Legal Aspects of Konappropriated Fund Activities

Author:Lieutenant Colonel Paul J. Kovar

Anyone connected with the Armed Forces far any period of time is at least superficially acquainted with the "nonappropriated fund activity." The post exchange, post welfare fund, officers' and NCOs' clubs, special service funds and the like are familiar activities on a military reservation. However, whenever dealings of a legal nature with nonappropriated fund activities become necessary, the seemingly commonplace image of these activities blurs considerably. What is their derivation? What is their liability to the Federal Gorernment, far Federal taxes, to state governments, to employees, to third persons? What is the nature of the liability of Army personnel to such activities? For what purposes may nonappropriated funds he expended? This paper will attempt to answer these questions, so far as possible, or at least point out the basic premises necesaary to an informed legal conclusion.

A word of caution-8 will he developed, nonappropriated fund activities are creatures of regulations. Therefore, a lawyer with a problem relating to such an activity would be well advised to initially read Army Regulation8 230-5 through 230-117 providing in detail for the administration and supervision of nonappropriated fund activities at Army installations and activities. The principal regulation setting forth the general policies to be applied in the administration of nonappropriated funds is Army Regulations 230-5. I. HISTORY

Nonappropriated funds as we know them today did not exist at the time of the Revolutionary War when OUT Armed Forces first came into existence. Howerer, the necessity for some type of establishment to fulfill the needs of the members of our newly formed Army in regard to their recreation, welfare and morale

* This article vas adapted from B thesis presented to the Fourth Advanced

Class, The Judge Advocate General's School, Chsrlottesville, Va. The opinions and eanclusions eapreiaed herein are those of the author and do not neees~8rily rapresent the viewe of The Judge Advocate Gem eral'i Sehaal or any other governmental a~eney.

*' Member, Staff and Paeulty, The Judge .4dvoeate General's School, Chsrlottesville, Va.

*eo 1,668


was recognized by the founding fathers of our countr:-. Recognition and in fact authorization of an organization was contained in the American Articles of War of 1IlV n-hich provided for sutlers whose mission was to provide for the individual personal needs of service personnel. Although sutlers were not established as a component part of the Army, Congress placed upon commanding offi. cers the responsibility of seeing that the needs of the troops were satisfied and that their rights were protected.* This reiDanaibility has been carried over and today is specifically set out in Armyregulation^.^

The sutlers, itinerant merchants who provided many of the services of the present day post exchange, could be considered as legalized camp followers, possessing concessions from the Army which authorized them to sell liquor, subsistance necessities, and other incidentals to soldiers in the field. Since the Rules and Articles of War of 1806* provided in Article 60, Section I that:

"Ali suttlers and retainers to the camp, and all persons whatsoever, serving with the armies of the United States in the fieid, though not enlisted soldiers, are to be subject to orders, according to the rules and discipline of war."it is apparent that numerous orders and regulations were promui-gated both by the War Department and commanding officers in addition to those contained in the Rules and Articles of War. The principal rule contained in the Articles of War pertaining to sutlers was one applying to hours of operation. It forbad such establishments from being open or making sales during hours of religious services or between nine in the evening and reveille the following morning.z

Article 41 of The General Regulations for the Army of 1821, ahich were approved by Congress,e contained specific regulations concerning sutlers. These regulations in general provided that each post or regiment was authorized the service8 of one sutler. He was authorized to sell on credit and allowed to appear at the pay table where, when the indebtedness was acknowledged, the

Arts. XXXII, LXIV, LXV, and LXVI, Rules and Arts. of War 1775, App. IX, Winthrop, Military Law and Precedents 953 (2d ed., 1920reprint1* Ibid.

a Pars. 47, 48, AR 210-10, 8 Jun 1954. as changed.

d Aet a i 10 Apr 1806, 2 Stat. 359.

' See. VIII, Apt. 1, Rules and Arts. ai War 1776, Military Lam of the

United States 1176-1863, P. 67.

' Act of 2 Mar 1821, S Stat. 615.

*oo ,,em


paymaster was authorized to deduct the amount from the soldier's pay and turn this amount over directly to the sutler. For these and other privileges the sutler was assessed a monthly charge of not less than 100 nor more than 16$ per man baaed upon the aver-age number of officers and enlisted men assigned to the unit during the period.

