Global War on Terrorism
DOD Needs to Take Action to Encourage Fiscal Discipline and Optimize the Use of Tools Intended to Improve GWOT Cost Reporting Gao ID: GAO-08-68 November 6, 2007Since the September 2001 terrorist attacks, Congress has provided about $542.9 billion, as of May 2007, to the Department of Defense (DOD) for the Global War on Terrorism (GWOT). Prior GAO reports have found DOD's reported GWOT obligation data unreliable and problems with transparency over certain costs. DOD made changes to its reporting procedures, requiring components to perform a monthly variance analysis on obligation data and to include affirmation statements attesting to the accuracy of cost data. Under the Comptroller General's authority to conduct evaluations on his own initiative, GAO assessed (1) the outlook of DOD's reported GWOT obligations for fiscal year 2007 and funding requests for fiscal year 2008, (2) the effect of changes in DOD's GWOT funding guidance, and (3) DOD's progress in implementing variance analysis and affirmation statements. For this engagement, GAO analyzed fiscal year 2007 GWOTrelated appropriations and reported obligations, as well as DOD's corrective actions.
Through June 2007, DOD's reported obligations for fiscal year 2007 of $95.4 billion were almost equal to its total reported GWOT obligations for fiscal year 2006. After GWOT obligations are reported for the remaining 3 months of fiscal year 2007, which are now averaging $10.6 billion a month, total obligations will significantly exceed those for fiscal year 2006. Further, changes to the President's fiscal year 2008 GWOT request for DOD have been submitted to fund operational requirements that were not included in the original request. These include decisions in January 2007 to increase or "surge" troop levels in Iraq, and in September 2007 to begin to withdraw these troops during fiscal year 2008. These amendments, totaling nearly $47.6 billion, bring the total fiscal year 2008 GWOT funding request for DOD to about $189.3 billion. Changes in DOD's GWOT funding guidance have resulted in billions of dollars being added to GWOT funding requests for what DOD calls the "longer war against terror," making it difficult to distinguish between incremental costs to support specific contingency operations and base costs. Although emergency funding has historically been used to support unexpected costs of contingency operations, in October 2006, DOD revised guidance to allow for additional costs. As a result, the fiscal year 2007 and 2008 requests included funding for items generally requested in DOD's base budget, such as future weapon systems, transformation, and increases to military end strength. GAO believes similarities, in some cases, between DOD's GWOT and base funding requests, along with the duration of GWOT operations, indicate DOD has reached the point where it should build more funding into its base budget. Without clearly defining the "longer war against terror" and increasing the transparency between incremental and base costs, decision makers cannot assess priorities and potential trade-offs. If the administration believes the nation is engaged in a long-term conflict, the implications should be considered during annual budget deliberations. Continuing to fund GWOT through emergency requests reduces transparency and avoids the necessary reexamination of commitments, investment priorities, and trade-offs. DOD has achieved some positive results and GWOT cost reporting continues to evolve. More action is needed to optimize the tools intended to improve GWOT cost reporting. DOD has begun to improve transparency by requiring components to analyze variances in reported obligations and to disclose reasons for significant changes. GAO found that required explanations, in some instances, were not disclosed due to inadequate management oversight, and other types of analysis could help identify obligations omitted from reports, such as about $1.5 billion in Marine Corps obligations. Also, in some cases, components did not provide required affirmation statements to attest to accuracy nor were they required to disclose the basis for statements or note the outcome of variance analyses. Without more complete information and a more robust methodology, DOD does not yet have the data needed to assess reliability or to be confident adequate steps are taken to validate cost data.
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-08-68, Global War on Terrorism: DOD Needs to Take Action to Encourage Fiscal Discipline and Optimize the Use of Tools Intended to Improve GWOT Cost Reporting
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United States Government Accountability Office:
GAO:
Report to Congressional Committees:
November 2007:
Global War On Terrorism:
DOD Needs to Take Action to Encourage Fiscal Discipline and Optimize
the Use of Tools Intended to Improve GWOT Cost Reporting:
GAO-08-68:
GAO Highlights:
Highlights of GAO-08-68, a report to congressional committees.
Why GAO Did This Study:
Since the September 2001 terrorist attacks, Congress has provided about
$542.9 billion, as of May 2007, to the Department of Defense (DOD) for
the Global War on Terrorism (GWOT). Prior GAO reports have found DOD‘s
reported GWOT obligation data unreliable and problems with transparency
over certain costs. DOD made changes to its reporting procedures,
requiring components to perform a monthly variance analysis on
obligation data and to include affirmation statements attesting to the
accuracy of cost data.
Under the Comptroller General‘s authority to conduct evaluations on his
own initiative, GAO assessed (1) the outlook of DOD‘s reported GWOT
obligations for fiscal year 2007 and funding requests for fiscal year
2008, (2) the effect of changes in DOD‘s GWOT funding guidance, and (3)
DOD‘s progress in implementing variance analysis and affirmation
statements.
For this engagement, GAO analyzed fiscal year 2007 GWOT-related
appropriations and reported obligations, as well as DOD‘s corrective
actions.
What GAO Found:
Through June 2007, DOD‘s reported obligations for fiscal year 2007 of
$95.4 billion were almost equal to its total reported GWOT obligations
for fiscal year 2006. After GWOT obligations are reported for the
remaining 3 months of fiscal year 2007, which are now averaging $10.6
billion a month, total obligations will significantly exceed those for
fiscal year 2006. Further, changes to the President‘s fiscal year 2008
GWOT request for DOD have been submitted to fund operational
requirements that were not included in the original request. These
include decisions in January 2007 to increase or ’surge“ troop levels
in Iraq, and in September 2007 to begin to withdraw these troops during
fiscal year 2008. These amendments, totaling nearly $47.6 billion,
bring the total fiscal year 2008 GWOT funding request for DOD to about
$189.3 billion.
Changes in DOD‘s GWOT funding guidance have resulted in billions of
dollars being added to GWOT funding requests for what DOD calls the
’longer war against terror,“ making it difficult to distinguish between
incremental costs to support specific contingency operations and base
costs. Although emergency funding has historically been used to support
unexpected costs of contingency operations, in October 2006, DOD
revised guidance to allow for additional costs. As a result, the fiscal
year 2007 and 2008 requests included funding for items generally
requested in DOD‘s base budget, such as future weapon systems,
transformation, and increases to military end strength. GAO believes
similarities, in some cases, between DOD‘s GWOT and base funding
requests, along with the duration of GWOT operations, indicate DOD has
reached the point where it should build more funding into its base
budget. Without clearly defining the ’longer war against terror“ and
increasing the transparency between incremental and base costs,
decision makers cannot assess priorities and potential trade-offs. If
the administration believes the nation is engaged in a long-term
conflict, the implications should be considered during annual budget
deliberations. Continuing to fund GWOT through emergency requests
reduces transparency and avoids the necessary reexamination of
commitments, investment priorities, and trade-offs.
DOD has achieved some positive results and GWOT cost reporting
continues to evolve. More action is needed to optimize the tools
intended to improve GWOT cost reporting. DOD has begun to improve
transparency by requiring components to analyze variances in reported
obligations and to disclose reasons for significant changes. GAO found
that required explanations, in some instances, were not disclosed due
to inadequate management oversight, and other types of analysis could
help identify obligations omitted from reports, such as about $1.5
billion in Marine Corps obligations. Also, in some cases, components
did not provide required affirmation statements to attest to accuracy
nor were they required to disclose the basis for statements or note the
outcome of variance analyses. Without more complete information and a
more robust methodology, DOD does not yet have the data needed to
assess reliability or to be confident adequate steps are taken to
validate cost data.
What GAO Recommends:
GAO makes 11 recommendations on GWOT funding requests and the
reliability of cost reports, including better defining incremental and
base costs, building more funding into DOD‘s base budget, and
performing additional analyses on variances. DOD generally agreed with
the recommendations.
To view the full product, including the scope and methodology, click on
[hyperlink http://www.GAO-08-68]. For more information, contact Sharon
Pickup at (202) 512-9619 or pickups@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
DOD's Fiscal Year 2007 Reported GWOT Obligations Will Significantly
Exceed Those of Fiscal Year 2006, and Changes to DOD's Fiscal Year 2008
GWOT Funding Request Have Been Submitted:
Changes in DOD's GWOT Funding Guidance Has Made It Difficult to
Distinguish between Incremental Costs and Base Costs:
DOD Has Achieved Some Positive Results; Further Action Is Needed to
Optimize Use of Tools Intended to Improve Cost Reporting:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: DOD's Fiscal Year 2007 GWOT Appropriations and
Obligations:
Appendix III: Process for Calculating Variance Analyses:
Appendix IV: Comments from the Department of Defense:
Appendix V: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Fiscal Year 2007 Appropriations Identified for GWOT for the
Military Services:
Table 2: DOD's Formula for Calculating the Burn Rate for the Variance
Analysis of Reported GWOT Obligation Amounts:
Table 3: Thresholds for Determining If an Explanation Is Required for a
Variance:
Figures:
Figure 1: DOD's Cumulative Reported GWOT Obligations for Fiscal Years
2001 through 2006:
Figure 2: DOD's Reported GWOT Obligations for Fiscal Years 2001 through
2006 by Operation:
Figure 3: DOD's Reported GWOT Obligations for Fiscal Year 2007, by DOD
Component and Appropriation Account, as of June 2007:
Figure 4: Number of Missing Variance Explanations and Related Dollar
Amount of Obligations by DOD Component:
Figure 5: Military Services' Fiscal Year 2007 Reported GWOT Military
Personnel Obligations of Appropriations Identified for GWOT through
June 2007:
Figure 6: Military Services' Fiscal Year 2007 Reported GWOT Operation
and Maintenance Obligations of Appropriations Identified for GWOT
through June 2007:
Figure 7: Military Services' Fiscal Year 2007 Reported GWOT Procurement
Obligations of Appropriations Identified for GWOT through June 2007:
Abbreviations:
DFAS: Defense Finance and Accounting Service:
DOD: Department of Defense:
GWOT: Global War on Terrorism:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
November 6, 2007:
Congressional Committees:
Since the September 11, 2001 terrorist attacks, Congress has provided
about $542.9 billion, as of May 2007, to the Department of Defense
(DOD) in annual and supplemental appropriations for domestic and
overseas military operations in support of the Global War on Terrorism
(GWOT).[Footnote 1] This amount includes about $161.8 billion in annual
and supplemental emergency appropriations for fiscal year
2007.[Footnote 2] In the President's fiscal year 2008 budget proposal
submitted in February 2007, DOD requested about $481.4 billion for its
base budget needs and about $141.7 billion to fund "urgent needs"
associated with ongoing operations in Iraq and Afghanistan and other
costs of GWOT.[Footnote 3] Subsequently, on July 31, 2007, the
President amended DOD's fiscal year 2008 GWOT funding request,
increasing the request by $5.3 billion to maximize the production and
fielding of new armored vehicles for service members in Iraq and
Afghanistan. On October 22, 2007, the President submitted an additional
amendment to DOD's fiscal year 2008 GWOT request for about $42.3
billion to cover requirements related to operational changes,
particularly in Iraq, that were not included in the initial request.
DOD's total fiscal year 2008 GWOT budget request now stands at $189.3
billion. As of June 2007, DOD reported total obligations of about
$447.8 billion for GWOT, including about $340.3 billion for Operation
Iraqi Freedom in Iraq and $79.9 billion for Operation Enduring Freedom
in Afghanistan.[Footnote 4]
Past administrations generally used emergency funding requests to fund
the initial or unexpected costs of most contingency
operations.[Footnote 5] DOD's previous guidance in building requests
directed components to request funding for the incremental costs above
base budget funding needed to support specific forces and capabilities
required to execute these contingency operations during the fiscal
year. Incremental costs are defined as additional costs to DOD
components that would not have been incurred if a contingency
operation, like Operation Enduring Freedom or Operation Iraqi Freedom,
had not been supported. However, this guidance was revised for fiscal
year 2007. Beginning with its fiscal year 2007 supplemental funding
request for GWOT, DOD directed its components to include in their GWOT
requests funding for what it characterized as the "longer war against
terror" as well as for the specific contingency operations in Iraq and
Afghanistan. According to DOD officials, the components were also
expected to apply this guidance in developing fiscal year 2008
requests.
DOD reports its GWOT-related costs in terms of obligations, which it
incurs through actions such as orders placed, contracts awarded,
services received, or similar transactions. Obligations incurred during
a given period may require payments during the same or a future period.
DOD compiles and reports obligations incurred to support GWOT in a
monthly Supplemental and Cost of War Execution Report (cost-of-war
report). DOD leadership uses this report, along with other information,
to evaluate the costs of the war and to formulate future GWOT funding
requests. The report identifies monthly and cumulative incremental GWOT
obligations for the current fiscal year. DOD reports these obligations
by appropriation, contingency operation, and military service or
defense agency. The monthly cost reports are typically compiled in the
45 days after the end of the reporting month in which the obligations
are incurred. DOD has prepared monthly reports on the obligations
incurred for its involvement in GWOT since fiscal year 2001.
Over the years, we have conducted a series of reviews under the
Comptroller General's authority examining the funding and reported
obligations for military operations in support of GWOT. Based on this
work, we have made a series of recommendations to the Secretary of
Defense intended to improve the transparency and reliability of DOD's
cost information on GWOT obligations and to adjust GWOT funding
requests, and DOD has implemented many of these. For example, in
September 2005 and in November 2006, we reported that continued
problems with transparency over DOD's costs and inaccuracies in
reported obligations make it difficult for DOD and Congress to reliably
know how much the war is costing, examine details on how appropriated
funding is being spent, or have historical data useful in considering
future funding needs.[Footnote 6] In response, DOD has taken a number
of steps, including modifying its guidance to more clearly define some
of its cost categories and issuing guidance to the secretaries of the
military services and the directors of the defense agencies intended to
help DOD components more accurately and consistently report obligations
for contingency operations conducted in support of GWOT. This guidance
directed DOD components to perform a monthly variance analysis, which
is a tool to determine the factors that cause differences, if any,
between reported obligations for certain cost categories and the
average amount of obligations for the same categories during the fiscal
year. DOD components submit their explanations for these differences to
the Defense Finance and Accounting Service (DFAS) along with their
reported obligation information for inclusion in the monthly
Supplemental and Cost of War Execution Report. To further establish
accountability, the DOD Comptroller required each DOD component to
attest to the accuracy of the monthly Supplemental and Cost of War
Execution Report submissions and affirm that this information provides
a fair representation of ongoing activities related to those
operations. Furthermore, in July 2006, we testified that the President
should consider funding additional GWOT costs through DOD's base
budget, as has been done with Operation Noble Eagle, instead of through
emergency supplemental funding requests.[Footnote 7]
We prepared this report under the Comptroller General's authority to
conduct evaluations on his own initiative. To assist Congress in its
oversight role and to help it consider future GWOT funding needs, we
assessed (1) DOD's fiscal year 2007 reported obligations for GWOT by
operation, military service, and appropriation account based on data
through June 2007 to determine the outlook of obligations in fiscal
year 2007 and funding requests for fiscal year 2008, (2) changes in
DOD's GWOT funding guidance to determine the effect on the department's
base budget and GWOT funding requests, and (3) DOD's progress in
implementing variance analysis and affirmation statements as tools to
improve GWOT cost reporting.
