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ST - 041

REIMBURSABLE
FUNDS
April 2006

The information contained in this document is not to be communicated, either

directly or indirectly to any person not authorized to receive it.

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HEADQUARTERS
TRAINING AND DOCTRINE COMMAND, PHILIPPINE ARMY
Camp O’Donnell, Brgy Sta Lucia, Capas, Tarlac

FOREWORD

The Training and Doctrine Command, Philippine Army has long been
conducting training for the Army’s personnel, mostly to strengthen their
knowledge on ST - 041 72-100 Reimbursable Funds. The demands of such
doctrine have been increasing; hence the need for comprehensive reference
material (RM) for the Army school could not be overemphasized.

We welcome the printing of this RM. This is the product of the fixing
initiatives of our newly-invigorated Doctrine Center. This is expected to benefit
the instructors and students of the Training and Doctrine Command as it
discusses the salient features of General Information. More importantly,
researchers and writers of military doctrines will also find this reference
material useful. By being aware of the importance as well as the substance of
its contents, the users will be able to properly utilize and employ them in order
to exploit their useful implication in the Army’s operations.

While the concepts and guidelines embodied in this RM have been

thoroughly validated, these have been accredited by TRADOC for the use of
all Army schools. This is to be further subjected to test and evaluation prior to
the promulgation of CSAFP for widest dissemination. As such, we are
soliciting your valued inputs and insights to make it more responsive and
dynamic amidst the ever-changing operational environment.

CARLOS B HOLGANZA
Major General, AFP
Commander

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ACKNOWLEDGMENT

This reference material entitled 72-100 Reimbursable Funds is a reprint

of the readings on the subject which was used for instructions at the Service
Support Training Center, Army Support Command, PA.

The accreditation of this reference material is part of the Army's

initiative of standardizing and regulating the training literatures that will be
used by Army schools and training units.

Use of other literatures that may enhance appreciation of students on

the contents of this material shall be subject to the accreditation procedure
that will be facilitated by the Doctrine Center, Training & Doctrine Command,
Philippine Army.

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PREFACE

1. Purpose

This reference material is intended for use as reference text for Army
personnel responsible for service support functions and activities.

2. Scope and Applicability

This reference material covers the 72-100 RF's role concept, policies
and procedures to attain a more responsive, effective, and efficient support
system and is highly applicable in the current Army security engagement.

This is a valuable reference for Army personnel whose functions

include providing service support to their unit and personnel.

3. User Information

The proponent of this reference material is the Service Support

Training Center, ASCOM, PA. However, Doctrine Center is responsible in the
review and updating of this publication. Send comments and
recommendations to Commanding General, TRADOC, PA, Fort Magsaysay,
3130 Nueva Ecija, Attn: Doctrine Center.

4. Gender

Unless this publication states otherwise, masculine nouns and

pronouns do not refer exclusively to men.

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CONTENTS

Foreword i
Acknowledgment iii
Preface v
Contents vii

Section Title Page

CHAPTER 1 – AFP 72-100 REIMBURSABLE FUND 1-1

MANAGEMENT

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CHAPTER 1
AFP 72-100 REIMBURSABLE FUND MANAGEMENT

1. Introduction. It is often said that no matter how impressive our AFP's combat
equipment and weapon systems, its ability to resupply and support it frontline forces is
as critical to survival as the fighting units used to effective engage an enemy. Our
armed forces require almost continuous logistics support to have great chance of
success on the modem battle field. It is little wonder the term "Logistical Nightmare"
features so frequently whenever discussion turns to military campaign. A Commander
always asks for full support in his operation, and giving support is always associated
with availability of funds. In this event, the AFP 72-100 Reimbursable Fund was created
by the President of the Philippines and established a fund ceiling of P200 million. The
AFP 72-100RF bridges the gap between the government bureaucracy on procurement
and budgeting procedures. It shortens the procurement lead time and therefore assures
the commander of his staying power in combat.

