What is an appropriation and what happens if it lapses?

• A. Legal authorization to spend; lapsing occurs when not obligated by end of period; funds revert.
• B. A grant that requires repayment; lapsing means extended obligation.
• C. A policy guiding savings; lapsing means funds roll forward automatically.
• D. A debt instrument; lapsing results in interest penalties.

Answer: (A)

An appropriation is the legal authorization given to a government entity to incur obligations and spend up to a specified amount for a particular purpose. It sets the spending limit and the authority to commit resources, but it’s not money in hand by itself—the actual cash is drawn as obligations are incurred and expenditures are made.

Lapsing happens when the period of the appropriation ends and the funds have not been obligated (encumbered) against that appropriation. If there’s nothing committed to a contract or other obligation by the deadline, the unobligated balance reverts to the treasury or the general fund and becomes unavailable for use under that appropriation. This mechanism keeps spending within a set timeframe and prevents funds from being tied up indefinitely. For example, if a department has a one-year appropriation of 5 million and at year’s end only 3 million has been obligated, the remaining 2 million lapses and returns to the fund unless there’s a carryover or new appropriation allowed by law.