To assess DOD's reported obligations for GWOT in fiscal year 2007, the
outlook of obligations for the remainder of the fiscal year, and its
funding requirements for GWOT in fiscal year 2008, we analyzed DOD's
October 2006 through June 2007 Supplemental and Cost of War Execution
Reports and reviewed applicable supplemental and annual appropriations
and DOD reports on the transfer of funds between various appropriation
accounts. We then reviewed the same documents for past fiscal years to
determine if fiscal year 2007 obligations were greater than, equal to,
or less than the previous fiscal years. We also interviewed key
officials from the Office of the Under Secretary of Defense
(Comptroller)[Footnote 8] and the Army, Navy, Marine Corps, and Air
Force to obtain their projections of GWOT obligations through the end
of the fiscal year and potential requirements for fiscal year 2008. As
previously reported, we found the data in DOD's monthly Supplemental
and Cost of War Execution Report to be of questionable reliability.
Consequently, we are unable to ensure that DOD's reported obligations
for GWOT are complete, reliable, and accurate, and they should
therefore be considered approximations. To examine the impact of
changes in DOD's GWOT funding guidance on DOD's base budget and GWOT
funding requests, we reviewed guidance issued by DOD regarding the
submission of requirements for GWOT funding. We analyzed DOD's base
budget and GWOT funding requests, to determine what changes had
occurred in these submissions as a result of the guidance. We also
interviewed key officials from the DOD Comptroller, Army, Navy, Marine
Corps, and Air Force to determine how they interpreted and implemented
this guidance. To examine DOD's progress in implementing variance
analysis and affirmation statements as tools to improve GWOT cost
reporting, we reviewed guidance issued by DOD for the analysis and
reporting of GWOT obligations and the information reported in DOD's
cost-of-war reports. We also interviewed key officials from the DOD
Comptroller, DFAS, Army, Navy, Marine Corps, and Air Force about their
reporting and analysis processes. For the 5-month period from November
2006 through March 2007, we determined whether required variance
explanations were included in the cost-of-war reports in accordance
with DOD's guidance. Finally, for the same 5-month period, we reviewed
affirmations associated with DOD cost-of-war reports to determine
whether all required affirmations were submitted before the reports
were issued. Further details about our scope and methodology can be
found in appendix I.
We performed our work from November 2006 through August 2007 in
accordance with generally accepted government auditing standards.
Results in Brief:
Our analysis of DOD's fiscal year 2007 reported obligations through
June 2007 shows that, at that time, DOD's reported GWOT obligations
were almost equal to all GWOT obligations for fiscal year 2006. After
GWOT obligations are reported for the remaining 3 months of fiscal year
2007, total obligations will significantly exceed those for fiscal year
2006. Further, changes to the President's fiscal year 2008 GWOT request
for DOD have been submitted to the Congress to fund operational
requirements that were not funded in the original request. As of June
2007, which represents 9 months (75 percent) of fiscal year 2007, DOD's
reported obligations of about $95.4 billion were already roughly equal
to reported obligations of about $98.4 billion for all of fiscal year
2006. In the three months of fiscal year 2007 remaining to be reported,
DOD will continue to incur and report obligations, which are averaging
about $10.6 billion a month. This increase in fiscal year 2007 reported
obligations is due in part to the cost of deploying an additional
30,000 troops to support operations in Iraq as part of the surge
strategy and the deployment of additional personnel to Afghanistan to
provide increased security against an anticipated insurgent offensive.
Since these additional forces were not fully in place until the end of
June, it is likely that the full financial effect of these and other
ongoing operations in theater will not be seen until obligations have
been reported for the last 3 months of fiscal year 2007, beginning with
the July cost-of-war report. Also adding to the increased fiscal year
2007 obligations is DOD's need to repair or replace billions of dollars
worth of equipment after nearly 6 years of ongoing operations.
Consequently, obligations for procurement, which include aircraft,
munitions, vehicles, communications and electronics equipment account
for nearly a quarter of reported obligations in fiscal year 2007
through June 2007--about $21.5 billion. This amount is approximately
one and a half times reported obligations for procurement during all of
fiscal year 2006. Since 60 percent, or about $24.7 billion, of the
military services procurement funding was provided in the fiscal year
2007 GWOT supplemental appropriation, which was not signed into law
until May 2007, it is likely that DOD's reported obligations for
procurement will continue to increase as these additional funds are
obligated. Because these procurement funds are available for obligation
over multiple years, some fiscal year 2007 procurement funding will
likely be obligated in fiscal year 2008 and beyond. In October 2007,
the President submitted an amendment to the fiscal year 2008 GWOT
request for DOD to cover funding needs related to operational changes,
particularly in Iraq, such as the administration's decisions in January
2007 to increase or "surge" troop levels in Iraq, and in September 2007
to begin to withdraw these troops during fiscal year 2008. This
amendment totals about $42.3 billion, which will help fund, among other
things, an additional five combat brigades and other forces deployed as
part of the President's surge strategy in Iraq, additional Mine
Resistant Ambush Protected vehicles, and reconstitution of military
equipment. The President's revised fiscal year 2008 GWOT funding
request for DOD will total about $189.3 billion.
Changes in DOD's GWOT funding guidance have resulted in billions of
dollars being added to GWOT funding requests for what DOD calls the
"longer war against terror," making it difficult to distinguish between
incremental costs to support specific contingency operations and longer
term costs typically associated with DOD's baseline budget. In the
past, emergency funding requests have generally been used to support
the initial or unexpected costs of contingency operations. Once a
limited and partial projection of costs could be made, past
administrations have generally requested further funding in DOD's base
budget requests. We have previously encouraged the administration to
include known or likely projected costs of ongoing operations related
to GWOT within DOD's base budget requests. However, current
administration policy dictates that the costs of ongoing military
operations in support of GWOT, such as Operation Enduring Freedom and
Operation Iraqi Freedom, should be requested as emergency funding. In
October 2006, the Deputy Secretary of Defense issued a memo expanding
the ground rules for DOD's GWOT requests by allowing the inclusion of
funding needs related to what DOD called the "longer war against
terror," rather than limiting the request to contingency operations
such as Operation Enduring Freedom or Operation Iraqi Freedom, without
clearly defining the "longer war." As a result of DOD's new GWOT
funding guidance, the line between what has historically been requested
as emergency funding and what has historically been requested as part
of DOD's base budget has been blurred. For example, DOD's fiscal year
2008 GWOT request includes funding for a Joint Strike Fighter that will
not be operationally capable for several years, five CV-22 Vertical
Lift Aircraft that will not be available until 2009, and about $1.6
billion to accelerate transformation and increases to end strength of
the Army and Marine Corps. DOD's position is that it is appropriate to
request emergency funding for longer term items because of the ongoing
nature of GWOT and the need to repair and replace equipment that is
being depleted at a greater than normal or peacetime rate. However, we
believe it is precisely because the administration defines GWOT as long
term that the costs implicit in any strategy should be transparent and
subject to discussion and debate. Furthermore, we believe, in some
cases, the similarities between DOD's GWOT and base funding requests,
coupled with the duration of GWOT operations, indicate that DOD has
reached the point where it needs to build more funding into its base
budget. Without a clear definition of the "longer war against terror"
and clearer distinctions between what constitutes incremental versus
base costs, decision makers lack an integrated picture and the ability
to set priorities and make trade-offs between the costs of ongoing
operations and DOD's long-term funding needs. If the administration
believes that the nature of the security challenges facing the United
States has changed such that we are engaged in a long-term conflict,
the implications--for example, in terms of force structure, investment
priorities, and long-term versus short-term costs--should be the focus
of discussion with Congress. Continuing to fund the GWOT through
emergency funding requests reduces transparency and avoids the
necessary reexamination and discussion of defense commitments and the
trade-offs among funding needs that may be required.
DOD has achieved some positive results and GWOT cost reporting
continues to evolve. At the same time, more action is needed to
optimize the use of tools intended to improve GWOT cost reporting. For
example, for the 5-month period we reviewed, DOD made some progress in
improving the transparency of monthly cost-of-war information by
requiring components to analyze variances in reported obligations and
to disclose underlying reasons for significant changes. In addition,
according to DOD officials, studying the causes of significant
obligation variances has helped DOD components identify and correct
inaccurately reported obligations. However, we identified instances
where required explanations for significant variances in obligations
were not disclosed due to inadequate management oversight. Further,
other techniques beyond variance analysis may be needed to identify
GWOT obligations that were omitted from the cost-of-war reports. For
example, by comparing available funding with obligations data we
identified approximately $1.5 billion in obligations that were omitted
from the October 2006 through February 2007 cost-of-war reports for the
Marine Corps. In addition, in some cases, components did not provide
required affirmation statements to attest to the accuracy of their
reports. We also determined that affirmation requirements do not
require components to disclose the basis for affirmation statements or
note the overall outcome of variance analyses. Without more complete
information and a more robust methodology, including standardized
quality assurance processes, DOD does not yet have sufficient
information to assess the reliability of cost data submitted by the
components nor can it be confident that adequate steps have been taken
to validate the cost data.
To improve transparency related to funding the war on terrorism, and
permit reexamination and analysis of our defense commitments, we
recommend that the Secretary of Defense direct the Under Secretary of
Defense (Comptroller) to (1) issue guidance defining what constitutes
the "longer war against terror," identify what costs are related to
that longer war, and build these costs into the base defense budget;
(2) identify incremental costs of the ongoing GWOT operations that can
be moved into the base budget; and (3) in consultation with the Office
of Management and Budget, consider limiting emergency funding requests
to truly unforeseen or sudden events. Also, to further improve the
reliability of DOD's reported obligation information, we recommend that
the Secretary of Defense direct the Under Secretary of Defense
(Comptroller) to develop and implement additional guidance with regard
to the implementation of the variance analysis and affirmation
statements included in DOD's monthly cost-of-war reports.
In written comments on a draft of this report, DOD generally agreed
with 10 of our recommendations and did not agree or disagree with an
11th recommendation.
DOD did not agree or disagree with our recommendation that the use of
emergency funding requests be limited to truly unforeseen or sudden
events. Instead, DOD noted that the Office of Management and Budget,
not the Secretary of Defense, makes the determination concerning the
use of emergency funding requests. Therefore, to recognize the role of
the Office of Management and Budget, we have changed the recommendation
to read: "We recommend that the Secretary of Defense, in consultation
with the Office of Management and Budget, consider limiting emergency
funding requests to truly unforeseen or sudden events."
DOD's comments and our evaluation of them are discussed in detail in a
later section of this report and the department's comments are
reprinted in appendix IV.
Background:
Since the terrorist attacks of September 11, 2001, the United States
has undertaken military operations worldwide to fight terrorism as part
of GWOT. Military operations to combat terrorism began with Operation
Noble Eagle, aimed at defending the U.S. homeland against terrorist
attacks, and Operation Enduring Freedom, which takes place principally
in and around Afghanistan, but also covers additional operations in the
Horn of Africa, the Philippines, and elsewhere. In 2003, the United
States began Operation Iraqi Freedom, which takes place principally in
Iraq. These operations involve a wide variety of activities such as
combating insurgents, training the military forces of other nations,
and conducting small-scale reconstruction and humanitarian relief
projects. DOD is responsible for carrying out these activities.
Since September 2001, funding for military operations in support of
GWOT has generally been provided through annual appropriations or
supplemental appropriations as emergency funding[Footnote 9]
essentially outside of the annual budget process. A majority of this
funding has come as supplemental appropriations, which are requested by
the department and approved by Congress separately from DOD's annual
appropriation. The portion of annual appropriations for GWOT, also
known as "Title IX" or "bridge funding" was provided by Congress to pay
for ongoing military operations during the first part of the fiscal
year in 2005,[Footnote 10] 2006, and 2007. For fiscal year 2007,
Congress provided DOD with about $67.4 billion in "Title IX" of the
Department of Defense Appropriation Act, 2007 as "bridge" funding to
support ongoing operations early in the fiscal year. In February 2007,
the President submitted a request for supplemental appropriations and
Congress provided DOD with an additional about $94.4 billion in the
U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq
Accountability Act, 2007.
In his fiscal year 2008 budget, the President included a request for
GWOT funding in the budget submission for the first time since
September 2001. This action was consistent with a requirement in
section 1008 of the John Warner National Defense Authorization Act for
Fiscal Year 2007[Footnote 11] which required the President's future
budget submissions after fiscal year 2007 to include a request for the
appropriation of funds for ongoing military operations in Afghanistan
and Iraq for that fiscal year, an estimate of all funds expected to be
required in that fiscal year for such operations, and a detailed
justification of the funds requested. This fiscal year 2008 GWOT
funding request, totaling $141.7 billion, was submitted along with
DOD's annual budget request, but was requested as emergency funding.
The GWOT funding request contained the caveat that it was based upon
the department's best estimate of war funding needs as of February 2007
and, if circumstances warranted, the department would seek to amend the
request as appropriate.
DOD's total reported obligations related to GWOT have increased
steadily each fiscal year through 2006 for a cumulative total of $352.5
billion, as shown in figure 1. As discussed later, the trend in growing
costs is expected to continue through fiscal year 2007. As of June
2007, DOD reported obligations of about $95.4 billion for fiscal year
2007.
Figure 1: DOD's Cumulative Reported GWOT Obligations for Fiscal Years
2001 through 2006:
[See PDF for image]
This figure is a line graph representing DOD's Cumulative Reported GWOT
Obligations for Fiscal Years 2001 through 2006. The vertical axis of
the graph represents obligations in billions from 0 to 400. The
horizontal axis of the graph represents fiscal years 2001 through 2006.
The following data is depicted:
Fiscal year 2001:
GWOT Obligations: $0.2.
Fiscal year 2002:
GWOT Obligations: $29.4.
Fiscal year 2003:
GWOT Obligations: $98.0.
Fiscal year 2004:
GWOT Obligations: $169.2.
Fiscal year 2005:
GWOT Obligations: $254.0.
Fiscal year 2006:
GWOT Obligations: $352.5.
Source: GAO analysis of DOD data.
Note: Cumulative reported GWOT obligations by fiscal year generally
reflect costs reported in DOD's cost-of-war reports. However, the
fiscal year 2002 and 2003 figures include about $20.1 billion that,
according to DOD officials, was not reported in DOD's cost-of-war
reports. GAO has assessed the reliability of DOD's obligation data and
found significant problems, such that these data may not accurately
reflect the true dollar value of GWOT obligations.
[End of figure]
As shown in figure 2, DOD's reported obligations for GWOT at the end of
each fiscal year have increased from about $0.2 billion in fiscal year
2001 to about $98.4 billion in fiscal year 2006. A majority of this
increase is due to reported obligations for Operation Iraqi Freedom,
which have consistently increased in both dollar amount and as a
proportion of total reported GWOT obligations. In contrast, DOD's
reported obligations for Operation Noble Eagle have consistently
decreased since fiscal year 2003, while those for Operation Enduring
Freedom have remained within a range of $10.3 billion to $15.9 billion
each fiscal year since 2002.
