Updated November 30, 2020
Defense Primer: Defense Working Capital Funds
Since 1870, the U.S. military has operated various forms of
Figure 1. How a DWCF Operates
working capital funds to procure and provide materiel and
commercial products and services to its forces. Authorized
under Title 10, Section 2208, of the United States Code
(U.S.C.), a defense working capital fund (DWCF) is a type
of revolving fund that is intended to operate as a self-
supporting entity to fund business-like activities (e.g.,
acquiring parts and supplies, equipment maintenance,
transporting personnel, research and development) for the
Department of Defense (DOD). DWCF transactions move
hundreds of billions of dollars within DOD annually.
According to the DOD Financial Management Regulation
(FMR) 7000.14-R, revolving fund accounts finance a
continuing cycle of business-type operations by incurring
obligations and expenditures that generate receipts. These
funds are designed to break even over the long term through
fees charged for goods and services provided. Working
capital funds are broadly categorized as intragovernmental
revolving funds—revolving funds “whose receipts come
Source: CRS Graphics.
primarily from other government agencies, programs, or
Notes: The process il ustrated above is a general example of how a
activities” (see 2020 Fiscal Law Deskbook). DWCFs and
DWCF operates. Variations can exist (e.g., private party customers).
other types of revolving funds are widely used across DOD
to support recurring requirements and ensure the continuous
Rates and Budgeting
delivery of goods and services such as utilities, fuels, food,
Fund managers typically establish rates 18-24 months
clothing, and an assortment of industrial base capabilities.
ahead of schedule, locking in rates for the specified future
fiscal year. DWCFs are expected to be self-sustaining after
DWFCs offer benefits and flexibility to DOD procurement
the initial appropriation. Fund managers establish rates
and disposal of materiel. They generally operate without
taking into account all costs associated with each
fiscal year limitations (i.e., funds in a DWCF account do
anticipated transaction, including the cost of the goods and
not expire); they facilitate the aggregation of orders,
services and a surcharge that includes overhead, operating,
allowing the DOD to leverage its purchasing power; and
and administrative expenses.
they allow for the establishment of product inventories that
can reduce delivery times.
According to the DOD FMR, DWCFs are organized by
Fund Basics
chartered activity groups (i.e., categories within each fund
that identify the purposes, projects, or types of activities
When establishing a DWCF, Congress typically provides a
financed by the fund). In a supply-oriented activity group, a
direct appropriation to the fund. This initial appropriation
surcharge is generally added to items provided, to cover
and positive fund balance is called a cash corpus. Using the
management and other overhead expenses (e.g., shipping
cash corpus, fund managers purchase products and services,
costs. For activities that are service-oriented (e.g.,
usually in advance of an anticipated requirement (e.g., a
maintenance or information technology services), fund
depot overhaul of an aircraft platform), then establish a
managers establish surcharge rates based on an estimated
product catalog (e.g., an aircraft parts and supplies catalog)
unit cost of the service provided, plus overhead costs. In
for its customers. Fund managers then set product prices
general, fund managers budget to recover all operating
and stabilized rates for services that typically do not change
expenses, including:
until the next fiscal year.
direct costs, such as labor and materials;
Once a DWCF-funded organization (e.g., a depot) is open
indirect costs, such as facilities operation and
for business, the customer―normally a military unit or
maintenance;
DOD organization (though a private party can also be a
hardware costs, such as acquisition and repair of
customer)―orders the product or service through a
reimbursable agreement. Upon receipt of the product or
equipment needed to support operations;
service, the DOD customer then reimburses the DWCF
operations costs, such as labor, travel, training,
with funds appropriated for that specified purpose. If the
transportation of personnel; and
customer is a private party, they typically prepay for
other general and administrative costs.
products and services.
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Defense Primer: Defense Working Capital Funds
Financial Management
Army Working Capital Fund (AWCF)
DWCFs may realize gains or losses within each fiscal year.
The Assistant Secretary of the Army (Financial
At the end of the fiscal year, fund managers can recoup
Management and Comptroller) manages the AWCF. There
losses by establishing higher rates in future years, or if
are two activity groups in the fund: Supply Management
necessary, by seeking additional appropriations from
and Industrial Operations.
