Military Operations
Fiscal Year 2004 Costs for the Global War on Terrorism Will Exceed Supplemental, Requiring DOD to Shift Funds from Other Uses Gao ID: GAO-04-915 July 21, 2004To support the Global War on Terrorism in fiscal year 2004, the Congress appropriated $65 billion to the Department of Defense (DOD) in an emergency supplemental appropriations act. To assist the Congress in its oversight role, GAO reviewed (1) the adequacy of current funding for fiscal year 2004 war-related activities and (2) actions DOD is undertaking to cover anticipated shortfalls, if any. Based on the body of work GAO has done on the cost of contingency operations, GAO is also making observations on efforts to require greater accountability to the Congress on the use of funds appropriated to DOD for contingency operations.
GAO's analysis of reported obligations for the first seven months of fiscal year 2004 through April 2004 and the military services' forecasts as of June 2004 of their likely costs for the Global War on Terrorism for operation and maintenance and military personnel through the end of fiscal year 2004 suggests that anticipated costs will exceed the supplemental funding provided for the war by about $12.3 billion for the current fiscal year. DOD and the services are taking a variety of actions to cover anticipated shortfalls in their war-related funding. These actions include taking steps to reduce costs, transferring funds among appropriations accounts, and deferring some planned activities to use those funds to support the war. Also, DOD plans to ask the Congress for additional transfer authority, which would give it sufficient authority to move funds from one service to another and get funds to the operation and maintenance accounts that have the greatest shortfalls. The deferral of activities planned for fiscal year 2004 adds to the requirements that will need to be funded in fiscal year 2005 and potentially later years and could result in a "bow wave" effect in future fiscal years. GAO's past work has shown that current cost reporting includes large amounts of funds that have been reported as obligated in miscellaneous categories and thus provide little insight on how those funds have been spent. This is likely to result in reduced transparency and accountability to the Congress and the American people. Recent congressional actions have signaled the Congress' intent to require greater accountability regarding the use of GWOT funds. For example, in action on the President's $25 billion request for an Iraqi Freedom Fund Contingent Emergency Reserve in fiscal year 2005, the House Committee on Appropriations included provisions in its bill for cost reporting related to the use of these funds. But additional actions are necessary.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-04-915, Military Operations: Fiscal Year 2004 Costs for the Global War on Terrorism Will Exceed Supplemental, Requiring DOD to Shift Funds from Other Uses
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
July 2004:
Military Operations:
Fiscal Year 2004 Costs for the Global War on Terrorism Will Exceed
Supplemental, Requiring DOD to Shift Funds from Other Uses:
GAO-04-915:
GAO Highlights:
Highlights of GAO-04-915, a report to congressional committees
Why GAO Did This Study:
To support the Global War on Terrorism in fiscal year 2004, the
Congress appropriated $65 billion to the Department of Defense (DOD) in
an emergency supplemental appropriations act. To assist the Congress in
its oversight role, GAO reviewed (1) the adequacy of current funding
for fiscal year 2004 war-related activities and (2) actions DOD is
undertaking to cover anticipated shortfalls, if any. Based on the body
of work GAO has done on the cost of contingency operations, GAO is also
making observations on efforts to require greater accountability to the
Congress on the use of funds appropriated to DOD for contingency
operations.
What GAO Found:
GAO‘s analysis of reported obligations for the first seven months of
fiscal year 2004 through April 2004 and the military services‘
forecasts as of June 2004 of their likely costs for the Global War on
Terrorism for operation and maintenance and military personnel through
the end of fiscal year 2004 suggests that anticipated costs will exceed
the supplemental funding provided for the war by about $12.3 billion
for the current fiscal year. The following table shows the shortfall
and surplus for each service.
Service Forecasts of GWOT Funding Shortfalls and Surpluses in Operation
and Maintenance and Military Personnel Appropriations Accounts as of
June 2004
[See PDF for image]
[End of table]
DOD and the services are taking a variety of actions to cover
anticipated shortfalls in their war-related funding. These actions
include taking steps to reduce costs, transferring funds among
appropriations accounts, and deferring some planned activities to use
those funds to support the war. Also, DOD plans to ask the Congress for
additional transfer authority, which would give it sufficient authority
to move funds from one service to another and get funds to the
operation and maintenance accounts that have the greatest shortfalls.
The deferral of activities planned for fiscal year 2004 adds to the
requirements that will need to be funded in fiscal year 2005 and
potentially later years and could result in a ’bow wave“ effect in
future fiscal years.
GAO‘s past work has shown that current cost reporting includes large
amounts of funds that have been reported as obligated in miscellaneous
categories and thus provide little insight on how those funds have been
spent. This is likely to result in reduced transparency and
accountability to the Congress and the American people. Recent
congressional actions have signaled the Congress‘ intent to require
greater accountability regarding the use of GWOT funds. For example, in
action on the President‘s $25 billion request for an Iraqi Freedom Fund
Contingent Emergency Reserve in fiscal year 2005, the House Committee
on Appropriations included provisions in its bill for cost reporting
related to the use of these funds. But additional actions are necessary.
What GAO Recommends:
GAO recommends that the Secretary of Defense revise DOD cost reporting
guidance so that large amounts of obligations are not shown in
"miscellaneous" categories. To better assess the adequacy of previously
provided funding, the Congress may wish to direct DOD to report on the
adequacy of funding for the war on terrorism. DOD did not provide
comments by the date requested. GAO discussed its analysis and proposed
recommendation with DOD and service representatives, who agreed that
there needed to be greater detail in the miscellaneous cost reporting
categories. The representatives did not object to providing the
Congress with information on the adequacy of funding.
