Defense Budget
Tracking of Emergency Response Funds for the War on Terrorism Gao ID: GAO-03-346 April 30, 2003As of January 2003, Congress had provided a total of $38 billion to the Department of Defense (DOD) to cover emergency response costs related to the war on terrorism. Appropriated in different ways in fiscal years 2001, 2002, and 2003, these funds are meant to pay for expenses that DOD would not normally incur, such as contingency military operations and Pentagon building repairs. Because our prior work raised questions about DOD's oversight of contingency fund spending, GAO was asked to review DOD's management of emergency response funds, specifically: (1) DOD's adherence to OMB guidance in managing funds and the sufficiency of DOD's guidance on the use of these funds, and (2) DOD's ability to track the use of emergency response funds in general. We limited our review of DOD's guidance to the initial funds placed in the Defense Emergency Response Fund. We did not verify the accuracy of the data contained in DOD's obligation reports or the appropriateness of individual expenditures.
While DOD followed the Office of Management and Budget's (OMB) guidance in managing the initial $15 billion in war on terrorism funds that were placed in the Defense Emergency Response Fund in fiscal years 2001 and 2002, DOD provided its components with limited guidance on how to use these funds. DOD allocated the funds according to OMB's 10 funding categories. However, DOD's designations of allowable line items for each category were broad and, thus, could be interpreted in different ways. Also, while OMB directed that the funds were to be used for urgent and known needs, DOD did not define those needs further. Finally, DOD directed the components to use an internal financial management regulation for contingency funding to determine if costs were incremental or not; however, as we have reported previously, these regulations are insufficient for this purpose. In the absence of detailed guidance military officials sometimes had to use their best judgment in obligating emergency response funds. DOD's ability to track the use of emergency response funds has varying limitations depending on the appropriation. For the fiscal years 2001 and 2002 emergency response funds managed separately in the Defense Emergency Response Fund ($15 billion), DOD can report a breakdown of obligations by its 10 funding categories, but cannot correlate this information with its appropriation account structure. For emergency response funds provided in fiscal years 2002 and 2003 ($20.5 billion) that were transferred into or placed directly into DOD's regular appropriations accounts, DOD cannot use its accounting system to track the use of these funds because they are commingled with those appropriated for other purposes. While DOD has an alternative process intended to track obligations for contingency operations related to the war on terrorism, it cannot identify the portion of obligations that are funded with emergency response funds. DOD acknowledged these limitations and, in December 2002, began requiring additional reporting on the use of these funds. DOD partially concurred with this report, noting it clearly told components to use DOD's financial regulation for guidance and also held meetings for clarification. DOD agreed funds were commingled, but noted it had a process to track incremental costs for the war on terrorism.
GAO-03-346, Defense Budget: Tracking of Emergency Response Funds for the War on Terrorism
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Report to the Subcommittee on Defense, Committee on Appropriations,
U.S. Senate:
United States General Accounting Office:
GAO:
April 2003:
Defense Budget:
Tracking of Emergency Response Funds for the War on Terrorism:
GAO-03-346:
GAO Highlights:
Highlights of GAO-03-346, a report to the Chairman and Ranking
Minority Member, Subcommittee on Defense, Committee on Appropriations,
U.S. Senate
Why GAO Did This Study:
As of January 2003, Congress had provided a total of $38 billion to
the Department of Defense (DOD) to cover emergency response costs
related to the war on terrorism. Appropriated in different ways in
fiscal years 2001, 2002, and 2003, these funds are meant to pay for
expenses that DOD would not normally incur, such as contingency
military operations and Pentagon building repairs.
Because our prior work raised questions about DOD‘s oversight of
contingency fund spending, GAO was asked to review DOD‘s management of
emergency response funds, specifically:
* DOD‘s adherence to OMB guidance in managing funds and the
sufficiency of DOD‘s guidance on the use of these funds, and
* DOD‘s ability to track the use of emergency response funds in
general.
We limited our review of DOD‘s guidance to the initial funds placed in
the Defense Emergency Response Fund. We did not verify the accuracy of
the data contained in DOD‘s obligation reports or the appropriateness
of individual expenditures.
What GAO Found:
While DOD followed the Office of Management and Budget‘s (OMB)
guidance in managing the initial $15 billion in war on terrorism funds
that were placed in the Defense Emergency Response Fund in fiscal
years 2001 and 2002, DOD provided its components with limited guidance
on how to use these funds. DOD allocated the funds according to OMB‘s
10 funding categories. However, DOD‘s designations of allowable line
items for each category were broad and, thus, could be interpreted in
different ways. Also, while OMB directed that the funds were to be
used for urgent and known needs, DOD did not define those needs
further. Finally, DOD directed the components to use an internal
financial management regulation for contingency funding to determine
if costs were incremental or not; however, as we have reported
previously, these regulations are insufficient for this purpose. In
the absence of detailed guidance military officials sometimes had to
use their best judgment in obligating emergency response funds.
DOD‘s ability to track the use of emergency response funds has varying
limitations depending on the appropriation. For the fiscal years 2001
and 2002 emergency response funds managed separately in the Defense
Emergency Response Fund ($15 billion), DOD can report a breakdown of
obligations by its 10 funding categories, but cannot correlate this
information with its appropriation account structure. For emergency
response funds provided in fiscal years 2002 and 2003 ($20.5 billion)
that were transferred into or placed directly into DOD‘s regular
appropriations accounts, DOD cannot use its accounting system to track
the use of these funds because they are commingled with those
appropriated for other purposes. While DOD has an alternative process
intended to track obligations for contingency operations related to
the war on terrorism, it cannot identify the portion of obligations
that are funded with emergency response funds. DOD acknowledged these
limitations and, in December 2002, began requiring additional
reporting on the use of these funds.
DOD partially concurred with this report, noting it clearly told
components to use DOD‘s financial regulation for guidance and also
held meetings for clarification. DOD agreed funds were commingled, but
noted it had a process to track incremental costs for the war on
terrorism.
[See PDF for image]
[End of table]
What GAO Recommends:
Because DOD is revising its guidance and compiling more data based on
our prior work, we are not making a new recommendation.
www.gao.gov/cgi-bin/getrpt?GAO-03-346.
