Updated December 2, 2021
Defense Primer: Defense Working Capital Funds
Since 1870, the U.S. military has operated various types of
Figure 1. How a DWCF Operates
working capital funds to procure and provide materiel and
commercial products and services to its forces. Codified
today 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 of the
Department of Defense (DOD) (e.g., acquiring parts and
supplies, maintaining equipment, transporting personnel,
conducting research and development). 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. DWCFs are
broadly categorized as intragovernmental revolving funds
—a type of revolving fund “whose receipts derive primarily
Source: CRS Graphics.
from other government agencies, programs, or activities”
Notes: The process il ustrated above is a general example of how a
(see 2021 Fiscal Law Deskbook). DWCFs and other types
DWCF operates. Variations can exist (e.g., private party customers).
of revolving funds are widely used in DOD to support
recurring requirements and to ensure the continuous
Rates and Budgeting
delivery of goods and services such as utilities, fuels, food,
DWCFs are expected to be self-sustaining after the initial
clothing, and an assortment of industrial base capabilities.
cash corpus, and this is managed through rate setting and
budgeting. Fund managers typically establish rates 18-24
DWFCs offer certain procurement benefits and flexibilities
months in advance, locking in rates for a specified future
to DOD. They generally operate without fiscal year
fiscal year. Fund managers establish each rate taking into
limitations (i.e., funds in a DWCF account do not expire);
account all costs associated with each anticipated
facilitate the aggregation of orders, allowing DOD to
transaction, including the cost of the goods and services and
leverage its purchasing power; and allow for the
a surcharge that includes overhead, operating costs, and any
establishment of inventories that can reduce delivery times.
other administrative expenses.
Fund Basics
According to the DOD FMR, DWCFs are organized by
When establishing a DWCF, Congress typically provides a
chartered activity groups (i.e., categories within each fund
direct appropriation to the fund. This initial appropriation
that identify the purposes, projects, or types of activities
and positive fund balance is called a cash corpus. Using the
financed by the fund). In a supply-oriented activity group, a
cash corpus, fund managers purchase products and services,
surcharge is generally added to items provided to cover
usually in advance of an anticipated requirement (e.g., a
management and other overhead expenses (e.g., shipping
depot overhaul of an aircraft or ship), then establish a
costs). For activities that are service-oriented (e.g.,
product catalog (e.g., a parts and supplies catalog) for its
equipment maintenance or information technology
customers. Fund managers then set product prices and
services), fund managers establish surcharge rates based on
stabilized rates for services that typically do not change
an estimated unit cost of the service provided, plus
until the next fiscal year.
overhead costs. In general, fund managers budget to recover
all operating expenses, including:
Once a DWCF-funded organization (e.g., a depot) is open
for business, the customer―normally a military unit or
direct costs (e.g., labor and materials);
DOD organization (though a private party can also be a
indirect costs (e.g., facilities operation and
customer)―orders the product or service through a
maintenance);
reimbursable agreement. Upon receipt of the product and/or
hardware costs (e.g., acquisition and repair of
service, the DOD customer then reimburses the DWCF
equipment to support operations);
with funds appropriated for that specified purpose. Private-
party customers typically prepay for the products and
operations costs (e.g., labor, travel, training,
services.
transportation of personnel); and
general and administrative costs.
https://crsreports.congress.gov
Defense Primer: Defense Working Capital Funds
Financial Management
Army Working Capital Fund (AWCF)
DWCFs may realize gains or losses within a fiscal year. At
The Assistant Secretary of the Army (Financial
the end of each fiscal year, fund managers recoup losses by
Management and Comptroller) manages the AWCF. There
establishing higher rates in future years or, if necessary, by
are two activity groups in the fund: Supply Management
seeking additional appropriations from Congress. Inversely,
and Industrial Operations.
