Global War on Terrorism
DOD Needs to Improve the Reliability of Cost Data and Provide Additional Guidance to Control Costs Gao ID: GAO-05-882 September 21, 2005Since the attacks of September 11, 2001, the Department of Defense (DOD) has reported spending $191 billion through May 2005 to conduct the Global War on Terrorism (GWOT). On an ongoing basis, DOD compiles and reports information on the incremental costs of the war, and uses these data in preparing future funding requests. To assist Congress in its oversight of war spending, GAO assessed (1) whether DOD's reported war costs are based on reliable data, (2) the extent to which DOD's existing financial management policy is applicable to war spending, and (3) whether DOD has implemented cost controls as operations mature. GAO focused primarily, but not exclusively, on fiscal year 2004 reported costs--the latest full year of data available at the time of GAO's review.
GAO found numerous problems in DOD's processes for recording and reporting costs for GWOT, raising significant concerns about the overall reliability of DOD's reported cost data. As a result, neither DOD nor Congress can reliably know how much the war is costing and details on how appropriated funds are being spent, or have historical data useful in considering future funding needs. On the basis of GAO's work, DOD is taking steps to improve its cost reporting. Factors affecting the reliability of DOD's reported costs include long-standing deficiencies in DOD's financial systems, the lack of a systematic process to ensure that data are correctly entered into those systems, inaccurately reported costs, and difficulties in properly categorizing costs. In at least one case, reported costs may be materially overstated. Specifically, DOD's reported obligations for mobilized Army reservists in fiscal year 2004 were based primarily on estimates rather than actual information and differed from related payroll information by as much as $2.1 billion, or 30 percent of the amount DOD reported in its cost report. In addition, GAO found inadvertent double counting in the Navy's and Marine Corps' portion of DOD's reported costs amounting to almost $1.8 billion from November 2004 through April 2005. Because it was not feasible to examine all reported costs and significant data reliability problems existed, GAO was not able to determine the extent that total costs were misstated. Further complicating the data reliability issue is the fact that DOD has not updated its policy to address GWOT spending. Instead, DOD is using its existing financial management regulation for funding contingency operations, although it was developed and structured to manage the costs of small-scale contingency operations. GAO has noted that specific provisions of the existing policy conflict with the needs of GWOT. One conflict concerns the use of supplemental funds for base support activities at home stations. DOD's financial management regulation administratively precludes such use, but military service officials have spent billions of dollars in supplemental funds on these activities. Some of this spending appears to directly support the war, but some does not. DOD is currently updating its regulation on the basis of GAO's work. While individual commands have taken steps to control costs and DOD policy generally advises its officials of their financial management responsibilities to ensure the prudent use of contingency funding, DOD has not established guidelines that would require all commands involved in GWOT to take steps to control costs and to keep DOD informed of those steps and their success. For example, the commander of coalition forces in Iraq has unilaterally set a 10 percent cost reduction target for fiscal year 2005 but the details are not widely known outside the command. With the growth in GWOT costs, there is a need to ensure that all commands seek to control costs, including the need to review and rationalize related requirements. Until the department establishes guidelines on cost controls and is routinely informed about the types of controls and their impact on costs, it cannot be sure that all that can be done to control costs is being done.
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-05-882, Global War on Terrorism: DOD Needs to Improve the Reliability of Cost Data and Provide Additional Guidance to Control Costs
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Report to Congressional Committees:
September 2005:
Global War On Terrorism:
DOD Needs to Improve the Reliability of Cost Data and Provide
Additional Guidance to Control Costs:
GAO-05-882:
GAO Highlights:
Highlights of GAO-05-882, a report to congressional committees:
Why GAO Did This Study:
Since the attacks of September 11, 2001, the Department of Defense
(DOD) has reported spending $191 billion through May 2005 to conduct
the Global War on Terrorism (GWOT). On an ongoing basis, DOD compiles
and reports information on the incremental costs of the war, and uses
these data in preparing future funding requests. To assist Congress in
its oversight of war spending, GAO assessed (1) whether DOD‘s reported
war costs are based on reliable data, (2) the extent to which DOD‘s
existing financial management policy is applicable to war spending, and
(3) whether DOD has implemented cost controls as operations mature. GAO
focused primarily, but not exclusively, on fiscal year 2004 reported
costs”the latest full year of data available at the time of GAO‘s
review.
What GAO Found:
GAO found numerous problems in DOD‘s processes for recording and
reporting costs for GWOT, raising significant concerns about the
overall reliability of DOD‘s reported cost data. As a result, neither
DOD nor Congress can reliably know how much the war is costing and
details on how appropriated funds are being spent, or have historical
data useful in considering future funding needs. On the basis of GAO‘s
work, DOD is taking steps to improve its cost reporting. Factors
affecting the reliability of DOD‘s reported costs include long-standing
deficiencies in DOD‘s financial systems, the lack of a systematic
process to ensure that data are correctly entered into those systems,
inaccurately reported costs, and difficulties in properly categorizing
costs. In at least one case, reported costs may be materially
overstated. Specifically, DOD‘s reported obligations for mobilized Army
reservists in fiscal year 2004 were based primarily on estimates rather
than actual information and differed from related payroll information
by as much as $2.1 billion, or 30 percent of the amount DOD reported in
its cost report. In addition, GAO found inadvertent double counting in
the Navy‘s and Marine Corps‘ portion of DOD‘s reported costs amounting
to almost $1.8 billion from November 2004 through April 2005. Because
it was not feasible to examine all reported costs and significant data
reliability problems existed, GAO was not able to determine the extent
that total costs were misstated.
Further complicating the data reliability issue is the fact that DOD
has not updated its policy to address GWOT spending. Instead, DOD is
using its existing financial management regulation for funding
contingency operations, although it was developed and structured to
manage the costs of small-scale contingency operations. GAO has noted
that specific provisions of the existing policy conflict with the needs
of GWOT. One conflict concerns the use of supplemental funds for base
support activities at home stations. DOD‘s financial management
regulation administratively precludes such use, but military service
officials have spent billions of dollars in supplemental funds on these
activities. Some of this spending appears to directly support the war,
but some does not. DOD has updated its regulation on the basis of GAO‘s
work.
While individual commands have taken steps to control costs and DOD
policy generally advises its officials of their financial management
responsibilities to ensure the prudent use of contingency funding, DOD
has not established guidelines that would require all commands involved
in GWOT to take steps to control costs and to keep DOD informed of
those steps and their success. For example, the commander of coalition
forces in Iraq has unilaterally set a 10 percent cost reduction target
for fiscal year 2005 but the details are not widely known outside the
command. With the growth in GWOT costs, there is a need to ensure that
all commands seek to control costs, including the need to review and
rationalize related requirements. Until the department establishes
guidelines on cost controls and is routinely informed about the types
of controls and their impact on costs, it cannot be sure that all that
can be done to control costs is being done.
What GAO Recommends:
GAO is making a number of recommendations to the Secretary of Defense
to (1) undertake a series of steps to ensure that reported GWOT costs
are reliable, (2) expand its financial management regulation for
contingency operations to include contingencies as large as GWOT, and
(3) establish guidelines to control costs. In commenting on a draft of
this report, DOD agreed with all but one of GAO‘s recommendations and
described steps it has taken to improve its cost reporting.
www.gao.gov/cgi-bin/getrpt?GAO-05-882.
To view the full product, 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:
Reliability of DOD's Reported Costs Is Unknown:
DOD Is Using Regulations to Guide GWOT Budgeting, Reporting, and
Spending That Were Not Designed for Wartime Operations:
Cost Controls Can Be Strengthened As Operations Mature:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Ineffective Reporting of Fiscal Year 2004 Army Military
Personnel Global War on Terrorism Obligations:
Appendix III: Comments from the Department of Defense:
Appendix IV: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Comparison of Reported DOD-Wide Imminent Danger Pay and
Implied Number of Deployed Personnel, April 2004-April 2005:
Table 2: DOD Military Personnel Obligations for GWOT Operations in
Fiscal Years 2003 and 2004:
Table 3: Army Military Personnel Obligations for GWOT Operations in
Fiscal Years 2003 and 2004:
Table 4: Army Obligation Plan and Reported Military Personnel
Obligations for GWOT Operations in Fiscal Year 2004:
Table 5: Army Obligation Plan and Reported Subsistence Obligations for
GWOT Operations in Fiscal Year 2004:
Table 6: Supplemental Budget Authority for Army GWOT Military Personnel
in Fiscal Year 2004:
Table 7: Estimated Army Obligations for "Reserve Components Called to
Active Duty" and Related DOD Payroll Costs in Fiscal Year 2004:
Figures:
Figure 1: Locations of DOD's Fiscal Year 2004 Global War on Terrorism
Operations:
Figure 2: Growth in Reported and Projected GWOT Spending, Fiscal Years
2002-5:
Figure 3: Supplemental Funding of DOD Military Personnel for GWOT
Operations in Fiscal Years 2003 and 2004:
Figure 4: Army Military Personnel Obligations for GWOT Operations in
Fiscal Year 2004:
Letter September 21, 2005:
Congressional Committees:
Following the terrorists 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
against further attacks are known as Operation Noble Eagle. Ongoing
military operations in Afghanistan and Iraq are known as Operation
Enduring Freedom and Operation Iraqi Freedom, respectively. Together,
these three military operations are identified as the Global War on
Terrorism (GWOT). Since the attacks, the Department of Defense (DOD)
reports that it has obligated $191 billion through May 2005 for
conducting the war. Congress has enacted a series of supplemental
appropriation acts to fund the war beginning in September 2001.
To assist Congress in its oversight role, we are continuing to
undertake a series of reviews relating to the cost and funding of
contingency operations in support of GWOT. In September 2003, we issued
a report that discussed the funding outlook for fiscal year
2003.[Footnote 1] We continued our analysis of fiscal year 2003
obligations and funding, and in May 2004 we issued a summary report
comparing full-fiscal-year 2003 GWOT cost and funding.[Footnote 2] In
July 2004, we reported on the funding outlook for fiscal year
2004.[Footnote 3] We are currently continuing our review series by
examining full-fiscal-year 2004 GWOT obligations and the availability
of funding to cover those expenses and the funding outlook for the
fiscal year 2005 GWOT supplemental appropriations for the war. We will
report our results on these subjects separately.
This report contains our analyses of DOD's reporting on the costs of
GWOT. On the basis of the authority of the Comptroller General, we
assessed (1) whether DOD's reported war costs are based on reliable
data, (2) the extent to which DOD's existing financial management
policy is applicable to war spending, and (3) whether DOD has
implemented cost controls as operations mature. We focused our analysis
primarily on fiscal year 2004 obligations specifically for military
personnel and operation and maintenance expenses, as they represent the
largest amount of reported spending. Obligations are incurred by the
Defense Department and the military services through actions such as
orders placed, contracts awarded, services received, or similar
transactions made during a given period that will require payments
during the same or a future period.[Footnote 4]
To accomplish this review, we analyzed DOD's fiscal year 2004 monthly
Consolidated DOD Terrorist Response Cost Report, which was renamed the
Supplemental and Cost of War Execution Report in January 2005, to
determine reported obligations by operation and by appropriation
account for the military services. That report is the source document
used by the department in discussing the cost of the war. It is not
used in the department's funds or appropriations accounting. DOD's cost
report does not include obligations incurred by the intelligence
community; therefore, we did not review those obligations. To assess
the reliability of DOD's data, we undertook a number of steps,
including conducting limited testing on military personnel costs and
operation and maintenance costs. At the unit level, we cross-checked
data entries back to the reporting vehicle used to input the data into
the GWOT cost report. We also conducted limited cross-checking of the
U.S. Army Central Command's (ARCENT) document register numbers against
documentation controlled by the Defense Finance and Accounting Service
(DFAS), Rome, New York. We discussed with Army financial managers the
processes used to ensure that GWOT obligation data provided from Army
units were accurate and reliable. We also reviewed Army Audit Agency,
Air Force Audit Agency, and Naval Audit Service reviews of their
respective service's GWOT spending. To determine what guides GWOT
spending, we focused our efforts on analyzing the fiscal year 2004
Defense Appropriations Act,[Footnote 5] the fiscal year 2004 Emergency
Supplemental Appropriations Act,[Footnote 6] and DOD's and the military
services' specific policies and guidance. We also met with officials
from the Office of the Under Secretary of Defense (Comptroller) and the
Army, Navy, and Marine Corps to discuss the sufficiency of DOD's
financial management policies and procedures for contingency
operations, including their applicability to GWOT conditions. To
determine controls over spending and when they could be strengthened,
we identified current controls and held discussions with resource
management officials from major commands and units that had deployed to
Iraq and Afghanistan on what benchmarks might be used to ascertain when
controls could be strengthened as operations mature and what steps DOD
has directed or implemented to control costs. We did limited work at
the Air Force because the Air Force Audit Agency was undertaking a
concurrent review of Air Force GWOT spending; instead, we drew upon
that work as appropriate. As discussed below, we found that the
reported cost data are not reliable because of long-standing
deficiencies in DOD's financial and accounting systems, the lack of a
systematic process to ensure that data are properly entered into those
accounting systems, the use of estimates rather than actual data for
some of DOD's reported costs, and the incorrect categorization of some
reported costs due to the large number of cost categories and limited
training on how to apply them.
We performed our work from August 2004 through August 2005 in
accordance with generally accepted government auditing standards.
Results in Brief:
We found numerous problems with DOD's processes for recording and
reporting costs for the Global War on Terrorism, raising significant
concerns about the overall reliability of DOD's reported cost data. As
a result, neither DOD nor Congress (1) can reliably know how much the
war is costing and details on how appropriated funds are being spent or
(2) have historical data useful in considering future funding needs. On
the basis of our work, DOD is taking steps to improve its cost
reporting. However, because it was not feasible to examine all reported
costs and because significant data reliability problems existed, we
were not able to determine the extent that total costs were misstated.
Our examination of DOD's reported costs in support of GWOT found a
number of problems affecting the accuracy of reported costs. These
problems included long-standing deficiencies in DOD's financial
management systems and business processes, reported military personnel
obligations that did not match payroll records, incorrectly categorized
operation and maintenance obligations, the use of estimates instead of
actual information, and a lack of supporting documentation. Factors
contributing to DOD's challenges in reporting reliable GWOT cost data
include the previously cited long-standing deficiencies in DOD's
financial management systems, the lack of a systematic process to
ensure that data are correctly entered into those accounting systems,
inaccurately reported costs, and difficulties in properly categorizing
costs. In at least one case, the reported costs may be materially
overstated. Specifically, reported obligations for mobilized Army
reservists in fiscal year 2004 were based primarily on estimates rather
than actual information and differed from related DOD payroll
information by as much as $2.1 billion, or 30 percent of the amount DOD
reported in its cost report. Initially, the Army could not support this
difference or its reported GWOT military personnel obligations. Over
the next several months, the Army and the Office of the Under Secretary
of Defense (Comptroller) provided us with several possible, though
sometimes inaccurate, explanations for this difference. Some
explanations appeared valid while others did not and, taken together,
they failed to fully account for the difference. Regarding DOD's
accounting systems, over the years we and DOD have reported the
following:
* We have testified on several occasions, including in November 2004
and June 2005, about long-standing weaknesses in DOD's financial
management and related business processes and systems.
* In September 2004, DOD acknowledged that systematic deficiencies in
its financial management systems and business processes result in its
inability to collect and provide financial and performance information
that is accurate, reliable, and timely.
* Still, DOD's Financial Management Regulation directs the services to
capture contingency costs, which include GWOT costs, with their
existing accounting systems and at the lowest possible level of
organization.
Because of these problems, we have identified DOD's financial
management as a high risk area since 1995. Regarding ensuring that the
military services are correctly entering GWOT data into their
accounting systems, for the most part the services and the Office of
the Under Secretary of Defense (Comptroller) do not have a systematic
process to review reported GWOT costs to ensure that they are accurate
or to test their reliability. In one instance, we found that the Marine
Corps and Navy were inadvertently double counting their reported costs
each month from November 2004 through April 2005, totaling almost $1.8
billion. The two services are taking steps to provide correct
information beginning with the May 2005 cost report. Regarding properly
categorizing costs, in our transaction testing we found that improperly
categorized costs ranged from 5 to 30 percent of the dollar value of
transactions that we and other audit agencies reviewed. The large
number of DOD cost categories--numbering in the thousands--and a lack
of training for personnel coding the data contributed to incorrect
categorizations. DOD has been responsive to recommendations that we and
the Air Force Audit Agency have made in the past to improve cost
reporting and has agreed to make a number of improvements. DOD has
identified steps it plans to take to improve cost reporting on the
basis of our current work. In discussing how the detailed cost data are
used, the Office of the Under Secretary of Defense (Comptroller) told
us that the detailed information is used for several purposes,
including to make billion-dollar decisions in developing supplemental
funding budget requests and to inform DOD leadership of detailed costs
incurred for GWOT. However, as discussed above, as a result of the
problems we identified in capturing and reporting GWOT costs, neither
DOD nor Congress can (1) reliably know how much the war is costing and
details on how appropriated funds are being spent or (2) have
historical data useful in considering future funding needs.
