TITLE: B-303145, Department of Defense--Transfer and Use of Defense Emergency Response Funds, December 7, 2005
BNUMBER: B-303145
DATE: December 7, 2005
*******************************************************************************************************
B-303145, Department of Defense--Transfer and Use of Defense Emergency Response Funds, December 7, 2005

   Matter of: Department of Defense--Transfer and Use of Defense Emergency
   Response Funds

   File: B-303145

   Date:  December 7, 2005

   DIGEST

   1. Generally, agencies are prohibited from transferring funds absent
   specific statutory authority. 31 U.S.C. sect. 1532. The Emergency
   Supplemental Act, 2002, Pub. L. No. 107-117, div. B, ch. 3, 115 Stat. 2299
   (Jan. 10, 2002), and the 2002 Supplemental Appropriations Act for Further
   Recovery from and Response to Terrorist Attacks on the United States, Pub.
   L. No. 107-206, 116 Stat. 820, 836 (Aug. 2, 2002), provided the Secretary
   of Defense the legal authority to transfer funds from the Defense
   Emergency Response Fund to other Department of Defense (DOD)
   appropriations.

   2. Transferred funds are available only for the purposes for which they
   are appropriated, unless otherwise provided by law. Funds transferred from
   the Defense Emergency Response Fund (DERF) to other DOD appropriations,
   however, were available for the purposes of the transferee appropriations
   because of the clear language in the 2002 Supplemental Appropriations Act
   for Further Recovery from and Response to Terrorist Attacks on the United
   States. It provided that funds transferred from DERF shall be merged with
   and be available for the same purposes as the appropriation to which
   transferred. Pub. L. No. 107-206, 116 Stat. 820, 836 (Aug. 2, 2002).

   3. Based on the information DOD provided, DERF and other appropriation
   accounts charged were available for the 20 projects at issue as approved.
   As described in the DOD documents provided, the 20 projects were
   sufficiently general in nature as to reasonably fall within the scope of
   the appropriations charged. However, as described in the DOD documents
   provided, some projects funded with Operation and Maintenance
   appropriations contemplated tasks that possibly involved construction.
   Accordingly, we recommend that DOD review these tasks to determine whether
   any tasks associated with the 20 projects involved military construction
   for which the charged O&M appropriation was unavailable. If DOD so
   determines, it should adjust its appropriation accounts accordingly.

   DECISION

   We are issuing this decision under 31 U.S.C. sections 712, 717, and 3526,
   in response to congressional interest in the Department of Defense's (DOD)
   April 21, 2004, testimony concerning its use of approximately $178 million
   of appropriated funds for projects that DOD approved in connection with
   the global war on terrorism near the end of fiscal year 2002.
   Specifically, we address whether DOD's use of these appropriated funds for
   certain projects approved near the end of fiscal year 2002 was
   unauthorized because the projects supported the subsequent conflict in
   Iraq.

   In this decision, we provide information from DOD documents about the
   relationship among the $178 million cited in DOD's testimony, the related
   projects, and their funding sources, and address two legal questions.
   First, whether the transfer of funds from DOD's Defense Emergency Response
   Fund (DERF)[1] to regular DOD appropriation accounts was authorized?
   Second, whether the appropriations funding the projects, either directly
   or through transfers, were available for the purposes for which they were
   used?

   As discussed below, some DOD records indicate that the $178 million cited
   in DOD's 2004 testimony relates to an initial DOD approval late in fiscal
   year 2002 of funding requirements for 20 projects.[2] Other DOD records,
   however, indicate that the actual scope and funding source of some
   projects differed from those identified in the initial approval
   documentation and the amount of funding for them increased or decreased.
   Accordingly, the $178 million does not precisely reflect the funds that
   were actually made available for the projects or the amounts actually
   obligated or expended on them.

   Of the 20 projects, DOD records indicate that 7 projects were funded with
   funds directly appropriated to various regular DOD appropriation accounts,
   although DOD records indicate that funds had been allocated from DERF for
   3 of these 7 projects when DOD initially approved the projects. According
   to records DOD provided us, DERF funds were made available for 13
   projects.[3] DOD directly cited DERF as the funding source for 4 of the 13
   projects and has characterized its funding actions for these projects as a
   release but not a transfer of DERF funds. For some of the four projects,
   obligations were initially charged against regular DOD appropriation
   accounts and adjustments were later made to use DERF to reimburse the
   appropriation account previously charged. For 9 of the 13 projects, DOD
   transferred DERF funds to the Operations and Maintenance (O&M)
   appropriation accounts for the Department of the Army or the Department of
   the Air Force and as the projects progressed, obligations for the projects
   were charged directly to the applicable O&M account.

   Regarding the first legal issue, the general rule is that appropriations
   may be transferred between appropriation accounts only to the extent
   authorized by law. As mentioned above, for some projects in which DOD
   directly cited DERF as the project's funding source, DOD documents also
   characterize DERF as reimbursing another DOD appropriation account
   previously charged with funding the project. The first appropriations act
   that directly appropriated funds to DERF explicitly authorized DERF to
   reimburse other DOD accounts for costs incurred after September 11, 2001,
   for certain purposes, including providing support to counter international
   terrorism and supporting national security. Regarding the DERF funds
   transferred to Army and Air Force O&M accounts for nine projects, the
   second appropriations act that directly appropriated funds to DERF
   explicitly authorized the transfers. The appropriations act did not
   require congressional notification before the Secretary of Defense
   transferred DERF funds, but the conference report for the act contained
   such a directive. The Under Secretary of Defense sent a timely
   notification to the chair and ranking members of various congressional
   committees.