fund managers assess gains and lower rates for customers in
future fiscal years, potentially providing a benefit to DWCF
Air Force Working Capital Fund (AFWCF)
customers. Regardless, DWCFs must maintain a net
The Air Force’s Deputy Assistant Secretary for Budget
positive cash balance at all times to avoid Anti-Deficiency
(SAF/FMB) manages the AFWCF. There are two activity
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 the United States Transportation Command
“break-even” basis (revenue generated equals the cost
(USTRANSCOM) Transportation Working Capital Fund
associated with receiving the revenue). Fund managers
(TWCF), however, USTRANSCOM manages the day-to-
track and report two main types of operating results: the (1)
day operations of the fund.
net operating result (NOR), which is the net difference
Select Other DWCFs
between expenses and funds received for a single fiscal
year; and the (2) accumulated operating result (AOR),
The DWWCF
which is the net difference between expenses and funds
DOD has referred to the DWWCF as both a singular fund
received since the inception of the fund. Managers normaly
and as three separate funds (see Figure 7.1 in the Fiscal
examine AOR when establishing future rates for customers.
Year 2021 Defense Budget Overview). The DWWCF funds
A Brief History of DWCFs
the operations of three defense agencies: the Defense
The modern DWCF evolved from other forms of revolving
Logistics Agency (DLA), the Defense Information Systems
funds (e.g., stock funds, industrial funds) over the course of
Agency (DISA), and the Defense Finance and Accounting
approximately 150 years. However, statutory authority for
Service (DFAS). These agencies manage a total of five
DOD to establish its own working capital funds was first
activity groups within the DWWCF.
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
DWCFs as necessary to support DOD operations.
Management, and Document Services.
In 1991, the Secretary of Defense combined five industrial
DISA. The DOD Chief Information Officer oversees the
funds, four stock funds, and multiple appropriated fund
DISA DWCF. DISA manages one activity group:
business activities into what was titled the Defense Business
Information Services.
Operations Fund (DBOF). This consolidated revolving
DFAS. The Under Secretary of Defense (Comptroller)
fund was created to streamline management and oversight
oversees the DFAS DWCF. DFAS is the one activity
responsibilities, and would become the precursor to the
group within the fund.
current DWCF structure. Major activities performed under
the DBOF included depot maintenance, transportation,
DeCA DWCF
supply management, and finance and accounting.
The Under Secretary of Defense (Personnel and Readiness)
has oversight of the DeCA DWCF. There are two activity
By 1996, DOD recognized the difficulty in managing one
groups in the DWCF: Commissary Resale Stocks and
large fund, including the challenge of setting suitable rates
Commissary Operations.
for the entire DOD. As a result, DOD disestablished the
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). Since 1997, other
oversight of the DCSA DWCF. DCSA manages one
DWCFs have been established within DOD that provide
activity group: Background Investigation Services.
support to the entire Department, such as the Defense
Commissary Agency (DeCA) DWCF, and the Defense
Budget Information
Counterintelligence and Security Agency (DCSA) DWCF.
Budget information for DWCFs is publicly available
Military Department DWCFs
through DOD and Service Comptroller websites. The
annual budget justification books provide a financial profile
Navy Working Capital Fund (NWCF)
of each fund over a three-year period (year of the request
and two years prior). This profile generally includes an
The Assistant Secretary of the Navy (Financial
accounting of fund revenues, capital investments, cash
Management & Comptroller) manages the NWCF. Four
forecasts for the budget year, and NORs and AORs (actual
broad activity groups (called “business areas”) in the fund
and projected). Justification books also describe any
support the Navy and Marine Corps: Depot Maintenance,
anticipated rate or surcharge adjustments, and provide
Research and Development, Transportation, and Supply
details to support requests for direct appropriations.
Management.
G. James Herrera, Analyst in U.S. Defense Readiness and
Infrastructure
Brendan W. McGarry, Analyst in U.S. Defense Budget
https://crsreports.congress.gov
Defense Primer: Defense Working Capital Funds
IF11233
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permissio n of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11233 · VERSION 7 · UPDATED