Defense Budget: Need for Continued Visibility Over Use of	 
Contingency Funds (06-JUL-01, GAO-01-829).			 
								 
Since the end of the Persian Gulf War in February 1991, the	 
Department of Defense (DOD) has reported over $25 billion in	 
incremental costs for its overseas contingency operations. These 
operations include the enforcement of no-fly zones, humanitarian 
assistance, and peace enforcement operations. The majority of	 
these costs ($22 billion) have been incurred in the Balkans	 
(Bosnia and Kosovo) and Southwest Asia. In fiscal year 2001, U.S.
military forces are continuing to participate in a number of	 
contingency operations, primarily in the Balkans and Southwest	 
Asia. In this report, GAO reviews (1) the adequacy of DOD's	 
incremental contingency operations funding for all ongoing	 
contingency operations in fiscal year 2001, (2) DOD's estimated  
contingency operations costs for fiscal year 2002, and (3) the	 
ramifications of DOD's plan to change the method for funding its 
operations in Southwest Asia. GAO found that (1) existing funds  
are sufficient to cover DOD's estimated costs for ongoing	 
contingency operations for fiscal year 2001, (2) in June 2001,	 
the administration submitted a revised fiscal year 2002 budget	 
for DOD, which included $4 billion for ongoing operations in the 
Balkans and Southwest Asia, and (3) the positive ramification is 
that appropriating funds directly to the services' appropriations
accounts could provide an added incentive to better control	 
costs. The negative ramifications are the possible loss of	 
visibility for Southwest Asia funds because of the substantial	 
movement of funds within the services' operation and maintenance 
accounts as has occurred over a period of two years, and the	 
possible discontinuance of cost reporting for operations in	 
Southwest Asia. 						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-829 					        
    ACCNO:   A01355						        
  TITLE:     Defense Budget: Need for Continued Visibility Over Use of
             Contingency Funds                                                
     DATE:   07/06/2001 
  SUBJECT:   Defense cost control				 
	     Defense operations 				 
	     Financial management				 
	     Military appropriations				 
	     Defense budgets					 
	     Defense contingency planning			 
	     Future budget projections				 
	     Bosnia						 
	     Kosovo						 
	     NATO						 
	     Overseas Contingency Operations Transfer		 
	     Fund						 
								 
	     Persian Gulf War					 
	     Iraq						 

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GAO-01-829
     
Report to the Subcommittee on Defense, Committee on Appropriations, U. S.
Senate

United States General Accounting Office

GAO

July 2001 DEFENSE BUDGET Need for Continued Visibility Over Use of
Contingency Funds

GAO- 01- 829

Page 1 GAO- 01- 829 Defense Budget

July 6, 2001 The Honorable Daniel K. Inouye Chairman The Honorable Ted
Stevens Ranking Minority Member Subcommittee on Defense Committee on
Appropriations United States Senate

Since the end of the Persian Gulf War in February 1991, the Department of
Defense (DOD) has reported over $25 billion in incremental costs for its
overseas contingency operations. 1 These operations include the enforcement
of no- fly zones, humanitarian assistance, and peace enforcement operations.
The majority of these costs ($ 22 billion) have been incurred in the Balkans
(Bosnia and Kosovo) and Southwest Asia. In fiscal year 2001, U. S. military
forces are continuing to participate in a number of contingency operations,
primarily in the Balkans and Southwest Asia. Appendix I contains a map
depicting the location of DOD?s operations for fiscal year 2001.

In response to your request, we examined (1) the adequacy of DOD?s
incremental contingency operations funding for all ongoing contingency
operations in fiscal year 2001, (2) DOD?s estimated contingency operations
costs for fiscal year 2002, and (3) the ramifications of DOD?s plan to
change the method for funding its operations in Southwest Asia. At your
request, we are also continuing to examine DOD?s management of its
contingency operations expenditures, including the economy and efficiency
with which these funds are spent, and will report our results at a later
date.

