    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-02-450

    TITLE:     DEFENSE BUDGET: Need to Strengthen Guidance and Oversight of
    Contingency Operations Costs

    DATE:   05/21/2002

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

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    GAO-02-450

    A

    Report to the Chairman and Ranking Minority Member, Subcommittee on Defense,
    Committee on Appropriations, U. S. Senate

    May 2002 DEFENSE BUDGET Need to Strengthen Guidance and Oversight of
    Contingency Operations Costs

    GAO- 02- 450

    a

    GAO United States General Accounting Office

    Page i GAO- 02- 450 Contingency Operations Letter 1

    Results in Brief 2 Background 4 Questionable Uses of Contingency Funds 6
    Limited Guidance and Oversight Led to Questionable Uses of

    Contingency Funds 18 Conclusions 23 Recommendations for Executive Action 24
    Agency Comments and Our Evaluation 25

    Appendix I Map of Overseas Contingency Operations as of January 2002 27

    Appendix II Scope and Methodology 28

    Appendix III Examples of Questionable Items Purchased by Air Force Units in
    Southwest Asia in Fiscal Years 2000 and 2001 31

    Appendix IV GAO Contact and Staff Acknowledgments 32

    Related GAO Products 33

    Tables

    Table 1: Summary of Questionable Uses of Contingency Funds Made in Fiscal
    Years 2000 and 2001 7 Table 2: Examples of Repetitive Purchases Made by Army
    Units 12 Table 3: Examples of Questionable Purchases Made with

    Contingency Operations Funds 14 Contents

    Page ii GAO- 02- 450 Contingency Operations Figures

    Figure 1: Contingency Operation and Maintenance Costs by Expense Categories,
    Fiscal Years 2000 and 2001 5 Figure 2: 3rd Infantry Division Equipment
    before Refurbishment 9

    Page 1 GAO- 02- 450 Contingency Operations

    May 21, 2002 The Honorable Daniel 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, U. S. military
    forces have been involved in overseas military contingency operations almost
    without interruption. These operations- which include the enforcement of no-
    fly zones, humanitarian assistance, and peace enforcement- had a reported
    incremental cost of over $29 billion. The majority of these costs ($ 26
    billion) were incurred in the Balkans (Bosnia and Kosovo) and in Southwest
    Asia. In fiscal year 2002, U. S. military forces continue to participate in
    such operations- the most recent being the efforts to combat terrorism 1 --
    and, based on the experiences of the past decade, they will likely do so in
    the future. (See app. I for a map of ongoing overseas contingency operations
    as of Jan. 2002.)

    In light of the billions of dollars the Department of Defense (DOD) spends
    each year to support contingency operations, you asked us to examine those
    costs and DOD?s oversight of them. As agreed with your office, we examined
    (1) the appropriateness of the military services? expenditures of
    contingency operations funds and (2) the effectiveness of DOD?s oversight of
    these expenditures. We further agreed to confine our work to the Army and
    the Air Force because these two services accounted for over 80 percent of
    the contingency operations expenditures in fiscal year 2001.

    DOD?s financial management regulation defines incremental costs as costs
    that are above and beyond baseline training, operations, and personnel

    1 As the current efforts to combat terrorism did not begin until the end of
    fiscal year 2001, this report does not address the costs associated with
    them or how the funds have been expended.

    United States General Accounting Office Washington, DC 20548

    Page 2 GAO- 02- 450 Contingency Operations

    costs. 2 The regulation goes on to say that incremental costs are additional
    costs to the services that would not have been incurred had the contingency
    operation not been supported. Our evaluation of contingency operations
    expenditures covered costs incurred by selected Army and Air Force units
    during fiscal years 2000 and 2001. To evaluate the appropriateness of these
    costs, we analyzed whether costs claimed by selected deploying units were
    incremental and whether they appeared to be reasonable for the contingency
    mission. Because DOD?s guidance does not define ?reasonable? costs, we
    applied a common sense judgment of reasonableness. To assess the
    effectiveness of DOD?s oversight of contingency expenditures, we discussed
    with DOD and service officials the adequacy of guidance and procedures in
    place to oversee expenditures. For more details on our scope and
    methodology, see appendix II.

    While most contingency operations expenditures we looked at-- which totaled
    about $2.2 billion- were appropriate, we found that as much as $101 million
    dollars in contingency operations funds were spent on questionable
    expenditures in fiscal years 2000 or 2001. As a result, budgetary resources
    that could have been used for other needs were spent on questionable
    expenditures. These expenditures fall into three categories:

     Expenses that did not appear to be incremental costs-- that is, costs that
    would not have been incurred were it not for the operation. For example, one
    unit completely rebuilt vehicles that were not used in support of a
    contingency operation.

     Repetitive expenditures for items already available in theater. For
    example, four successive Army units deploying to Bosnia spent a total of
    $2.3 million on similar computer and office equipment without attempting to
    share or reuse the equipment.

     Seemingly unneeded expenditures, including such items as cappuccino
    machines, golf memberships, and decorator furniture.

    2 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 estimate costs.
    Although we use the term costs throughout this report as a convenience, we
    are actually referring to DOD?s obligation of funds. Results in Brief

    Page 3 GAO- 02- 450 Contingency Operations

    We found that limited guidance and oversight combined with a lack of cost-
    consciousness contributed to the questionable expenditure of contingency
    funds. DOD?s financial management regulation does not provide sufficient
    information on what types of costs meet DOD?s definition of incremental
    costs, which has resulted in various interpretations among the services- and
    even among units within a service- as to appropriate and proper
    expenditures. Various units told us that DOD?s guidance was too vague to
    judge whether some purchases were reasonable to use contingency operations
    funds. Also, DOD?s regulation does not stipulate what units should do with
    equipment purchased specifically for the contingency mission once the
    mission is completed, resulting in successive units making repetitive
    purchases for the same items. Perhaps most importantly, DOD?s financial
    management regulation does not state that good financial management and cost
    stewardship are imperatives in the expenditure of funds to support military
    contingency operations.

    Oversight over how contingency operations funds are used is also limited.
    Because DOD and the service headquarters receive summarized cost reports
    containing little detailed information concerning how contingency funds are
    spent, it is difficult for them to exercise oversight. At major Army and Air
    Force commands, which also have oversight responsibilities, little
    information exists as to what is actually being purchased by the various
    deploying units. We also found that DOD does not provide for periodic
    reviews to analyze the reasonableness of items purchased with contingency
    funds and does not have an overview of all contracts awarded in support of
    operations in the Balkans. As a result, the lack of information makes it
    difficult for DOD to conduct effective oversight on the appropriate use of
    contingency operations funds.

    Without more definitive guidance and increased oversight, the problems
    identified in this report will likely continue in funding future
    contingencies. Therefore, we are making a number of recommendations for
    executive action to improve and strengthen assurances that contingency
    operations funds are used more appropriately in the future. In commenting on
    a draft of this report, DOD agreed with our recommendations, but stated that
    it was premature to implement the two involving establishing sets of
    equipment for units to use while training for their deployment. DOD stated
    that it recognized the need to maintain and strengthen fiscal control over
    contingency funds. A detailed discussion of DOD?s comments and our response
    is contained in the body of this report.

    Page 4 GAO- 02- 450 Contingency Operations

    Over the past decade, DOD has reported over $29 billion in incremental costs
    for its overseas contingency operations. From fiscal year 1992 through
    fiscal year 2001, DOD?s operations in the Balkans cost $17.8 billion and its
    operations in Southwest Asia cost $8.5 billion.