Figure 3: DOD's Reported GWOT Obligations for Fiscal Years 2001 through
2006 by Operation:
[See PDF for image]
This figure is a line graph consisting of three lines representing
DOD's Cumulative Reported GWOT Obligations for Fiscal Years 2001
through 2006 by Operation. The vertical axis of the graph represents
obligations in billions from 0 to 100. The horizontal axis of the graph
represents fiscal years 2001 through 2006.
Fiscal year 2001:
GWOT Obligations: $0.2.
Fiscal year 2002:
GWOT Obligations: $29.1.
Fiscal year 2003:
GWOT Obligations: $68.6.
Fiscal year 2004:
GWOT Obligations: $71.3
Fiscal year 2005:
GWOT Obligations: $84.8.
Fiscal year 2006:
GWOT Obligations: $98.4.
Operation Iraqi Freedom reported obligations through fiscal year 2006:
$259.0;
Operation Enduring Freedom reported obligations through fiscal year
2006: $66.1;
Operation Noble Eagle reported obligations through fiscal year 2006:
$27.4.
Source: GAO analysis of DOD data.
Note: Operation Iraqi Freedom began in fiscal year 2003; therefore no
obligations were reported in fiscal years 2001 and 2002 for this
operation. Fiscal year reported GWOT obligations include Operation
Noble Eagle, Operation Enduring Freedom, and Operation Iraqi Freedom,
and generally reflect costs reported in DOD's cost-of-war reports.
However, the fiscal year 2002 and 2003 figures include about $20.1
billion that, according to DOD officials, was not reported in DOD's
cost-of-war reports. GAO has assessed the reliability of DOD's
obligation data and found significant problems, such that these data
may not accurately reflect the true dollar value of GWOT obligations.
[End of figure]
In previous reports,[Footnote 12] we identified numerous problems in
DOD's processes for recording and reporting obligations, raising
significant concerns about the overall reliability of DOD's reported
obligations. On its own initiative and in response to our
recommendations, DOD has placed greater management focus on weaknesses
in GWOT cost reporting and taken a number of steps intended to improve
the reliability and accuracy of reported obligations. Factors affecting
the reliability of DOD's reported costs include long-standing
deficiencies in hundreds of nonintegrated financial management systems
requiring manual entry of some data in multiple systems, and the lack
of a systematic process to ensure that data are correctly entered into
those systems. DOD's efforts to improve weaknesses include establishing
additional procedures for analyzing and validating GWOT cost data, and
establishing a new steering group.
Specifically, in August 2005, the DOD Comptroller issued guidance to
the secretaries of the military services and the directors of the
defense agencies to help DOD components more accurately and
consistently report obligations for contingencies such as
GWOT.[Footnote 13] This guidance directed DOD components to perform a
monthly variance analysis to identify changes in obligation amounts
from prior months for selected obligation cost categories.[Footnote 14]
This guidance also required written explanations, in the form of
footnotes to the cost-of-war report, for each month that reported
obligations exceeded previously reported obligations by certain
percentages and if any obligations were reported as negative amounts.
In June 2006, DOD issued revised guidance[Footnote 15] that required
DOD components to compute variance percentages for all obligation cost
categories, except for investments and the Iraqi and Afghanistan
security forces funds,[Footnote 16] based on the average amount of
fiscal year obligations, called the burn rate, instead of only the
obligations in the prior month as previously required. According to DOD
officials, the revised guidance was issued in an effort to improve the
usefulness of the variance analysis and reduce workload based on
feedback from the DOD components. The revised guidance also requires
footnotes to explain various adjustments to reported obligations.
Further, all negative dollar amounts of reported obligations continue
to require an explanation. A more detailed explanation of the variance
analysis calculation can be found in appendix III.
In addition, in March 2006, the DOD Comptroller issued guidance that
required that each DOD component attest to the accuracy of its
respective monthly obligation information (used to compile the
department's monthly cost-of-war report) and affirm that its reported
obligations provide a fair representation of ongoing activities related
to contingency operations. The DOD Comptroller emphasized to DOD
components that accurate financial data is essential to the effective
management of funds entrusted to DOD and that it is the responsibility
of all engaged in the contingency operations reporting process to
ensure that costs reported are accurate.
Furthermore, DOD established a Senior Steering Group including
representatives from DOD, the DFAS, and the military services in
February 2007 in an effort to standardize and improve the GWOT cost-
reporting process and to increase management attention to the
process.[Footnote 17] DOD also established a GWOT Cost-of-War Project
Management Office to monitor work performed by auditing agencies and to
report possible solutions and improvements to the Senior Steering
Group. Also, a contractor was hired to analyze and document the current
cost-of-war reporting process used by the DOD components. This "as-is
process" will be used as a baseline to identify additional areas for
improvement in a future "to-be process". At the time of our report,
this effort was not yet complete, but the "to-be process" is expected
to be in place and operational during fiscal year 2008.
DOD's Fiscal Year 2007 Reported GWOT Obligations Will Significantly
Exceed Those of Fiscal Year 2006, and Changes to DOD's Fiscal Year 2008
GWOT Funding Request Have Been Submitted:
Our analysis of DOD's fiscal year 2007 reported obligations through
June 2007 shows that, at that time, DOD's reported GWOT obligations of
about $95.4 billion were almost equal to reported GWOT obligations of
about $98.4 billion for all of fiscal year 2006. After GWOT obligations
are reported for the remaining 3 months of fiscal year 2007, total
obligations will significantly exceed those for fiscal year 2006. The
higher reported obligations in fiscal year 2007 are largely due to
costs associated with the surge strategy in support of Operation Iraqi
Freedom and the need to repair and replace equipment after about 6
years of ongoing operations. Also, changes to the President's fiscal
year 2008 GWOT request for DOD have been submitted to Congress to fund
operational requirements, such as the surge strategy in Iraq, that were
not funded in the original request.
DOD's Fiscal Year 2007 Reported Obligations through June 2007 Are
Roughly Equal to Reported Obligations for All of Fiscal Year 2006 and
Will Significantly Exceed Fiscal Year 2006's by the End of Fiscal Year
2007:
DOD's fiscal year 2007 reported obligations through June 2007 of about
$95.4 billion were roughly equal to reported obligations of about $98.4
billion for all of fiscal year 2006. When the remaining 3 months of
fiscal year 2007 are reported, total obligations, which are being
incurred at an average rate of about $10.6 billion a month, will
significantly exceed those of fiscal year 2006. As of June 2007, which
represents 9 months (75 percent) of fiscal year 2007, DOD has reported
obligations of about 97 percent of the total amount of obligations it
reported for all of fiscal year 2006. Reported obligations associated
with Operation Iraqi Freedom continue to be far higher than those for
other GWOT operations in fiscal year 2007. Of the total in obligations
reported by DOD for GWOT through June 2007, nearly $81.3 billion, or
about 85 percent, has been reported for Operation Iraqi Freedom. In
contrast, DOD has reported obligations of approximately $13.8 billion,
or about 14 percent, for Operation Enduring Freedom and about $0.33
billion, or less than 1 percent, for Operation Noble Eagle. The Army
accounts for the largest proportion of reported obligations--about
$66.0 billion seven times higher than the almost $9.4 billion in
obligations reported for the Marine Corps, the service with the next
greatest reported amount. Among appropriation accounts, operation and
maintenance, which include items such as housing, food, and services;
the repair of equipment; and transportation to move people, supplies,
and equipment, accounts for the largest reported obligations--about
$51.2 billion. Figure 3 shows DOD's reported obligations through June
of fiscal year 2007, by military service and appropriation account.
Figure 3: DOD's Reported GWOT Obligations for Fiscal Year 2007, by DOD
Component and Appropriation Account, as of June 2007:
[See PDF for image]
This figure contains two pie charts that depict the following data:
DOD's Reported GWOT Obligations for Fiscal Year 2007, by DOD Component
and Appropriation Account, as of June 2007, By DOD component (dollars
in billions):
Army: $66.0;
Marine Corps: $9.4;
Air Force: $7.7;
Navy: $6.4;
Other DOD components: $5.8.
DOD's Reported GWOT Obligations for Fiscal Year 2007, by DOD Component
and Appropriation Account, as of June 2007, by appropriation account
(dollars in billions):
Operation and Maintenance: $51.2;
Procurement: $21.5;
Military personnel: $14.4;
Other: $7.2;
Working Capital fund: $0.6;
Research, development, test and evaluation: $0.4;
Military construction: $0.1.
DOD's Reported GWOT Obligations for Fiscal Year 2007, by DOD Component
and Appropriation Account, as of June 2007, total: $94.5 billion.
Source: GAO analysis of DOD data.
Note: GAO has assessed the reliability of DOD's obligation data and
found significant problems, such that these data may not accurately
reflect the true dollar value of GWOT obligations. Obligation figures
may not add to $95.4 billion because of rounding.
[End of figure]
Further information regarding funding and obligations by military
services and appropriations accounts can be found in appendix II.
DOD's reported obligations in fiscal year 2007 through June 2007 are
higher than fiscal year 2006's largely due to costs associated with the
surge strategy in support of Operation Iraqi Freedom. In late January
of 2007, the President announced a "surge" strategy in Iraq, providing
for the deployment of an additional 30,000 troops to support stability
operations. He also announced the deployment of additional personnel to
Afghanistan to provide increased security against an anticipated
insurgent offensive. This brings the total number of troops in Iraq and
Afghanistan to about 193,000. Since these additional forces were not
fully in place until the end of June, it is likely that the full
financial effect of the surge and other ongoing operations in-theater
will not be seen until the last quarter of fiscal year 2007, beginning
with the July cost-of-war report.
Also adding to the increased fiscal year 2007 obligations is DOD's need
to repair or replace billions of dollars worth of equipment after
nearly 6 years of ongoing operations. Continuing military operations in
Iraq and Afghanistan are taking a toll on the condition and readiness
of military equipment. Harsh combat and environmental conditions in
theater over sustained periods of time exacerbates equipment repair,
replacement, and modernization problems that existed before the onset
of combat operations in Iraq and Afghanistan. Consequently, obligations
for procurement which include aircraft, munitions, vehicles,
communications, and electronics equipment account for nearly a quarter
of reported obligations--about $21.5 billion for fiscal year 2007
through June 2007. This amount is approximately one and a half times
higher than reported obligations for procurement during all of fiscal
year 2006.
In previous work,[Footnote 18] we reported that a significant amount of
multiyear procurement funding provided in the fiscal year 2006
supplemental appropriation would remain available for use in fiscal
year 2007. Most of these fiscal year 2006 multiyear funds have since
been obligated. Since 60 percent, or about $24.7 billion, of the
military services procurement funding was provided in the fiscal year
2007 GWOT supplemental appropriation, which was not signed into law
until late May 2007, it is likely DOD's reported obligations for
procurement will increase as these additional funds are obligated.
Since these procurement funds are available for obligation over
multiple years, some procurement funding will likely be obligated in
fiscal year 2008 and beyond.
In other work,[Footnote 19] we have found that, although the Army and
Marine Corps track and report equipment reset[Footnote 20] expenditures
in the operation and maintenance accounts in detail, they do not report
detailed equipment reset expenditures within the procurement accounts
in a way that confirms that funds appropriated for reset are expended
for that purpose. DOD's Financial Management Regulation does not
require them to specifically report procurement expenditures for reset
in detail. Our report also found that the Army and the Marine Corps
cannot be assured their reset strategies will sustain equipment
availability for deployed units as well as units preparing for
deployment in support of GWOT while meeting ongoing operational
requirements. Neither the Army nor the Marine Corps' reset strategies
target shortages of available equipment and prioritize equipment needs
of units preparing for deployment over longer-term modernization goals.
Changes to the Fiscal Year 2008 GWOT Request for DOD Have Been
Submitted:
In October 2007, the President submitted an amendment to the fiscal
year 2008 GWOT request for DOD to cover funding needs related to
operational changes, particularly in Iraq, such as the administration's
decisions in January 2007 to increase or "surge" troop levels in Iraq,
and in September 2007 to begin to withdraw these troops during fiscal
year 2008. The original fiscal year 2008 GWOT request, totaling $141.7
billion, was submitted in early February 2007 before the operational
changes in theater were implemented, and was prepared based on the same
assumptions, such as troop levels and operational requirements, used
for the original fiscal year 2007 GWOT supplemental request. As stated
earlier, the GWOT funding request contained the caveat that it was
based upon the department's best estimate of war funding needs at the
time and, if circumstances warranted, the department would seek to
amend the request as appropriate. In July 2007, the President submitted
an amendment to the fiscal year 2008 GWOT request asking for an
additional $5.3 billion for the rapid procurement of Mine Resistant
Ambush Protected vehicles. The subsequent amendment submitted by the
President in October 2007, totaling about $42.3 billion, will help fund
among other things, Army and Marine Corps combat formations currently
in Iraq through fiscal year 2008, the cost to redeploy five Army combat
brigades deployed as part of the President's surge strategy in Iraq,
additional Mine Resistant Ambush Protected vehicles, reconstitution of
military equipment, and training and equipment to support Army
deployment readiness. The President's revised fiscal year 2008 GWOT
funding request for DOD totals about $189.3 billion.
Changes in DOD's GWOT Funding Guidance Has Made It Difficult to
Distinguish between Incremental Costs and Base Costs:
Changes in DOD's GWOT funding guidance have resulted in billions of
dollars being added to GWOT funding requests, for what DOD calls the
"longer war against terror," making it difficult to distinguish between
incremental costs to support specific contingency operations and longer
term costs typically associated with DOD's base budget. Historically,
emergency funding requests have generally been used to support the
unexpected incremental costs of contingency operations, but usually for
a limited time. Previous administrations have then moved these costs
into the base budget. Contrary to this historical practice, in October
2006, the Deputy Secretary of Defense issued a memo that expanded the
ground rules for DOD's GWOT requests, allowing for the inclusion of
costs for what DOD calls the "longer war against terror." This
inclusion blurred the lines between incremental costs and longer-term
costs that have historically been requested as part of the base budget,
as discussed below.
DOD's Emergency Funding Requests Have Historically Been Limited to
Funding the Initial Incremental Costs of Contingency Operations, but
Recent DOD Guidance Revised the Ground Rules to Allow for Additional
Costs:
Historically, DOD's emergency funding requests have been limited to
funding the initial incremental costs of most contingency operations.
This includes the early stages of World War II, as well as operations
in Korea, Vietnam, Southwest Asia after the Persian Gulf War, Bosnia,
Kosovo, and relief operations related to Hurricane Katrina and the
tsunami in Indonesia. More recently, in fiscal year 2005 DOD began
requesting funding for Operation Noble Eagle, which had previously been
funded through emergency supplemental funding requests, through its
base budget request. As soon as a limited and partial projection of
costs could be made, past administrations have, in general, requested
funding for ongoing military operations in DOD's base budget requests.
