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Picatinny EUL Violates Federal Statute, GAO Finds

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  • April 26, 2011
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Because it calls for cash payments from the developer to be deposited in an escrow account controlled by the Army rather than the U.S. Treasury, the master agreement employed to lease property under an enhanced use lease (EUL) at Picatinny Arsenal, N.J, fails to comply with the federal statute authorizing the EUL program, according to a recent decision issued by the Government Accountability Office (GAO).

Under the statute authorizing the EUL program, 10 U.S. Code Section 2667, cash payments the services receive for leasing property need to be deposited into a special account in the Treasury. In-kind consideration the military services receive, however, can be used at the discretion of the services.

In the case of the Picatinny EUL, the developer, InSitech, deposited $1.7 million into an escrow account that the Army spent on services at property under its control. The Army asserted that the payment constituted in-kind consideration as the cash was used to compensate third-party contractors for permissible services under the statute.

GAO disagreed with the Army’s position, concluding: “Despite the Army’s disclaimer of ownership of the escrow account, there is no question that the escrow funds are cash consideration for the Picatinny EUL and constitute ‘money for the government.’ Under section 2667, these funds must be deposited in the designated special account in the Treasury.”

Essentially, the Army used the funds as if they were permissible in-kind consideration, resulting in the service violating section 2667 as well as the miscellaneous receipts statute, which requires payments designated for the federal government to be deposited in the Treasury.

Its opinion pertains primarily to the Picatinny EUL, the congressional watchdog agency said, but “to the extent the EULs for the other Army installations are on substantially similar terms as the Picatinny EUL, our conclusions here apply to those EULs as well.”

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