Military Operations: Fiscal Year 2004 Costs for the Global War on
Terrorism Will Exceed Supplemental, Requiring DOD to Shift Funds
from Other Uses (21-JUL-04, GAO-04-915).
To support the Global War on Terrorism in fiscal year 2004, the
Congress appropriated $65 billion to the Department of Defense
(DOD) in an emergency supplemental appropriations act. To assist
the Congress in its oversight role, GAO reviewed (1) the adequacy
of current funding for fiscal year 2004 war-related activities
and (2) actions DOD is undertaking to cover anticipated
shortfalls, if any. Based on the body of work GAO has done on the
cost of contingency operations, GAO is also making observations
on efforts to require greater accountability to the Congress on
the use of funds appropriated to DOD for contingency operations.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-915
ACCNO: A11073
TITLE: Military Operations: Fiscal Year 2004 Costs for the
Global War on Terrorism Will Exceed Supplemental, Requiring DOD
to Shift Funds from Other Uses
DATE: 07/21/2004
SUBJECT: Federal funds
Counterterrorism
Congressional oversight
Defense contingency planning
Appropriated funds
Accountability
Cost overruns
Funds management
Global War on Terrorism
******************************************************************
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GAO-04-915
United States Government Accountability Office
GAO Report to Congressional Committees
July 2004
MILITARY OPERATIONS
Fiscal Year 2004 Costs for the Global War on Terrorism Will Exceed Supplemental,
Requiring DOD to Shift Funds from Other Uses
This report was originally issued July 21, 2004. On July 23, 2004, the
report on GAO's Web site was revised to show the correct percentages for
Training, Command, Control, Communication, Computers, and Intelligence,
and Other Supplies and Equipment in figure 4 on page 19. Also, dollar
amounts were revised to reflect two decimal places for all categories. A
note was added to figure 4 stating that percentage total does not add due
to rounding.
a
GAO-04-915
Highlights of GAO-04-915, a report to congressional committees
To support the Global War on Terrorism in fiscal year 2004, the Congress
appropriated $65 billion to the Department of Defense (DOD) in an
emergency supplemental appropriations act. To assist the Congress in its
oversight role, GAO reviewed (1) the adequacy of current funding for
fiscal year 2004 war-related activities and (2) actions DOD is undertaking
to cover anticipated shortfalls, if any. Based on the body
July 2004
MILITARY OPERATIONS
Fiscal Year 2004 Costs for the Global War on Terrorism Will Exceed Supplemental,
Requiring DOD to Shift Funds from Other Uses
GAO's analysis of reported obligations for the first seven months of
fiscal year 2004 through April 2004 and the military services' forecasts
as of June 2004 of their likely costs for the Global War on Terrorism for
operation and maintenance and military personnel through the end of fiscal
year 2004 suggests that anticipated costs will exceed the supplemental
funding provided for the war by about $12.3 billion for the current fiscal
year. The following table shows the shortfall and surplus for each
service.
Service Forecasts of GWOT Funding Shortfalls and Surpluses in Operation
and Maintenance and Military Personnel Appropriations Accounts as of June
2004
Dollars in billions
of work GAO has done on the cost of contingency operations, GAO is also
making observations on efforts to require greater accountability to the
Congress on the use of funds appropriated to DOD for contingency
operations.
Service
Operation and maintenance
Military personnel
Net total by service
Army ($10.2) $.8 ($9.4)
Air Force (1.5) .1 (1.4)
Navy (.9) (.1) (1.0)
Marine Corps (.4) (.1) (.5)
Total ($13.0) $.7 ($12.3)
GAO recommends that the Secretary of Defense revise DOD cost reporting
guidance so that large amounts of obligations are not shown in
"miscellaneous" categories. To better assess the adequacy of previously
provided funding, the Congress may wish to direct DOD to report on the
adequacy of funding for the war on terrorism. DOD did not provide comments
by the date requested. GAO discussed its analysis and proposed
recommendation with DOD and service representatives, who agreed that there
needed to be greater detail in the miscellaneous cost reporting
categories. The representatives did not object to providing the Congress
with information on the adequacy of funding.
www.gao.gov/cgi-bin/getrpt?GAO-04-915.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Neal Curtin at (757)
552-8100 or curtinn@gao.gov.
Source: Developed by GAO from service data.
Note: Parentheses indicate shortfall. GAO did not audit the data.
DOD and the services are taking a variety of actions to cover anticipated
shortfalls in their war-related funding. These actions include taking
steps to reduce costs, transferring funds among appropriations accounts,
and deferring some planned activities to use those funds to support the
war. Also, DOD plans to ask the Congress for additional transfer
authority, which would give it sufficient authority to move funds from one
service to another and get funds to the operation and maintenance accounts
that have the greatest shortfalls. The deferral of activities planned for
fiscal year 2004 adds to the requirements that will need to be funded in
fiscal year 2005 and potentially later years and could result in a "bow
wave" effect in future fiscal years.
GAO's past work has shown that current cost reporting includes large
amounts of funds that have been reported as obligated in miscellaneous
categories and thus provide little insight on how those funds have been
spent. This is likely to result in reduced transparency and accountability
to the Congress and the American people. Recent congressional actions have
signaled the Congress' intent to require greater accountability regarding
the use of GWOT funds. For example, in action on the President's $25
billion request for an Iraqi Freedom Fund Contingent Emergency Reserve in
fiscal year 2005, the House Committee on Appropriations included
provisions in its bill for cost reporting related to the use of these
funds. But additional actions are necessary.