In previous work,[Footnote 21] we encouraged DOD to include known or
likely projected costs of ongoing operations in its base budget
requests. As early as 1994, we stated our expectation that any
emergency supplemental funding requests would only be used to cover the
initial costs of a contingency operation in its first fiscal year.
Further, if the operation continued into a new fiscal year, and if DOD
had time within the budget and legislative cycle, DOD would build the
expected costs of the operation into its base budget and allow Congress
to expressly authorize and appropriate funds for its continuation. In
2004 and 2006, we repeated our suggestion that once an operation
reaches a known level of effort and cost are more predictable, more
funding should be built into the base budget. Contrary to historical
precedent and our suggestions, current administration policy dictates
that the costs of ongoing military operations in support of GWOT, such
as Operation Enduring Freedom and Operation Iraqi Freedom, should be
requested as emergency funding, and since September 2001 this has been
the practice.
Accordingly, DOD's fiscal year 2006 and 2007 supplemental funding
guidance directed DOD components to request funding to address the
incremental costs specifically required to execute the mission
objectives of Operation Iraqi Freedom and Operation Enduring Freedom.
Only "must-fund" costs associated with Operation Iraqi Freedom and
Operation Enduring Freedom were to be included. Subsequently, the
October 2006 memorandum added that estimates were now to include
incremental costs related to what the Deputy Secretary called the
"longer war against terror," beyond those directly attributable to
Operation Enduring Freedom and Operation Iraqi Freedom. Although the
memorandum did not define the longer war, it mentioned related costs,
including reconstitution or reset costs for combat losses, accelerated
wear and necessary repairs to damaged equipment or replacement to newer
models, and costs to accelerate specific force capability. DOD
Comptroller officials stated that the intent of the October 2006
memorandum was to provide DOD components with opportunities to request
funding for equipment that, although not battle damaged or destroyed,
was being depleted at a greater than normal or peacetime rate due to
the ongoing nature of GWOT, but was not being replaced.
DOD's Fiscal Year 2007 and 2008 GWOT Requests Included Costs for Long-
Term Initiatives:
As a result of the changes in DOD's GWOT funding guidance discussed
above, the fiscal year 2007 GWOT supplemental and fiscal year 2008 GWOT
funding requests included billions of dollars for long-term needs
related to the "longer war against terror." In the initial fiscal year
2007 supplemental funding request for DOD, the President included $300
million to fund counterterrorism efforts outside of Iraq and
Afghanistan as part of the regional war on terror, $1.7 billion to fund
construction and other infrastructure improvements and purchase
equipment to support efforts to grow the force by increasing the size
of the Army and Marine Corps, and funding for procurement of aircraft
that would not be operationally fielded for several years. However,
funding for some of these items was also included in the fiscal year
2007 base budget request for DOD. After the current surge strategy in
Iraq was announced in January of 2007, the President amended the fiscal
year 2007 GWOT supplemental request in March of 2007, realigning
resources to cover funding for the deployment of additional personnel
and equipment to Iraq and Afghanistan, as well as a new medical care
fund for returning GWOT service members and the cost of efforts to
combat terrorism in Pakistan. Funding for these resources was offset by
reallocating funding from programs for fixed wing aircraft, the
regional war on terror, and portions of the funding for infrastructure
and equipment to support increased force levels in the Army and Marine
Corps. However, DOD officials stated that these items were still
requirements and funding for some of these items is still included in
the President's fiscal year 2008 GWOT request for DOD.
The fiscal year 2008 GWOT funding request for DOD also included funding
for replacement aircraft that will not be available for years. For
example, in the fiscal year 2008 GWOT request, DOD requested $230
million for an F-35 Joint Strike Fighter. The Joint Strike Fighter
funding requested was to support the replacement of an F-16 Falcon lost
during combat operations. However, the replacement aircraft will not be
available to support the current operations in the coming fiscal year,
and will likely not be available for several years. The request also
included funding for five CV-22 Vertical Lift Aircraft, the Air Force's
variant of the Osprey tilt-rotor aircraft. These aircraft are intended
to replace MH-53 Pave Low helicopters that are used to support special
operations. Initial operational capability for the CV-22 is not
scheduled until fiscal year 2009 and will not be immediately available
for operational deployments. Although DOD has linked funding for these
aircraft to recapitalization, officials stated that the department is
only accelerating previously planned procurements and the funding is
not intended for additional procurements. Also, funding for these
systems remains as known requirements in current and future base budget
documents. As a planned procurement and as-yet unfielded aircraft, it
is unclear how these aircraft qualify as an urgent requirement and
therefore, why they are included in the fiscal year 2008 GWOT request
for DOD.
The fiscal year 2008 GWOT funding request for DOD also includes about
$1.6 billion to accelerate transformation and increase the overall end
strength of the Army by 6,000 soldiers and Marine Corp by 4,000
marines. The increase is part of a plan to ensure that there are
sufficient personnel in these organizations to support deployment plans
for GWOT and in the future. The request states the purpose of the funds
is to improve the capability and effectiveness of U.S. forces and
reduce the operation tempo stress of continued deployments. However,
similar funding is being requested in DOD's base budget as known
requirements in fiscal year 2008, and DOD's previous fiscal year 2006
supplemental funding request and original fiscal year 2007 guidance on
building its supplemental funding requests stated that funding for
transformation activities would be funded through the base budget. It
is therefore unclear why funding for these transformation activities in
fiscal year 2008 would be considered incremental and included in the
GWOT funding request rather than the DOD base budget.
As a result of DOD's new GWOT funding guidance, the line between what
has historically been requested as emergency funding and what has
historically been requested as part of DOD's baseline budget costs has
been blurred. Without a clear definition of the "longer war against
terror" and clearer distinctions between what constitutes incremental
versus base costs, decision makers lack an integrated picture and the
ability to set priorities and make trade-offs between the costs of
ongoing operations, such as Operation Iraqi Freedom and Operation
Enduring Freedom, and DOD's long-term funding needs. If the
administration believes that the nature of the defense challenge facing
the United States has changed such that we are engaged in a long-term
conflict, the implications--for example, in terms of force structure,
investment priorities, and long term versus short-term costs--should be
the focus of discussion with the Congress. Continuing to fund the GWOT
through emergency funding requests reduces transparency and avoids the
necessary reexamination and discussion of defense commitments and the
trade-offs among funding needs that may be required.
DOD Has Achieved Some Positive Results; Further Action Is Needed to
Optimize Use of Tools Intended to Improve Cost Reporting:
We determined that DOD made some progress in improving the transparency
of monthly cost-of-war information for selected cost categories during
the 5-month period in fiscal year 2007 covered by our review. DOD
improved report transparency by adding written explanations to cost-of-
war reports that described many of the reported GWOT obligated amounts
for selected cost categories that varied significantly compared to the
average reported amounts for the same categories. The purpose of these
explanations is for DOD components to document their validation of the
accuracy of these reported obligations. In addition, according to DOD
officials, studying the causes of significant obligation variances also
helped DOD components identify and correct inaccurately reported
obligations. However, we identified instances where required
explanations for significant variances in obligations were not
disclosed due to inadequate management oversight. We also noted that
application of DOD's prescribed variance methodology did not always
identify GWOT obligations that were omitted from cost-of-war reports.
Another step DOD has taken included the requirement for DOD components
to affirm that monthly reported GWOT obligations provide a fair
representation of ongoing activities. However, we determined that the
military services and some components generally did not submit the
affirmations required to be included with issued cost-of-war reports
during the 5-month period of our review. We also found weaknesses
regarding affirmation requirements that do not require components to
disclose the basis for affirmation statements or note the overall
outcome of variance analyses. Without more complete information and a
more robust methodology, including standardized quality assurance
processes, DOD does not have sufficient information to assess the
reliability of cost data submitted by the components nor can it be
confident that adequate steps have been taken to validate the cost
data.
Use of Variance Analysis Has Assisted DOD in Reviewing Reported
Obligations, but the Methodology Has Some Limitations:
DOD has taken steps to help ensure the reliability of the GWOT
obligations through guidance that requires DOD components to explain
significant variances in reported GWOT obligations and identify the
cause of any adjustments. However, we identified problems with
implementation of DOD's variance analysis guidance for the 5-month
period we reviewed. First, we determined that DOD components did not
provide explanations for about 6.1 percent of $19.6 billion in
obligations that required explanation because they exceeded allowable
variance percentage changes during the period from November 2006
through March 2007. Second, we found that DOD's implementation of its
prescribed variance methodology did not always identify obligations
that were omitted from cost-of-war reports.
Oversight of Variance Analysis Did Not Ensure That Explanations Were
Always Provided:
DOD's Financial Management Regulation[Footnote 22] requires each DOD
component to review and validate its reported cost-of-war obligations
as accurate. As part of this review, DOD components are required to
perform a variance analysis. DOD components report cost-of-war
obligations and variance analysis results to DFAS which, in turn, is
required to provide the DOD Comptroller with a monthly consolidated
cost-of-war report. DOD Comptroller officials told us that they rely on
DFAS to help ensure that DOD components comply with variance analysis
reporting requirements. However, as discussed below, we determined that
issued reports did not include all required information and that the
results of the variance analysis are not analyzed from a departmentwide
perspective to determine whether any patterns or trends exist in the
underlying reasons, which might require corrective action. While a DOD
official informed us that if the DOD Comptroller's staff had any
questions about reported information they could contact DOD components
for clarification, the DOD Comptroller and other users of the cost-of-
war reports did not always have readily available evidence that DOD
components validated the accuracy of some amounts that represented
significant changes in reported obligations.
The DOD Financial Management Regulation[Footnote 23] assigned DOD
components primary responsibility for computing variance percentages
for obligation cost categories that include military and civilian
personnel, personnel support, operating support, and transportation.
DFAS also computed variance percentages as part of its oversight role.
Variance percentages were computed using the formula: current month
obligations minus the burn rate, divided by the burn rate, with the
burn rate representing the average of cumulative obligations for the
fiscal year.[Footnote 24] Obligations exceeding previously reported
obligations by certain percentages required explanations in the form of
footnotes that accompany cost-of-war reports. A more detailed
explanation of the variance analysis calculation can be found in
appendix III. DFAS provided DOD components with its variance analysis
results to remind the components of the explanations that it expected
to receive before the cost-of-war report was issued.
DOD components reported a total of about $36.5 billion in GWOT
obligations against fiscal year 2007 funding, excluding those for
investments and Iraqi and Afghanistan security forces, for the 5-month
period from November 2006 through March 2007. Of this amount, $19.6
billion in obligations exceeded DOD's variance criteria and required a
total of 367 explanations in the monthly cost-of-war reports. We
determined that DOD components provided 263 explanations for
approximately $18.5 billion in reported GWOT obligation amounts. Some
of these explanations described operational changes that caused
obligations to increase, such as increased troop deployments. Other
explanations described adjustments to reported obligation amounts that
were needed to correct mistakes in previously reported obligations. DOD
components did not provide 104 required explanations for the remaining
$1.2 billion in reported obligations. As a result, there is uncertainty
regarding the extent to which DOD components conducted research to
validate the accuracy of these reported amounts.
As shown in figure 4, of the 104 variances that required explanations,
the cost-of-war reports lacked 25 explanations for Air Force
obligations and 13 explanations for Marine Corps obligations. While the
Air Force and Marine Corps accounted for only 37 percent of the 104
cases of missing explanations, they represented over 87 percent of the
dollar value of the related obligations.
Figure 4: Number of Missing Variance Explanations and Related Dollar
Amount of Obligations by DOD Component:
[See PDF for image]
This figure contains two pie charts that depict the following data:
Number of missing variance explanations:
Air Force: 25;
Marine Corps: 13;
Navy: 2;
Army: 1;
Other DOD components: 63.
Amount of obligations requiring explanation (dollars in millions):
Air Force: $692;
Marine Corps: $320;
Other DOD components: $148.
Source: GAO analysis of DOD data.
Note: Other DOD components include 21 components such as the Defense
Contract Audit Agency, Defense Logistics Agency, and Defense Legal
Services Agency. The Navy's 2 missing explanations represented negative
obligations of $588,000 and the Army's missing explanation represented
$1,000.
[End of figure]
The lack of explanations makes it difficult for users of the report to
understand large changes in obligation amounts, and be confident in the
reliability of the cost-of-war reports. For example, we observed that
the missing explanations included eight cases of negative obligations.
In January 2007, we noted that one component reported negative $22.2
million in obligations but provided no explanation. An explanation for
negative obligations is important in order to inform decision makers
whether amounts were de-obligated and are available for other purposes
or whether previously reported obligations were incorrect and required
adjustment. In addition, we noted 16 cases involving decreases in
reported obligations to $0 dollars in the current month, with no
explanation. In one case, the Defense Logistics Agency had reported
previous average monthly obligations of $11.1 million and reported $0
in obligations in the current month. Without proper explanation, it is
uncertain whether the $0 represent no activity for the period or that
there was an error in reporting, such as failure to report actual
obligations incurred. Also, these explanations can be a valuable source
of information on cost-of-war reporting issues that might need
corrective action. For example, they could be used to determine the
extent to which significant changes in reported obligations were due to
valid operational changes versus the need to correct inaccurate amounts
previously reported. However, DOD Comptroller officials told us that
they were not aware of any DOD-wide analysis of the cost-of-war report
and its supporting variance explanations that would determine
problematic patterns, but agreed that such analysis could help reveal
root causes of reporting problems that should be considered and
corrected during efforts to improve the cost-of-war reporting process.
DFAS officials told us that initially their oversight of the
implementation of variance analysis reporting requirements by DOD
components was not a priority. Instead, the DFAS staff was focused on
ensuring that the process of consolidating the obligation information
submitted by DOD components was working properly. For example, in
October 2006, DFAS developed and implemented a standard electronic
template to consolidate a component's obligations for the monthly cost-
of-war report. The template does not provide spaces for entering
explanations for significant changes in obligations identified as
questionable through variance analysis. Instead, DFAS used an error-
prone process for separately compiling the variance explanations that
were to be provided as footnotes to the consolidated monthly cost-of-
war report. While DFAS initiated steps to track receipt of
explanations, it had no documented process for ensuring that all
explanations submitted by DOD components were included in the issued
cost-of-war reports. For example, Air Force and Marine Corps
representatives provided us with eight copies of variance explanations
that they told us they had submitted to DFAS but were not included in
issued cost-of-war reports. DFAS did not provide them with draft copies
of the cost-of-war reports and explanations so that they could verify
that all their explanations were included in the consolidated cost-of-
war reports.
DOD Comptroller and DFAS officials stated that they recognized their
process for consistently obtaining and including variance explanations
by DOD components in the cost-of-war report is an area that needs
improvement, and plan to take additional steps to improve the process.
For example, according to DOD officials, a GWOT Variance Analysis
Workgroup will be established to work with the components to determine
the cause for noncompliance in providing required variance
explanations.
