collateral for checkingand savings accounts deposits should cover 100percent of the last quarter’s highest daily balancein excess of the $100,000 insured limitation.Collateral for time deposits should cover 100percent in excess of the $100,000 insuredlimitation.

(2) Insured Limitation.Investments in fund accounts for several MWRactivities are limited to $100,000 unless recordsare maintained by both the bank and theinvestor to show the balance for each activity. Ifmultiple coverage is desired, records must reflectdaily changes in amounts for each MWR activityhaving an interest in the account; and in allcases, the records must be available within threeworking days. The Federal Deposit InsuranceCorporation (FDIC) Regulation, Section 330.1specifies the record keeping requirements formultiple coverage.

(3) Program managersand/or their designees will coordinate directlywith financial institutions and the servicingFederal Reserve Bank or authorized third-partycustodians to obtain collateral. Procedures for

securing and pledging of collateral are containedin Treasury Financial Manual 6-9000 and are tobe followed without exception.

4. RESPONSIBILITIES

a. The Assistant Secretary of theNavy (ASN) Manpower and Reserve Affairs(M&RA), is responsible for establishing MWRpolicy and procedures and for the overallmanagement and oversight of matters relating toMWR programs and activities.

b. The ASN Financial Management(FM), is responsible for all policy matters relatingto financial management of the MWR investmentprogram. In fulfilling this responsibility, theASN FM will:

(1) Issue specific guidancefor the development and approval of financialmanagement systems and provide procedures forbudgeting, financial analyses, internal review,and reporting of financial information.

(2) Oversee execution ofpolicies contained in this handbook. As aminimum, this function will require an annualreview of selected investment information andmonitoring collateralization requirements. Thespecific requirements for oversight and reviewwill be the responsibility of the Office of theComptroller of the Navy.

(3) Participate in theDepartment of Defense (DOD) investment fundreview.

c. Program managers (Comman-dant of the Marine Corps, Com- mander, NavalSupply Systems Command, Commander, NavalMilitary Personnel Command; and Commander,Military Sealift Command) will:

(1) Establish and maintainadequate systems of internal control that providereasonable assurance that the policies set forthherein are complied with.

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(2) Establish an investmentsteering committee and appoint competentmembership.

(3) Appoint investmentofficers who are financial management specialistswith training in investment banking.

(4) Review and approve, atleast annually, an investment plan (strategy)prior to authorizing funds to be invested. Theplan shall also identify the projectedrequirements for which the funds are beinginvested. Such annual plan will be modified bythe Program Manager as internal and/or marketconditions require.

(5) Establish a system toreview, evaluate and track the investmentportfolio performance.

(6) E n s u r e t h a t t h eprocurement and/or sale of investmentinstruments is conducted on a competitive basis.This process, at a minimum, requires obtainingmultiple telephonic quotes and rotation amongqualified bidders to assure:

(a) Maximum yieldssubject to risk evaluations and forecasted cashposition.

(b) Equitable treat-ment of bidders. All bids and consummatedtransactions will be documented.

(7) Require an annualreview and/or inspection of investment funds toinclude the evaluation of internal controls andfollow-up on corrective action taken onrecommendations in Naval Audit Service(NAVAUDSVC) and private sector audits andany other inspection recommendations.

d. The Auditor General of the Navy(AUDGENAV), is responsible for the internalauditing function within the Department of theNavy (DON). He/she oversees the conduct ofinternal audits, including those performed byinternal review and nonappropriated fundorganizations and audit services provided by

private sector auditors under DON contracts.No contract for audit services may be enteredinto or a final payment made under an existingcontract for such services without the approvalof the AUDGENAV.

5. AUTHORIZED INVESTMENTS ANDR E S T R I C T I O N S . I n v e s t m e n t s o fnonappropriated funds are limited to the follow-ing:

a. Banks. Interest bearing checkingaccounts, savings accounts, and certificates ofdeposit to the amount insured by the FederalDeposit Insurance Corporation (FDIC) or FederalSavings and Loan Insurance Corporation (FSLIC)or pledge of collateral with the appropriateFederal Reserve bank or its designee.

b. Savings Associations. Interestbearing checking accounts, share accounts, andcertificates of deposit to the amount they areinsured by FDIC or FSLIC or pledge of collateralwith the appropriate Federal Reserve bank or itsdesignee.