    Operation and maintenance costs have accounted for the majority of all
    contingency operation costs. Of the $8,555 million in contingency operations
    costs for fiscal years 2000 and 2001, operation and maintenance costs
    represented $7,483 million, or 87 percent of the total. Military personnel
    accounted for the remaining $1, 072 million or 13 percent, which we did not
    review. Within the operation and maintenance costs, DOD has established
    several cost reporting categories. Our assessment included only selected
    operation and maintenance expenses incurred by the Army and Air Force during
    fiscal years 2000 and 2001 for contingency operations. Because 30 percent of
    the operation and maintenance costs are grouped into miscellaneous
    categories that provide little insight into what units bought with
    contingency funds, we primarily focused our evaluation efforts in these cost
    categories. As such, we did not review other categories such as operating
    tempo, airlift, and facilities and base support. We estimate that the
    universe of contingency expenditures we looked at is about $2.2 billion. For
    illustrative purposes, total operation and maintenance costs for contingency
    operations covering fiscal years 2000 and 2001 are shown in figure 1.
    Background

    Page 5 GAO- 02- 450 Contingency Operations

    Figure 1: Contingency Operation and Maintenance Costs by Expense Categories,
    Fiscal Years 2000 and 2001

    Dollars in millions Source: DOD contingency operations cost reports for
    fiscal years 2000 and 2001.

    DOD budgets for the costs of ongoing contingency operations. Between fiscal
    years 1996 and 2001, the Congress 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? appropriations 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 transfer of funds from other sources, the
    components have to absorb the costs within their regular appropriations.

    In its report on DOD?s fiscal year 2002 appropriations, the Senate
    Appropriations Committee suggested that providing funds directly to the
    services? accounts would lead to better accountability and the elimination
    of redundant and questionable costs. Subsequently, the conference committee
    on the fiscal year 2002 Department of Defense Appropriations

    Page 6 GAO- 02- 450 Contingency Operations

    Act provided funds for contingency operations in the Balkans and Southwest
    Asia directly to the services? accounts.

    We have been reviewing cost and funding issues associated with contingency
    operations for the last several years, including making observations on the
    positive and negative ramifications of appropriating funds for ongoing
    operations directly to the services? appropriations accounts. 3 We have also
    reviewed DOD?s management of contingency operations in the Balkans. 4 A
    listing of related GAO work in this area can be found at the end of this
    report.

    DOD?s financial management regulation specifies financial policy and
    procedures regarding contingency operations. Specifically, chapter 23,
    volume 12, of DOD?s financial management regulation, dated February 2001,
    addresses contingency operations. The primary focus of this financial
    regulation is on developing cost estimates of contingency operations and
    reporting those costs. By using a common cost structure, the actual
    execution can easily be compared with the estimates. The cost categories
    provide examples of types of incremental costs that can be included when
    estimating contingency expenses. Service headquarters and their respective
    subordinate commands, in turn, have issued memorandums that essentially
    restate what DOD has set forth in chapter 23 of its financial management
    regulation. Commands have established procedures for approving expenditures
    and have been communicating the need to control costs.

    Contingency funds appropriated to DOD are distributed to the services for
    expenses directly related to the conduct of overseas contingencies.
    According to DOD?s financial management regulation, the services can only be
    reimbursed from the Transfer Fund for contingency expenses that are
    incremental- that is, above and beyond routine requirements. Further, Office
    of Management and Budget Circular A- 123 requires all managers of federal
    funds to ensure that cost- effective controls are implemented for the
    expenditure of appropriated funds.

    3 U. S. General Accounting Office, Defense Budget: Need for Continued
    Visibility Over Use of Contingency Funds, GAO- 01- 829 (Washington, D. C.:
    July 6, 2001). 4 U. S. General Accounting Office, Contingency Operations:
    Army Should Do More to Control Contract Cost in the Balkans, GAO/ NSIAD- 00-
    225 (Washington, D. C.: Sept. 29, 2000). Questionable Uses of

    Contingency Funds

    Page 7 GAO- 02- 450 Contingency Operations

    While most expenditures of contingency operations funds were appropriate, we
    identified millions of dollars of questionable expenditures made by both the
    Army and Air Force. These expenditures involved expenses that did not appear
    to involve incremental costs, repetitive expenditures for items already
    available in theater, and expenses that seemed to us to be, on their face,
    of questionable need either because the purchase did not appear to support
    the operation or was more expensive than needed. Table 1 summarizes these
    expenditures.

    Table 1: Summary of Questionable Uses of Contingency Funds Made in Fiscal
    Years 2000 and 2001

    Dollars in thousands

    Types of questionable expenditures Amount

    Vehicle refurbishment $17,000 Reconstitution costs 49,500 a Repetitive
    purchases 9,876 Not clearly needed 24,585

    Total $100,961

    a Expenditures could have been as much as this amount. The services were not
    able to provide sufficient cost detail to develop a specific figure. Source:
    GAO developed from DOD data.

    The services and their units are only allowed reimbursement from the
    Transfer Fund for expenses directly related to preparing for and
    participating in a contingency operation and repairing or replacing
    equipment used in support of the operation. Therefore, allowable contingency
    expenses are limited to only those costs that would not have been incurred
    were it not for the contingency operation, i. e., incremental costs, and so
    normal baseline training, operations, maintenance, and personnel costs are
    not considered incremental costs. Despite the clear definition of
    incremental costs, we found instances where units requested and received
    reimbursement for expenses that did not appear to be incremental costs.

    All the Army units we visited appropriately used contingency funds for the
    routine maintenance of vehicles left at their home stations during the
    unit?s deployment, but at least one unit went beyond routine maintenance and
    refurbished vehicles that were used only minimally in support of contingency
    operations. Contracts for performing routine vehicle maintenance while
    soldiers are deployed, in use since at least 1998, reflect that the soldiers
    were no longer available to perform routine maintenance Some Expenditures
    Paid

    with Contingency Funds Did Not Appear to Meet the Definition of Incremental
    Costs

    Vehicle refurbishment

    Page 8 GAO- 02- 450 Contingency Operations

    and, in our view, constitute an incremental cost. However, the 3rd Infantry
    Division at Fort Stewart used contingency funds to completely refurbish
    vehicles while its soldiers were deployed for contingency operations. This
    division spent about $17 million in fiscal year 2001 to refurbish 2,317
    vehicles.

    Refurbishing vehicles differs from providing routine maintenance on
    equipment that remained at the home station during deployment.
    Refurbishment, in the case of the 3rd Infantry Division, meant rebuilding
    all left behind equipment to ?like new? condition. In some instances
    individual pieces of equipment required hundreds of parts because of their
    condition. The following pictures show the poor condition of the equipment,
    caused by years of routine training use and reduced maintenance budgets,
    before refurbishment. (See fig. 2.)

    Page 9 GAO- 02- 450 Contingency Operations

    Figure 2: 3rd Infantry Division Equipment before Refurbishment

    Army utility trailer Army armor recovery vehicle

    Source: GAO.