   Regarding the second legal issue, DOD's position is that the $178 million
   was approved for projects that could have been used for other than the
   conflict in Iraq. Based on our review of the information DOD provided
   about the projects, and the related tasks performed and materials and
   services acquired, the 20 projects appear to have involved facilities,
   equipment, and services that were sufficiently general in nature to
   reasonably fall within the broad scope of the various appropriations
   charged. Accordingly, DOD's position is not unreasonable and the nexus
   some of the projects had to the eventual conflict in Iraq does not cause
   them to fall outside the scope of the appropriations charged. However, as
   described in the DOD documents provided, some projects funded with O&M
   appropriations contemplated tasks that possibly involved construction. To
   the extent O&M appropriations funded construction tasks whose funding
   would be limited to construction appropriation accounts, the O&M
   appropriations were not available for those tasks. The information DOD
   provided was not complete or detailed enough for us to definitively
   resolve this matter.[4] Accordingly, we recommend that DOD review these
   tasks to determine whether any tasks associated with the 20 projects
   involved military construction for which O&M appropriations were
   unavailable. To the extent DOD so determines, it should adjust its
   appropriation accounts accordingly.[5]

   BACKGROUND

   On April 21, 2004, the Committee on Armed Services of the United States
   House of Representatives conducted a public hearing on Iraq's transition
   to sovereignty.[6] During the hearing, committee members asked one of the
   witnesses, then Deputy Secretary of Defense Paul Wolfowitz, about a public
   report that $750 million was spent for the conflict in Iraq before
   Congress had passed a war powers resolution[7] and that the $750 million
   had been drawn from various accounts without proper communication with
   Congress.[8] The Deputy Secretary acknowledged that in considering what
   tasks to fund from appropriations for the response to the September 11,
   2001, terrorist attacks on the United States, DOD initially considered
   some tasks that could be viewed as specifically for Iraq before enactment
   of the Iraq resolution. The Deputy Secretary further testified, however,
   that DOD scrubbed out all tasks specifically for Iraq, leaving $178
   million for the "global war on terrorism, general application" and tasks
   that were "designed to strengthen [DOD's] capabilities in the region or to
   support ongoing operations."[9]

   After the hearing, congressional interest continued in the tasks Deputy
   Secretary Wolfowitz referred to in his testimony, whether DOD had
   transferred funds to execute the related projects and, if so, whether
   Congress had been consulted to the extent required by law. In light of the
   Deputy Secretary's testimony, we limited our inquiry to the $178 million
   made available for the associated projects.

   In addition to providing information about the relationship among the $178
   million cited in DOD's testimony, the related projects, and their funding
   sources, our objective was to address two legal questions. First, whether
   the transfer of funds from DERF to other DOD appropriation accounts was
   authorized? Second, whether the appropriations funding the projects,
   either directly or through transfers, were available for the purposes for
   which they were used?

   DISCUSSION

   Appropriations Acts

   The Deputy Secretary's testimony generally refers to funds Congress
   appropriated in 2001 and 2002 to finance the response to the September 11,
   2001, terrorist attacks on the United States. The testimony did not,
   however, identify the specific appropriation that supported the $178
   million that is the subject of this decision. The three appropriation acts
   enacted in 2001 and 2002 that funded the President's Emergency Response
   Fund (ERF) and DOD's Defense Emergency Response Fund (DERF) are summarized
   below.

   After the terrorist attacks of September 11, 2001, the Congress
   established a $40 billion ERF to deal with the attacks' consequences. 2001
   Emergency Supplemental Appropriations Act for Recovery from and Response
   to Terrorist Attacks on the United States, Pub. L. No. 107-38, 115 Stat.
   220 (Sept. 18, 2001) (2001 Emergency Supplemental). The 2001 Emergency
   Supplemental appropriated these

   funds to the President and made ERF available for the costs of "providing
   support to counter, investigate, or prosecute domestic or international
   terrorism," and "supporting national security," among other things. Id.

   The Congress gave considerable flexibility to the President by making the
   $40 billion available until expended and authorizing the President to
   transfer the funds to any authorized federal government activity. Id. The
   2001 Emergency Supplemental, however, also provided differing types of
   congressional involvement in the availability and use of different
   portions of the $40 billion appropriated. It required the President to
   consult with the chairmen and ranking minority members of the Committees
   on Appropriations before transferring any funds. The 2001 Emergency
   Supplemental did not establish any other administrative or legislative
   requirements in connection with the Presidential transfer of the first $10
   billion of the $40 billion appropriated to ERF.

   The 2001 Emergency Supplemental provided for additional congressional
   involvement in the President's use of $30 billion of the $40 billion
   appropriated to ERF. It provided that $10 billion was not available for
   transfer to any agency until 15 days after the Director of the Office of
   Management and Budget (OMB) had submitted to the Appropriations Committees
   a proposed allocation and plan for the agency's use of the funds to be
   transferred. Id. Regarding the remaining $20 billion, those funds could be
   obligated only when enacted in a subsequent emergency appropriations bill.
   Id., 115 Stat. 221. The 2001 Emergency Supplemental also required the
   President to send an amended budget request proposing an allocation of
   funds and OMB to report quarterly on the use of the funds to the
   Appropriations Committees. Id.