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Sharon Pickup at (202) 512-9619 or
pickups@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
DOD Provided Limited Internal Guidance on Use of Initial Emergency
Response Funds:
DOD's Ability to Track the Use of Emergency Response Funds Has
Varying Limitations:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Appropriation of Emergency Response Funds to DOD for Fiscal
Years 2001, 2002, and 2003:
Appendix III: OMB Guidelines and Criteria for Emergency Funding Requests
Related to the Terrorist Attacks of September 11, 2001:
Appendix IV: Comments from the Department of Defense:
Appendix V: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Status of Funds in the Defense Emergency Response Fund as of
December 2002:
Table 2: Transfer of Emergency Response Funds to DOD (fiscal years 2001
through 2003):
Figures:
Figure 1: Emergency Response Funding Categories and Sample Line Items:
Figure 2: Comparison Between Defense Emergency Response Funding
Categories and DOD Appropriation Accounts:
Figure 3: Congressional Designation of Fiscal Year 2002 Emergency
Response Funds for the Air Force:
Figure 4: Congressional Designation of Fiscal Year 2003 Emergency
Response Funds for the Air Force:
Abbreviations:
DOD: Department of Defense:
OMB: Office of Management and Budget:
United States General Accounting Office:
Washington, DC 20548:
April 30, 2003:
The Honorable Ted Stevens
Chairman
The Honorable Daniel K. Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate:
As of January 2003, Congress had provided a total of about $38 billion
to fund the Department of Defense's (DOD) efforts to recover from and
respond to the September 11, 2001, terrorist attacks.[Footnote 1]
Following the attacks, Congress initially provided, and the President
approved, about $17.5 billion in emergency response funds to DOD
through two emergency supplemental appropriations in fiscal years 2001
and 2002. Because of the urgent circumstances, Congress sought an
expeditious means to provide funds to DOD and, with the Office of
Management and Budget (OMB), agreed that DOD could manage these initial
funds in the Defense Emergency Response Fund--an existing account that
is separate from DOD's regular appropriations accounts.[Footnote 2] Of
the initial $17.5 billion, DOD received about $15 billion in the
Defense Emergency Response Fund, $2.3 billion was provided to other
accounts, and $0.2 billion was rescinded. Concerned about dual
accounting, Congress provided the remaining $20.5 billion in two
subsequent appropriations in fiscal year 2002 and fiscal year 2003 to
DOD's regular appropriation accounts either through transfers from the
Defense Emergency Response Fund or directly.[Footnote 3] Among other
things, DOD is using emergency response funds to cover the cost of
repairs to the Pentagon and contingency operations related to the
global war on terrorism. In general, applicable OMB and DOD guidance
requires funds provided for the war on terrorism to be used for
expenses that are emergency and incremental in nature--expenses that
DOD would have otherwise not incurred.
For the past several years, we have been reviewing cost and funding
issues associated with overseas contingency operations. Among other
things, we have reported about the need to strengthen DOD's oversight
of funds appropriated for contingency operations, including improving
guidance to clarify incremental costs.[Footnote 4] In March 2002, you
requested that we continue this effort by examining DOD's oversight of
the Defense Emergency Response Fund and the cost of contingency
operations in the Balkans and Southwest Asia. In June 2002, we briefed
your staff on the preliminary results of this work. In September 2002,
we reported on the costs associated with operations in the Balkans and
Southwest Asia.[Footnote 5] This report summarizes our observations on
(1) the extent to which DOD had adhered to OMB's guidance for managing
funds provided separately for the Defense Emergency Response Fund
(appropriated in the first two emergency supplemental appropriations),
(2) the sufficiency of DOD's guidance to its components on the use of
these funds, and (3) its ability in general to track the use of
emergency response funds. We are also providing information on DOD's
plans to expand its reporting on the use of emergency response funds.
More recently, in February and April of 2003 appropriations,
DOD received about $73 billion in additional funding for war on
terrorism-related expenses. However, this review is limited to the
$38 billion in funds provided under four previous appropriations. In
performing our work, we did not verify the accuracy of the data
contained in DOD obligation reports or the appropriateness of
individual expenditures.[Footnote 6] For details on our scope and
methodology, see appendix I.
Results in Brief:
DOD adhered to OMB guidance in managing the allocation of the
$15 billion in emergency response funds provided to the Defense
Emergency Response Fund under fiscal years 2001 and 2002 emergency
supplemental appropriations, but provided limited guidance to military
components on the use of these funds. In accordance with OMB guidance,
DOD allocated funds to its components in 10 funding categories and did
not transfer these funds to its regular accounts. These funds were to
be used for emergency and incremental needs. While DOD designated
allowable line items for each funding category, these designations were
broad and subject to interpretation. For example, DOD designated
"mobilization of guard and reserves" as an allowable line item.
Mobilization involves many factors such as special pay, transportation,
and equipment; however, DOD did not specify which could be funded.
Furthermore, OMB, among other things, directed that any requirement to
be funded must reflect an urgent and known need. However, DOD did not
establish any specific parameters to define the meaning of urgent and
known. To determine incremental needs, components were to rely on DOD's
internal financial management regulation.[Footnote 7] As we reported in
May 2002, this regulation does not provide sufficient guidance on the
types of costs defined to be incremental. In the absence of detailed
guidance, command officials were sometimes uncertain on whether
expenses were allowable and often had to use their best judgment in
obligating emergency response funds. Because DOD is in the process of
improving its guidance based on recommendations from our prior work, we
are not making a recommendation in this report.
DOD's ability to track the use of funds appropriated for the war on
terrorism has varying limitations depending on the appropriation. For
funds provided under the fiscal years 2001 and 2002 emergency
supplemental appropriations that were managed separately in the Defense
Emergency Response Fund ($15 billion), DOD is able to provide a
breakdown of obligations for the 10 funding categories, but reporting
proved to be cumbersome because the categories do not correlate with
DOD's regular appropriations accounting structure. For funds provided
under the two subsequent DOD appropriations in fiscal years 2002 and
2003 ($20.5 billion), DOD is not able to separately track the use of
emergency response funds. As generally occurs with funds in any
appropriation, these funds are commingled in DOD's regular
appropriations accounts with funds appropriated for other purposes.
