Defense Primer: Defense Working Capital Funds
Updated February 28, 2024
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
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 intended to operate as a self-supporting
entity to fund buying and selling activities of the
Department of Defense (DOD) (e.g., acquiring parts and
supplies, maintaining equipment, transporting personnel,
conducting research and development). DWCF transactions
move more than $100 billion 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 come primarily
Source: Figure created by CRS using data from DOD.
from other government agencies, programs, or activities,”
Notes: The process il ustrated above is a notional example of how a
according to the Fiscal Law Deskbook 2023. DWCFs and
DWCF operates. Variations can exist (e.g., for private-party
other types of revolving funds are used in DOD to support
customers).
recurring requirements and to ensure the continuous
delivery of goods and services such as utilities, fuels, food,
Rates and Budgeting
clothing, and a range of industrial base capabilities.
DWCFs are expected to be self-sustaining, after the initial
cash corpus, through rate setting and budgeting. Fund
DWFCs offer certain procurement advantages and
managers typically establish rates 18-24 months in advance,
flexibilities to DOD. For example, they generally operate
locking in rates for a specified future fiscal year. Fund
without fiscal year limitations (i.e., funds in a DWCF
managers establish each rate taking into account all costs
account do not expire); facilitate the aggregation of orders,
associated with each anticipated transaction, including the
allowing DOD to leverage its purchasing power; and allow
cost of the goods and services and a surcharge that includes
for the establishment of inventories that can reduce delivery
overhead, operating costs, and any other administrative
times.
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), and 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 set product prices and stabilized
services), fund managers establish surcharge rates based on
rates for services that typically do not change until the next
an estimated unit cost of the service provided, plus
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
established, the customer orders the product or service
• direct costs (e.g., labor and materials);
through a reimbursable agreement. Typically, the customer
• indirect costs (e.g., facilities operation and
is a military unit or DOD organization (though a private
maintenance);
party can also be a customer). Upon receipt of the product
• hardware costs (e.g., acquisition and repair of
and/or service, the DOD customer reimburses the DWCF
equipment to support operations);
with funds appropriated for that specified purpose. Private-
• operations costs (e.g., labor, travel, training,
party customers typically prepay for the products and
transportation of personnel); and
services.
• general and administrative costs.
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Defense Primer: Defense Working Capital Funds
Financial Management
are two activity groups in the fund: Supply Management
DWCFs may realize gains or losses within a fiscal year. At
and Industrial Operations.
the end of each fiscal year, fund managers recoup losses by
establishing higher rates in future years or, if necessary, by
Air Force Working Capital Fund (AFWCF)
seeking additional appropriations from Congress. Inversely,
The Air Force’s Deputy Assistant Secretary for Budget
fund managers assess gains and lower rates for customers in
(SAF/FMB) manages the AFWCF. There are two activity
future fiscal years, potentially providing a benefit to DWCF
groups in the fund: Consolidated Sustainment, and Supply
customers. Regardless, DWCFs must maintain a net
Management-Retail. SAF/FMB is also the Executive Agent
positive cash balance at all times to avoid Anti-Deficiency
for the U.S. Transportation Command (TRANSCOM)
Act (P.L. 97-258, 96 Stat. 923) violations.
Transportation Working Capital Fund (TWCF); however,
TRANSCOM manages the day-to-day operations of the
DOD FMR 7000.14-R directs DWCFs to operate on a
fund.
“break-even” basis (revenue generated equals the cost
DOD DWCFs
associated with receiving the revenue). Fund managers
track and report two main types of operating results: the (1)
Defense-Wide Working Capital Fund (DWWCF)
net operating result (NOR), the net difference between
The Defense-Wide Working Capital Fund funds the
expenses and funds received for a single fiscal year; and the
operations of three defense agencies: the Defense Logistics
(2) accumulated operating result (AOR), the net difference
Agency (DLA), the Defense Information Systems Agency
between expenses and funds received since the inception of
(DISA), and the Defense Finance and Accounting Service
the fund. Managers normally examine AOR when
(DFAS). These agencies manage a total of five activity
establishing future rates for customers.
groups within the DWWCF:
A Brief History of DWCFs
• DLA. The Assistant Secretary of Defense (Sustainment)
The modern DWCF evolved from other forms of revolving
has oversight of the DLA DWCF. DLA manages three
funds (e.g., stock funds, industrial funds) over the course of
activity groups: Supply Chain Management, Energy
approximately 150 years. However, statutory authority for
Management, and Document Services.
DOD to establish its own working capital funds was first
• DISA. The DOD Chief Information Officer oversees the
enacted in law in the National Security Act Amendments of
DISA DWCF. DISA manages one activity group:
1949 (P.L. 81-216, §405; 10 U.S.C. §2208). Under this
Information Services.
authority, the Secretary of Defense can establish as many
DWCFs as necessary to support DOD operations.
• DFAS. The Under Secretary of Defense (Comptroller)
oversees the DFAS DWCF. DFAS is the one activity
In 1991, the Secretary of Defense combined five industrial
group within the fund.
funds, four stock funds, and multiple appropriated fund
business activities into the Defense Business Operations
DeCA DWCF
Fund (DBOF). This consolidated revolving fund was
The Under Secretary of Defense (Personnel and Readiness)
created to streamline management and oversight
has oversight of the DeCA DWCF. There are two activity
responsibilities and was the precursor to the current DWCF
groups in the DWCF: Commissary Resale Stocks and
structure. Major activities performed under the DBOF
Commissary Operations.
included depot maintenance, transportation, supply
management, and finance and accounting.
DCSA DWCF
The Under Secretary of Defense (Intelligence) has
By 1996, DOD recognized the difficulty in managing one
oversight of the DCSA DWCF. DCSA manages one
large fund, including the challenge of setting suitable rates
activity group: Background Investigation Services.
for the entire DOD. As a result, DOD disestablished the
Budget Information
DBOF and reorganized it into four DWCFs: three Military
Department funds and one defense-wide working capital
Budget information for DWCFs is published on DOD and
fund (DWWCF). Since 1997, other DWCFs have been
military department comptroller websites. The annual
established within DOD that support the department, such
budget justification books provide a financial profile of
as the Defense Commissary Agency (DeCA) DWCF, and
each fund over a three-year period (year of the request and
the Defense Counterintelligence and Security Agency
two years prior). This profile generally includes an
(DCSA) DWCF.
accounting of fund revenues, capital investments, cash
forecasts for the budget year, and NORs and AORs (actual
Military Department DWCFs
and projected). Justification books also describe any
anticipated rate or surcharge adjustments, and provide
Navy Working Capital Fund (NWCF)
details to support requests for direct appropriations.
The Assistant Secretary of the Navy (Financial
Management & Comptroller) manages the NWCF. Four
Cameron M. Keys, Analyst in Defense Logistics and
activity groups (called “business areas”) support the Navy
Resource Management Policy
and Marine Corps: Depot Maintenance, Research and
Brendan W. McGarry, Analyst in U.S. Defense Budget
Development, Transportation, and Supply Management.
IF11233
Army Working Capital Fund (AWCF)
The Assistant Secretary of the Army (Financial
Management and Comptroller) manages the AWCF. There
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Defense Primer: Defense Working Capital Funds
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