Further complicating the data reliability issue is the fact that DOD
has not updated its financial management policy to address GWOT
spending. DOD's existing contingency operations' Financial Management
Regulation (vol. 12, ch. 23) was developed and structured to manage the
costs of small-scale contingencies and specifically excludes its use
for wartime activities. Nonetheless, department and service officials
are using this regulation to guide GWOT budgeting, cost reporting, and
spending. Beginning in 1995, DOD's Financial Management Regulation
established policies and procedures for estimating and reporting
contingency costs. Historically, the financial management regulation
generally guided the military services' spending on contingency
operations[Footnote 7] by defining what constituted the incremental
costs of contingency operations and by providing examples of eligible
incremental costs.[Footnote 8] DOD's regulation is broad and has been
interpreted at all levels of DOD and the services in formulating
budgets and determining what should be reported as GWOT obligations.
Although this is the most currently available statement of DOD policy,
we believe that some of its specific provisions conflict with the needs
of GWOT. One conflict concerns limitations on the use of supplemental
funds for base support activities at home stations. The services have
spent billions of dollars in supplemental funds on these activities. In
the case of the Army, its Installation Management Agency, which manages
all Army installations, obligated $1.5 billion in fiscal year 2004 and
has budgeted $2.1 billion in fiscal year 2005 expressly for GWOT-
related "home station" base support activities. Although some home
station costs appear to be directly related to the war, the provisions
of chapter 23, as currently written, administratively limit such costs
to be budgeted or reported as incremental costs. At the same time, we
found a number of reported incremental base operations costs that
appear, at best, tangential to the support of GWOT. The conflicting
provisions in chapter 23 indicate confusion over what is the DOD policy
that senior DOD officials and service resource managers or unit
commanders should use to manage the costs of the war. Without an
updated policy, the military services and other DOD agencies cannot
make informed judgments on the appropriate use of GWOT funding
authorities. In response to our work, DOD has updated its regulation to
address GWOT spending.
While individual commands have taken steps to control costs and DOD
policy advises its officials of their financial management
responsibilities to ensure the prudent use of contingency funding, the
Office of the Under Secretary of Defense (Comptroller) has not
systematically called for all commands involved in GWOT to take steps
to control costs, set general parameters to guide cost-control efforts,
and keep the Office informed of those steps and their success. For
example, the commander of coalition forces in Iraq has unilaterally set
a 10 percent cost-reduction target for fiscal year 2005, but the
details are not widely known outside the command. GWOT spending has
risen steadily since the attacks of September 11, 2001, as operations
have expanded. From fiscal year 2002 through fiscal year 2004, reported
costs rose from $11 billion to $71 billion annually and on the basis of
reported fiscal year 2005 costs through May 2005, we project that they
could reach $71 billion again in fiscal year 2005. Current cost
controls implemented by individual commands include acquisition review
boards, command review of purchases, limits on some categories of
spending, and a cost-reduction goal in Iraq. However, DOD's policy does
not go beyond advising DOD officials of their financial management
responsibilities to ensure the prudent use of contingency funding and
provides no guidelines on steps that should be taken to control costs,
particularly as operations mature, while ensuring mission
accomplishment. Resource managers from a number of Army divisions that
have deployed to Iraq or Afghanistan have told us that cost controls
can be strengthened as operations mature. In discussing efforts to
control costs with the Office of the Under Secretary of Defense
(Comptroller), the view was expressed that, on the basis of varying
combat situations, steps to control costs were best left to the
individual commands. Currently, the Comptroller's office has no direct
knowledge of the commands' cost-control efforts and has not asked to be
kept informed of cost-control steps. We believe that more can be done
and that absent a DOD-wide policy calling for systematic cost-control
efforts, there is no assurance that successive commanders will
emphasize cost control and that each commands' efforts will be equally
comprehensive.
We are making recommendations to DOD to (1) undertake a series of steps
to ensure that reported GWOT costs are reliable, (2) expand its
financial management regulation for contingency operations to include
contingencies as large as the current Global War on Terrorism, and (3)
establish guidelines to control costs.
In official comments on a draft of this report, DOD agreed with all but
one of our recommendations, stating that it generally agreed with the
intent of the recommendations and outlined several immediate actions it
has taken to improve procedures and strengthen the cost reports. DOD
did not agree with our recommendation to have the Office of the Under
Secretary of Defense (Comptroller) establish guidelines on cost
controls, commenting that field commanders are the correct echelon to
adopt and emphasize cost controls. We recognize that certain individual
commands have done much to control costs and describe some of those
efforts. However, other individual commands have done less to control
costs. As a result, we continue to believe that more can be done and
that absent DOD-wide guidelines on cost control efforts, there is no
assurance that successive commanders will emphasize cost control and
that each command's efforts will be equally comprehensive. Therefore we
have retained the recommendation. The department's comments and our
evaluation are discussed in detail in a later section of this report
and the department's comments are printed in their entirety in appendix
III.
Background:
Following the terrorist attacks of September 11, 2001, the United
States began military operations to combat terrorism both in the United
States and overseas. 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,
which takes place principally in Afghanistan, and Operation Iraqi
Freedom, which takes place in and around Iraq. Figure 1 shows the
primary locations where U.S. forces conducted operations to support
GWOT in fiscal year 2004.
Figure 1: Locations of DOD's Fiscal Year 2004 Global War on Terrorism
Operations:
[See PDF for image]
[End of figure]
Since September 11, 2001, DOD reports that it obligated $191 billion
through May 2005 to conduct GWOT. Factors that affect the cost of the
war include the number of deployed personnel, the special pays and
allowances that deployed personnel receive, the additional pay that
mobilized reservists receive when on active duty, the pace of
operations, the extent to which facilities have to be built to house
and protect the deployed forces, and the distance to the theater.
Congress has enacted a series of supplemental appropriation acts,
beginning in September 2001, to fund the war. These supplemental
appropriation acts have included funding authority for operations in
Afghanistan and Iraq, homeland security, and other global
counterterrorism military and intelligence operations.
The costs of contingency operations are referred to as "incremental
costs" and are directly attributable costs that would not have been
incurred, were it not for the operation. Specifically, the costs are
above and beyond baseline training, operations, and personnel costs.
Incremental costs include the pay of mobilized reservists as well as
the special pays and allowances of deployed personnel, such as imminent
danger pay and foreign duty pay for those personnel serving in
Operation Iraqi Freedom and Operation Enduring Freedom, the cost of
transporting personnel and materiel to the theater of operation and
supporting them upon arrival, and the operating cost of equipment, such
as vehicles and aircraft, among many other costs. Costs that are
incurred regardless of whether there is a contingency operation, such
as the base pay of active duty military personnel, are not considered
incremental.
DOD tracks the obligations incurred to support GWOT and produces a
monthly cost report, which is distributed throughout the department and
used by senior DOD leadership in discussing the cost of the war. It is
also used in formulating future budget requests to fund GWOT. The
monthly report, which, as noted earlier, was titled the Terrorist
Response Cost Report until January 2005, when it was renamed the
Supplemental and Cost of War Execution Report, identifies the monthly
and cumulative incremental GWOT obligations. DOD reports the costs by
service, defense agency, contingency operation, and appropriation. On
October 1, 1998, DOD implemented a standard contingency cost breakdown
structure to improve contingency cost reporting consistency between
multiple services and DOD agencies. Furthermore, this cost breakdown
structure was also to facilitate future efforts to understand and
interpret differences between estimated and actual costs. DOD Financial
Management Regulation 7000.14-R, volume 12, chapter 23, generally
establishes financial policy and procedures related to DOD contingency
operations.[Footnote 9] The regulation incorporates the common cost
categories and multiple subcategories, which were established in 1998
and updated in January 2005, that are used to report DOD's monthly GWOT
costs.
We previously reported our concerns about the reliability of reported
contingency operations cost data. Specifically, our 1996 report on the
reliability of reported contingency operations costs found inaccuracies
representing about 7 percent of the $4.1 billion in costs reported in
fiscal years 1994 and 1995, which we believe was indicative of a
material weakness in the accounting systems.[Footnote 10] These
included the following:
* $104 million in overstated costs, primarily due to the failure of the
Air Force ($67 million) and the Navy ($3 million) to adjust reported
flying hour costs to reflect the value of free fuel being received at
that time.
* The services' failure to adjust reported costs to reflect normal
operating and training costs. For example, one Army command reported
operating costs of $11 million that were not incurred because of
deployments.
* The services' failure to report or fully report $171 million in
understated costs, including some military personnel costs such as
imminent danger pay and family separation pay, munitions the Navy used,
and Air Force mobility equipment and munitions.
We further reported that it was not feasible to examine all reported
costs and supporting data and that our results were not statistically
projectable. Consequently, we were unable to conclude, on the whole, if
reported costs were overstated or understated. At that time, we
recommended that DOD clarify existing guidance for reporting costs,
which DOD agreed to do. Over the years DOD and the services have
adopted a number of our recommendations to improve their guidance for
spending on contingency operations.
Reliability of DOD's Reported Costs Is Unknown:
We found numerous problems in DOD's processes for recording and
reporting costs for the Global War on Terrorism, raising significant
concerns about the overall reliability of DOD's reported cost data. As
a result, neither DOD nor Congress (1) can reliably know how much the
war is costing and details on how appropriated funds are being spent or
(2) have historical data useful in considering future funding needs. On
the basis of our work, DOD is taking steps to improve its cost
reporting. However, as was the case in our 1996 report, because it was
not feasible to examine all reported costs and significant data
reliability problems existed, we were not able to determine the extent
that total costs were misstated. DOD policy requires that controls,
accounting systems, and procedures provide, in financial records, the
proper identification and recording of costs incurred in supporting
contingency operations. However, our examination of DOD's reported
costs in support of GWOT found a number of problems affecting the
accuracy of reported costs. These problems included long-standing
deficiencies in DOD's financial management systems and business
processes, reported military personnel obligations that do not match
payroll records, incorrectly categorizing operation and maintenance
obligations, the use of estimates instead of actual information, and a
lack of supporting documentation. Problems contributing to DOD's
challenges in reporting reliable GWOT cost data include the previously
cited long-standing deficiencies in DOD's financial management systems,
the lack of a systematic process to ensure that data are correct, the
failure to use actual data when available, and a large number of cost
categories and little training on how to apply them.
DOD's Financial Management Regulation Addresses the Importance of
Accurately Reporting Obligations:
DOD's Financial Management Regulation (FMR) emphasizes the importance
of accurate cost reporting. Volume 6A, chapter 2 (sec. 020201) of DOD's
FMR establishes the general financial responsibilities for DOD
components. Components are responsible for the following:
* ensuring the accuracy, completeness, timeliness, and documentary
support for all data generated by the customer and input into finance
and accounting systems;
* or submitted to the Defense Finance and Accounting Service for input
and/or recording in the finance and accounting systems and inclusion in
financial reports;
* establishing appropriate internal controls to ensure the accuracy of
data provided to the DFAS; and:
* reviewing all reports provided by the DFAS to assess the accuracy of
the financial information being reported.
Chapter 2 further states in section 020202 that DOD components must
establish appropriate internal controls to ensure that data provided to
the DFAS that are recorded in the accounting system and subsequently
used in financial reports are accurate, complete, and supportable.
Among the requirements, the regulation states that before submitting
transactions, DOD components must edit all transactions, hard copy and
electronic, for accuracy, e.g., so that the transaction is identified
correctly in terms of the type of transaction, reported quantity,
dollar amount, and other data.
In addition to volume 6A, chapter 2, volume 3, chapter 8 of the FMR has
several provisions that require funds holders[Footnote 11] to take
steps to ensure that transactions have been entered accurately. Section
080401 requires that funds holders conduct a triannual review of
commitments and obligations. During these reviews, officials are to
review commitment and obligation transactions for timeliness, accuracy,
and completeness. The requirement applies to all appropriations and
funds of all DOD components. Section 080403 establishes the
responsibility of conducting reviews of outstanding commitments and
unliquidated obligations to funds holders. According to the FMR, this
is true regardless of whether the funds holders or the accounting
office actually records the commitments or obligations in the official
accounting records. This responsibility is placed on the funds holders
because the funds holder initiates those actions that result in
commitments and obligations and, therefore, is in the best position to
determine the accuracy and the status of such transactions.
Finally, volume 12, chapter 23 of the FMR establishes policies and
procedures for budgeting and cost reporting for contingency operations
and states that DOD policy requires that controls, accounting systems,
and procedures provide, in financial records, proper identification and
recording of costs incurred in supporting contingency operations.
Concerns Regarding the Reliability of Reported GWOT Costs Stem from a
Variety of Factors:
Our work has identified a number of concerns regarding the reliability
of reported GWOT costs. These include deficiencies in DOD's financial
management systems, discrepancies between some reported military
personnel obligations and DOD payroll information, incorrectly
categorized operation and maintenance costs, the use of estimates
instead of actual information, and a lack of supporting documentation.
DOD Uses Its Existing Financial Management Systems and Business
Processes to Record GWOT Costs, but These Systems Have Long-standing
Deficiencies:
Because DOD's accounting systems cannot directly capture GWOT costs,
the department's overall GWOT cost reporting is based on the military
services' reports of obligations. Volume 12, chapter 23 of the FMR
requires that the DOD components collect and report applicable costs
related to contingency operations. Chapter 23 also requires that the
services capture their obligations in their existing accounting systems
and at the lowest possible level of organization.
However, DOD has long-standing deficiencies in its existing financial
management systems and business processes. As recently as September
2004, DOD acknowledged that agencywide financial statements were not
completely reliable as a result of inadequately designed systems. The
department reported that systemic deficiencies in its financial
management systems and business processes result in its inability to
collect and report financial and performance information that is
accurate, reliable, and timely. In March 2004, the Under Secretary of
Defense (Comptroller) stated in a memo that DOD's fiscal year 2004
agencywide financial statements would not substantially conform to
generally accepted accounting principles. The department acknowledged
that although it has made progress in its efforts to resolve financial
management shortfalls, its financial management systems currently do
not fully comply with the applicable requirements.
For years we have reported on DOD's financial management deficiencies.
In 1995 we first designated DOD financial management as an area of high
risk. We concluded that DOD's financial management deficiencies
adversely affect the department's ability to control costs, ensure
basic accountability, anticipate future costs and claims on the budget,
measure performance, maintain funds control, prevent fraud, and address
pressing management issues.[Footnote 12] From 1995 through 2005, we
continued to report on deficiencies in DOD's financial management
processes. In November 2004, we testified that recent audits and
investigations by our and DOD's auditors continue to confirm the
existence of pervasive weaknesses in DOD's financial and related
business processes and systems.[Footnote 13] We found that adverse
conditions included discrepancies in military pay, logistical support
such as duplicate supply requisitions, and data reliability needed by
Congress and DOD to make sound sourcing decisions. Most recently, in
June 2005 we testified that long-standing weaknesses in DOD's financial
management and related business processes and systems have (1) resulted
in a lack of reliable information needed to make sound decisions and
report on the status of DOD activities, including the accountability of
assets, through financial and other reports to Congress and DOD
decision makers; (2) hindered its operational efficiency; (3) adversely
affected mission performance; and (4) left the department vulnerable to
fraud, waste, and abuse.[Footnote 14]
Some Reported Military Personnel Obligations Are Not Consistent with
Related Payroll Information:
The Army did not have a reasonable and reliable process to identify and
report almost $12 billion of GWOT military personnel obligations in
fiscal year 2004. Instead of using related DOD payroll information, the
Army based the GWOT military personnel obligations used in the GWOT
cost report primarily on its fiscal year 2004 obligation plan and, in
the end, forced, or "plugged," obligations to match available
supplemental budget authority. Effectively, the Army was reporting back
to Congress exactly what it had appropriated. Army officials were
unable to readily explain the process for identifying and reporting
GWOT military personnel obligations. Specifically, the Army Budget
Office lacked formal procedures to guide the monthly reporting of GWOT
military personnel obligations to DOD and a process to ensure
management's review of the reported amounts. Army Budget Office
officials stated that these problems were exacerbated by staff losses
in the September 11 terrorist attack on the Pentagon, personnel
turnover, and hiring difficulties.