c. Credit Unions. Funds shall onlybe invested in credit unions to the amountinsured by the National Credit Union ShareInsurance Fund (NCUSIF) unless excess amountsare covered by pledge of collateral with theappropriate Federal Reserve bank or its designee.Credit unions serving Department of Defense instal-lations may be covered by any state-sponsored

or private share insurance plan that is at leastequal to the NCUSIF coverage required forFederal credit unions.

d. U.S. Government Securities.Obligations of the Federal Government,guaranteed as to principal and interest by theU.S. Government or obligations issued by U.S.Government-sponsored enterprises. Certainsecurities are guaranteed by the "full faith andcredit" of the U.S. Government (principal andinterest) while other securities are issued by"U.S. Government-sponsored enterprises." The"U.S. Government-sponsored enterprises" wereestablished and chartered by the FederalGovernment, and are sponsored by agovernment agency although they are privately

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owned and generally privately financed.Examples of securities that are "full faith andcredit" and those that are "Government-sponsored enterprises" are listed below (not all-inclusive):

Full Faith & Credit

1. All U.S. Treasury Securities (Bills,Notes, & Bonds)

2. Department of Housing & UrbanDevelopment Community Development BlockGrant

3. Farmers Home AdministrationCertificates of Beneficial Ownership

4. Government National MorgtgageAssociation (GNMA)

5. Overseas Private InvestmentCorporation (OPIC)

6. Small Business Administration, SmallBusiness INvestment Companies, State/LocalDevelopment Companies

7. U. S. Maritime Administration TitleXI Ship Mortgage Bonds

G o v e r n m e n t - S p o n s o r e dEnterprises

1. Farm Credit System:

a. Banks for Cooperativesb. Federal Intermediate Bank

Debenturesc. Federal Land Bank

2. Federal Home Loan Bank (FHLB)

3. Federal Home Loan MortgageCorporation (FHLMC, "Freddie MAC")

4. Federal National MortgageAssociation (FNMA, "Fannie Mae")

5. Student Loan Marketing Association(SLMA, "Sallie Mae")

e. Repurchases and ReverseRepurchases of Book Entry and CertificateSecurities. Repurchase and Reverse RepurchaseAgreements shall be limited to U.S. GovernmentSecurities and shall be made only with primarygovernment securities dealers designated by theFederal Reserve Bank of New York, or withbanks that meet high capital adequacy standardsestablished by the program manager. Primarygovernment securities dealers must meet andcertify to the nonappropriated fund entity theircompliance with the "Capital AdequacyGuidelines for U.S. Government SecuritiesDealers" as published by the Federal ReserveBank of New York. The bank must meet capitaladequacy standards established by the programmanager and confirmed by an independent bankrating service external to the program manager’srating procedures. Collateral must be in theamount of 100% of market value of thepurchased security, plus interest. Collateral forrepurchase agreements is restricted to U.S.Government Full Faith and Credit Securities. Topreclude frequent calls to mark-to-the-market,collateral in the amount of 102% of market valueplus interest is desirable for U.S. TreasurySecurities (Bills, Notes and Bonds). Collateral inthe amount of 104% of market value plus interestis desirable for all other U.S. Government FullFaith and Credit Securities.

(1) Safekeeping of RepurchaseInstruments. Book entries must be wired to athird-party bank selected by the NAFI. Alterna-tively, securities must be delivered to a bankdesignated by the NAFI. In either case, theinstruments cannot be commingled with theassets of the bank, and the NAFI must receive asafekeeping receipt for the securities. Thirdparty banks must meet the same ratingstandards as investment banks. The seller’s letterwith attachment as shown on Page I-11 containsthe necessary language to provide the NAFI witha Power of Attorney to negotiate the securities,if necessary.

(2) Selling Treasury Paper.For temporary use of funds, use the purchaser’sletter with attachment as shown in Page I-15and handle the transaction in the same manneras the repurchase agreement.

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(3) Availability of Funds. Inboth cases (a. and b. above), the funds should beavailable to the NAFI or the financial institutionon the day the transaction is made. Interestbegins on date of sale or purchase and ends onthe day before the transaction is completed.

f. Eurodollar. If the Eurodollarmarket offers significantly higher yields, fundscan be deposited with a U.S. bank dealing in thismarket. Funds invested in Eurodollars will notexceed the dollar amount insured by FDICunless collateralized as required by TreasuryFinancial Manual 6-9000.

g. Restrictions

(1) Foreign Depositories.Investments are not authorized to be made inforeign financial institutions. Chartered affiliatesof American banking institutions operatingoverseas are not considered foreign depositoriesfor the purpose of this handbook.

