Global War on Terrorism: DOD Should Consider All Funds Requested 
for the War When Determining Needs and Covering Expenses	 
(28-SEP-05, GAO-05-767).					 
                                                                 
To assist the Congress in its oversight role, GAO is undertaking 
a series of reviews on the costs of operations in support of the 
Global War on Terrorism (GWOT). In related work, GAO is raising  
concerns about the reliability of the Department of Defense's	 
(DOD) reported cost data and therefore is unable to ensure that  
DOD's reported obligations for GWOT are complete, reliable, and  
accurate. In this report, GAO (1) identified funding for GWOT in 
fiscal years 2004 and 2005, (2) compared supplemental		 
appropriations for GWOT in fiscal year 2004 to the military	 
services' reported obligations, and (3) compared supplemental	 
appropriations for GWOT in fiscal year 2005 to the military	 
services' projected obligations.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-767 					        
    ACCNO:   A38567						        
  TITLE:     Global War on Terrorism: DOD Should Consider All Funds   
Requested for the War When Determining Needs and Covering	 
Expenses							 
     DATE:   09/28/2005 
  SUBJECT:   Appropriated funds 				 
	     Budget obligations 				 
	     Counterterrorism					 
	     Defense budgets					 
	     Defense cost control				 
	     Financial analysis 				 
	     Financial management				 
	     Funds management					 
	     Military appropriations				 
	     Military materiel					 
	     Military operations				 
	     Supplemental appropriations			 
	     Terrorism						 
	     Warfare						 
	     Data integrity					 
	     Cost analysis					 
	     Comparative analysis				 
	     Military personnel 				 
	     Global War on Terrorism				 

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GAO-05-767

                 United States Government Accountability Office

GAO

                       Report to Congressional Committees

September 2005

GLOBAL WAR ON TERRORISM

 DOD Should Consider All Funds Requested for the War When Determining Needs and
                               Covering Expenses

                                       a

GAO-05-767

[IMG]

September 2005

GLOBAL WAR ON TERRORISM

DOD Should Consider All Funds Requested for the War When Determining Needs and
Covering Expenses

  What GAO Found

In fiscal years 2004 and 2005, DOD received funding for GWOT through both
funds included in its annual appropriation and supplemental
appropriations. In fiscal years 2004 and 2005, the military services
received about $52.4 billion and $62.1 billion, respectively, in
supplemental appropriations for GWOT (1) military personnel and (2)
operation and maintenance expenses. The Army, Air Force, and Navy also
received in their annual appropriations a combined $7.9 billion in fiscal
year 2004 and a combined $7.6 billion in fiscal year 2005, which DOD
described as being intended to support GWOT. The military services
absorbed the increase into their annual appropriations and allocated it
based on their judgment of where the funds were most needed. DOD's
accounting systems, however, do not separately identify these additional
appropriations, and there are no reporting requirements for DOD to
identify to which appropriation accounts the funds were allocated;
consequently, the military services have lost visibility over these funds
and do not know the extent to which they are being used to support GWOT.
Despite having asked for the increase to support GWOT, DOD is not
explicitly counting these additional funds when considering the amount of
funding available to cover GWOT expenses.

For fiscal year 2004, regarding supplemental appropriations for GWOT
military personnel expenses, the Navy and Marine Corps reported more in
obligations than they received in supplemental appropriations, while the
Army and Air Force received more in supplemental appropriations than their
reported obligations. Each of the services reported more in GWOT operation
and maintenance obligations than it received in supplemental
appropriations. To cover the differences (gaps), DOD and the services
exercised a number of authorities provided them, including transferring
funds and reducing or deferring planned spending for peacetime operations.
However, in considering the amount of funding available to cover the gaps,
DOD did not explicitly take into account the funds provided through its
annual appropriation that as previously noted it described as for the
support of GWOT. If DOD had considered these funds, it could have reduced
the Army's GWOT gap and eliminated the GWOT gaps of the Air Force and
Navy.

For fiscal year 2005, the services' forecasts of GWOT obligations for the
full fiscal year as of June 2005 suggest a potential gap of $500 million
for military personnel for the Air Force and potential gaps of about $2.7
billion and about $1 billion, respectively, for operation and maintenance
for the Army and Air Force. To cover expenses, DOD and the services again
plan to take a variety of actions, including reprogramming funds and
reducing or deferring planned spending. However, DOD is again not
explicitly considering the funds provided through its annual
appropriation, which it described as for the support of GWOT. If counted
in fiscal year 2005, the amounts potentially could reduce the Army's and
eliminate the Air Force's GWOT gaps and eliminate the need for
reprogramming funds and reducing or deferring planned spending.

United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
Funding for GWOT in Fiscal Years 2004 and 2005 Was Provided in

Annual and Supplemental Appropriations

Most Fiscal Year 2004 Supplemental Appropriations for GWOT Were Less Than
Reported Obligations; However, DOD Is Not Explicitly Counting Additional
Funds Requested for GWOT in Its Annual Appropriation

Fiscal Year 2005 Reported Obligations for GWOT Could Exceed Supplemental
Appropriations, Requiring the Military Services to Use Authorities
Provided to Them to Cover the Differences

Conclusions
Recommendations for Executive Action
Matter for Congressional Consideration
Agency Comments and Our Evaluation

1 4 7

8

14

22 29 30 30 30

Appendixes

Appendix I: Scope and Methodology 37

Appendix II: Comments from the Department of Defense 40

Tables Table 1:

Table 2:

Table 3: Table 4: Table 5:

Supplemental Appropriations Available to the Military
Services for GWOT Military Personnel and Operation and
Maintenance Expenses in Fiscal Years 2004 and 2005
Annual Appropriations for the Military Services Included
in Program Budget Decision 736 to Support GWOT in
Fiscal Years 2004 and 2005
Military Personnel Fiscal Year 2004 GWOT Supplemental
Appropriations and Reported Obligations
Operation and Maintenance Fiscal Year 2004 GWOT
Supplemental Appropriations and Reported Obligations
Comparison of the Military Services' Combined
Supplemental and Annual Appropriations for Military
Personnel and Operation and Maintenance for GWOT in
Fiscal Year 2004 to Reported Obligations

                                       9

11 15 15

21

Figures Figure 1: Military Services' Fiscal Year 2005 Reported Obligations
of GWOT Military Personnel Supplemental Appropriations through May 2005 23

Contents

Figure 2:	Military Services' Fiscal Year 2005 Reported Obligations of GWOT
Operation and Maintenance Supplemental Appropriations through May 2005 25

Abbreviations

DOD Department of Defense
GWOT Global War on Terrorism
LOGCAP Logistics Civil Augmentation Program

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A

United States Government Accountability Office Washington, D.C. 20548

September 28, 2005

Congressional Committees

Since the September 11, 2001, terrorist attacks, the Congress has provided
the Department of Defense (DOD) with more than $265 billion, as of August
2005, in supplemental appropriations to support military operations to
combat terrorism worldwide. The Congress has also provided funds to combat
terrorism in DOD's annual appropriation. Military operations to defend the
United States from terrorist attacks are known as Operation Noble Eagle.
Overseas military operations to combat terrorism are known as Operation
Iraqi Freedom, which takes place in and around Iraq, and Operation
Enduring Freedom, which takes place principally in Afghanistan. These
operations are known collectively as the Global War on Terrorism (GWOT).

To assist the Congress in its oversight role, we have conducted under the
Comptroller General's statutory authority a series of reviews on the
reported obligations and funding for military operations in support of
GWOT1 and have addressed this report to the congressional committees of
jurisdiction. 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 require payments
during the same or a future period.2 In July 2004, we issued a report that
discussed fiscal year 2004 obligations and funding through April 2004.3
This report completes our analysis of fiscal year 2004 and includes our
assessment of the outlook for fiscal year 2005 obligations and funding for
the war as of May 2005. In this report, we (1) identified funding for GWOT
in fiscal years 2004 and 2005; (2) compared supplemental appropriations
for GWOT in fiscal year 2004 to the military services' reported
obligations and, if differences occurred, determined the actions DOD and
the services took to cover them; and (3) compared supplemental
appropriations for GWOT in

1GAO, Military Operations: Fiscal Year 2004 Costs for the Global War on
Terrorism Will Exceed Supplemental, Requiring DOD to Shift Funds from
Other Uses, GAO-04-915 (Washington, D.C.: July 21, 2004), and Military
Operations: DOD's Fiscal Year 2003 Funding and Reported Obligations in
Support of the Global War on Terrorism, GAO-04668 (Washington, D.C.: May
13, 2004).

2Department of Defense Financial Management Regulation, 7000.14-R, vol. 1,
Definitions,

p. xvii (December 2001).

3See GAO-04-915.

fiscal year 2005 to the services' projected obligations. Where it appeared
that obligations may exceed the supplemental appropriations provided in
fiscal year 2005, we sought to identify the actions DOD and the services
plan to take to cover the gaps. For purposes of this report, the term
"gap" refers to comparisons between funds provided in supplemental
appropriations and DOD's reported GWOT obligations-specifically to
instances where DOD's reported GWOT obligations exceed the supplemental
appropriations provided to the department during the fiscal year. Because
operational conditions on the ground can vary substantially during the
fiscal year, DOD's actual funding needs may be more or less than the
amount initially estimated or received. As we discuss in this report, DOD
may address these differences (gaps) by using its annual appropriations.
There is no indication, however, that DOD incurred any Antideficiency Act
violations.

We limited our review to the obligation of funds appropriated for military
personnel and operation and maintenance, for both active and reserve
forces of the Army, Air Force, Navy, and Marine Corps, because they
represented the majority of the funds obligated in fiscal years 2004 and
2005, about 90 percent in each year. We did not review the obligation of
funds for investment, which are used for procurement; military
construction; and research, development, test, and evaluation.