1 As used in this report, ?incremental costs? means those directly
attributable costs that would not have been incurred if it were not for the
operation. It should be recognized that DOD?s financial systems cannot
reliably determine costs and that only the total obligations are captured by
the Department?s accounting systems. The services use various management
information systems to identify incremental obligations and to estimate
costs. Although we use the term costs throughout this report as a
convenience, we are actually referring to DOD?s obligation of funds.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 829 Defense Budget

Existing funds are sufficient to cover DOD?s estimated costs for contingency
operations for fiscal year 2001. In January 2001, the Office of the
Secretary of Defense (Comptroller) revised the estimates made in developing
the President?s fiscal year 2001 budget on the basis of information provided
by the military services and other defense agencies and its own assessment
of what constituted legitimate contingency costs. The Comptroller?s office
concluded that some costs had increased while other costs had decreased and
that, on balance, there was sufficient funding for fiscal year 2001. On the
basis of more current data through June 2001, we made an updated assessment
of fiscal year 2001 contingency operations? costs, concluding that existing
contingency funding was still sufficient to cover estimated costs and that
the latest available data suggested that about $121 million may remain
available at the end of the fiscal year. Accordingly, the administration?s
request for $32 million in additional appropriations for the Army reserve
component?s increased participation in contingency operations, which was
included in the original fiscal year 2001 supplemental appropriation
request, is unnecessary. The request for fiscal year 2001 supplemental
funding has since been amended, eliminating the $32 million and requesting
that the Congress rescind $61 million in funds previously appropriated for
contingency operations. The Department is taking action to reprogram the
remaining funds.

Since DOD developed its original fiscal year 2002 budget estimate for
contingency operations in fiscal year 2002, estimated costs have declined by
$284 million. Specifically, in April 2001, the Army in Europe estimated that
its costs in the Balkans may decline by as much as $284 million because of a
variety of factors, including reductions in the number of personnel and the
amount of equipment deployed there. In June 2001, the administration
submitted a revised fiscal year 2002 budget for DOD, which reflected the
$284 million decline. In addition, the administration is currently
conducting a review of its policy toward Iraq, the results of which could
affect the scope of DOD?s operations in Southwest Asia.

DOD is transferring the funding for its Southwest Asia operations to the
services? direct appropriations accounts beginning in fiscal year 2002
rather than fund these operations through its contingency operations fund,
which could have both positive and negative ramifications. The positive
ramification is that appropriating funds directly to the services?
appropriations accounts could provide an added incentive to better control
costs. The negative ramification is the possible loss of visibility for
Southwest Asia funds because of (1) the substantial movement of funds within
the services? operation and maintenance accounts as has occurred Results in
Brief

Page 3 GAO- 01- 829 Defense Budget

over a period of years and (2) the possible discontinuance of cost reporting
for operations in Southwest Asia.

We have identified several matters for congressional consideration regarding
the need for additional funds in fiscal year 2001, the need to ensure that
the President?s budget request for fiscal year 2002 is adjusted upon the
completion of the Iraq policy review to reflect the results of the review,
and steps that could be taken to mitigate the potentially negative
consequences of appropriating funds for Southwest Asia operations directly
to the services? appropriations accounts.

During fiscal year 2001, U. S. military forces are participating or have
participated in a number of contingency operations, and the Congress has
appropriated funds to cover DOD?s costs. The largest ongoing contingency
operations are in the Balkans and Southwest Asia. DOD budgets for the cost
of ongoing contingency operations, and the Congress has appropriated funds
for these operations to the services? military personnel accounts and the
Overseas Contingency Operations Transfer Fund (the Transfer Fund). DOD
transfers funds out of the Transfer Fund to the DOD components?
appropriation accounts as operations unfold during the year. Any moneys
remaining in the Transfer Fund at the end of a fiscal year remain available
until expended. In the case of new, expanded, or otherwise unfunded
operations, such as at the onset of operations involving Kosovo, costs are
not budgeted in advance. DOD?s components request funds from the Transfer
Fund as long as they are available or use funds appropriated for other
activities that are planned for later in the fiscal year. If these funds are
not replenished through supplemental appropriations or the reprogramming of
funds from other sources, the components have to absorb the costs within
their regular appropriations.