Our analysis showed that obligations associated with Army military
personnel in the monthly GWOT cost report were not consistent with
related DOD payroll information, and the use of planned obligations
instead of actual payroll information might have resulted in reported
Army military personnel GWOT obligations being materially overstated.
For fiscal year 2004, our analysis of the more than $7.1 billion in
incremental military personnel obligations listed in the GWOT cost
report category for mobilized Army reserve-component soldiers
identified as much as $2.1 billion of reported obligations in excess of
related DOD payroll information. Initially, the Army could not support
this difference or its reported GWOT military personnel obligations.
Over the next several months, the Army and the Office of the Under
Secretary of Defense (Comptroller) provided us with several possible,
though sometimes inaccurate, explanations for this difference. Some
explanations appeared valid while others did not and, taken together,
they failed to fully account for the difference. For example, the Army
Budget Office stated that a portion of the difference was attributable
to retirement pay and retirement health care accruals. We found that
the retirement health care accrual did not result in incremental costs
and, therefore, was not a valid explanation for the difference.
However, mobilized reserve-component personnel receive an increase in
retirement pay benefits over nonmobilized reservists and, therefore,
DOD incurs incremental costs related to this benefit. According to the
Army, the retirement pay accrual represents part of the difference, and
it reported this amount at $824 million. This information was provided
too late in our audit to assess its accuracy and completeness. Further
details on our review of GWOT obligations for Army military personnel
are included in appendix II.
In addition to examining the obligations for mobilized Army reservists,
we also examined reported imminent danger pay and found wide monthly
swings and little correlation with the numbers of deployed personnel.
Imminent danger pay relates directly to the number of military
personnel deployed to eligible areas. Beginning on October 1, 2002, all
military personnel--both Active and Reserve Component--in areas
designated as eligible for imminent danger pay receive $225 per month
for each month for which they qualify for such pay. Eligible areas
include, but are not limited to, the countries of Iraq, Afghanistan,
Kuwait, Qatar, Bahrain, and Saudi Arabia. The monthly amount is payable
in full without being prorated or reduced, for each month, during any
part of which a service member qualifies and regardless of the actual
period of time served on active or inactive duty during that month.
Month-to-month changes in reported imminent danger pay obligations for
GWOT should be consistent with the number of deployed forces in
eligible areas. However, as shown in table 1, which depicts the amounts
reported for DOD as a whole and the implied number of people who should
be receiving the pay on the basis of dividing the amount per month--
$225--into the reported obligations, there are wide monthly swings in
the number of deployed personnel, based on the amount of reported
imminent danger pay, that do not seem to correlate to the actual
numbers of deployed personnel. For example, the reported imminent
danger pay suggests that 173,000 personnel were deployed to support
GWOT in July 2004 and that the number of personnel rose to more than 1
million in August 2004 and then declined to 264,000 in September 2004
and 61,000 in October 2004. According to DOD, about 221,300 personnel
from all the military services were deployed throughout the region in
December 2004 to support Operation Enduring Freedom and Operation Iraqi
Freedom, including deployed personnel in Iraq, Afghanistan, and Kuwait.
Table 1: Comparison of Reported DOD-Wide Imminent Danger Pay and
Implied Number of Deployed Personnel, April 2004-April 2005:
Month: April 2004;
Reported imminent danger pay: (dollars in thousands): $38,186;
Implied number of deployed personnel (numbers in thousands): 170.
Month: May 2004;
Reported imminent danger pay: (dollars in thousands): 46,106;
Implied number of deployed personnel (numbers in thousands): 205.
Month: June 2004;
Reported imminent danger pay: (dollars in thousands): 37,054;
Implied number of deployed personnel (numbers in thousands): 165.
Month: July 2004;
Reported imminent danger pay: (dollars in thousands): 38,893;
Implied number of deployed personnel (numbers in thousands): 173.
Month: August 2004;
Reported imminent danger pay: (dollars in thousands): 231,090;
Implied number of deployed personnel (numbers in thousands): 1,027.
Month: September 2004;
Reported imminent danger pay: (dollars in thousands): 59,500;
Implied number of deployed personnel (numbers in thousands): 264.
Month: October 2004;
Reported imminent danger pay: (dollars in thousands): 13,713;
Implied number of deployed personnel (numbers in thousands): 61.
Month: November 2004;
Reported imminent danger pay: (dollars in thousands): 69,699;
Implied number of deployed personnel (numbers in thousands): 310.
Month: December 2004;
Reported imminent danger pay: (dollars in thousands): 33,228;
Implied number of deployed personnel (numbers in thousands): 148.
Month: January 2005;
Reported imminent danger pay: (dollars in thousands): 41,499;
Implied number of deployed personnel (numbers in thousands): 184.
Month: February 2005;
Reported imminent danger pay: (dollars in thousands): 127,769;
Implied number of deployed personnel (numbers in thousands): 568.
Month: March 2005;
Reported imminent danger pay: (dollars in thousands): 48,659;
Implied number of deployed personnel (numbers in thousands): 216.
Month: April 2005;
Reported imminent danger pay: (dollars in thousands): (933);
Implied number of deployed personnel (numbers in thousands): (4).
Source: GAO's analysis of DOD's GWOT data.
[End of table]
In continuing discussions of our analysis, Army Budget Office officials
provided additional detail on the Army's reported imminent danger pay
obligations, which comprise the bulk of DOD-wide reported imminent
danger pay obligations. With respect to the August 2004 reported
imminent danger pay, which was by far the largest reported amount from
April 2004 through April 2005, Army Budget Office officials said that
their reported portion--$217 million--of the DOD-wide $231 million was
in error owing to a misplaced decimal and that the Army's August 2004
imminent danger pay should have been reported as $21 million. These
officials attributed the month-to-month fluctuations in reported
imminent danger pay to the lack of timeliness and consistency in
adjusting costs between those baseline and GWOT amounts. Beginning in
June 2005, the Army said that it adopted a new process that uses
accounting data, with the actual count of deployed forces as a
validation checkpoint.
Operation and Maintenance Obligations Are Not Always Properly
Categorized:
Obligations are the foundation of all GWOT cost reporting. Operation
and maintenance obligations in support of GWOT represent tens of
thousands, if not hundreds of thousands, of individual transactions
ranging in value from 1 penny to millions of dollars. When obligations
are incurred, the services enter them into their accounting systems
using accounting codes. For example, an Army budget activity, such as
an installation or unit, initially obligates funds for acquired goods
and services by using the Standard Army Accounting Classification Code.
An obligation entry includes information on the funding source; the
operational mission, such as Operation Iraqi Freedom; and the category
of cost. The cost categories are established by the services. In the
Army, the cost category is called the element of resource (EOR).
Because DOD's Financial Management Regulation volume 12, chapter 23
requires that the services capture costs within their existing
accounting systems and report them in a common cost format known as the
cost-breakdown structure, the services must translate--or "cross-
walk"--their obligations into 1 of 55 cost categories in the cost
breakdown structure established by the Office of the Under Secretary of
Defense (Comptroller) and used in the monthly GWOT cost reports. For
the Army, this involves translating obligations recorded by EOR into
the chapter 23 GWOT cost categories. To meet DOD's reporting
requirements, each month Army resource management officials must cross-
walk costs in the EOR categories into the GWOT cost categories,
sometimes manually. For example, in fiscal year 2004, ARCENT resource
management officials manually cross-walked 266 EORs into 14 GWOT cost
categories.
If obligations are not identified in the correct cost category in the
services' accounting system, they can affect the overall reliability of
DOD's GWOT cost reporting. In the Army, ARCENT resource management
officials told us that on the basis of their reviews of GWOT
obligations, they had confidence in the accuracy of the total dollar
obligations as identified in the GWOT cost report but felt that
obligations were being incorrectly categorized. At two Army divisions,
we observed obligations being assigned to the wrong EOR. In our limited
testing of transactions at one of the divisions, which deployed to Iraq
as part of Operation Iraqi Freedom, we found errors in assigning costs
to the correct EOR, which resulted in overstated costs in some
categories and understated costs in others. We reviewed 31 transactions
valued at $15 million and found coding errors in 11, or 35 percent of
the transactions, valued at $770,134, or 5 percent of the amount we
reviewed. One example of an error we found involved $383,147 in
obligations for communications services, which was entered into the
division's financial management systems under an EOR that corresponded
with DOD's GWOT cost report's category of Other Services and
Miscellaneous Contracts. A senior division resource management official
stated that it would have been better to use an EOR that corresponded
with the Facilities/Base Support category. As a result, the Other
Services and Miscellaneous Contracts category was overstated by
$383,147 while the Facilities/Base Support cost category was
understated by the same amount. At the other Army division, which
deployed to Afghanistan as part of Operation Enduring Freedom, we also
found errors in assigning costs to the correct EOR that resulted in
overstated costs in some categories and understated costs in others. We
reviewed 146 of 237 transactions valued at more than $14 million and
found coding errors in 32 transactions, or 22 percent of the
transactions, valued at more than $4 million, or 30 percent of the
amount we reviewed. For example, the division obligated $6,995 for a
printer, which it originally coded with the EOR for automated data-
processing equipment. However, once the purchase request reached the
contracting office, it was recoded as general supplies and not as
automated data-processing equipment. After reviewing this example and
others, a senior resource management official at the division concurred
with our assessment of these coding errors.
In related reporting,[Footnote 15] we have raised concerns about
reported equipment reconstitution costs.[Footnote 16] Reconstitution is
one of the cost categories in DOD's GWOT cost report. We reported that
DOD has not accurately tracked and reported its reconstitution costs
because the services are unable to segregate equipment reconstitution
from other maintenance requirements, as required. In the case of the
Air Force, we reported that it does not break out its equipment
reconstitution obligations from other GWOT obligations in the cost
report and was reporting no reconstitution costs. In further
discussions Air Force officials told us that their reconstitution costs
were being captured in their flying hour (operating tempo) costs.
Regarding the Army and the Navy, we reported that equipment
reconstitution obligations reported by those two services are likely
overstated because (1) the Army includes costs other than those
required for reconstitution and (2) the Navy is unable to segregate
regular maintenance from reconstitution maintenance for ship overhauls.
We recommended and DOD agreed to direct the services to develop
comprehensive and consistent methods for tracking and reporting
equipment reconstitution obligations. In agreeing with our
recommendation, the Office of the Under Secretary of Defense
(Comptroller) said that the office had already revised its financial
management regulation to improve the reporting of equipment
reconstitution, but we observed that until additional actions are
taken, such as improving the services' financial management systems'
ability to track obligations, our recommendation will not be fully
implemented. Beginning in October 2004, DOD revised its reconstitution
cost category to include four subcategories, and the Air Force is
reporting reconstitution obligations in two of those categories.
In addition to the concerns with properly categorizing costs that we
identified, officials from the Army Budget Office believe that the
Army's operating support obligation data are reliable at the broad
category levels (personnel support, operating support, and
transportation), but distribution within categories is likely to
contain errors.[Footnote 17] These officials said that the Army is
taking two immediate actions. First, it has refined its EOR to cost
breakdown structure code cross-walk. The Army has specifically
identified approximately 135 EORs that directly associate with the cost
breakdown structure. Additionally, Army officials said that they have
added an additional data element (the Functional Cost Account code,
which describes the programmatic function), which will provide one more
reference point to validate entries. This revision was effective with
the June 2005 reporting cycle. Second, Army officials said that the
Army is developing a standard operating procedure with a follow-on
"train the trainers" program for Army-wide distribution. It will
prescribe the methodology for capturing GWOT execution data from the
accounting systems and source documents. This is a longer-term solution
that the Army believes should contribute materially to improved data
entry at the originating organizational levels.
The Air Force Audit Agency, in a June 2005 report on Air Force GWOT
spending, also identified errors in properly categorizing GWOT
costs.[Footnote 18] Specifically, the audit agency found that in fiscal
year 2003, 159 of 923 transactions it reviewed, or about 17 percent of
GWOT transactions valued at more than $163 million, were inaccurately
recorded in the Air Force's accounting system. The report stated that
this condition occurred because resource management officials were
uncertain of which costs were GWOT related and because reported costs
were not compared with documentation as required by DOD's financial
management regulation. The audit agency concluded that inaccurate cost
reporting may lead to questionable cost-of-war information, distorted
command resource allocation and spending plans, and unreliable summary
DOD financial reports. The audit agency made several recommendations,
including one that cognizant Air Force officials review transaction
data and notify accounting liaison office personnel of inaccurate
entries monthly, and one that the liaison office personnel request data
correction from appropriate accounting offices. The Air Force agreed
with the recommendations and stated that it would make the recommended
changes. In advance of the report's issuance, in a March 2, 2005, memo,
the Assistant Secretary of the Air Force, Financial Management and
Comptroller, addressed and agreed to revise guidance to emphasize
increased management oversight over transaction approval, accuracy, and
documentation completeness.
Some GWOT Cost Data Are Based on Estimates:
Because ships at sea incur the same types of costs whether in normal
forward-deployed operations or in support of GWOT, the Navy allocates
the costs between normal and GWOT operating costs. The Navy's major
commands use a variety of approaches for allocating these costs. For
example, we found that the Atlantic and Pacific surface commands, which
are responsible for managing the Navy's surface ships, use two
different approaches in order to allocate a portion of each ship's
normal operating costs to GWOT for those ships that have been used to
support GWOT missions. The Atlantic Fleet uses an approach whereby the
portion of a ship's normal operating costs becomes GWOT costs when (1)
the ship has been engaged in a GWOT mission during that month and (2)
the ship exceeds its monthly baseline budget. Once the baseline budget
has been exceeded, the additional cost above that baseline is
considered incremental and is recorded as a GWOT cost. The Pacific
Fleet uses a different approach, which utilizes a model that has
evolved over many years. This model takes a number of factors into
consideration in order to calculate how much of a ship's costs should
be allocated to GWOT. These factors include a running 3-year average of
the costs of operating each individual ship, the cost of maintaining
that general class of ships, and whether the ship has performed GWOT
missions. This model calculates an amount for each ship that should be
recorded as a GWOT cost.
Documentation Is Not Always Available:
Documentation related to goods and services purchased in support of the
Global War on Terrorism is not always available. Without documentation,
one cannot attest to the reliability and applicability of reported
costs to GWOT. At one of the Marine Expeditionary Forces, we were able
to link reported costs to the supporting documentation for contractual
purchases. However, when we compared a limited number of documents from
the ARCENT document register with documentation controlled by DFAS-
Rome, New York, we found instances where (1) document register
descriptions did not match invoices maintained by DFAS and (2) invoices
did not match dollar amounts associated with the ARCENT documentation
number. For example, one item we identified was listed in the document
register as a purchase of unit coins for $200,000. However, we found no
evidence indicating that the $200,000 was actually obligated for the
purchase of unit coins. The EOR listed in the document register
indicated that the item was for furniture. When we reviewed the
invoices, we found that the documentation supported the purchase of
furniture for $18,959 but nothing for unit coins or for $200,000. In
another example, a purchase was listed in the document register for
$21,900 toward an operational fund. When we reviewed the invoice, we
found that the documentation supported the purchase of translator
services for $3,950.
Several audit agencies also had mixed success with linking reported
GWOT costs to supporting documentation. In many cases, documentation
was not available or the available documentation was not sufficient
enough to determine the applicability of costs, as shown in the
following examples:
* The Air Force Audit Agency, in its previously cited June 2005 report
on Air Force GWOT funds management, reported that financial managers
could not provide documentation to support approximately 14 percent of
1,037 fiscal year 2003 transactions reviewed. The transactions had an
absolute value of more than $16 million. The audit agency reported that
the inability to provide documentation occurred for three primary
reasons: (1) Air Force financial managers did not require funds holders
and resource advisors to maintain supporting documents for a minimum of
24 months, (2) comptrollers did not provide funds holders and resource
managers with documentation requirements training, and (3) Air Force
organizations did not always comply with records management guidance.
The agency concluded that maintaining documentation provides an audit
trail and assurance that Air Force personnel properly expended these
funds. The agency made several recommendations to strengthen controls
over documentation, which the Air Force agreed to implement. In the
previously cited March 2, 2005, memo issued in advance of the issuance
of the Air Force Audit Agency's report, the Assistant Secretary of the
Air Force, Financial Management and Comptroller also addressed this
finding and agreed to revise Air Force guidance to require funds
holders and resource advisors to maintain supporting documentation for
a minimum of 24 months for all financial transactions, modify the Web-
based Resource Advisor Tutorial to highlight the need for funds holders
and resource advisors to maintain documentation for financial
transactions, and to require comptroller personnel to include
documentation requirements in all funds holders' training and resource
advisor training.