    The use of contingency funds for vehicle refurbishment as opposed to
    maintenance should have been limited to (1) vehicles used in support of the
    3rd Infantry Division?s Balkan deployment and (2) the portion of wear and
    tear attributable to that use. None of the 2,317 vehicles that were
    refurbished were taken on the Balkan deployment. Some of the vehicles
    refurbished by the 3rd Infantry Division were used to support the division?s
    pre- deployment training program, although neither the division

    Page 10 GAO- 02- 450 Contingency Operations

    nor its higher headquarters, the Army?s Forces Command, could provide us
    with the exact number of vehicles used in training and the duration of their
    usage. Forces Command examples of incremental costs in support of
    contingency operations include the costs associated with the proportion of
    equipment overhaul and maintenance costs- computed on a fractional use
    basis- used in support of a contingency operation. Division units trained
    for about 3 months to prepare for their Balkan deployment; however, the
    equipment being refurbished had been in use for years. Therefore, in our
    opinion, only a small proportion of the $17 million in refurbishment costs,
    if the data existed to calculate that portion, could be viewed as a
    legitimate contingency cost.

    We discussed our views on refurbishment of these vehicles with contingency
    funds with Forces Command. In a written response, Forces Command said that
    it recognized the need to maintain equipment while a unit is deployed in
    support of a contingency operation, particularly if the maintenance teams
    are deployed as well. After reviewing our data, the Command wrote that it
    agreed that rebuilding and upgrading vehicles not used in contingency
    operations was not necessarily the best use of contingency funds. The
    Command further wrote that, in the event the vehicles are used in the train-
    up or reconstitution phases, the incremental costs of repair parts are
    properly chargeable to contingency operations. We agree, as previously
    discussed, that the part of maintenance and repair costs of equipment
    attributable to the equipment?s use in training for a contingency operation
    is a legitimate contingency cost.

    DOD?s guidance on the use of contingency funds allows units to use these
    funds for reconstitution purposes once they re- deploy from a contingency
    mission. Reconstitution costs consist of those incremental expenses
    associated with replacing supplies and repairing or restoring equipment used
    during the mission to the condition it was in before the mission began.
    Following guidance from higher headquarters, the 1st Armored Division in
    Europe counted as reconstitution contingency expenses millions of dollars
    that, in our view, did not appear to meet the definition of incremental
    costs. For several years through fiscal year 2001, the Army?s V Corps in
    Europe?s fiscal guidance to all its units directed that all unit costs
    incurred in the first 270 days following a unit?s return to its home station
    from the Balkans be counted as reconstitution costs, thus making all
    expenses eligible for reimbursement from contingency funds. In essence, the
    guidance allowed units to assume that all costs incurred in that 270- day
    period would not have been incurred were it not for the unit?s Balkan
    deployment. Reconstitution costs

    Page 11 GAO- 02- 450 Contingency Operations

    In the case of the 1st Armored Division, while the division incurred a
    number of expenses directly related to recovering from the deployment, it
    also incurred expenses that were not related to the deployment and, thus, do
    not appear to be incremental costs. For example, in one instance the
    division used contingency funds to replace small tools in the division at a
    cost of about $1.7 million even though the replacement was part of a U. S.
    Army Europe program that had nothing to do with contingency operations. The
    $1.7 million in small tools is an example of a cost that the division would
    have incurred regardless of its Kosovo deployment because the division would
    have made the change as part of the Army in Europewide changeover to the new
    tools.

    The use of contingency funds to cover training costs following a Balkan
    deployment also appears to be a questionable use of such funds. Upon
    redeployment a unit returns to its normal training cycle, notwithstanding
    that it may need to shift its training emphasis to skills that had degraded
    during its Balkan deployment. DOD?s fiscal guidance on contingency
    operations, contained in chapter 23 of its financial management regulation,
    does not state that retraining is considered to be a contingency cost. The
    DOD regulation only discusses equipment and supplies in its definition of
    reconstitution costs. However, the previously mentioned V Corps guidance
    also instructed units to treat training costs incurred in the first 270 days
    following redeployment as an incremental cost. As a result, the 1st Armored
    Division used contingency funds for all training for 9 months after its
    return from Kosovo, even though the deployment did not increase the amount
    of the division?s training. In fact, the division trained less in fiscal
    year 2001- the year it returned from its deployment- than it did in fiscal
    year 2000, due to factors beyond its control, such as the need to curtail
    training in response to the outbreak of hoof and mouth disease. Two of the
    division?s battalion commanders told us that their units returned to their
    normal training schedule after redeployment. The division reported $47.8
    million in training and reconstitution costs in fiscal year 2001, but could
    not identify how much of the total was for retraining. V Corps changed its
    guidance for fiscal year 2002 so that judgments on whether costs incurred
    following redeployment are incremental costs are made on a case- by- case
    basis.

    In the past 2 years Army units we visited that had prepared for a
    contingency deployment and Air Force units from which we obtained data that
    were on deployment made repetitive purchases of similar items to Repetitive
    Purchases

    Page 12 GAO- 02- 450 Contingency Operations

    facilitate mission training at home stations and/ or mission support in
    theater. 5 These items included computers, computer accessories, video
    cameras, and office equipment. Among the Army and Air Force units we
    visited, we were unable to identify any concerted effort to reuse or share
    items purchased with contingency funds among deploying units. As shown in
    table 2, four successive Army units that deployed to Bosnia made repetitive
    purchases totaling $2.3 million.

    Table 2: Examples of Repetitive Purchases Made by Army Units Amount spent
    for Deployment location Deployment dates Army unit Computers Office

    equipment

    Bosnia 03/ 2000 - 09/ 2000 49th Armor Division $273,859 $213,909 Bosnia 10/
    2000 - 03/ 2001 3rd Infantry Division 177,389 584,164 Bosnia 04/ 2001 - 09/
    2001 48th Infantry Brigade 171,450 247,521 Bosnia 10/ 2001 - 03/ 2002 29th
    Infantry Division a 564,644 34,421 a The 29th Infantry Division had not
    submitted all expenditures for reimbursement of contingency expenditures at
    the time we completed our work. We expect the expenditures for this division
    to be higher when all expenditures are settled.

    Source: GAO developed based on Army data.

    Air Force units deployed to Southwest Asia also made repetitive purchases.
    During fiscal years 2000 and 2001, deployed units spent a total of more than
    $7.3 million for computers and computer equipment and $276, 000 for digital
    cameras.

    For Army units, some of the equipment items purchased were used solely
    during training at home station prior to deployment, while other items were
    purchased to support the unit while deployed in- theater. The amount of
    equipment purchased and deployed varied by unit. The rationale for
    purchasing these items for deployment, however, is unclear because the Army
    in Europe has placed much of the equipment needed to accomplish the Bosnia
    mission in Bosnia so that each rotating unit does not have to bring its own
    equipment. For example, according to the Army in Europe?s property book for
    equipment in Bosnia, there are more than 2,000 computers, 865 printers, 91
    copiers, and a multitude of other office equipment already in that country.
    Moreover, 29th Infantry Division officials in Bosnia at the time we
    conducted our work verified that the

    5 The Army rotates units to the Balkans approximately every 6 months and the
    Air Force rotates units to support air operations involving Iraq every 3
    months.

    Page 13 GAO- 02- 450 Contingency Operations

    equipment listed in the property book was in fact there and in working
    condition. Divisions preparing for their Bosnia deployment had ample
    opportunity to ascertain the type of equipment that would be available to
    them through reconnaissance trips key division personnel make to Bosnia well
    in advance of the deployment, online access to the Bosnia property and
    inventory database maintained by the Army in Europe that lists all available
    equipment, and weekly telephone conference calls with personnel in Bosnia.
    Thus, in our opinion the purchase of office equipment by units preparing for
    Bosnia deployments for use in Bosnia is questionable. This matter has become
    increasingly important because DOD is establishing similar equipment stocks
    in Kosovo, where it also rotates units. It is also establishing bases in
    Afghanistan and elsewhere in the region in support of its efforts to combat
    terrorism and plans to rotate units at those bases.