Because DOD's accounting system only captures data on total obligations
and does not distinguish sources of funds, DOD is not able to identify
those obligations that are funded from emergency response funds. While
DOD has an alternative process intended to track incremental costs
(obligations) of contingency operations, including operations related
to the war on terrorism, these operations are funded from multiple
sources. Because of the aforementioned characteristics of its
accounting system, DOD cannot identify the portion of contingency
operations-related obligations funded with emergency response funds.
During our review, DOD officials acknowledged the limitations in their
ability to specifically track the use of emergency response funds and,
in November 2002, established additional reporting requirements related
to the use of emergency response funds. In general, components will
continue to report obligations for funds provided under the first two
emergency supplementals that were managed separately in the Defense
Emergency Response Fund. DOD will also compile additional data on
emergency response funds provided under the two subsequent
appropriations, including a more detailed breakdown of incremental
costs for contingency operations, obligations from supplemental funds,
and obligations from funds borrowed from baseline programs to pay for
expenses related to the war on terrorism. According to DOD officials,
components will rely on parallel tracking systems at the command and
unit level to compile this data. At this point, these officials believe
it would be too costly and time-consuming to modify DOD's accounting
system to generate more detailed funding and obligation data. Rather,
they emphasized the expanded reporting requirements will provide the
management information that DOD needs to oversee the obligation of
emergency response funds, justify needs for any additional funding, and
provide transparency to Congress, OMB, and others. Because the
components are still compiling data, we are not making a recommendation
in this report but will monitor DOD's progress in compiling the
additional data during our ongoing review of contingency operation
costs.
Background:
As of January 2003, Congress had provided about $38 billion, through a
total of four appropriations, for DOD's emergency response needs
related to the war on terrorism. In September 2001 and December 2001,
Congress enacted two emergency supplemental appropriations to quickly
provide initial funds to meet the emergency needs of DOD and other
federal agencies to recover from and respond to the September 11
terrorist attacks.[Footnote 8] These supplementals, enacted in two
separate fiscal years, fiscal year 2001 and fiscal year 2002, provided
about $17.5 billion to DOD. Given the urgent circumstances, Congress
sought an expeditious mechanism to transfer funds and, therefore,
provided funds to DOD through the Defense Emergency Response Fund. This
fund is a distinct account and DOD manages it separately from its
regular appropriations accounts. Of the initial $17.5 billion, DOD
received about $15 billion in the Defense Emergency Response Fund,
$2.3 billion was provided to other accounts, and $0.2 billion was
rescinded.
Shortly after the September 11, 2001, attacks, OMB and DOD agreed on
certain parameters for managing funds placed in the Defense Emergency
Response Fund, including that funds would be obligated in 10 funding
categories. OMB stipulated that DOD was to manage the allocation of
funds within the 10 categories and could not transfer these funds to
its regular appropriations accounts. Moreover, OMB used these
categories in its reports to Congress on the expenditure of the funds.
Based on DOD's limited estimates regarding requirements for each
category, OMB apportioned funds to the Defense Emergency Response
Fund.[Footnote 9] According to DOD officials, these estimates had to be
prepared quickly, within days of the attacks, and reflected the best
judgment of DOD's needs at the time without knowing the exact nature of
the U.S. response to the attacks. For each category, DOD also
identified multiple line items for which expenses could be incurred.
Figure 1 identifies the 10 categories and identifies some of the line
items that DOD established for one of the categories.
Figure 1: Emergency Response Funding Categories and Sample Line Items:
[See PDF for image]
[End of figure]
The 10 categories do not correlate with DOD's existing appropriation
accounts (see app. II). However, the expenses related to a category
would be similar to the types of expenses funded under several
appropriation accounts. For example, DOD may incur operation and
maintenance, and procurement expenses under the categories of improved
command and control and enhanced force protection. Because the
10 funding categories established by OMB and DOD did not correlate
with DOD's existing appropriation account structure, a dual system of
accounting emerged, which some believed to be cumbersome for tracking
purposes. Therefore, for subsequent appropriations--a second
supplemental appropriation in fiscal years 2002 and DOD's regular
appropriation in fiscal year 2003[Footnote 10]--Congress changed its
method of providing funds. Specifically, in these appropriations, DOD
received about $20.5 billion in funds either through the Defense
Emergency Response Fund (fiscal year 2002) to its regular appropriation
accounts or directly to its appropriation accounts (fiscal year
2003).[Footnote 11] Appendix II provides additional details on these
two appropriations.
On September 14, 2001, OMB issued specific guidelines and criteria for
federal departments and agencies to apply in identifying and evaluating
requirements to be funded under the initial emergency supplemental
appropriations. This guidance covered two areas--response and recovery,
and preparedness and mitigation--and outlined 15 conditions to be met.
Among other things, these conditions stipulated that requirements must
be known, not speculative; urgent, not reasonably handled at a later
time; and unable to be reasonably met through the use of existing
agency funds. Appendix III lists OMB's guidelines and criteria.
Because expenses related to contingency operations could be funded with
emergency response funds, DOD also relied on its existing financial
management regulation for guidance. Specifically, volume 12, chapter 23
of this regulation requires that costs incurred in support of
contingency operations be limited to the incremental costs of the
operation--costs that are above and beyond the baseline costs for
training, operations, and personnel. The regulation further states that
incremental costs are additional costs that would not have been
incurred had the contingency operation not been supported.
DOD Provided Limited Internal Guidance on Use of Initial Emergency
Response Funds:
DOD adhered to OMB guidance in managing the allocation of $15 billion
in initial emergency response funds placed in the Defense Emergency
Response Fund after the September 11th attacks. While DOD instructed
its components to follow OMB guidelines and internal DOD guidelines and
financial regulations in obligating emergency response funds, it did
not provide specific internal guidance to assist the components in
determining allowable expenses. As a result, command officials were
sometimes uncertain on the appropriateness of expenses and often had to
rely on their best judgment in obligating these funds.