Out of the $25 billion in the incremental costs that DOD has reported for
overseas contingency operations since 1991, $15.1 billion has been for U. S.
military involvement in the Balkans through September 2000. U. S.
involvement in the Balkans began in July 1992 as part of humanitarian relief
efforts in Bosnia, Herzegovina, and Croatia and expanded in April 1993, when
the United States began to participate in the North Atlantic Treaty
Organization?s (NATO) enforcement of a no- fly zone over Bosnia and
Herzegovina. In December 1995, U. S. troops deployed as part of a
multilateral coalition under NATO command in and around Bosnia to assist in
implementing the General Framework Agreement (also known as the Dayton
Agreement). The number of U. S. military personnel in Bosnia has steadily
declined from about 18,000 in February 1996 to about 4,300 in Background

Page 4 GAO- 01- 829 Defense Budget

April 2001. In addition to U. S. military personnel in Bosnia, about 250 U.
S. military personnel are stationed in Hungary, which shares a border with
Bosnia, in support of operations in Bosnia.

In June 1999, the United States began providing troops for the NATO- led
Kosovo Force, whose mission is peace enforcement in Kosovo. The United
States is currently providing about 5,600 troops as part of a NATO force. In
addition, the United States has about 400 troops in Macedonia to operate a
staging base for U. S. troops entering and departing Kosovo.

From the end of the Persian Gulf War in 1991 through September 2000, DOD
reported $7. 1 billion in incremental costs for its operations in Southwest
Asia. U. S. forces have been involved in enforcing no- fly zones in
Southwest Asia since the end of the Persian Gulf War. The size of the U. S.
force varies substantially depending on the level of tension with Iraq. Of
the 15, 000- 20,000 personnel in the area, many are Navy and Marine Corps
personnel deployed on ships.

The funds that the Congress appropriated for fiscal year 2001 contingency
operations should be sufficient to cover the estimated costs for these
operations. In January 2001, DOD estimated that there were sufficient funds
for fiscal year 2001 operations but that these funds will be completely
utilized, leaving no carry over of funds in the Overseas Contingency
Operations Transfer Fund that could be applied to funding requirements for
fiscal year 2002. Our June 2001 analysis of DOD?s costs reached the same
conclusion: that there are sufficient funds for contingency operations in
fiscal year 2001 but that June 2001 data suggest that after adjusting for
cost increases and decreases about $121 million may be available at the end
of the fiscal year, owing largely to management efficiencies that the Army
in Europe has achieved in Balkan operations. Because funds already
appropriated are sufficient for DOD?s fiscal year 2001 operations, a
requested $32 million for contingency operations contained in the original
June 2001 request for supplemental funding in fiscal year 2001 for DOD is
unnecessary. The request for fiscal year 2001 supplemental funding has since
been amended, eliminating the $32 million and requesting that the Congress
rescind $61 million in funds previously appropriated for contingency
operations. DOD is taking action to reprogram part of the savings achieved
by the Army in Europe. Existing Funds Are

Sufficient to Cover the Cost of DOD?s Contingency Operations in Fiscal Year
2001

Page 5 GAO- 01- 829 Defense Budget

On the basis of its review of contingency operations costs, completed in
January 2001, DOD concluded that existing funds are sufficient to cover the
estimated cost of these operations. According to DOD?s budget submission for
fiscal year 2001, ongoing contingency operations in fiscal year 2001 were
estimated to cost almost $4.2 billion. (See table 1.) On an operational
basis, about $3.1 billion (75 percent) was for operations in the Balkans.
Most of the remainder was for Southwest Asia, with the balance of about $4
million planned for operations in East Timor.

Table 1: Estimated Costs for DOD?s Contingency Operations, Fiscal Year 2001
Dollars in millions

Military personnel Operation and

maintenance Miscellaneous procurement Total

Bosnia $153.4 $1,234.4 $20.8 $1,408.6 Kosovo 194.5 1, 455.9 62.6 1,713.0

Total Balkans $347.9 $2,690.3 $83.4 $3,121.6

Southwest Asia 144.8 913.7 1, 058.5 East Timor 0 3.9 3.9

Total $492.7 $3,607.9 $83.4 $4,184.0

Source: DOD?s fiscal year 2001 President?s budget submission.