   DERF was a distinct account to support DOD's efforts to respond to, or
   protect against, acts or threatened acts of terrorism. Of the $40 billion
   the 2001 Emergency Supplemental appropriated to ERF, approximately $15
   billion was transferred to DERF. [10] The vast majority of the $15 billion
   was administratively transferred pursuant to the President's authority to
   transfer provided by the 2001 Emergency Supplemental. The Presidential
   transfers from ERF to DERF occurred in a series of transfers totaling $20
   billion beginning September 21, 2001, involving accounts throughout
   government. [11] In addition to ERF funds administratively transferred,
   almost $3.4 billion was statutorily transferred from ERF to DERF.
   Specifically, of the $20 billion that the 2001 Emergency Supplemental
   appropriated to ERF but limited its availability for obligation to the
   enactment of subsequent emergency appropriations, the Emergency
   Supplemental Act, 2002, transferred $3.396 billion from ERF to DERF for
   such purposes as increased situational awareness, increased worldwide
   posture and offensive counterterrorism.[12]

   Section 301 of the Emergency Supplemental Act, 2002, also contained
   general provisions applicable to DERF funds. Relevant to the matters
   before us, section 301 provides that the amounts in DERF are available for
   the purposes set forth in the 2001 Emergency Supplemental, which, as
   stated above, included such purposes as providing support to counter,
   investigate, or prosecute domestic or international terrorism, and
   supporting national security. Pub. L. No. 107-38, 115 Stat. 2299. Section
   301 also made DERF available to reimburse other DOD appropriations for
   costs incurred on or after September 11, 2001, for the purposes set forth
   in the 2001 Emergency Supplemental. Id. Section 301 also authorized the
   Secretary of Defense to transfer funds from DERF to any defense
   appropriation account, in which case the transferred funds would be merged
   with and available for the same purposes as the transferee appropriation.
   Id., 115 Stat. 2300. Finally, section 301 required the Secretary of
   Defense to quarterly "provide to the Congress a report (in unclassified
   and classified form, as needed) specifying the projects and accounts to
   which funds provided in the [Emergency Supplemental Act, 2002, to DERF]
   are to be transferred." Id.

   The documents DOD provided use the term "DERF-1" to describe funds
   initially appropriated to ERF by the 2001 Emergency Supplemental and later
   made available to DERF. The documents do not distinguish between ERF funds
   that the President transferred to DERF as authorized by the 2001 Emergency
   Supplemental and the $3.396 billion that the Emergency Supplemental Act,
   2002, transferred from ERF to DERF.

   In addition to the approximately $15 billion DERF received from transfers
   from ERF, DERF also received direct appropriations in fiscal year 2002.
   Specifically, the 2002 Supplemental Appropriations Act for Further
   Recovery from and Response to Terrorists Attacks on the United States
   (2002 Supplemental) appropriated $11.9 billion to DERF, which would remain
   available through fiscal year 2003.[13] Congress appropriated these funds
   as a lump sum to DERF as requested by the President with the expectation
   that they would be transferred to DOD's regular appropriation accounts for
   execution.[14] The documents DOD provided use the term "DERF-2" to refer
   to the funds the 2002 Supplemental directly appropriated to DERF.

   Projects and Their Funding Sources

   We did not conduct an audit or investigation of the funds cited in the
   Deputy Secretary's April 21, 2004, testimony or the projects they
   financed. Rather, to address the two legal questions presented above, we
   sent two development letters to DOD seeking information and supporting
   documents on its use of the $178 million cited in the testimony.[15] In
   response to our inquiry, DOD identified 20 projects relating to the $178
   million cited in the testimony and provided documents containing summary
   and detailed project and funding information for the projects. However,
   the completeness of the information provided varied significantly by
   project. We concluded our factual inquiry when DOD informed us that it was
   unable to provide us with all the project obligating documents we
   requested.[16]

   Of the 20 projects DOD identified as related to the $178 million, DOD
   documents indicate that regular DOD appropriation accounts were directly
   charged for seven projects. For six of the seven projects, the following
   appropriations were charged without utilizing what DOD characterized as
   DERF-1 or DERF-2 funds: fiscal year 2002 O&M, Air Force (three projects);
   fiscal year 2003 O&M, Marine Corps; fiscal years 2001/2002 and 2002/2003
   Overseas Humanitarian, Disaster and Civic Aid; and fiscal year 2002 O&M,
   Defense-wide. The seventh project was directly charged primarily to fiscal
   year 2002, Other Procurement, Army, although about $400,000 was allocated
   from DERF-2. DOD's summary response to our inquiry shows an initial
   approval amount for these seven projects of almost $27 million of the $178
   million. As previously mentioned, the $178 million is an initial approval
   amount and the project specific documentation DOD provided us shows that
   the funding for some of these projects changed substantially. For example,
   for the project involving the Overseas Humanitarian, Disaster and Civic
   Aid appropriations, DOD's initial approval amount was $11.5 million but
   the amount obligated was $5.8 million. For one of the projects involving
   the fiscal year 2002 O&M, Air Force appropriation, the initial approval
   amount was $2.1 million but the scope of the project changed significantly
   and its total cost was only about $624,000.

   For four projects, DOD approved and charged DERF-1 funds. As previously
   discussed, DOD used DERF-1 to describe funds initially appropriated to ERF
   by the 2001 Emergency Supplemental and later made available to DERF. DOD
   initially identified regular DOD appropriations for these projects.
   Documents DOD provided us show that funding for these projects was changed
   from the regular DOD appropriation to DERF-1 either by directly charging
   DERF-1 or by using DERF-1 to reimburse the regular appropriation charged.
   Either of these approaches to using what DOD characterizes as DERF-1 was
   authorized by the Emergency Supplemental Act, 2002.

   DOD's summary response to our inquiry shows an initial approval amount for
   these four projects of over $43 million of the $178 million. However, as
   with some of the seven projects directly charged to regular DOD
   appropriations, the project specific documentation DOD provided us shows
   that the source and amount of funding for some of the four projects
   ultimately charged to DERF-1 changed substantially. For example, DOD's
   summary response to our inquiry shows that the initially approved funding
   for 1 project was $6.96 million -- about $6.4 million from Air Force
   Procurement and $600,000 from Army O&M. The contract for this project was
   initially supported with the Air Force funding. The contract was
   subsequently amended to shift the funding from Air Force to Army.
   Ultimately, a Military Interdepartmental Purchase Request changed the
   funding source to DERF-1 for almost $5 million.