    For equipment purchased as training aids for the deployment or to facilitate
    mission support, there is no organized effort to transfer such equipment
    once a unit finishes its training or its deployment for the use of later
    deploying units. For example, to facilitate their training, National Guard
    units we visited purchased computer equipment to replicate the computer
    systems they would use in Bosnia and digital cameras to record their
    training. Army Forces Command officials told us that most of the equipment
    purchased with contingency funds over the years was not transferred to a
    contingency stock warehouse established at Fort Polk, Louisiana, in the mid-
    1990s to receive equipment at the end of a contingency operation or that had
    become excess to an operation?s needs. Units we visited did not know of the
    warehouse and only a few had or planned to transfer equipment purchased with
    contingency funds to later deploying units.

    National Guard units also purchased, but did not share, numerous video
    teleconferencing systems to be placed in multiple locations in the United
    States so that families at home could better communicate with deployed
    military members. The three largest Guard elements tasked with the Bosnia
    mission- 49th Armor Division (Texas), 48th Armor Brigade (Georgia), and the
    29th Infantry Division (Virginia)- have all purchased video teleconferencing
    systems. However, we were unable to identify any sharing of the equipment
    among the states or return of the systems when the mission was completed. In
    the case of the Virginia National Guard, we were told that they had asked
    the Texas?s 49th National Guard Division, which had purchased several video
    teleconferencing sets to use during its Bosnia deployment, for their
    equipment, but were told to go buy their own system because the 49th Brigade
    considered the equipment to be theirs.

    Page 14 GAO- 02- 450 Contingency Operations

    Army Forces Command officials told us that they agreed more could be done to
    share equipment items purchased with contingency funds for predeployment
    training.

    OMB Circular A- 123 requires management controls to ensure that agency
    programs and resources are protected from waste, fraud, and mismanagement.
    In concert with this requirement, the Air Force has issued guidance that
    requires its commanders to ?? ensure the absolute necessity in incurring a
    contingency expense ?.? Similarly, both the Army?s Forces Command and its
    command in Europe have guidance dating back at least several years
    addressing the need for effective stewardship over contingency expenditures.
    Nevertheless, during fiscal years 2000 and 2001, the Army and Air Force used
    more than $24.6 million for items and services that, in terms of supporting
    contingency operations, appear unneeded because the purchase did not appear
    to support the operation or was more expensive than needed. As shown in
    table 3, which provides some examples, the list of questionable items is
    varied.

    Table 3: Examples of Questionable Purchases Made with Contingency Operations
    Funds

    Army Amount

    Telephone switching system $60,600 Coin operated washers and dryers 31,000

    Army total 91,600 Air Force

    Corporate golf membership 16,000 Folding tool sets 49,500 Palm Pilots 36,100
    Executive high- back chairs 48,500 Silver and china 45,800 Couches and
    loveseats 88,100 Recliners 8,800 Decorative furnishings 5,000 Guided
    recreational tours 65,000 Rental cars 1,034,000 Bingo console 49,500
    Cappuccino machines 51,200

    Air Force total 1, 497,500 Total $1,589,100

    Source: GAO developed from DOD data.

    Expenditures Not Clearly Needed

    Page 15 GAO- 02- 450 Contingency Operations

    Regarding Army expenditures, we identified some expenditures made in fiscal
    year 2001 that were seemingly unneeded as follows.

     Telephone switching system. The 48th Infantry Brigade, a National Guard
    unit, installed a telephone switching system in its Georgia headquarters to
    benefit soldiers during their deployment in Bosnia. The $60,619 system
    enables soldiers to call toll free to Georgia from Bosnia and using access
    codes be automatically switched to any phone in the state. The purpose of
    this system is to facilitate communication with families by providing
    deployed soldiers with free telephone service. However, e- mail and free
    long- distance telephone service was already available to soldiers deployed
    in Bosnia. Brigade officials told us that, had they realized this capability
    was already available, they would not have purchased the switching system.

     Coin- operated washers and dryers. The 48th Infantry Brigade spent $30,962
    to purchase washers and dryers for use by its soldiers at no cost to them
    while they were at their barracks at Fort Stewart, Georgia. Prior to the
    purchase, brigade personnel went off- post to use coinoperated laundries.
    Brigade officials believed it was appropriate to purchase the washers and
    dryers because its personnel were spending more time at Fort Stewart while
    preparing for their Bosnia deployment. However, there was an alternative
    available to all personnel at Fort Stewart for getting laundry done. Fort
    Stewart offers 1- day laundry service to all military identification card
    holders. It is unclear why brigade personnel did not use this service rather
    than purchase their own machines. Once having purchased the machines, the
    Georgia Guard used them to generate revenue for its own use. Specifically,
    Georgia personnel use the machines free with tokens, while all nonGeorgia
    Guard personnel must use coins to operate the machines, with the proceeds
    going to the Georgia National Guard. The revenues from the machines are
    being used to purchase items for the Georgia- owned National Guard training
    site at Fort Stewart. The items purchased include microwave ovens, coffee
    pots, linens, and towels.

    As noted earlier, Army units have a variety of means to ascertain the types
    of equipment and facilities that are available in the Balkans. Army
    officials told us that unit commanders can, and do, (1) conduct
    reconnaissance trips, (2) review property and inventory books that list
    various equipment and supply items already available in theater, (3) access
    a comprehensive database system that details equipment and supplies already
    in the Balkans, known as the Army?s Deployment Asset Visibility System, and

    Page 16 GAO- 02- 450 Contingency Operations

    (4) participate in weekly conference telephone calls that include discussion
    of what equipment is available in the Balkans.

    Regarding Air Force expenditures, we identified a number of contingency
    operation expenditures made during fiscal years 2000 and 2001 that seemed to
    be more geared toward the personal use of deployed personnel than necessary
    to support the operation. Air Force officials were unable to provide us an
    explanation for purchasing many of these items.

     Guided recreational tours. Deployed personnel staying in the contingency
    dormitory at Aviano Air Base, Italy, were provided sightseeing trips to
    Venice and other locations on the weekends. Personnel permanently stationed
    at the base must use their own money to pay for the sightseeing trips. Both
    the Air Force and Army use contingency funds for tours and recreation while
    personnel are deployed in Southwest Asia and the Balkans, and we believe
    this to be a valid use of the funds for the morale and welfare of the
    personnel because they are only allowed off- post on official business.
    However, it is unclear why personnel in Aviano, a non- combat zone where
    people are free to travel about the area while off- duty, were provided this
    service. Air Force officials advised us that they have since discontinued
    the tours.

     Furniture and decorative furnishings. Air Force units purchased a wide
    variety of home furnishing items during their deployments to Southwest Asia,
    such as tables, chairs, and wall hangings. Some examples included a sofa and
    armchair at $24,000, a designer table at $2,200, an executive pillow at
    nearly $1,800, and four leather chairs at over $1,000 each. The purchases of
    decorative accessories included lithographs, wall hangings, decorative rock
    at nearly $19,000, and decorative knives costing hundreds of dollars each.

     Kitchenware. Air Force units purchased a variety of kitchenware items
    during their deployments to Southwest Asia during fiscal years 2000 and
    2001. These items included $51,000 for cappuccino machines, $1,000 for a
    nacho cheese warmer, and thousands of dollars for china and silverware.