* The Naval Audit Service reported that it could not find supporting
documentation for 11 percent of the reported fiscal year 2002 Operation
Enduring Freedom costs for the 14 units it reviewed.[Footnote 19] The
Naval Audit Service found that more than half of these unsupported
costs resulted from one unit's not retaining documentation over a 2-
month period. This same unit's costs for other months reviewed were
well documented; so, overall, the audit service was not overly
concerned with the 2-month gap. For the other units reviewed,
documentation was available, but the units could not always identify
the portion of those items reported as being incremental costs of
Operation Enduring Freedom. The Naval Audit Service concluded that
internal controls were adequate and that an expanded review was not
warranted at that time. It made no recommendations.
* The U.S. Army Audit Agency found that 58, or about 2 percent, of the
2,751 transactions it reviewed for fiscal year 2003 valued at $37.4
million lacked supporting documentation.[Footnote 20] As a consequence,
the agency was unable to determine if the transactions were valid. The
Army Audit Agency also discovered documentation problems involving
government purchase cards. These problems included a lack of
documentation authorizing purchases and inadequate justification of
purchases to ensure that they were related to contingency operations.
The agency concluded that without adequate justifications and support
to ensure that the transactions are related to contingency operations,
these types of obligations appear questionable. The agency recommended
that Army financial management leadership emphasize the consistent
application of guidance for justifying and documenting contingency
operations requirements, and the Army financial management leadership
said that it would emphasize the need to fully justify and document
expenditures as related contingency operations and that it had already
completed or will complete action through the distribution of
additional guidance by December 2005.
Several Factors Contribute to Data Reliability Concerns:
Data reliability is affected by the previously discussed long-standing
deficiencies in DOD's financial management systems, which affect the
ability to capture costs in a completely systematic manner. This is
compounded by the lack of a systematic process for ensuring that the
data in the GWOT cost reports are accurate, less-than-adequate
management oversight on the preparation and accuracy of the reports,
the failure to use actual data when available, and a large number of
cost categories and little training on how to apply them.
There Is No Systematic Process to Ensure That GWOT Data Are Accurately
Recorded and Ensure Adequate Management Oversight:
For the most part, DOD does not have a systematic process to review
reported GWOT costs to ensure that they are accurate. To ensure the
accuracy of DOD's GWOT cost reports, the military services and the
Office of the Under Secretary of Defense (Comptroller) compare each new
month's cost report with previous months' reports to ascertain if there
are large variances from previous reports and, if so, determine what
caused them and make revisions as appropriate. For GWOT cost reporting,
individual obligation data that are coded as being in support of GWOT
are aggregated at successively higher command levels and sent through
the services' chain of command. At each command level, financial
management officials review costs for large anomalies. The services
take different approaches to ensure that GWOT obligation data are
correctly recorded. For example, the Army gains assurance that reported
obligations are accurate by reviewing the monthly obligation data
provided by units. However, the Army does not follow specific
guidelines to determine the extent to which obligations are accurately
reported. For example, U.S. Army Forces Command and ARCENT financial
management officials ensure that reported obligations are correct by
using historical knowledge of cost trends to review obligation reports
for large anomalies. If a large anomaly is identified, it is further
investigated to determine the cause and resolve any differences.
However, the two commands do not have specific criteria to determine
how large an anomaly has to be before it is investigated. As a result,
financial management officials at the commands use their judgment to
determine which anomalies to investigate. The Navy also reviews GWOT
cost data for anomalies but lacks a systematic method for gaining
assurance that the data are reliable. According to the Financial
Management and Budget official who manages the process, there is no
systematic approach for reviewing the submissions received from each of
the claimants.
The Marine Corps has adopted additional measures to gain further
assurance that its GWOT obligations are accurately reported. For
example, resource management officials at one Marine Expeditionary
Force told us that they periodically visit subordinate units to
reaffirm that these units are following Marine Corps standard operating
procedures for entering and recording obligation data. During these
visits, officials use a checklist that highlights areas that the
visiting officials should emphasize. These areas include assessing the
unit's knowledge of Marine Corps policies and procedures, reviewing
purchases made by the unit, and checking to ensure that the unit
correctly entered obligations into the Marine Corps' accounting system.
Marine Expeditionary Force resource management officials told us that
this process plays an important role in ensuring that GWOT obligation
data are reliable.
Once the services complete their review of GWOT obligations they submit
their obligation reports to DFAS,[Footnote 21] which aggregates the
individual submissions into the monthly GWOT cost report. The Office of
the Under Secretary of Defense (Comptroller) gains assurance that the
services' reported obligations are reliable by reviewing the monthly
DFAS cost reports for anomalies. If a discrepancy is identified, the
Comptroller's office contacts the responsible DOD component, attempts
to determine reasons for the discrepancy, and directs that necessary
corrections be made before distributing the cost report within DOD.
Despite the efforts to review reported costs, there is less-than-
adequate management oversight on the preparation and accuracy of the
reports. We found instances where the services did not identify wide
swings in monthly costs, such as the swings discussed earlier in
imminent danger pay in the GWOT cost reports for DOD as a whole, as
well as errors in the overall GWOT cost reports that amounted to
hundreds of millions of dollars monthly. Specifically, in reviewing the
Navy's and Marine Corps' fiscal year 2005 operation and maintenance and
investment GWOT obligations as part of a separate effort, we found that
the obligations reported in DOD's summary GWOT cost report were
inadvertently being overstated by hundreds of millions of dollars
monthly between the November 2004 and the April 2005 cost reports. In
total, we found that the two services overstated their obligations
during that period by almost $1.8 billion--$1.5 billion in the case of
the Marine Corps and $300 million in the case of the Navy. Each month
DOD prepares a separate report for each of the appropriations acts that
are used to provide funding authority to support GWOT and an overall
summary cost report. In discussions with Marine Corps and Navy budget
officials, it was determined that operation and maintenance and
investment obligations associated with funding authority provided
through title IX of the fiscal year 2005 Defense Appropriations Act
were inadvertently being double counted in the GWOT cost report: once
in the title IX report and once again in the report on funding
authority provided in other fiscal year 2005 appropriations acts,
resulting in inflated figures in the summary report. These reporting
problems were present in all of the GWOT cost reports from November
2004 through April 2005. Once this matter came to light, Navy and
Marine Corps officials took action to reflect the accurate obligations
for the title IX and other fiscal year 2005 appropriations reports. The
May 2005 report reflects the corrected cumulative obligations through
May 2005.
Volume 3, chapter 8 of DOD's Financial Management Regulation requires
that steps be taken to verify that transactions are correctly entered
into the services' accounting systems by comparing financial
transactions with supporting documents. However, as discussed earlier,
in a detailed review of fiscal year 2003 GWOT obligations, the Air
Force Audit Agency found that in addition to not properly categorizing
costs, officials at 16 of 29 locations visited failed to verify that
159 of 923 transactions, or 17 percent of the transactions the agency
reviewed, were accurately entered into the Air Force's financial
accounting system. The audit agency said that this condition occurred
because funds holders were uncertain of which costs should be coded as
GWOT expenditures and did not compare financial transactions with
supporting documents as required by DOD's financial management
regulation. The audit agency concluded that as a result, financial
managers may inadvertently provide questionable "cost of war"
information when data are inaccurately processed in the system.
Furthermore, command resource allocation and spending plans may be
distorted by faulty data. Finally, summary DOD financial reports may be
unreliable. The audit agency made recommendations to the Air Force to
review transaction data; correct inaccurate data; and develop, publish,
and implement guidelines on the appropriate use of GWOT cost codes,
which the Air Force agreed to do.
Estimated Obligations Are Used Instead of Actual Payroll Information:
As previously discussed, in reviewing the Army's military personnel
GWOT obligations for fiscal year 2004, we found that the reported
amounts for mobilized Army reservists were inconsistent with related
DOD payroll information. We found that the Army's military personnel
GWOT obligations reported in the GWOT cost report were based primarily
on monthly estimates in the Army obligation plan rather than actual
payroll information.
The practice of using estimates in reporting military personnel costs
related to contingency operations rather than payroll data has been
ongoing for almost a decade. In our previously cited 1996 report on the
reliability of contingency operations costs, we reported that the
services used estimates rather than actual data to derive incremental
personnel costs for reservists called to active duty in contingency
operations. We also reported that the services used estimates in
reporting the special pays and allowances, such as imminent danger pay,
which all military personnel become eligible for during deployments,
and that they did not reconcile those costs to actual payroll data. At
that time, we reported that DOD had plans under way to link its payroll
and personnel systems, which would allow the extraction of actual cost
data. Until the two systems were linked, we reported that it would not
be possible to test the accuracy of estimated costs. As of June 2005,
more than 9 years after our earlier report, at least one service, the
Army, was still not using actual payroll information to report its GWOT
military personnel obligations. Army officials advised us in July 2005
that, on the basis of our findings on reported military personnel
obligations, they will now use related DOD payroll information where
applicable.
Assigning Correct EORs Are Complicated by a Number of Factors:
As also discussed earlier, if obligations are not categorized in the
correct cost categories in the services' accounting system, it can
affect the overall reliability of DOD's GWOT cost reporting. The large
number of EORs used by Army units to assign costs to categories,
literally in the thousands, complicates properly categorizing GWOT
obligations. We found that the large number of EORs encourages Army
units to adopt shortcuts to simplify categorization, which can result
in incorrectly categorizing obligations. For example, a resource
management official in one Army division indicated that the division
used one particular EOR as a catch-all category. This EOR corresponded
with DOD's GWOT cost-reporting category of "Other Services and
Miscellaneous Contracts." Placing costs in this category inflates this
cost category. At another Army division, resource management officials
reviewed the EOR list in order to streamline the number of EORs that
the division used. After reviewing about 3,700 EORs, resource
management officials concluded that about 15 were most appropriate for
the purpose of categorizing its GWOT obligations.
The use of a single standardized EOR to categorize obligations for
varying types of goods and services also affects proper cost
categorization. For example, there is one EOR for all purchases made
with a Government Purchase Card (GPC), regardless of the item or
service purchased. In another example, resource management officials at
one Army division told us that while deployed to Afghanistan, cash
purchases made by its field ordering officers were always coded to the
EOR for general supplies, no matter what item or service was obtained.
Finally, ARCENT resource management officials told us that the command
identified contracts that should have been allocated to several EORs
but were consolidated under one EOR. These contracts inflated the costs
for that EOR category.
When coding errors are made, they are not always corrected. Resource
management officials at one Army division told us that it was too time-
consuming to fix miscoded EORs, as it involves having to coordinate
with customers and make changes in the Army's financial accounting
system. As a result, inaccurate information remains in the accounting
system. This division's Comptroller acknowledged that better attention
should be paid to coding purchase requests at the comptroller level and
that oversight should be a higher concern.
People responsible for categorizing purchases by the EOR are not always
properly trained, which further complicates correct categorization.
Resource management officials at an Army command we visited told us
that there were training concerns with staff in the Comptroller's
office, particularly given the frequent rotation in and out of the
office that is typical of military staff. These officials told us that,
often, the person responsible for entering EORs into the system has not
been trained to do so. Obligations are often entered by lower-ranked
enlisted soldiers who have been assigned to the position because they
have downtime and are computer literate. These soldiers may not have
any experience with entering obligation data and might have received
little or no training on how to do so. According to the officials,
inexperience is not a major issue with more straightforward obligation
categories such as transportation; however, when applied to more
complicated categories, such as supplies, many errors can occur.
Like the Army, the Marine Corps also captures GWOT obligations using
cost categories, known in the Marine Corps as cost account codes.
However, because the Marine Corps uses fewer categories, converting
data into the contingency cost categories is simpler than for the other
services. For example, Marine Corps Forces Pacific resource management
officials established 31 cost account codes that translate into 25 of
the 55 GWOT cost report categories. Resource management officials at
one Marine Expeditionary Force told us that utilizing a simple system
helps to improve the accuracy of their obligation data.
Processes for Recording GWOT Costs Can Lead to Errors:
Processes used to enter and monitor operation and maintenance
obligations may also contribute to unreliable cost data. For example,
in the Army, resource management officials from two divisions that had
deployed to Iraq and one division that had deployed to Afghanistan
reported that, when deployed, the divisions were junior users of the
Army's database Commitment Accounting System and did not have access to
the Army's principal accounting system, the Standard Army Financial
System. As a result, the three divisions had to submit their document
registers to ARCENT to record obligations and commit funds. Resource
management officials at two of the three divisions stated that the
amounts recorded in ARCENT's ledger could not be relied upon because of
manipulations and adjustments made to the data by ARCENT. One official
stated that obligations or commitments would sometimes be doubled or
eliminated entirely from the ledger. For example, one division had to
reenter $40 million in obligations that ARCENT dropped from the ledger
during the fiscal year 2003 closeout. This official also told us that
the system that the Army uses to track commitments was antiquated and
did not support the data needed to accurately track and analyze costs.
The Use of Existing GWOT Cost Data Affects Multiple DOD Financial
Processes:
Notwithstanding concerns about data reliability, according to the
Office of the Under Secretary of Defense (Comptroller), which develops
GWOT budget requests in concert with the military services and other
DOD components, a metric is needed and the GWOT cost reports are the
only available data. In discussing the implications of improperly
categorizing GWOT obligations, the Comptroller's office told us that it
adversely affects decision making and the ability to use the data for
analysis. In discussing how the detailed cost data are used, a
Comptroller representative told us that he uses the detailed
information presented in the cost breakdown structure categories in the
report for several purposes, as follows:
* to make billion-dollar decisions in developing supplemental funding
budget requests;
* to cross-check the cost data as presented in the cost breakdown
structure with the estimates developed by the Contingency Operations
Support Tool (COST) model; and:
* as a management tool to adjust the cost factors in the COST model and
revise the model, prepare supplemental funding budget requests, and
inform DOD leadership of detailed costs incurred for GWOT.
DOD Is Using Regulations to Guide GWOT Budgeting, Reporting, and
Spending That Were Not Designed for Wartime Operations:
Office of the Under Secretary of Defense (Comptroller) and military
service officials are using DOD's existing financial management
regulation that addresses contingency operation funding for guiding
budget submissions, cost reporting, and spending for GWOT. However,
DOD's Financial Management Regulation,[Footnote 22] which contains
these policies and procedures, was designed for small-scale contingency
operations and has language expressly stating that it is not intended
to address wartime activities such as those that DOD is confronted with
in the current war.[Footnote 23] Furthermore, specific provisions in
this regulation conflict with the GWOT funding procedures and, in some
cases, the needs of the war. Without an updated policy on GWOT
budgeting, cost reporting, and spending, the military services and
other DOD agencies cannot make informed judgments on the appropriate
use of GWOT funding authorities. In response to our work, the Office of
the Under Secretary of Defense (Comptroller) has updated its regulation
to address GWOT spending.
Current Spending Policy Was Developed for Smaller-Scale Operations:
DOD's current regulation was designed for small-scale contingency
operations and is not intended to address wartime activities. In
February 1995, DOD added a chapter to its financial management
regulation to establish policies and procedures for estimating the
budget and reporting the costs of contingency operations (vol. 12, ch.
23--Contingency Operations). In 1998 the Office of the Under Secretary
of Defense (Comptroller) implemented a standard cost breakdown
structure for standard contingency operations to improve the budgeting
and reporting of these costs. This structure was incorporated in the
2001 version of chapter 23 and has been expanded in the latest January
2005 version. The Office of the Under Secretary of Defense
(Comptroller) has also supplemented its regulation through messages
regarding cost reporting and formulating specific fiscal year budget
requests. Since its publication in 1995, Comptroller officials have
used chapter 23 and later the cost breakdown structure in particular,
to budget, capture the costs, and fund or seek supplemental funding for
contingency operations. Comptroller officials have also directed the
services to prepare budget estimates and report the costs of
contingency operations (to include the various missions that support
the Global War on Terrorism), according to chapter 23's provisions.
During our visits to the military commands and installations that have
been involved in supporting GWOT contingency operations, service
financial managers indicated that they use chapter 23 as a primary
source to guide all war-related spending.
Although Office of the Under Secretary of Defense (Comptroller) and
service financial management officials are continuing to use the
provisions in chapter 23 to guide their GWOT budget submissions, cost
reporting, and spending, it is not clear to what extent these
provisions should apply, especially given that, on its face, chapter 23
states that its policies and procedures do not address wartime
activities or circumstances that require U.S. military forces to be
placed on a wartime footing.[Footnote 24] Moreover, numerous specific
provisions in chapter 23 conflict with the GWOT funding procedures and,
in some cases, the needs of the war.