   Finally, of the 20 projects and $178 million that are the subject of this
   decision, DOD approved and used DERF-2 funding for nine projects.[17] The
   amount of DERF-2 funding initially approved for these nine projects was
   over $108 million. Unlike DERF-1 funding in which either obligations were
   directly charged to DERF or DERF was used to reimburse regular DOD
   appropriations previously charged with obligations, DERF-2 represents
   funds transferred to and merged with regular DOD appropriation accounts.
   Seven of the nine projects were financed with DERF-2 funds that DOD
   transferred to fiscal year 2002 Army O&M. The other two projects were
   financed with DERF-2 funds that DOD transferred to fiscal year 2002 Air
   Force O&M. The transfers are discussed below.

   Transfer of DERF-2 Funds

   The transferred DERF-2 funds that DOD attributed to the nine projects
   identified in response to our inquiry were a small part of much larger
   transfers DOD executed at the end of fiscal year 2002. The 2002
   Supplemental appropriated $11.9 billion to DERF. Of this amount, DOD
   transferred $526 million to the fiscal year 2002 Army O&M appropriation.
   Memorandum for Assistant Secretary of the Army (Financial Management and
   Comptroller) from John M. Evans, Director for Operations and Personnel,
   Office of the Under Secretary of Defense (Sept. 6, 2002). DOD also
   transferred $543 million to the fiscal year 2002 Air Force O&M
   appropriation. Memorandum for Assistant Secretary of the Air Force
   (Financial Management and Comptroller) from John M. Evans, Director for
   Operations and Personnel, Office of the Under Secretary of Defense (Sept.
   6, 2002).

   Of the $526 million transferred to the fiscal year 2002 O&M, Army
   appropriation, over $88 million was initially approved for seven of the
   projects identified in response to our inquiry. Of the $543 million
   transferred to the fiscal year 2002 Air Force O&M appropriation, $20
   million was initially approved for 2 of the DOD-identified projects.[18]

   These transfers were authorized. A transfer is defined as the shifting of
   funds between appropriations.[19] Agencies are prohibited from
   transferring funds unless they have statutory authority to do so. 31
   U.S.C. sect. 1532. In making appropriations to DERF, Congress explicitly
   provided DOD with statutory authority to transfer those funds to regular
   DOD appropriation accounts. Specifically, the appropriation to DERF
   provided that "the Secretary of Defense may transfer the funds provided
   herein only to appropriations for military personnel; operation and
   maintenance; procurement; research, development, test and evaluation . . .
   ." Pub. L. No. 107-206, 116 Stat. at 836.

   Thus, the language of the 2002 Supplemental is clear on its face.[20] The
   2002 Supplemental authorized the Secretary to transfer funds appropriated
   to DERF to O&M, Army, O&M, Air Force, and other regular appropriations
   identified in the statute.

   Further, the 2002 Supplemental does not require the Secretary to notify
   Congress before transferring DERF funds. The conference report on the 2002
   Supplemental, however, does contain the following notification directive:

   "the conferees agree . . . with the Senate's directive that the Department
   of Defense notify the Committees on Appropriations prior to transferring
   DERF funds to appropriations accounts."

   H.R. Conf. Rep. No. 107-593, at 130 (2002). The Department followed this
   directive.[21]

   Availability of Funds as to Purpose

   The basic rule is that appropriated funds are available only for the
   purposes for which they are appropriated. 31 U.S.C. sect. 1301(a).
   Agencies, however, have reasonable discretion in determining how to carry
   out the objects of an appropriation. "It is a well-settled rule of
   statutory construction that where an appropriation is made for a
   particular object, by implication it confers authority to incur expenses
   which are necessary or proper or incident to the proper execution of the
   object." 6 Comp. Gen. 619, 621 (1927). In applying this concept, commonly
   known as the "necessary expense doctrine," we consider whether the
   expenditure is reasonably related to the purposes that Congress intended
   the appropriation to fulfill.[22] Thus, to assess whether DOD had funds
   available for the 20 projects, we must consider the authorized purposes of
   the appropriations that provided the funding.

   Preliminary Issue

   As a preliminary matter, we must properly frame the issue. In our opinion,
   the issue is not whether given the relationship between the projects and
   the conflict in Iraq, the appropriations DOD charged for these projects
   were available for the Iraq conflict prior to the October 16, 2002, war
   powers resolution. As explained below, this formulation of the issue
   assumes a direct and exclusive relationship between the projects and the
   Iraq conflict that the record before us does not support.

   The Department does not dispute that the projects had utility for the
   conflict in Iraq. Rather, DOD asserts that it delayed any projects that
   appeared to be exclusive to Iraq and the $178 million it approved late in
   fiscal year 2002 was for projects that had general application.
   Specifically, Deputy Secretary Wolfowitz testified that the $178 million
   was approved for projects "that had application to Iraq if we did Iraq but
   they were needed elsewhere." [23] The Deputy Secretary similarly testified
   that the $178 million was for the "global war on terrorism, general
   application" and tasks that were "designed to strengthen [DOD's]
   capabilities in the region or to support ongoing operations."[24]

   The more recent DOD response to our inquiry is consistent with the Deputy
   Secretary's testimony. We met with DOD officials who asserted that the
   projects supported the global war on terrorism. Since the funds were
   available for the general purpose of supporting the global war on
   terrorism, the funds were used for the purposes for which they were
   available. Meeting attended by Susan A. Poling, Managing Associate General
   Counsel, GAO; Thomas H. Armstrong, Assistant General Counsel for
   Appropriations Law, GAO; F. Abe Dymond, Assistant General Counsel, GAO; E.
   Scott Castle, Deputy General Counsel (Ethics and Fiscal), DOD; and Roger
   Pitkin, Senior Attorney Adviser (Fiscal), DOD (Jan. 13, 2005).