     Golf items. Air Force units purchased several golf items during their
    deployments to Southwest Asia that included a golf cart for $35,000, a
    corporate golf membership at $16,000, golf passes at $5, 333, and a golf
    club/ bag set costing nearly $1, 500.

    Page 17 GAO- 02- 450 Contingency Operations

     Folding tools. Designed to be a compact survival tool for the outdoors,
    the folding tool opens to provide the user a knife, small pliers, scissors,
    saw, and assorted screwdrivers. It retails for about $50, and various Air
    Force units spent $49,510 to purchase about 1,000 of them in Southwest Asia.

     Palm Pilots. The Air Force units deployed to Southwest Asia purchased Palm
    Pilots on at least 14 occasions at a total cost of $36,090.

     Rental cars. The Air Force in Europe approved the leasing of rental cars
    for transient personnel at a cost of $3 million, as well as tens of
    thousands of dollars in repair costs for those vehicles and $414 to pay
    parking tickets incurred by the Air Force personnel driving those vehicles.
    Some of these rental expenses appear valid because personnel are deployed to
    remote sites, such as Moron Air Base in Spain, where transportation support
    was unavailable. At Ramstein Air Base in Germany, however, the lack of
    transportation support is not as obvious because there is a 24- hour
    military bus service for transporting transient aircrews and support
    personnel housed about 30 minutes from the base. The Air Force justified the
    use of rented vehicles, costing $1 million, for transient personnel on the
    basis that the personnel were on 24- hour call and no mess hall was open in
    the housing area so personnel had to travel for their meals. Air Force
    officials, however, told us that they did not do a transportation cost
    analysis to see if there were more cost- effective ways for transporting
    transient personnel other than leasing vehicles, or to determine the cost of
    opening the mess hall rather than providing per diem and rental vehicles for
    meals. While some transportation costs may be incurred in any case, the lack
    of this analysis precludes any opportunity to provide transient personnel
    with necessary services at a lower cost through alternative means and raises
    questions about the Air Force?s stewardship of public funds.

    The purchases that occurred in Southwest Asia were made with government
    purchase cards. We have previously reported on the inappropriate use of such
    cards at several Navy facilities 6 and are

    6 U. S. General Accounting Office, Purchase Cards: Control Weaknesses Leave
    Two Navy Units Vulnerable to Fraud and Abuse, GAO- 02- 32 (Washington, D.
    C.: Nov. 30, 2001).

    Page 18 GAO- 02- 450 Contingency Operations

    separately examining the use of government purchase cards throughout the Air
    Force.

    Appendix III provides additional examples of similar items, totaling
    hundreds of thousands of dollars, purchased by Air Force units while
    deployed to Southwest Asia. Air Force officials were not able to tell us
    where any of the items listed above and in appendix III were as of February
    2002, that is, if these items were still at deployed locations, had been
    brought back to the purchasing unit?s home station, or had simply
    disappeared.

    Limited guidance and oversight combined with a lack of costconsciousness has
    contributed to questionable uses of contingency funds. Guidance and
    oversight are two forms of controls that can better assure funds are spent
    appropriately. We found that DOD?s guidance governing contingency
    expenditures does not completely and clearly define reasonable costs. In
    addition, there is limited oversight and a corresponding lack of visibility
    over how contingency operations funds are used that has also contributed to
    questionable uses of contingency funds. Moreover, we believe that
    questionable expenditures exist because unit commanders did not have
    financial incentives to minimize contingency costs. Because contingency
    costs were not paid from the services? base budgets, unit commanders did not
    have to make choices weighing what to fund for contingency operations
    against competing budget priorities. We believe this situation created a
    reduced level of cost consciousness for spending contingency operation
    funds.

    DOD and the services have not developed sufficient guidance to better ensure
    that contingency operations funds are used appropriately. DOD?s financial
    management regulation provides broad guidance on the definition, use, and
    accounting for contingency funds. The services and their major commands in
    turn have provided guidance to their units. While DOD?s regulation and the
    service?s accompanying guidance cannot be expected to address every
    conceivable situation, they currently do not (1) define what is a reasonable
    expense in terms of goods and services that can be purchased with
    contingency funds, (2) make clear that all personnel with the authority to
    spend contingency funds have a responsibility to be cost conscious and good
    stewards of the taxpayers? money, and (3) direct what should become of
    equipment purchased with contingency funds following a unit?s deployment.
    The lack of emphasis on the need for reasonableness and cost consciousness
    has contributed, in Limited Guidance and

    Oversight Led to Questionable Uses of Contingency Funds

    DOD Has Limited Guidance Concerning Contingency Operations Costs

    Page 19 GAO- 02- 450 Contingency Operations

    our view, to some of the seemingly questionable expenditures using
    contingency funds that we have described earlier in this report.

    The lack of guidance and direction on what should become of equipment
    following a unit?s deployment contributes to both duplicative and repetitive
    purchases of equipment. As described earlier, these include millions of
    dollars in computer and office equipment purchases. Lacking direction to the
    contrary, units have retained equipment purchased for use during contingency
    operations for their day- to- day use following their participation in
    contingency operations. This, in turn, has led each successive deploying
    unit to purchase similar equipment.

    Limitations in DOD?s guidance have also led to contradictory interpretations
    across the military services and even among units within a military service.
    Various units told us that DOD?s guidance was too vague in some instances to
    judge whether a purchase using contingency operation funds was reasonable.
    For example, officials cited unit coins, china, shoulder holsters,
    sunglasses, televisions, videocassette recorders, and backpack- type water
    holders as items where current guidance is too vague as to whether it is
    reasonable to purchase these items using contingency funds. Consequently, at
    some units we visited, commanders denied requests to spend contingency funds
    for sunglasses, coins, and televisions, whereas at other units these
    requests were approved.

    Very little visibility exists above the deploying unit level over how
    contingency operations funds are used. DOD, service headquarters, and their
    major commands receive summarized cost reports from their cost reporting
    system that is aggregated into various cost categories described earlier.
    The military services and their major commands do not receive detailed lists
    of the goods and services actually purchased nor do they make periodic
    visits to individual units and examine expenditure records. In addition, DOD
    does not even have an overview of all contracts awarded in support of
    contingency operations in the Balkans. As a result, higher commands that
    have oversight responsibilities cannot fully assess whether deploying units
    are making prudent purchases with contingency funds nor can they assess
    support contracts for any possible duplication of services.

    Major commands and service headquarters we visited were not aware of the
    types of expenditures we have questioned, such as expensive furniture,
    cappuccino machines, and repetitive purchases of computer and office
    equipment. The following are several examples. Oversight of Contingency

    Operations Funds Is Minimal

    Page 20 GAO- 02- 450 Contingency Operations

     The 9th Air Force, which oversees units deployed to Southwest Asia, was
    not aware that units spent contingency funds to buy expensive furniture,
    holiday decorations, golf memberships, and kitchen items while deployed to
    Southwest Asia.

     Army Forces Command did not know that several units that recently deployed
    to Bosnia and Kosovo spent more for automation equipment than had been
    approved. Army Forces Command, which has longstanding guidance concerning
    the purchase of automation equipment, directs units not to purchase
    automation equipment without receiving approval from the command. However,
    we identified instances where purchases far exceeded approved budgets. For
    example, Forces Command approved a $117,000 automation budget for mostly
    truck radios, toll charges, cell phones, and postage for the 3rd Infantry
    Division, but we found the division spent $177,000 on automation equipment.