Contents
Letter
Results in Brief
Background
Fiscal Year 2004 GWOT Costs Are Exceeding Supplemental
Funding DOD Plans a Variety of Actions to Cover the Military Services'
Shortfalls of GWOT Funds Congressional Efforts to Improve Accountability
of GWOT Funds Conclusions Recommendation for Executive Action Matter for
Congressional Consideration Agency Comments
1
3 5
7
14 18 20 21 21 21
Appendix I Scope and Methodology
Tables
Table 1: Service Forecasts of GWOT Funding Shortfalls and Surpluses in
Operation and Maintenance and Military Personnel Appropriations Accounts
as of June 2004 7
Table 2: Operation and Maintenance and Military Personnel Funds
Appropriated for DOD during Fiscal Year 2004 for the Global War on
Terrorism 8
Figures
Figure 1: Location of DOD's Fiscal Year 2004 Contingency Operations 6
Figure 2: Reported Obligations of GWOT Operation and Maintenance Funds
through April 2004 10 Figure 3: Reported Obligations of GWOT Military
Personnel Funds through April 2004 13 Figure 4: Global War on Terrorism
Operating Support Reported Obligations for Fiscal Year 2003 19
Abbreviations
DOD Department of Defense
GWOT Global War on Terrorism
LOGCAP Logistics Civil Augmentation Program
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United States Government Accountability Office Washington, DC 20548
July 21, 2004
Congressional Committees
Following the terrorist attacks of September 11, 2001, the United States
began military operations to combat terrorism both in the United States
and overseas. Military operations to defend the United States from
terrorist attacks are known as Operation Noble Eagle. Overseas operations
to combat terrorism are known as Operation Enduring Freedom and have taken
place principally in Afghanistan. In March 2003, the United States began
Operation Iraqi Freedom to change the government in Iraq. Together, these
three operations are known as the Global War on Terrorism (GWOT). To
support GWOT operations in fiscal year 2004, the Congress appropriated $65
billion to the Department of Defense (DOD) in an emergency supplemental
appropriation.1 The administration had requested that amount to cover
about $51 billion for ongoing military operations in Iraq, over $10
billion for U.S. forces in Afghanistan, and about $3.6 billion for
homeland defense and support to allies.
To assist the Congress in its oversight role, we reviewed (1) the adequacy
of current funding for fiscal year 2004 GWOT-related activities and (2)
actions DOD is undertaking to cover any anticipated shortfalls. Based on
the body of work we have done on the cost of contingency operations, we
are also making observations on efforts to require greater accountability
to the Congress on the use of supplemental funds appropriated to DOD for
contingency operations. We provided a draft of this report to your offices
for deliberations on fiscal year 2005 defense bills.
To accomplish this review, we obtained the most recently available DOD
data on the services' reported obligations of funds in fiscal year 2004 in
support of GWOT and compared the data to available funding detailed in
appropriations legislation. Obligations are incurred through actions such
as orders placed, contracts awarded, services received, or similar
transactions made by federal agencies during a given period that will
1 Emergency Supplemental Appropriations Act for Defense and for the
Reconstruction of Iraq and Afghanistan, P.L. 108-106 (Nov. 6, 2003).
require payments during the same or a future period.2 DOD's financial
systems capture the obligation of funds. To identify DOD's fiscal year
2004 GWOT-reported obligations, we used DOD's Consolidated Department of
Defense Terrorist Response Cost Reports, which report the monthly and
cumulative GWOT obligations, and analyzed the data. Although we did not
validate the financial systems or data that the Defense Finance and
Accounting Service uses to produce these consolidated cost reports, we did
discuss the data presented in these reports with DOD and service
representatives and agreed that for the limited scope of this review, the
consolidated reports provided the best available data. We also did not
verify whether reported obligations were actually in support of GWOT.
However, we are beginning a separate review of the obligations accumulated
through the various sources of information used by the services, including
the method by which the Defense Finance and Accounting Service acquires
and consolidates the data into the cost report and whether the reported
obligations support the war.
We interviewed DOD and service representatives responsible for preparing
budgets and estimating costs to obtain their forecasts of fiscal year 2004
funding needs as contained in their midyear budget reviews that they
presented to the Office of the Under Secretary of Defense (Comptroller)
and subsequent updates as of June 2004. We also interviewed resource
management representatives from some of the major commands involved in
Operation Iraqi Freedom. We focused our work on the obligation of funds
appropriated for operation and maintenance and military personnel, for
both active and reserve forces, because they represented the large
majority of funds obligated in fiscal year 2004 through April 2004. In
developing observations on how to improve accountability over contingency
funds, we drew upon the body of work we have done over the past decade on
the cost of contingency operations. The Congress was in the final stages
of completing action on the fiscal year 2005 defense appropriations bill
as we were finalizing our report. A detailed discussion of our scope and
methodology is contained in appendix I.
We performed our work from January through June 2004 in accordance with
generally accepted government auditing standards.
2 Department of Defense Financial Management Regulations, 7000.14-R, vol.
1, Definitions, page xvii.
Results in Brief
Our analysis of reported obligations for the first half of fiscal year
2004 and the military services' forecasts as of June 2004 of their likely
costs for GWOT for operation and maintenance and military personnel
through the end of fiscal year 2004 suggests that anticipated costs will
exceed the supplemental funding provided for GWOT by a net of about $12.3
billion as of June 2004. Each of the services forecasts a shortfall
compared to their GWOT operation and maintenance appropriations. Two of
the services-the Army and the Air Force-forecast a surplus in their
military personnel GWOT funding and the Navy and the Marine Corps forecast
a shortfall. Our comparison of the percentage of fiscal year 2004 GWOT
operation and maintenance funds obligated by the services through the
first seven months of the fiscal year (i.e., October 1, 2003, through
April 2004, the latest month for which obligation data are available for
all the services) showed that the military services had obligated more
than 60 percent of their available appropriations. For example, the
percentage of GWOT operation and maintenance funds that were obligated as
of April 30, 2004, ranged from a low of nearly 61 percent for the Air
Force to a high of over 77 percent for the Marine Corps. The military
services forecast that their GWOT operational needs will exceed their
supplemental GWOT operation and maintenance funding, with the Army
forecasting a $10.2 billion shortfall and the Air Force forecasting a $1.5
billion shortfall.