   Based on our review of the project information DOD provided, DOD's
   position is not unreasonable. Certainly the title or summary description
   of some projects approved late in fiscal year 2002 suggests a close nexus
   to the subsequent conflict in Iraq. However, we did not identify specific
   tasks that were performed, or goods or services that were acquired, before
   the October 16, 2002, war powers resolution that DOD could have utilized
   only for the Iraq conflict. In any event, the fact that there ultimately
   was a conflict in Iraq and these projects furthered DOD's effort in that
   conflict does not drive our analysis of whether the appropriations used
   for the 20 projects were available for those purposes.

   Direct Charge to Regular DOD Appropriations

   We turn next to the appropriations that funded the 20 projects. As
   discussed above, the $178 million approved for 20 projects came from three
   categories of DOD funding. The first category comprises regular DOD
   appropriation accounts, which were directly charged for 7 projects. For
   this category, we must of course look to the purposes associated with the
   each of the appropriations charged.

   For 5 of the 7 projects, the regular DOD appropriations accounts directly
   charged were fiscal year 2002 O&M appropriations for DOD or one of the
   military services. These projects generally involved preparing and
   upgrading facilities and equipment. O&M appropriations are generally
   understood to be available for the purpose of funding an agency's
   day-to-day operations and providing for the maintenance of its equipment
   and facilities.[25] This general understanding is reflected in the reports
   of the House of Representatives and the Senate Appropriations Committees
   on the Department of Defense Appropriation Act, 2002.[26] With respect to
   the military in fiscal year 2002, O&M funds are available for operating
   and maintaining the Armed Forces, including related DOD support
   activities. H.R. Rep. No. 107-298, at 41 (2001). O&M funds provide the
   resources required to prepare and conduct combat operations and other
   peace time missions. S. Rep. No. 107-109 at 28 (2001). They are also
   available to pay for services for maintenance and repairs of equipment and
   facilities, the purchase of fuel, supplies and spare parts for weapons and
   equipment. Id.

   For the sixth and seventh projects, DOD used accounts other than fiscal
   year 2002 O&M accounts. The sixth project consisted of purchasing
   humanitarian rations to feed civilians in the Central Command's area of
   responsibility. DOD funded this project from the fiscal year 2002/2003
   Overseas Humanitarian, Disaster, and Civic Aid appropriation, which was
   available "[f]or expenses relating to the Overseas Humanitarian, Disaster,
   and Civic Aid programs of the Department of Defense." Pub. L. No. 107-117,
   115 Stat. at 2237. The seventh project involved the purchase of satellite
   antennas and other satellite communications equipment. It was funded from
   the fiscal year 2002 Other Procurement, Army, appropriation, which was
   available for such purposes as "communications and electronic equipment."
   Pub. L. No. 107-117, 115 Stat. at 2239.

   The activities associated with the 7 projects that were funded by the
   appropriations described above involved property, equipment, and related
   services that appear to be of the type that DOD could reasonably acquire
   or perform as part of its normal use of those appropriations. Accordingly,
   the goods and services associated with these 7 projects appear to fall
   within the scope of the appropriations used to fund them.

   DERF-1 Funds

   The second category of DOD funding comprises four projects charged to what
   DOD characterizes as DERF-1. For this category, we look not only to the
   purposes of the Emergency Supplemental Act, 2002, but also to the 2001
   Emergency Supplemental. The Emergency Supplemental Act, 2002, transferred
   almost $3.4 billion from ERF to DERF and made specific amounts available
   for specific purposes, such as $850 million for situational awareness,
   $1.495 billion for increased worldwide posture, and $372 million for
   offensive counterterrorism. Pub. L. No. 107-117, 115 Stat. 2299. DERF also
   received almost $12 billion from ERF in Presidential transfers authorized
   by the 2001 Emergency Supplemental. Section 301 of the Emergency
   Supplemental Act, 2002, makes clear that DERF is available for the
   purposes set forth in the 2001 Emergency Supplemental. Id. These purposes
   included providing support to counter, investigate, or prosecute domestic
   or international terrorism, and supporting national security. Pub. L.
   107-38, 115 Stat. 220. Because DOD did not distinguish between the DERF
   funds the President transferred, which would be available for the broad
   purposes set forth in the 2001 Emergency Supplemental, and the DERF funds
   the Congress legislatively transferred, which would be available in the
   amounts and for the purposes Congress legislated in the Emergency
   Supplemental Act, 2002, we consider the four projects supported by DERF-1
   funding in the context of the purposes of both statutes.

   The four DERF-1 projects involved expanding and upgrading facilities,
   upgrading and modifying communications equipment, and obtaining
   communications services. The 2001 Emergency Supplemental is available for
   such purposes as providing support to counter, investigate or prosecute
   domestic or international terrorism and supporting national security, and
   the Emergency Supplemental Act, 2002, is available for such purposes as
   increased situational awareness, increased worldwide posture and offensive
   counterterrorism. The four projects are not by their nature inconsistent
   with the broad purposes of either of these Acts. Accordingly, the goods
   and services associated with these four projects appear to fall within the
   scope of the appropriations used to fund them.