www.gao.gov/cgi-bin/getrpt?GAO-04-915.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Neal Curtin at (757)
552-8100 or curtinn@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Fiscal Year 2004 GWOT Costs Are Exceeding Supplemental Funding:
DOD Plans a Variety of Actions to Cover the Military Services'
Shortfalls of GWOT Funds:
Congressional Efforts to Improve Accountability of GWOT Funds:
Conclusions:
Recommendation for Executive Action:
Matter for Congressional Consideration:
Agency Comments:
Appendix I: Scope and Methodology:
Tables:
Table 1: Service Forecasts of GWOT Funding Shortfalls and Surpluses in
Operation and Maintenance and Military Personnel Appropriations
Accounts as of June 2004:
Table 2: Operation and Maintenance and Military Personnel Funds
Appropriated for DOD during Fiscal Year 2004 for the Global War on
Terrorism:
Figures:
Figure 1: Location of DOD's Fiscal Year 2004 Contingency Operations:
Figure 2: Reported Obligations of GWOT Operation and Maintenance Funds
through April 2004:
Figure 3: Reported Obligations of GWOT Military Personnel Funds through
April 2004:
Figure 4: Global War on Terrorism Operating Support Reported
Obligations for Fiscal Year 2003:
Abbreviations:
DOD: Department of Defense:
GWOT: Global War on Terrorism:
LOGCAP: Logistics Civil Augmentation Program:
United States Government Accountability Office:
Washington, DC 20548:
July 21, 2004:
Congressional Committees:
Following the terrorist attacks of September 11, 2001, the United
States began military operations to combat terrorism both in the United
States and overseas. Military operations to defend the United States
from terrorist attacks are known as Operation Noble Eagle. Overseas
operations to combat terrorism are known as Operation Enduring Freedom
and have taken place principally in Afghanistan. In March 2003, the
United States began Operation Iraqi Freedom to change the government in
Iraq. Together, these three operations are known as the Global War on
Terrorism (GWOT). To support GWOT operations in fiscal year 2004, the
Congress appropriated $65 billion to the Department of Defense (DOD) in
an emergency supplemental appropriation.[Footnote 1] The
administration had requested that amount to cover about $51 billion for
ongoing military operations in Iraq, over $10 billion for U.S. forces
in Afghanistan, and about $3.6 billion for homeland defense and support
to allies.
To assist the Congress in its oversight role, we reviewed (1) the
adequacy of current funding for fiscal year 2004 GWOT-related
activities and (2) actions DOD is undertaking to cover any anticipated
shortfalls. Based on the body of work we have done on the cost of
contingency operations, we are also making observations on efforts to
require greater accountability to the Congress on the use of
supplemental funds appropriated to DOD for contingency operations. We
provided a draft of this report to your offices for deliberations on
fiscal year 2005 defense bills.
To accomplish this review, we obtained the most recently available DOD
data on the services' reported obligations of funds in fiscal year 2004
in support of GWOT and compared the data to available funding detailed
in appropriations legislation. Obligations are incurred through actions
such as orders placed, contracts awarded, services received, or similar
transactions made by federal agencies during a given period that will
require payments during the same or a future period.[Footnote 2] DOD's
financial systems capture the obligation of funds. To identify DOD's
fiscal year 2004 GWOT-reported obligations, we used DOD's Consolidated
Department of Defense Terrorist Response Cost Reports, which report the
monthly and cumulative GWOT obligations, and analyzed the data.
Although we did not validate the financial systems or data that the
Defense Finance and Accounting Service uses to produce these
consolidated cost reports, we did discuss the data presented in these
reports with DOD and service representatives and agreed that for the
limited scope of this review, the consolidated reports provided the
best available data. We also did not verify whether reported
obligations were actually in support of GWOT. However, we are beginning
a separate review of the obligations accumulated through the various
sources of information used by the services, including the method by
which the Defense Finance and Accounting Service acquires and
consolidates the data into the cost report and whether the reported
obligations support the war.
We interviewed DOD and service representatives responsible for
preparing budgets and estimating costs to obtain their forecasts of
fiscal year 2004 funding needs as contained in their midyear budget
reviews that they presented to the Office of the Under Secretary of
Defense (Comptroller) and subsequent updates as of June 2004. We also
interviewed resource management representatives from some of the major
commands involved in Operation Iraqi Freedom. We focused our work on
the obligation of funds appropriated for operation and maintenance and
military personnel, for both active and reserve forces, because they
represented the large majority of funds obligated in fiscal year 2004
through April 2004. In developing observations on how to improve
accountability over contingency funds, we drew upon the body of work we
have done over the past decade on the cost of contingency operations.
The Congress was in the final stages of completing action on the fiscal
year 2005 defense appropriations bill as we were finalizing our report.
A detailed discussion of our scope and methodology is contained in
appendix I.
We performed our work from January through June 2004 in accordance with
generally accepted government auditing standards.
Results in Brief:
Our analysis of reported obligations for the first half of fiscal year
2004 and the military services' forecasts as of June 2004 of their
likely costs for GWOT for operation and maintenance and military
personnel through the end of fiscal year 2004 suggests that anticipated
costs will exceed the supplemental funding provided for GWOT by a net
of about $8.312.3 billion as of June 2004. Each of the services
forecasts a shortfall compared to their GWOT operation and maintenance
appropriations. Two of the services--the Army and the Air Force--
forecast a surplus in their military personnel GWOT funding and the
Navy and the Marine Corps forecast a shortfall. Our comparison of
the percentage of fiscal year 2004 GWOT operation and maintenance funds
obligated by the services through the first seven months of the fiscal
year (i.e., October 1, 2003, through April 2004, the latest month for
which obligation data are available for all the services) showed that
the military services had obligated more than 60 percent of their
available appropriations. For example, the percentage of GWOT operation
and maintenance funds that were obligated as of April 30, 2004, ranged
from a low of nearly 61 percent for the Air Force to a high of over
77 percent for the Marine Corps. The military services forecast that
their GWOT operational needs will exceed their supplemental GWOT
operation and maintenance funding, with the Army forecasting a
$10.2 billion shortfall and the Air Force forecasting a $1.5 billion
shortfall.