     U. S. Army, Europe, which oversees units deployed to the Balkans, was not
    aware that transportation costs had been obligated twice for the same
    expense. This occurred because transportation costs were included in travel
    orders although Army Europe directly paid the Air Force for airlifting units
    from the United States to the Balkans. After we brought this issue to the
    attention of U. S. Army, Europe, officials took corrective actions to
    prevent such double obligations. Army Europe also reduced its budget for
    fiscal year 2002 by $17.6 million to reflect eliminating the double
    obligating and is working to identify and deobligate similar fiscal year
    2001 funds.

    In the Balkans, where billions of dollars have been spent for contractor
    support, we also found that DOD does not have an overview of all contracts
    awarded in support of operations. Contracts for mission support in the
    Balkans are independently awarded by several Army commands as well as by
    other DOD agencies. Contract employees can enter the Balkans at 17 different
    locations. Consequently, they can receive their badges and authorization at
    any of these locations, which then provides them access to all locations in
    the Balkans. The Area Support Groups in the Balkans, which have a role in
    contract oversight, are working to obtain an overview of all contractor
    activity. Until this task is completed, no one in DOD will know (1) how many
    contractors are located in the Balkans, (2) what the contractors have been
    contracted to do, and (3) the government?s obligations to the contractors
    under their contracts. The Area Support Groups? task has been complicated
    because contractors sometimes decline to provide them with needed
    information and the Area Support

    Page 21 GAO- 02- 450 Contingency Operations

    Groups lack the authority to require that the information be provided them.
    As a result, DOD does not know if there is duplication of effort among the
    contracts it has awarded and if contractors are receiving payments for
    support when that support is already being provided by either the military
    services or other contractors. For example, contractor employees can eat at
    dining facilities in the Balkans at no direct cost to themselves. However,
    some contracts may include an amount for food. In such a circumstance, DOD
    would be paying for food twice, once through the contract under which the
    employee is employed, and once again under another more general contract to
    provide food and other services to military and eligible contractor
    personnel. With the involvement of contractors in the efforts to combat
    terrorism, the potential exists for a similar condition in Afghanistan and
    the surrounding area.

    Limited oversight was also seen at the 18th Airborne Corps, which oversees
    operational expenses for Army National Guard units deploying to Bosnia. Our
    analysis of contingency cost data maintained at the corps showed that Army
    National Guard units are reimbursed with contingency funds without timely
    backup information as to what the unit actually purchased. Although the
    corps conducts oversight by reviewing and approving the Guard units?
    requests for items that the units expect to purchase, the corps generally
    reimburses units without really knowing if the approved items were actually
    purchased. For example, the corps reimbursed units for items and services
    such as video cameras, telephone expenses, and office supplies before
    receiving supporting documentation from the units.

    DOD has not required that a program be established for conducting periodic
    site visits or reviews to examine expenditures in support of contingency
    operations. Consequently, DOD and services? review of contingency
    expenditures have been limited. Although the Army is conducting some
    reviews, 7 its scope is limited and maintaining enough auditing staff to
    conduct reviews has been a problem. The Army, for example, does not have an
    ongoing program to assess before and after deployment expenditures made by
    units based in the United States.

    7 The Army?s command in Europe and the Army Audit Agency conduct some
    auditing efforts in the Balkans and these audits focus on the reasonableness
    of items and services purchased to support Army forces in the Balkans. In
    Southwest Asia, the Army?s Central Command headquarters conducts quarterly
    site visits to its units deployed to Southwest Asia and these reviews focus
    on the various internal controls in place covering expenditures made in
    support of contingency operations.

    Page 22 GAO- 02- 450 Contingency Operations

    Further, according to Army officials in Europe, their audit coverage and
    effectiveness is hampered by the difficulty they are having in recruiting
    audit personnel. Officials at both the Army?s Forces Command and its command
    in Europe stated that audit coverage of these expenditures should be
    increased. The Air Force relies on financial managers who are deployed at
    its camps in Southwest Asia rather than auditors to monitor contingency
    expenditures. One or more financial managers are assigned to each of the Air
    Force?s camps to be advisors to the commander on the appropriate use of
    funds. All managers must attend a standardized training program designed to
    prepare them for the specific policies and procedures used in the theater
    prior to deployment. Nearly all of the managers deployed to Southwest Asia
    are enlisted personnel or junior officers. As a result, more senior officers
    deployed to the theater on flying missions sometimes ignore their judgments
    and advice, according to Air Force officials.

    We believe that questionable expenditures also exist because prior to fiscal
    year 2002 unit commanders did not have financial incentives to minimize
    contingency costs. Through fiscal year 2001, contingency costs were not paid
    from the base budgets of the service commands, thus unit commanders did not
    have to make choices as to what to fund. This situation reduces the
    financial incentive to minimize costs because, as we have previously
    reported, commanders do not have to weigh funding for contingency operations
    against competing budgetary priorities. 8

    We believe that this resulted in a reduced level of cost consciousness
    because units that made the questionable purchases described earlier did not
    have to forgo making other purchases. For example, Air Force officials in
    Europe told us they leased rental cars for transient personnel at a cost of
    $3 million without any transportation cost analysis to determine if there
    were more cost- effective ways for transporting transient personnel other
    than leasing vehicles. However, they also told us that the command would
    have explored alternative transportation options if the transportation costs
    had been paid from the command?s base budget.

    In its report on DOD?s fiscal year 2002 appropriations, the Senate
    Appropriations Committee suggested that providing funds directly to the

    8 U. S. General Accounting Office Defense Budget: Need for Continued
    Visibility Over Use of Contingency Funds, GAO- 01- 829 (Washington, D. C.:
    July 6, 2001). Lack of Cost

    Consciousness Contributes to Questionable Purchases

    Page 23 GAO- 02- 450 Contingency Operations

    services? accounts would lead to better accountability and the elimination
    of redundant and questionable costs. This approach was adopted by the
    conference committee on the fiscal year 2002 Department of Defense
    Appropriations Act so that funds for contingency operations in the Balkans
    and Southwest Asia were provided directly to the services? accounts.

    Questionable expenditures result from limited guidance and oversight. DOD?s
    guidance does not do enough to define reasonable costs, stipulate what
    should be done with equipment purchased with contingency funds once a unit
    completes its contingency mission, and explicitly state that all personnel
    responsible for expending contingency funds have a responsibility to do so
    prudently. The Office of the Secretary of Defense, Army and Air Force
    service headquarters, and their major commands provide only minimal
    oversight of contingency fund expenditures, resulting in limited knowledge
    of how contingency funds are being used and the kinds of questionable
    expenditures we identified. Current oversight does not uniformly provide for
    periodic detailed audits, centralized collection of contracts data, and unit
    submissions of detailed purchase lists. Furthermore, little is being done to
    centrally procure and then pass on equipment needed by each successive
    deploying unit, resulting in repetitive purchases of similar equipment.