To identify funding DOD describes as intended for GWOT, we reviewed
applicable annual and supplemental DOD appropriations in fiscal years 2004
and 2005. To compare supplemental appropriations provided to the military
services for GWOT to reported obligations in both fiscal years 2004 and
2005, we reviewed applicable supplemental appropriations and compared them
to the reported amounts obligated by each service. To identify DOD's
reported GWOT obligations,4 we used DOD's Supplemental and Cost of War
Execution Reports, which report DOD's monthly and cumulative GWOT
obligations, and analyzed these data. These reports were called the
Consolidated Department of Defense Terrorist Response Cost Reports through
December 2004, and renamed beginning in January 2005. We excluded
classified programs from our review, because obligations for those
programs are not reported in DOD's Supplemental and Cost of War Execution
Reports. To determine actions taken by DOD and the services to cover any
identified gaps between reported obligations and supplemental

4DOD's financial systems only capture total obligations, and the services
use various management information systems to identify incremental
obligations and to estimate costs.

appropriations for GWOT, we held discussions with DOD representatives from
the Office of the Under Secretary of Defense (Comptroller) and the Army,
Air Force, Navy, and Marine Corps.

We have previously reported concerns regarding DOD's oversight and cost
reporting of funds appropriated for contingency operations. For example,
in May 2004 we reported that DOD's cost reporting for GWOT included 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,5 and in April 2003 we reported that DOD's ability to track the use
of funds appropriated for GWOT has varying limitations depending on the
appropriation.6 In response, DOD has taken a number of steps to improve
its oversight and cost reporting of funds appropriated for contingency
operations. These actions include revising the Department of Defense
Financial Management Regulation in January 2005 to include new cost
reporting categories that refine the reporting of obligations previously
reported as miscellaneous.

GWOT obligations provided in this report are DOD's claimed obligations as
reported in the Supplemental and Cost of War Execution Reports. In related
work,7 we have reported these data to be of questionable reliability. For
example, we found financial management systems with acknowledged
weaknesses, a lack of systematic processes to ensure accurate data entry,
failure to use actual data when it was available, and improperly
categorized costs. Therefore, we are unable to ensure that DOD's reported
obligations for GWOT are complete, reliable, and accurate. Consequently,
the gaps we identify between supplemental appropriations and DOD's
reported obligations may not reliably reflect true differences between
supplemental appropriations and obligations and therefore should be
considered approximations. Despite the uncertainty about the obligation
data, we are reporting the information because it is the only data
available on overall GWOT costs and so the only way to approach an
estimate of the costs of the war. Also, despite the uncertainty
surrounding the true dollar figure for

5See GAO-04-668.

6GAO, Defense Budget: Tracking of Emergency Response Funds for the War on
Terrorism, GAO-03-346 (Washington, D.C.: Apr. 30, 2003).

7GAO, Global War on Terrorism: DOD Needs to Improve the Reliability of
Cost Data and Provide Additional Guidance to Control Costs, GAO-05-882
(Washington, D.C.: Sept. 21, 2005).

obligations, these data are used to advise the Congress on the cost of the
war. As such, obligation data provided in this report reflect DOD reported
obligations, however unreliable those reports may be.

We conducted our review from November 2004 through August 2005 in
accordance with generally accepted government auditing standards.

Results in Brief	In fiscal years 2004 and 2005, DOD received funding to
support GWOT in both its annual appropriation and in supplemental
appropriations provided during those years. The military services received
about $52.4 billion and about $62.1 billion in fiscal years 2004 and 2005,
respectively, in supplemental appropriations for GWOT military personnel
and operation and maintenance expenses. At the same time, DOD requested
that the Army, Air Force, and Navy receive a combined increase of about
$7.9 billion in fiscal year 2004 and a combined increase of about $7.6
billion in fiscal year 2005 in their annual appropriations, which DOD said
would be for support of GWOT. The military services absorbed the increase
into their annual appropriations and allocated it based on their judgment
of where the funds were most needed. DOD's accounting systems, however, do
not separately identify these additional appropriations and there are no
reporting requirements for DOD to identify to which appropriation accounts
the funds were allocated; consequently, the military services have lost
visibility over these funds and do not know the extent to which they are
being used to support GWOT. Despite having asked for the increase to
support GWOT, DOD is not explicitly counting these additional funds when
considering funding for GWOT.

In fiscal year 2004, the difference between supplemental appropriations
available to the military services for GWOT military personnel and
operation and maintenance expenses compared to reported obligations varied
by service. For military personnel, the Navy and Marine Corps reported
more in obligations than they had received in supplemental appropriations,
resulting in differences or gaps of about $40 million and $30 million,
respectively. Both the Army and Air Force received supplemental
appropriations that exceeded their reported obligations for military
personnel and the two services used these funds to cover operation and
maintenance expenses related to GWOT, transferring $801 million and $113
million, respectively. For operation and maintenance, each of the military
services reported more in obligations than it received in supplemental
appropriations. The Army reported the largest gap, about $4.3 billion,
while the Air Force and Navy reported gaps of $579 million and

about $618 million, respectively. The Marine Corps reported the smallest
gap, about $195 million. Some service representatives noted that the gaps
represented a small percentage of their annual military personnel and
operation and maintenance appropriations. To cover the gaps, the Office of
the Under Secretary of Defense (Comptroller) and the services exercised a
number of authorities provided to them, including transferring funds and
reducing or deferring planned spending for peacetime operations. For
example, DOD covered about $3 billion of the gap though transfers from the
services' working capital funds, while the military services deferred a
portion of their equipment and depot maintenance activities; various
procurement actions; infrastructure projects; and other activities, such
as training, until fiscal year 2005 or later. However, DOD did not
explicitly take into account the funds provided through its annual
appropriation that it intended for support of GWOT. If counted in fiscal
year 2004, these amounts could have reduced the Army's GWOT gap, allowing
it to defer fewer activities, and eliminated the GWOT gaps of the Air
Force and Navy.

For fiscal year 2005, our analysis of reported obligations through May
2005 and the military services' forecasts for the full fiscal year as of
June 2005 suggest that in some appropriations accounts the military
services' reported obligations for the war could exceed their supplemental
appropriations. This could require them to again use other authorities
provided to them to cover the differences. Our projections suggest the
services should have sufficient supplemental appropriations for military
personnel expenses, but that there could be gaps for operation and
maintenance expenses for the Army and the Marine Corps. The services' more
detailed forecasts suggest a gap for military personnel expenses for the
Air Force of about $500 million, and gaps for operation and maintenance
expenses for the Army and Air Force of about $2.7 billion and about $1
billion, respectively. Based on its midyear budget review, the Marine
Corps believes that its current supplemental appropriations for the war
will be sufficient to cover its reported obligations. To cover any gaps,
DOD and the services plan to take a variety of actions, based on
authorities provided to them, including reprogramming funds and reducing
or deferring planned spending for peacetime operations. For example, in
May 2005 more than $800 million was reprogrammed from the military
personnel accounts of the Air Force, Navy, Marine Corps, and Army National
Guard to meet the Army's GWOT needs, while the Air Force has begun taking
steps to decrease its peacetime flying hours and reduce or defer current
year depot maintenance activities. However, DOD is again not explicitly
considering the funds provided in its annual appropriation, which it
described as having been requested to support GWOT. If counted in fiscal

year 2005, the amounts potentially could reduce the Army's and eliminate
the Air Force's GWOT gaps and eliminate the need for reprogramming funds
and reducing or deferring planned spending. As a result, the services
continue to take actions that affect peacetime operations and run the risk
of producing a large "bow wave" of higher spending pressures into the
future.

To improve the visibility and accountability of DOD's use of funds for
GWOT, we recommend that in future requests for supplemental
appropriations, the Secretary of Defense adjust such requests to reflect
the additional funding DOD requested and received in its annual
appropriations to support GWOT and provide the Congress with an
explanation of these adjustments. We further recommend that in addressing
any future GWOT funding needs the Secretary consider the additional GWOT
funding provided through the department's annual appropriation when
assessing how to cover expenses for the war and document its decisions.

In written comments on a draft of this report, DOD did not concur with our
recommendations. Regarding our recommendation that the Secretary of
Defense adjust future supplemental appropriations requests to reflect the
additional funding DOD requested and received in its annual appropriations
to support GWOT and explain these adjustments to the Congress, DOD stated
that its supplemental appropriations request accounts for all relevant
adjustments to the annual appropriation bill. In fact, as stated in our
report, although the Office of the Under Secretary of Defense
(Comptroller) sought to adjust the department's supplemental
appropriations request for fiscal year 2005 to reflect the additional
funds DOD received in its annual appropriations that DOD identified as
supporting GWOT, none of the military services provided the information
requested. Instead, it was the Office of Management and Budget that
actually made the adjustment in preparing the President's fiscal year 2005
supplemental appropriations request. We therefore believe that our
recommendation has merit and have retained it. However, since DOD does not
agree and the amount of funds available is substantial-more than $10
billion annually-we have added a matter for congressional consideration to
consider directing DOD, when it submits future supplemental appropriations
requests, to provide an explanation of how such requests reflect the
additional funding DOD requested and received in its annual appropriations
to support GWOT. With respect to our recommendation that the Secretary of
Defense also consider the additional GWOT funding provided through DOD's
annual appropriations in

addressing any future GWOT funding needs, DOD commented that it considers
all funding provided through the department's annual appropriation when
addressing how to cover expenses for the war. We recognize that DOD
reviews all available funding authorities when determining how to cover
GWOT needs. However, since DOD has lost visibility of the funds provided
through its annual appropriation that it requested to support GWOT, there
is no documentation regarding how the department took these funds into
account or whether it was applying the entire amount to cover its GWOT
needs. We therefore continue to believe our recommendation has merit and
have retained it, including expanding it to recommend that DOD also
document its decisions. DOD's comments and our evaluation are discussed in
detail in a later section of this report and the department's comments are
reprinted in appendix II.