In its January 2001 review, the Office of the Secretary of Defense
(Comptroller) revised the estimates made in developing the President?s
budget for fiscal year 2001. 2 The Comptroller?s review was based on
information provided by the military services and defense agencies (such as
the Defense Logistics Agency) and on its own assessment of what constituted
legitimate contingency costs. Overall, the Comptroller?s office initially
concluded that (1) some costs had increased while others had decreased and
that, on balance, there was sufficient funding for fiscal year 2001 and (2)
$104.2 million would remain available to fund fiscal year 2002 requirements.

2 The President?s budget is developed almost a year before the fiscal year
in which it takes effect. We have previously reported that developing
accurate budget estimates for contingency operations is difficult because
DOD has to make judgments about a variety of factors, such as the size and
composition of the military force to be used and because events may differ
from the assumptions. (See Contingency Operations: Defense Cost and Funding
Issues [GAO/ NSIAD- 96- 121BR, Mar. 15, 1996]). The budget estimate,
therefore, is a snapshot in time. DOD Revises Cost

Estimates but Concludes That Funding Is Sufficient

Page 6 GAO- 01- 829 Defense Budget

Among the services, the Comptroller?s office estimated that the Air Force?s
cost requirements had increased by $90 million while the Army?s and Navy?s
cost requirements had decreased by $52 million and $107 million,
respectively. The balance of the changes occurred in the defense agencies,
which experienced a net decline in costs. Included in its revised estimate
was a Comptroller?s office adjustment to the Air Force?s and Navy?s
estimates. The Comptroller?s office disallowed $41 million in the Air
Force?s costs in Southwest Asia because it concluded that these costs went
beyond the critical tasks of the relocation of headquarters in Saudi Arabia
and so were not eligible for contingency operation funding. Regarding the
Navy, the Comptroller?s office disallowed $121 million in flying- hour costs
because it concluded that the associated flying hours were performed as part
of normal training levels. In response to appeals from the Air Force and
Navy after the Comptroller?s office completed its January 2001 review, the
Deputy Secretary of Defense restored a large part of the fund reduction: the
full $41 million to the Air Force and $63.2 million of the Navy?s $121
million in flying hour costs. The sum of these restored funds, which will be
taken from the Transfer Fund, exactly equaled the $104.2 million that the
Comptroller?s office previously estimated would remain available at the end
of the fiscal year to fund fiscal year 2002 requirements.

On the basis of more current data through June 2001, we updated the
assessment of contingency operations? costs for fiscal year 2001, concluding
that existing contingency funding was still sufficient to cover estimated
costs and that some funds may now be available at the end of fiscal year
2001. In June 2001, the administration submitted a request for $6.1 billion
in supplemental funding for DOD for fiscal year 2001, which included $32
million for the military personnel costs of increased Army reserve component
participation in contingency operations. On the basis of our analysis, we
concluded that while the Army?s military personnel costs had increased,
other contingency operations costs had decreased, and that there is no need
for the $32 million in supplemental funding for contingency operations in
fiscal year 2001. The request for fiscal year 2001 supplemental funding has
since been amended, eliminating the $32 million.

Our assessment showed that the largest change since the Comptroller?s
office?s January 2001 revised estimate occurred in the Army?s costs, while
the Navy and Air Force reported little or no net change in their cost
estimates. We estimate that the Army?s overall costs have declined by $128
million- with higher military personnel costs more than offset by lower
operation and maintenance costs. The Army increased its estimate DOD Does
Not Need

Supplemental Funding for Fiscal Year 2001 Contingency Costs

Page 7 GAO- 01- 829 Defense Budget

of military personnel costs by $72 million because of a greater reliance on
reserve units in Bosnia. This increase was more than offset by a $200
million decline in the Army in Europe?s estimated operation and maintenance
costs for the Balkans. This amount included a $138.5 million decline in
Kosovo costs owing to a variety of management efficiencies, including
reduced contract costs, airlift, and other transportation costs, and fewer
soldiers and equipment. It also included a $61.5 million net reduction in
Bosnia costs owing to a reduction in the number of soldiers and the amount
of equipment there and to management efficiencies.