In addition to the express language that states that chapter 23 does
not apply to wartime activities, the overall structure of chapter 23
and many of its specific provisions are not intended to address the
types of costs incurred or funding authorities provided to support
GWOT. For example, although the fiscal year 2004 GWOT budget estimates
and cost reporting contained significant amounts of investment costs,
chapter 23, given that it was designed to address small-scale
contingency operations, which usually would not involve such costs, did
not include policies and procedures to guide the budgeting or reporting
of these costs.[Footnote 25] Moreover, another specific provision in
chapter 23 states that these costs should not be considered as
incremental costs of a contingency operation.[Footnote 26] Recognizing
that large-scale contingency operations lasting as long as GWOT and
affecting a large portion of U.S. military units may necessarily incur
investment costs, these provisions illustrate an inconsistency between
the needs to support the war and the current DOD policies and
procedures used to guide the preparation of GWOT budgets, cost
reporting, and spending. This lack of clarity could lead to uncertainty
at all levels within DOD over what policies actually are intended to
guide the funding for the war.
Use of GWOT Funds for Home Station Operations Is Most Affected by the
Lack of Updated Policy:
There is confusion over DOD's policies and procedures for guiding the
preparation of GWOT budgets, cost reporting, and the spending of
billions of dollars in GWOT funding for base operation activities at
the home stations of the military units that are preparing to deploy or
have deployed on GWOT missions. Chapter 23 expressly states that costs
associated with facilities/base support activities may be budgeted and
reported only if the activities occur away from a unit's home
station.[Footnote 27] Despite this administrative limitation, many
installations have been budgeting and recognizing as GWOT-related costs
base support costs for home station activities. For example, in fiscal
year 2003 the Navy spent $42.5 million for wharf repairs at Pearl
Harbor, Hawaii. In fiscal years 2003 and 2004, the Air Force spent a
total of more than $117 million at Anderson Air Force base in Guam for
a variety of installation-related costs (e.g., support facilities for
bomber aircraft and storm damage repair). The Army's Installation and
Management Agency, which manages all Army installations, obligated
$1.52 billion in fiscal year 2004 and has budgeted about $2.07 billion
in fiscal year 2005 expressly for GWOT-related "home station" base
support activities. All of these costs conflict with the home station
spending limitation in chapter 23.
Notwithstanding chapter 23's administrative limitation on budgeting and
reporting costs for home station facilities/base support activities,
some of these reported costs appear to meet the definition of
"incremental costs," which guides all GWOT spending. DOD policy states
that costs associated with contingency operations are limited to the
incremental costs of the operations, that is, costs that are above and
beyond baseline training, operations, and personnel costs or costs that
would not have been incurred had the contingency operation not been
supported[Footnote 28] (i.e., costs that are directly attributable to
the operation). During our review, we noted a number of instances in
which GWOT costs were recorded relating to home station base operation
activities that appear to be directly attributable to the war. At one
Army installation--an installation that helped prepare reserve military
personnel for deployments in support of GWOT--we found reported GWOT
costs for the renovation of barracks, dining facilities, and latrines
to accommodate increased numbers of reserve personnel using those
facilities. However, we also found some home station costs that did not
appear to support the war or only to tangentially support it. For
example, at this same installation we found that it also reported GWOT
costs for renovating unneeded vehicles for redistribution within the
Army even though they were not used in any contingency operation and
had been declared excess to the unit before it deployed. At another
Army installation, we found GWOT costs to improve the readiness
condition of equipment not deployed for contingency operations. In
addition, we found that one Navy Command reported GWOT costs for
improving the condition of floating docks that were not properly stored
while the unit responsible for their upkeep was deployed on a GWOT
mission. The docks were seriously corroded as a result of not being
stored properly and left in salt water for more than a year. Navy
officials said that nearly $6 million in GWOT funding had been used in
fiscal year 2003 to pay for these repairs. Navy officials disagreed
with our view that these costs were at best tangential to the support
of the war and noted that the justification for the repairs was that
these docks were a requirement and would likely be needed in the future
to support GWOT. However, we believe that GWOT costs are limited by the
provisions of chapter 23 to those costs that are in direct support of
the war.
In response to our concerns about the inconsistencies contained in
chapter 23, in August 2005, the Office of the Under Secretary of
Defense (Comptroller) officials approved a revision to chapter 23 to
clarify the policy on both base operations and investment costs for
contingency operations. This clarification should assist the military
services and other DOD agencies in making informed judgments on the
appropriate use of GWOT funding authorities.
Cost Controls Can Be Strengthened As Operations Mature:
DOD and Office of Management and Budget policies emphasize the need to
spend funds prudently. Individual commands and commanders have
implemented a variety of cost controls for GWOT spending. Current cost
controls include acquisition review boards, command review of
purchases, limits on some categories of spending, and a cost reduction
goal in Iraq. However, DOD's policies and guidance do not go beyond
advising DOD officials of their financial management responsibilities
with regard to the prudent use of contingency funding authorities and
provide no guidelines on steps that should be taken to control costs,
particularly as operations mature, while ensuring mission
accomplishment. Resource managers from a number of Army divisions that
have deployed to Iraq or Afghanistan have told us that cost controls
can be strengthened as operations mature.
Policy Emphasizes the Need for Prudent Spending:
OMB circular A-123 requires all mangers of federal funds to ensure that
cost-effective controls be implemented for the expenditure of
appropriated funds. Section 230108 of DOD's financial management
regulation for contingency operations, which was added in January 2005,
advises DOD officials of their financial management responsibilities to
ensure the prudent use of contingency funding authorities. The section
emphasizes that it is vital for civilian and military personnel
authorized to obligate and expend funds in support of contingency
operations to employ a fiduciary approach to ensure that funds are used
in a prudent manner.
GWOT spending has risen steadily since the attacks of September 11,
2001, as operations have expanded. As shown in figure 2, from fiscal
year 2002 through fiscal year 2004, reported costs rose from $11
billion to $71 billion annually and, from our projection of reported
fiscal year 2005 obligations through May 2005, could reach about $71.5
billion again in fiscal year 2005. The large amount of spending and its
growth underscore the need for cost controls.
Figure 2: Growth in Reported and Projected GWOT Spending, Fiscal Years
2002-5:
[See PDF for image]
[A] GAO projected the fiscal year 2005 GWOT cost on the basis of
reported obligations through May 2005.
[End of figure]
Individual Commands Have Developed a Variety of Cost Controls for GWOT
Spending, but There Is No Systematic DOD Effort to Ensure That All
Commands Pursue Cost Controls:
Some commands have taken steps to seek economy and efficiency in
performing tasks by reviewing existing requirements and seeking more
efficient methods to perform required tasks. Over the years, we have
reported that when the government seeks opportunities to control costs,
savings are usually realized. For example, in July 2004 we reported
that savings are generally realized when the customer reviews logistics
support contractors' work for economy and efficiency but that these
reviews have not been routinely conducted at all work
locations.[Footnote 29] We reported that U.S. Army Europe saved $200
million dollars, or 10 percent of the contract ceiling price, on its
Balkans Support Contract; Third Army would save $31 million annually in
Kuwait, or 43 percent by changing food service contractors; and the
Marine Corps saved $8.6 million, or 18 percent, from an estimated $48
million in work in Djibouti, which is one of the Operation Enduring
Freedom locations.
Military commands and individual commanders involved in GWOT as well as
in earlier operations have put in place a variety of controls on their
own initiative designed to control costs. Some examples are as follows:
* Acquisition review boards are being used in Iraq, Afghanistan, and
Kuwait to assess if requirements are valid and, if so, decide how best
to satisfy them. In addition, in an August 2004 order, the commander of
Multinational Forces-Iraq established a stewardship council intended to
reinforce fiscal discipline in order to ensure that limited financial
resources are effectively and efficiently employed to accomplish the
command's strategic objectives.
* Individual Army divisions have taken steps to control costs. One Army
division we visited has restricted the use of its Government Purchase
Cards for GWOT reconstitution obligations until the card holders
complete a training class detailing the appropriate use of the cards.
The division Comptroller stated that this action was taken to limit
spending and ensure that purchases made in support of GWOT were
appropriate. Another Army division implemented a Program Budget
Advisory Committee to review its GWOT predeployment requirements. One
example of economies directed by the committee was to consolidate
requirements for medical supplies, batteries, and ballistic blankets
into a single division purchase. The committee was reestablished upon
the division's return from Afghanistan for the review and approval of
GWOT reconstitution requirements.
* Third Army, which obligated almost $17 billion in fiscal year 2004 to
support GWOT, has taken a number of steps to control costs. Among other
things, it reviews requisitions of items obtained through the stock
fund that are not reviewed by the review boards in Iraq, Afghanistan,
and Kuwait--specifically, items that have a high dollar value, involve
large quantities, are pilferable, or are personal items. In a March
2005 message to the Vice Chief of Staff of the Army, the Third Army
commander also described cost control measures implemented by
organizations funded by Third Army. These included management controls
placed on requests to expand the use of LOGCAP, reducing the cost of
transporting cargo into the theater, and reducing demurrage charges
associated with commercial containers by identifying and returning
excess containers.
The Army has also set limits on certain kinds of spending. For example,
the Army set a $6.5 billion limit on LOGCAP spending in fiscal year
2004 on the basis of the estimated cost of required work and a $6.6
billion limit for fiscal year 2005. On a much smaller scale, in July
2004, Third Army issued a policy memorandum setting forth procedures
for purchasing and awarding unit coins[Footnote 30] to limit coins
purchased with contingency operations funds. The policy recommends a
funding ceiling for coin purchases from operating funds of $1,000 per
battalion and $3,000 per brigade.
One command has also set spending reduction targets to constrain
spending. The commander of coalition forces in Iraq has set a 10
percent cost reduction target in Iraq. According to the Deputy Chief of
Staff for Resource Management for Multinational Forces-Iraq, the cost-
reduction goal was intended as a direction to take the command rather
than as a hard target. While realizing that many factors driving costs
were outside his control, the commanding general wanted the command to
manage those areas that the command could affect. The cost-reduction
plan was broken down into three lines of operation--stock fund, LOGCAP,
and nonstock fund. As a result the command reports the following:
* Efforts to control stock fund costs have met with mixed results. The
command has encountered difficulties in controlling stock fund costs in
part because units can order items directly from the supplying command,
bypassing the command in Iraq. However, some control procedures have
been established, which reduced direct orders from approximately $50
million per month to $5 million in April 2005.
* The command reports that it has been working to control LOGCAP costs,
but additional requirements were subsequently identified that were
expected to drive up LOGCAP costs beyond the initial $4.3 billion goal.
The commanding general has asked the Army Audit Agency to help evaluate
the use of the LOGCAP program in Iraq and provide recommendations for
cost savings and improved processes.
* The command reports that it is well on its way to achieving its goal
of $2.25 billion for nonstock fund spending. As of April 30, 2005, the
command reported that it had obligated only about $1 billion in
nonstock funds and was well on its way to come in under the initial
savings goal.
ARCENT, the Army command responsible for funding the command in Iraq,
was aware of the initiative but not its details and was not aware of
whether there were similar efforts in other countries, specifically in
Afghanistan and Kuwait.
While DOD policy emphasizes commanders' fiduciary responsibility to
spend funds prudently, it has not directed any systematic effort for
the services and combatant commands to seek opportunities to reduce
costs or provided guidelines for doing so. In discussions with resource
management personnel in Army units that were deployed to Iraq and/or
Afghanistan, there was a consensus that cost controls can be
strengthened as an operation matures. For example, resource managers at
one Army division that deployed to Iraq told us that the division's
experience is that spending can be managed at all stages of a
contingency operation, even under high-operating-tempo combat
operations. Another Army division resource manager who deployed to Iraq
told us that he could have operated under a budget after his third
month of deployment to Iraq. He preferred to operate under a budget
where he knew the amount of funding that was available and could tell
commanders that they had to prioritize their requirements. A third Army
division resource manager, who deployed to Afghanistan, told us that as
an operation matures, cost controls can be strengthened.
In discussing efforts to control costs with the Office of the Under
Secretary of Defense (Comptroller), the view was expressed that on the
basis of the varying combat situations, steps to control costs were
best left to the individual commands. As described above, individual
commands have done much to control costs, but efforts vary by command,
and there is limited knowledge of such efforts outside each command.
The Comptroller's office has no direct knowledge of the commands' cost
control efforts and has not asked to be kept informed of cost control
steps. We believe that more can be done and that absent DOD-wide
guidelines on cost control efforts, there is no assurance that
successive commanders will emphasize cost control and that each
command's efforts will be equally comprehensive.
Conclusions:
We found numerous problems with DOD's processes for recording and
reporting costs for the Global War on Terrorism, raising significant
concerns about the overall reliability of DOD's reported cost data.
Because of these problems, neither DOD nor Congress can reliably know
how much the war is costing and details on how appropriated funds are
being spent, or have historical data useful in considering future
funding needs. In response to our work, DOD has identified a number of
steps it said it is taking to improve the accuracy and reliability of
its cost reporting. Until DOD fully implements those steps, gives
improving its GWOT cost reporting high priority, and undertakes an
exhaustive effort to ensure that the data in its GWOT cost reports are
reliable, there can be no assurance that the cost of the war is
accurate and whether funding is adequate.
DOD is generally using its existing contingency operations financial
management regulation to guide GWOT budgeting, cost reporting, and
spending, although this regulation was developed and structured to
manage the costs of small-scale contingency operations. Specific
provisions of the regulation conflict with the needs of GWOT. One such
conflict concerns administrative limitations on the use of supplemental
funds for base support activities at home stations. In addition, the
regulation includes conflicting policies and procedures to guide the
budgeting or reporting of investment costs of the war. Without an
updated policy, the military services and other DOD agencies cannot
make informed judgments on the appropriate use of GWOT funding
authorities. In response to our work, DOD revised its Financial
Management Regulation.
While certain individual commands have taken steps to control costs and
DOD policy generally advises its officials of their financial
management responsibilities with regard to the prudent use of
contingency funding, the Office of the Under Secretary of Defense
(Comptroller) has not systematically called for all commands involved
in GWOT to take steps to control costs and to keep the office informed
of those steps and their success. With the growth in GWOT costs, there
is a need to ensure that all commands seek to control costs. Until the
department establishes guidelines on cost controls and is routinely
informed about the types of controls and their impact on costs, it
cannot be sure that all that can be done to control costs is being
done.
Recommendations for Executive Action:
To ensure that Congress and the Department of Defense can reliably know
how much the war is costing, we recommend that the Secretary of Defense
take the following three steps:
1. Direct the Secretaries of the military services to undertake a
series of steps to ensure that reported GWOT costs are accurate and
reliable, to include:
* developing a systematic process to review reported obligations;
* developing and monitoring procedures to ensure that obligations are
categorized correctly;
* using actual data whenever possible and, when not possible, to take
steps to allow the development of actual data; and:
* ensuring that actions previously agreed to in response to audits have
been implemented effectively.
2. Direct the Office of the Under Secretary of Defense (Comptroller) to
oversee the above service efforts as well as to develop a systematic
process to review and test the reliability of the overall GWOT cost
reports.
3. Direct the Secretary of the Army to take the following steps:
* develop and implement formal procedures to guide the monthly
reporting of GWOT military personnel costs;
* formalize the Army's management review of military personnel cost
information submitted for the GWOT cost report;
* use information from the DOD payroll system, where applicable, to
identify and report GWOT military personnel cost information; and:
* review and simplify the numbers of elements of resource currently
used to identify, categorize, and record contingency costs.
To ensure that the military services and other DOD agencies make
informed judgments on the appropriate use of GWOT funding authorities
that are consistent with DOD guidance and meet the needs of GWOT, we
recommend that the Secretary of Defense expand DOD's financial
management regulation for contingency operations to include
contingencies as large as the current GWOT. At a minimum, the updated
policy should address the budgeting, cost reporting, and spending
associated with investment and base operation and support costs at the
home stations of units that support GWOT.
To ensure that GWOT mission needs are being met while applying
appropriate cost controls we recommend that the Secretary of Defense
direct the Office of the Under Secretary of Defense (Comptroller) to
take the following two steps:
1. establish guidelines on cost controls, including identifying what
types of cost controls are available to the services, and:
2. require that the services routinely keep the Comptroller's office
informed about the types of controls and their impact on costs, and
share information on cost control efforts.
Agency Comments and Our Evaluation:
DOD provided written comments on a draft of this report. Its comments
are discussed below and are reprinted in appendix III.
DOD agreed with all but one of our recommendations, stating that it
generally agreed with the intent of the recommendations and has
carefully reviewed its guidance and procedures for reporting cost data.