Background	About 90 percent of the costs associated with GWOT fall into
two accounts-military personnel and operation and maintenance. Military
personnel funds provided to support 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. Operation and maintenance
funds provided to support 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.

We have reported on several occasions, including in 1999 and 2003, that
estimating the cost of ongoing military operations is difficult.8 This is
because operational requirements can differ substantially during the
fiscal year from what was assumed in preparing budget estimates. The
result can be that operations can cost more or less than originally
estimated. If operations cost more than originally estimated, DOD may use
a number of authorities provided to it, including transferring and
reprogramming funds and reducing or deferring planned spending for
peacetime operations, to meet its needs. DOD uses "transfer authority" to
shift funds between appropriation accounts, for example, between military
personnel and

8GAO, 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), and Military Operations: Fiscal Year
2003 Obligations Are Substantial, but May Result in Less Obligations Than
Expected, GAO-03-1088 (Washington, D.C.: Sept. 17, 2003).

operation and maintenance. Transfer authority is granted by the Congress
to DOD usually pursuant to specific provisions in authorization or
appropriation acts.9 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 statutory prohibition or limitation.

Funding for GWOT in Fiscal Years 2004 and 2005 Was Provided in Annual and
Supplemental Appropriations

In fiscal years 2004 and 2005, the military services received about $52.4
billion and about $62.1 billion, respectively, in supplemental
appropriations for GWOT military personnel and operation and maintenance
expenses. The Army, Air Force, and Navy also received funds for GWOT
through their annual appropriations. However, DOD and the military
services have lost visibility over these funds provided through annual
appropriations, including knowing how much, if any, was used to support
GWOT in fiscal years 2004 and 2005.

Supplemental As shown in table 1, DOD received funding through
supplemental Appropriations for GWOT appropriations to support GWOT in
both fiscal years 2004 and 2005.

9An example of specific transfer authority is found in Section 8006 of the
Department of Defense Appropriations Act, 2004 (Pub. L. No. 108-87 (Sept.
30, 2003)), which allows DOD to transfer excess cash balances from the
Defense Working Capital Fund to the operation and maintenance
appropriations in amounts as determined by the Secretary with the approval
of the Office of Management and Budget.

Table 1: Supplemental Appropriations Available to the Military Services
for GWOT Military Personnel and Operation and Maintenance Expenses in
Fiscal Years 2004 and 2005

                              Dollars in millions

Available in fiscal year Source Available in fiscal year 2004 2005

Supplemental appropriations

                          Pub. L. No. 108-106 $50,352
Pub. L.               Pub.             Iraqi                                             
    No. 120 $17,251 L. No. -- 44,504 Freedom       348 transfers                 
108-287             109-13              Fund 1,941                 Total $52,413 $62,103

Source: GAO analysis of Pub. L. No. 108-106, Pub. L. No. 108-287, Pub. L.
No. 109-13, and Iraqi Freedom Fund transfers appropriated in Pub. L. No.
108-106 and Pub. L. No. 108-11.

Notes: Fiscal years 2004 and 2005 supplemental appropriations data exclude
funding for classified programs. Fiscal year 2005 supplemental
appropriations data are through August 2005.

To pay for the military personnel and operation and maintenance costs of
GWOT in fiscal year 2004, the Congress appropriated about $52.4 billion to
DOD. Of the $52.4 billion, the Congress provided the military services
about $50.4 billion in the Emergency Supplemental Appropriations Act for
Defense and for the Reconstruction of Iraq and Afghanistan, 2004.10 In
addition, the services used $120 million of the funds provided in late
fiscal year 2004 through Title IX of the Department of Defense
Appropriations Act, 2005.11

DOD also transferred about $1.9 billion from funds originally appropriated
to the Iraqi Freedom Fund. The Iraqi Freedom Fund provides 2-year funds
that can be transferred to the services' accounts for additional expenses
for ongoing military operations in Iraq, operations authorized by the

10Pub. L. No. 108-106 (Nov. 6, 2003).

11Pub. L. No. 108-287, Title IX (Aug. 5, 2004). DOD was provided $25
billion through Title IX of the Department of Defense Appropriations Act,
2005, of which about $17.4 billion was provided for military personnel and
operation and maintenance expenses. These funds were available for use in
fiscal years 2004 and 2005.

Authorization for Use of Military Force,12 and other operations and
related activities in support of GWOT. Of the $1.9 billion, about $860
million was provided through the Emergency Wartime Supplemental
Appropriations Act, 2003,13 while about $1.1 billion was provided through
the Emergency Supplemental Appropriations Act for Defense and for the
Reconstruction of Iraq and Afghanistan, 2004.14

For fiscal year 2005, the military services had about $62.1 billion
available to pay for the military personnel and operation and maintenance
costs of GWOT. Of this, the Congress appropriated about $44.5 billion
through the Emergency Supplemental Appropriations Act for Defense, the
Global War on Terror, and Tsunami Relief, 2005.15 The military services
also had the remaining balance-about $17.3 billion-that was provided
through Title IX of the Department of Defense Appropriations Act, 2005,
and was available for obligation in fiscal year 2005 to help pay for the
military personnel and operation and maintenance costs of GWOT. In
addition, as of July 2005, DOD had transferred about $348 million from
funds originally appropriated to the Iraqi Freedom Fund.

Some Annual Appropriations Described by DOD as for GWOT

In addition to funds DOD received through supplemental appropriations for
GWOT, beginning in fiscal year 2003, the administration increased DOD's
annual appropriation request by more than $10 billion per year. DOD
described these funds as being intended to support GWOT. According to a
representative from the Office of the Under Secretary of Defense
(Comptroller), in December 2001 the President directed that his annual
budget submission for DOD be increased by about $10 billion annually to
support GWOT. Consequently, Program Budget Decision 736, entitled
Continuing the War on Terrorism and dated January 31, 2002, was approved
by the Under Secretary of Defense (Comptroller). Program Budget Decision
736 provided for increasing DOD's annual budget request in the amount of
more than $10 billion per year plus inflation in fiscal years 2003 through
2007 to enhance the department's efforts to respond to, or protect
against, acts or threatened acts of terrorism against the United

12Pub. L. No. 107-40 (Sept. 18, 2001).
13Pub. L. No. 108-11, Title I, ch. 3 (Apr. 16, 2003).
14Pub. L. No. 108-106 (Nov. 6, 2003).
15Pub. L. No. 109-13 (May 11, 2005).

States. According to a DOD representative, unless action is taken to
reduce these funds in future budgets, Program Budget Decision 736 provides
for a permanent increase of about $10 billion per year plus inflation to
DOD's annual budget request to support military operations in the war on
terrorism.

As shown in table 2, in fiscal years 2004 and 2005, the Army, Air Force,
and Navy received additional funds in their annual appropriations-a total
of about $7.9 billion in fiscal year 2004 and about $7.6 billion in fiscal
year 2005-which DOD described as for support of military operations in the
war on terrorism. According to DOD representatives, the Marine Corps did
not receive an increase to its annual appropriation through Program Budget
Decision 736.

Table 2: Annual Appropriations for the Military Services Included in
Program Budget Decision 736 to Support GWOT in Fiscal Years 2004 and 2005

                              Dollars in millions

                 Military service Available in fiscal year 2004

Available in fiscal year 2005

                           Army        $1,331.7                      $1,268.0 
                      Air Force                3,506.4                3,512.3 
                           Navy                3,013.1                2,818.1 
                          Total        $7,851.2                      $7,598.4 

Source: GAO analysis of DOD data.

Note: GAO did not audit these data.

Under Program Budget Decision 736, a number of DOD programs were to
receive increases in their proposed annual budgets in both fiscal years
2004 and 2005.16 For example, in fiscal year 2004, Program Budget Decision
736 indicates that about $2.1 billion was for counterterrorism and force
protection efforts, about $1.2 billion for combat air patrols over U.S.
cities, and about $600 million for such things as depot maintenance and
spare parts. Program Budget Decision 736 indicates funds were to be
provided to these programs and others in fiscal years 2005 through 2007 as
well. According to representatives of the Office of the Under Secretary of

16Program Budget Decision 736 also indicates some funds were provided to
the Department of Energy.

Defense (Comptroller), some of the funds in Program Budget Decision 736
were intended to cover costs associated with Operation Noble Eagle while
others were intended to cover costs associated with Operation Enduring
Freedom.

For fiscal years 2004 and 2005, an Office of the Under Secretary of
Defense (Comptroller) representative stated the additional funds provided
through Program Budget Decision 736 were in the military services' various
appropriations accounts. However, the Office of the Under Secretary of
Defense (Comptroller) has no specific information about which programs or
activities actually received the funds or how they were eventually
expended, including whether they were used in support of GWOT. Once the
services received these additional funds, they allocated them to their
appropriations accounts based on their judgment of where the funds were
most needed. DOD's accounting systems do not separately identify which
appropriations accounts received these funds, and there are no reporting
requirements for DOD to identify to which appropriation accounts the funds
were allocated. While the military services also stated they received
their share of the Program Budget Decision 736 funds as part of their
fiscal year 2004 and fiscal year 2005 annual appropriations and that some
of the funds were used for war-related expenses, they too could not
identify which programs or activities received the funds and could not
document what portion of these funds were used for war-related expenses.
As a result, although DOD requested these funds to support GWOT, DOD and
the military services cannot be certain that they were actually used to
support GWOT-related activities.17

In developing the fiscal year 2005 request for supplemental appropriations
to support GWOT, DOD took steps to adjust the request to reflect the
receipt of funds provided through Program Budget Decision 736. In a
November 2004 memorandum requesting that all DOD components provide their
GWOT supplemental appropriations estimates for fiscal year 2005, the
Office of the Under Secretary of Defense (Comptroller) stated the
following with respect to funds that had already been provided through
Program Budget Decision 736:

17Although DOD requested the funds associated with Program Budget Decision
736 to enhance the department's efforts to combat terrorism, the Congress
did not legally restrict DOD from using them for non-GWOT activities.

o 	Funding for GWOT missions previously added to the baseline budget
(e.g., Program Budget Decision 736, Continuing the War on Terrorism)
should be explicitly identified as a reduction to funding requests in
those areas, as appropriate.

o 	Component requests must consider that that some funding is already in
the baseline accounts. Program Budget Decision 736 provided funds for
antiterrorism, continental United States combat air patrols, and force
protection. The components' submissions should show the total requirement
and note the level of funding already in the baseline for this purpose.
The supplemental request will net out the available funding.