The AFP issued GHQ Circular Number 4 that would give guidelines and
procedures in implementing the ceiling that was created by the President. The
authorized ceiling is composed of cash and stocks which are called the capital or corpus
of the fund. To make this ceiling operational, the designated AFP logistics units and
have authorized to operate the 72-100 RF buys stocks and sell it to AFP customer units
and have it paid out of the unit MOE or from the AFP appropriation in return. It then
uses the sales proceeds to purchase additional inventory for future sales to customers.
Therefore, the AFP 72-100 Reimbursement Fund is a variant of the stock fund. Simply
stated a stock fund is a revolving fund, which consists of cash and inventories.

The 72-100 RF's role, concept, policies and procedures to attain a more
responsive, effective, and efficient support system will be discussed extensively in the
succeeding paragraphs.

2. Role of the AFP 72-100 in the AFP Logistics System.

The AFP Logistics System is a network of organization charged with providing

material and services to AFP units. Its purpose is to provide logistics support to the units
and individuals in achieving their respective missions and tasks. The AFP 72-100 RF is
closely interrelated in the AFP Logistics System. The AFP 72100 RF is an important
logistics facility in attaining the basic mission of military logistics. In so doing, the 72-
100RF needs to match the demands of the customer units. If deliveries from supplies
could be balance exactly with sales to customer, the ratio of cash inventory in the fund
should remain constant. Also, if the price of the items remains the same and the fund
suffers no losses, the cash and inventory together, or the capital of the fund would
remain constant in practice, deliveries cannot be phased precisely with sales and the
capital of the stock fund will vary.

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During the Mindanao Campaign AFP experienced the sudden expansion of its
troops' strength to almost 200,000 in order to contain the simultaneous threats of
insurgency and secessionist movement in the Southern Philippines. At the outset, the
AFP faced a "Logistical Nightmare" on all aspect of its military campaign. The logistics
structure could not match the increase of forces fighting in the frontline. The fighting was
so intense and the combat unit had no more time to buy their combat supplies. Thus,
almost the CSAFP for logistics support in combat operations.

To correct this situation, the AFP decided to expand the operations of the AFP
72-100 Reimbursement Fund which was barrowed from the concept of a "stock fund"
from the US Armed Forces. Thus, President Marcos immediately increased the RF
ceiling from P60 million to 200 million ceiling. The AFP designated seven major AFP
Commanders as RF Administrators.

The 200 million ceiling has been proportionately distributed to the different RF
Administrators. Because a stock fund does not depend on an annual appropriation, it
makes no differences if its contracts or obligations cut across fiscal years, hence, the
AFP 72100 RF bridges the gap between procurement system and budget system.

3. AFP 72-100 RF Management Concept.

The AFP 72-100 RF has been established under Sec 604 of the Revised
Administrative Code as one of the sources of funds for the procurement of supplies and
materials for inventory. It is a continuing ceiling and it is maintained through the
replenishment from annually appropriate funds of AFP units based on their respective
withdrawals of stocks.

Theoretically, the stocks which were procured and stored from this fund are
reserved to satisfy immediate demands during periods of emergency, such as
mobilization, in order that routine operational requirement are to be procured out of
funds annually appropriated. However, there are other opportunities that desire the
usefulness of the reimbursable fund. It is obvious that procurement of defense items
could be from 3rd months to 2 years, especially when the items are available only in
foreign market. The gap, before, between procurement system and budget system (on
an annual basis) is bridged by the reimbursement fund.

Bulk procurement of items commonly consumed by all AFP units is

understandably more economical than open-market or spot procurement. These items
are programmable and demand can be forecasted and determined, procured and
stocked in advance which could result in economical use funds.

The merging concept, therefore, is that RF is an available source of unit

procurement and should continue to be source supplemented by emergency
procurement of items which are not programmed or rated too costly to be held in
inventory.

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A critical factor is appropriation or procured funds. Since there is only one source
of expenditure which is programmed funds, therefore, the more the AFP units utilize RF
stocks the less expenditure should be by emergency procurement and vice-versa.

The measure of the effective utilization of RF stocks, assuming all factors are
present, is the rate of funds tum-over. It is not complete measure of efficiency of the
stock management, but only of the utilization of the fund vis-a-vis, other modes of
procurement.