The funds secured a8 a result of this assessment plus any flnes collected from sutlers for violation of regulations constituted the basis "of what shall be called the past This fund was administered by a "council of administration" the treasurer of which, where possible, was the paymaster. He was required to open an account in favor of the post fund which account was subject to inspection by the post or regimental commander. Expenditures were made only upon the approval of the council and the commanding officer. The regulations authorized these funds to be expended for immediate or temporary relief to indigent widows and orphans of officers or soldiers, immediate or temporary relief to deranged or "decayed" officers, or to infirm or disabled soldiers, discharged under circumstances which did not entitle them to a pension. Financial assistance for the post school was authorized as well as the purchase of books and periodicals for a library, one section of which was to be adapted to the wants of the enlisted men. The post band could also be maintained from this fund.

These regulations also established certain procedures for administration of the post fund. These included such things as who constituted the council, when it was to meet, the recording and approval of its proceedings. Provisions were also made that when a unit was transferred an equitable portion of the post fund would be transferred to the departing unit. The cornmanding officer of the unit would receive the funds which were to be used for the benefit of the personnel of the unit. The commanding officer thus became the custodian of the funds.

The War Department, by presentment, and Congress, by adoption of the Regulations far the Army of 1821, recognised the needs of Army personnel and provided for these needs by establishing certain funds and activitiea which are known today as non-appropriated fund activities. The origin of three of our present day activities, unit, welfare, and library funds, can be traced back to this short but complete regulation of 1821.

Consolidated Officers' and Kon-Commissioned Officers' Messes

' Art. 41, Army Regulations of 1821.

A 0 0 Ilbm 97

were authorized and encouraged in 183G and 1811.* These differed from the present day Officers' and Nan-Commissioned Offi. cers' Ile~ses'~in that they were principally considered as eating establishments. The nucleus having been authorized, it was only a matter of time before they should become the focal paint of so-cial activities as well as eating establishments. As a social organization, extending equal membership either to all officers or non-commissioned officers on the pod, they were authorized limited support from appropriated funds in the form of the use of public buildings when, in the determination of the post commander, such buildings uere not required for official pmposes.ll

The War Department, realizing the importance of nonappropriated fund activities, extended their operation by eatablishing company funds in 1836.12 These w r e created, if not directly, at least indirectly, from appropriated funds. The principal source of rew-nue for these company funds came from savings which accrued from the economical use of rations issued for use in the com.pan^.'^ The control of this fund, which was far the esclusire benefit of the enlisted personnel, was placed in the company commander subject to inspection by the post or regimental commander." In addition to this local inspection, a quarterly report of funds received, expended and on hand ~ v 8 8

required to be furnished to The Adjutant General.1s

Although minor amendments in the regulations were made as to administration and the purposes for which these nonappropriated funds could be expended, there was no change in the provision allowing the post or regimental sutler to have a lien on B

soldier's pay. However, in 1847, Congress abrogated any and all parts of regulations which gave sutlers a lien on soldiers' pay or which allowed sutlers to appear at the pay table. This legislation provided that the only rights sutlers should have were those provided for in the Rules and Articles of War,'a these rights being those provided for in the Rules and Articles of War of 1806.

For the next twenty years Congress vacillated on the right of sutler8 to have a lien on the pay of soldiers and to be able to go to

Art. IX. Irmy Regulations of 1835.

' Par. 94, Aimy Regulations of 1841.

I" AR 230-60. 26 dul 1956, ni changed. a Gen. Older No. 54, 22 Yar 1809.

Par. 31, Arms Regulations of 1835.



Id. pers. 31, 32.

'* Id. par. 15.

1' See. 11, Act ai 3 >la1 lU7, 9 Stat 185. 98


the pay table to enforce such a lien by receiving at least a portion of the soliders' pay."

In 1862 Congress enacted a bill providing for the appointment of sutlers in the Volunteer Service and setting out duties of sutlers and authorizing the sutler a lien on pay af soldiers for merchandise purchased.1B The apparent purpose of this act...

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