DOD and the services are taking a variety of actions to cover anticipated
shortfalls in their GWOT accounts. These actions include taking steps to
reduce costs, transferring funds among appropriations accounts, and
deferring planned peacetime activities to use those funds to support GWOT.
The Army has increased management's review of planned activities to ensure
that they are necessary, is planning to defer activities such as
refurbishment of equipment used in Operation Iraqi Freedom to fiscal year
2005 and beyond to reduce fiscal year 2004 costs, is seeking transfers of
funds from the other services, and has received almost $1 billion in
surpluses from the transportation working capital fund. Both the Air Force
and the Navy plan to decrease peacetime flying hours in the fourth quarter
of this fiscal year, delay sending equipment into depots for repair, and
defer facility sustainment and restoration modernization projects among
other actions within their overall operation and maintenance accounts to
make funds available for GWOT needs. The Marine Corps plans to seek the
transfer of funds from Navy investment accounts to cover its shortfall.
However, there are statutory dollar limits on the amount of funds DOD can
transfer and, according to a DOD representative, as of June 18, 2004, DOD
had used up most of its transfer authority. According to this
representative, DOD plans to ask the Congress
for additional transfer authority, which would give DOD sufficient
authority to move funds from one military service to another and get funds
to the operation and maintenance accounts that have the greatest
shortfalls. Finally, the deferral of activities planned for fiscal year
2004 adds to the requirements that will need to be funded in fiscal year
2005 and potentially later years and could result in a "bow wave" effect
in future fiscal years.
Our past work has shown that current cost reporting includes large amounts
of funds that have been reported as obligated in miscellaneous categories
and thus provide little insight on how those funds have been spent. For
example, in our report on fiscal year 2003 funding, we pointed out that
almost 35 percent of obligations reported in the operation and maintenance
account were in "other supplies and equipment" and "other services and
miscellaneous contracts." This may result in reduced transparency and
accountability to the Congress and the American people. Our work has also
discussed the difficulty of accurately budgeting for annual funding needs
and the resulting existence of both funding shortfalls and surpluses,
which at times have been spent on noncontingency related activities.
Recent congressional committee actions have signaled the Congress' intent
to require greater accountability regarding the use of GWOT funds. For
example, in action on the President's $25 billion request for the Iraqi
Freedom Fund Contingent Emergency Reserve in fiscal year 2005, the House
Committee on Appropriations included provisions in its bill requiring DOD
to provide more accountability related to the use of these funds, but
additional actions are necessary.
To improve accountability over the use of GWOT funds, we are recommending
that the department provide more detail in its cost reporting on
contingency operations. We also raise a matter for the Congress'
consideration regarding additional DOD reporting the Congress could
require to keep its members better informed on the adequacy of funding.
DOD did not provide comments by the date requested. However, we did
discuss our analysis and proposed recommendation with DOD and service
representatives, who agreed that there needed to be greater detail in the
miscellaneous cost reporting categories. The representatives did not
object to providing the Congress with information on the adequacy of GWOT
funding. DOD provided technical comments and we have incorporated them as
appropriate.
Background Since the terrorist attacks of September 11, 2001, the United
States has undertaken military operations worldwide to fight terrorism as
part of GWOT. To pay for the incremental costs3 of GWOT, the Congress has
provided over $165 billion in appropriations for military operations
through fiscal year 2004. This amount includes funds for operations in
Afghanistan and more recently Iraq, homeland security, and other global
counterterrorism military and intelligence operations. Figure 1 shows the
location of DOD's major operations in support of GWOT during fiscal year
2004.
3 The term "incremental costs" means those directly attributable costs
that would not have been incurred if it were not for the operation.
Sections 230406 and 230902 of Department of Defense Financial Management
Regulations 7000.14-R, Volume 12, Chapter 23, Contingency Operations (Feb.
2001) provide additional information on incremental costs.
Figure 1: Location of DOD's Fiscal Year 2004 Contingency Operations
Source: GAO.
Most of the costs associated with GWOT fall into two accounts-operation
and maintenance and military personnel. Operation and maintenance account
funds obligated in support of GWOT are used for a variety of purposes,
including transportation of personnel, goods, and equipment; unit
operating support costs; and intelligence, communications, and logistics
support. Military personnel funds obligated in support of GWOT cover the
pay and allowances of mobilized reservists as well as special payments or
allowances for all qualifying military personnel, both active and reserve,
such as Imminent Danger Pay and Family Separation Allowance.
Fiscal Year 2004 GWOT Costs Are Exceeding Supplemental Funding
Our analysis of the military services' reported obligations for the first
seven months of fiscal year 2004 and the services' forecasts as of June
2004 of full fiscal year costs suggests the services' combined operation
and maintenance costs could exceed supplemental GWOT funding by about $13
billion. At the same time, the services' forecasts suggest the Army and
the Air Force will have some surplus military personnel funds while the
Navy and the Marine Corps will have a small shortfall. Using the surplus
military personnel funds to offset some of the operation and maintenance
shortfalls could result in a net shortfall of about $12.3 billion. Table 1
shows the services' forecasts.
Table 1: Service Forecasts of GWOT Funding Shortfalls and Surpluses in
Operation and Maintenance and Military Personnel Appropriations Accounts
as of June 2004
Dollars in billions
Operation and Military Net total by
Service maintenance personnel service
Army ($10.2) $.8 ($9.4)
Air Force (1.5) .1 (1.4)
Navy (.9) (.1) (1.0)
Marine Corps (.4) (.1) (.5)
Total ($13.0) $.7 ($12.3)
Source: Developed by GAO from service data.
Note: Shortfalls in parentheses. We did not audit the data used.
Our analysis suggests that the services will require additional funding to
satisfy operation and maintenance expenses and in some cases military
personnel expenses. The services, in concert with the Office of the Under
Secretary of Defense (Comptroller), plan to take a variety of actions to
cover forecasted shortfalls.