There has been no net change in the Navy?s estimated costs since the
Comptroller?s office?s review. However, since it developed its input for the
President?s budget for fiscal year 2001, the cost per flying hour for a
number of Navy aircraft has increased substantially. For example, the cost
per flying hour for the F- 14 aircraft rose 21 percent; for the F- 18
aircraft, 7 percent; and for the EA- 6B aircraft, 14 percent. Although the
Navy increased its budget estimate to reflect those higher costs, as
discussed earlier, the Comptroller?s office disallowed a larger amount-$ 121
million in flying- hour costs- because it concluded that rather than
increasing funds for its primary program (its training program), the Navy
instead used contingency flying hours to increase its primary program
flying. According to the Navy, senior Navy leadership plans to address the
overall issue of the adequacy of funds to support its flying- hour program
by requesting additional funds for the program in the June 2001 request for
supplemental appropriations for DOD. Consequently, the Navy does not plan to
seek additional funds for its participation in contingency operations.
Calculating contingency hours will no longer be an issue after fiscal year
2001 because, beginning in fiscal year 2002, the Navy will fund all flying
hours in its overall flying- hour program; therefore, there will be no need
to separate contingency flying hours.

We estimate that the Air Force?s costs increased slightly- by $7 million-
from the Comptroller?s office?s January 2001 review on the basis of
discussions with the Air Force commands in the United States, Europe, and
the Pacific, and the Air Force?s headquarters personnel.

On balance, we estimate that after adjusting for (1) the Army?s cost
increases and decreases, including the Army in Europe?s $200 million cost
reduction, and (2) the Air Force?s cost increase, there could be $121
million left at the end of fiscal year 2001. That amount could be applied
against funding requirements for contingency operations in fiscal year 2002.
However, the Comptroller?s office advised us that it plans to address the
$200 million in reduced costs for the Army in Europe by

Page 8 GAO- 01- 829 Defense Budget

seeking a rescission of some of these funds and reprogramming the balance.
The supplemental request for fiscal year 2001 has been amended to include a
request that the Congress rescind $61 million in funds previously
appropriated for contingency operations. DOD is taking action to reprogram
the remaining $139 million and proposes that it be used for noncontingency
operations. The Comptroller?s office also advised us that unless other
savings are identified, the services would have to fund any increased costs
within their existing budgets.

Since DOD developed its original budget estimate for contingency operations
in fiscal year 2002, estimated costs have declined by several hundred
million dollars. In June 2001 the administration submitted a revised fiscal
year 2002 budget for DOD, which included $4 billion for ongoing contingency
operations in the Balkans and Southwest Asia. (See table 2.) This submission
reflected a $284 million decline in the Army?s costs in the Balkans. The
budget estimate may be further altered when the administration completes its
Iraq policy review, which may affect the scope of operations in Southwest
Asia.

Table 2: DOD?s Estimated Overseas Contingency Costs, Fiscal Year 2002

Dollars in millions

Military personnel Operation and

maintenance Total

Army $462.9 $2,064.3 $2,527.2

Navy 60.5 141.9 202.4

Marine Corps 6. 2 4.6 10.8

Air Force 114.4 831.4 945.8

Other DOD and classified programs 340.9 340.9 Total $644.0 $3,383.1 $4,027.1

Source: DOD.

As shown in table 2, the bulk of the costs (84 percent) are for operation
and maintenance, and the balance is for military personnel. By service, the
Army has the bulk of the costs (63 percent), followed by the Air Force (23
percent). By operation, the bulk of the costs are in the Balkans (71
percent), and the balance is in Southwest Asia.