DOD Adhered to OMB Guidance Managing Emergency Response Funds:
In accordance with OMB guidance, DOD reported on its allocation of
funds to its components in 10 funding categories and did not transfer
these funds into its regular appropriation accounts. As of December
2002, DOD reported it had obligated about $14 billion of the
$15 billion provided in the emergency supplementals of fiscal years
2001 and 2002 (see table 1).
Table 1: Status of Funds in the Defense Emergency Response Fund as of
December 2002:
Dollars in billions.
Increased Situational Awareness; Allocation: $3.531; Obligated:
$3.301; Unobligated: $0.230.
Enhanced Force Protection; Allocation: 1.349; Obligated: 1.310;
Unobligated: 0.039.
Improved Command and Control; Allocation: 1.391; Obligated: 1.351;
Unobligated: 0.040.
Increased Worldwide Posture; Allocation: 4.894; Obligated: 4.836;
Unobligated: 0.058.
Offensive Counterterrorism; Allocation: 1.821; Obligated: 1.741;
Unobligated: 0.080.
Procurement[A]; Allocation: 0; Obligated: 0; Unobligated: 0.
Initial Crisis Response; Allocation: 0.489; Obligated: 0.460;
Unobligated: 0.029.
Pentagon Repairs/Upgrades; Allocation: 0.563; Obligated: 0.563;
Unobligated: 0.
Other Requirements; Allocation: 0.216; Obligated: 0.191; Unobligated:
0.025.
Airport Security; Allocation: 0.225; Obligated: 0.217; Unobligated:
0.007.
Unallocated; Allocation: 0.526; Obligated: 0; Unobligated: 0.526.
Total[B]; Allocation: $15.006; Obligated: $13.970; Unobligated:
$1.036.
Source: DOD reported data as of December 31, 2002.
[A] Although funding was not allocated to the Procurement category,
procurements were funded under other categories.
[B] Figures may not add due to rounding.
[End of table]
The data shown in table 1 are based on monthly obligation reports from
DOD's defense financial accounting system database. These funds do not
expire and, therefore, are available until used. We did not verify the
accuracy or completeness of this data.
As table 1 shows, as of December 31, 2002, DOD reported data shows over
$1 billion of the funds in the Defense Emergency Response Fund remains
unobligated. Over half of that amount, $526 million, had not been
allocated to the 10 funding categories. According to DOD officials, in
March 2003, DOD plans to review the status of the unobligated funds and
validate whether requirements for the funds continue to exist.
DOD Provided Limited Internal Guidance for Specific Use of Funds:
For each of the 10 funding categories established by OMB and DOD,
DOD identified line items that could be funded under the 10 categories.
However, these line items were broad in nature and DOD did not identify
the specific types of expenses that could be funded within each line
item. In addition, OMB, among other things, directed that any
requirement to be funded must reflect an urgent and known need.
However, DOD did not establish any specific parameters to define the
meaning of urgent and known. Also, in the event that funds in the
Defense Emergency Response Fund would be needed to meet the
requirements of contingency operations, DOD stipulated that funds would
be used to cover the incremental costs of contingency operations. DOD
directed components to use its existing financial management regulation
in reporting incremental costs, but it did not offer any further
guidance as to how commands were to distinguish incremental from
baseline costs. In May 2002, we reported that DOD's financial
management regulation did not provide sufficient information on what
types of costs met DOD's definition of incremental costs, which
resulted in various interpretations among the services--and even among
units within a service--as to appropriate and proper
expenditures.[Footnote 12] As a result, we recommended that DOD expand
its financial management regulation to include more comprehensive
guidance governing the use of contingency funds. DOD agreed with our
recommendation and, as of April 2003, is still working on revisions to
its guidance. Because DOD is in the process of improving its guidance
based on recommendations from our prior work, we are not making a new
recommendation in this report.
In the absence of detailed guidance, command officials often had to
use their best judgment in deciding how to spend the defense emergency
response funds, and we found the same type of uncertainty among
commands as we reported in May 2002. For example, command officials
told us that determining what could be purchased from each category
and line item was often difficult because the categories and line items
were broad and generally differed from DOD's regular appropriation
accounts. For example, DOD designated mobilization of guard and
reserves as an allowable line item for the category of increased
worldwide posture. Mobilization involves many factors, such as special
pay, transportation, and equipment, but DOD did not specify which could
be appropriately funded.
We also found differing interpretations existed as to whether
requirements were urgent or known. Some commands used emergency
response funds on items that could not be delivered in a reasonable
time frame to be considered urgent. For example, one command purchased
a RC-135 Rivet Joint aircraft for intelligence, communications, and
reconnaissance. Typically, this aircraft would not be fielded for 8
years because it needed multiple contractors to install and test its
integrated electronics suite. In another example, one command, before
it knew its specific role in supporting the war on terrorism, obligated
$52 million for spare parts based on an analysis of prior usage. By
contrast, another command was reluctant to obligate funds until its
specific role had been determined. Moreover, in some cases, command
officials were unclear about how to determine the incremental costs to
their regular appropriations. For example, commands used emergency
response funds to pay for accelerated ship maintenance that was already
planned for future budgets and to purchase computer and communication
upgrades that were previously unfunded from the regular appropriation.
DOD officials told us that they had to quickly develop funding
requirements after the terrorists attacks and used OMB guidance and
available DOD instructions to instruct their components on how the
funds could be used. The officials said that obligating funds in
10 categories and related line items that were not directly related to
their appropriation accounts was confusing. In recognizing the lack of
detailed guidance, DOD officials also told us that they maintained
constant communication among all levels of DOD, especially at the
command and unit levels, in order to review and clarify the use of
emergency response funds. Furthermore, the officials said that they
believe most of the funds were obligated for appropriate purposes.