DOD and the services are taking a variety of actions to cover
anticipated shortfalls in their GWOT accounts. These actions include
taking steps to reduce costs, transferring funds among appropriations
accounts, and deferring planned peacetime activities to use those funds
to support GWOT. The Army has increased management's review of planned
activities to ensure that they are necessary, is planning to defer
activities such as refurbishment of equipment used in Operation Iraqi
Freedom to fiscal year 2005 and beyond to reduce fiscal year 2004
costs, is seeking transfers of funds from the other services, and has
received almost $1 billion in surpluses from the transportation working
capital fund. Both the Air Force and the Navy plan to decrease
peacetime flying hours in the fourth quarter of this fiscal year, delay
sending equipment into depots for repair, and defer facility
sustainment and restoration modernization projects among other actions
within their overall operation and maintenance accounts to make funds
available for GWOT needs. The Marine Corps plans to seek the transfer
of funds from Navy investment accounts to cover its shortfall. However,
there are statutory dollar limits on the amount of funds DOD can
transfer and, according to a DOD representative, as of June 18, 2004,
DOD had used up most of its transfer authority. According to this
representative, DOD plans to ask the Congress for additional transfer
authority, which would give DOD sufficient authority to move funds from
one military service to another and get funds to the operation and
maintenance accounts that have the greatest shortfalls. Finally, the
deferral of activities planned for fiscal year 2004 adds to the
requirements that will need to be funded in fiscal year 2005 and
potentially later years and could result in a "bow wave" effect in
future fiscal years.
Our past work has shown that current cost reporting includes large
amounts of funds that have been reported as obligated in miscellaneous
categories and thus provide little insight on how those funds have been
spent. For example, iFor example, in our report on fiscal year 2003
funding, we pointed out that almost 35 percent of obligations reported
in the operation and maintenance account were in "other supplies and
equipment" and "other services and miscellaneous contracts." This may
result in reduced transparency and accountability to the Congress and
the American people. Our work has also discussed the difficulty of
accurately budgeting for annual funding needs and the resulting
existence of both funding shortfalls and surpluses, which at times have
been spent on noncontingency related activities. Recent congressional
committee actions have signaled the Congress' intent to require greater
accountability regarding the use of GWOT funds. For example, in action
on the President's $25 billion request for the Iraqi Freedom Fund
Contingent Emergency Reserve in fiscal year 2005, the House Committee
on Appropriations included provisions in its bill requiring DOD to
provide more accountability related to the use of these funds, but
additional actions are necessary.
To improve accountability over the use of GWOT funds, we are
recommending that the department provide more detail in its cost
reporting on contingency operations,. and wWe also raise a matter for
the Congress' consideration regarding additional DOD reporting the
Congress could require to keep its members better informed on how the
funds are usedthe adequacy of funding.
DOD did not provide comments by the date requested. However, we did
discuss our analysis and proposed recommendation with DOD and service
representatives, who agreed that there needed to be greater detail in
the miscellaneous cost reporting categories. The representatives did
not object to providing the Congress with information on the adequacy
of GWOT funding. DOD provided technical comments and we have
incorporated them as appropriate.
Background:
Since the terrorist attacks of September 11, 2001, the United States
has undertaken military operations worldwide to fight terrorism as part
of GWOT. To pay for the incremental costs[Footnote 3] of GWOT, the
Congress has provided over $165 billion in appropriations for military
operations through fiscal year 2004. This amount includes funds for
operations in Afghanistan and more recently Iraq, homeland security,
and other global counterterrorism military and intelligence operations.
Figure 1 shows the location of DOD's major operations in support of
GWOT during fiscal year 2004.
Figure 1: Location of DOD's Fiscal Year 2004 Contingency Operations:
[See PDF for image]
[End of figure]
Most of the costs associated with GWOT fall into two accounts--
operation and maintenance and military personnel. Operation and
maintenance account funds obligated in support of GWOT are used for a
variety of purposes, including transportation of personnel, goods, and
equipment; unit operating support costs; and intelligence,
communications, and logistics support. Military personnel funds
obligated in support of GWOT cover the pay and allowances of mobilized
reservists as well as special payments or allowances for all qualifying
military personnel, both active and reserve, such as Imminent Danger
Pay and Family Separation Allowance.
Fiscal Year 2004 GWOT Costs Are Exceeding Supplemental Funding:
Our analysis of the military services' reported obligations for the
first seven months of fiscal year 2004 and the services' forecasts as
of June 2004 of full fiscal year costs suggests the services' combined
operation and maintenance costs could exceed supplemental GWOT funding
by about $13 billion. At the same time, the services' forecasts suggest
the Army and the Air Force will have some surplus military personnel
funds while the Navy and the Marine Corps will have a small shortfall.
Using the surplus military personnel funds to offset some of the
operation and maintenance shortfalls could result in a net shortfall of
about $12.3 billion. Table 1 shows the services' forecasts.
Table 1: Service Forecasts of GWOT Funding Shortfalls and Surpluses in
Operation and Maintenance and Military Personnel Appropriations
Accounts as of June 2004:
Service: Army;
Operation and maintenance: ($10.2);
Military personnel: $0.8;
Net total by service: ($9.4).
Service: Air Force;
Operation and maintenance: ($1.5);
Military personnel: $0.1;
Net total by service: ($1.4).
Service: Navy;
Operation and maintenance: ($0.9);
Military personnel: ($0.21);
Net total by service: ($1.0).
Service: Marine Corps;
Operation and maintenance: ($0.4);
Military personnel: ($0.1);
Net total by service: ($0.5).
Total;
Operation and maintenance: ($13.0);
Military personnel: $0.7;
Net total by service: ($12.3).
Source: Developed by GAO from service data.
Note: Shortfalls in parentheses. We did not audit the data used.
[End of table]
Our analysis suggests that the services will require additional funding
to satisfy operation and maintenance expenses and in some cases
military personnel expenses. The services, in concert with the Office
of the Under Secretary of Defense (Comptroller), plan to take a variety
of actions to cover forecasted shortfalls.