Fiscal Year 2004 Funds To support GWOT in fiscal year 2004, the Congress
appropriated Appropriated for the $65 billion to DOD in an emergency
supplemental appropriation.4 Of this Global War on Terrorism $65 billion,
about $63 billion was appropriated directly to the services'
and other defense agencies' appropriations accounts and about $2 billion
4 P.L. 108-106 (Nov. 6, 2003).
to a transfer fund called the Iraqi Freedom Fund.5 Of the $63 billion,
$5.3 billion was designated for classified programs, which we did not
review, $3.07 billion was for procurement, $500 million was for military
construction, $624 million was for the working capital funds, and $672
million was for other appropriations. Table 2 shows the operation and
maintenance and the military personnel appropriations provided to the
services and DOD-wide agencies for GWOT, exclusive of the amounts
designated for classified programs.6
Table 2: Operation and Maintenance and Military Personnel Funds
Appropriated for DOD during Fiscal Year 2004 for the Global War on
Terrorism
Dollars in billions
DOD-wide
Army Navy Air Force Marine agencies Total
Corps
Operation and $24.095 $1.866 $5.809 $1.373 $3.884 $37.027
maintenance
Military personnel 12.859 .816 3.385 .910 0 17.970
Total $36.954 $2.682 $9.194 $2.283 $3.884 $54.997
Source: P.L. 108-106.
Note: The dollar figures cited above include appropriations received by
both the active and the reserve components for each service. Data include
transfers from the Iraqi Freedom Fund as of April 2004--$180 million and
$142 million, respectively, to the Army and Marine Corps operation and
maintenance accounts and $157 million to the Marine Corps' military
personnel account.
We recognize that estimating the costs of ongoing military operations is
difficult because operational requirements can differ substantially from
what was assumed in developing budget estimates. For example, according to
Office of the Under Secretary of Defense (Comptroller) representatives, in
developing the President's fiscal year 2004 GWOT budget request, DOD
assumed, among other things, that the number of military personnel would
decline from a wartime high of 130,000 to 99,000 by the end of fiscal year
2004, that it would be able to make greater use of sealift as opposed to
more expensive airlift, and that military units replacing those involved
in the invasion of Iraq would have fewer armored vehicles than the units
they replaced. Conditions in Iraq have prevented
5 The Iraqi Freedom Fund is a special account providing funds for
additional expenses for ongoing military operations in Iraq and those
operations authorized by P.L. 107-40 (Sept. 18, 2001), Authorization for
Use of Military Force, and other operations and related activities in
support of the Global War on Terrorism.
6 These 16 DOD-wide agencies include the Defense Logistics Agency and the
Special Operations Command.
much of this from happening, and costs have not decreased as anticipated.
This includes having higher numbers of troops in Iraq, with DOD stating
that it plans to keep troop levels at 138,000 for the foreseeable future.
Funding for GWOT Operation and Maintenance in Fiscal Year 2004 Is Not Likely
to Be Sufficient
Our analysis of reported obligations for the first seven months of fiscal
year 2004 and the military services' forecasts as of June 2004 of their
likely costs for GWOT through the end of fiscal year 2004 suggest that
anticipated costs will exceed the supplemental funding provided for GWOT.
Our comparison of the percentage of fiscal year 2004 GWOT operation and
maintenance funds obligated by the military services for the first seven
months of the fiscal year (i.e., October 1, 2003, through April 2004, the
latest month for which obligation data are available for all the services)
showed that all of the military services had obligated more than 60
percent of their available appropriations, including any funds transferred
from the Iraqi Freedom Fund. As shown in figure 2, the percentage of
available operation and maintenance funds that were obligated as of April
30, 2004, ranged from a low of nearly 61 percent for the Air Force to a
high of over 77 percent for the Marine Corps. Therefore, we believe that
if funds continue to be obligated at the current rate or higher, operation
and maintenance reported obligations made in fiscal year 2004 will be
higher than the funds available for obligation in fiscal year 2004.
Figure 2: Reported Obligations of GWOT Operation and Maintenance Funds
through April 2004
Percent of total 100
90
80
70
60 50
40
30
20
10
0
Army Air Force Marines Navy DOD-wide agencies
Appropriations remaining
Obligations through April
Source: GAO analysis of DOD data.
Note: Total reported obligations include obligations from both the active
and the reserve components. We did not audit the data.
Each of the military services completed a midyear budget review in
May-June 2004 for the Office of the Secretary of Defense, including a
forecast of their requirements for GWOT and, in some cases, has updated
those forecasts. Each service concluded it did not have sufficient GWOT
funding for GWOT operation and maintenance, while two of the services-the
Navy and the Marine Corps-forecasted a shortfall in GWOT military
personnel funds (see next section). A summary of each service's review
follows.
o The Army forecasts a funding shortfall of about $10.2 billion. The
shortfall includes $5.3 billion for support to deployed Army forces; $3.4
billion for a variety of activities, including $2 billion for refurbishing
equipment used in Operation Iraqi Freedom and $753 million in contractor
logistics support; $800 million for equipment maintenance; and $650
million for contract guards and garrison support units in the United
States. The two largest components of the shortfall in support for
deployed forces are the
Logistics Civil Augmentation Program (LOGCAP) contract that provides a
wide array of support services such as feeding and housing soldiers and
the costs, such as those for spare parts, associated with the higher
operating tempo of U.S. forces. LOGCAP costs have grown significantly as
contractors replaced soldiers providing complex support functions. Higher
than initially planned troop levels in Iraq as of spring 2004 (130,000
instead of 99,000) and an increase in troop levels in Afghanistan (from
about 14,000 to about 21,000) have increased all aspects of troop support.