   DERF-2 Funds

   The third category comprising the nine projects funded by the 2002
   Supplemental, which DOD characterizes as DERF-2 funds, presents an issue
   that does not arise with the other two categories. The 2002 Supplemental
   appropriated almost $12 billion to DERF and authorized the Secretary of
   Defense to transfer funds to certain regular DOD appropriation accounts.
   Pub. L. No. 107-206, 116 Stat. at 836. The general rule is that
   transferred funds are available only for the purposes provided by the act
   appropriating the funds. 31 U.S.C. sect. 1532. Section 1532 recognizes,
   however, that Congress may provide otherwise by law.

   The 2002 Supplemental is just such a law. In addition to authorizing funds
   to be transferred, the 2002 Supplemental provided that ". . . any funds
   transferred shall be merged with and shall be available for the same
   purposes and for the same time period as the appropriation to which
   transferred . . . ." 116 Stat. 836.

   Because this provision specifies that transferred funds shall be merged
   with the appropriation to which they are transferred, the funds DOD
   transferred from DERF to the appropriations used to fund 9 projects are
   available for the purposes of the appropriations to which they were
   transferred. Accordingly, we look to the purposes of those appropriations
   to determine whether the appropriations charged were available for the
   purposes of the objects identified.

   The two appropriation accounts to which DOD transferred DERF funds for the
   nine projects were Army and Air Force O&M. The activities associated with
   the nine projects that were funded by the O&M appropriations included
   transporting and storing of ammunition, materials and rolling stock;
   installing and maintaining fuel pumps; establishing or improving
   facilities; buying satellite antennas; and leasing electric generators.

   As previously discussed, O&M appropriations are available generally for
   funding day-to-day operations and providing for the maintenance of its
   equipment and facilities. The activities associated with the 9 projects
   funded by the O&M appropriations involved property, equipment, and related
   services that appear to be of the type that DOD could reasonably acquire
   or perform using those appropriations. Accordingly, the goods and services
   associated with these 7 projects appear to be sufficiently general in
   nature as to reasonably fall within the scope of the appropriations used
   to fund them.

   Military Construction Issue

   With respect to the projects funded with O&M appropriations, either
   directly or through the transfer of DERF-2 funds, an additional issue
   exists. While the goods and services associated with the projects appear
   to be sufficiently general in nature as to reasonably fall within the
   scope of the O&M appropriations, some of these projects as described in
   the DOD documents provided to us appear to have contemplated tasks that
   possibly involved construction.

   The military construction statutes limit DOD's use of O&M funds for each
   military construction project to $750,000 (or a higher amount if unique
   conditions are met);[27] otherwise DOD must use its military construction
   appropriations. A military construction project includes "all military
   construction work ... necessary to produce a complete and usable facility
   or a complete and usable improvement to an existing facility."[28] Under
   this statutory definition, military construction includes activities "with
   respect to a military installation."[29] Further, these statutes provide a
   broad definition of the term "military installation."[30]

   In response to our request to DOD to provide project documentation for any
   construction associated with these projects and to identify the legal
   authority to expend O&M funds for any such construction, DOD provided some
   limited project documentation and cited to a February 2003 memorandum from
   the Under Secretary of Defense (Comptroller)[31] as reflective of DOD's
   legal authority. As explained to us in meetings with representatives of
   the DOD Office of General Counsel, this memorandum sets out criteria for
   the use of O&M funds consistent with DOD's longstanding legal view that
   O&M funds may be used for construction of a temporary nature in support of
   certain military operations.[32] In DOD's view, such temporary
   construction in the specified operations is not subject to the funding
   limitations prescribed by the military construction statutes, 10 U.S.C.
   sections 2801, 2802, 2805, 2811. DOD asserts that construction meeting the
   criteria set out in the memorandum is not subject to the military
   construction statutes because it is not of a "kind carried out with
   respect to a military installation" and therefore does not meet the
   definition of "military construction." In particular, DOD's view is that
   real property used by it on a temporary basis under the specified
   circumstances does not fall within the meaning of the term "military
   installation," regardless of the inherent permanency of the construction
   work. In our meeting with DOD officials, they informed us that, as of the
   time DOD approved these projects, DOD had no reasonable expectation of a
   long-term interest in the real property associated with the projects.

   We have recognized that construction work of a temporary nature may be
   funded with DOD's O&M funds in "extremely limited" circumstances.[33] In
   particular, in applying the principles derived from our earlier cases
   interpreting a longstanding prohibition[34] on using appropriations to
   fund contracts for construction of "public improvements,"[35] we have held
   that the military construction statutes do not cover the types of work
   that are "clearly of a temporary nature" as addressed in those cases.[36]
   In reviewing the limited documentation provided by DOD, we were unable to
   determine whether the construction components of any of the projects were
   of such a temporary nature that the military construction statutes would
   not apply. Further, we have not addressed DOD's interpretation of the term
   "military installation" for purposes of the analysis in DOD's February
   2003 memorandum. In any event, Congress responded unfavorably to DOD's
   February 2003 memorandum.[37] Also, Congress has enacted subsequent
   legislation that imposed controls over DOD's use of O&M funds for
   construction meeting the criteria set out in the memorandum."[38]

   To the extent O&M appropriations funded construction tasks whose funding
   would be limited to construction appropriation accounts, the O&M
   appropriations were not available for those tasks. Accordingly, we
   recommend that DOD review these tasks to determine whether any tasks
   associated with the 20 projects involved military construction for which
   the charged O&M appropriation was unavailable. If DOD so determines, it
   should adjust its appropriation accounts accordingly.