DOD's Ability to Track the Use of Emergency Response Funds Has
Varying Limitations:
DOD's ability to track funds appropriated for the war on terrorism has
varying limitations depending on the appropriation. For funds provided
under the two emergency supplemental appropriations of fiscal years
2001 and 2002 and managed out of the Defense Emergency Response Fund,
DOD is able to report a breakdown of obligations by the 10 categories,
but found that tracking these obligations was cumbersome because the
categories do not correlate with its regular appropriations account
structure. For the two subsequent appropriations in fiscal year 2002
and 2003, DOD cannot separately identify obligations funded with
emergency response funds because these funds are commingled with funds
appropriated for other purposes, and DOD's accounting system does not
distinguish among obligations. For example, in its fiscal year 2003
appropriation, Congress appropriated about $3.7 billion for the Air
Force's operation and maintenance subactivity group related to primary
combat forces, including about $389 million in emergency response funds
for expenses related to the war on terrorism, and about $3.3 billion
for expenses not related to the war on terrorism. All of these funds
were commingled in the Air Force's operation and maintenance account.
Within DOD's accounting system, DOD records obligations, but does not
identify the source of funds. Therefore, at any given time, DOD is only
able to track and report total obligations for operation and
maintenance purposes and cannot separately identify obligations funded
from emergency response funds.
DOD officials agreed that DOD's accounting system does not separately
track obligations funded with emergency response funds, but they
emphasized that DOD has established procedures intended to track
obligations for contingency operations, including operations
associated with the war on terrorism such as in Afghanistan. Under
DOD's financial management regulation, DOD components are required to
track and report the incremental costs (obligations) for each
contingency operation. DOD established a special code for each
operation, and components track obligations in a management tracking
system separate from DOD's accounting system. The components report the
total obligations for each contingency operation according to four
specific cost categories: personnel, personnel support, operating
support, and transportation--and by appropriation account. This
information is reported monthly and is provided to Congress. However,
the contingency cost categories do not correlate with DOD's
appropriation accounting structure. Also, funding for contingency
operations comes from both special funding sources such as emergency
response funds, as well as, the regular peacetime appropriations given
to components. Because DOD's accounting system does not separately
track obligations by funding source, DOD's reporting does not identify
the portion of contingency operations-related obligations funded with
emergency response funds.
DOD Sets Up Additional Reporting Requirements Intended
to Improve Tracking:
During our review, DOD acknowledged the limitations of its ability to
track the war on terrorism obligations and acknowledged the continued
interest of Congress, OMB, GAO, and other organizations regarding the
use of the funds. Starting in December 2002, DOD expanded its reporting
on obligations associated with the war on terrorism and contingency
operations. Specifically, in addition to continuing the separate
tracking of fiscal year 2001 and fiscal year 2002 emergency
supplemental funds contained in the Defense Emergency Response Fund,
components are now required to report more detailed data on obligations
associated with the two subsequent appropriations in fiscal year 2002
and 2003. The additional reporting requirements are as follows:
* For the fiscal year 2002 supplemental, components are, on a monthly
basis, to describe the purpose of the obligation, provide the amount,
and identify the appropriation account.
* For the fiscal year 2003 appropriation, components are, on a monthly
basis, to identify which funds they are obligating from their peacetime
budget to directly support the global war on terrorism, i.e.,
components are using their baseline budget for the war on terrorism
obligations. The report is to describe the purpose of the obligation
and the amount and identify what activities were not being accomplished
and the appropriation account affected. This is referred to as "cash
flowing.":
Furthermore, components are to start compiling and reporting on four
additional cost categories for contingency operations: reconstitution
of forces and capability, recapitalization, classified programs, and
working capital fund. DOD officials stated the data are compiled from
individual command and unit management tracking systems, which are not
linked with DOD's accounting system, referred to as parallel tracking.
According to DOD officials, the additional reporting is expected to
provide the management information that DOD needs to better manage and
oversee the war on terrorism obligations and that Congress and others
need to exercise oversight responsibilities. Officials believe that
requiring components to provide additional data on obligations is
preferable to modifying the accounting system to distinguish war on
terrorism-related obligations from other obligations. Officials told us
that modifying the accounting system would be too costly, time
consuming, and the effort would not justify the value added at this
time. Also, officials point out that the additional work involved and
learning curve associated with a modified accounting system would pose
problems because of the complexity involved with additional reporting,
the time involved with obtaining staff competency, and the need to
retrain staff due to assignment rotations. As of February 2003,
components were still compiling data; therefore, we are not making a
recommendation in this report, but will continue to review DOD's
expanded reporting efforts in our ongoing review of contingency
operations costs.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, DOD partially concurred
with the report (see app. IV). Specifically, DOD disagreed that
guidance provided to components on how to use emergency response funds
was not sufficient. DOD stated that components were clearly instructed
to treat expenses as incremental costs as defined in DOD's financial
management regulation and that subsequent meetings were held to clarify
this guidance. DOD also noted that, because the category structure used
for emergency response funds was unique, some confusion existed among
the components. DOD stated that the confusion dissipated as the
components became more familiar with the structure.
In our report, we recognized that DOD directed components to rely on
the financial regulation, as well as other guidelines, and acknowledged
DOD's view that it maintained constant communication to review and
clarify the use of emergency response funds. However, in our May 2002
report, we noted that the financial regulation does not provide
sufficient guidance on the types of costs that are defined as
incremental, which resulted in various interpretations among the
services. DOD agreed with the recommendation made in that report that
the regulation be expanded to include more comprehensive guidance.
During our work conducted for this report, we found that command
officials were sometimes uncertain about whether certain expenses were
allowable, including how to determine incremental costs, and sometimes
had to use their best judgment in obligating emergency response funds.
We continue to believe that more comprehensive guidance is warranted.
Because DOD is still revising the guidance based on prior GAO work, we
are not making a new recommendation in this report.
While DOD stated our report correctly said that DOD cannot correlate
the funding categories for emergency response funds with its
appropriation accounts, it believed we were only partially accurate in
stating that DOD is unable to track all emergency response funds in its
accounting system. DOD noted that it had implemented a process to track
incremental costs related to the war on terrorism and, in particular,
the Defense Finance Accounting Service collects cost information on
contingencies from components. DOD also noted that it is implementing
procedures to capture the incremental costs of Operation Iraqi Freedom.
Our report specifically recognizes DOD has established procedures
intended to track incremental costs for contingency operations
including operations associated with the war on terrorism, and that the
components report this type of information. However, we note that this
information is compiled in a management tracking system separate from
DOD's accounting system. Furthermore, funding for contingency
operations comes from both special funding sources such as emergency
response funds, as well as regular peacetime appropriations. Because
DOD's accounting system does not separately track obligations by
funding source, DOD's reporting does not identify the portion of
contingency-operations related obligations funded with emergency
response funds.