Fiscal Year 2004 Funds Appropriated for the Global War on Terrorism:
To support GWOT in fiscal year 2004, the Congress appropriated
$65 billion to DOD in an emergency supplemental appropriation.[Footnote
4] Of this $65 billion, about $63 billion was appropriated directly to
the services' and other defense agencies' appropriations accounts and
about $2 billion to a transfer fund called the Iraqi Freedom
Fund.[Footnote 5] Of the $63 billion, $5.3 billion was designated for
classified programs, which we did not review, $3.07 billion was for
procurement, $500 million was for military construction, $624 million
was for the working capital funds, and $672 million was for other
appropriations. Table 2 shows the operation and maintenance and the
military personnel appropriations provided to the services and DOD-wide
agencies for GWOT, exclusive of the amounts designated for classified
program[Footnote 6]s.:
Table 2: Operation and Maintenance and Military Personnel Funds
Appropriated for DOD during Fiscal Year 2004 for the Global War on
Terrorism:
Dollars in billions.
Operation and maintenance;
Army: $24.095;
Navy: $1.866;
Air Force: $5.809;
Marine Corps: $1.373;
DOD-wide agencies: $3.884;
Total: $37.027.
Military personnel;
Army: $12.859;
Navy: $0.816;
Air Force: $3.385;
Marine Corps: $0.910;
DOD-wide agencies: $0;
Total: $17.970.
Total;
Army: $36.954;
Navy: $2.682;
Air Force: $9.194;
Marine Corps: $2.283;
DOD-wide agencies: $3.884;
Total: $54.997.
Source: P.L. 108-106.
Note: The dollar figures cited above include appropriations received by
both the active and the reserve components for each service. Data
include transfers from the Iraqi Freedom Fund as of April 2004--$180
million and $142 million, respectively, to the Army and Marine Corps
operation and maintenance accounts and $157 million to the Marine
Corps' military personnel account.
[End of table]
We recognize that estimating the costs of ongoing military operations
is difficult because operational requirements can differ substantially
from what was assumed in developing budget estimates. For example,
according to Office of the Under Secretary of Defense (Comptroller)
representatives, in developing the President's fiscal year 2004 GWOT
budget request, DOD assumed, among other things, that the number of
military personnel would decline from a wartime high of 130,000 to
99,000 by the end of fiscal year 2004, that it would be able to make
greater use of sealift as opposed to more expensive airlift, and that
military units replacing those involved in the invasion of Iraq would
have fewer armored vehicles than the units they replaced. Conditions in
Iraq have prevented much of this from happening, and costs have not
decreased as anticipated. This includes having higher numbers of troops
in Iraq, with DOD stating that it plans to keep troop levels at 138,000
for the foreseeable future.
Funding for GWOT Operation and Maintenance in Fiscal Year 2004 Is Not
Likely to Be Sufficient:
Our analysis of reported obligations for the first seven months of
fiscal year 2004 and the military services' forecasts as of June 2004
of their likely costs for GWOT through the end of fiscal year 2004
suggest that anticipated costs will exceed the supplemental funding
provided for GWOT. Our comparison of the percentage of fiscal year 2004
GWOT operation and maintenance funds obligated by the military services
for the first seven months of the fiscal year (i.e., October 1, 2003,
through April 2004, the latest month for which obligation data are
available for all the services) showed that all of the military
services had obligated more than 60 percent of their available
appropriations, including any funds transferred from the Iraqi Freedom
Fund. As shown in figure 2, the percentage of available operation and
maintenance funds that were obligated as of April 30, 2004, ranged from
a low of nearly 61 percent for the Air Force to a high of over
77 percent for the Marine Corps. Therefore, we believe that if funds
continue to be obligated at the current rate or higher, operation and
maintenance reported obligations made in fiscal year 2004 will be
higher than the funds available for obligation in fiscal year 2004.
Figure 2: Reported Obligations of GWOT Operation and Maintenance Funds
through April 2004:
[See PDF for image]
Note: Total reported obligations include obligations from both the
active and the reserve components. We did not audit the data.
[End of figure]
Each of the military services completed a midyear budget review in
May-June 2004 for the Office of the Secretary of Defense, including a
forecast of their requirements for GWOT and, in some cases, has updated
those forecasts. Each service concluded it did not have sufficient
GWOT funding for GWOT operation and maintenance, while two of the
services--the Navy and the Marine Corps--forecasted a shortfall in GWOT
military personnel funds (see next section). A summary of each
service's review follows.
* The Army forecasts a funding shortfall of about $10.2 billion. The
shortfall includes $5.3 billion for support to deployed Army forces;
$3.4 billion for a variety of activities, including $2 billion for
refurbishing equipment used in Operation Iraqi Freedom and $753 million
in contractor logistics support; $800 million for equipment
maintenance; and $650 million for contract guards and garrison support
units in the United States. The two largest components of the shortfall
in support for deployed forces are the Logistics Civil Augmentation
Program (LOGCAP) contract that provides a wide array of support
services such as feeding and housing soldiers and the costs, such as
those for spare parts, associated with the higher operating tempo of
U.S. forces. LOGCAP costs have grown significantly as contractors
replaced soldiers providing complex support functions. Higher than
initially planned troop levels in Iraq as of spring 2004 (130,000
instead of 99,000) and an increase in troop levels in Afghanistan (from
about 14,000 to about 21,000) have increased all aspects of troop
support. Additional factors driving costs are the decision to change
the force mix of units serving in Iraq from one-third armor, two-thirds
wheeled vehicles to one-half armor, one-half wheeled vehicles, which
will lead to higher operational tempo and maintenance costs because
armor vehicles are more expensive to operate and an increased use of
airlift to move critical equipment to Iraq this past spring.
* The Air Force forecasts a shortfall of about $1.5 billion, which
includes the costs for increased operating tempo, such as more flying
hours than anticipated, higher transportation costs to move Air Force
units and equipment, body armor for airmen in combat areas, night
vision gear, and operation of surveillance equipment. In addition, the
Office of the Under Secretary of Defense (Comptroller) directed the Air
Force to fund $116 million for its own support provided under the
LOGCAP contract, which would otherwise have been paid by the Army.