   CONCLUSION

   Regarding the first legal issue, the 2002 Supplemental that directly
   appropriated funds to DERF explicitly provided authority for their
   transfer to Army and Air Force O&M accounts for 10 projects. The 2002
   Supplemental did not require congressional notification before the
   Secretary of Defense transferred DERF funds, but the conference report for
   the act contained such a directive. The Under Secretary of Defense sent a
   timely notification to the chair and ranking members of various
   congressional committees.

   Regarding the second legal issue, based on the information DOD provided,
   DERF and other appropriation accounts charged were available for the 20
   projects as approved. As described in the DOD documents provided, the 20
   projects were sufficiently general in nature as to reasonably fall within
   the scope of the appropriations charged. However, as described in the DOD
   documents provided, some projects funded with O&M appropriations
   contemplated tasks that possibly involved construction. Accordingly, we
   recommend that DOD review these tasks to determine whether any tasks
   associated with the 20 projects involved military construction for which
   the charged O&M appropriation was unavailable. If DOD so determines, it
   should adjust its appropriation accounts accordingly.

   /signed/

   Anthony H. Gamboa
   General Counsel

   ------------------------

   [1] DERF was a distinct account to support DOD's efforts to respond to, or
   protect against, acts or threatened acts of terrorism. It received
   appropriations made directly to it and transfers from appropriations made
   to the President.

   [2] DOD classified some of the records it provided us. Accordingly, we
   refer to the projects only at a high level of generality throughout this
   decision.

   [3] One project received the vast majority of its funds from a regular DOD
   appropriation account and an insignificant amount from DERF. We categorize
   this project for ease of presentation as having been funded from a regular
   DOD appropriation. See infra note 17.

   [4] We were unable to determine if the actual amounts charged for all the
   projects were proper because the documentation necessary to do so was not
   available to us. We requested DOD to provide us with copies of
   documentation to support all project obligations. DOD, however, told us
   that it was unable to obtain all the obligation documents and that it was
   unlikely that the documents existed or could be retrieved. DOD also
   pointed to the difficulty in retrieving documents from a theater of war.
   Meeting attended by Susan A. Poling, Managing Associate General Counsel,
   U.S. Government Accountability Office (GAO); Thomas H. Armstrong,
   Assistant General Counsel, GAO; F. Abe Dymond, Assistant General Counsel,
   GAO; E. Scott Castle, Deputy General Counsel (Ethics and Fiscal), DOD; and
   Roger Pitkin, Senior Attorney Adviser (Fiscal), DOD (Jan. 13, 2005).

   [5] This recommendation is made pursuant to 31 U.S.C. sect. 720.
   Accordingly, DOD should report to the Senate Committee on Homeland
   Security and Governmental Affairs, the House Committee on Government
   Reform, and the Senate and House Committees on Appropriations on actions
   taken in response to this recommendation.

   [6] Hearing on Iraq's Transition to Sovereignty: Hearing before the House
   Committee on Armed Services, 108th Cong., 2d Sess. (Apr. 21, 2004),
   hearing transcript available at
   http://commdocs.house.gov/committees/security/has112000.000/has112000_0htm
   (last visited Sept. 14, 2005).

   [7] Authorization for Use of Military Force Against Iraq Resolution of
   2002, Pub. L. No. 107-243, 116 Stat. 1498 (Oct. 16, 2002).

   [8] Hearing on Iraq's Transition to Sovereignty, at 67 (statement by Rep.
   Spratt); at 118 (statement by Rep. Meehan).

   [9] Hearing on Iraq's Transition to Sovereignty, at 67-68 (statement by
   Deputy Secretary Wolfowitz). See also the statement by Deputy Secretary
   Wolfowitz: "[the $178 million was for things that] had application to Iraq
   if we did Iraq, but they were needed elsewhere. What we took off of that
   list were those things that were exclusively Iraq preparatory." Id. at
   118. Mr. Wolfowitz also testified that after the October approval of the
   Iraq resolution, funds were soon made available to support Iraq
   preparatory tasks, including many of those that had been previously
   identified but scrubbed. Id. at 68.

   [10] GAO, Defense Budget: Tracking of Emergency Response Funds for the War
   on Terrorism, GAO-03-346 (Washington, D.C.: April 30, 2003).

   [11] Letter from the President to the Speaker of the House, Sept. 21, 2001
   (transmitting initial transfers of $5.1 billion from ERF to other
   appropriation accounts). See also, e.g., Letter from the President to the
   Speaker of the House, Nov. 9, 2001 (transmitting transfers of $9.3 billion
   from ERF to other appropriation accounts). These and similar letters,
   together with enclosures from the Director of OMB, were in furtherance of
   the congressional notification requirements in the 2001 Emergency
   Supplemental regarding Presidential transfers from ERF to other
   appropriation accounts of the first $20 billion that the 2001 Emergency
   Supplemental appropriated.

   [12] Department of Defense and Emergency Supplemental Appropriations Act
   for Recovery from and Response to Terrorists Attacks on the United States,
   2002, Pub. L. No. 107-117, div. B, ch. 3, 115 Stat. 2230, 2299 (Jan. 10,
   2002). As provided by the 2001 Emergency Supplemental, this act made the
   second $20 billion that the 2001 Emergency Supplemental had appropriated
   available for obligation in response to the President's submission of an
   emergency request. Letter from the President to the Speaker of the House,
   Oct. 17, 2001 (transmitting emergency funding requests totaling $20
   billion).

   [13] Pub. L. No. 107-206, 116 Stat. 820, 836 (Aug. 2, 2002). Of the $11.9
   billion appropriated, only $11.3 billion was placed in DERF because $602
   million would be available to DERF only after the President designated
   that amount as an emergency requirement in a new budget request. 116 Stat.
   837. See also GAO-03-346 at 18.

   [14] H.R. Rep. No. 107-480, at 14 (May 20, 2002); S. Rep. No. 107-156, at
   40-41 (May 29, 2002).