In the November 2004 memorandum the Office of the Under Secretary of
Defense (Comptroller) further stated that the emergency supplemental
appropriations request will address the incremental costs above the
baseline funding needed to support specific forces and capabilities
required to execute Operation Iraqi Freedom, Operation Enduring Freedom,
and portions (to be determined) of Operation Noble Eagle. DOD described
Operation Noble Eagle as including defending the United States from
airborne attacks and maintaining U.S. air sovereignty. This operation had
been included in the supplemental appropriations request for fiscal year
2004.

None of the military services provided the information requested in the
November 2004 memorandum and instead the services requested funds for
Operation Noble Eagle. Service budget representatives told us that Program
Budget Decision 736 funds were considered as base program (e.g., annual
appropriations) issues and not supplemental candidates. According to
service budget representatives, they requested funds for Operation Noble
Eagle in fiscal year 2005 that were in addition to the funds provided
through Program Budget Decision 736. For example, the Navy requested $53.3
million for incremental requirements above its baseline request. The Army
requested more than $1 billion in incremental requirements above its
baseline. However, in preparing the fiscal year 2005 supplemental
appropriations budget request, the Office of Management and Budget did not
include Operation Noble Eagle in the President's budget request because
funds had already been included in DOD's annual appropriation, as
described in Program Budget Decision 736.

Most Fiscal Year 2004 Supplemental Appropriations for GWOT Were Less Than
Reported Obligations; However, DOD Is Not Explicitly Counting Additional
Funds Requested for GWOT in Its Annual Appropriation

In fiscal year 2004, the difference between supplemental appropriations
available to the military services for GWOT military personnel and
operation and maintenance expenses compared to reported obligations varied
by service. For military personnel, the Navy and Marine Corps reported
more in obligations than they received in supplemental appropriations,
while for operation and maintenance each of the military services reported
more in obligations than it received in supplemental appropriations. To
cover the differences (gaps), DOD and the military services took several
actions, including transferring funds and reducing or deferring planned
spending for peacetime operations. In the case of the Army and Air Force,
which each received supplemental appropriations that exceeded its reported
obligations for military personnel, this included transferring $801
million and $113 million, respectively, to cover their GWOT operation and
maintenance expenses. In some instances, these actions reduced DOD's
flexibility to cover potential gaps in fiscal year 2005. DOD did not
explicitly take into account the GWOT funds provided through its annual
appropriation that DOD requested for GWOT to help cover the gaps. If it
had taken these funds into account it could have reduced the Army's GWOT
gap, eliminated the GWOT gaps of the Air Force and Navy, and been able to
defer fewer activities.

Difference between Reported GWOT Obligations and Fiscal Year 2004
Supplemental Appropriations for GWOT Varied by Service

Within the military personnel accounts, as shown in table 3, the Navy and
Marine Corps reported more obligations in support of GWOT than they
received in supplemental appropriations. However, these reported gaps were
a relatively small portion of the services' annual military personnel
appropriations. For example, the Navy's reported gap of $40.4 million
represents less than 1 percent of its annual military personnel
appropriation. In fiscal year 2004, both the Army and Air Force received
supplemental appropriations that exceeded their reported obligations for
military personnel. The Army and Air Force used these funds to cover
operation and maintenance expenses related to GWOT, as discussed below.

 Table 3: Military Personnel Fiscal Year 2004 GWOT Supplemental Appropriations
                            and Reported Obligations

Dollars in millions

      Military personnel            Army  Air Force       Navy   Marine Corps 
      Total supplemental       $12,858.9  $3,384.7    $816.1           $888.6 
    appropriations for GWOT                                    
     Obligations reported       11,972.0   3,272.0       856.5          918.3 
          Difference              $886.9   $112.7     $(40.4)         $(29.7) 

Source: GAO analysis of Pub. L. No. 108-106, Iraqi Freedom Fund transfers
appropriated in Pub. L. No. 108-106 and Pub. L. No. 108-11, and the
Consolidated Department of Defense Terrorist Response Cost Report as of
September 30, 2004.

Notes: GAO assessed the reliability of DOD's obligations data and found
that while the data we report reflect the data used by DOD to advise the
Congress on the cost of the war, they may not accurately reflect the true
dollar value of GWOT obligations. Additionally, computed differences do
not take into account GWOT funds requested in annual appropriations. Gaps
are in parentheses.

Within the operation and maintenance accounts, as shown in table 4, in
fiscal year 2004 each of the military services reported more in GWOT
obligations than it received in supplemental appropriations. The Army
reported the largest gap, about $4.3 billion, while the Air Force and Navy
reported gaps of $579 million and about $618 million, respectively. The
Marine Corps reported the smallest gap, about $195 million.

     Table 4: Operation and Maintenance Fiscal Year 2004 GWOT Supplemental
                    Appropriations and Reported Obligations

                              Dollars in millions

    Operation and Maintenance         Army Air Force       Navy  Marine Corps 
       Total supplemental        $25,603.5  $5,552.8  $1,936.3       $1,371.9 
     appropriations for GWOT                                    
      Obligations reported        29,907.7  6,131.8    2,554.7        1,566.9 
           Difference           $(4,304.2)  $(579.0)  $(618.4)       $(195.1) 

Source: GAO analysis of Pub. L. No. 108-106, Iraqi Freedom Fund transfers
appropriated in Pub. L. No. 108-106 and Pub. L. No. 108-11, and the
Consolidated Department of Defense Terrorist Response Cost Report as of
September 30, 2004.

Notes: GAO assessed the reliability of DOD's obligations data and found
that while the data we report reflect the data used by DOD to advise the
Congress on the cost of the war, they may not accurately reflect the true
dollar value of GWOT obligations. Additionally, computed differences do
not take into account GWOT funds requested in annual appropriations.
Numbers may not subtract due to rounding. Gaps are in parentheses.

Variety of Actions Were Taken to Cover the Military Services' GWOT Gaps in
Fiscal Year 2004

Military Service Actions to Address Fiscal Year 2004 GWOT Needs

To cover the military services' gaps between reported fiscal year 2004
obligations and supplemental appropriations, the Office of the Under
Secretary of Defense (Comptroller) and the military services used a number
of authorities provided to them, including transferring funds and reducing
or deferring planned spending for peacetime operations. While involving
hundreds of millions or sometimes billions of dollars, in discussing the
actions taken to cover the gaps, some service representatives noted that
the gaps represented a small percentage of their annual appropriations.
Within the services' annual operation and maintenance accounts we found
that the gaps varied by service, ranging from a low of 1.7 percent of the
Air Force's annual operation and maintenance appropriation to a high of
13.7 percent of the Army's annual operation and maintenance appropriation.
In the services' annual military personnel accounts, all the gaps were
less than 1 percent of their annual military personnel appropriations.
However, DOD did not explicitly take into account the funds provided
through its annual appropriations that it intended for support of GWOT. As
discussed earlier, since DOD's accounting systems do not separately
identify the portion of the department's annual appropriations that were
described as having been requested to support GWOT and there are no
reporting requirements for DOD to identify to which appropriation accounts
the funds were allocated, the military services have lost visibility over
these funds and do not know the extent to which they are being used to
support GWOT. Consequently, despite having asked for the increase, DOD is
not explicitly counting these additional funds when considering funding
for GWOT and alternatively took actions that affected its peacetime
operations, which may create spending pressures in fiscal year 2005 and
later.

Each of the military services projected a gap between reported obligations
and supplemental appropriations at its midyear budget review. Service
representatives told us these projected gaps were reduced over the course
of fiscal year 2004 by reviewing their GWOT requirements and, in some
instances, seeking to reduce or defer planned spending. With respect to
the GWOT gaps faced by the services in fiscal year 2004, we were told the
following:

o 	For fiscal year 2004, the Army's reported obligations in its operation
and maintenance account exceeded its supplemental appropriations by about
$4.3 billion, substantially less than the $10.9 billion it had projected
in the account at its midyear budget review. To cover the $4.3 billion,
DOD and the Army took a number of actions, including

using internal resources and passing the remaining amount on to the Army's
major commands to be absorbed by reducing or deferring planned peacetime
spending to meet its GWOT needs. More specifically, to cover the Army's
gap, the Under Secretary of Defense (Comptroller) transferred about $3
billion from the working capital funds18 of the Army, Air Force, and
Navy-including $1.3 billion from the Army, about $1.5 billion from the Air
Force, and $200 million from the Navy. In addition, about $801 million was
transferred from the Army's military personnel account to help cover the
gap in the Army's operation and maintenance account, while about $500
million was transferred from other DOD-wide accounts. The major Army
commands absorbed the remainder. For example, to cover its portion of the
gap, the Army Materiel Command reprioritized or deferred about $184
million in depot maintenance until fiscal year 2005 for such programs as
the Patriot and Hellfire missile systems. It also reduced or deferred the
number of available training hours for some of its nondeployed units.
However, Army Materiel Command representatives told us that in some
instances, the training hours they deferred to help cover the fiscal year
2004 gap were deferred until fiscal year 2006.