* The Navy forecasts a shortfall of $931 million, which includes the
costs for higher steaming and flying hours. For example, Navy
representatives told us that they had planned for 11 additional
steaming days per quarter but are actually at 18 additional days per
quarter, which totals $231 million of the shortfall. In addition, there
are 4,000 Navy personnel in Iraq and Kuwait that were not planned to
deploy, which increases the operational costs, and the transportation
costs to move additional Navy and Marine Corps personnel (which were
also not expected to deploy) to GWOT operations.
* The Marine Corps forecasts a shortfall of $446 million. This
shortfall reflects the cost of having 26,500 Marines in Iraq and the
additional deployment of two Marine Expeditionary Units in support of
GWOT operations when initially Marine Corps forces were expected to
decrease their presence in fiscal year 2004. It also includes the cost
of refurbishing equipment that had been in Iraq in fiscal year 2003.
Furthermore, the equipment and maintenance costs associated with adding
extra armor on vehicles are much higher than anticipated because of the
extra wear-and-tear the vehicles are experiencing due to the extra
weight. The shortfall does not include an additional $140 million
needed for aircraft force protection that is being funded by the Navy.
In addition to the military services, the Congress also provided
GWOT operation and maintenance appropriations for the defense agencies,
including the Special Operations Command and the Defense Logistics
Agency. These agencies are also reflected in the midyear budget review.
Our analysis of their collective reported obligations through April
2004, which represents almost 58 percent of the fiscal year, indicates
that the defense agencies are also obligating their funds rapidly, with
about 66 percent of their appropriated operation and maintenance funds
obligated through April 2004.
Funding for GWOT Military Personnel Is Reasonably Close to Forecasts:
The military services have been obligating their funds for military
personnel at a rate that nearly mirrors the percentage of the fiscal
year that has passed. As figure 3 shows, with seven months of the
fiscal year gone, the Army, the Navy, and the Air Force have obligated
over one-half of their appropriations and the Marine Corps has
obligated almost half, including any funds transferred from the Iraqi
Freedom Fund. For example, the Army and the Navy have obligated almost
60 and 59 percent, respectively, of their GWOT appropriation.
Figure 3: Reported Obligations of GWOT Military Personnel Funds through
April 2004:
[See PDF for image]
Note: Total reported obligations include obligations from both the
active and the reserve components. We did not audit the data.
[End of figure]
While three of the four services' reported obligations for military
personnel are about at the expected level for this point in the fiscal
year, the military services' forecasts as of June 2004 predict a
surplus in the Army and Air Force accounts and a shortage in the Navy
and Marine Corps accounts. Details are as follows.
* The Army forecasts a surplus of $800 million due to less than
expected use of reservists in support of Operation Noble Eagle and
savings on costs to move soldiers from one home station to another.
* The Air Force forecasts a surplus of $112 million due to the
deactivation of reservists.
* The Navy forecasts a shortfall of $61 million resulting from factors
including the increase in Family Separation Allowances for personnel in
Iraq and Kuwait. The Navy has also activated 1,300 reservists.
* The Marine Corps forecasts a shortfall of $107 million. There are
26,500 Marines in Iraq, including 4,000-5,000 reservists, plus the
deployment of two Marine Expeditionary Units in support of GWOT that
were not anticipated when the Marines' budget estimate was developed.
DOD Plans a Variety of Actions to Cover the Military Services'
Shortfalls of GWOT Funds:
To fund forecasted GWOT shortfalls, the Office of the Under Secretary
of Defense (Comptroller) and the military services are planning to take
a number of actions. These actions include taking steps to reduce
costs, transferring funds from the Iraqi Freedom Fund, transferring
funds between appropriations accounts, and deferring planned peacetime
activities to use those funds to support GWOT.
These potential shortfalls could require DOD to move funds between or
within appropriation accounts. DOD uses "transfer authority" to shift
funds between appropriation accounts, for example, between military
personnel and operation and maintenance. Transfer authority is granted
by the Congress to DOD usually pursuant to specific provisions in
authorization or appropriation acts. In the fiscal year 2004 National
Defense Appropriation Act, DOD was given general transfer authority to
shift $2.1 billion between appropriations accounts, as well as other
transfer authorities that are more specific in nature. DOD was also
given transfer authority in the fiscal year 2004 Emergency Supplemental
Appropriation Act to shift $3 billion of the funds appropriated in that
act. In both cases, the Secretary of Defense must determine that this
transfer is necessary in the national interest and that it would fund
unforeseen and higher priority items than those originally funded, and
he must notify the Congress promptly of the transfer. The ability to
shift funds within a specific appropriation account, like operation and
maintenance, is referred to as "reprogramming." In general, DOD does
not need statutory authority to reprogram funds within an account as
long as the funds to be spent would be used for the same general
purpose of the appropriation and the reprogramming does not violate any
other specific statutory requirements or limitations. For example, DOD
could reprogram operation and maintenance funds originally appropriated
for training to cover increased fuel costs because both uses meet the
general purpose of the operation and maintenance account, as long as
the shift does not violate any other specific congressional prohibition
or limitation.
According to a representative in the Office of the Under Secretary of
Defense (Comptroller), DOD has sufficient funds within its overall
appropriation to cover forecasted GWOT shortfalls. Therefore, DOD does
not plan to ask the Congress for additional funding, but instead will
cover the shortfall in its fiscal year 2004 GWOT funding by both
transferring and reprogramming normal annual appropriation and GWOT
funds. However, as explained earlier, there are statutory dollar limits
on the amount of funds DOD can transfer and, according to a DOD
representative, as of June 18, 2004, DOD had exhausted most of its
transfer authority. According to this representative, DOD plans to ask
the Congress for an additional $1.1 billion in transfer authority,
which would give the department sufficient authority to move funds from
one service to another and get funds to the operation and maintenance
accounts that have the greatest shortfalls. Also, according to most
service representatives, they plan to reprogram funds within their
appropriations to the extent allowed by law. Finally, DOD plans to
transfer the remaining amount in the Iraqi Freedom Fund, which has its
own transfer authority, to the Army and Marine Corps operation and
maintenance accounts.