    Action by the conference committee on the DOD Appropriations Act for Fiscal
    Year 2002 to provide funds for Balkan and Southwest Asia contingency
    operations directly to the services? accounts should provide more of an
    incentive for the services to use the funds for their most important needs.
    Nevertheless, the matters addressed in this report remain important for two
    reasons. First, continuing operations in the Balkans and Southwest Asia can
    be made more efficient and any funds saved would be available for other
    pressing needs. Second, the United States is engaged in combating terrorism
    in Afghanistan, in other countries around the world, and within the United
    States. Funding for combating terrorism is being provided through
    appropriations separate from the services? direct appropriations, with rules
    and restrictions similar to those for the Transfer Fund. Without adequate
    guidance and oversight, coupled with increased emphasis on the prudent use
    of funds, the potential for questionable uses of contingency funds in
    current and future operations will continue. Conclusions

    Page 24 GAO- 02- 450 Contingency Operations

    To provide better guidance regarding the use of contingency funds, we
    recommend that the secretary of defense:

     Expand DOD?s financial management regulation (vol. 12, ch. 23) to include
    more comprehensive guidance governing the use of funds appropriated for
    contingency operations. At a minimum, more complete guidance should detail
    (1) examples of what contingency funds can and cannot be used to purchase,
    (2) what units should do with equipment procured with contingency funds when
    the equipment is no longer needed by the unit to support the mission, that
    is, guidance for the disposition of equipment to include what items can be
    stored at a central location for use by other deploying units, transferred
    directly to other units, or retained by the unit, and (3) the importance of
    cost consciousness and proper stewardship in the use of contingency funds.

    To improve oversight of the expenditure of contingency funds, we recommend
    that the secretary of defense:

     Conduct periodic reviews of expenditures in support of contingency
    operations. Specific review areas should include (1) an analysis of the need
    for items purchased to support pre- deployment training, (2) a comparison of
    items purchased by various units to identify opportunities for sharing
    arrangements or the need for centralized procurement, (3) the reasonableness
    of items purchased during all phases of the contingency operation to include
    a review of purchases made with government credit cards, and (4) an
    assessment of whether items purchased with contingency funds are properly
    accounted for and handled once the contingency mission is completed.

     Direct all components of DOD to forward to the executive agent for
    operations in a geographical area such as the Balkans a copy of all existing
    and future contracts and modifications to those contracts that directly
    support U. S. operations and that the executive agent for that area review
    all contracts to (1) identify possible duplication of services and (2)
    ensure that contractors receive only those services from the government to
    which they are contractually entitled.

     Direct the secretary of the army to require Army National Guard units to
    submit detailed lists of expenditures in support of requests for
    reimbursement of costs claimed in support of contingency operations.

    To minimize the number of repetitive and questionable purchases, we further
    recommend that the secretary of defense direct: Recommendations for

    Executive Action

    Page 25 GAO- 02- 450 Contingency Operations

     The secretary of the army to discontinue the practice of allowing
    individual units to purchase all items needed for training during the pre-
    deployment phase of a contingency operation. Instead, several training sets
    consisting of items needed for training should be assembled and controlled
    by a single Army entity such as the Training and Doctrine Command. These
    sets could be issued in support of the training, returned for inspection and
    repair when the unit deploys, and then reissued to subsequent units
    preparing for deployment.

     The secretary of the army to require the National Guard Bureau to assemble
    and control equipment training sets purchased with contingency funds for its
    units. The Bureau should also establish video conferencing sets to be
    rotated among the states for use when its units are deployed.

     The secretaries of the army and the air force to require that major
    commands designate a single entity to procure all items required by rotating
    units while deployed to a contingency base or camp, except for individual-
    and unit- owned items.

    In official oral comments on a draft of this report, DOD stated that it
    recognized the need to maintain and strengthen fiscal control over
    contingency funds. It also stated that it would more closely monitor the
    execution of funds in order to avoid the situations found in our report.

    DOD concurred with our recommendations but stated that it was premature to
    implement the two involving (1) the Army?s establishing several training
    sets of equipment that would be issued in support of units? pre- deployment
    training and that would be assembled and controlled by a single Army entity
    and (2) the National Guard Bureau?s establishing training sets of equipment
    purchased with contingency funds as well as video conferencing sets. In
    commenting on both those recommendations, DOD stated that, while it agreed
    with them, it was not feasible at this time to establish, maintain, and
    administer a multitude of training sets due to different types of units and
    different levels of training. DOD noted that the improved oversight measures
    to which it agreed would provide the control necessary to limit questionable
    purchases. In addition, DOD stated that the Army would assess the
    feasibility of establishing training sets in the future.

    We agree that there are unique items that would not be suitable for being
    placed in training sets. At the same time, we have also found that there are
    a number of common items that most if not all units have purchased in
    support of their pre- deployment training, including computers, cameras,
    Agency Comments

    and Our Evaluation

    Page 26 GAO- 02- 450 Contingency Operations

    and office equipment such as copiers, facsimile machines, and laminating
    equipment that would be suitable for training sets. We have also found that
    video conferencing sets are commonly purchased and used by National Guard
    units so that families at home can better communicate with deployed military
    members and believe that these sets could be rotated among the states for
    use when units are deployed. In future assessments of the feasibility of
    establishing training sets, we believe that the Army should focus on items
    that are common across units. Therefore, we have retained the
    recommendations as stated in our draft report.

    DOD described its proposed amendments to its financial management
    regulation, which are phrased in the context of funds appropriated to the
    Overseas Contingency Operations Transfer Fund. Beginning in fiscal year
    2002, however, military contingency operations are being funded through the
    services? accounts instead of the Transfer Fund. Therefore, we believe that,
    in amending its financial management regulation, DOD can strengthen its
    control over the use of funds provided to support military operations by not
    limiting its changes to funds appropriated to the Transfer Fund.

    We are sending copies of this report to the Chairman and Ranking Minority
    Member, Subcommittee on Defense, House Committee on Appropriations; the
    Chairmen and Ranking Minority Members, Senate and House Committees on Armed
    Services; 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,
    the report will be available at no charge on the GAO Web site at http://
    www. gao. gov.

    If you have any questions regarding this report, please call me on (757)
    552- 8100. Another contact and major contributors to this report are listed
    in appendix IV.

    Neal P. Curtin, Director Defense Capabilities and Management

    Appendix I: Map of Overseas Contingency Operations as of January 2002

    Page 27 GAO- 02- 450 Contingency Operations

    Appendix I: Map of Overseas Contingency Operations as of January 2002

    Appendix II: Scope and Methodology Page 28 GAO- 02- 450 Contingency
    Operations

    Our evaluation of contingency operations expenditures covered costs incurred
    by selected Army and Air Force units during fiscal years 2000 and 2001. We
    confined our work to the Army and the Air Force because these two services
    accounted for over 80 percent of the contingency operations expenditures in
    fiscal year 2001.

    To examine the appropriateness of the services? expenditures of contingency
    operations funds, our analyses focused on whether (1) costs claimed by
    selected deploying units were incremental to the contingency mission, thus
    meeting DOD?s definition of an incremental expense to be reimbursed from the
    Overseas Contingency Operation Transfer Fund, and (2) expenses incurred were
    for items and services that appeared to be reasonable for the contingency
    mission. Because we believe that DOD does not sufficiently define what is a
    reasonable expense for goods and services that can be purchased with
    contingency operation funds, we applied a common sense judgment on whether
    the costs appeared to be reasonable based on our experience reviewing
    contingency operations and discussions with DOD and service officials. We
    then discussed with unit officials those items we believed were questionable
    to obtain their views. Contingency costs that we looked at differed for the
    two services because Army units incur significant expenses prior to or
    following a contingency deployment whereas Air Force units do not. Instead,
    most of the Air Force?s contingency expenses are incurred while deployed.
    Because of the differences in which the Army and the Air Force incur
    contingency operation incremental costs, our approach differed for each
    service as follows.