(2) Maturity Limitation. Thematurity on investments will generally belimited to 36 months. However, investments upto 63 months are authorized provided that theyare in support of a documented capitalimprovement program.

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Table C-1, Matrix of Investment Characteristics

Type ofSecurity

Maturity Marketability Liquidity Default Risk Market Risk Yield

OvernightRepurchaseAgreements

1-3 days NotMarketable

1 1 1 7

Treasury Bills 3-6 months Broad Market 2 0 1 8

FederalAgencyDiscountNotes

60-90 days Broad Market 3 1 2 6

TreasuryNotes

2-5 years Broad Market 4 0 4 4

FederalAgencyDebenture-Not FullyInsured

2-5 years Thin Market 6 1 5 2

FederalAgencyDebenture-Fully Insured

2-5 years Thin to GoodMarket

7 0 5 3

Insured CDs 1 year Not Market-able

8 1 3 1

Collater-alized CDs

60-90 days Not Market-able

5 1 2 5

NOTES:

1. LIQUIDITY refers to the ability to readily convert the security to cash with little or no capital loss. Liquidity is relatedto average length of maturity and to the degree of marketability. The most liquid assets have the lowest score (1) while the leastliquid asset is assigned the highest score (8).

2. DEFAULT RISK is the risk that the principal will not be repaid in full on a timely basis. The default risk for all approvedinvestments is minimal. A score of "0" means that the security is backed full faith and credit by the U.S. Government and hasvirtually no default risk. A score of "1" means that the security is not fully guaranteed by the U.S. Government, and thus has slightdefault risk.

3. MARKET RISK is the degree to which the value of the investment will fluctuate with changing market conditions, andis primarily related to length of maturity. Investments are ranked from lowest ("1") to highest ("5") market risk. YIELD refers to thepercentage interest income derived from the investment. Instruments are ranked from the highest yield ("1") to the lowest yield ("8").

4. YIELD refers to the percentage interest income derived from the investment. Instruments are ranked from the highest yield("1") to the lowest yield ("8").

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Figure C-1, Sample Repurchase Agreement, Seller’s Letter

Dear Sirs:

From time to time, you may enter into repurchase transactions with us, evidenced by confirmationfrom us to you, pursuant to which we purchase from you specific securities and you agree to repurchasethe same securities at a specified later date. Attachment 1 to this letter states the general terms andcondition that shall apply to each such repurchase transaction. The confirmation of each such repurchasetransaction, as supplemented by the attachment, shall constitute a binding agreement between us.

Please acknowledge your acceptance of the foregoing by signing and returning the enclosed copyof this letter.

Sincerely,

Agreed and accepted this

day of 19( )

Attachment

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Figure C-2 Seller’s Agreement, General Terms and Conditions of Repurchase Agreements

1. Definitions. (a) (Name of NAFI); (b) "Buyer"; the person purchasing securities from ___ (c) "SpecificRepurchase Agreement," the confirmation setting forth the specific terms for an individual repurchasetransaction in which ___ sells securities to Buyer and agrees to repurchase them; (d) "PurchasedSecurities," the securities sold by ___ to Buyer; (e) "Purchase Price," the price at which Purchased Securitiesare sold by ___ to Buyer; (f) "Purchase Date," the date on which Purchased Securities are sold by ___ toBuyer; (g) "Repurchase Date," the date provided in a Specific Repurchase Agreement on which ___ is torepurchase the Purchased Securities from Buyer; (h) "Repurchase Price," the price at which PurchasedSecurities are to be repurchased on the Repurchase Date (which is equal to the Purchase Price plusInterest); (i) "Interest," the interest component of the Repurchase Price; (j) "Interest Rate," the rate at whichinterest is calculated; (k) "Long-Term Specific Repurchase Agreement," a Specific Repurchase Agreementunder which the Repurchase Date is more than 21 days after the Purchase Date; (l) "Pledged Securities,"securities, other than Purchased Securities, pledged to Buyer by ___ to secure its obligations hereunder;(m) "Cash Collateral," cash pledged to Buyer ___ to secure its obligations hereunder; (n) "Collateral,"Pledged Securities and/or Cash Collateral; (o) "Margin," the excess of (i) the market value of thePurchased Securities under a Specific Repurchase Agreement plus Attributable Collateral over (ii) theRepurchase Price thereunder; (p) "Original Margin," the excess on the Purchase Date of (i) the marketvalue of the Purchased Securities under a Specific Repurchase Agreement over (ii) the Repurchase Pricethereunder; (q) "Attributable Collateral," for purposes of determining the amount of Margin, Collateralattributed to individual Specific Repurchase Agreements on the basis that Collateral is first attributed torestore the Margin under each Specific Repurchase Agreement to the Original Margin and thereafterattributed pro rata on the basis of the Repurchase Prices; and (r) "Act of Insolvency," with respect to anyperson, the filing by such person of a petition in bankruptcy, adjudication of such person as insolvent orbankrupt, petition or application by such person for any receiver or trustee for itself or any substantialpart of its property, commencement by such person of any proceeding relating to it under anyreorganization,arrangement, dissolution or liquidation law, or the initiation of any such proceeding against such personif such person indicates by any act its consent thereto or if such proceeding is not dismissed within 30days.