o 	The Air Force's gap in its operation and maintenance account of about
$579 million was substantially less than the $1.5 billion it had projected
in the two accounts at its midyear budget review. To cover the $579
million gap, the Air Force took a number of actions, including
transferring $113 million in funds available in its overall military
personnel appropriation account, decreasing peacetime flying hours,
reducing depot maintenance, and deferring facility sustainment restoration
and modernization projects until fiscal year 2005. The Air Force's major
commands also absorbed a portion of the gap. For example, the Air Combat
Command absorbed its share of the GWOT gap, about $92 million, by reducing
or deferring its fiscal year 2004 peacetime spending. Approximately $46
million, or half of the Air Combat Command's $92 million share of the gap,
was covered by reducing its peacetime flying hour program by about 6,800
hours. While reducing its peacetime flying hours helped the Air Combat
Command

18A working capital fund is a revolving fund that relies on sales revenue
rather than direct congressional appropriations to finance its operations.
Customers, in this case, the military services, use appropriated funds,
primarily operation and maintenance appropriations, to finance orders
placed with a working capital fund. Working capital funds are intended to
generate sufficient revenue to cover full operational costs and operate on
a break-even basis over time, that is, neither to make a profit nor incur
a loss.

cover its portion of the gap, Air Combat Command representatives told us
the reduced training opportunities created a training backlog, which could
affect pilot readiness for future combat missions.

o 	The Navy's combined gap for fiscal year 2004 of about $659 million in
its military personnel and operation and maintenance accounts was less
than its midyear projection of $931 million. To cover the $659 million
gap, the Navy canceled some peacetime spending, including various
nonreadiness operation and maintenance spending and various infrastructure
projects. Of the Navy's major commands, the Atlantic Fleet and Pacific
Fleet absorbed the largest share of the gap for fiscal year 2004. For
example, the Atlantic Fleet absorbed about $110 million by reducing air
operations and ship depot maintenance activities. Navy budget
representatives noted that the gap represented about 1 percent of the
total baseline funding available for aircraft operations and ship depot
maintenance for the Navy in that fiscal year. In addition, the Navy
canceled or deferred procurement actions for the MH-60R Seahawk
helicopter, V-22 Osprey, F/A-18 Hornet, and Joint Tactical Radio System.

o 	The Marine Corps' combined gap in its military personnel and operation
and maintenance appropriations accounts of about $225 million for GWOT in
fiscal year 2004 was also less than the $446 million projected at its
midyear budget review. To cover the $225 million gap, the Marine Corps
reduced or deferred spending in noncritical areas, such as facility
improvements. The Navy provided the Marine Corps with funds from its base
operating support and facilities sustainment restoration and modernization
appropriations accounts and with $121 million that was transferred to the
Navy from the U.S. Transportation Command's Working Capital Fund.
According to Marine Corps representatives, a portion of the gap was also
absorbed by the Marine Corps' annual military personnel and operation and
maintenance appropriations accounts.

The Navy provided us a detailed discussion of the process used in
addressing gaps. A Navy budget representative said that the Navy analyzed
its entire $116.8 billion in baseline funding (which includes both the
original $114 billion baseline and the added $2.8 billion for Program
Budget Decision 736 initiatives) as potential financing sources for its
GWOT needs. According to the Navy representative the Navy's internal
analysis first looked at funding flexibility in baseline programs
resulting from changes in current year execution. For example, certain
baseline program requirements change from year to year as a result of
development issues,

schedule and implementation delays, manufacturing problems, changes in
requirements or inventory levels, and labor disputes. The accumulated
value of those changes in a given execution year, such as fiscal year
2004, may have made any financial resources excess to fiscal year 2004
requirements available to fund GWOT needs. Although their specific
identification as such would be lacking, they stated that previously
baselined Program Budget Decision 736 requirements could have been
included, by implication, as part of those deliberations. For example, by
the end of fiscal year 2004, based on delayed execution, about $136
million was reallocated from base infrastructure support, maintenance, and
repair19 to fund Operation Iraqi Freedom costs. If insufficient funding
sources were identified as part of an execution analysis, then it would be
necessary to make affirmative decisions about reducing baseline programs
to fund the balance of the GWOT needs. Those reductions, for the most
part, had subsequent programmatic and financial impacts. Those changes
required to support the increased GWOT needs were monitored and approved
by the Office of the Under Secretary of Defense (Comptroller) staff during
their annual budget and execution reviews. Some of the changes were
recoverable (such as specific procurement and depot maintenance items
considered deferrable and that could be funded with a subsequent year's
money) and some changes were nonrecoverable (items considered
nondeferrable current expenses, where the performance period has lapsed,
but for which a subsequent year's funding is now available to fully meet
that year's requirements). For example, of the Navy and Marine Corps'
approximately $1.6 billion in absorbed costs in all appropriation accounts
for the Department of the Navy ($1.4 billion was for Navy items, $200
million was for Marine Corps items), nearly 40 percent of the fiscal year
2004 requirements were considered recoverable with subsequent year's
funding. This included $200 million for drawing down the Navy Working
Capital Fund, which was included in the Navy's fiscal year 2005
supplemental appropriations request.

As previously discussed, DOD used the military services' working capital
funds as a source of cash to provide funds for GWOT expenditures in fiscal
year 2004. DOD's working capital funds finance the operations of two
fundamentally different types of support organizations: stock fund
activities, which provide spare parts and other items to military units
and other customers, and industrial activities, which provide depot

19The $136 million was initially provided as part of baseline funding for
physical security improvements.

maintenance, research and development, and other services, such as those
provided by the Defense Financial Accounting Service, Defense Information
Systems Agency, Defense Commissary Agency, and U.S. Transportation
Command. In fiscal year 2004, DOD transferred about $3 billion from the
military services' working capital funds to help cover the Army's gap
between reported obligations and supplemental appropriations.

While such transfers from the services' working capital funds helped DOD
cover its fiscal year 2004 gap, the transfers have left few working
capital funds available to be used in fiscal year 2005. For example, to
help cover the Army's operation and maintenance gap, about $980 million
was transferred from the U.S. Transportation Command's Transportation
Working Capital Fund during fiscal year 2004. This transfer was made
possible due to a surplus of transportation charges collected from the
military services by the U.S. Transportation Command during the year.
However, a U.S. Transportation Command representative told us the
transfers have left the fund's balance below the minimum goal of $517
million.20 Specifically, with the transfer of almost $1 billion in fiscal
year 2004 to help cover the Army's operation and maintenance gap, as of
July 2005, there was only $168 million remaining in the fund, well below
the minimum goal for the year. Further, the representative stated that the
projected fund balance for the end of fiscal year 2005 is about $231
million, still below the minimum goal.

DOD Did Not Explicitly Account for Funds Provided through Its Annual
Appropriation That It Described as for GWOT When Determining How to Cover
Its Fiscal Year 2004 Gaps

In determining how to cover the gaps between the services' supplemental
appropriations and reported GWOT obligations for military personnel and
operation and maintenance expenses, DOD did not explicitly take into
account the almost $7.9 billion in funds the Army, Air Force, and Navy
received in their annual appropriations through Program Budget Decision
736 to help fund GWOT. This includes $1.3 billion received by the Army,
$3.5 billion received by the Air Force, and $3 billion received by the
Navy. If counted in fiscal year 2004 and applied to the services' military
personnel and operation and maintenance accounts, these amounts could have
reduced the Army's need to transfer funds from other activities and
eliminated the GWOT gaps for the Air Force and the Navy, as shown in table
5. However, the services acknowledge that they have lost visibility

20See Department of Defense Financial Management Regulation, 7000.14-R,
vol. 2B, ch. 9, para. 090103. The minimum goal represents 7 to 10 days of
operational costs and cash adequate to meet 6 months of capital
disbursements.

over the Program Budget Decision 736 funds after fiscal year 2003 and do
not know whether any of the funds were used in support of GWOT.

Table 5: Comparison of the Military Services' Combined Supplemental and
Annual Appropriations for Military Personnel and Operation and Maintenance
for GWOT in Fiscal Year 2004 to Reported Obligations

                              Dollars in millions

       Military personnel and            Army Air Force     Navy Marine Corps 
      operation and maintenance                                  
Supplemental appropriations for $38,462.4  $8,937.5  $2,752.4     $2,260.5 
                GWOT                                             
Annual appropriations for GWOT     1,331.7  3,506.4  3,013.1  
    Total supplemental and annual  $39,794.1  $12,443.9 $5,765.5     $2,260.5 
       appropriations for GWOT                                   
     Total obligations reported     41,879.7   9,403.8  3,411.2       2,485.2 
             Difference            $(2,085.6) $3,040.1  $2,354.3     $(224.7) 

Source: GAO.

Notes: GAO assessed the reliability of DOD's obligations data and found
that while the data we report reflect the data used by DOD to advise the
Congress on the cost of the war, they may not accurately reflect the true
dollar value of GWOT obligations. Gaps are in parentheses. GAO did not
audit these data.

We discussed our analysis with DOD representatives at each of the
services' budget offices, who disagreed with our depiction of Program
Budget Decision 736. These representatives believed that our analysis
should take into account the fact that the funds provided through Program
Budget Decision 736 were included in DOD's baseline budget and therefore
were already taken into account when considering funds available for GWOT.
Service budget representatives made the following observations regarding
the Program Budget Decision 736 funds:

o 	Once merged into those baseline budgets, full justification for funding
is provided in the annual President's budget request. For example,
increased funding for additional security personnel and physical security
equipment were merged with existing program lines and not subsequently
separately identified as to how they were initially funded or sustained
over the years.

o 	Once the Program Budget Decision 736 funds were in the baseline budget,
they were not in support of specific contingency operations, for which the
Department of Defense Financial Management Regulation, Volume 12, Chapter
23, Contingency Operations, requires separate documentation and execution
tracking, and no such requirement exists for "baselined" funds, other than
the annual justification exhibits. That

is, Chapter 23 only requires reporting incremental costs (costs not
already in the baseline), and not total costs.

o 	Subsequent to Program Budget Decision 736 additional requirements were
placed on the services fiscal year 2004-2009 spending program without
accompanying funds. To meet these requirements service budget
representatives said that they looked in part to the funds provided in
Program Budget Decision 736.