     For the Army, we used a case study approach to examine the appropriateness
    of the Army?s expenditures of contingency operations funds. We examined cost
    reports and supporting documentation for four sequential unit rotations in
    Bosnia (known as Stabilization Forces rotations 7 through 10) and two
    sequential unit rotations in Kosovo (known as Kosovo Forces rotations 1 and
    2). Our assessment of contingency costs included costs to train for the
    contingency mission prior to deployment and the costs incurred by the units
    after returning from the mission.

     For the Air Force, we looked at purchases made by selected units deployed
    to Southwest Asia during fiscal years 2000 and 2001 to examine the
    appropriateness of the expenditures using contingency operation funds. We
    analyzed service records to identify the types of items purchased for
    military forces to include credit card purchases. Appendix II: Scope and
    Methodology

    Appendix II: Scope and Methodology Page 29 GAO- 02- 450 Contingency
    Operations

    We discussed the appropriateness of certain questionable expenditures with
    Air Force command and monitoring officials.

    Our findings regarding expenditure appropriateness varied among the units
    selected. Consequently, our findings cannot be projected to all units that
    participated in contingency operations during this period.

    To assess the effectiveness of DOD?s and the services? oversight of
    contingency expenditures, we discussed with DOD and service officials the
    availability and adequacy of guidance and procedures in place to oversee
    these expenditures. We reviewed existing written guidance that was provided
    to us by a variety of organizations, including the offices of the Under
    Secretary of Defense (Comptroller); Defense Finance and Accounting Service;
    U. S. Army and U. S. Air Force Headquarters; and U. S. Army and U. S. Air
    Force major commands, divisions, and wings. We also examined DOD and service
    regulations governing such expenditures to assess controls over contingency
    operation purchases. We did not validate accounting systems of the commands
    providing the data nor did we verify the Defense Finance and Accounting
    Service?s data used in its contingency operation cost reports.

    Locations we visited during our review were: Office of the Secretary of
    Defense, Washington, D. C. U. S. Central Command

    U. S. Central Command, Air Force, Shaw Air Force Base, South Carolina; and
    U. S. Central Command, Army, Fort McPherson, Georgia.

    Department of the Army, Headquarters U. S. Army Forces Command, Fort
    McPherson, Georgia; 18th Airborne Corps, Fort Bragg, North Carolina; 3rd
    Infantry Division, Fort Stewart, Georgia; 10th Mountain Division, Fort Drum,
    New York; 29th Infantry Division, Fort Belvoir, Virginia; U. S. Army,
    Europe, Heidelberg, Germany; 1st Armored Division, Wiesbaden, Germany; and
    1st Infantry Division (Mechanized), Wurzburg, Germany.

    Appendix II: Scope and Methodology Page 30 GAO- 02- 450 Contingency
    Operations

    Department of the Air Force, Headquarters U. S. Air Force Europe, Ramstein
    Air Base, Germany; Air Combat Command, Langley Air Force Base, Virginia; and
    9th Air Force and 20th Fighter Wing, Shaw Air Force Base, South Carolina.

    National Guard, Headquarters Air National Guard Headquarters, Washington, D.
    C.; Army National Guard, Headquarters, Washington, D. C.; Georgia Army
    National Guard, 48th Infantry Brigade (Mechanized), Atlanta and Macon,
    Georgia; Mississippi Army National Guard, Jackson, Mississippi; and Virginia
    Army National Guard, Fort Pickett, Virginia.

    We performed our work from July 2001 to February 2002 in accordance with
    generally accepted government auditing standards.

    Appendix III: Examples of Questionable Items Purchased by Air Force Units in
    Southwest Asia in Fiscal Years 2000 and 2001

    Page 31 GAO- 02- 450 Contingency Operations

    Location Item Description Cost

    Al Dhafra Air Base Cappuccino machine $7,933 White beach sand 4,638 Designer
    coffee table 2, 205 Golf club set with bag 1, 478 Genie lamp with Riyadh
    stone 432 Escan Village Golf passes 5, 333

    Silver knife mounted on Riyadh stone 864 King/ Queen comforter sheet sets
    2,080 Al Jaber Air Base Cappuccino machine 3, 092

    Manager?s chair 1, 795 Maple pool cues (13) 2,352 White china plates 3,868
    Leather executive chairs (4) 4, 262 Computer tutorial ?The Intelligent
    Investor? 2, 987 Cowboy hats 4, 896 Decorative river rock 18,980 Executive
    high back pillow 1, 775 Nacho cheese warmer 1, 039 Prince Sultan Air Base
    Loveseat and arm chair 23,989

    Cappuccino machine 16,758 Corporate golf membership 16,000 Sumo wrestling
    suit 3,395 Cappuccino machine 9, 200 Halloween decorations 9,825 Nostalgic
    juke box 14,835 Executive desk set 2, 451 Palm trees and bar stools 2,076
    Ali Al Salem Air Base Artificial plants 11,598

    Bingo console 49,462 Three compartment lunch boxes 8,212 Valentines day
    decorations 328 Mardi Gras decorations 1,147 Remote control cars 3,766

    Appendix III: Examples of Questionable Items Purchased by Air Force Units in
    Southwest Asia in Fiscal Years 2000 and 2001

    Appendix IV: GAO Contact and Staff Acknowledgments

    Page 32 GAO- 02- 450 Contingency Operations

    Steven H. Sternlieb (202) 512- 4534 In addition to the contact named above,
    Ray S. Carroll, Laura Talbott, Lester Ward, Janine Cantin, and Jim Lewis
    made key contributions to this report. Appendix IV: GAO Contact and Staff

    Acknowledgments GAO Contact Acknowledgments

    Related GAO Products Page 33 GAO- 02- 450 Contingency Operations

    U. S. General Accounting Office, Defense Budget: Need for Continued
    Visibility Over Use of Contingency Funds, GAO- 01- 829 (Washington, D. C.:
    July 6, 2001).

    U. S. General Accounting Office, Quality of Life for U. S. Soldiers Deployed
    in the Balkans, GAO- 01- 201R (Washington, D. C.: Dec. 14, 2000).

    U. S. General Accounting Office, Contingency Operations: Army Should Do More
    to Control Contract Cost in the Balkans, GAO/ NSIAD- 00- 225 (Washington, D.
    C.: Sept. 29, 2000).

    U. S. General Accounting Office, Contingency Operations: Providing Critical
    Capabilities Poses Challenges, GAO/ NSIAD- 00- 164 (Washington, D. C.: July
    6, 2000).

    U. S. General Accounting Office, Defense Budget: Fiscal Year 2000
    Contingency Operations Costs and Funding, GAO/ NSIAD- 00- 168 (Washington,
    D. C.: June 6, 2000).

    U. S. General Accounting Office, Defense Budget: Fiscal Years 1999 and 2000
    Contingency Operations Costs and Funding, GAO/ NSIAD- 00- 100R (Washington,
    D. C.: Feb. 28, 2000).

    U. S. General Accounting Office, Military Operations: Some Funds for Fiscal
    Year 1999 Contingency Operations Will Be Available for Future Needs, GAO/
    NSIAD- 99- 244BR (Washington, D. C.: Sept. 21, 1999).

    U. S. General Accounting Office, Military Operations: Impact of Operations
    Other Than War on the Services Varies, GAO/ NSIAD- 99- 69 (Washington, D.
    C.: May 24, 1999).

    U. S. General Accounting Office, Bosnia: Cost Estimating Has Improved, but
    Operational Changes Will Affect Current Estimates, GAO/ NSIAD- 97- 183
    (Washington, D. C.: July 28, 1997). Related GAO Products

    (350100)

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