Other Techniques and Forms of Variance Analysis Could Help DOD Detect
Additional Reporting Errors or Omissions:
According to DOD officials, performing variance analysis was useful in
enabling DOD components to research and validate the accuracy of
significant changes in reported obligations and make adjustments as
appropriate. However, we determined that some reporting issues could be
detected through other types of analyses. For example, application of
the prescribed variance methodology did not detect some reporting
omissions or work well in electronic software formulas that involve
division by zero to compute the variance percentage. Because DOD's
variance analysis methodology depends upon the existence of previously
reported obligations as the basis for comparative analysis, it was not
always useful in instances where there were no obligations reported in
the prior month's cost-of-war report. As discussed below, based on our
work, DOD is now taking steps to perform other types of analyses
intended to improve the identification of unreported obligations.
Our work showed that a comparison of available funding with obligation
data in cost-of-war reports is another technique for detecting
unreported obligations. Using this comparison, our analysis of DOD's
monthly cost-of-war reports for fiscal year 2007 identified about $1.5
billion in unreported obligations. This underreporting occurred because
the Marine Corps had failed to report certain fiscal year 2007
obligations for procurement costs even though it had received multiyear
funding for this purpose from previous years' appropriations.
Specifically, the cost-of-war reports for October 2006 through February
2007 showed no Marine Corps obligations against previous year funding,
although our analysis of appropriations from fiscal years 2005 and 2006
indicated that funding remained available. We brought this to the
attention of the DOD Comptroller, DFAS, and the Marine Corps office
responsible for submitting monthly obligation information to DFAS.
Based on our work, the Marine Corps took steps to review and correct
its previous months' obligations and DFAS included the unreported
obligations of approximately $1.5 billion in the March 2007 DOD cost-
of-war report.
As a result of the Marine Corps data reliability issue discussed above,
DFAS began to use the comparative analysis of GWOT funding and
obligations data to pinpoint reporting inconsistencies. From this
analysis, DFAS determined that an additional agency, Defense Security
Services, had not been reporting GWOT obligations for the first 5
months of fiscal year 2007 totaling about $1.4 million. DFAS has since
added Defense Security Services to the list of reporting components and
included its $1.4 million in unreported obligations in DOD's May 2007
cost-of-war report. DFAS officials told us that during the preparation
of future cost reports for the DOD Comptroller they plan to continue to
apply this comparative analysis of GWOT funding against obligation data
submitted by DOD components in an effort to detect other cost-reporting
inconsistencies.
Army and Marine Corps officials told us that they recognized other
limitations associated with DOD's required variance analysis
methodology. For example, the nature of the obligation process
sometimes does not result in a level pattern of obligated amounts each
month. Army officials told us that, in addition to using DOD's required
variance formula, they also calculated variances using a comparative
burn rate based on the prior 12 months of obligations for internal
purposes because it provided a more realistic basis for comparison. We
agree that variance analysis can be performed using different types of
information as the baseline against which to compare the current
month's activity. Selecting the most useful information to compare
would entail consideration of the nature of the activity being
analyzed, including whether the activity tends to be cyclical or more
volatile.
In addition, we determined that application of DOD's current variance
methodology does not result in identifying spikes in reported
obligations from $0 in the prior month's report to millions in the
current month. Of the 104 obligations for which no explanation was
included in applicable cost-of-war reports, 25 fit this situation. By
following the DOD guidance for calculating the variance, if a component
did not report obligations in previous months during the fiscal year,
it will be unable to determine a variance percentage for the month in
which it does report obligations because dividing the current
obligations by zero is mathematically undefined. Thus, other forms of
variance analysis may be more practical in situations where no
obligations were incurred in the month(s) preceding the month the
obligations were incurred. For example, we reviewed the reported
monthly GWOT obligations and the associated variance analysis between
November 2006 and March 2007 for the 25 cost categories for which no
explanation was included in the applicable cost-of-war report and no
prior obligations were incurred in fiscal year 2007. We found that GWOT
obligations had been reported in the prior 12 months for 21 of 25 cost
categories.[Footnote 25] Consequently, a comparative burn rate could
have been calculated, a variance analysis performed and, if needed, a
variance explanation provided if 12 months of reported obligations had
been used. Further, our work revealed that 3 of the 21 cost categories
would not require an explanation because the variance fell within
established DOD thresholds.
Affirmation Requirements and Implementation Could Be Improved:
DOD's March 2006 guidance requires components to attest to the accuracy
of their GWOT reporting and affirm, in writing, that the report
provides a fair representation of the ongoing activities. As discussed
below, we examined whether components had submitted the required
affirmations during the 5-month period from November 2006 through March
2007, and found that, of the 96 affirmations required to be submitted
prior to the issuance of the cost-of war report, 58 had been included
with the cost-of-war report and 38 were not. As we noted in our
November 2006 report,[Footnote 26] DOD guidance for affirmations did
not contain criteria or factors that could be considered during the
review process. We did not make any recommendations regarding the
affirmation process at that time because the process was new. However,
in our current work, we again note that DOD's guidance lacks specific
criteria or factors that could be considered during the review of
obligation information that was provided to DFAS for inclusion in the
cost-of-war report. In addition, we note that DOD guidance does not
require that affirmation statements include a description of the basis
for the affirming official's decision that the cost-of-war report
provides a fair representation of ongoing activities. A description of
the basis for the affirmation statement would provide users of the cost-
of-war reports with information that could be considered in their
assessment of the credibility of the affirmation statement. On the
other hand, the absence of such disclosures does little to further
DOD's efforts to improve the reliability of the cost-of-war reporting
process.
Specifically, DOD affirmation guidance requires an overseeing senior
financial official at each DOD reporting component to sign an
affirmation statement attesting to the accuracy of submitted obligation
information. Components must submit an affirmation to DFAS no later
than 25 calendar days following the month in which the obligations were
incurred. DFAS tracks the receipt of affirmation statements and
includes those received with the issued cost-of-war report. Those DOD
components that do not submit an affirmation statement by the cost-of-
war reporting deadline are not identified in issued cost-of-war
reports.
Although the DOD Financial Management Regulation[Footnote 27] states
that variance analysis should be included as part of the review to
determine whether reported obligations represent a fair representation
of ongoing activities, DOD's implementing guidance on affirmation
statements does not specifically refer to the relevance of variance
analysis in the affirmation process or provide examples of other steps
that should be considered before affirmation statements are signed.
Further, the affirmation guidance does not require disclosure of the
steps performed to support an affirmation.
DOD components reported a total of about $58 billion in GWOT
obligations for the 5-month period from November 2006 through March
2007 which required a total of 96 affirmations from 25 DOD
components.[Footnote 28] We determined that 38 of the required
affirmations covering $54.1 billion in obligations were not included
with cost-of-war reports issued during this 5-month period. The Air
Force, Army, Navy, and Marine Corps accounted for 17 of the missing
affirmations covering approximately $53.3 billion while 11 other DOD
components accounted for 21 missing affirmations covering $840 million
in GWOT obligations. The cost-of-war reports for the Army and Marine
Corps did not include any affirmations for the 5-month period. The cost-
of-war reports for the Air Force included 1 affirmation for January,
and the Navy provided affirmations for February and March.
The following provides more information on the missing affirmations for
each of the services.
* Army officials prepared and submitted 1 of the missing affirmations
after the reporting deadline and did not prepare the other 4. According
to Army officials, prior to March 2007, affirmation statements were not
prepared because of personnel turnover and management changes during
our review period.
* Marine Corps officials stated that they did not prepare monthly
affirmations because the Marine Corps is organizationally part of the
Navy and, therefore, believed the Navy affirmation would cover the
Marine Corps cost-of-war report. However, Navy officials stated that
they were not responsible for affirming the Marine Corps GWOT
obligation information during the period of our review. They further
explained that although the Marine Corps provided them with a copy of
its cost-of-war obligation information, the Marine Corps also submitted
its obligation information directly to DFAS. The Marine Corps used its
own accounting system which was different from the Navy's. Navy
personnel were not familiar with the Marine Corps accounting system and
were therefore not in a position to affirm the information obtained
from the Marine Corps. The Navy subsequently informed us that, after
our July 2007 meeting, the Marine Corps began providing its GWOT
obligation information to the Navy and that the Navy affirmation now
also covers the Marine Corps.
* The Navy prepared 4 affirmations, 2 of which were not included in the
cost-of-war reports because they missed the reporting deadline. The
Navy did not prepare the remaining 1 affirmation for November 2006.
Steps taken by the Navy included requiring each major command with GWOT
obligations to submit an affirmation statement prior to preparing and
submitting the Navy's signed affirmation statement.
* The Air Force prepared 5 affirmations, 4 of which were not included
with the issued cost-of-war reports because they missed the reporting
deadline. Air Force personnel stated that the cost-of-war obligation
information was reviewed by budget office staff responsible for
monitoring the military personnel, operation and maintenance, military
construction, and investment appropriations. Subsequently, the
information was sent through the chain of command and the affirmation
statement was signed by the authorizing official. The extended time
frame for this review and approval process resulted in the Air Force
routinely missing the reporting deadline.
Affirmation statements can be a useful tool for improving the
reliability of the reported obligation amounts to the extent that the
affirmations are based on a review of the information and identify the
sources used. We observed that 12 of the 58 submitted affirmations
contained disclosures about the source of reported obligations.
Specifically, three components disclosed that the source of all
submitted data was their accounting system.[Footnote 29] However, none
of the 58 affirmations described the analysis performed that could
inform users of the cost-of-war report about the steps taken to test
the reliability of reported obligation amounts in reaching the
affirmation. Additionally, none of the affirmations we reviewed,
including ones that were submitted late, specifically noted that DOD's
required variance analysis was one of the steps that supported the
affirmation statement or disclosed key points related to their variance
analysis.
We noted the Air Force affirmation statements for November 2006 and
December 2006 did not contain the basis for the affirmations or
disclose key issues resulting from its variance analysis. For example,
November 2006 and December 2006 cost-of-war reports showed a
significant change in reported amounts for military personnel
obligations between these 2 months for Operation Noble Eagle. In
November 2006, the reported obligations were $436,000 which increased
to over $19 million the next month. A synopsis covering the key points
of the Air Force's variance analysis could have helped assure report
users that the Air Force had taken this change into consideration in
affirming that its reported obligations were a fair representation of
ongoing activities. We followed-up with an Air Force official on this
reported change in obligations and found that the $436,000 in reported
obligations was a reporting error. However, we found no explanatory
footnotes included with the reports that explained the increase, as
required. As a result, cost-of-war report users had no information to
determine whether this change reflected a valid operational change or a
reporting error at the time the November or December reports were
issued. As previously shown in figure 4, we determined that cost-of-war
reports, issued during the 5-month period of our review, were missing
25 required explanations for Air Force obligations totaling about $692
million.
Conclusions:
Total DOD reported obligations for GWOT have been steadily increasing
over the last 6 years, and are on track to grow even higher by the end
of fiscal year 2007. In some cases, significant similarities exist
between the President's GWOT and base funding requests for DOD, making
it difficult for decisions makers or the public to have a full,
integrated picture of funding needs for any given policy. Without
defining the longer-term war on terror and differentiating these costs
from incremental costs of specific contingency operations, decision
makers within the congressional and executive branches may not have a
comprehensive view of overall funding needs to make potential trade-
offs. We recognize emergency funding requests are necessary to support
unforeseen costs of operations and that estimating future costs are
challenging. This does not, however, mean that estimates for the
expected costs of ongoing operations, for longer-term transformation,
and for procurements should not be provided as part of the base budget.
If the administration believes that the nature of the defense challenge
facing the United States has changed and that the country is involved
in a long-term conflict, the cost implications of that change should be
part of the annual budget debate. The use of emergency funding requests
and budget amendments for ongoing operations of some duration reduces
transparency, impedes the necessary examination of investment
priorities, inhibits informed debate about priorities and trade-offs
and, in the end, reduces credibility.
DOD has taken steps to improve its GWOT-related cost-reporting
procedures and GWOT cost reporting continues to evolve. At the same
time, further actions are needed to develop more explicit guidance on
variance analysis and affirmation statements to enhance the
transparency of cost-of-war reports. Without more complete information
and a more robust methodology, including standardized quality assurance
processes, DOD does not have sufficient information to assess the
reliability of obligation data. As we have previously reported, and DOD
has acknowledged, systemic weaknesses persist in DOD's financial
management systems and business operations, which continue to impair
its financial information. Until more explicit guidance is provided,
and further progress in resolving core financial management problems is
achieved, DOD and the military services will have difficulty providing
the public and Congress with reliable information on the cost of the
war and details on how appropriated funds are being spent, or have
historical information useful in determining future funding needs.
Recommendations for Executive Action:
This report makes 11 recommendations. To improve transparency and
fiscal responsibility related to funding the war on terrorism, and to
permit Congress and the administration to establish priorities and make
trade-offs among those priorities in defense funding, we recommend that
the Secretary of Defense direct the Under Secretary of Defense
(Comptroller) to (1) issue guidance defining what constitutes the
"longer war against terror," identify what costs are related to that
longer war, and build these costs into the base defense budget; (2)
identify incremental costs of the ongoing GWOT operations that can be
moved into the base budget; and (3) in consultation with the Office of
Management and Budget consider limiting emergency funding requests to
truly unforeseen or sudden events.
To help improve the reliability of the obligation information included
in the monthly cost-of-war report, we recommend that the Secretary of
Defense direct the Under Secretary of Defense (Comptroller) to take the
following actions regarding the implementation of the variance analysis
and affirmation statements:
* Develop and implement written procedures for DFAS to use in compiling
the variance explanations and in performing quality assurance steps to
monitor the process.
* Require DFAS to provide draft copies of the consolidated cost-of-war
report to DOD components so that they can verify that all of their
explanatory footnotes have been included.
* Develop and implement written procedures for the DOD Comptroller to
periodically perform a DOD-wide analysis of the cost-of-war report and
supporting explanations to identify trends and root causes of systemic
reporting problems that should be considered and corrected during
efforts to improve the cost-of-war reporting process.
* Conduct a study of the current formula for the variance analysis to
determine whether it provides the most useful information for
identifying anomalies and taking correcting action. At a minimum, such
a study should consider the nature of the activity being analyzed,
including whether the activity tends to be cyclical or more volatile,
and whether a different baseline comparison, such as the average of the
previous 12 months' obligations, would result in improved analysis of
obligation information.
* Revise guidance over the monthly affirmation statements to include
criteria or factors that should be considered during the monthly review
process.
* Revise the guidance over the monthly affirmation statements to
require disclosure of the basis for affirmation statements, including
key points of related variance analysis, if any, and sources used to
obtain information on the amount of reported obligations.
* Take steps to ensure compliance with guidance on variance analysis
and affirmation statements.
* Revise the cost-of-war report format to disclose when component
management has not affirmed to the accuracy and fair representation of
reported obligations or provided all variance explanations, as
required.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, DOD generally agreed
with 10 of our recommendations and did not agree or disagree with an
11th recommendation. The department's comments are discussed below and
are reprinted in appendix IV. DOD also provided technical comments and
we have incorporated them in the report as appropriate.