We recognize that DOD's annual budget submissions include justification
for all the department's activities, including those funded through
Program Budget Decision 736. However, the funds provided through Program
Budget Decision 736 were identified as being in support of GWOT. While
service budget representatives noted that the documentation and tracking
requirements contained in the Department of Defense Financial Management
Regulation, Volume 12, Chapter 23, Contingency Operations, do not apply to
the funds provided through Program Budget Decision 736, we believe that
DOD should have been tracking these funds in light of their connection to
GWOT. While the services' budget representatives told us that they took
the funds provided through Program Budget Decision 736 into account in
addressing GWOT funding needs, we note that once these funds were merged
into the services' baseline budgets visibility was lost so there is no
assurance as to how the funds were taken into account or used.

Fiscal Year 2005 Reported Obligations for GWOT Could Exceed Supplemental
Appropriations, Requiring the Military Services to Use Authorities
Provided to Them to Cover the Differences

Our analysis of the military services' reported obligations for the first
8 months of fiscal year 2005 and the military services' forecasts as of
June 2005 of full fiscal year 2005 costs suggest the services' military
personnel and operation and maintenance GWOT obligations could exceed
available supplemental appropriations for the war in some accounts. Our
projections of reported GWOT obligations through May 2005 suggest the
services should have sufficient supplemental appropriations for military
personnel expenses in fiscal year 2005 but that there could be gaps for
operation and maintenance expenses for the Army and the Marine Corps. The
services' more detailed forecasts suggest a gap for military personnel
expenses for the Air Force of about $500 million, and gaps for operation
and maintenance expenses for the Army and Air Force of about $2.7 billion
and about $1 billion, respectively. The Marine Corps expects its
supplemental appropriations will be sufficient to cover its GWOT costs. To
cover any gaps and meet its GWOT needs, DOD and the services plan to take
a variety of actions, including reprogramming funds from annual
appropriations and reducing or deferring planned spending for peacetime
operations.

Supplemental Our assessment of reported obligations in fiscal year 2005
through May
Appropriations for GWOT 2005 suggests that the military services should
have sufficient
Military Personnel Costs in supplemental appropriations for military
personnel expenses in fiscal year

2005. As figure 1 shows, with 8 months, or about 67 percent, of the
fiscalFiscal Year 2005 Should Be year gone, the Marine Corps has obligated
46 percent of its available Sufficient for All Services supplemental
appropriations; the Army 54 percent; and the Air Force and Except for the
Air Force Navy 58 percent each.

Figure 1: Military Services' Fiscal Year 2005 Reported Obligations of GWOT
Military Personnel Supplemental Appropriations through May 2005

                            Percentage of total 100

                                       90

                                       80

                                       70

60 of fiscal year

50

40

30

20

10

0

Army Air Force Navy Marine Corps

Military services

Supplemental appropriations remaining

Reported obligations through May 2005

Source: GAO analysis of DOD data.

Notes: May 2005 represents 67 percent of the fiscal year. Reported
obligations include those from both the active and reserve components. GAO
assessed the reliability of DOD's obligations data and found that while
the data we report reflect the data used by DOD to advise the Congress on
the cost of the war, they may not accurately reflect the true dollar value
of GWOT obligations. Additionally, computed differences do not take into
account GWOT funds requested in annual appropriations. Dollars are in
thousands.

Projections of GWOT Obligations through May 2005 Suggest Supplemental
Appropriations for Some Operation and Maintenance Accounts Are Not Likely
to Be Sufficient

Our assessment of reported obligations within the military services'
operation and maintenance accounts through May 2005 suggests that the
supplemental appropriations provided to the services for GWOT should be
sufficient for the Air Force and Navy but not for the Army and Marine
Corps. As shown in figure 2, the percentage of available supplemental
appropriations obligated in the services' operation and maintenance
accounts as of May 2005, ranged from 49 percent for the Navy and 52
percent for the Air Force to 71 percent for the Army and the Marine Corps.
We recognize that funds are not obligated equally each month throughout
the fiscal year. However, we believe that the further into the fiscal year
the closer to 100 percent obligations should be relative to appropriations
if all appropriated funds are likely to be obligated. Consequently, given
these obligation rates, we believe that if the Army and Marine Corps
continue to obligate funds at the current rate or higher, their reported
obligations within the operation and maintenance accounts could exceed
available supplemental appropriations in fiscal year 2005, requiring them
to use other authorities provided to them to cover the difference.
However, as discussed below, the Air Force believes it will have an
operation and maintenance gap, while the Marine Corps believes it will
have sufficient funds for operation and maintenance.

Figure 2: Military Services' Fiscal Year 2005 Reported Obligations of GWOT
     Operation and Maintenance Supplemental Appropriations through May 2005

                           Percentage of total 100 90

                                       80

                                       70

                                       60

                                       50

                                       40

                                       30

                                       20

                                      10 0

Army Air Force Navy Military services

Each of the military services completed a midyear budget review for the
Office of the Under Secretary of Defense (Comptroller), including a
forecast of its full fiscal year 2005 GWOT needs. The Army concluded that
it would not have sufficient supplemental appropriations to cover its
projected GWOT operation and maintenance obligations, while the Air Force
indicated its combined military personnel and operation and maintenance
obligations would exceed available supplemental appropriations. With
respect to the Army's and Air Force's midyear budget review projections:

Marine Corps

  Supplemental appropriations remaining Reported obligations through May 2005

                       Source: GAO analysis of DOD data.

Notes: May 2005 represents 67 percent of the fiscal year. Reported
obligations include those from both the active and reserve components. GAO
assessed the reliability of DOD's obligations data and found that while
the data we report reflect the data used by DOD to advise the Congress on
the cost of the war, they may not accurately reflect the true dollar value
of GWOT obligations. Additionally, computed differences do not take into
account GWOT funds requested in annual appropriations. Dollars are in
thousands.

Fiscal Year 2005 Midyear Budget Review Forecasts of the Military Services

o 	The Army forecast a GWOT gap of about $2.7 billion in its operation and
maintenance account, of which a large component-about $1 billion-is
attributed to higher fuel costs due to, among other things, the increase
in June 2005 of DOD's composite fuel rate from $56.28 per barrel to
$73.08. Other components of the forecasted gap include support of the
Army's modular force initiative;21 higher spending in the second half of
fiscal year 2005 as compared to the first half, resulting from deferred
spending early in the fiscal year; and higher spending on recruiting and
retention efforts, primarily for the Army Reserve. According to the Army,
the modular force initiative and its reconstitution and reset efforts are
being treated as GWOT costs in fiscal year 2005.

o 	The Air Force forecast a GWOT gap of about $500 million in its military
personnel account and about $1 billion in its operation and maintenance
account, for a total gap of about $1.5 billion. Air Force representatives
attributed the gap in its military personnel account primarily to having
higher-than-anticipated end-strength levels, and stated that the $1
billion gap in its operation and maintenance account is to replenish the
Transportation Working Capital Fund, which was drawn down last year to
help cover the Army's fiscal year 2004 GWOT gap. Regarding the projected
military personnel gap, Air Force representatives stated that funds were
subsequently transferred to pay for prior obligations at
higher-than-anticipated end-strength levels. Since then, the Air Force has
corrected the end-strength imbalance and expects to be within end strength
for GWOT during the remainder of the fiscal year. As a result of these
actions, Air Force representatives no longer project a military personnel
gap for GWOT in fiscal year 2005.

The Navy projected a small gap of about $36 million for GWOT at the time
of its midyear budget review, which it has since covered with cost savings
from shifting the bulk of its transportation of equipment and supplies
from air to sea. The Marine Corps indicated that its supplemental
appropriations should be sufficient to cover reported GWOT obligations for
fiscal year 2005. In considering the services' midyear budget reviews, our
analysis of

21The Army's modular force initiative, which has been referred to as the
largest Army reorganization in 50 years, encompasses the Army's total
force-active Army, National Guard, and Army Reserve-and directly affects
not only the Army's combat units, but related support and command and
control. The foundation of the Army modular force initiative is the
creation of brigade combat teams-brigade-sized units that will have a
common organizational design and will increase the pool of available units
for deployment.

the Navy and Marine Corps GWOT obligations indicates substantial under
execution in the Navy's operation and maintenance account and the Marine
Corps's military personnel account. In response, the Navy stated that it
expects its rate of obligating GWOT funds to increase toward the end of
fiscal year 2005 due to, among other things, providing additional support
in theatre and on the ground in Iraq as part of Joint Sourcing.22
According to a Navy representative, the Navy had about 5,000 personnel
stationed on the ground in Kuwait, Iraq, and Afghanistan at the end of
fiscal year 2004. By the end of fiscal year 2005, the Navy plans to have
about 8,500 personnel in theatre with the additional personnel having
begun to deploy in May 2005. The Marine Corps stated it expects to
obligate an additional $220 million in military personnel funds due to the
new death gratuity benefit, while another $265 million in military
personnel funds will be used to replenish the Marine Corps's annual
appropriation for funds reprogrammed earlier in the fiscal year to buy
additional body-armor and other equipment to counter the use of improvised
explosive devices in Iraq.

DOD Plans to Take a Variety of Actions to Address Its Fiscal Year 2005
GWOT Needs

To cover the forecasted GWOT needs for fiscal year 2005, DOD, the Army,
and the Air Force have identified a number of steps they plan to take.
These include exercising a number of authorities provided to them, such as
transferring and reprogramming funds from annual appropriations and
reducing or deferring planned spending for peacetime operations.

