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I assume that most bank transfers in government are done by a fairly low level employee writing a check or transfer. What if an agency spends more than is allocated? Will their checks bounce? How often does this happen?

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    This question would be easier to answer if you specified a country. Presumably each one has different rules.
    – Brythan
    Aug 7, 2017 at 0:10

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Assuming you are asking about the United States federal government, the answer is "generally no, but sometimes." To get into the details answer that, you will want to know a bit more about budget execution.

Can an Agency Spend More than Appropriated?

After the budget is set (passed by Congress and signed by the President) the Office of Management and the Budget (OMB) executes it. They take money from the general fund and transfer it into each agency's account. This is the first answer to your question: in general an agency cannot spend more than appropriated, because it's account was only given the amount it was appropriated for.

There are a few possibilities for an agency to spend more than appropriated:

  • The agency may have cash on hand from the previous fiscal year. Often times these funds are "swept" - meaning that the agency doesn't get to keep the money it didn't spend last year. In some cases though, they may be available for the agency to use.
  • The agency may use credit. For example, large capital outlay projects may be funded by bonds which the agency must pay off later.
  • There can be emergency appropriations which give additional money to an agency. This means the agency spends more than they were initially appropriated.

For more detailed information about the budget process (including execution), please see this report by the Government Accountability Office entitled A Glossary of Terms Used in the Federal Budget Process.

How Do Agencies Prevent This from Happening?

Part of your question deals with the possibility of a low-level employee writing checks. Agencies have a number of tools to make sure they stay on budget and keep employees from spending extra money. These are called internal controls.

Most of the information here is based on my professional experience as a government auditor. If you would prefer that anything here be sourced or more information provided, please just leave a comment.

First, budgets are monitored. Budget analysts watch spending to make sure that budgets are adhered to. They would (hopefully) detect any significant deviations from the budget.

Each expenditure also has multiple layers of approval. So to write a check or initiate a transfer requires that multiple sets of eyes be on each transaction. The government auditing standard is that three people should be involved: one to hold the money, one to initiate the transaction, and one to review the transaction.

Internal auditors (or inspectors general) should be reviewing expenditures and looking for fraud.

Much of the work is done on the managerial side (rather than the budget/audit/admin functions) On the managerial side, department supervisors and management are responsible for ensuring that their staff are making reasonable uses of agency funds. The manager is always responsible for the funds their employees use, and the first people to catch problems should be immediate supervisors.

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