Further, DOD partially agreed that its accounting system cannot report
on the $20.5 billion in emergency response funds provided for the war
on terrorism in fiscal years 2002 and 2003. DOD noted that it received
only $13.5 billion and that, except for $305 million appropriated for
Pentagon repairs, these funds went directly to component accounts and
their execution is captured in accounting reports. DOD noted that
components report separately on obligations of these funds. In
subsequent discussions, a DOD comptroller official confirmed the
accuracy of our calculation that DOD had received a total of
$20.5 billion. As discussed previously, our report recognizes that
components report separately on obligations related contingency
operations, but that these reports do not distinguish the portion of
contingency operations-related operations funded with emergency
response funds.
Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from the date of this letter.
At that time, we will send copies of this report to interested
congressional committees with jurisdiction over DOD's budget.
Also at that time, we will send copies of this report to the Secretary
of Defense; the DOD Comptroller; the Secretaries of the Army, the Navy,
and the Air Force; the Director of the Defense Finance and Accounting
Service; the Director of the OMB, and others upon request. In addition,
the report will be available at no charge on the GAO Web site at http:/
/www.gao.gov/.
If you have any questions regarding this report, please contact me at
(202) 512-9619 or pickups@gao.gov, or Gary Billen, Assistant Director,
at (214) 777-5703 or billeng@gao.gov. Major contributors to this report
are acknowledged in appendix V.
Sharon L. Pickup
Director, Defense Capabilities and Management:
Signed by Sharon L. Pickup
[End of section]
Appendix I: Scope and Methodology:
To determine the extent that the Department of Defense (DOD) adhered
to the Office of Management and Budgets (OMB) guidance for managing
funds provided separately for the Defense Emergency Response Fund
(appropriated in the first two emergency supplemental appropriations)
and the sufficiency of DOD's guidance to its components on the use of
these funds, we reviewed the guidance provided by OMB to federal
government departments and agencies and the guidance provided by DOD to
its defense components for justifying their obligations funded through
the emergency supplementals of fiscal years 2001 and 2002. We
interviewed knowledgeable DOD officials responsible for implementing
this guidance, obtained DOD reports of emergency response fund
allocations to DOD component commands, and used these reports to select
sites for our subsequent visits. At DOD's component commands,
we interviewed officials and obtained reports or examples of
obligations (purchases). We compared selected examples of obligations
to OMB and DOD guidance. We also relied on prior GAO work regarding
DOD's guidance and reporting for contingency operations.
To assess DOD's ability to track the use of emergency funds provided to
DOD in the emergency supplementals of fiscal years 2001 and 2002, the
supplemental for fiscal year 2002, and the DOD appropriation for fiscal
year 2003, we analyzed relevant DOD financial documents, including the
Office of the Secretary of Defense monthly reports allocating the funds
to services and commands and the Defense Finance and Accounting Service
monthly obligation reports and accounting manuals. We did not verify
the accuracy and completeness of this data. We also reviewed budget and
accounting procedures and documents and interviewed knowledgeable DOD
officials.
We performed our work at the Office of the Secretary of Defense; the
Office of the Comptroller; the headquarters of the Army, the Army
Reserve, the Army National Guard, the National Guard, the Navy, and
the Air Force; and the following commands and centers:
* Transportation Command, Scott Air Force Base, Ill.
* Army Forces Command, Fort McPherson, Ga.
* Army Central Forces Command, Fort McPherson, Ga.
* Air Force Aeronautical Services Center, Wright-Patterson
Air Force Base, Ohio:
* Air Force Air Armament Center, Eglin Air Force Base, Fla.
* Air Force Air Combat Command, Langley Air Force Base, Va.
* Navy Atlantic Fleet Command, Norfolk Naval Base, Va.
* Army Tank-Automotive and Armaments Command, Warren, Mich.
* Army Materiel Command, Alexandria, Va.
* Air Force Materiel Command, Wright-Patterson Air Force Base, Ohio:
* Air Mobility Command, Scott Air Force Base, Ill.
* Special Operations Command, MacDill Air Force Base, Tampa, Fla.
* Pacific Command, Pearl Harbor, Hawaii:
* Air Force Special Operations Command, Hurlburt Field, Fla.
* Army Special Operations Command, Fort Bragg, N.C.
:
We performed our review between March 2002 and February 2003 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Appropriation of Emergency Response Funds to DOD for
Fiscal Years 2001, 2002, and 2003:
As of January 2003, Congress appropriated a total of about $38 billion
in fiscal years 2001, 2002, and 2003 to fund DOD's expenses related to
the war on terrorism. As table 2 shows, Congress provided these
emergency response funds in four appropriations--two emergency
supplementals (fiscal years 2001 and 2002), a fiscal year 2002
supplemental, and the fiscal year 2003 Defense appropriation--and used
different methods to transfer funds to DOD.
Table 2: Transfer of Emergency Response Funds to DOD (fiscal years 2001
through 2003):
Dollars in billions.
Fiscal Year: 2001/2002; Amount: $17.5;
Appropriation type: Emergency supplementals[A];
Method of funds transfer: Funds appropriated to a governmentwide
emergency response fund and then apportioned by OMB. DOD's funds were
primarily apportioned to the Defense Emergency Response Fund.[B].
Fiscal Year: 2002: Amount: 13.4;
Appropriation type: Supplemental[C]; Method of funds transfer: Funds
primarily appropriated to the Defense Emergency Response Fund and
subsequently transferred, as needed, to DOD's regular appropriation
accounts.[D].
Fiscal Year: 2003: Amount: $7.1; Appropriation type: Regular
appropriation[E]; Method of funds transfer: Funds appropriated
directly to DOD's regular appropriation accounts.
Source: DOD.
[A] 2001 Emergency Supplemental Appropriations Act for Recovery From
and Response to Terrorist Attacks on the United States, Pub. L. No.