DOD further commented that on the basis of its review and consistent
with our recommendations it has taken several immediate actions to
improve procedures and strengthen the cost reports. These include
issuing additional direction and guidance to strengthen, clarify,
standardize, and simplify procedures for collecting, reporting, and
auditing cost of war information and issuing supplemental guidance to
its Financial Management Regulation to address large-scale contingency
operations.
Regarding our recommendations on improving the accuracy and reliability
of reported costs of the Global War on Terrorism and to have the Office
of the Under Secretary of Defense (Comptroller) play a role in
overseeing the efforts as well as to develop a systematic process to
review and test the reliability of the overall GWOT cost reports, DOD
stated that it has completed implementation of this recommendation
through the execution of new guidance and procedures for collecting and
reporting cost of war information and is actively overseeing the
preparation of GWOT cost reports. DOD further stated that the Army has
changed its data collection and reporting process and among other
things is now using a Standard Operating Procedure which prescribes a
clear methodology for capturing contingency operations cost data from
the accounting systems and a formal management review process to
prepare military cost information associated with GWOT.
Regarding our recommendation to expand DOD's Financial Management
Regulation for contingency operations to include contingencies as large
as the current Global War on Terrorism, DOD agreed and stated that it
has published supplemental guidance to volume 12, chapter 23 of its
Financial Management Regulation to address large scale contingencies.
While we agree that many of the revisions address problems we
highlighted in our report, we are concerned with one provision that
inappropriately expands the definition of incremental costs, stating
that:
"Additionally, because of the scale of operations, including intense
combat or long term stability or anti-insurgency operations, expenses
beyond only direct incremental costs may be appropriate on a case by
case basis in written coordination with the Office of the Under
Secretary of Defense (Comptroller)."
Although the revised guidance states that such costs require
coordination with the Office of the Under Secretary of Defense
(Comptroller), we believe that this expanded definition of incremental
costs suggests that the costs of large-scale contingency operations can
be beyond those defined elsewhere in DOD's guidance as incremental
costs--i.e., those additional costs to the DOD Component appropriations
that would not have been incurred had the contingency operations not
been supported. We further believe that costs incurred beyond what was
reasonably necessary to support a contingency operation cannot be
deemed incremental expenses, since such costs are not directly
attributable to support of the operation. In addition, we believe that
expanding allowable costs of contingency operations beyond those
directly attributable to support of the operation is problematic
because it provides no guidance on what costs beyond those that are
attributable to the operation are now allowed to be reported. We
therefore do not believe that this provision meets the intent of our
recommendation. The Under Secretary of Defense (Comptroller) should
reconsider this provision in light of our evaluation of its potential
consequences.
DOD did not agree with our recommendation to have the Office of the
Under Secretary of Defense (Comptroller) establish guidelines on cost
controls. In commenting on our recommendation, DOD stated that field
commanders are the correct echelon to adopt and emphasize cost controls
during a contingency; that it relies on the judgment of the combatant
commander in the theater of operations to manage resources at their
disposal to effectively safeguard personnel and perform the mission;
and that implementing administrative funding controls could have a
detrimental effect on the commanders' ability to make critical
decisions in the theater. DOD further stated that the Office of the
Under Secretary of Defense (Comptroller) has included a section in the
Financial Management Regulation that emphasizes that the DOD components
are responsible to employ a fiduciary approach to ensure that the funds
are used in a prudent manner and that as operations mature, steps
should be taken to evaluate and establish spending constraints. We
recognize that certain individual commands have done much to control
costs and describe some of those efforts, but we further note in our
discussion of cost controls that efforts vary by command and that there
is limited knowledge of such efforts outside each command. We do not
believe, as DOD suggests, that our recommendation would have a
detrimental effect on the commanders' ability to make critical
decisions in the theater. We are simply recommending that DOD provide
guidance that increases awareness of the need for reasonable cost
controls and requires that the Office of the Under Secretary of Defense
(Comptroller) be kept informed of the types of controls and their
impact on costs and share information within DOD on cost control
efforts. We continue to believe that more can be done and that absent
DOD-wide guidelines on cost control efforts, there is no assurance that
successive commanders will emphasize cost control and that each
command's efforts will be equally comprehensive. Therefore, we have
retained the recommendation.
In commenting on the report's content, DOD disagreed with GAO's
position on the overstatement of the reported costs for mobilized Army
reservists in fiscal year 2004. DOD commented that our report was
incomplete because we did not consider military retirement pay and
other costs, which DOD stated accounted for almost $1.3 billion of the
$2.1 billion difference cited in our report. We disagree. As discussed
in our draft report, initially, the Army could not support its reported
costs for mobilized Army reservists or explain the $2.1 billion
difference that we noted between its payroll system and its reported
cost for mobilized Army reservists. During our audit, the Army and the
Office of the Under Secretary of Defense (Comptroller) provided us with
several possible, although sometimes inaccurate, explanations for the
$2.1 billion difference. After several months, DOD provided information
showing that it could account for about $1.6 billion of the $2.1
billion difference. While making it clear that the information was
received too late for us to assess its accuracy and completeness as
part of our audit, we did include the information in our draft report.
We stated that some of the explanations appeared valid, while others
did not and, taken together, they failed to fully account for the
difference. The fact that DOD's comment letter reduces the $1.6 billion
to $1.3 billion further confirms the concerns we have expressed
throughout this report over the accuracy of DOD's past reported costs.
Finally, we believe that DOD's reference in its comment letter to the
$2.1 billion difference as an anomaly is a mischaracterization--
particularly when viewed in the context of its explanation that "the
Department's use of estimates led to a difference." As clearly stated
in this report, we found that the reported cost data are not reliable,
in part because of long-standing deficiencies in DOD's financial and
accounting systems, a lack of systematic processes to ensure that data
are properly entered into those accounting systems, and the use of
estimates rather than actual information. We understand that DOD is
planning corrective action to address issues related to cost reporting
for military personnel supporting GWOT operations.
We are sending copies of this report to other interested congressional
committees; the Secretary of Defense; the Under Secretary of Defense
(Comptroller); the Secretaries of the military services; 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 [Hyperlink,
http://www.gao.gov].
If you or your staff has any questions regarding this report, please
contact Sharon Pickup at 202-512-9619 or by e-mail at [Hyperlink,
pickups@gao.gov] or Greg Kutz at 202-512-9095 or [Hyperlink,
kutzg@gao.gov]. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. GAO staff that made major contributions to this report are
included in appendix IV.
Signed by:
Sharon L. Pickup:
Director, Defense Capabilities and Management:
Gregory D. Kutz:
Managing Director:
Forensic Audits and Special Investigations:
List of Congressional Committees:
The Honorable Ted Stevens:
Chairman:
The Honorable Daniel Inouye:
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
The Honorable C. W. Bill Young:
Chairman:
The Honorable John P. Murtha:
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
The Honorable Duncan Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To accomplish this review, we obtained and analyzed copies of all 12
months of the Department of Defense's (DOD) fiscal year 2004 monthly
Consolidated DOD Terrorist Response Cost Report from the Office of the
Under Secretary of Defense (Comptroller), which was renamed the
Supplemental and Cost of War Execution Report in January 2005, to
identify reported obligations by operation and by appropriation account
for the military services. We did not review the obligations reported
by the intelligence community or the other defense agencies, but we do
mention the amount appropriated and obligated because the amount
appropriated was part of the total DOD appropriation. We focused our
analysis primarily, but not exclusively, on reported costs for fiscal
year 2004--the latest full year of data available at the time of our
review--and specifically the military personnel and operation and
maintenance accounts as they represent the largest amount of spending.
We also did not conduct site visits to Air Force units because their
audit agency was conducting a similar review.
To determine the reliability of DOD's data, we reviewed previous GAO
reports and reports from other audit agencies that identified long-
standing material weaknesses in DOD's accounting systems. We conducted
limited testing on operation and maintenance obligations using Global
War on Terrorism (GWOT) funding because DOD's financial management
systems and business processes have been reported to contain
significant deficiencies. At the Army-and Marine Corps-unit levels, we
judgmentally selected obligation data entries and traced them back to a
computerized database or paper documents to determine whether the data
were properly entered into the accounting system. At the Army's Central
Command Headquarters, we judgmentally selected document numbers and
item descriptions for obligations made in Iraq and Afghanistan. We
traced the document register numbers against paper documentation
controlled by the Defense Finance and Accounting Service (DFAS), Rome,
New York. We also provided a written data reliability assessment
checklist for Navy officials to report how they ensured that their data
were accurate and reliable. Finally, we discussed the processes used to
ensure that GWOT obligation data provided were accurate and reliable
with service financial managers. We found that the reported cost data
were not reliable because of long-standing deficiencies in DOD's
financial and accounting systems, the lack of a systematic process to
ensure that data were properly entered into those accounting systems,
the use of estimates rather than actual data for some of DOD's reported
costs, and the incorrect categorization of some reported costs due to
the large number of cost categories and limited training on how to
apply them. However, because it was not feasible to examine all
reported costs and significant data reliability problems existed, we
were not able to determine the extent that total costs were misstated.
To identify unusual fluctuations in the reported Army military
personnel GWOT obligations, we analyzed the fiscal year 2004 GWOT cost
reports and discussed our work with the Army Budget Office and DFAS. We
also obtained and reviewed cost-reporting for military personnel
information, budget estimates, supplemental appropriation information,
budget reprogramming documents, and other supporting documentation from
the Army Budget Office. To determine if reported obligations were based
primarily on estimates, we compared reported GWOT amounts for Army
military personnel with Army obligation plans. We obtained monthly
extracts of fiscal year 2004 military pay records for Army Reserve and
National Guard soldiers supporting GWOT operations from the DOD payroll
system at DFAS, Indianapolis. To identify GWOT obligations for Army
military personnel based on actual DOD payroll information, we
summarized payroll record extracts by pay component and aligned these
amounts with the cost category structure of the GWOT cost report. For
cost category "Reserve Components Called to Active Duty," we compared
actual DOD payroll information with the estimated Army military
personnel amounts in the GWOT cost report, calculated the difference,
and discussed our work with the Army Budget Office. In July 2005, we
obtained information from the Army and DOD on this difference.
To assess the extent to which DOD's existing financial management
policy is applicable to war spending, we focused our efforts on
analyzing guidance provided by the fiscal year 2004 Defense
Appropriation Act and DOD's and the military services' specific policy
and procedures. We reviewed previous GAO reports regarding guidance and
oversight of contingency operations costs. We also reviewed DOD
Financial Management Regulation volume 12 chapter 23, which establishes
DOD policy and procedures for developing contingency budget estimates
and cost reporting. We analyzed DOD's emergency supplemental budget
requests for fiscal year 2003 and fiscal year 2004, and service
contingency operation financial management policies and procedures.
Lastly, we spoke with Office of the Under Secretary of Defense
(Comptroller) and service financial management officials about GWOT
budget estimations, cost reporting activities, and whether the current
policy is sufficient or needs to be modified to reflect GWOT
conditions.
To determine controls over costs, we reviewed reports on GWOT spending
and contract management from other audit agencies as well as command
guidance and held discussions with resource management officials from
major commands and units that had returned from Iraq and Afghanistan
regarding their experiences. We also discussed what steps DOD has
directed or implemented to strengthen cost controls and what actions it
has implemented. Furthermore, we discussed cost controls implemented by
Army divisions while deployed or upon the units' return to their home
station.
We visited the following locations during our review:
* Office of the Under Secretary of Defense (Comptroller), Washington,
D.C.
* Headquarters, Defense Finance and Accounting Service, Arlington,
Virginia.
* Headquarters, Department of the Army, Washington, D.C.
* U.S. Army Installation Management Agency, Washington, D.C.
* U.S. Army Installation Management Agency, Southeast Region, Fort
McPherson, Georgia.
* Headquarters, U.S. Army Forces Command and Headquarters, Third Army
(Army Central Command), Fort McPherson, Georgia.
* Headquarters, U.S. Army Pacific, Fort Shafter, Hawaii.
* Headquarters, 25TH Infantry Division, Schofield Barracks, Hawaii.
* Headquarters, U.S. Army Europe, Heidelberg, Germany.
* Headquarters, 1ST Armored Division, Wiesbaden, Germany.
* Headquarters, III Corps and 1ST Cavalry Division, Fort Hood, Texas.
* Headquarters, 3RD Armored Cavalry Regiment, Fort Carson, Colorado.
* Headquarters, U.S. Marine Corps Forces Pacific, Camp H.M. Smith,
Hawaii.
* Headquarters, 1ST Marine Expeditionary Force, Camp Pendleton,
California.
* Defense Finance and Accounting Service Center, Denver, Colorado.
* Defense Finance and Accounting Service Center, Indianapolis, Indiana.
* Defense Finance and Accounting Service-Rome, Rome, New York.
* Assistant Secretary of the Navy, Financial Management and
Comptroller, Washington, D.C.
* Commander, Naval Installations Command, Washington, D.C.
* U.S. Fleet Forces Command, U.S. Atlantic Fleet, Norfolk, Virginia.
* Commander, U.S. Pacific Fleet, Pearl Harbor, Hawaii.
* Commander, Naval Air Force, San Diego, California.
* Commander, Naval Surface Force, San Diego, California.
* Commander, Submarine Force, Pearl Harbor, Hawaii.
* U.S. Air Force Audit Agency, March Air Reserve Base, California.
* U.S. Air Forces Pacific, Hickam Air Force Base, Hawaii.
We performed our work from August 2004 through August 2005 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Ineffective Reporting of Fiscal Year 2004 Army Military
Personnel Global War on Terrorism Obligations:
As part of our work on cost reporting for the Global War on Terrorism
(GWOT), we undertook a detailed review of obligations for Army military
personnel supporting GWOT operations. The results of that review
follow.
Background:
In fiscal year 2004, the Department of Defense (DOD) asked for funds in
a supplemental budget request to provide pay, allowances, subsistence,
and other personnel costs for active-and reserve-component military
personnel activated for duty in support of GWOT. This request included
certain special pays that active-duty military personnel received for
deployment, as well as the base pay, special pays, and allowances for
reserve personnel mobilized to participate in or directly support GWOT
operations. In addition, the estimate also included the costs to pay
active-component personnel affected by military stop-loss programs and
additional military personnel maintained on active duty above the
normal end-strength levels to sustain the readiness of deploying units.
As shown in figure 3, Congress provided about $17.8 billion in funding
for DOD military personnel in the fiscal year 2004 supplemental
appropriation,[Footnote 31] including almost $12.9 billion provided for
the Army. This was an increase from the about $13.4 billion in funding
for DOD military personnel, including about $7.8 billion for Army
military personnel in the fiscal year 2003 supplemental
appropriation.[Footnote 32]
Figure 3: Supplemental Funding of DOD Military Personnel for GWOT
Operations in Fiscal Years 2003 and 2004:
[See PDF for image]
[End of figure]
In the September 2004 GWOT cost report, DOD military personnel
obligations totaled over $17 billion of the reported $71.2 billion in
total GWOT obligations for fiscal year 2004. Of this $17 billion, Army
military personnel obligations reported by DOD totaled almost $12
billion, or about 71 percent, of military personnel obligations for
GWOT operations. As shown in table 2, Army military personnel
obligations for GWOT operations increased from fiscal year 2003 through
fiscal year 2004, while obligations reported by other DOD organizations
decreased.
Table 2: DOD Military Personnel Obligations for GWOT Operations in
Fiscal Years 2003 and 2004:
Dollars in millions.
Army;
Dollars: Fiscal year 2003: $8,730;
Dollars: Fiscal year 2004: $11,972.
Air Force;
Dollars: Fiscal year 2003: $3,409;
Dollars: Fiscal year 2004: $3,272.
Navy;
Dollars: Fiscal year 2003: $1,934;
Dollars: Fiscal year 2004: $857.
Marine Corps;
Dollars: Fiscal year 2003: $1,482;
Dollars: Fiscal year 2004: $918.
DOD & defense agencies;
Dollars: Fiscal year 2003: $11;
Dollars: Fiscal year 2004: $0.
Total;
Dollars: Fiscal year 2003: $15,566;
Dollars: Fiscal year 2004: $17,019.
Source: September 2003 and 2004 GWOT cost reports.
[End of table]
The Army Budget Office controls the Military Personnel, Army,
appropriation account and is also responsible for identifying and
reporting the incremental costs of Army military personnel in support
of GWOT operations. Incremental military personnel costs are to include
pay, special pay, and entitlements above normal monthly payroll costs
for active-and reserve-component personnel.
In fiscal year 2004, the monthly GWOT cost report included the
following six primary cost categories for military personnel as
designated in the DOD Financial Management Regulation:[Footnote 33]
* "Reserve Components Called to Active Duty" includes basic military
pay for Reserve and National Guard personnel either as part of the
operation or as backfill.