Military Services Plan to Cover GWOT Shortfalls:
To cover their forecasted GWOT shortfalls, each of the military
services has identified a number of steps it plans to take. Some of
these steps involve actions they can take internally, such as seeking
to reduce costs and revising spending priorities, or reprogramming,
within the same appropriation account, while others involve
transferring funds between accounts.
The Army, the service with the largest forecasted shortfall in
operation and maintenance, is taking a variety of actions to address
its forecasted shortfall. Actions include emphasizing the need to
control costs, reprogramming funds within and transferring funds across
accounts, seeking help from the other military services for bills now
being paid by the Army, and deferring what amounts to a total of about
$3.4 billion in activities until fiscal year 2005 or beyond, including
deferring refurbishment of equipment used in Operation Iraqi Freedom.
In a December 2003 message, the Vice Chief of Staff of the Army asked
units to control costs and look for alternatives to the LOGCAP contract
with the realization that costs were growing rapidly. Army
representatives told us that to control costs they have implemented a
number of measures, including:
* higher level review of LOGCAP tasks over $10 million as well as over
other contract actions and equipment and supply purchases,
* strengthened management controls on new work performed under the
LOGCAP contract, and:
* the review of supply requisitions to identify and cancel duplicate or
inactive requisitions after 30 days as well as a management review of
requisitions that have a high-dollar value, involve large quantities,
or involve pilferable items.[Footnote 7]
The Army will also seek to transfer the previously discussed
anticipated $800 million surplus that is attributable to GWOT in its
military personnel appropriation account and reprogram funds within its
military personnel Army and National Guard appropriations to cover the
forecasted $650 million shortage for contract guards and garrison
support units, and it is waiting for the Congress' approval of the
Office of the Secretary of Defense's request to transfer funds from
other service and defense agency accounts, as well as the previously
discussed transfer of remaining funds in the Iraqi Freedom Fund. The
Army has already received almost $1 billion in transfers from the
transportation working capital fund that reflect surpluses in that
account and anticipates a reduction in transportation rates and usage
changes that would produce a $265 million savings. Finally, the Army is
seeking to have the other military services pay some bills it is
currently paying. These bills include having the Marine Corps pay
almost $313 million and the Air Force pay almost $116 million in LOGCAP
costs, which is the Army's estimate of the cost of LOGCAP services
being provided to those services. In total, the Army has identified
$6.8 billion in funding sources for its operation and maintenance
shortfall and will defer activities for the remaining $3.4 billion to
fiscal year 2005 and beyond.
The Air Force is taking a variety of actions to reduce or defer
spending in its active component operation and maintenance account in
order to absorb its forecasted GWOT shortfall. Actions include
decreasing peacetime flying hours in the fourth quarter of this fiscal
year, reducing depot maintenance, deferring facility sustainment and
restoration modernization projects, eliminating training events,
decreasing contractor logistics support, slowing civilian hiring, and
curtailing lower priority requirements such as travel, supplies, and
equipment.
The Navy is also taking a variety of actions to cover its forecasted
GWOT shortfall. To cover its forecasted operation and maintenance
shortfall of $931 million, the Navy, like the Air Force and the Army,
plans to reduce or defer spending in its operation and maintenance
account, by reducing activities involving facility sustainment and
restoration modernization projects by $300 million and non-GWOT flying
and steaming hours by $226 million. According to Navy representatives,
if the fleet does not want to reduce flying and steaming hours, it can
defer its depot maintenance. The Navy received $121 million in
transfers from the Office of the Secretary of Defense. The Navy will
cover the remaining $284 million shortfall in operation and maintenance
and the $61 million shortfall in military personnel through the
transfer and reprogramming of funds from investment accounts.
The Marine Corps plans to fund both $334 million of its forecasted
$446 million operation and maintenance shortfall and its $107 million
military personnel shortfall with funds transferred from the Iraqi
Freedom Fund and Department of the Navy investment accounts. According
to Marine Corps representatives, they also plan to reduce or defer
spending in noncritical areas such as facilities improvements or
sustainment projects.
Deferring and Reducing Spending Could Increase Fiscal Year 2005
Spending Needs:
As discussed earlier, each of the military services expects to take
steps to make funds available for GWOT by reducing and deferring
planned activities. Actions such as reducing training can have both
short-and long-term impacts. In the short term, units train less if
flying and steaming hours are reduced. In the long term, for example,
Air Force representatives told us that part of the reduction in
peacetime flying hours would affect the Air Education and Training
Command's training of new pilots, which would slow new pilot
production. While some actions, such as reduced training or travel,
cannot be restored, actions that involve deferring planned activities
can be restored in future fiscal years to the extent funding is
available. As discussed earlier, the Army both plans to defer
$3.4 billion in activities until 2005 and beyond and expects to receive
transfers of funds from other services and defense agency accounts,
which would affect the other services' spending plans; the Air Force
plans to reduce depot maintenance; the Navy plans to reduce facility
repair activities; and the Marine Corps plans to seek the transfer of
funds from investment accounts. We believe that the deferral of these
activities will add to the requirements that will need to be funded in
fiscal year 2005 and potentially later years and so could result in a
"bow wave" effect in future fiscal years. Activities that are deferred
also run the risk of costing more in future years.