The Army, the service with the largest forecasted gap in its operation and
maintenance account, plans to take a variety of actions to meet its fiscal
year 2005 GWOT funding needs. Some actions include taking steps to
transfer or reprogram funds. For example, DOD reprogrammed more than $800
million in funds in May 2005 from the military personnel accounts of the
Air Force,23 Navy, Marine Corps, and Army National Guard, and $250 million
from the Army's Working Capital Fund, to the Army to meet urgent GWOT
needs. Other actions the Army plans to take to help fund GWOT in fiscal
year 2005 involve reducing or deferring current costs. For

22Joint Sourcing refers to the use of Navy and Air Force personnel to
support and meet the requirements of the Army. Personnel provided through
Joint Sourcing include medical, supply, logistics, intelligence, and
security personnel; construction battalions; military police; and others.

23Although the Air Force reported a projected gap in supplemental
appropriations for military personnel through the end of the fiscal year,
some funds were reprogrammed from the Air Force to prevent the Army from
running out of operating funds in May 2005..

example, the Army reports that it has been able to reduce its fiscal year
2005 Logistics Civil Augmentation Program (LOGCAP)24 contract costs by
about $890 million by reviewing and reducing current LOGCAP requirements.
In discussing its plans to meet its fiscal year 2005 GWOT needs, the Army
plans to use any surplus funds in its working capital fund to help cover
any fiscal year 2005 GWOT gaps. However, due to the transfers from the
services' working capital funds to cover the fiscal year 2004 gaps, as
discussed above, few assets remain elsewhere to cover the Army's fiscal
year 2005 GWOT gap. Should the Army's GWOT gap be larger than forecasted,
the Army may have to absorb the difference in its annual appropriation.

The Air Force also plans to take a variety of actions to address the gap
between its supplemental appropriations and reported operation and
maintenance obligations for GWOT. These include decreasing peacetime
flying hours by $700 million, reducing or deferring depot maintenance
activities by $400 million, and freezing activities involving facility
sustainment and restoration modernization projects. Other areas that could
be targeted for cost reductions or deferments include noncritical travel
and other supplies and equipment.

DOD Is Not Explicitly Considering Funds in Its Annual Appropriations for
GWOT to Cover Its Projected Fiscal Year 2005 Gaps

To meet its GWOT needs in fiscal year 2005, DOD is again not explicitly
considering the Program Budget Decision 736 funds to support GWOT that
were provided to the military services through their annual
appropriations. However, as discussed earlier, unlike in fiscal year 2004,
in fiscal year 2005 some of the funds provided in Program Budget Decision
736 are being used to fund Operation Noble Eagle, which had previously
been funded as part of GWOT through supplemental appropriations. In fiscal
year 2004 DOD had included $2.2 billion in its budget request for
Operation Noble Eagle. Adjusting for Operation Noble Eagle at the fiscal
year 2004 funding level would result in more than $5.4 billion in funds
included in Program Budget Decision 736 in support of GWOT for the
military services remaining available in fiscal year 2005. If counted in
fiscal year 2005, the amounts potentially could reduce the need for
reprogrammings from other activities

24LOGCAP is an Army program that plans for the use of a private sector
contractor to support worldwide contingency operations. Examples of the
types of support available include laundry and bath, food service,
sanitation, billeting, maintenance, and power generation. LOGCAP has been
used extensively to support U.S. forces in recent operations in southwest
Asia, with more than $15 billion in estimated work as of January 2005.

and could reduce the Army's and eliminate the Air Force's GWOT gaps.
Instead, as in fiscal year 2004, the Office of the Under Secretary of
Defense (Comptroller) and the military services will again meet those
needs by taking actions that may affect DOD's peacetime operations, such
as reducing or deferring planned spending. In some instances, these
funding reductions and deferments could add to future spending pressures
in fiscal year 2006 or potentially in later years and run the risk of
producing a large "bow wave" of requirements. This can have both
short-term and long-term impacts. In the short term, deferring spending
can lead to higher costs than expected later in the current fiscal year,
which may need to be covered by additional transfers and reprogrammings.
In the long term, continued deferments can lead to higher costs.

Conclusions	The extent to which one considers that GWOT funding has been
sufficient depends on whether one counts both funding provided through
supplemental appropriations and funding included in DOD's annual
appropriation, which DOD requested for GWOT. The administration increased
DOD's annual appropriation request by more than $10 billion annually
beginning in fiscal year 2003 to support GWOT, with the military services
receiving about $7.9 billion of that amount in fiscal year 2004 and about
$7.6 billion in fiscal year 2005. The military services absorbed the
increase into their annual appropriations and allocated it based on their
judgment of where the funds were most needed. Since DOD's accounting
systems do not separately identify these additional appropriations and
there are no reporting requirements for DOD to identify to which
appropriation accounts the funds were allocated, the military services
have lost visibility over these funds and do not know the extent to which
they are being used to support GWOT. Consequently, despite having asked
for the increase, DOD is not explicitly counting the more than $10 billion
when considering funding for GWOT. In fiscal year 2004, the military
services reported obligations in support of GWOT that were above the
supplemental funds appropriated by the Congress. In response, DOD used
authorities granted to it, including transferring funds and reducing or
deferring planned spending for peacetime operations, to cover the gaps.
However, if the additional funds that were included in DOD's annual
appropriation to help fund the war are included in the analysis, those
funds could potentially have reduced the Army's gap and eliminated the gap
for the Air Force and Navy in fiscal year 2004. In fiscal year 2005, the
Army and the Air Force are again projecting obligations for the war above
their supplemental appropriations, and DOD is taking steps to cover the
gaps. As was the case in fiscal year 2004, the additional funds that were
included in DOD's annual

appropriation to help fund the war potentially could reduce or eliminate
the projected gaps for the Army and Air Force. With military operations in
Iraq and Afghanistan ongoing, and the likely need for DOD to request
additional funds to support GWOT, it is important that DOD fulfill its
role as a steward of taxpayer funds by taking steps to account for all the
funds it receives for the war.

Recommendations for Executive Action

To improve the visibility and accountability of DOD's use of funds for
GWOT, we recommend that the Secretary of Defense, in future requests for
supplemental appropriations, adjust such requests to reflect the
additional funds DOD requested and received in its annual appropriations
to support GWOT and provide the Congress with an explanation of these
adjustments. We further recommend that in addressing any future GWOT
funding needs the Secretary consider the additional GWOT funds provided
through the department's annual appropriation when assessing how to cover
expenses for the war and document its decisions.

Matter for Congressional Consideration

Because DOD did not concur with our recommendation to adjust its future
supplemental appropriations requests to reflect the additional funds the
department requested and received in its annual appropriations to support
GWOT and explain these adjustments to the Congress, we have no confidence
that the Congress will receive the information that we believe the
Congress needs to properly assess DOD's requests for supplemental
appropriations to support the war. Further, because the amount of funds
DOD is receiving to support GWOT through its annual appropriations is
substantial-more than $10 billion annually-the Congress should consider
directing DOD, when it submits future supplemental appropriations
requests, to provide an explanation of how such requests reflect the funds
DOD requested and already received in its annual appropriations to support
GWOT.

Agency Comments and DOD provided written comments on a draft of this
report. Its comments are Our Evaluation discussed below and are reprinted
in appendix II.

DOD did not concur with our recommendations. DOD further commented that
the report confuses a Program Budget Decision, which is an internal
document, with the President's budget, which is the official explanation
of DOD's budget request, and that funds are not appropriated in accordance

with a Program Budget Decision. In addition, DOD commented that the
report's focus on the Program Budget Decision results in the inaccurate
conclusion that if DOD had considered these funds it could have reduced
the Army's GWOT gap and eliminated the GWOT gaps of the Air Force and
Navy. In that regard, DOD stated that the only resources available to the
department are those appropriated by the Congress and these funds were
considered when determining the needs and expenses of the war.

We recognize that a Program Budget Decision is an internal document and
that the President's budget is the official explanation of DOD's budget
request and that funds appropriated are determined by the Congress-not by
either a Program Budget Decision or the President's budget. In our report,
we refer to Program Budget Decision 736 and the President's budget not to
establish how much money the Congress appropriated to support GWOT, but to
establish how much money DOD intended for GWOT. As stated in our report,
according to a representative from the Office of the Under Secretary of
Defense (Comptroller), in December 2001 the President directed that his
annual budget submission for DOD be increased by about $10 billion
annually to support GWOT. Consequently, Program Budget Decision 736,
entitled Continuing the War on Terrorism and dated January 31, 2002, was
approved by the Under Secretary of Defense (Comptroller). Program Budget
Decision 736 provided for increasing DOD's annual budget request in the
amount of more than $10 billion per year plus inflation in fiscal years
2003 through 2007 to enhance the department's efforts to respond to, or
protect against, acts or threatened acts of terrorism against the United
States. We therefore believe that since the funds referenced in Program
Budget Decision 736 were specifically identified as being requested in
support of GWOT, DOD should maintain visibility over how these funds were
used to support GWOT. We believe that if DOD asks for a significant
increase in appropriations and explains that the increase is needed to
support GWOT, DOD should be able to show that it actually used those funds
for GWOT.

DOD did not concur with our recommendations that the Secretary of Defense
(1) adjust future supplemental appropriations requests to reflect the
additional funds DOD received in its annual appropriations to support GWOT
and explain these adjustments to the Congress and (2) also consider the
additional GWOT funds provided through DOD's annual appropriations in
addressing any future GWOT funding needs. In commenting on our first
recommendation, DOD stated that the department's supplemental
appropriations request accounts for all relevant adjustments to the annual
appropriation bill. DOD also commented that it builds and submits

supplemental appropriations requests based on the incremental cost of the
operation, which it described as those additional costs to the DOD
component conducting the operation that are not covered in their existing
budgets and would not have been incurred had they not been supporting the
contingency. It is not apparent, however, that DOD's request for
supplemental appropriations for fiscal year 2004 in fact reflected amounts
already appropriated. The President's fiscal year 2005 supplemental
appropriations request did reflect amounts already enacted, but only
because the Office of Management and Budget, not DOD, made the
adjustments.