* "Imminent Danger or Hostile Fire Pay," when authorized, provides a
monthly special pay for active-and reserve-component personnel.
* "Family Separation Allowance" is a monthly special allowance paid to
active-and reserve-component personnel who are separated from their
families for 30 days or more.
* "Foreign Duty Pay" is a monthly special pay for active-and reserve-
component personnel who are at a designated location outside of the
continental United States.
* "Subsistence" includes the costs of food, water, ice, and other
subsistence items that are purchased expressly to support personnel
engaged in or supporting the operation.
* "Other Military Personnel" includes other allowances or special pay
for active-and reserve-component personnel that are not included in
another cost category. In fiscal year 2004, this category included the
costs to pay active-component soldiers affected by military stop-loss
programs and additional soldiers maintained on active duty above the
normal end-strength levels.
Table 3 shows the Army military personnel obligations for GWOT
operations reported in fiscal years 2003 and 2004.
Table 3: Army Military Personnel Obligations for GWOT Operations in
Fiscal Years 2003 and 2004:
Dollars in millions.
Reserve components called to active duty;
Dollars: Fiscal year 2003: $5,988;
Dollars: Fiscal year 2004: $7,123.
Imminent danger or hostile fire pay;
Dollars: Fiscal year 2003: $248;
Dollars: Fiscal year 2004: $499.
Family separation allowance;
Dollars: Fiscal year 2003: $146;
Dollars: Fiscal year 2004: $105.
Foreign duty pay;
Dollars: Fiscal year 2003: $87;
Dollars: Fiscal year 2004: $128.
Subsistence;
Dollars: Fiscal year 2003: $996;
Dollars: Fiscal year 2004: $2,308.
Other military personnel;
Dollars: Fiscal year 2003: $1,265;
Dollars: Fiscal year 2004: $1,809.
Total;
Dollars: Fiscal year 2003: $8,730;
Dollars: Fiscal year 2004: $11,972.
Source: September 2003 and 2004 GWOT cost reports.
[End of table]
Army Lacked a Reasonable and Reliable Process to Report GWOT Military
Personnel Obligations:
The Army did not have a reasonable and reliable process to identify and
report almost $12 billion of GWOT military personnel obligations in
fiscal year 2004. Instead of using actual information, the Army based
the GWOT military personnel obligations used in the GWOT cost report
primarily on estimates in its fiscal year 2004 obligation plan and, in
the end, forced, or "plugged," obligations to match available
supplemental budget authority. Army officials were unable to readily
explain the process for identifying and reporting GWOT military
personnel obligations owing to the lack of both formalized reporting
procedures and management review of reported obligations, problems
which were exacerbated by staff losses in the September 11 terrorist
attack on the Pentagon, personnel turnover, and hiring difficulties.
Our analysis showed that obligations associated with Army military
personnel in the monthly GWOT cost report were not consistent with
related DOD payroll information, and the use of planned obligations
instead of related DOD payroll information might have resulted in
reported GWOT military personnel obligations being materially
overstated. For fiscal year 2004, our analysis of the more than $7.1
billion in incremental military personnel costs listed in the cost
category "Reserve Components Called to Active Duty" identified as much
as $2.1 billion of reported obligations in excess of related DOD
payroll information. Army Budget Office officials were unable to
explain the entire difference.
Army GWOT Reporting Process Used Estimated Obligations:
In 2003, the Army developed a monthly obligation plan for estimated
GWOT military personnel obligations in fiscal year 2004 on the basis of
anticipated funding of $12.5 billion from the fiscal year 2004 DOD
supplemental appropriation request. In October 2003, the Army began
incurring military personnel obligations for fiscal year 2004 GWOT
operations before passage of a supplemental appropriation. However,
instead of using actual information, the Army based the military
personnel obligations used in the monthly GWOT cost report primarily on
estimates in its fiscal year 2004 obligation plan, and "plugged" to
available supplemental budget authority. Effectively, the Army was
reporting back to Congress exactly what it had appropriated.
Through much of fiscal year 2004, the Army Budget Office based military
personnel obligations for GWOT operations primarily on its monthly
obligation plan. As illustrated in table 4, this resulted in the
cumulative GWOT military personnel obligations tracking closely to and,
in two cases equaling, the estimated amounts from the fiscal year 2004
obligation plan.
Table 4: Army Obligation Plan and Reported Military Personnel
Obligations for GWOT Operations in Fiscal Year 2004:
Dollars in millions.
October 2003;
Cumulative dollars: Obligation plan: $956;
Cumulative dollars: GWOT cost report: $811.
November 2003;
Cumulative dollars: Obligation plan: $2,018;
Cumulative dollars: GWOT cost report: $2,018.
December 2003;
Cumulative dollars: Obligation plan: $3,122;
Cumulative dollars: GWOT cost report: $2,819.
January 2004;
Cumulative dollars: Obligation plan: $4,366;
Cumulative dollars: GWOT cost report: $3,818.
February 2004;
Cumulative dollars: Obligation plan: $5,320;
Cumulative dollars: GWOT cost report: $4,886.
March 2004;
Cumulative dollars: Obligation plan: $6,528;
Cumulative dollars: GWOT cost report: $6,528.
April 2004;
Cumulative dollars: Obligation plan: $7,650;
Cumulative dollars: GWOT cost report: $7,686.
May 2004;
Cumulative dollars: Obligation plan: $8,669;
Cumulative dollars: GWOT cost report: $8,535.
June 2004;
Cumulative dollars: Obligation plan: $9,657;
Cumulative dollars: GWOT cost report: $9,421.
July 2004;
Cumulative dollars: Obligation plan: $10,621;
Cumulative dollars: GWOT cost report: $10,324.
August 2004;
Cumulative dollars: Obligation plan: $11,577;
Cumulative dollars: GWOT cost report: $11,219.
September 2004;
Cumulative dollars: Obligation plan: $12,530;
Cumulative dollars: GWOT cost report: $11,972.
Source: Army Budget Office and fiscal year 2004 GWOT cost reports.
[End of table]
One example of military personnel obligations reported directly from
the Army obligation plan is evident with the cost category for
"Subsistence" described earlier. The Army obligation plan for
"Subsistence" showed an estimated obligation amount of about $130
million monthly in most of fiscal year 2004 and, except for a large
increase[Footnote 34] in September 2004, was largely identical to the
monthly GWOT cost report amounts as shown in table 5. Subsistence costs
at the end of fiscal year 2004 were a major factor in the need to
"plug" reported military personnel obligations in the GWOT report's
cost category "Reserve Components Called to Active Duty" as discussed
later.
Table 5: Army Obligation Plan and Reported Subsistence Obligations for
GWOT Operations in Fiscal Year 2004:
Dollars in millions.
October 2003;
Dollars per month: Obligation plan: $100;
Dollars per month: GWOT cost report: $130.
November 2003;
Dollars per month: Obligation plan: $160;
Dollars per month: GWOT cost report: $130.
December 2003;
Dollars per month: Obligation plan: $130;
Dollars per month: GWOT cost report: $130.
January 2004;
Dollars per month: Obligation plan: $130;
Dollars per month: GWOT cost report: $130.
February 2004;
Dollars per month: Obligation plan: $130;
Dollars per month: GWOT cost report: $148.
March 2004;
Dollars per month: Obligation plan: $130;
Dollars per month: GWOT cost report: $130.
April 2004;
Dollars per month: Obligation plan: $130;
Dollars per month: GWOT cost report: $130.
May 2004;
Dollars per month: Obligation plan: $130;
Dollars per month: GWOT cost report: $130.
June 2004;
Dollars per month: Obligation plan: $130;
Dollars per month: GWOT cost report: $130.
July 2004;
Dollars per month: Obligation plan: $130;
Dollars per month: GWOT cost report: $130.
August 2004;
Dollars per month: Obligation plan: $130;
Dollars per month: GWOT cost report: $130.
September 2004;
Dollars per month: Obligation plan: $130;
Dollars per month: GWOT cost report: $860.
Total;
Dollars per month: Obligation plan: $1,560;
Dollars per month: GWOT cost report: $2,308.
Source: Army Budget Office and fiscal year 2004 GWOT cost reports.
[End of table]
Budget authority for Army military personnel supporting GWOT operations
provided in the fiscal year 2004 emergency supplemental appropriation
was reduced late in the fiscal year. As detailed in table 6,
reprogrammings and additional reductions lowered the supplemental
budget authority available from the supplemental appropriation to about
$12 billion for Army GWOT military personnel in fiscal year 2004.
Table 6: Supplemental Budget Authority for Army GWOT Military Personnel
in Fiscal Year 2004:
Dollars in millions.
Fiscal year 2004 emergency supplemental appropriation;
Dollars: $12,859.
August 2004 omnibus reprogramming;
Dollars: $(801).
September 2004 additional reductions;
Dollars: $(86).
Available supplemental budget authority;
Dollars: $11,972.
Source: Pub. L. No. 108-106, DOD, and GAO's analysis of Army Budget
Office information.
[End of table]
The Army Budget Office reported negative obligations of more than $439
million in the cost category "Reserve Components Called to Active Duty"
for September 2004 so that GWOT military personnel obligations would
equal available supplemental budget authority of about $12 billion.
This was necessary (1) because the fiscal year 2004 Army obligation
plan was originally developed for about $12.5 billion in GWOT military
personnel spending and the available supplemental budget authority was
reduced late in the fiscal year and (2) because of the unexpected need
to obligate a large amount for the "Subsistence" cost category in
September 2004. As shown in figure 4, the reporting of a negative
amount effectively resulted in the Army's use of "plugging," or
reporting back to Congress exactly the amount of available budget
authority, as adjusted, remaining from the fiscal year 2004 emergency
supplemental appropriation.
Figure 4: Army Military Personnel Obligations for GWOT Operations in
Fiscal Year 2004:
[See PDF for image]
[End of figure]
Army's Reporting Process Hampered by Lack of Formal Procedures and
Management Review:
The process used in fiscal year 2004 to determine the Army's military
personnel obligations for the monthly GWOT cost report was not clearly
understood by Army Budget Office management, and we found that Army
management was not familiar with the process used to force, or "plug,"
the reported fiscal year 2004 GWOT military personnel obligations to
match available supplemental budget authority.
According to Army Budget Office officials, they did not have formal
procedures for developing and reporting GWOT military personnel
obligations. These officials explained that, in the absence of written
procedures, the process used to develop the monthly obligation
information reported to the Defense Finance and Accounting Service
(DFAS) was entirely dependent on the staff person assigned to this
task. A DOD Financial Management Regulation includes general guidance
on developing and reporting incremental costs related to contingency
operations. For example, the guidance requires that controls,
accounting systems, and procedures provide, in financial records, a
proper identification and recording of the costs incurred for DOD
contingency operations. However, this general guidance is not a
substitute for detailed, written implementing procedures at the service
level.
Furthermore, the Army Budget Office did not establish a formal
management review process for the GWOT military personnel obligations
reported monthly to DFAS. The Army could not provide documentation to
show that management-level officials reviewed its GWOT military
personnel obligations in fiscal year 2004 that were sent to DFAS for
inclusion in the monthly GWOT report. Army Budget Office officials also
told us that these problems were exacerbated by staff lost in the
September 11 terrorist attack on the Pentagon, personnel turnover, and
hiring difficulties. Specifically, the Army Budget Office-Military
Personnel Division is authorized 10 civilian positions and had not been
fully staffed in over 2 years. The position of Chief for the Military
Personnel Division was held by three different individuals in the last
2 years. We were told that only one staff member had been with the
division longer than 2 years. As of May 2005, Army Budget Office
officials told us that 2 of the 10 positions were staffed by interns
and 3 positions were not filled.
High staff turnover and new staff training make it increasingly
important that detailed, documented procedures be developed for
identifying and reporting incremental GWOT military personnel
obligations. Formal procedures would help ensure that the monthly
amounts are reported consistently and accurately, using the best
available information. Lacking such procedures, Army Budget Office
management provided two different explanations for the process for
identifying and reporting GWOT military personnel obligations. When
asked, Army management initially explained that reported GWOT military
personnel obligations for fiscal year 2004 were based largely on
payroll expenditures. However, our analysis of reported obligations
revealed a significant, unexpected monthly fluctuation in two GWOT
military personnel cost categories, raising doubts about the
reasonableness of management's explanation and the reliability of the
Army's estimation process. For example, as previously noted, a large
negative obligation amount was reported in the "Reserve Components
Called to Active Duty" cost category in September 2004 even though the
associated Army National Guard and Reserve soldier strength remained
relatively constant during the period.
In December 2004, Army Budget Office management provided a different
explanation and stated that GWOT military personnel obligations were
estimates based principally on a calculation that considered the number
of soldiers (e.g., mobilized, deployed) and a monthly composite pay
rate or special pay/allowance amount. The Army Budget Office provided a
schedule in January 2005 supporting this description of the estimating
process for its GWOT military personnel obligations in fiscal year
2004. Using this description, our analysis of these obligations,
however, indicated that the Army's estimation process was not reliable.
For example, our analysis showed that the estimated obligations
reported were not reasonable owing to both inconsistencies with the
number of soldiers and the high composite pay rate (i.e., officer-grade
equivalent).
After further discussion with us about the reasonableness of their
earlier explanations, an Army Budget Office official agreed with our
determination in February 2005 that the reported amounts were based on
planned obligations and later agreed that the year-end amount was
matched, or "plugged," to available supplemental budget authority. Army
and DOD officials stated that efforts were being undertaken to improve
GWOT cost reporting by using, where applicable, DOD payroll information
instead of estimated amounts.
Reported GWOT Obligations for Mobilized Army Soldiers Were
Significantly Higher Than Related DOD Payroll Information:
GWOT military personnel obligations reported in fiscal year 2004 were
not consistent with the DOD payroll information we reviewed. Army
management expressed a belief that pay and allowance information could
not be obtained from the DOD payroll system and used for the monthly
GWOT cost report. However, we obtained fiscal year 2004 payroll
information from DFAS for reserve-component soldiers mobilized for GWOT
operations and demonstrated that actual DOD payroll information, where
applicable, could be used to identify incremental military personnel
obligations for mobilized Army National Guard and Reserve soldiers.
Although we previously reported that several system issues were
significant factors impeding accurate and timely payroll payments to
mobilized reserve-component soldiers,[Footnote 35] we believe that
payroll information represents the best information available and
should be used, where applicable, to prepare the GWOT cost report.
For fiscal year 2004, we evaluated the Army obligation plan estimates
and military personnel cost category titled "Reserve Components Called
to Active Duty." Army officials explained that this estimate included a
soldier's basic pay, Federal Insurance Contribution Act contributions
(i.e., Social Security and Medicare), allowances for housing and
subsistence, and accrual amounts for retirement pay and retirement
health care. From the DOD payroll system, we identified the payroll
information for Army soldiers mobilized to support GWOT operations in
fiscal year 2004 and analyzed payroll information for the related pay
components used to estimate Army military personnel GWOT obligations.
As shown in table 7, military personnel costs identified from the DOD
payroll system were as much as $2.1 billion less than the estimated
Army obligations reported in the monthly GWOT cost report.
Table 7: Estimated Army Obligations for "Reserve Components Called to
Active Duty" and Related DOD Payroll Costs in Fiscal Year 2004:
Dollars in millions.
Estimated obligations in GWOT cost report;
Dollars: $7,123.
Related DOD payroll costs: Basic pay;
Dollars: $3,472.
Related DOD payroll costs: FICA;
Dollars: $266.
Related DOD payroll costs: Allowance for housing;
Dollars: $1,204.
Related DOD payroll costs: Allowance for subsistence (officer);
Dollars: $30.
DOD payroll total;
Dollars: $4,972.
Difference;
Dollars: $2,151.
Source: September 2004 GWOT cost report and GAO's analysis of DOD
payroll data.
[End of table]
Initially, the Army could not support this difference or its reported
GWOT military personnel obligations. Over the next several months, the
Army and the Office of the Under Secretary of Defense (Comptroller)
provided us with several possible, though sometimes inaccurate,
explanations for this difference. Some explanations appeared valid
while others did not and, taken together, they failed to fully account
for the difference. For example, when asked to explain the difference
in military personnel obligations between the GWOT cost report and
related DOD payroll information, Army Budget Office officials stated in
March 2005 that a portion of the difference was attributable to
retirement pay and retirement health care accruals. We found that the
retirement health care accrual did not result in incremental costs and,
therefore, was not a valid explanation for the difference. In July
2005, DOD agreed that mobilized reservists do not receive an increase
in retirement health care benefits over benefits for nonmobilized
reservists and, therefore, DOD does not incur incremental costs related
to this benefit. However, mobilized reservists receive an increase in
retirement pay benefits over benefits for nonmobilized reservists and,
therefore, DOD incurs incremental costs related to this benefit. In
July 2005, Army and Office of the Under Secretary of Defense
(Comptroller) officials reported to us that $824 million of the
difference was attributable to the inclusion of the retirement pay
accruals and provided other potential reconciling cost information
totaling $732 million as additional explanations for the difference.