2. Security Interest and Possession. The Buyer is hereby granted a security interest in and lien upon allPurchased Securities, Pledged Securities and Cash Collateral. Upon Buyer’s request, ___ shall deliverPurchased Securities and Pledged Securities to Buyer; provided, that ___ shall, without such request,deliver to Buyer Purchased Securities purchased by Buyer under Long-Term Specific RepurchaseAgreements, unless Buyer authorizes ___ to retain such securities. All Cash Collateral shall be deliveredby ___ to Buyer, but shall be segregated from other funds of Buyer and identified as Cash Collateral. Onthe Repurchase Date specified in a Specific Repurchase Agreement, Buyer’s security interest in thePurchased Securities subject thereto shall be deemed released upon the tendering of payment therefor by___ and Buyer shall thereupon deliver to ___ any such Purchased Securities previously delivered by ___to Buyer.

3. Margin Maintenance---Obligation. If at any time the Margin under a Specific Repurchase Agreementis not equal to at least 100% of the Original Margin, Buyer may from time to time require ___ to provideCollateral so that the Original Margin is restored. At the option of ___, the Collateral shall consist ofPledged U.S. Treasury Securities acceptable to buyer and/or Cash Collateral.

4. Margin Maintenance Buyer’s Obligation. If at any time the Margin under a Specific RepurchaseAgreement exceeds 120% of the Original Margin (a "Margin Excess"), ___ may require Buyer to elect either(a) to deliver cash to ___ or (b) to release from its security interest and lien such Collateral (whether or

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not Attributable Collateral) and/or Purchased Securities thereunder as ___ selects, or to elect somecombination of (a) and (b), so that a Margin Excess no longer exists; provided, however, that ___ shallselect Purchased Securities in the case of an election under clause (b) only if there is then no Collateral.Upon the release of any Collateral or Purchased Securities that were previously delivered by ___ to Buyer,Buyer shall return such Collateral or Purchased Securities to ___.

5. Principal Payments, Interest and Dividends. Except as provided in Paragraph 12 below, all principalpayments in respect of, and all interest and dividends paid or payable on, the Purchased Securities andPledged Securities ("Income") shall be the property of and owned by ___. Buyer shall deliver Income to___ on the date on which it is payable.

6. Substitution. ___ shall be entitled at any time to substitute U.S. Treasury Pledged Securities and/orCash Collateral (the "Sub-stituted Assets") for Purchased Securities, Pledged Securities or Cash Collateral("Replaced Assets"), provided that the Substituted Assets are reasonably acceptable to Buyer and have amarket value equal to at least the market value of the Replaced Assets.

7. Buyer Representations. The Buyer represents and warrants that it is duly authorized to enter into thisAgreement and the transactions contemplated in it and that the person signing this Agreement on behalfof Buyer is duly authorized to act on its behalf.

8. Representations. ___ represents and warrants that it is duly authorized to enter into this Agreementand the transactions contemplated in it and that the person signing this Agreement on behalf of ___ isduly authorized to act on its behalf.