Congressional Efforts to Improve Accountability of GWOT Funds:
Recent congressional committee actions have signaled the Congress'
intent to require greater accountability regarding the use of GWOT
funds. On May 12, 2004, the President submitted a budget amendment for
DOD requesting $25 billion for the Iraqi Freedom Fund Contingent
Emergency Reserve in fiscal year 2005. The House Committee on
Appropriations included provisions in its bill for accountability
related to the use of these funds. The committee bill includes numerous
reporting requirements, including a new requirement for a comprehensive
biannual report to the Congress that provides a detailed and specific
accounting of the expenditure of taxpayer funds in Iraq and
Afghanistan.[Footnote 8] In its committee report on the defense
appropriations bill, the Senate Committee on Appropriations expressed
its disappointment in the responsiveness of DOD in providing reports
already required by various laws.[Footnote 9] The report does not
require new reports be provided, but directs DOD to provide meaningful
detail to describe the purposes and specific use of funding in all
reports submitted to the committee.
We have been reporting on the cost of ongoing military operations for
more than a decade. In that reporting, we have analyzed DOD's monthly
cost reports detailing the reported obligations of funds in support of
the operations. DOD currently prepares a monthly Consolidated DOD
Terrorist Response Cost Report that contains reported obligations by
operation and within each operation and by appropriation account for
the military services and defense agencies. Within these accounts, the
report provides obligation data in about 50 categories that are defined
in chapter 23 of the DOD Financial Management Regulations.[Footnote 10]
However, we have reported for several years and as recently as May 2004
that large amounts of reported obligations for GWOT are in
miscellaneous categories in both the operation and maintenance and the
military personnel accounts.[Footnote 11] For example, in fiscal year
2003, the $43.7 billion in operation and maintenance reported
obligations were reported in four major categories: civilian personnel,
personnel support, operating support, and transportation. As shown in
figure 4, the operating support category, which details obligations for
such operation-related activities as facilities support, fuel, and
spare parts and totaled about $32.1 billion, showed about $15.5 billion
in miscellaneous categories. This amount was comprised of about
$7 billion for other supplies and equipment and about $8.4 billion for
other services and miscellaneous contracts, which totaled about
35 percent of the total reported operation and maintenance obligations.
Figure 4: Global War on Terrorism Operating Support Reported
Obligations for Fiscal Year 2003:
[See PDF for image]
Note: We did not audit the data. Percentage total does not add due to
rounding.
[End of figure]
Similarly, we reported that within the military personnel account, of
$15.6 billion in reported obligations, $3.8 billion, or 24 percent, was
in the miscellaneous category of other military personnel. We reported
that in discussing the results of our analysis with the Office of the
Under Secretary of Defense (Comptroller) and the military services,
there was recognition of the large amount of reported obligations
captured in miscellaneous categories and that the Comptroller's office
is considering how best to provide more specific detail in future cost
reports.
Chapter 23 of the Financial Management Regulations is DOD's guidance on
contingency operations cost definition and reporting. In our opinion,
the categories defined in the guidance provide a uniform framework for
capturing obligations, but the miscellaneous categories do not provide
the specificity or transparency needed for the Congress and others to
understand clearly how funds appropriated for contingency operations
are being used, particularly since these categories involve billions of
dollars in reported obligations.
In our annual reporting on the cost and funding of ongoing military
operations, we have recognized that estimating the costs of ongoing
military operations is difficult because operational requirements can
differ substantially from what was assumed in developing budget
estimates. As a result, the actual funding requirement is often more or
less than what was initially estimated, and the military services have
sometimes used surpluses to fund activities that were not part of the
contingency operation. We have found that in some years funding was
insufficient for some services while it was sufficient for others and
that within a service it was sufficient for one appropriation account
but not for another. For example, in June 1996 we reported that the
Army and the Navy reported obligations for operation and maintenance
that were in excess of their supplemental funding, while the Air Force
and the Marine Corps reported obligations that were less than their
supplemental funding.[Footnote 12] In that year, both the Air Force and
the Marine Corps used the excess funding for a variety of otherwise
unfunded operational needs. In other years, the Congress rescinded
excess funding or reduced subsequent year funding based on an expected
carryover of funds.
Conclusions:
Largely because of the security situation in Iraq, the military
services are forecasting costs as of June 2004 in excess of their
supplemental GWOT funding. DOD is taking a variety of actions to cover
these shortfalls. It has also asked the Congress to provide a
$25 billion contingent reserve for GWOT in fiscal year 2005. To ensure
accountability for the use of those funds, the Congress is
contemplating requiring periodic reports on the use of such funds. Our
past work has shown that current cost reporting includes large amounts
of funds that have been reported as obligated in miscellaneous
categories and so provides little insight on how those funds have been
spent. This may result in reduced transparency and accountability to
the Congress and the American people. Our work has also discussed the
difficulty of accurately budgeting for annual funding needs and the
resulting existence of both funding shortfalls and surpluses, which at
times have been spent on noncontingency-related activities. This in
turn helps highlight the importance of providing useful information to
the Congress for its oversight role.
Recommendation for Executive Action:
In light of the fact that we have reported for years on the large
amounts of reported obligations in the miscellaneous categories of the
Consolidated DOD Terrorist Response Cost Reports, we recommend that the
Secretary of Defense take the following three actions: (1) review
recent Consolidated DOD Terrorist Response Cost Reports to identify the
larger groupings of reported obligations within the "other supplies and
equipment," "other services and miscellaneous contracts," and "other
military personnel" cost categories;, (2) revise Chapter 23 of the
Financial Management Regulations to include these groupings as
reporting categories so that the amounts classified in the "other"
categories are minimized; and (3) direct the military services to begin
reporting obligations using these new cost categories as soon as
possible they are identified.
Matter for Congressional Consideration:
To better assess the adequacy of previously provided funding, the
Congress may wish to expand its reporting requirements for DOD on the
use of GWOT funds to include reports at the half year and the end of
the third quarter of each fiscal year that include an assessment of the
adequacy of funding for GWOT in that fiscal year, including (a) if
funding appears to be insufficient, the Secretary of Defense's plan for
covering any shortfall and (b) if funding appears to exceed forecasted
costs, the procedures that will be followed to ensure that any excess
funds are not used for non-GWOT purposes.