As we discuss in this report, DOD included a $10 billion increase in its
fiscal year 2004 annual appropriations in order to support GWOT. In its
Program Budget Decision 736, DOD stated that $1.2 billion of that amount
would be used for combat air patrols over U.S. cities, which is part of
Operation Noble Eagle. At the same time, in its fiscal year 2004
supplemental appropriations request for GWOT, DOD included funding for
Operation Noble Eagle, but without explaining why it needed amounts in
addition to those that the Congress already provided.

In addition, although DOD stated that the department's supplemental
appropriations request accounts for all relevant adjustments to the annual
appropriation bill, as stated in our report, in a November 2004 memorandum
issued by the Office of the Under Secretary of Defense (Comptroller) the
Comptroller's office sought to adjust DOD's supplemental appropriations
request for fiscal year 2005 to reflect funds already provided. In that
memorandum, the Office of the Under Secretary of Defense (Comptroller)
stated that funding in fiscal year 2005 for GWOT missions previously added
to the baseline budget (e.g., Program Budget Decision 736, Continuing the
War on Terrorism) should be explicitly identified as a reduction to
funding requests in those areas, as appropriate. The memorandum further
requested that the components' submissions should show the total
requirement and note the level of funding already in the baseline for this
purpose. The memorandum directed that the services' supplemental
appropriations requests net out the available funding and address the
incremental costs above the baseline funding needed to support specific
forces and capabilities required to execute Operation Iraqi Freedom,
Operation Enduring Freedom, and portions (to be determined) of Operation
Noble Eagle. However, as stated in our report, none of the military
services provided the information requested in the November 2004
memorandum and instead the military services requested supplemental
appropriations for Operation Noble Eagle. Nevertheless, in preparing the

fiscal year 2005 supplemental appropriations request, the Office of
Management and Budget did not include Operation Noble Eagle in the
President's budget request because funds had already been included in
DOD's annual appropriation, pursuant to DOD's request, as described in
Program Budget Decision 736.

We believe that our recommendation has merit and have retained it. In
addition, since DOD does not agree with the recommendation and the amount
of funds at issue is substantial-more than $10 billion annually- we have
added a matter for congressional consideration. Specifically, the Congress
should direct DOD, when it submits future supplemental appropriations
requests, to provide an explanation of how such requests reflect the
additional funds that were addressed in Program Budget Decision 736 and
which DOD requested and received in its annual appropriations to support
GWOT.

With respect to our second recommendation, DOD commented that it considers
all funds provided through the department's annual appropriation when
addressing how to cover expenses for the war. We recognize that DOD
reviews all funds when determining how to cover its GWOT needs. However,
DOD, as it explained in Program Budget Decision 736, intended increased
annual appropriations to support GWOT, but then lost visibility of the
funds requested. There is no documentation, therefore, regarding how the
department took the funds that it requested into account or whether it was
applying the entire amount to cover its GWOT needs. We believe that since
DOD stated that the additional annual funds were needed to support GWOT,
and DOD continues to include this funding in its request for annual
appropriations, to fulfill its role as a steward of taxpayer funds DOD
should explicitly maintain visibility over how these funds are used to
support GWOT and consider the entire amount to be available for GWOT. We
therefore continue to believe our recommendation has merit and have
retained it, including expanding it to recommend that DOD also document
its decisions.

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 contact me at
(202)
512-9619 or [email protected]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Principal contributors to this report were Steve
Sternlieb,
Assistant Director; Richard K. Geiger; Wesley A. Johnson; James Nelson;
and David Mayfield.

Sharon L. Pickup
Director, Defense Capabilities and Management

List of Congressional Committees

The Honorable John Warner
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Judd Gregg
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 L. Hunter
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives

The Honorable Jim Nussle
Chairman
The Honorable John M. Spratt, Jr.
Ranking Minority Member
Committee on the Budget
House of Representatives

The Honorable C.W. Bill Young
Chairman
The Honorable John P. Murtha
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives

Appendix I

Scope and Methodology

To identify funding for the Global War on Terrorism (GWOT), we reviewed
applicable annual and supplemental Department of Defense (DOD)
appropriations in fiscal years 2004 and 2005. We also reviewed DOD reports
on the transfer of funds from the Iraqi Freedom Fund to support GWOT
activities, and DOD reports on the transfer or reprogramming of funds
among various appropriation accounts or budget activities to support GWOT.
In addition, we reviewed material related to the decision to add funds to
DOD's annual appropriation to support GWOT, specifically Program Budget
Decision 736, entitled Continuing the War on Terrorism, dated January 31,
2002, and approved by the Under Secretary of Defense (Comptroller).

To assess the extent of differences between supplemental appropriations
and reported obligations for GWOT, we compared supplemental appropriations
provided to the military services to reported obligations in fiscal year
2004 and reported obligations through May 2005 and assessed obligations
through May 2005 for fiscal year 2005.1 Specifically, we identified
applicable supplemental appropriations in fiscal years 2004 and 2005 and
compared them to the reported amounts obligated by each service in DOD's
Supplemental and Cost of War Execution Reports.2 We limited our review to
the obligation of funds appropriated for military personnel and operation
and maintenance for the Army, Air Force, Navy, and Marine Corps, for both
active and reserve forces, because they represented the majority of the
funds obligated in fiscal years 2004 and 2005, about 90 percent in each
year. We excluded classified programs from our review, because obligations
for those programs are not reported in DOD's Supplemental and Cost of War
Execution Reports. We did not review the obligation of funds for
investment, which are used for procurement; military construction; and
research, development, test, and evaluation. In addition, for fiscal year
2005, we reviewed the latest available obligation data and held
discussions with the military services on the results of their midyear
budget reviews. We compared the services' reported military personnel and
operation and maintenance obligations through May 2005, the latest
available obligation data at the time of our review, to the supplemental
appropriations provided to calculate the

1DOD's financial systems only capture total obligations, and the services
use various management information systems to identify incremental
obligations and to estimate costs.

2Through December 2004, these reports were called the Consolidated
Department of Defense Terrorist Response Cost Reports. Beginning in
January 2005, DOD renamed these reports the Supplemental and Cost of War
Execution Reports.

Appendix I
Scope and Methodology

proportion of funds obligated through May. We then compared those
proportions to the proportion of the fiscal year that has elapsed through
May-which represents 67 percent of the fiscal year-to assess whether based
on obligations through May funding is likely to be adequate. We recognize
that funds are not obligated equally each month throughout the fiscal
year. However, we believe that the further into the fiscal year the closer
to 100 percent obligations should be relative to appropriations if all
appropriated funds are likely to be obligated.

GWOT obligations provided in this report are DOD's claimed obligations as
reported in the Supplemental and Cost of War Execution Reports. In related
work,3 we have reported these data to be of questionable reliability. For
example, we found financial management systems with acknowledged
weaknesses, a lack of systematic processes to ensure accurate data entry,
failure to use actual data when it was available, and improperly
categorized costs. Therefore, we are unable to ensure that DOD's reported
obligations for GWOT are complete, reliable, and accurate. Consequently,
the gaps we identify between supplemental appropriations and DOD's
reported obligations may not reliably reflect true differences between
supplemental appropriations and obligations and therefore should be
considered approximations. Despite the uncertainty about the obligation
data, we are reporting the information because it is the only data
available on overall GWOT costs and the only way to approach an estimate
of the costs of the war. Also, despite the uncertainty surrounding the
true dollar figure for obligations, these data are used to advise the
Congress on the cost of the war. As such, obligation data provided in this
report reflect DOD reported obligations, however unreliable those reports
may be.

To determine actions taken by DOD and the services to cover any identified
gaps between reported obligations and supplemental appropriations for
GWOT, we held discussions with DOD representatives from the Office of the
Under Secretary of Defense (Comptroller) and the Army, Air Force, Navy,
and Marine Corps. At the major command level, we discussed with service
representatives any actions taken to cover gaps and the impacts of actions
taken to cover those gaps on their budgeted peacetime operations.

3GAO, Global War on Terrorism: DOD Needs to Improve the Reliability of
Cost Data and Provide Additional Guidance to Control Costs, GAO-05-882
(Washington, D.C.: Sept. 21, 2005).

Appendix I
Scope and Methodology

We interviewed DOD representatives regarding GWOT obligations and funding
for fiscal years 2004 and 2005 in the following locations:

o 	Office of the Under Secretary of Defense (Comptroller), Washington,
D.C.

o  Department of the Army, Headquarters, Washington, D.C.

o 	Army Forces Command and Headquarters, Third Army, Fort McPherson,
Georgia.

o  Army Installation Management Agency, Arlington, Virginia.

o  Army Materiel Command, Fort Belvoir, Virginia.

o  Army Pacific Command, Fort Shafter, Hawaii.

o  Department of the Air Force, Headquarters, Washington, D.C.

o  Air Force Air Combat Command, Langley Air Force Base, Virginia.

o 	Air Force Air Mobility Command, and Headquarters, U.S. Transportation
Command, Scott Air Force Base, Illinois.

o  Department of the Navy, Headquarters, Washington, D.C.

o  Navy Atlantic Fleet Command, Norfolk Naval Base, Virginia.

o  Navy Pacific Fleet Command, Pearl Harbor, Hawaii.

o  Marine Corps, Headquarters, Washington, D.C.

o  Marine Corps Forces, Pacific, Camp Smith, Hawaii.

We performed our work from November 2004 through August 2005 in accordance
with generally accepted government auditing standards.

                                  Appendix II

                    Comments from the Department of Defense

Appendix II
Comments from the Department of Defense

(350616)  Page 41

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