Additional factors driving costs are the decision to change the force mix
of units serving in Iraq from one-third armor, two-thirds wheeled vehicles
to one-half armor, one-half wheeled vehicles, which will lead to higher
operational tempo and maintenance costs because armor vehicles are more
expensive to operate and an increased use of airlift to move critical
equipment to Iraq this past spring.
o The Air Force forecasts a shortfall of about $1.5 billion, which
includes the costs for increased operating tempo, such as more flying
hours than anticipated, higher transportation costs to move Air Force
units and equipment, body armor for airmen in combat areas, night vision
gear, and operation of surveillance equipment. In addition, the Office of
the Under Secretary of Defense (Comptroller) directed the Air Force to
fund $116 million for its own support provided under the LOGCAP contract,
which would otherwise have been paid by the Army.
o The Navy forecasts a shortfall of $931 million, which includes the
costs for higher steaming and flying hours. For example, Navy
representatives told us that they had planned for 11 additional steaming
days per quarter but are actually at 18 additional days per quarter, which
totals $231 million of the shortfall. In addition, there are 4,000 Navy
personnel in Iraq and Kuwait that were not planned to deploy, which
increases the operational costs, and the transportation costs to move
additional Navy and Marine Corps personnel (which were also not expected
to deploy) to GWOT operations.
o The Marine Corps forecasts a shortfall of $446 million. This shortfall
reflects the cost of having 26,500 Marines in Iraq and the additional
deployment of two Marine Expeditionary Units in support of GWOT operations
when initially Marine Corps forces were expected to decrease their
presence in fiscal year 2004. It also includes the cost of refurbishing
equipment that had been in Iraq in fiscal year 2003. Furthermore, the
equipment and maintenance costs associated with adding extra armor on
vehicles are much higher than anticipated because of the extra
wear-andtear the vehicles are experiencing due to the extra weight. The
shortfall does not include an additional $140 million needed for aircraft
force protection that is being funded by the Navy.
In addition to the military services, the Congress also provided
GWOT operation and maintenance appropriations for the defense
agencies, including the Special Operations Command and the
Defense Logistics Agency. These agencies are also reflected in the midyear
budget review. Our analysis of their collective reported obligations
through April 2004, which represents almost 58 percent of the fiscal year,
indicates that the defense agencies are also obligating their funds
rapidly,
with about 66 percent of their appropriated operation and maintenance
funds obligated through April 2004.
Funding for GWOT Military Personnel Is Reasonably Close to Forecasts
The military services have been obligating their funds for military
personnel at a rate that nearly mirrors the percentage of the fiscal year
that has passed. As figure 3 shows, with seven months of the fiscal year
gone, the Army, the Navy, and the Air Force have obligated over one-half
of their appropriations and the Marine Corps has obligated almost half,
including any funds transferred from the Iraqi Freedom Fund. For example,
the Army and the Navy have obligated almost 60 and 59 percent,
respectively, of their GWOT appropriation.
Figure 3: Reported Obligations of GWOT Military Personnel Funds through
April 2004
Percent of total 100 90
80
70
60 50
40
30
20
10
0 Army Air Force Marines Navy
Appropriations remaining
Obligtions through April
Source: GAO analysis of DOD data.
Note: Total reported obligations include obligations from both the active
and the reserve components. We did not audit the data.
While three of the four services' reported obligations for military
personnel are about at the expected level for this point in the fiscal
year, the military services' forecasts as of June 2004 predict a surplus
in the Army and Air Force accounts and a shortage in the Navy and Marine
Corps accounts. Details are as follows.
o The Army forecasts a surplus of $800 million due to less than expected
use of reservists in support of Operation Noble Eagle and savings on costs
to move soldiers from one home station to another.
o The Air Force forecasts a surplus of $112 million due to the
deactivation of reservists.
o The Navy forecasts a shortfall of $61 million resulting from factors
including the increase in Family Separation Allowances for personnel in
Iraq and Kuwait. The Navy has also activated 1,300 reservists.
o The Marine Corps forecasts a shortfall of $107 million. There are
26,500 Marines in Iraq, including 4,000-5,000 reservists, plus the
DOD Plans a Variety of Actions to Cover the Military Services' Shortfalls of
GWOT Funds
deployment of two Marine Expeditionary Units in support of GWOT that were
not anticipated when the Marines' budget estimate was developed.
To fund forecasted GWOT shortfalls, the Office of the Under Secretary of
Defense (Comptroller) and the military services are planning to take a
number of actions. These actions include taking steps to reduce costs,
transferring funds from the Iraqi Freedom Fund, transferring funds between
appropriations accounts, and deferring planned peacetime activities to use
those funds to support GWOT.
These potential shortfalls could require DOD to move funds between or
within appropriation accounts. DOD uses "transfer authority" to shift
funds between appropriation accounts, for example, between military
personnel and operation and maintenance. Transfer authority is granted by
the Congress to DOD usually pursuant to specific provisions in
authorization or appropriation acts. In the fiscal year 2004 National
Defense Appropriation Act, DOD was given general transfer authority to
shift $2.1 billion between appropriations accounts, as well as other
transfer authorities that are more specific in nature. DOD was also given
transfer authority in the fiscal year 2004 Emergency Supplemental
Appropriation Act to shift $3 billion of the funds appropriated in that
act. In both cases, the Secretary of Defense must determine that this
transfer is necessary in the national interest and that it would fund
unforeseen and higher priority items than those originally funded, and he
must notify the Congress promptly of the transfer. The ability to shift
funds within a specific appropriation account, like operation and
maintenance, is referred to as "reprogramming." In general, DOD does not
need statutory authority to reprogram funds within an account as long as
the funds to be spent would be used for the same general purpose of the
appropriation and the reprogramming does not violate any other specific
statutory requirements or limitations. For example, DOD could reprogram
operation and maintenance funds originally appropriated for training to
cover increased fuel costs because both uses meet the general purpose of
the operation and maintenance account, as long as the shift does not
violate any other specific congressional prohibition or limitation.