DOD agreed with our recommendation that guidance be issued to define
what constitutes the "longer war against terror" and with the intent of
our recommendation that more incremental needs of the ongoing GWOT
operations be identified and moved into the base budget. However, DOD
did not indicate that it plans to take any action to implement these
recommendations. In its comments, DOD noted it had included funding in
the base budget for initiatives that it characterized as reflecting
requirements related to the longer war against terror, such as
increasing Army and Marine Corps force levels, and regional war on
terror initiatives. We recognize that DOD has requested funds for these
items in the base budget. We also note that DOD has requested funding
for some of the same items in its GWOT funding requests. For example,
funding for increases in force levels is requested in both DOD's fiscal
year 2008 base budget and GWOT funding requests. This type of overlap
reinforces our point that the department needs to clarify the nature of
its funding needs. Specifically, as stated in our report, without a
clear definition of the "longer war against terror" and clearer
distinctions between what constitutes incremental versus base costs,
decision makers lack an integrated picture and the ability to set
priorities and make trade-offs between the costs of ongoing operations
and DOD's long-term funding needs. Also, we continue to believe that
since operations in support of GWOT have been ongoing since 2001 and
are therefore well beyond the initial phase where level of effort and
costs are less known, DOD could identify additional incremental GWOT
needs that could be moved into the base budget. Such action would
assist the Congress in evaluating priorities for the department and
making trade-offs among all funding needs. Therefore, we continue to
believe our recommendations have merit and that DOD should take steps
to implement the specific actions we recommended, which are to (1)
issue guidance defining what constitutes the "longer war against
terror," identify what costs are related to that longer war, and build
these costs into the base defense budget and (2) identify incremental
costs of the ongoing GWOT operations that can be moved into the base
budget.
DOD did not agree or disagree with our third recommendation that the
use of emergency funding requests be limited to truly unforeseen or
sudden events. Instead, DOD noted that the Office of Management and
Budget, not the Secretary of Defense, makes the determination
concerning the use of emergency funding requests. Therefore, to
recognize the role of the Office of Management and Budget, we have
changed the recommendation to read: "We recommend that the Secretary of
Defense, in consultation with the Office of Management and Budget,
consider limiting emergency funding requests to truly unforeseen or
sudden events."
Regarding the remaining eight recommendations to help improve the
reliability of the obligation information included in the monthly cost-
of-war report, DOD agreed with six and concurred with the intent of the
remaining two recommendations.
DOD agreed with our six recommendations that cover analysis of reported
cost-of-war information, review of the variance analysis methodology,
and clarification of guidance on affirmation statements. DOD also
identified actions that it stated are under way to further improve the
cost-of-war reporting and variance analysis and affirmation processes,
such as revising procedures for DFAS when compiling variance
explanations, performing quality assurance, and monitoring the process
and establishing a Variance Analysis/Affirmation Work Group to
determine causes for noncompliance with variance and affirmation
guidance and recommend improvements. Regarding revising the guidance
relating to affirmation statements, DOD stated that the Under Secretary
of Defense (Comptroller) provided clarification to the guidance on
analysis of contingency operation costs in the DOD Financial Management
Regulation and policy memorandums. At this time, we have not yet had an
opportunity to evaluate DOD's planned actions or the revised guidance
to verify whether they meet the intent of our recommendations, but will
review these actions and revisions as part of any follow-up work on
GWOT cost reporting.
DOD concurred with the intent of our recommendation to provide DOD
components with the opportunity to verify that all their explanatory
footnotes have been included in cost-of-war reports. We agree that
DOD's proposed actions satisfy the intent of this recommendation. DOD
also concurred with the intent of our remaining recommendation to
revise the cost-of-war report format to disclose when component
management has not affirmed to the accuracy and fair representation of
reported obligations or provided all variance explanations, as
required. Although DOD explained that it is already reviewing its
procedures for submitting affirmation statements and variance
explanations and the reasons for late submissions in an effort to
correct the problem, DOD did not comment on whether it would disclose
instances of noncompliance in cost-of-war reports. We continue to
believe that users of the cost-of-war report should have sufficient
information to assess the reliability of reported cost information,
including information about components that have not complied with
steps intended to improve the reporting process.
We are sending copies of this report to other interested congressional
committees; the Secretary of Defense; the Under Secretary of Defense
(Comptroller); and the Director, Office of Management and Budget.
Copies of this report will also be made available to others upon
request. In addition, this report will be available at no charge on the
GAO Web site at [hyperlink, http://www.gao.gov].
If you have any questions regarding this report, please contact Sharon
Pickup at (202) 512-9619 or pickups@gao.gov or McCoy Williams at (202)
512-9095 or williamsm1@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 who made major contributions to this
report are listed in appendix V.
Signed by:
Sharon L. Pickup:
Director:
Defense Capabilities and Management:
Signed by:
McCoy Williams:
Director:
Financial Management and Assurance:
List of Congressional Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Kent Conrad:
Chairman:
The Honorable Judd Gregg:
Ranking Member:
Committee on the Budget:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Ted Stevens:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Ike Skelton:
Chairman:
The Honorable Duncan L. Hunter:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable John M. Spratt, Jr.:
Chairman:
The Honorable Paul Ryan:
Ranking Member:
Committee on the Budget:
House of Representatives:
The Honorable John P. Murtha:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To assess the Department of Defense's (DOD) reported obligations for
the Global War on Terrorism (GWOT) in fiscal year 2007, the outlook of
obligations for the remainder of the fiscal year, and its funding
requirements for fiscal year 2008, we analyzed DOD's Supplemental and
Cost of War Execution Reports from October 2006 through June 2007 to
identify reported obligations by operation and by appropriation
account. We excluded classified programs from our review because
obligations for those programs are not reported in DOD's Supplemental
and Cost of War Execution Reports. We also reviewed applicable
supplemental and annual appropriations in fiscal year 2007 and reviewed
DOD reports on the transfer or reprogramming of funds among various
appropriation accounts or budget activities to support GWOT. We then
reviewed DOD's reported obligations for past fiscal years to determine
if fiscal year 2007's reported obligations were greater than, equal to,
or less than those of previous years. We also compared the military
services' reported GWOT obligations through June 2007, the latest
available reported obligation data at the time of our review, to the
appropriations provided to calculate the proportion of funds obligated
through June, and have included this analysis in appendix II. We then
compared those proportions to the proportion of the fiscal year that
has elapsed through June to assess whether funding is likely to be
greater than, less than, or equal to obligations.[Footnote 30] We also
interviewed key officials from the Office of the Under Secretary of
Defense (Comptroller) and the Army, Navy, Marine Corps, and Air Force
to understand projected GWOT obligations through the end of the fiscal
year. We recognize that funds are not obligated equally each month
throughout the fiscal year and that the supplemental appropriation
funding was not signed by the President until May.
GWOT obligations provided in this report are DOD's claimed obligations
as reported in the DOD Supplemental and Cost of War Execution Reports.
As previously reported, we found the data in DOD's Supplemental and
Cost of War Execution Reports to be of questionable reliability.
Consequently, we are unable to ensure that DOD's reported obligations
for GWOT are complete, reliable, and accurate, and they should
therefore be considered approximations. In addition, DOD has
acknowledged that systemic weaknesses with its financial management
systems and business operations continue to impair its financial
information. Despite the uncertainty about obligation data, we are
reporting the information because it is the only way to approach an
estimate of the costs of the war. Also, despite the uncertainty
surrounding the true dollar figure for obligations, these data are used
to advise Congress on the cost of the war.
To examine the effect of changes in DOD's GWOT funding guidance on
DOD's base budget and GWOT funding requests, we reviewed relevant DOD
policy and guidance relating to the submission of DOD's fiscal year
2007 emergency supplemental request for GWOT and its fiscal year 2008
GWOT funding request. We spoke with DOD officials regarding DOD's base
budget and GWOT funding requests to determine what changes occurred in
these submissions as a result of the guidance. We also interviewed key
officials from the Office of the Under Secretary of Defense
(Comptroller), Army, Navy, Marine Corps, and Air Force to determine how
they interpreted and implemented this guidance.
To examine DOD's efforts to improve the reliability of GWOT obligation
data, we reviewed guidance issued by DOD regarding analysis and
reporting of obligations for contingencies, reviewed the data reported
in DOD's cost-of-war reports, and interviewed key officials from the
Office of the Under Secretary of Defense (Comptroller), Defense Finance
and Accounting Service, Army, Navy, Marine Corps, and Air Force about
their processes and procedures. We compared DOD's obligation data
reported in DOD's monthly cost-of-war reports with funding DOD was
provided in annual and supplemental appropriations to determine if any
anomalies in the cost reporting had occurred.
To determine the extent to which the process for required variance
explanations was effectively implemented, we reviewed the Office of the
Under Secretary of Defense (Comptroller) guidance on variance analysis
issued in August 2005 and June 2006, including the formula used to
calculate the variance percentage and average amount of fiscal year
obligations, which is called the burn rate. We obtained monthly files
containing the October 2006 to March 2007 cost-of-war reports from the
Defense Finance and Accounting Service-Indianapolis. Using the June
2006 Office of the Under Secretary of Defense (Comptroller) guidance,
we analyzed reported obligations in cost-of-war report files applicable
to fiscal year 2007 funding from November 2006 through March 2007 to
identify the number of required variance explanations and the related
amount of dollar obligations. We did not evaluate the adequacy of
explanatory footnotes or confirm that errors reported in footnotes were
corrected. We identified 25 cases for which a burn rate could not be
calculated because the prior month's cumulative obligations for fiscal
year 2007 were zero. For these cases, we calculated a burn rate based
on the prior 12 months' cumulative obligations. October 2006
obligations were not analyzed because the fiscal year 2006 cost-of-war
report information needed to perform the variance calculation was not
readily available. We also did not include the cost categories for
investment costs, Iraq Security Force Fund, or Afghanistan Security
Force Fund because the annual spending plans needed to perform the
variance calculation were not readily available. We met with
representatives from the Office of the Under Secretary of Defense
(Comptroller) and officials in Defense Finance and Accounting Service-
Indianapolis and held periodic telephone discussions with them from May
2007 to August 2007 regarding oversight responsibilities for the cost-
of-war reporting process, and other analyses for improving the
reliability of the monthly cost-of-war report. We also requested the
variance explanations submitted by DOD components to Defense Finance
and Accounting Service-Indianapolis. We compared required variance
explanations identified by our work to those obtained from the Defense
Finance and Accounting Service-Indianapolis and reported with the
monthly cost-of-war report. In July 2007, we met with military service
representatives for the budget offices of the Army Navy, Marine Corps
and Air Force, to discuss their respective processes for preparing
variance explanations, and requested the variance explanations
submitted to Defense Finance and Accounting Service-Indianapolis for
the monthly cost-of-war report. We focused on the military services
because their reported obligations represented almost 94 percent of the
funds obligated in the cost categories we reviewed from November 2006
to March 2007. We also compared required variance explanations
identified by our work to those obtained directly from the four
military services. Finally, we documented whether a required variance
explanation was included in the explanatory footnotes to the monthly
cost-of-war report.
To determine the extent to which the process for required affirmations
was effectively implemented, we reviewed the Office of the Under
Secretary of Defense (Comptroller) guidance on affirmation statements
issued by DOD components in March 2006 and June 2006. We met with
representatives from the Office of the Under Secretary of Defense
(Comptroller) and officials in the Defense Finance and Accounting
Service--Indianapolis and had periodic telephone discussions with them
from May 2007 to August 2007 regarding oversight responsibilities for
the affirmation process. Defense Finance and Accounting Service-
Indianapolis staff provided us with copies of the affirmations
submitted by DOD components from November 2006 to March 2007 for the
monthly cost-of-war report, as well as information used to track the
monthly submission of affirmations. We met with military service
representatives in July 2007 from the budget offices of the Army, Navy,
Marine Corps and Air Force to discuss their process for reporting
affirmations, and requested the affirmations prepared and submitted to
the Defense Finance and Accounting Service-Indianapolis for the monthly
cost-of-war report. Finally, we reviewed the affirmations and the
Defense Finance and Accounting Service tracking information, and
documented when affirmations were missing or were provided to the
Defense Finance and Accounting Service-Indianapolis after the reporting
deadline.
We interviewed DOD representatives regarding GWOT obligations, policy,
guidance, and funding for fiscal year 2007 and the reliability of cost
reporting in the following locations:
* Office of the Under Secretary of Defense (Comptroller), Washington,
D.C.
* Defense Finance and Accounting Service Center, Indianapolis, Indiana.
* Headquarters, Department of the Army, Washington, D.C.
* U.S. Army Installation Management Command, Washington, D.C.
* Headquarters, U.S. Army Forces Command and Headquarters, Third Army
(Army Central Command), Fort McPherson, Georgia.
* Army Materiel Command, Fort Belvoir, Virginia.
* Army Budget Office, Virginia.
* Headquarters, U.S. Marine Corps, Washington, D.C.
* Marine Corps Central Command, MacDill Air Force Base, Florida.
* Department of the Navy, Headquarters, Washington, D.C.
* Department of the Air Force, Headquarters, Washington, D.C.
* Air Force Air Combat Command, Langley Air Force Base, Virginia.
* Navy Aircraft Structural Life Surveillance Branch, Patuxent River
Naval Air Station, Maryland:
We performed our work from November 2006 through August 2007 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: DOD's Fiscal Year 2007 GWOT Appropriations and
Obligations:
In fiscal year 2007, Congress provided the Department of Defense (DOD)
with about $161.8 billion in annual and supplemental
appropriations[Footnote 31] for the Global War on Terrorism (GWOT), of
which about $142.9 billion was appropriated to the military services
for military personnel, operation and maintenance, and procurement. The
remaining funds, about $18.9 billion, were provided for defensewide
agencies; research, development, test and evaluation; and military
construction. As shown in table 1, the military services received about
$17.7 billion for military personnel, about $82.7 billion for operation
and maintenance, and about $42.4 billion for procurement.
Table 1: Fiscal Year 2007 Appropriations Identified for GWOT for the
Military Services, (Dollars in billions):
Military Personnel: Title IX;
Army: 4.7;
Navy: 0.1;
Marine Corps: 0.2;
Air Force: 0.4;
Total: [Empty].
Military Personnel: Supplemental;
Army: 9.1;
Navy: 0.8;
Marine Corps: 1.4;
Air Force: 1.1;
Total: [Empty].
Military Personnel: Total;
Army: 13.8;
Navy: 0.9;
Marine Corps: 1.5;
Air Force: 1.5;
Total: 17.7.
Operation and Maintenance: Title IX;
Army: 31.7;
Navy: 1.6;
Marine Corps: 2.7;
Air Force: 2.7;
Total: [Empty].
Operation and Maintenance: Supplemental;
Army: 31.3;
Navy: 4.8;
Marine Corps: 1.2;
Air Force: 6.7;
Total: [Empty].
Operation and Maintenance: Total;
Army: 63.0;
Navy: 6.4;
Marine Corps: 3.9;
Air Force: 9.4;
Total: 82.7.