In April 2001, the Army in Europe provided us with its revised cost
estimate, which indicates that its costs in the Balkans could decline by as
much as $284 million. It estimated that its share of the Army?s costs in
Bosnia, which are included in the budget estimate, could decline by as Cost
Estimates for

Fiscal Year 2002 Have Changed and a Key Decision Affecting Costs Is Pending

Page 9 GAO- 01- 829 Defense Budget

much as $171 million- from $700 million to $529 million. The decline is a
result of a decision to reduce the amount of personnel and equipment in
Bosnia. It is a net figure reflecting these declines and expected increases
in other areas, including contractor costs. The Army in Europe also
estimated that its share of the Army?s costs in Kosovo, which are also
included in the budget estimate, could decline by as much as $113 million-
from $1.084 billion to $971 million. The decline is a result of reductions
in personnel and equipment and declines in other costs, including contractor
costs and airlift. It is a net figure reflecting these declines and expected
increases in other areas, including an increase in the number of smaller
camps, referred to as ?outposts.?

Our initial draft of this report, developed before the administration
submitted its revised DOD budget for fiscal year 2002, noted that the Army?s
cost estimate for operations in the Balkans in fiscal year 2002 had declined
substantially. This led us to conclude that since DOD developed its original
January 2001 budget estimate considerably less funding might be needed for
fiscal year 2002. In the June 2001 revision to DOD?s budget for contingency
operations in fiscal year 2002, the administration reduced DOD?s budget
request by $284 million to reflect the lower Army cost estimate for Balkan
operations.

The administration is conducting an Iraq policy review, the outcome of which
will affect DOD?s costs in Southwest Asia in fiscal year 2002 and beyond.
According to DOD officials, the review includes a reassessment of the level
of operations involving Iraq. The review could result in a decision to
change the level of air operations or keep them at their current level.
Until that review is completed, which is scheduled for June 2001, future
costs cannot be accurately estimated. Therefore, DOD?s budget estimate
involving Southwest Asia may need to be adjusted, depending on the outcome
of the policy review.

Page 10 GAO- 01- 829 Defense Budget

DOD is transferring the funding for operations in Southwest Asia to the
services? individual appropriations accounts beginning in fiscal year 2002
rather than fund them through the Overseas Contingency Operations Transfer
Fund. DOD has concluded that since operations in Southwest Asia have been
ongoing for 10 years and there appears to be no plan to withdraw forces in
the near term, the requirements there should no longer be funded from the
contingency fund. We have identified both positive and negative
ramifications of such a decision and some steps that the Congress may wish
to consider that could mitigate the negative consequences.

Shifting funding for contingency operations to the services? individual
appropriations accounts could provide an added incentive to better control
costs. Currently, DOD seeks and the Congress provides funding through the
Transfer Fund on the basis of the services? budget estimates and the
Comptroller?s office?s review of those estimates. Funds appropriated to the
Transfer Fund are solely for the support of contingency operations. We are
currently examining how contingency funds are spent and so are not in a
position at this time to conclude whether funds are being spent in an
economical and efficient manner. However, we believe that there is little
financial incentive for the services to minimize costs under the current
system because they do not have to weigh funding for contingency operations
against competing budgetary priorities, since contingency operations are
funded separately.

But there are potentially negative consequences associated with the proposed
shift, which involve the visibility of funds. Most contingency costs are
funded through the operation and maintenance account. Funds appropriated to
the operation and maintenance account of each of the services and other DOD
components can be used for a wide variety of purposes, including training,
base operations, and real property maintenance. In committee reports that
accompany appropriations legislation for DOD, the Congress provides DOD with
guidance on how the funds are to be spent. However, we have previously
reported that billions of dollars in funds move within the services?
operation and maintenance accounts, as the services try to balance competing
budgetary needs. For example, we reported in February 2000 that from fiscal
year 1994 through fiscal 1998, DOD changed funding amounts for 245
subactivities within the services? operation and maintenance accounts by
almost $43 billion Because Operations

in Southwest Asia Will No Longer Be Funded as Contingency Operations, Some
Safeguards May Be Needed

Page 11 GAO- 01- 829 Defense Budget

compared with the amounts the Congress initially designated for them. 3
These changes involved both increases and decreases in the amounts
designated by the Congress. Once funds for operations in Southwest Asia are
appropriated directly to the services? appropriation accounts, the
visibility of such movements of funds as they pertain to operations in
Southwest Asia may not be clear.