9. Payment and Delivery. Unless otherwise mutually agreed, all payments hereunder and under eachSpecific Repurchase Agreement shall be in immediately available funds. All deliveries of securities byone party to the other party shall be in suitable form for delivery or shall be accompanied by dulyexecuted instruments of transfer or assignment in blank and such other documentation as the partyreceiving possession may reasonably request. The buyer shall not, however, cause any such transfer ofsecurities to be registered, except as provided in Paragraph 12 below. All deliveries shall be affectedwithin the delivery time scheduled from time to time by the New York Clearing House Association.

10. Market Value Determination. The market value of all Purchased Securities and Pledged Securitiesshall be determined daily at the close of business by using the "bid" price for the securities in questionas it appears in the most current issue of the Wall Street Journal or such other source as is mutuallyacceptable to Buyer and ___.

11. Segregation of Securities. All Purchased Securities and Pledged Securities, held by Buyer or his orher designated bank; shall be segregated from other securities in the possession of the holder and shallbe identified as subject to this Agreement. Segregation may be accomplished by appropriate identificationon the books and records of the holder.

12. Default. In the event that (i) ___ fails to repurchase any Purchased Securities upon the RepurchaseDate relating thereto; (ii) ___ fails, after one business day’s notice, to comply with Paragraph 3 above or(iii) an Act of Insolvency occurs with respect to ___ (each a "___ Default"):

(A) At the option of Buyer, exercised by written notice to ___ obligations under each SpecificRepurchase Agreement to repurchase Purchased Securities shall thereupon become immediately due andpayable. In such event, the Repurchase Price under each Specific Repurchase Agreement shall be adjustedto equal the sum of (i) the Purchase Price plus (ii) interest thereon, at the Interest Rate, from the PurchaseDate until payment thereof plus (iii) to the extent permitted by applicable law, interest on the Interest

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component of such adjusted Repurchase Price, at the Interest Rate, from the date on which the ___ Defaultoccurs until the day of payment of such Interest component. Such adjusted Repurchase Price is hereafterreferred to as the "___ Liability."

(B) If Buyer exercises the option referred to in subparagraph (A) of this Paragraph 12, all incomepayable thereafter shall be applied by Buyer to the Seller’s Liability.

(C) The Buyer may, after giving one business day’s notice to ___ (but no such notice shall berequired in the event of an Act of Insolvency); (i) sell any or all Purchased Securities and/or any or allPledged Securities and apply the proceeds thereof to the ___ Liability and/or (ii) apply Cash Collateralto the ___ Liability. All sales shall be in a recognized market at such price or prices as Buyer mayreasonably deem satisfactory.

(D) The Buyer may register the transfer of any securities delivered to it by whether such deliveryoccurred subsequent or prior to the ___ Default.

13. Buyer Default. In the event that (i) Buyer fails to deliver any Purchased Securities to ___ upon therelevant Repurchase Date against payment therefor, (ii) Buyer fails to comply with Paragraph 4, above,or (iii) an Act of Insolvency occurs with respect to Buyer (each a "Buyer Default").

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Figure C-3, Sample Repurchase Agreement Purchaser’s Letter

Dear Sirs:

From time to time, you may enter into repurchase transactions with us, evidenced byconfirmations from us to you, pursuant to which you purchase from us specific securities and we agreeto repurchase the same securities at a specific later date. Attachment to this letter states the general termsand conditions that shall apply to each such repurchase transactions. The confirmation of each suchrepurchase transactions, as supplemented by the attachment, shall constitute a binding agreement betweenus.

Please acknowledge your acceptance of the foregoing by signing and returning the enclosed copyof this letter.

Very truly yours,

Agreed and Accepted this

day of 19( )

Attachment

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Figure C-4, Purchaser’s Agreement, General Terms and Conditions of Repurchase Agreements