According to a representative in the Office of the Under Secretary of
Defense (Comptroller), DOD has sufficient funds within its overall
appropriation to cover forecasted GWOT shortfalls. Therefore, DOD does not
plan to ask the Congress for additional funding, but instead will cover
the shortfall in its fiscal year 2004 GWOT funding by both transferring
and reprogramming normal annual appropriation and GWOT funds. However,
as explained earlier, there are statutory dollar limits on the amount of
funds DOD can transfer and, according to a DOD representative, as of June
18, 2004, DOD had exhausted most of its transfer authority. According to
this representative, DOD plans to ask the Congress for an additional $1.1
billion in transfer authority, which would give the department sufficient
authority to move funds from one service to another and get funds to the
operation and maintenance accounts that have the greatest shortfalls.
Also, according to most service representatives, they plan to reprogram
funds within their appropriations to the extent allowed by law. Finally,
DOD plans to transfer the remaining amount in the Iraqi Freedom Fund,
which has its own transfer authority, to the Army and Marine Corps
operation and maintenance accounts.
Military Services Plan to
Cover GWOT Shortfalls
To cover their forecasted GWOT shortfalls, each of the military services
has identified a number of steps it plans to take. Some of these steps
involve actions they can take internally, such as seeking to reduce costs
and revising spending priorities, or reprogramming, within the same
appropriation account, while others involve transferring funds between
accounts.
The Army, the service with the largest forecasted shortfall in operation
and maintenance, is taking a variety of actions to address its forecasted
shortfall. Actions include emphasizing the need to control costs,
reprogramming funds within and transferring funds across accounts, seeking
help from the other military services for bills now being paid by the
Army, and deferring what amounts to a total of about $3.4 billion in
activities until fiscal year 2005 or beyond, including deferring
refurbishment of equipment used in Operation Iraqi Freedom. In a December
2003 message, the Vice Chief of Staff of the Army asked units to control
costs and look for alternatives to the LOGCAP contract with the
realization that costs were growing rapidly. Army representatives told us
that to control costs they have implemented a number of measures,
including
o higher level review of LOGCAP tasks over $10 million as well as over
other contract actions and equipment and supply purchases,
o strengthened management controls on new work performed under the
LOGCAP contract, and
o the review of supply requisitions to identify and cancel duplicate or
inactive requisitions after 30 days as well as a management review of
requisitions that have a high-dollar value, involve large quantities, or
involve pilferable items.7
The Army will also seek to transfer the previously discussed anticipated
$800 million surplus that is attributable to GWOT in its military
personnel appropriation account and reprogram funds within its military
personnel Army and National Guard appropriations to cover the forecasted
$650 million shortage for contract guards and garrison support units, and
it is waiting for the Congress' approval of the Office of the Secretary of
Defense's request to transfer funds from other service and defense agency
accounts, as well as the previously discussed transfer of remaining funds
in the Iraqi Freedom Fund. The Army has already received almost $1 billion
in transfers from the transportation working capital fund that reflect
surpluses in that account and anticipates a reduction in transportation
rates and usage changes that would produce a $265 million savings.
Finally, the Army is seeking to have the other military services pay some
bills it is currently paying. These bills include having the Marine Corps
pay almost $313 million and the Air Force pay almost $116 million in
LOGCAP costs, which is the Army's estimate of the cost of LOGCAP services
being provided to those services. In total, the Army has identified $6.8
billion in funding sources for its operation and maintenance shortfall and
will defer activities for the remaining $3.4 billion to fiscal year 2005
and beyond.
The Air Force is taking a variety of actions to reduce or defer spending
in its active component operation and maintenance account in order to
absorb its forecasted GWOT shortfall. Actions include decreasing peacetime
flying hours in the fourth quarter of this fiscal year, reducing depot
maintenance, deferring facility sustainment and restoration modernization
projects, eliminating training events, decreasing contractor logistics
support, slowing civilian hiring, and curtailing lower priority
requirements such as travel, supplies, and equipment.
The Navy is also taking a variety of actions to cover its forecasted GWOT
shortfall. To cover its forecasted operation and maintenance shortfall of
$931 million, the Navy, like the Air Force and the Army, plans to reduce
or
7 We have testified on LOGCAP and other contracting issues in Iraq and
issued a report on LOGCAP in July 2004. U.S. General Accounting Office,
Contract Management: Contracting for Iraq Reconstruction and for Global
Logistics Support, GAO-04-869T (Washington, D.C., June 15, 2004) and
Military Operations: DOD's Extensive Use of Logistics Support Contracts
Requires Strengthened Oversight, GAO-04-854 (Washington, D.C., July 19,
2004).
defer spending in its operation and maintenance account, by reducing
activities involving facility sustainment and restoration modernization
projects by $300 million and non-GWOT flying and steaming hours by $226
million. According to Navy representatives, if the fleet does not want to
reduce flying and steaming hours, it can defer its depot maintenance. The
Navy received $121 million in transfers from the Office of the Secretary
of Defense. The Navy will cover the remaining $284 million shortfall in
operation and maintenance and the $61 million shortfall in military
personnel through the transfer and reprogramming of funds from investment
accounts.
The Marine Corps plans to fund both $334 million of its forecasted $446
million operation and maintenance shortfall and its $107 million military
personnel shortfall with funds transferred from the Iraqi Freedom Fund and
Department of the Navy investment accounts. According to Marine Corps
representatives, they also plan to reduce or defer spending in noncritical
areas such as facilities improvements or sustainment projects.