Visibility over the cost of operations in Southwest Asia could also be lost
as a result of the proposed funding shift. In accordance with Volume 12,
Chapter 23 of DOD Financial Management Regulations, the cost of the
participation in contingency operations is reported monthly. This reporting
provides important visibility on the level of resources needed to sustain
operations. The reporting also provides insight into how the funds are spent
because reported costs are placed in categories, such as operation tempo,
airlift, temporary duty travel, and facilities and base support. As
discussed earlier, DOD has reported that its costs for Southwest Asia
totaled $7. 1 billion from 1991 through September 2000. It is unclear as to
whether cost reporting for Southwest Asia will continue once it is no longer
considered a contingency operation for funding purposes.

The $32 million in supplemental funding for fiscal year 2001 requested for
the Army?s military personnel costs in support of contingency operations is
unnecessary. The administration has since amended its request for
supplemental funding to withdraw the request for this $32 million. The
budget outlook for contingency operations for fiscal year 2002 may be
affected by the results of the administration?s Iraq policy review, which
could result in a decision to change the level of air operations or keep
them at their current level. The shift of funding from the Overseas
Contingency Operations Transfer Fund to the services? direct appropriations
could result in a significant loss of visibility over both costs and the use
of funds for operations in Southwest Asia.

3 See Defense Budget: DOD Should Further Improve Visibility and
Accountability of O& M Fund Movements (GAO/ NSIAD- 00- 18, Feb. 9, 2000.) We
use the term ?congressionally

designated or ?congressional designation? to refer to amounts set forth in
an appropriation act?s conference report. Conclusions

Page 12 GAO- 01- 829 Defense Budget

Regarding supplemental funding for fiscal year 2001, the Congress may wish
to consider the $32 million that was included in the supplemental funding
request for increased Army military personnel contingency operations costs
as withdrawn, on the basis of the amended supplemental request.

The Congress may also wish to consider the following two actions in
appropriating funds for contingency operations for fiscal year 2002:

 Regarding the fiscal year 2002 budget for Southwest Asia operations, upon
completion of the Iraq policy review the Congress may wish to have DOD
provide an updated budget estimate reflecting the results of the policy
review.

 Regarding maintaining visibility over funding for operations in Southwest
Asia, the Congress may wish to direct that (1) appropriate committees be
provided with written notification if funds identified for operations in
Southwest Asia are obligated for any other purposes and (2) DOD continue to
report monthly on the costs of its operations in Southwest Asia.

In oral comments on a draft of this report, the Office of the Under
Secretary of Defense (Comptroller) and service budget officials responsible
for contingency operations costs concurred with the contents of this report.
The Comptroller?s office advised us that DOD agrees with the basic
conclusions and findings addressed in the report.

To identify and assess the contingency cost information contained in this
report, we conducted work at the Office of the Secretary of Defense; the
Departments of the Army, Navy, and Air Force; U. S. Army Forces Command; U.
S. Army Europe; 1st Infantry Division, Wurzburg, Germany; 3rd Infantry
Division, Fort Stewart, Georgia; U. S. Navy Pacific Fleet; Naval Air Forces
Pacific; U. S. Pacific Command; U. S. Army Pacific; Marine Forces Pacific;
Air Force Air Combat Command; and the U. S. Special Operations Command. At
these locations, we reviewed contingency operations cost reports; DOD?s
budget documents for fiscal years 2001 and 2002; and documents that
supported contingency- related costs. We did not verify the data used by the
Defense Finance and Accounting Service to create the contingency operations
cost reports.

We performed our work from January through June 2001 in accordance with
generally accepted government auditing standards. Matters for

Congressional Consideration

Agency Comments Scope and Methodology

Page 13 GAO- 01- 829 Defense Budget

We are sending copies of this report to the Chairman and Ranking Minority
Member, Subcommittee on Defense, House Committee on Appropriations; 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.

If you have any questions regarding this report, please call me on (757)
552- 8100. Principal contributors to this report were Steve Sternlieb, Ray
S. Carroll, Lester Ward, and Laura Talbott.

Neal P. Curtin, Director Defense Capabilities and Management

Appendix I: Location of Major Contingency Operations

Page 14 GAO- 01- 829 Defense Budget

Appendix I: Location of Major Contingency Operations

(350036)

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