1. Definitions. (a) (Name of NAFI); (b) "Seller," the person selling securities to ___; (c) "SpecificRepurchase Agreement," the confirmation outlining the specific terms for an individual repurchasetransaction in which Seller sells securities to and agrees to repurchase them; (d) "Purchased Securities,"the securities sold to ___ by Seller; (e) "Purchase Price," the price at which Purchased Securities are soldto ___ by Seller; (f) "Purchase Date," the date on which Purchased Securities are sold to ___ by Seller; (g)"Repurchase Date," the date provided in a Specific Repurchase Agreement on which Seller is to repurchasethe Purchased Securities from ___; (h) Repurchase Price," the price at which Purchased Securities are tobe repurchased on the Repurchase Date (which is equal to the Purchase Price plus Interest); (i) "Interest,"the interest component of the Repurchase Price; (j) "Interest Rate," the rate at which Interest is calculated;(k) "Long-Term Specific Repurchase Agreement," a Specific Repurchase Agreement under which theRepurchase Date is more than 21 days after the Purchase Date; (l) "Pledged Securities," securities, otherthan Purchased Securities, pledged to ___ by Seller to secure its obligations hereunder; (m) "CashCollateral," cash pledged to ___ by Seller to secure its obligations hereunder; (n) "Collateral," PledgedSecurities and/or Cash Collateral; (o) "Margin," the excess of (i) the market value of the PurchasedSecurities under a Specific Repurchase Agreement plus Attributable Collateral over (ii) the RepurchasePrice thereunder; (p) "Original Margin," the excess on the Purchase Date of (i) the market value of thePurchased Securities under a Specific Repurchase Agreement over (ii) the Repurchased Price thereunder;(q) Attributable Collateral," for purpose of determining the amount of Margin, Collateral attributed toindividual Specific Repurchase Agreements on the basis that Collateral is first attributed to restore theMargin under each Specific Repurchase Agreement to the Original Margin and thereafter attributed prorata on the basis of the Repurchase Prices; and (r) "Act of Insolvency," with respect to any person, thefiling by such person of a petition in bankruptcy, adjudication of such person as insolvent or bankrupt,petition or application by such person for any receiver or trustee for itself or any substantial part of itsproperty, commencement by such person or any proceeding relating to it under any reorganization,arrangement, dissolution or liquidation law, or the initiation of any such proceeding against such personif such person indicates by any act its consent thereto or if such proceeding is not dismissed within 30days.

2. Security Interest and Possession. ___ is hereby granted a security interest in and lien upon allpurchased Securities, Pledged Securities and Cash Collateral. Upon ___ request, Seller shall deliverPurchased Securities and Pledged Securities to ___ ; provided, that Seller shall, without such request,deliver to Purchased Securities purchased by ___ under Long-Term Specific Repurchase Agreements,unless ___ authorizes Seller to retain such securities. All Cash Collateral shall be delivered by Seller to___ but shall be segregated from other funds of ___ and identified as Cash Collateral. On the RepurchaseDate specified in a Specific Repurchase Agreement, ___ security interest in the Purchased Securities subjectthereto shall be deemed released upon the tendering of payment therefor by Seller, and ___ shallthereupon deliver to Seller any such Purchased Securities previously delivered by Seller to ___.

3. Margin Maintenance Seller’s Obligation. If at any time the Margin under a Specific RepurchaseAgreement is not equal to at least 100% of the Original Margin, ___ may from time to time require Sellerto provide Collateral so that the original Margin is restored. At the option of Seller, the Collateral shallconsist of Pledged Securities reasonably acceptable to ___ and/or Cash Collateral.

4. Margin Maintenance Obligation. If at any time the Margin under a Specific Repurchase Agreementexceeds 120% of the Original Margin (a "Margin Excess"), Seller may require ___ to elect either (a) todeliver cash to Seller or (b) to release from its security interest and lien such Collateral (whether or notAttributable Collateral) and/or Purchased Securities thereunder as Seller selects, or to elect some

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combination of (a) and (b), so that a Margin Excess no longer exists; provided, however, that Seller shallselect Purchase Securities in the case of an election under clause (b) only if there is then no Collateral.Upon the release of any Collateral or Purchased Securities which were previously delivered by Seller to___, ___ shall return such Collateral or Purchased Securities to Seller.

5. Principal Payments, Interest and Dividends. Except as provided in Paragraph 11, above, all principalpayments in respect of, and all interest and dividends paid or payable on, the Purchased Securities andPledged Securities ("Income") shall be the property of and owned by Seller. ___ shall deliver Income toSeller on the date on which it is payable.

6. Seller Representation. Seller represents and warrants that it is duly authorized to enter into thisAgreement and the transactions contemplated hereunder and that the person signing this Agreement onbehalf of Seller is duly authorized to act on its behalf.

7. Representations. represents and warrants that it is duly authorized to enter into this Agreement andthe transactions contemplated hereunder and that the person signing this Agreement on behalf of isduly authorized to act on its behalf.