Deferring and Reducing Spending Could Increase Fiscal Year 2005 Spending
Needs
As discussed earlier, each of the military services expects to take steps
to make funds available for GWOT by reducing and deferring planned
activities. Actions such as reducing training can have both short-and
long-term impacts. In the short term, units train less if flying and
steaming hours are reduced. In the long term, for example, Air Force
representatives told us that part of the reduction in peacetime flying
hours would affect the Air Education and Training Command's training of
new pilots, which would slow new pilot production. While some actions,
such as reduced training or travel, cannot be restored, actions that
involve deferring planned activities can be restored in future fiscal
years to the extent funding is available. As discussed earlier, the Army
both plans to defer $3.4 billion in activities until 2005 and beyond and
expects to receive transfers of funds from other services and defense
agency accounts, which would affect the other services' spending plans;
the Air Force plans to reduce depot maintenance; the Navy plans to reduce
facility repair activities; and the Marine Corps plans to seek the
transfer of funds from investment accounts. We believe that the deferral
of these activities will add to the requirements that will need to be
funded in fiscal year 2005 and potentially later years and so could result
in a "bow wave" effect in future fiscal years. Activities that are
deferred also run the risk of costing more in future years.
Congressional Efforts to Improve Accountability of GWOT Funds
Recent congressional committee actions have signaled the Congress' intent
to require greater accountability regarding the use of GWOT funds. On May
12, 2004, the President submitted a budget amendment for DOD requesting
$25 billion for the Iraqi Freedom Fund Contingent Emergency Reserve in
fiscal year 2005. The House Committee on Appropriations included
provisions in its bill for accountability related to the use of these
funds. The committee bill includes numerous reporting requirements,
including a new requirement for a comprehensive biannual report to the
Congress that provides a detailed and specific accounting of the
expenditure of taxpayer funds in Iraq and Afghanistan.8 In its committee
report on the defense appropriations bill, the Senate Committee on
Appropriations expressed its disappointment in the responsiveness of DOD
in providing reports already required by various laws.9 The report does
not require new reports be provided, but directs DOD to provide meaningful
detail to describe the purposes and specific use of funding in all reports
submitted to the committee.
We have been reporting on the cost of ongoing military operations for more
than a decade. In that reporting, we have analyzed DOD's monthly cost
reports detailing the reported obligations of funds in support of the
operations. DOD currently prepares a monthly Consolidated DOD Terrorist
Response Cost Report that contains reported obligations by operation and
within each operation and by appropriation account for the military
services and defense agencies. Within these accounts, the report provides
obligation data in about 50 categories that are defined in chapter 23 of
the DOD Financial Management Regulations.10
However, we have reported for several years and as recently as May 2004
that large amounts of reported obligations for GWOT are in miscellaneous
categories in both the operation and maintenance and the military
personnel accounts.11 For example, in fiscal year 2003, the $43.7 billion
in operation and maintenance reported obligations were reported in four
8 H.R. 4613, 108th Congress, sec. 9012 (2004).
9 S. Rep. No. 108-204 (2004).
10 Department of Defense Financial Management Regulations, 7000.14-R, vol.
12, chapter 23, Contingency Operations (Feb. 2001).
11 U.S. General Accounting Office, Military Operations: Fiscal Year 2003
Funding and Reported Obligations in Support of the Global War on
Terrorism, GAO-04-668 (Washington, D.C., May 13, 2004).
major categories: civilian personnel, personnel support, operating
support, and transportation. As shown in figure 4, the operating support
category, which details obligations for such operation-related activities
as facilities support, fuel, and spare parts and totaled about $32.1
billion, showed about $15.5 billion in miscellaneous categories. This
amount was comprised of about $7 billion for other supplies and equipment
and about $8.4 billion for other services and miscellaneous contracts,
which totaled about 35 percent of the total reported operation and
maintenance obligations.
Figure 4: Global War on Terrorism Operating Support Reported Obligations
for Fiscal Year 2003
Dollars in billions
Other Services and Miscellaneous Contracts
$8.45
<1% Training
$0.08
5% Command, Control, Communications,
Computers, and Intelligence
$1.76
Reconstitution
$3.76
Facilities and Base Support
$3.86
Other Supplies and Equipment
$6.95
OPTEMPO
$7.27
Source: The Defense Finance and Accounting Service's Consolidated DOD
Terrorist Response Cost Report, as of September 30, 2003.
Note: We did not audit the data. Percentage total does not add due to
rounding.
Similarly, we reported that within the military personnel account, of
$15.6 billion in reported obligations, $3.8 billion, or 24 percent, was in
the miscellaneous category of other military personnel. We reported that
in discussing the results of our analysis with the Office of the Under
Secretary of Defense (Comptroller) and the military services, there was
recognition of the large amount of reported obligations captured in
miscellaneous categories and that the Comptroller's office is considering
how best to provide more specific detail in future cost reports.
Chapter 23 of the Financial Management Regulations is DOD's guidance on
contingency operations cost definition and reporting. In our opinion, the
categories defined in the guidance provide a uniform framework for
capturing obligations, but the miscellaneous categories do not provide the
specificity or transparency needed for the Congress and others to
understand clearly how funds appropriated for contingency operations are
being used, particularly since these categories involve billions of
dollars in reported obligations.
In our annual reporting on the cost and funding of ongoing military
operations, we have recognized that estimating the costs of ongoing
military operations is difficult because operational requirements can
differ substantially from what was assumed in developing budget estimates.
As a result, the actual funding requirement is often more or less than
what was initially estimated, and the military services have sometimes
used surpluses to fund activities that were not part of the contingency
operation. We have found that in some years funding was insufficient for
some services while it was sufficient for others and that within a service
it was sufficient for one appropriation account but not for another. For
example, in June 1996 we reported that the Army and the Navy reported
obligations for operation and maintenance that were in excess of their
supplemental funding, while the Air Force and the Marine Corps reported
obligations that were less than their supplemental funding.12 In that
year, both the Air Force and the Marine Corps used the excess funding for
a variety of otherwise unfunded operational needs. In other years, the
Congress rescinded excess funding or reduced subsequent year funding based
on an expected carryover of funds.
Conclusions Largely because of the security situation in Iraq, the
military services are forecasting costs as of June 2004 in excess of their
supplemental GWOT funding. DOD is taking a variety of actions to cover
these shortfalls. It has also asked the Congress to provide a $25 billion
contingent reserve for GWOT in fiscal year 2005. To ensure accountability
for the use of those
12 U.S. General Accounting Office, Contingency Operations: Update on DOD's
Fiscal Year 1995 Cost and Funding, GAO/NSIAD-96-184BR (Washington, D.C.:
June 27, 1996).