This information was provided too late in our audit to assess its
accuracy and completeness.
[End of section]
Appendix III: Comments from the Department of Defense:
UNDER SECRETARY OF DEFENSE
COMPTROLLER:
1100 DEFENSE PENTAGON:
WASHINGTON DC 20301-1100:
SEP 2 2005:
Mr. David Walker Comptroller General:
U.S. Government Accountability Office:
Washington, D.C. 20548:
Dear Mr. Walker:
This is the Department of Defense (DoD) response to the Government
Accountability Office (GAO) Draft Report, GLOBAL WAR ON TERRORISM: DoD
Needs to Improve the Reliability of Cost Data and Provide Additional
Guidance to Control Costs," dated September 2005. The Department
appreciates the opportunity to review the draft report and provide
comments.
The Department agrees generally with the intent of the recommendations
and has carefully reviewed its guidance and procedures for reporting
cost data. On the basis of our review and consistent with GAO's
recommendations, the Department has taken the following immediate
action to improve procedures and strengthen the cost reports:
* Office of the Under Secretary of Defense (Comptroller) issued
additional direction and guidance to strengthen, clarify, standardize,
and simplify procedures for collecting, reporting, and auditing cost of
war information.
* The Services strengthened their monthly analysis on cost of war
information to account for, and document, variances from established
criteria.
* The Army implemented a formal management review process to ensure the
capture of GWOT cost data directly from the accounting systems and to
incorporate recommended corrections to the accounting for the costs of
military personnel. The June 2005 GWOT report was prepared using this
new process.
* Office of the Under Secretary of Defense (Comptroller) issued
supplemental guidance to the DoD Financial Management Regulation (FMR)
to address Large Scale Contingency Operations.
The Department does not concur with the recommendation regarding the
establishment of guidelines and cost controls for commanders in a
theater. The DoD Financial Management Regulations (FMR) includes
guidance on the fiduciary responsibilities of DoD components. Combatant
Commanders are the correct echelon to adopt and emphasize cost controls
during a contingency operation. The Department must rely on the
judgment of these commanders in the theater of operations to
effectively manage resources, to safeguard personnel and to perform
their missions. Combatant Commanders understand their fiscal
responsibility. Implementing administrative funding controls at the
Department Headquarters level could have a detrimental effect on the
commanders' ability to make critical decisions in theater.
Finally, the GAO states that the Department had a $2.1 billion
overstatement in reporting the costs for mobilized Army reservists in
fiscal year 2004. The Department disagrees and believes that GAO's
assessment of the actual costs is incomplete. The Department has
provided GAO with additional documentation to justify that at least
$1.3 billion of the $2.1 billion was not overstated. However, no
attempt was made to reconcile this additional information in the draft
final report.
Thank you again for the opportunity to provide the Department's
response to the GAO's recommendations. The Department appreciates GAO's
recommendations and will ensure that corrective actions are effectively
implemented. We are taking aggressive action to improve our financial
management practices and we look forward to your continued support in
this regard.
Sincerely,
Signed by:
Tina W. Jonas:
Enclosures: As stated:
Department of Defense Comments GAO-05-882 (GAO Codes 350589 & 192148):
SUBJECT: GAO Draft Report, August 3, 2005, titled "GLOBAL WAR ON
TERRORISM: DOD Needs to Improve the Reliability of Cost Data and
Provide Additional Guidance to Control Costs"
DISCUSSION:
* The GAO report outlined five recommendations. The Department of
Defense concurs with comment on four of the five recommendations.
* A restatement of the recommendation and the Department's comments
follow:
RECOMMENDATION 1: The Secretary of Defense direct the Secretaries of
the military services to undertake a series of steps to assure that
reported Global War on Terrorism (GWOT) costs are accurate and
reliable, to include:
* Developing a systematic process to review reported obligations.
* Developing and monitoring procedures to assure that obligations are
categorized correctly:
* Using actual data whenever possible and, when not possible, to take
steps to allow the development of actual data.
* Assuring that actions previously agreed to in response to audits have
been implemented effectively.
DoD COMMENT TO RECOMMENDATION 1: Concur. The Department has completed
the implementation of this recommendation through the execution of new
guidance and procedures for collecting and reporting cost of war
information. We are now:
* Performing systematic reviews of the reported obligations along with
documented explanations where established reasonableness tests have not
been met.
* Categorizing obligations through more simplified methods and
requiring thorough analysis to provide reasonable assurance that costs
are reported correctly.
* Using data captured in the official accounting systems or subsidiary
accounting systems (such as entitlement systems) for reporting, where
possible and, documentation and methodologies for circumstances where
data is not available in the accounting systems.
* Monitoring implementation and follow up of previous audit findings.
RECOMMENDATION 2: The Secretary of Defense direct the Office of the
Under Secretary of Defense (Comptroller) to oversee the above Service
efforts, as well as to develop a systematic process to review and test
the reliability of the overall GWOT cost reports.
DoD COMMENT TO RECOMMENDATION 2: Concur. The Office of the Under
Secretary of Defense (Comptroller) is actively overseeing the
preparation of GWOT cost reports. Services are now required to:
* Perform monthly analysis of the cost data based on specific variance
criteria for each cost category.
* Provide footnote explanations where variances exceed the established
criteria.
* Use data captured in the official accounting systems or subsidiary
accounting systems (such as entitlement systems), for reporting costs.
* Provide documentation for circumstances where data is not available
in the accounting systems.
Additionally, the Director of the Defense Finance and Accounting
Services has been assigned responsibility for the application of test
criteria to review the reliability of GWOT cost reports.
RECOMMENDATION 3. The Secretary of Defense direct the Secretary of the
Army to take the following steps:
* Develop and implement formal procedures to guide the monthly
reporting of GWOT military personnel costs.
* Formalize its management review of military personnel cost
information submitted for the GWOT cost report.
* Use information from the DOD payroll system, where applicable, to
identify and report GWOT military personnel cost information.
* Review and simplify the numbers of Elements of Resource currently
used to identify, categorize, and record contingency costs.
DoD COMMENT TO RECOMMENDATION 3: Concur. The Army has changed its data
collection and reporting process and is now using:
* A Standard Operating Procedure which prescribes a clear methodology
for capturing Contingency Operations cost data from the accounting
systems.
* A formal management review process to prepare military cost
information associated with GWOT.
* The DoD payroll system, where applicable, to help calculate military
personnel cost information, and is reconciling reporting problems from
previous reports.
* Simplified categories to identify, categorize and record contingency
costs.
RECOMMENDATION 4. The Secretary of Defense direct the Office of the
Under Secretary of Defense (Comptroller) to expand DoD's financial
management regulation for contingency operations to include
contingencies as large as the current Global War on Terrorism.
DoD COMMENT TO RECOMMENDATION 4: Concur. The Department has published
supplemental guidance to the "DoD Financial Management Regulation FMR "
Volume 12, Chapter 23 (Tab C) to address Large Scale Contingencies.
RECOMMENDATION 5. The Secretary of Defense direct the Office of the
Under Secretary of Defense (Comptroller) to:
* Establish guidelines on cost controls, including identifying what
types of cost controls are available to the services, and:
* Require that the services routinely keep the Comptroller's office
informed about the types of controls and their impact on costs, and
share information on cost control efforts.
DoD COMMENT TO RECOMMENDATION 5: Non-concur. The DoD Financial
Management Regulations (FMR) include guidance on the fiduciary
responsibilities of DoD components. The field commanders are the
correct echelon to adopt and emphasize cost controls during a
contingency. The Department relies on the judgment of the Combatant
Commander in the theater of operations to manage resources at their
disposal to effectively safeguard personnel and perform the mission.
OUSD(C) has included a section in the FMR that emphasizes that the DoD
Components are responsible to employ a fiduciary approach to ensure
that the funds are used in a prudent manner. As operations mature,
steps should be taken to evaluate and establish spending constraints.
DISCUSSION:
* The Department maintains that the following portion of the GAO report
is inaccurate: "In at least one case, the reported costs may be
materially overstated. Specifically, reported obligations for mobilized
Army reservists in Fiscal Year 2004 were based primarily on estimates
rather than actual information, and differed from related DoD payroll
information by as much as $2.1 billion or 30 percent of the amount DoD
reported in its cost report."
* Although the Department's use of estimates led to a difference
between the reported amount and the actual amount incurred, this error
is less then the $2.1 billion identified by GAO. The Department of
Defense does not concur with the stated amount for the following
reasons:
- The GAO finding was incomplete because it only reflected costs from
the Defense Joint Military Pay System (DJMS)-Reserve Component (RC)
system, but other valid costs associated with Mobilized National Guard
Active Guard and Reserve (AGR) Soldiers paid off the DJMS-Active
Component (AC) system were omitted.
- GAO did not consider costs for Retired Pay Accrual (RPA) for
mobilized reservists which DFAS calculates and manually posts to the
accounting system.
- The following is the Department of Defense Reconciliation of GAO FY04
MILPERS Audit:
GAO Difference: $2,150,874:
Less:
RPA not included in DJMS-RC extract: (Calculated accrual done outside
of RC pay system): ($824,001):
National Guard AGR pay not in DJMS-RC (Allowances were paid off in the
DJMS-AC system)[NOTE 1]: ($160,494)
RC Basic Allowance for Subsistence not reported on mobilized RC pay
line: ($301,961):
Balance of GAO Difference[NOTE 2]: $864,418.
Notes:
[1] Amount is an estimate, since NGPA managers can not isolate exact
amounts of IDP, FSA and HDIP included in DFAS reported amount of pay
and allowances.
[2] Remaining balance could be reduced further by pay and allowances of
CO-TTAD and CO-EAD soldiers; however, DFAS can't currently isolate
those costs, so they are not included in the reconciliation.
[End of table]
GAO is aware that action has been implemented to prevent this anomaly
from reoccurring. GAO does not mention this corrective action in the
report.
* The Army implemented new accounting procedures for the Military Pay
Appropriation in FY 2004.
* The Army's accounting system, (STANFINS) became the system of
original entry in FY2004, wherein obligations are estimated prior to
the disbursement phase.
* A systematic process has been implemented to review reported amounts.
* All disbursements are recorded in the general account with GWOT
disbursements, then transferred to appropriate GWOT account.
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Sharon Pickup (202) 512-9619;
Greg Kutz (202) 512-9095:
Acknowledgments:
In addition to the contacts named above, Steve Sternlieb, Mark
Connelly, Leo Sullivan, Vince Balloon, Kurt Burgeson, Laura Czohara,
Dave Mayfield, Francine Delvecchio, Abe Dymond, K. Eric Essig, Jason
Kelly, John Ledford, and Wayne Turowski made key contributions to this
report.
(350589/192148):
FOOTNOTES
[1] GAO, Military Operations: Fiscal Year 2003 Obligations Are
Substantial, but May Result in Less Obligations Than Expected, GAO-03-
1088 (Washington, D.C.: Sept. 17, 2003).
[2] GAO, Military Operations: DOD's Fiscal Year 2003 Funding and
Reported Obligations in Support of the Global War on Terrorism, GAO-04-
668 (Washington, D.C.: May 13, 2004).
[3] GAO, 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 (Washington, D.C.: July 21, 2004).
[4] 31 U.S.C. sec. 1501; See Department of Defense Financial Management
Regulations, 7000.14-R, vol. 1, Definitions, xvii.
[5] Pub. L. No. 108-87, 117 Stat. 1054 (Sept. 30, 2003).
[6] Pub. L. No. 108-106, 117 Stat. 1209 (Nov. 6, 2003).
[7] Volume 12, chapter 23 of DOD's Financial Management Regulation
describes contingency operations as including, but not limited to,
support for peace operations, major humanitarian assistance efforts,
noncombatant evacuation operations, and international disaster relief
efforts. DOD also refers to the operations in support of GWOT as
contingency operations although, as discussed above, the regulation was
developed and structured to manage the costs of small-scale
contingencies and specifically excludes its use for wartime activities.
[8] 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 DOD's Financial Management
Regulation 7000.14-R, vol. 12, ch. 23, Contingency Operations (January
2005) provide additional information on incremental costs.
[9] As discussed later in this report, chapter 23 states that it does
not address wartime activities or the unique circumstances that require
U.S. military forces to be placed on a wartime footing. Despite this
express limitation, DOD and service officials are using chapter 23 to
guide GWOT budgeting, cost reporting, and spending in the absence of
other guidance.
[10] GAO, Contingency Operations: DOD's Reported Costs Contain
Significant Inaccuracies, GAO/NSIAD-96-115 (Washington, D.C.: May 17,
1996).
[11] Funds holders are DOD officials who receive a documented
administrative subdivision of funds through their funding chain of
command or other government departments.
[12] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005).
[13] GAO, Department of Defense: Further Actions Are Needed to
Effectively Address Business Management Problems and Overcome Key
Business Transformation Challenges, GAO-05-140T (Washington, D.C.: Nov.
18, 2004).
[14] GAO, DOD Business Transformation: Sustained Leadership Needed to
Address Long-standing Financial and Business Management Problems, GAO-
05-723T (Washington, D.C.: June 2005).
[15] GAO, Defense Management: Processes to Estimate and Track Equipment
Reconstitution Costs Can Be Improved, GAO-05-293 (Washington, D.C.: May
5, 2005).
[16] Reconstitution is the process of returning equipment after a
deployment is completed to a condition that enables the unit to perform
required missions and achieved required readiness levels.
[17] Personnel support, operating support, and transportation costs are
subcategories in the DOD GWOT cost reports.
[18] Air Force Audit Agency, Global War on Terrorism Funds Management,
F2005-0011-FB1000 (June 20, 2005).
[19] Department of the Navy, Naval Audit Service, Purchase
Justifications at Department of the Navy Shore Activities (Washington
Navy Yard, D.C.: 2003).
[20] U.S. Army Audit Agency, FY 03 Supplemental Funds and Cash Flow
(Alexandria, Va.: 2004).
[21] DFAS is responsible for consolidating all DOD contingency costs
and for the billing and reimbursement distribution functions in support
of contingency operations.
[22] Department of Defense Financial Management Regulation 7000.14R,
vol. 12, ch. 23, Contingency Operations (January 2005).
[23] Ch. 23, sec. 230101 and 230105.
[24] Ch. 23, sec. 230105.
[25] Chapter 23 was revised in January 2005 to include these cost
categories and provide descriptions of these types of costs.
[26] Ch. 23, sec. 230902.
[27] Ch. 23, sec. 230406, Cost Category 3.4, Facilities/Base Support.
Examples of activities away from home station would include those in
Iraq.
[28] Ch. 23, sec. 230406 and 230902.
[29] GAO, Military Operations: DOD's Extensive Use of Logistics Support
Contracts Requires Strengthened Oversight, GAO-04-854 (Washington,
D.C.: July 19, 2004).
[30] Unit coins are custom-minted and emblazoned coins or similar
items, typically with unit insignia on the obverse (front) side and an
inscription on the reverse side, presented by or on behalf of the
commander as an on-the-spot award to show recognition for
accomplishment to U.S. military members or civilians.
[31] Emergency Wartime Supplemental Appropriations Act for Defense and
for the Reconstruction of Iraq and Afghanistan, Pub. L. No. 108-106,
117 Stat. 1209 (Nov. 6, 2003).
[32] Emergency Wartime Supplemental Appropriations Act, Pub. L. No. 108-
11, 117 Stat. 559 (Apr. 16, 2003).
[33] DOD Financial Management Regulation 7000.14-R, vol. 12, ch. 23
(February 2001). A 2005 change to the FMR calls for eight cost
categories related to military personnel obligations.
[34] Army budget officials attributed this large, year-end increase to
additional water contracts, transfers due to incorrect funding of the
logistics civilian augmentation program, and anticipated carryover of
fiscal year 2004 subsistence costs.
[35] GAO, Military Pay: Army Reserve Soldiers Mobilized to Active Duty
Experienced Significant Pay Problems, GAO-04-911 (Washington, D.C.:
Aug. 20, 2004), and Military Pay: Army National Guard Personnel
Mobilized to Active Duty Experienced Significant Pay Problems, GAO-04-
89 (Washington, D.C.: Nov. 13, 2003).
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