8. Payment and Delivery. Unless otherwise mutually agreed, all payments hereunder and under eachSpecific Repurchase Agreement shall be in immediately available funds. All deliveries of securities by oneparty thereto to the other party shall be in suitable form for delivery or shall be accompanied by dulyexecuted instruments of transfer or assignment in blank and such other documentation as the partyreceiving possession may reasonably request. shall not, however, cause any such transfer of securitiesto be registered, except as provided in Paragraph 11 below. All deliveries shall be effected within thedelivery time scheduled from time to time by bank wire.

9. Market Value Determination. The market value of all Purchased Securities and Pledged Securities shallbe determined daily at the close of business, by using the "bid" price for the securities in question as itappears in the most current issue of the Wall Street Journal or such other source as is mutually acceptableto Seller and .

10. Segregation of Securities. All Purchase Securities and Pledged Securities, whether held by or Sellershall be segregated from other securities in the possession of the holder and shall be identified as subjectto this Agreement. Segregation may be accomplished by appropriate identification on the books andrecords of the holder.

11. Seller Default. In the event that (i) Seller fails to repurchase any Purchased Securities upon theRepurchase Data relating thereto, (ii) Seller fails, after one business day’s notice, to comply with Paragraph3 above or (iii) an Act of Insolvency occurs with respect to Seller (each a "Seller Default"):

(A) At the option of , exercised by written notice to Seller, Seller’s obligation under eachSpecific Repurchase Agreement to repurchase Purchased Securities shall thereupon become immediatelydue and payable. In such event, the Repurchase Price under each Specific Repurchase Agreement shallbe adjusted to equal the sum of (i) the Purchase Price plus (ii) interest thereon, at the Interest Rate, fromthe Purchase Date until payment thereof plus (iii) to the extent permitted by applicable law, interest onthe interest component of such adjusted Repurchase Price, at the Interest Rate, from the date on whichthe Seller Default occurs until the date of payment of such Interest component. Such adjusted RepurchasePrice is hereafter referred to as the "Seller Liability."

(B) If exercises the option referred to in subparagraph (A) of Paragraph 11, all Income payablethereafter shall be applied by buying to the Seller Liability.

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(C) may, after giving one business day’s notice to Seller (but no such notice shall be requiredin the event of an act of insolvency, (i) sell any or all Purchased Securities and/or any or all PledgedSecurities and apply the proceeds thereof to the Seller Liability and/or (ii) apply Cash Collateral to theSeller Liability. All sales shall be in a recognized market at such price or prices as may reasonabledeem satisfactory.

(D) Seller shall immediately deliver to any Purchased Securities and Pledged Securities thenin Seller’s possession.

(E) may register the transfer of any securities delivered to it by Seller, whether such deliveryoccurred subsequent or prior to the Seller Default.

12. Default. In the event that (i) fails to deliver any Purchased Securities to Seller upon the relevantRepurchase Date against payment therefor; (ii) fails to comply with Paragraph 4 above of (iii) an Actof Insolvency occurs with respect to (each a "Default"):

(A) At the option of Seller and upon tendering of payment of the aggregate Repurchase prices(reduced as provided in the next sentence), all Specific Repurchase Agreements shall mature. Thereupon,(i) interest in Purchased Securities, Pledged Securities and Cash Collateral shall be deemed released, and

shall deliver all such securities and cash to Seller and (ii) interest shall cease to accrue, and eachRepurchase Price shall be reduced to reflect such cessation.

(B) Seller may purchase securities ("Replacement Securities") of the same class and amount as,any Purchased Securities or Pledged Securities that are not delivered by to Seller as requiredhereunder. Such purchase may be made in any recognized market at such prices as Seller may reasonablydeem satisfactory. shall be liable to Seller (the " Liability") (i), with respect to Purchased Securities,for any excess of the price paid by Seller for the Replacement Securities over the Repurchase Price(reduced as provided above) and (ii) with respect to Pledged Securities, for the price paid by the Sellerfor the Replacement Securities. In Addition, shall be liable to Seller for interest on the Liability withrespect to each such purchase of Replacement Securities from the date therof until paid in full by . Suchinterest shall be at a rate equal to the prime rate for short-term bank commercial loans, as published inThe Wall Street Journal, changing as such published rate changes. In the event of Default under clause(i) or (ii) of this Paragraph, subparagraphs (A) and (B) hereof shall be effective only upon one businessday’s notice to Seller.

13. The transactions subject to these terms and conditions shall be governed by the laws of the State of.

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