Procurement: Title IX;
Army: 10.1;
Navy: 1.0;
Marine Corps: 4.9;
Air Force: 1.8;
Total: [Empty].
Procurement: Supplemental;
Army: 15.9;
Navy: 2.2;
Marine Corps: 2.3;
Air Force: 4.3;
Total: [Empty].
Procurement: Total;
Army: 26.0;
Navy: 3.2;
Marine Corps: 7.2;
Air Force: 6.1;
Total: 42.4.
Grand Total: 142.9.
Source: GAO analysis of Pub. L. No. 109-289 (2006) and Pub. L. No. 110-
28 (2007).
[End of table]
As of June 2007, military services reported obligating approximately 80
percent of military personnel funds provided in fiscal year 2007 for
operations in support of GWOT. The Army and Navy have been obligating
funds for military personnel at a rate that nearly mirrors the
percentage of the fiscal year that has passed, while the Marine Corps
and Air Force have experienced a more rapid execution of obligations.
As figure 5 shows, after 9 months, or 75 percent of the fiscal year,
the Army reported obligations of 77 percent, the Navy 76 percent, the
Marine Corps nearly 100 percent, and Air Force 85 percent of available
GWOT military personnel appropriations. The Air Force is reporting
higher than anticipated obligations for military personnel due to the
methods the Air Force Reserve and Air National Guard use to distribute
pay and report obligations. A portion of the Air Force reserve
component's pay is provided in a lump sum as personnel are activated
for duty. Rather than a consistent and gradual rise in military
personnel obligations over the course of the fiscal year, the Air Force
will report significant periodic rises in the fiscal year's cumulative
military personnel obligations. According to Air Force officials, the
total reported obligations for military personnel will decrease in the
later months of the fiscal year. Marine Corps obligations data reported
through June 2007 show a higher than expected rate of military
personnel obligations due to cost-reporting errors within the service's
monthly Supplemental and Cost of War Execution Report data submission.
According to a Marine Corps official, military personnel obligations
for June 2007 were inadvertently entered twice into the service's
Standard Accounting, Budgeting, and Reporting System which is used to
compile data submissions to the Defense Finance and Accounting Service
for the monthly cost-or-war report. According to Marine Corps
officials, errors in reporting were related to staff turnover and
inexperience amongst new personnel with the cost-reporting process.
Further, officials expect the reporting problems to be corrected in
future cost-of-war reports.
Figure 5: Military Services' Fiscal Year 2007 Reported GWOT Military
Personnel Obligations of Appropriations Identified for GWOT through
June 2007:
[See PDF for image]
This figure is a vertical bar graph. The vertical axis of the graph
represents percent from 0 to 100. The horizontal axis of the graph
represents the four military services.
The following data is depicted (values in millions of dollars) and all
values add up to 100 percent for each service:
Army:
Fiscal year 2007 reported obligations through June 2007: $10,683.2;
Fiscal year 2007 appropriations remaining unobligated: $3,140.7.
Navy:
Fiscal year 2007 reported obligations through June 2007: $697.9;
Fiscal year 2007 appropriations remaining unobligated: $215.3.
Marine Corps:
Fiscal year 2007 reported obligations through June 2007: $1,547.4;
Fiscal year 2007 appropriations remaining unobligated: $0.4.
Air Force:
Fiscal year 2007 reported obligations through June 2007: $1,247.4;
Fiscal year 2007 appropriations remaining unobligated: $213.7.
Source: GAO analysis of DOD data.
Note: June represents 75 percent of the fiscal year. The line above is
an indication of where DOD would be if it had obligated its available
funding equally each month throughout the fiscal year. Reported
obligations include those from both the active and reserve components.
We have previously assessed the reliability of DOD's obligations data
and found that they may not accurately reflect the true dollar value of
GWOT obligations.
[End of figure]
As shown in figure 6, after 9 months, or 75 percent of the fiscal year,
the Army reported obligations of 70 percent, the Navy 53 percent, the
Marine Corps 67 percent, and the Air Force 62 percent of available GWOT
operation and maintenance funds. All services reported lower than
anticipated obligation rates for operation and maintenance. Both the
Air Force and Navy officials, the two services with the lowest reported
obligations, stated that execution of funds was slowed as a result of
the delayed fiscal year 2007 GWOT supplemental appropriation and that
obligation rates are expected to increase later in the fiscal year. For
example, the Navy, the service with the lowest reported obligations for
operation and maintenance, deferred obligations for facilities,
sustainment, restoration, and modernization activities due to the delay
in receipt of supplemental funding. Navy officials further stated
although supplemental appropriations were approved in May, a number of
contracts for these activities were not finalized in June, resulting in
lower than expected Navy operation and maintenance obligations. Navy
officials indicated that obligations for operation and maintenance will
likely increase in the July 2007 DOD Supplemental and Cost of War
Execution Report. Similarly, the Air Force responded to the delay of
supplemental appropriations by deferring certain GWOT obligations,
without causing operational effects. For example, some requests to the
Air Force for airlift were filled and flown on time, but payment of
these obligations was delayed until June. According to Air Force
officials, the obligation rate for operation and maintenance is
expected to increase during July of fiscal year 2007.
Figure 6: Military Services' Fiscal Year 2007 Reported GWOT Operation
and Maintenance Obligations of Appropriations Identified for GWOT
through June 2007:
[See PDF for image]
This figure is a vertical bar graph. The vertical axis of the graph
represents percent from 0 to 100. The horizontal axis of the graph
represents the four military services.
The following data is depicted (values in millions of dollars) and all
values add up to 100 percent for each service:
Army:
Fiscal year 2007 reported obligations through June 2007: $35,033.2;
Fiscal year 2007 appropriations remaining unobligated: $15,033.5.
Navy:
Fiscal year 2007 reported obligations through June 2007: $3,418.2;
Fiscal year 2007 appropriations remaining unobligated: $2,994.6.
Marine Corps:
Fiscal year 2007 reported obligations through June 2007: $2,613.4;
Fiscal year 2007 appropriations remaining unobligated: $1,265.9.
Air Force:
Fiscal year 2007 reported obligations through June 2007: $5,786.5;
Fiscal year 2007 appropriations remaining unobligated: $3,601.2.
Source: GAO analysis of DOD data.
Note: June represents 75 percent of the fiscal year. The line above is
an indication of where DOD would be if it had obligated its available
funding equally each month throughout the fiscal year. Reported
obligations include those from both the active and reserve components.
We have previously assessed the reliability of DOD's obligations data
and found that they may not accurately reflect the true dollar value of
GWOT obligations.
[End of figure]
For fiscal year 2007, the military services were appropriated 97
percent more for procurement than for fiscal year 2006, about $42.5
billion. Approximately one-third or about $14 billion of these fiscal
year 2007 procurement appropriations have been obligated through June.
About 60 percent or $24.7 billion of the procurement funds were
provided in the fiscal year 2007 GWOT supplemental appropriation, which
was not signed into law until late May 2007. Since these procurement
funds are available for obligation over multiple years, some
procurement funding will likely be obligated in fiscal year 2008 and
beyond. As shown in figure 7, the Army has reported obligations of 36
percent, the Navy 25 percent, the Marine Corps 47 percent, and the Air
Force 6 percent of available fiscal year 2007 procurement
appropriations.
Figure 7: Military Services' Fiscal Year 2007 Reported GWOT Procurement
Obligations of Appropriations Identified for GWOT through June 2007:
[See PDF for image]
This figure is a vertical bar graph. The vertical axis of the graph
represents percent from 0 to 100. The horizontal axis of the graph
represents the four military services.
The following data is depicted (values in millions of dollars), and all
values add up to 100 percent for each service:
Army:
Fiscal year 2007 reported obligations through June 2007: $9,370.9;
Fiscal year 2007 appropriations remaining unobligated: $16,618.6.
Navy:
Fiscal year 2007 reported obligations through June 2007: $804.2;
Fiscal year 2007 appropriations remaining unobligated: $2,402.6.
Marine Corps:
Fiscal year 2007 reported obligations through June 2007: $3,388.4;
Fiscal year 2007 appropriations remaining unobligated: $3,762.6.
Air Force:
Fiscal year 2007 reported obligations through June 2007: $389.4;
Fiscal year 2007 appropriations remaining unobligated: $5,709.0.
Source: GAO analysis of DOD data.
Note: Portions of the military services fiscal year 2007 GWOT
procurement appropriations are for classified programs and obligations
against these funds will not be reflected in reported obligations.
Therefore, differences between reported obligations and funding could
potentially be lower than is reflected. We have previously assessed the
reliability of DOD's obligations data and found that they may not
accurately reflect the true dollar value of GWOT obligations.
[End of figure]
[End of section]
Appendix III: Process for Calculating Variance Analyses:
The revised June 2006 guidance requires Department of Defense (DOD)
components to compare variance percentages to established threshold
percentages for the cost categories, Military Personnel, Civilian
Personnel, Personnel Support, Operating Support, Transportation,
Working Capital Fund Support, Investment Costs, and Iraqi and
Afghanistan Security Forces Funds. Determining the reasons for changes
in these percentages or changes in reported Global War on Terrorism
(GWOT) obligation amounts could be important red flags that may
indicate questionable or erroneous reporting. For each cost category
total except Investment Costs, and Iraqi and Afghanistan Security
Forces Funds,[Footnote 32] the guidance requires the calculation of the
variance percentage by dividing the current month obligations, minus
the burn rate, by the average monthly obligations incurred thus far
during the fiscal year, except for October, the first month of the
fiscal year. The burn rate is an average that is computed based on the
prior months' cumulative obligations for the current fiscal year. For
example, the burn rate for December's calculation is the average of
October's and November's obligations (2 months). On the other hand, the
burn rate for October's calculation is an average of the prior 12
months' obligations. Variance percentages are required to be computed
using the following formula: (current month obligations - burn rate) /
burn rate. Table 2 shows how DOD calculates the burn rate for the
purposes of the variance analysis.
Table 2: DOD's Formula for Calculating the Burn Rate for the Variance
Analysis of Reported GWOT Obligation Amounts:
Reporting month: October;
Comparative burn rate calculation: Prior fiscal year costs / 12.
Reporting month: November;
Comparative burn rate calculation: October costs.
Reporting month: December;
Comparative burn rate calculation: October through November costs / 2.
Reporting month: January;
Comparative burn rate calculation: October through December costs / 3.
Reporting month: February;
Comparative burn rate calculation: October through January costs / 4.
Reporting month: March;
Comparative burn rate calculation: October through February costs / 5.
Reporting month: April;
Comparative burn rate calculation: October through March costs / 6.
Reporting month: May;
Comparative burn rate calculation: October through April costs / 7.
Reporting month: June;
Comparative burn rate calculation: October through May costs / 8.
Reporting month: July;
Comparative burn rate calculation: October through June costs / 9.
Reporting month: August;
Comparative burn rate calculation: October through July costs / 10.
Reporting month:
September; Comparative burn rate calculation: October through August
costs / 11.
Source: DOD.
Note: Information is from DOD Comptroller Memorandum "Revised
Instructions for Analysis of Contingency Operation Costs" (June 13,
2006).
[End of table]
If the calculated variance percentage exceeds the established
threshold, an explanation is required. Table 3 shows the thresholds for
the cost categories included in the variance analysis requirements.
Table 3: Thresholds for Determining If an Explanation Is Required for a
Variance:
Cost category: Military Personnel;
Allowable variance (in percent, plus or minus): 15.
Cost category: Civilian Personnel;
Allowable variance (in percent, plus or minus): 15.
Cost category: Personnel Support;
Allowable variance (in percent, plus or minus): 20.
Cost category: Operating Support;
Allowable variance (in percent, plus or minus): 25.
Cost category: Transportation;
Allowable variance (in percent, plus or minus): 20.
Cost category: Working Capital Fund Support;
Allowable variance (in percent, plus or minus): 15.
Source: DOD.
Note: Information is from DOD Comptroller Memorandum "Revised
Instructions for Analysis of Contingency Operation Costs" (June 13,
2006). Obligations for two other cost categories: Investments and Iraqi
and Afghanistan Security Forces Funds, require comparative analysis
against their respective annual spending plan, plus or minus 30
percent, instead of prior month's obligations.
[End of table]
[End of section]
Appendix IV Comments from the Department of Defense:
Under Secretary Of Defense:
Comptroller:
1100 Defense Pentagon:
Washington, DC 20301-1100:
October 29, 2007:
Ms. Sharon L. Pickup:
Director, Defense Capabilities and Management:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Ms. Pickup:
Attached is the Department of Defense (DoD) response to the Government
Accountability Office (GAO) Draft Report GAO 08-08, "Global War On
Terrorism: DoD Needs to Take Action to Encourage Fiscal Discipline and
Optimize the Use of Tools Intended to Improve GWOT Cost Reporting,"
dated October 8, 2007 (GAO Code 350947).
The Department generally agrees with the recommendations to improve
reliability of the Cost of War report and is developing additional
procedures to ensure compliance with the variance analysis explanations
and affirmation statements policies.
The Department has taken additional steps to improve the cost reporting
process. We have implemented a performance measure to track timeliness
of Component submission of cost data, variance explanations and
affirmation statements. This measure will be used to rate the DoD
status on the President's Management Agenda Scorecard for Improved Cost
of War Reporting. We have also established a GWOT Variance Analysis/
Affirmation Workgroup to review and address causes for late submission
of variance analysis explanations and affirmation statements.
The Department generally agrees with the recommendations related to
changes in the DoD's future budget request for GWOT needs. We will
continue to follow the Administration's guidance regarding budget
submissions.
Sincerely,
Signed by:
J. David Patterson:
Principal Deputy:
Attachment: As stated:
[End of letter]
GAO Draft Report – Dated October 2, 2007
GAO Code 350947 /GAO-08-68
"Global War On Terrorism: DoD Needs to Take Action to Encourage Fiscal
Discipline and Optimize the Use of Tools Intended to Improve GWOT Cost
Reporting:"
Department Of Defense Comments To The Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to issue guidance
defining what constitutes the "longer war against terror," identify
what costs are related to that longer war, and build these costs into
the base defense budget.
DOD Response: Concur. The Department included funding in the base
budget to reduce the stress on the ground forces by increasing the Army
and Marine Corps force level by 92,000 end strength by FY 2012. The
base budget also included $745 million to support regional war on
terror initiatives. The base budget request provided $500 million for
Global Train and Equip efforts. All of these initiatives reflect the
Department's effort to include appropriate requirements related to the
longer war on terror in the base budget. The "longer war" includes
incremental costs of the GWOT and funds anticipated insurgent activity,
and unforeseen and sudden events, which are GAO validated uses of GWOT
funds. As in previous GWOT requests, this would include battle losses
and reconstitution of equipment, which are not items that would be
included in the base budget.
Recommendation 2: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to identify
incremental needs of the ongoing Global War on Terrorism operations
that can be moved into the base budget.