4. Policies.

a. Carry as many items in stock as possible.

b. Items to be carried in the inventory shall be those of known demand. Items

that are not familiar to the customer should not be carried.

c. Limit stock level for each item to optimal quantities. Use EOQ Model
principle in stockages level determination and in ordering. Do not over-procure or over-
stock.
d. Give priority to fast moving items. Avoid ordering slow moving items.

e. Do not overprice. Customers will not patronize your products.

f. Mobilization stocks are dormant items. Use appropriated funds instead of

RF to procure these stocks.

g. Procurement of services using 72-100 RF is not allowed. (Note: We

cannot resell these items.)

h. Watch out for dormant stocks. To free the RF ceiling, dormant stocks
should be issued of charge after they have been duly funded from appropriations.

i. Procurement of 72-100 RF items should be in bulk if they are of recurring

demand.

j. Deferred issues are basically not in consonance with the concept and
purpose of 72-100 RF. If tolerated, it should be sanctioned by Higher Headquarters.

k. A policy "payor you draw" should be adhered strictly.

5. Cycle of Operation (See Figure 1.1).

a. The operation of the AFP 72-100 RF starts with the granting of the RF
Ceiling (200 Million for the AFP). The fund ceiling can now be obligated to support
procurement of supplies.

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b. Initially, the RF Office through AFPLC/Major Service Support Units

recommends to J4/Major Services 4's for the procurement of supply requirement based
on procurement programs and demand data. After the determination of requirements,
J4 will issue procurement directive to AFPLC. AFPLC through procurement order in turn
procure the requirements either through public bidding or negotiated contract.

c. Purchase Orders (PO's) are prepared and processed. The amount of the
PO will be deducted from the fund balance. Funded Pos/RIV are transformed to value of
Stock-in-Transit. Upon delivery of the supplies at the 72-100 RF warehouse by the
suppliers, it will be carried as the value of stocks-on-hand. However, before SAO, 72-
100 RF receives the supplies; it will be inspected first by the Technical Inspection Team,
AFP before preparing the General Voucher to pay the supplier.

d. From the inventory, items will be issued to the requesting units (customer
unit) either through funded RIV, deferred charges (charge against MOE or AFP
appropriations), or Cash and Carry (Cash Purchases) System. SAO 72-100 RF
summarizes all funded RIVs in the Supply Adjustment Sheet (SAS). Each RIV must
have its own SAS.

e. The SAS, together with the original copies of the RIVs, are forwarded to
the Chief Accountant (CA) for formalization/processing. If found in order, the accounting
Office issue a Credit Advice (CA) to SAO, 72100 RF thus reducing his property
accountability by the value of supply reported in the SAS.

f. The value of the issuances is plowed back into the fund ceiling which
serves as a replacement to the fund previously used, thus making available again the
fund to purchase stocks and start another cycle of the operations.

g. In case of deferred charges, funds are tied-up and to not become

available until issuances are funded and paid from the appropriations. Every end of
each month, the 72-100RF office shall submit the status of deferred charges account to
J4/Major Svcs 4's. After, J4/Major Svcs 4s deducted this deferred account from the
regular MOE allocation of the customer unit, J6/Maj Svcs 6's will then release funds to
AFPLC/Maj Svcs Support Units corresponding to the amount deducted. The 72-100 RF
office will prepare RIVs for chargeability from the funds release and with this, Fiscal
Branch, AFP/Maj Svcs Support Unit stamps said chargeability. Again SAO, 72-100 RF
prepares the SAS and the same process is followed.

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Figure 1.1 The 72-100's Cycle of Operation.

6. Performance Standards of the AFP 72-100 RF.

a. There are two (2) important aspect of the 72-100 RF operations fund
management and stock management. The balance of ceiling or funds available is
utilized to fund procurement orders. Funded Pos/RIVs are transformed to value of
stocks-in-transist and once received by the RF Administrators are carried as value of
stock in inventory. From the inventory, items are issued to customer unit. If appropriated
fund is available, the value of issues is flowed back into the ceiling. In case of deferred
charges funds are tied-up and do not become available until issues are funded and paid
from appropriations. The measure of performance can therefore be established in fund
replenishment operation and in stock management. Fund turn-over can be made a
measure of flow of fund, while stock turn-over can be made a measure of stock
management.

b. The performance of a Reimbursement Fund can easily be granted in

terms of the turn-over of its fund and stock. If is of common knowledge that the desired
fund turn-over rate of 72-100RF is two times (2x) and a one time (Ix) stock turn-over
rate.