Agency Comments:
DOD did not provide us comments by the date we requested. However, we
discussed our analysis with a representative from DOD's Office of the
Under Secretary of Defense (Comptroller) and representatives from each
military service's budget office. We also discussed our proposed
recommendation and matter for congressional consideration. The Office
of the Under Secretary of Defense representative stated that he agreed
with our proposed recommendation and that the department had been
discussing ways to provide more detail in the cost report's
miscellaneous categories. This representative and the service
representatives also stated that they had no objections to the matter
for congressional consideration and, in fact, provide information to
the Congress whenever it is requested. DOD also provided technical
comments and we have incorporated them as appropriate. In particular,
the Army clarified that they were not deferring the purchase of ceramic
body armor and we agreed to delete references to that issue in the
final report. We have also updated the reported obligations to reflect
April data.
We are sending copies of this report to other interested congressional
committees; the Secretary of Defense; the Under Secretary of Defense
(Comptroller); and the Director, Office of Management and Budget.
Copies of this report will also be made available to others upon
request. In addition, this 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 call me on
(757) 552-8100. Principal contributors to this report were Steve
Sternlieb, Ann Borseth, John Buehler, and David Mayfield.
Sincerely,
Signed by:
Neal P. Curtin Director,
Defense Capabilities and Management:
Congressional Committees:
The Honorable John W. Warner, Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
The Honorable Don Nickles, Chairman:
The Honorable Kent Conrad:
Ranking Minority Member:
Committee on the Budget:
United States Senate:
The Honorable Ted Stevens, Chairman:
The Honorable Daniel K. Inouye:
Ranking Minority Membe:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Duncan Hunter, Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representative:
The Honorable Jim Nussle, Chairman:
The Honorable John Spratt:
Ranking Minority Member:
Committee on the Budget:
House of Representatives:
The Honorable Jerry Lewis, Chairman:
The Honorable John Murtha:
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To assess the adequacy of funding for the Global War on Terrorism
(GWOT), we reviewed (1) the President's fiscal year 2004 budget request
for supplemental appropriations, (2) applicable laws appropriating
funds for GWOT, and (3) Department of Defense (DOD) reports on the
obligation of GWOT funds. We obtained budget forecasts from the
military services based on their midyear budget review and subsequent
updates through June 2004, including key cost factors of GWOT
operations. We also discussed these forecasts with service
representatives. We compared the latest available obligation reports
against total available appropriated funds. We focused our work on the
obligation of funds appropriated for operation and maintenance and
military personnel because they represented the large majority of funds
obligated in fiscal year 2004 through April 2004.
To assess actions planned to address forecasted GWOT funding
shortfalls, we reviewed service documents related to the midyear budget
review and subsequent updates through June 2004 and discussed with DOD
and the military services the actions the services planned to take and
their likely impact on current programs. We also reviewed applicable
legislation on DOD's authority to transfer funds.
To provide observations on congressional efforts to improve
accountability of GWOT funds, we reviewed available material in DOD
appropriations and authorization bills for fiscal year 2005, committee
press releases, and statements of key leaders to identify proposed
actions to improve accountability. We also reviewed our reports related
to the cost and funding of ongoing military operations dating back to
fiscal year 1994.
We visited the following locations during our review:
* Office of the Under Secretary of Defense (Comptroller), Washington,
D.C.
* Department of the Army, Headquarters, Washington, D.C.
* U.S. Army Forces Command and Headquarters, Third Army, Fort
McPherson, Georgia.
* Department of the Air Force, Headquarters, Washington, D.C.
* Air Force Central Command, Shaw Air Force Base, South Carolina.
* Department of the Navy, Headquarters, Washington, D.C.
* United States Marine Corps, Headquarters, Washington, D.C.
* First Marine Expeditionary Forces, Headquarters, Camp Pendleton,
California.
We performed our work from January through June 2004 in accordance with
generally accepted government auditing standards.
FOOTNOTES
[1] Emergency Supplemental Appropriations Act for Defense and for the
Reconstruction of Iraq and Afghanistan, P.L. 108-106 (Nov. 6, 2003).
[2] Department of Defense Financial Management Regulations, 7000.14-R,
vol. 1, Definitions, page xvii.
[3] The term "incremental costs" means those directly attributable
costs that would not have been incurred if it were not for the
operation. Sections 230406 and 230902 of Department of Defense
Financial Management Regulations 7000.14-R, Volume 12, Chapter 23,
Contingency Operations (Feb. 2001) provide additional information on
incremental costs.
[4] P.L. 108-106 (Nov. 6, 2003).
[5] The Iraqi Freedom Fund is a special account providing funds for
additional expenses for ongoing military operations in Iraq and those
operations authorized by P.L. 107-40 (Sept. 18, 2001), Authorization
for Use of Military Force, and other operations and related activities
in support of the Global War on Terrorism.
[6] These 16 DOD-wide agencies include the Defense Logistics Agency and
the Special Operations Command.
[7] We have testified on LOGCAP and other contracting issues in Iraq
and issued a report on LOGCAP in July 2004. U.S. General Accounting
Office, Contract Management: Contracting for Iraq Reconstruction and
for Global Logistics Support, GAO-04-869T (Washington, D.C., June 15,
2004) and Military Operations: DOD's Extensive Use of Logistics Support
Contracts Requires Strengthened Oversight, GAO-04-854 (Washington,
D.C., July 19, 2004).
[8] H.R. 4613, 108th Congress, sec. 9012 (2004).
[9] S. Rep. No. 108-204 (2004).
[10] Department of Defense Financial Management Regulations, 7000.14-R,
vol. 12, chapter 23, Contingency Operations (Feb. 2001).
[11] U.S. General Accounting Office, Military Operations: Fiscal Year
2003 Funding and Reported Obligations in Support of the Global War on
Terrorism, GAO-04-668 (Washington, D.C., May 13, 2004).
[12] U.S. General Accounting Office, Contingency Operations: Update on
DOD's Fiscal Year 1995 Cost and Funding, GAO/NSIAD-96-184BR
(Washington, D.C.: June 27, 1996).
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