   [15] Letters from Susan A. Poling, Managing Associate General Counsel,
   GAO, to William J. Haynes, General Counsel, DOD, June 1, 2004, and Sept.
   14, 2004.

   [16] Supra note 4.

   [17] We included a project approved with about $8 million of Army
   Procurement funds and $400,000 of DERF-2 funds in the previous discussion
   of the seven projects charged directly to regular DOD appropriations.
   Accordingly, we do not include that project or its funding here for ease
   of presentation.

   [18] Documentation linking specific transferred funds to these projects is
   not available. DOD does not, nor is it required to, account for such
   linkage.

   [19] GAO, A Glossary of Terms Used in the Federal Budget Process,
   GAO-05-734SP (Washington, D.C.: September 2005), at 95.

   [20] See also H.R. Rep. No. 107-480, at 14 (2002) ("As requested by the
   President, the Committee has provided the majority of funding for Defense
   Department activities in the Defense Emergency Response Fund. The
   Committee directs the Department of Defense to transfer funds appropriated
   in the DERF to the Department's normal appropriations accounts for
   execution . . . .")

   [21] See, e.g., letters from Dov S. Zakheim, Under Secretary of Defense,
   to Robert Byrd, Chairman, Senate Committee on Appropriations, Bill Young,
   Chairman, House of Representatives Committee on Appropriations, Daniel K.
   Inouye, Chairman, Senate Appropriations Subcommittee on Defense, Jerry
   Lewis, Chairman, House of Representatives Appropriations Subcommittee on
   Defense, Aug. 28, 2002.

   [22] E.g., B-303170, Apr. 22, 2005; 63 Comp. Gen. 422, 427-428 (1984). The
   other two prongs of the necessary expense doctrine's three-part test are
   that the expenditure must not be prohibited by law and that the
   expenditure must not be otherwise provided for. Id. The latter prong may
   be implicated here, as reflected in the discussion below under the heading
   Military Construction Issue.

   [23] Hearing on Iraq's Transition to Sovereignty, at 118.

   [24] Hearing on Iraq's Transition to Sovereignty, at 67-68.

   [25] See, e.g., B-303170, Apr. 22, 2005: Justification of Operation and
   Maintenance, Army Estimates for Fiscal Year 2002, at 1.

   [26] Department of Defense and Emergency Supplemental Appropriations for
   Recovery from and Response to Terrorist Attacks on the United States Act,
   2002, Pub. L. No. 107-117, div. A, 115 Stat. 2230 (Jan. 10, 2002).

   [27] 10 U.S.C. sect. 2805(c).

   [28] 10 U.S.C. sect. 2801(b). See, e.g., B-234326 (Dec. 24, 1991)
   (acquisition of 12 trailers is a single military construction project
   because the 12 trailers were "interrelated" and constituted a "complete
   and usable facility").

   [29] 10 U.S.C. sect. 2801(a) (defining "military construction" to include
   "any construction, development, conversion, or extension of any kind
   carried out with respect to a military installation, whether to satisfy
   temporary or permanent requirements").

   [30] 10 U.S.C. sect. 2801(c)(2) (defining "military installation" to mean
   "a base, camp, post, station, yard, center, or other activity under the
   jurisdiction of the Secretary of a military department or, in the case of
   an activity in a foreign country, under the operational control of the
   Secretary of a military department or the Secretary of Defense, without
   regard to the duration of operational control").

   [31] Memorandum from Dov S. Zakheim, Under Secretary of Defense
   (Comptroller), to Assistant Secretary of the Army (Financial Management
   and Comptroller), Assistant Secretary of the Navy (Financial Management
   and Comptroller), Assistant Secretary of the Air Force (Financial
   Management and Comptroller, Comptrollers, Defense Agencies, Availability
   of Operations and Maintenance Appropriations for Construction, Feb. 27,
   2003.

   [32] Specifically, DOD states that it has been a long-standing practice to
   use O&M funds for construction if:

   "(1) There is a properly documented determination that the construction is
   necessary to meet an urgent military operational requirement of a
   temporary nature, while U.S. Armed Forces are participating in armed
   conflict or contingency operations, as defined under 10 U.S.C. sect.
   101(a)(13);

   (2) The construction will not be carried out at a military installation,
   as defined under 10 U.S.C. sect. 2801, or at a location where the U.S. is
   reasonably expected to have a long-term interest or presence; and,

   (3) The United States has no intention to use the construction after the
   operational requirement has been satisfied and the nature of the
   construction is the minimum necessary to meet the temporary operational
   need."

   Id.

   [33] 63 Comp. Gen. 422, 435 (1984).

   [34] Codified at 42 U.S.C. sect. 12.

   [35] See 42 Comp. Gen. 212, 214-15 (1962).

   [36] 63 Comp. Gen. 422, 435 (1984).

   [37] H.R. Conf. Rpt. No. 108-76, at 90 (Apr. 12, 2003) ("DOD argues that
   long-standing practice enables it to utilize [its] legal construct under
   certain circumstances despite its effect of vitiating and/or amending the
   underlying statute . . . . The conferees disagree with [DOD's]
   pronouncement, which effectively obviates the law and turns an alleged
   practice into de facto law.")

   [38] See Emergency Wartime Supplemental Appropriations Act, 2003, Pub. L.
   No. 108-11, sect. 1901(d), 117 Stat. 559, 587 (Apr. 16, 2003); Emergency
   Supplemental Appropriations Act for the Reconstruction of Iraq and
   Afghanistan, 2004, Pub. L. No. 108-106, sect. 1302, 117 Stat. 1209, 1221
   (Nov. 6, 2003).