Recommendation for Executive Action
Matter for Congressional Consideration
Agency Comments
funds, the Congress is contemplating requiring periodic reports on the use
of such funds. Our past work has shown that current cost reporting
includes large amounts of funds that have been reported as obligated in
miscellaneous categories and so provides little insight on how those funds
have been spent. This may result in reduced transparency and
accountability to the Congress and the American people. Our work has also
discussed the difficulty of accurately budgeting for annual funding needs
and the resulting existence of both funding shortfalls and surpluses,
which at times have been spent on noncontingency-related activities. This
in turn helps highlight the importance of providing useful information to
the Congress for its oversight role.
In light of the fact that we have reported for years on the large amounts
of reported obligations in the miscellaneous categories of the
Consolidated DOD Terrorist Response Cost Reports, we recommend that the
Secretary of Defense take the following three actions: (1) review recent
Consolidated DOD Terrorist Response Cost Reports to identify the larger
groupings of reported obligations within the "other supplies and
equipment," "other services and miscellaneous contracts," and "other
military personnel" cost categories; (2) revise Chapter 23 of the
Financial Management Regulations to include these groupings as reporting
categories so that the amounts classified in the "other" categories are
minimized; and (3) direct the military services to begin reporting
obligations using these new cost categories as soon as they are
identified.
To better assess the adequacy of previously provided funding, the Congress
may wish to expand its reporting requirements for DOD on the use of GWOT
funds to include reports at the half year and the end of the third quarter
of each fiscal year that include an assessment of the adequacy of funding
for GWOT in that fiscal year, including (a) if funding appears to be
insufficient, the Secretary of Defense's plan for covering any shortfall
and (b) if funding appears to exceed forecasted costs, the procedures that
will be followed to ensure that any excess funds are not used for non-GWOT
purposes.
DOD did not provide us comments by the date we requested. However, we
discussed our analysis with a representative from DOD's Office of the
Under Secretary of Defense (Comptroller) and representatives from each
military service's budget office. We also discussed our proposed
recommendation and matter for congressional consideration. The Office
of the Under Secretary of Defense representative stated that he agreed
with our proposed recommendation and that the department had been
discussing ways to provide more detail in the cost report's miscellaneous
categories. This representative and the service representatives also
stated that they had no objections to the matter for congressional
consideration and, in fact, provide information to the Congress whenever
it is requested. DOD also provided technical comments and we have
incorporated them as appropriate. In particular, the Army clarified that
they were not deferring the purchase of ceramic body armor and we agreed
to delete references to that issue in the final report. We have also
updated the reported obligations to reflect April data.
We are sending copies of this report to other interested congressional
committees; the Secretary of Defense; the Under Secretary of Defense
(Comptroller); and the Director, Office of Management and Budget. Copies
of this report will also be made available to others upon request. In
addition, this report will be available at no charge on the GAO Web site
at http://www.gao.gov.
If you have any questions regarding this report, please call me on (757)
552-8100. Principal contributors to this report were Steve Sternlieb, Ann
Borseth, John Buehler, and David Mayfield.
Neal P. Curtin Director, Defense Capabilities and Management
Congressional Committees
The Honorable John W. Warner, Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate
The Honorable Don Nickles, Chairman
The Honorable Kent Conrad
Ranking Minority Member
Committee on the Budget
United States Senate
The Honorable Ted Stevens, Chairman
The Honorable Daniel K. Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate
The Honorable Duncan Hunter, Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representative
The Honorable Jim Nussle, Chairman
The Honorable John Spratt
Ranking Minority Member
Committee on the Budget
House of Representatives
The Honorable Jerry Lewis, Chairman
The Honorable John Murtha
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives
Appendix I: Scope and Methodology
To assess the adequacy of funding for the Global War on Terrorism (GWOT),
we reviewed (1) the President's fiscal year 2004 budget request for
supplemental appropriations, (2) applicable laws appropriating funds for
GWOT, and (3) Department of Defense (DOD) reports on the obligation of
GWOT funds. We obtained budget forecasts from the military services based
on their midyear budget review and subsequent updates through June 2004,
including key cost factors of GWOT operations. We also discussed these
forecasts with service representatives. We compared the latest available
obligation reports against total available appropriated funds. We focused
our work on the obligation of funds appropriated for operation and
maintenance and military personnel because they represented the large
majority of funds obligated in fiscal year 2004 through April 2004.
To assess actions planned to address forecasted GWOT funding shortfalls,
we reviewed service documents related to the midyear budget review and
subsequent updates through June 2004 and discussed with DOD and the
military services the actions the services planned to take and their
likely impact on current programs. We also reviewed applicable legislation
on DOD's authority to transfer funds.
To provide observations on congressional efforts to improve accountability
of GWOT funds, we reviewed available material in DOD appropriations and
authorization bills for fiscal year 2005, committee press releases, and
statements of key leaders to identify proposed actions to improve
accountability. We also reviewed our reports related to the cost and
funding of ongoing military operations dating back to fiscal year 1994.
We visited the following locations during our review:
o Office of the Under Secretary of Defense (Comptroller), Washington,
D.C.
o Department of the Army, Headquarters, Washington, D.C.
o U.S. Army Forces Command and Headquarters, Third Army, Fort McPherson,
Georgia.
o Department of the Air Force, Headquarters, Washington, D.C.
o Air Force Central Command, Shaw Air Force Base, South Carolina.
o Department of the Navy, Headquarters, Washington, D.C.
o United States Marine Corps, Headquarters, Washington, D.C.
o First Marine Expeditionary Forces, Headquarters, Camp Pendleton,
California.
We performed our work from January through June 2004 in accordance with
generally accepted government auditing standards.
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