107-38 (2001), and Department of Defense and Emergency Supplemental
Appropriations for Recovery from and Response to Terrorist Attacks on
the United States Act, 2002, Pub. L. No. 107-117 (2002).
[B] Of this amount, DOD was apportioned $15 billion that was placed
into the Defense Emergency Response Fund. The remainder was transferred
to other DOD appropriations accounts or rescinded.
[C] 2002 Supplemental Appropriations Act for Further Recovery From and
Response to Terrorist Attacks on the United States, Pub. L. No. 107-206
(2002).
[D] Of the $13.4 billion, DOD received $11.9 billion for the Defense
Emergency Response Fund but only $11.3 billion was placed into the
fund. The remainder of $2.1 billion was appropriated to other DOD
appropriation accounts.
[E] Department of Defense Appropriation Act, 2003, Pub. L. No. 107-248
(2002).
[End of table]:
Fiscal Years 2001 and 2002:
Congress appropriated about $17.5 billion to fund DOD's emergency
needs in the aftermath of the September 2001 terrorist attacks during
fiscal years 2001 and 2002. Of this amount, about $15 billion was
eventually transferred to DOD's Defense Emergency Response Fund. OMB,
in conjunction with DOD, identified 10 broad funding categories to
govern the use of these funds. While funds in the Defense Emergency
Response Fund were obligated for similar types of requirements funded
under several of DOD's regular appropriations account, such as for
operation and maintenance and military personnel expenses, the 10
categories do not directly correlate with DOD's existing appropriation
account structure. Figure 2 lists the Defense Emergency Response
funding categories and provides examples of DOD's regular
appropriation accounts.
Figure 2: Comparison Between Defense Emergency Response Funding
Categories and DOD Appropriation Accounts:
[See PDF for image]
[End of figure]
Fiscal Year 2002:
In an emergency supplemental appropriation for fiscal year 2002,
Congress appropriated $13.4 billion in emergency response funds, of
which $11.3 billion was placed in the Defense Emergency Response
Fund for subsequent transfer to DOD's regular appropriation accounts.
Furthermore, Congress designated the distribution of these funds by
DOD component, appropriation account, and purpose. Figure 3 provides an
example of how Congress designated the use of fiscal year 2002
emergency response funds for the Air Force.
Figure 3: Congressional Designation of Fiscal Year 2002 Emergency
Response Funds for the Air Force:
[See PDF for image]
[End of figure]
Fiscal Year 2003:
In fiscal year 2003, Congress appropriated $7.1 billion in emergency
response funds to DOD as part of DOD's regular appropriation, and these
funds were appropriated directly to DOD's regular appropriation
accounts. In contrast to the fiscal year 2002 emergency supplemental,
Congress provided more detail in designating the distribution of fiscal
year 2003 emergency response funds. In the conference report
accompanying the fiscal year 2003 appropriation act, Congress
designated specific funding levels by appropriation account, DOD
component, budget activity, and subactivity group. Figure 4 provides an
example of how Congress designated funding for the Air Force.
Figure 4: Congressional Designation of Fiscal Year 2003 Emergency
Response Funds for the Air Force:
[See PDF for image]
[A] DERF refers to the Defense Emergency Response Fund.
[End of figure]
[End of section]
Appendix III: OMB Guidelines and Criteria for Emergency Funding
Requests Related to the Terrorist Attacks of September 11, 2001:
In a September 14, 2001, memorandum, OMB provided the heads of
federal departments and agencies with the following guidelines and
criteria for requesting emergency funding related to the terrorist
attacks of September 11, 2001.
Response and Recovery:
The damage to be repaired must have been directly caused by the
terrorist acts.
The absence of funding, and consequently a delay in damage repair,
protection or other activities, would result in significant economic
loss/hardship, attack risk or human endangerment/suffering, including
the cost of enhanced security and relocation of employees to secure
sites.
Any action ordered by the President to respond to the national security
consequences of the events of September 11, 2001.
The requirement is known, i.e., not a speculative need.
The requirement is urgent, i.e., could not reasonably be handled at a
later time.
The activity to be performed is an appropriate federal role and
reflects an appropriate sharing of responsibility among state, local,
private, and federal entities.
The level of funding is limited to the amount necessary to restore the
entity/facility to current standards and requirements (e.g., damage to
a 1950s building would be repaired using current building codes and
standards and guidelines for counter-terrorism defense).
The requirement is not competitive with or duplicative of activities of
other agencies with statutorily mandated disaster assistance programs
such as Small Business Administration and Federal Emergency Management
Agency.
The requirement cannot reasonably be met through the use of existing
agency funds, e.g., through reprogramming actions or the use of other
emergency funds.
Preparedness and Mitigation:
Funds should address specific deficiencies, encountered or identified
to prevent events such as those that occurred on September 11, 2001,
and may include expenditures for: law enforcement and investigative
activities; general preparation and response (planning, training,
equipment, and personnel); physical protection of government facilities
and employees; physical protection of the national populace and
infrastructure; and governmental awareness of potential threats.
Funds can be used to enhance U.S. abilities to interdict
terrorist threats.
The activity to be performed is an appropriate federal role and
reflects an appropriate sharing of responsibility among state, local,
private, and federal entities.
The requirement is urgent, i.e., could not reasonably be handled at a
later time.
Activities are not competitive with or duplicative of activities of
other agencies with statutorily mandated preparation programs such as
DOD and Federal Emergency Management Agency.
The requirement cannot reasonably be met through the use of existing
agency funds, e.g., through reprogramming actions or the use of other
emergency funds.
[End of section]
Appendix IV: Comments from the Department of Defense:
UNDER SECRETARY OF DEFENSE:
1100 DEFENSE PENTAGON WASHINGTON, DC 20301 1100:
COMPTROLLER:
APR 15 2003:
Ms. Sharon L. Pickup:
Director, Defense Capabilities and Management United States General
Accounting Office:
441 G Street, N.W. Washington, D.C. 20548:
Dear Ms. Pickup:
This is the Department of Defense (DoD) response to the General
Accounting Office (GAO) draft report GAO-02-450 "DEFENSE BUDGET:
"Tracking of Emergency Response Funds for the War on Terrorism" dated
March 7, 2003 (GAO Code 350254). The Department of Defense partially
concurs with the general comments contained in the draft report.