c. To achieve a desired fund turnover rate of2x means that the total funds
utilized with a given time frame must be twice the established ceiling. Since the
magnitude of the total funds utilized is determined by balances available and

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replenishment in order to double the amount the replenishment must be high which
means that there should be more issues and very minimal deferred charges
(receivables). Time period is involved in the sense that delays in the processing of
documents will likewise delay replenishment. Ideally, the rate of replenishment over
time should be 100% assuming no deferred charges i.e (Cost of issues per month =
replenishment per month). However, because of time and the prevalence of deferred
charges, the rate of replenishment cannot be 100% the difference representing delay
either by deferred charges or excessive time for processing of documents.

d. Another variable that affects the "amount of funds-utilized" is the

beginning balance of fund available which is the total ceiling minus cost of stocks in
transit minus cost of inventory (end). It means that in order to have more funds to be
utilized, the beginning balance must be high the value of goods in transit and value of
inventory must below and the deferred charges be kept minimally considering that the
ceiling is fixed.

e. On stocks turn-over rate, to attain a rate greater than 1, the total issues
must be high and the ending inventory must below. Since total issues are principally
dependent on receipts, the more procurement therefore, the higher the issues provided
that ending inventory is kept low.

f. f. In summary, the following performance indicators must be monitored

periodically and analyzed as to the factors influencing them:

1) Funds Management:

(a) Rate of Replenishment.

(b) Percentage of Deferred charges to total issues.

(c) Rate of Funded Issues in Process to total issues.

(d) Funds turn-over rate.

2) Stocks Management:

(a) Delivery rate of Procurement.

(b) Percentage of Stock-in-Transit to total Funded PO's.

(c) Percentage to dormant items total inventory.

(d) Stocks turn-Over Rate.

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7. 72-100 RF Supermarket.

a. The 72-100 RF Supermarket shall be organized, managed, and operated

in the same concept as a general merchandising establishment with adequate staff and
personnel to undertake the varied functions and activities. It shall have appropriate
offices to take care of administration, planning and programming requirements
determination, inspection and inventory, warehousing, stock control, sales, accounting
and finance, internal auditing within its level of authority, and as such will enhance
effectiveness and better service to customer unit (see Fig 1.2 for the organizational
chart of 72-1OORF).

Figure 1.2 Organizational Chart of the AFP 72-100 RF.

b. The 72-100 RF Supermarket should be provided with the necessary

building facilities, utilities and equipment needed for its operation.

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8. Proceeds on the Sale of 72-100 RF Stocks.

a. The 72-100 RF Administrators shall deposit proceeds from sales/issues

from their 72-100 stocks to separate current account with any government depository
bank.
b. The CO, Finance Center/FSU of designated RF Administrators shall
coordinate with the bank on the opening of the RF account. DCS Compt, J6 shall be
furnished the bank account number.

c. c. All issues from 72-100 RF Stocks shall be on a cash basis. Checks

shall be issued covering the funded RIVs. Deferred charges are strictly prohibited
except as approved by the CSAFP. All deferred charges should be settled following the
next quarter upon approval.

d. d. The Collecting Officers shall issues a separate series of Official

Receipts for all collections/proceeds from sales/issues of the 72-100 Stocks. He shall
maintain a separate cash book for the purpose.

e. e. All deposit slips shall be prepared by the Collecting Officer and signed
by the RF Administrator.

f. f. The report of collection duly supported by Official Receipts and deposit

slip validated by the bank shall be submitted at the end of the month by the Collecting
Officer to the accounting office/unit, copy furnished RF Administrators for recording
purposes.

1) The RF current account shall be utilized only for payment to

suppliers of stocks. In this connection, top priority shall be given to the procurement of
items which are critical and mission-oriented in nature.

2) A Disbursement Voucher shall be issued for every disbursement

made against the RF account. The DV shall be controlled and fiscalized by the
Comptroller, and approved by the RF Administrator.

3) All checks drawn against the RF account covering payment of 72-

100Rf obligations shall be signed/countersigned in accordance with the AFP Compt Ltr
Nr 88-7 dtd 05 Sep 88.

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