Congress. Inversely, fund managers assess gains and lower
rates for customers in future fiscal years, potentially
Air Force Working Capital Fund (AFWCF)
providing a benefit to customers. Regardless, DWCFs must
The Air Force's Deputy Assistant Secretary for Budget
maintain a net positive cash balance at all times to avoid
(SAF/FMB) manages the AFWCF. There are two activity
Anti-Deficiency Act (P.L. 97-258, 96 Stat. 923) violations.
groups in the fund: Consolidated Sustainment and Supply
Management-Retail. SAF/FMB is also the Executive Agent
DOD FMR 7000.14-R directs DWCFs to operate on a
for DOD’s Transportation Working Capital Fund (TWCF),
“break-even” basis (revenue generated equals the cost
however, United States Transportation Command manages
associated with receiving the revenue). Fund managers
the day-to-day operations of the TWCF.
track and report two main types of operating results: the (1)
Select Defense-Wide DWCFs
net operating result (NOR), which is the net difference
between expenses and funds received for a single fiscal
The DWWCF
year; and (2) accumulated operating result (AOR), which is
DOD has referred to the DWWCF as both a singular fund
the net difference between expenses and funds received
and as three separate DWCFs (see Figure 7.1 in the Fiscal
since the inception of the fund. Managers normally examine
Year 2021 Defense Budget Overview). The DWWCF funds
AOR when establishing future rates for customers.
the operations of three DOD agencies: the Defense
A Brief History of DWCFs
Logistics Agency (DLA), the Defense Information Systems
The modern DWCF evolved from other forms of revolving
Agency (DISA), and the Defense Finance and Accounting
funds (e.g., stock funds, industrial funds) over the course of
Service (DFAS). These agencies manage a total of five
approximately 150 years. However, statutory authority for
activity groups within the DWWCF (one less from last
DOD to establish its own working capital funds was first
year):
enacted in law in the National Security Act Amendments of
DLA. The Assistant Secretary of Defense (Sustainment)
1949 (P.L. 81-216, §405; now 10 U.S.C. §2208). Under this
has oversight of the DLA DWCF. DLA manages three
authority, the Secretary of Defense can establish as many
activity groups: Supply Chain Management, Energy
working capital funds as necessary to support DOD
Management, and Document Services.
operations.
DISA. The DOD Chief Information Officer oversees the
In 1991, the Secretary of Defense combined five industrial
DISA DWCF. DISA manages one activity group:
funds, four stock funds, and multiple appropriated fund
Information Services.
business activities into what was titled the Defense Business
DFAS. The Under Secretary of Defense (Comptroller)
Operations Fund (DBOF). This consolidated revolving
oversees the DFAS DWCF. DFAS is the one activity
fund was created to streamline management and oversight
group within the fund.
responsibilities, and would become the precursor to the
current DWCF structure. Major activities performed under
DeCA DWCF
the DBOF included depot maintenance, transportation,
The Under Secretary of Defense (Personnel and Readiness)
supply management, and finance and accounting.
has oversight of the DeCA DWCF. There are two activity
groups in the DWCF: Commissary Resale Stocks and
By 1996, DOD recognized the difficulty in managing one
Commissary Operations.
large fund, including the challenge of setting suitable rates
for the entire DOD. As a result, DOD disestablished the
Defense Counterintelligence and Security Agency
DBOF and reorganized it into four separate DWCFs: three
(DCSA) DWCF
Military Department funds and one defense-wide working
The Under Secretary of Defense (Intelligence) has
capital fund (called the DWWCF). In 1997, a second fund
oversight of the DCSA DWCF. DCSA manages one
was established for the Defense Commissary Agency
activity group: Background Investigation Services.
(DeCA). DeCA oversees the operation of a global chain of
military commissaries available to all servicemembers. Due
Budget Information
to the defense-wide nature of DeCA activities, the DeCA
Budget information for DWCFs is publicly available
DWCF (and other defense agency DWCFs) may also be
through DOD and individual Service Comptroller websites.
referred to as a defense-wide working capital fund.
The annual budget justification books provide a financial
Military Department DWCFs
profile of each fund over a three-year period (year of the
request and two years prior). This profile generally includes
Navy Working Capital Fund (NWCF)
an accounting of fund revenues, capital investments, cash
forecasts for the budget year, and NORs and AORs (actual
The Assistant Secretary of the Navy (Financial
and projected). The books also describe any anticipated rate
Management & Comptroller) manages the NWCF. Five
or surcharge adjustments, and provide details to support
broad activity groups (called “business areas”) in the fund
requests for direct appropriations when required.
support the Navy and Marine Corps: Depot Maintenance,
Base Support, Research and Development, Transportation,
G. James Herrera, Analyst in U.S. Defense Readiness and
and Supply Management.
Infrastructure
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Defense Primer: Defense Working Capital Funds
IF11233
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