However, I would like to make several comments regarding the funding
and recording of obligations as it pertains to the global war on
terrorism (GWOT).
In the report, GAO states that insufficient guidance was provided to
the Components on how the Defense Emergency Response Fund (DERF) funds
were to be used. That is not accurate. The Components were clearly
instructed to treat these expenses as incremental costs as defined in
Volume 12, Chapter 23 of the Financial Management Regulation (FMR).
While not all subordinate components of the Services and the Defense
Agencies were initially familiar with the contingency operations
section of the FMR, the guidance as to what is an incremental cost was
promulgated throughout the DoD in subsequent meetings. The DERF
category structure was developed shortly after the September 11, 2001
attack, and reflects the appropriation structure and financial
management strategy directed by the Office of Management and Budget
(OMB) and subsequently approved by the Congress. Given that the DERF
was a new appropriation structured unlike any other DoD appropriation,
many DoD Components were unfamiliar with it and there was some
confusion early on. However, as the Components became more familiar
with the DERF category structure, the confusion dissipated.
The report also states that the DoD cannot correlate the DERF
categories into DoD appropriations. That is correct, but as noted in
the report, the DERF funding was derived from the OMB managed Emergency
Response Fund account, which has no correlation with existing DoD
accounting structure. The GAO finding that the DoD is unable to track
all the funds appropriated for GWOT in the "official" accounting system
is partially correct. Those funds transferred from the DERF into the
Components' baseline appropriations from the FY 2002 Supplemental lost
their "GWOT" designation once the funds were incorporated. However,
foreseen this situation, the DoD implemented a process to track
incremental costs that are related to the GWOT. In addition, the
Defense Finance and Accounting Service (DFAS) already collects the cost
of contingency operations from the DoD Components, a major portion of
the cost for GWOT. Furthermore, the
DoD is in the process of implementing accounting procedures to capture
the incremental costs for Operation Iraqi Freedom.
The statement that the DoD accounting system does not report on the
$20.5 billion provided for GWOT is partially correct. The DoD received
only $13.5 billion, not $20.5 billion. With the exception of the $305
million appropriated for Pentagon repairs, the Congress appropriated
the funds directly into the Components' baseline accounts, where the
execution of these funds are being captured in the accounting reports.
The DoD has also directed the Components to separately report on
obligations of these GWOT funds.
Lastly, the report points out that the DoD has no plans to modify the
existing DFAS accounting system to generate more detailed funding and
obligation data. This is correct, the DERF (execution account) is, in
our view, a one-time anomaly that will not be repeated, thus not worth
incorporating into the permanent accounting structure.
Sincerely,
Dov S. Zakheim:
Signed by Dov S. Zakheim:
Enclosure: As stated:
[End of section]
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Sharon Pickup (202) 512-9619
Gary Billen (214) 777-5703:
Staff Acknowledgments:
In addition to the names above, the following individuals made
significant contributions to this report: Nancy Benco; Bruce Brown;
George Duncan; Harry Jobes; Tom Mahalek; Charles Patton, Jr.; Kenneth
Patton; and James Reid.
FOOTNOTES
[1] For purposes of this report, we refer to these funds as "emergency
response" funds.
[2] This fund was established in 1989 to fund DOD's expenses for
supplies and services provided in response to natural or manmade
disasters or emergencies. DOD's regular appropriations accounts include
operation and maintenance; procurement; research, development, test and
evaluation; and military personnel.
[3] For the emergency supplementals of fiscal years 2001 and 2002,
Congress specifically designated in statutes the use of appropriated
funds for responses to the September 11, 2001, attacks. For the two
subsequent appropriations in fiscal years 2002 and 2003, Congress
designated funds for responses to the attacks in conference report
language rather than in the pertinent statutes.
[4] For example, see U.S. General Accounting Office, Defense Budget:
Need to Strengthen Guidance and Oversight of Contingency Operations
Costs, GAO-02-450 (Washington, D.C.: May 2002).
[5] U.S. General Accounting Office, Defense Budget: Contingency
Operations in the Balkans May Need Less Funding in Fiscal Year 2003,
GAO-02-1073 (Washington, D.C.: Sept. 2002).
[6] We note GAO has designated DOD's financial management area as high
risk due to long-standing deficiencies in DOD's systems, processes, and
internal controls. Among other things, these deficiencies affect DOD's
ability to ensure basic accountability and maintain control of funds.
For example, DOD does not have the systems and processes in place to
capture the required cost information from the hundreds of millions of
transactions it processes each year. (See U.S. General Accounting
Office, Major Management Challenges and Program Risks: Department of
Defense, GAO-03-98 (Washington, D.C.: Jan. 2003.)
[7] Department of Defense Financial Management Regulation, DOD 7000.14-
R, vol. 12, chapter 23 on Contingency Operations, February 2001.
[8] 2001 Emergency Supplemental Appropriations Act for Recovery from
and Response to Terrorist Attacks on the United States, Pub. L. No.
107-38 (2001) and Department of Defense and Emergency Supplemental
Appropriations for Recovery from and Response to Terrorist Attacks on
the United States Act, 2002, Pub. L. No. 107-117 (2002).
[9] Funds under the two initial supplemental appropriations were
appropriated to a governmentwide emergency response fund and
subsequently apportioned to DOD and other federal agencies.
[10] 2002 Supplemental Appropriations Act for Further Recovery From and
Response to Terrorist Attacks on the United States, Pub. L. No. 107-206
(2002) and Department of Defense Appropriations Act, 2003, Pub. L. No.
107-248 (2002).
[11] Of the $20.5 billion, $11.3 billion was provided to the Defense
Emergency Response Fund and subsequently most has been transferred as
needed to DOD's regular appropriation accounts. The remainder was
appropriated directly to appropriation accounts. The fiscal year 2003
Appropriations Act provided DOD's regular appropriation and did not
specifically identify emergency response funds. Rather, the related
conference report, H.R. 107-732, shows how Congress designated funds to
be used for emergency response including dollar amounts and specific
purposes within DOD's regular appropriation account.
[12] GAO-02-450.
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