DOD Response: Concur with the intent of the recommendation. Incremental
needs are defined as additional costs to DoD Components that would not
have been incurred if a contingency operation, like Operation Enduring
Freedom or Operation Iraqi Freedom, had not been supported. The
Department included funding in the base budget to reduce the stress on
the ground forces by increasing the Army and Marine Corps force level
by 92,000 end strength by FY 2012. The base budget also included $745
million to support regional war on terror initiatives. The base budget
request provided $500 million for Global Train and Equip efforts. The
FY2007 appropriated supplemental funds and the FY2008 GWOT request are
for incremental needs associated with military operations, force
protection, reconstitution, and military intelligence above and beyond
base operations. The FY2008 GWOT request was included with the FY2008
President's Budget Request, and the Department provided over 6,000
pages of budget justification material to support the request.
Recommendation 3: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to limit the use of
emergency funding requests to truly unforeseen or sudden events.
DOD Response: The Secretary of Defense does not make the determination
concerning use of emergency funding requests. The Office of Management
and Budget makes that determination.
Recommendation 4: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to develop and
implement written procedures for DFAS to use in compiling the variance
explanations and in performing quality assurance steps to monitor the
process.
DOD Response: Concur. The Department is currently refining and will
implement revised procedures for the Defense Finance and Accounting
Service to use when compiling variance explanations, performing quality
assurance, and monitoring the process.
Estimated Completion Date: December 15, 2007
Recommendation 5: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to require the
Defense Finance and Accounting Service to provide draft copies of the
consolidated Cost of War (CoW) report to DoD Components so that they
can verify that all of their explanatory footnotes have been included.
DOD Response: Concur with the intent of the recommendation. The Defense
Finance and Accounting Service (DFAS) is taking steps to improve the
Global War on Terror Cost of War (CoW) footnote compilation process.
The process will allow the Components an opportunity to review their
portion of the draft footnotes prior to release of the final CoW report
and identify any missing information. The DFAS plans to implement this
revised process by December 15, 2007 for FY 2008 reporting. In
addition, the Department has established a performance measure to track
compliance with prescribed footnote requirements.
Estimated Completion Date: December 15, 2007 (in conjunction with
October 2007 CoW reporting).
Recommendation 6: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to develop and
implement written procedures for the DoD Comptroller to periodically
perform a DoD-wide analysis of the cost-of-war report and supporting
explanations to identify trends and root causes of systemic reporting
problems that should be considered and corrected during efforts to
improve the cost-of-war reporting process.
DOD Response: Concur. The Defense Finance and Accounting Service is
developing procedures to review variance explanations to identify
systemic problems and work with the Component to address possible
solutions.
Estimated Completion Date: January 31, 2008
Recommendation 7: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to conduct a study
of the current formula for the variance analysis to determine whether
it provides the most useful information for identifying anomalies and
taking correcting action. At a minimum, such a study should consider
the nature of the activity being analyzed, including whether the
activity tends to be cyclical or more volatile, and whether a different
baseline comparison, such as the average of the previous 12 months'
obligations, would result in improved analysis of obligation
information.
DOD Response: Concur. The current variance analysis methodology is
effective in identifying reported amounts that require further
research. Prior to issuing the revised guidance in June 13, 2006, the
Department reviewed the methodology, to include a rolling 12-month
average, and determined that the current year bum-rate methodology was
most representative of Global War on Terror (GWOT) activity. The GAO
findings point to noncompliance by the Components in providing the
required variance explanations. The Department has established a GWOT
Variance Analysis/Affirmation Workgroup to determine the causes for the
non-compliance. As part of the review, the Workgroup will determine if
changes to the current variance analysis methodology will assist the
Components in timely submission of required explanations.
Estimated Completion Date: December 15, 2007
Recommendation 8: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to revise guidance
over the monthly affirmation statements to include criteria or factors
that should be considered during the monthly review process.
DOD Response: Concur. The Under Secretary of Defense (Comptroller)
provided clarification to the guidance on analysis of contingency
operations costs in the DoD Financial Management Regulation and policy
memorandums.
Recommendation 9: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to revise the
guidance over the monthly affirmation statements to require disclosure
of the basis for affirmation statements, including key points of
related variance analysis, if any, and sources used to obtain
information on the amount of reported obligations.
DOD Response: Concur. The Under Secretary of Defense (Comptroller)
provided clarification to the guidance on analysis of contingency
operations costs in the DoD Financial Management Regulation and policy
memorandums.
Recommendation 10: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to take steps to
ensure compliance with guidance on variance analysis and affirmation
statements.
DOD Response: Concur. The Department has established a Cost of War
reporting performance measure to track, measure, and report the
Components' compliance with the existing policy. The consolidated
results will be used to measure the Department's status in achieving
Improved Cost of War Reporting on the President's Management Agenda
scorecard. The Department has also established a Global War on Terror
(GWOT) Variance Analysis/Affirmation Workgroup to determine causes for
non-compliance with current variance analysis and affirmation guidance
and recommend improvements.
Estimated Completion Date: December 15, 2007
Recommendation 11: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to revise the cost-
of-war report format to disclose when Component management has not
affirmed to the accuracy and fair representation of reported
obligations or provided all variance explanations, as required.
DOD Response: Concur with the intent of the recommendation. The
Department is already reviewing its procedures for submitting
affirmation statements and variance explanations and the reasons behind
late submissions in an effort to correct the problem.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Sharon Pickup, (202) 512-9619 or pickups@gao.gov:
McCoy Williams, (202) 512-6906 or williamsm1@gao.gov:
Acknowledgments:
In addition to the contact named above, Ann Borseth, Assistant
Director; Mary Ellen Chervenic, Assistant Director; Glenn Slocum,
Assistant Director; Lisa Brownson; Francine DelVecchio; Susan Ditto;
George Duncan; Tiffany Epperson; Karl E. Essig; Richard Geiger; Ron La
Du Lake; Jennifer Leone; John A. Long; Brian Mateja; Lonnie McAllister;
Christopher Miller; Steve Pruitt; Thomas Twambly; and George Warnock
made key contributions to this report.
[End of section]
Related GAO Products:
DOD Business Transformation: Lack of an Integrated Strategy Puts the
Army's Asset Visibility System Investments at Risk. GAO-07-860.
Washington, D.C.: July 27, 2007.
Global War on Terrorism: Reported Obligations for the Department of
Defense. GAO-07-1056R. Washington, D.C.: July 26, 2007.
Global War on Terrorism: Reported Obligations for the Department of
Defense. GAO-07-783R. Washington, D.C.: May 18, 2007.
DOD Business Systems Modernization: Progress Continues to Be Made in
Establishing Corporate Management Controls, but Further Steps Are
Needed. GAO-07-733. Washington, D.C.: May 14, 2007.
Federal Financial Management: Critical Accountability and Fiscal
Stewardship Challenges Facing Our Nation. GAO-07-542T. Washington,
D.C.: March 1, 2007.
High Risk Series: An Update. GAO-07-310. Washington, D.C.: January 31,
2007.
Global War On Terrorism: Fiscal Year 2006 Obligation Rates Are Within
Funding Levels and Significant Multiyear Procurement Funds Will Likely
Remain Available for Use in Fiscal Year 2007. GAO-07-76. Washington,
D.C.: November 13, 2006.
Global War on Terrorism: Observations on Funding, Costs, and Future
Commitments. GAO-06-885T. Washington, D.C.: July 18, 2006.
Global War on Terrorism: DOD Should Consider All Funds Requested for
the War When Determining Needs and Covering Expenses. GAO-05-767.
Washington, D.C.: September 28, 2005.
Global War on Terrorism: DOD Needs to Improve the Reliability of Cost
Data and Provide Additional Guidance to Control Costs. GAO-05-882.
Washington, D.C.: September 21, 2005.
DOD Business Transformation: Sustained Leadership Needed to Address
Long-standing Financial and Business Management Problems. GAO-05-723T.
Washington, D.C.: June 8, 2005.
Defense Management: Key Elements Needed to Successfully Transform DOD
Business Operations. GAO-05-629T. Washington, D.C.: April 28, 2005.
High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 1,
2005.
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.: November 18,
2004.
Military Pay: Army Reserve Soldiers Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-911. Washington D.C.:
August 20, 2004.
Military Pay: Army Reserve Soldiers Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-990T. Washington D.C.:
July 20, 2004.
Military Pay: Army National Guard Personnel Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-413T. Washington D.C.:
January 24, 2004.
Military Pay: Army National Guard Personnel Mobilized to Active Duty
Experienced Significant Pay Problems. GAO-04-89. Washington D.C.:
November 13, 2003.
Contingency Operations: DOD's Reported Costs Contain Significant
Inaccuracies. GAO/NSIAD-96-115. Washington, D.C.: May 17, 1996.
DOD Budget: Analysis of Options for Funding Contingency Operations.
GAO/NSIAD-94-152BR. Washington, D.C.: April 26, 1994.
[End of section]
Footnotes:
[1] After the terrorist attacks of September 11, 2001, the President
announced a global war on terrorism requiring the collective
instruments of the entire federal government to counter the threat of
terrorism. Ongoing military and diplomatic operations overseas,
especially in Iraq and Afghanistan, constitute a key part of GWOT.
These operations involve a wide variety of activities, such as
combating insurgents, civil affairs, capacity building, infrastructure
reconstruction, and training military forces of other nations.
[2] Of the $161.8 billion, Congress provided $67.4 billion in Title IX
of the Department of Defense Appropriations Act, 2007 in September 2006
as "bridge" funding to support the expenses of ongoing operations early
in the fiscal year. Congress provided the remaining $94.4 billion in
the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq
Accountability Act, 2007 in May 2007.
[3] DOD's original fiscal year 2008 appropriations request was $623.1
billion including $481.4 billion for its base budget and $141.7 billion
for its GWOT budget needs.
[4] The difference between DOD's GWOT appropriations and reported
obligations can generally be attributed to certain fiscal year 2007
appropriations and multiyear funding for procurement; military
construction; and research, development, test, and evaluation from
previous GWOT appropriations that have yet to be obligated, and
obligations for classified activities which are not included in DOD's
reported obligations.
[5] Volume 12, Chapter 23 of the DOD Financial Management Regulation
7000.14R generally establishes financial policy and procedures related
to DOD contingency operations. It defines contingency operations to
include small, medium, and large-scale campaign-level military
operations, including support for peacekeeping operations, major
humanitarian assistance efforts, noncombatant evacuation operations,
and international disaster relief efforts.
[6] GAO, Global War on Terrorism: DOD Needs to Improve the Reliability
of Cost Data and Provide Additional Guidance to Control Costs, GAO-05-
882 (Washington, D.C.: Sept. 21, 2005) and GAO, Global War on
Terrorism: Fiscal Year 2006 Obligation Rates Are Within Funding Levels
and Significant Multiyear Procurement Funds Will Likely Remain
Available for Use in Fiscal Year 2007, GAO-07-76 (Washington, D.C.:
Nov. 13, 2006).
[7] GAO, Global War on Terrorism: Observations on Funding, Costs, and
Future Commitments, GAO-06-885T (Washington, D.C.: July 18, 2006).
[8] For purposes of this report, we refer to the Office of the Under
Secretary of Defense (Comptroller) as the DOD Comptroller.
[9] Caps on discretionary spending set by Congress in the regular
budget process are raised by the amount designated as "emergency."
[10] The fiscal year 2005 funds were available for obligation during
the last two months of fiscal year 2004.
[11] Pub. L. No. 109-364 (2006).
[12] See the Related GAO Products list at the end of this report.
[13] DOD Comptroller Memorandum Analysis of Contingency Operation Costs
(Aug. 30, 2005).
[14] The cost categories include Military Personnel, Civilian
Personnel, Personnel Support, Operating Support, Transportation, and
Working Capital Fund Support.
[15] DOD Comptroller Memorandum Revised Instructions for Analysis of
Contingency Operation Costs (June 13, 2006).
[16] Analyses of obligations for investments and the Iraqi and
Afghanistan security forces funds require a comparison to the
corresponding month on the annual spending plan for these respective
cost categories.
[17] Deputy Secretary of Defense Memorandum Improvement of Global War
on Terror (GWOT) Cost of War Reporting (Feb. 26, 2007).
[18] GAO-07-76.
[19] GAO, Defense Logistics: Army and Marine Corps Cannot Be Assured
Equipment Reset Strategies Will Sustain Equipment Availability While
Meeting Ongoing Operational Requirements, GAO-07-814 (Washington D.C.:
Sept. 19, 2007).
[20] Reset is defined as the costs to repair, replace, and recapitalize
equipment.
[21] GAO, DOD Budget: Analysis of Options for Funding Contingency
Operations, GAO/NSIAD-94-152BR, (Washington, D.C.: Apr. 26, 1994);
Future Years Defense Program: Actions Needed to Improve Transparency of
DOD's Projected Resource Needs, GAO-04-514 (Washington, D.C.: May 7,
2004); and GAO-06-885T.
[22] Department of Defense, Financial Management Regulation, 7000.14-R,
vol. 12, ch. 23, p. 28 (September 2005).
[23] Department of Defense, Financial Management Regulation, 7000.14-R,
vol. 12, ch. 23, p. 28 (September 2005).
[24] The burn rate for October represents the average of cumulative
obligations for the prior fiscal year.
[25] The other 4 missing explanations were due to DOD components
reporting GWOT obligations for the first time.
[26] GAO-07-76.
[27] Department of Defense Financial Management Regulation, 7000.14-R,
vol.12, ch. 23, p. 28 (September 2005).
[28] The 25 DOD components include the Air Force, Army, Navy, and
Marine Corps and 21 other components including American Forces
Information Services, Counterintelligence Field Activity, Defense
Contract Audit Agency, Defense Contract Management Agency, Defense
Health Program, Defense Intelligence Agency, Defense Information
Systems Agency, Defense Logistics Agency, Defense Legal Services
Agency, Department of Defense Education Activity, Defense Security
Cooperation Agency, Defense Threat Reduction Agency, Department of
Defense Inspector General, Joint Chiefs of Staff, National Geospatial-
Intelligence Agency, National Security Agency, Office of the Secretary
of Defense, Office of the Undersecretary of Defense, Office of the
Assistant Secretary of Defense, Special Operations Command, and the
Washington Headquarters Services.
[29] The Defense Contract Management Agency submitted 5 affirmations,
Defense Threat Reduction Agency submitted 2 affirmations, and National
Security Agency submitted 5 affirmations.
[30] We compared what was appropriated for GWOT to the Army, Navy,
Marine Corps and Air Force, for both active and reserve forces, in
military personnel, operation and maintenance, and procurement to
reported obligations, because these appropriations represent about 88
percent of the funds available in fiscal year 2007.
[31] Of the $161.8 billion, Congress provided $67.4 billion in Title IX
of the Department of Defense Appropriations Act, 2007 as bridge funding
to support ongoing operations early in the fiscal year. Congress
provided the remaining $94.4 billion in the U.S. Troop Readiness,
Veterans' Care, Katrina Recovery, and Iraq Accountability Act, 2007.
[32] Analysis of Investments and Iraqi and Afghanistan Security Forces
Funds required a monthly review of reported costs compared to the
corresponding month on the annual spending plan.
[End of section]
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