Military Personnel: Actions Needed to Strengthen Management of	 
Imminent Danger Pay and Combat Zone Tax Relief Benefits 	 
(28-SEP-06, GAO-06-1011).					 
                                                                 
Servicemembers who are assigned, deployed, or travel on temporary
duty to certain foreign areas are eligible for special pays and  
benefits including (1) imminent danger pay (IDP) when the	 
Department of Defense (DOD) determines that members are subject  
to the threat of physical harm or imminent danger and (2) combat 
zone tax relief (CZTR) benefits, which allow members to exclude  
earned income from federal taxes. If travel to IDP- or		 
CZTR-designated areas begins during one month and concludes	 
during another (known as cross-month travel), members could	 
receive 2 full months of benefits. GAO conducted this review	 
under the Comptroller General's authority to initiate such	 
reviews. GAO evaluated DOD's (1) process for reviewing IDP areas 
and (2) internal controls over servicemembers' temporary duty	 
travel to areas designated for IDP and CZTR benefits. GAO is also
providing information on the reporting of IDP and CZTR data. GAO 
analyzed legislation, guidance, travel vouchers, and internal	 
control standards and interviewed appropriate officials.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-1011					        
    ACCNO:   A61545						        
  TITLE:     Military Personnel: Actions Needed to Strengthen	      
Management of Imminent Danger Pay and Combat Zone Tax Relief	 
Benefits							 
     DATE:   09/28/2006 
  SUBJECT:   Combat pay 					 
	     Combat zones					 
	     Data collection					 
	     Internal controls					 
	     Military personnel 				 
	     Military policies					 
	     Reporting requirements				 
	     Requirements definition				 
	     Temporary duty pay 				 
	     Travel						 
	     Financial management				 
	     Military compensation				 

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GAO-06-1011

     

     *  
          * Results in Brief
          * Background
          * DOD's Management of Its Imminent Danger Pay Program Could Be
               * DOD Has Not Conducted Annual Reviews of Imminent Danger Pay
               * DOD Has Not Updated Guidance to Reflect Current Responsibili
          * DOD Does Not Have a Departmentwide Policy to Monitor Cross-M
               * No Departmentwide Monitoring of Cross-Month Travel Occurs, b
               * Analysis of Defense Travel System Vouchers Indicates That Cr
               * U.S. Navy Ships Make Port Visits to Designated Areas and The
          * DOD Tracks Imminent Danger Pay and Combat Zone Tax Relief Be
          * Conclusions
          * Recommendations for Executive Action
          * Matter for Congressional Consideration
          * Agency Comments and Our Evaluation
     * Appendix I: Areas Currently Designated for Imminent Danger P
     * Appendix II: Presidentially Designated Combat Zones and Cong
          * Combat Zones
          * Qualified Hazardous Duty Areas
     * Appendix III: Military Service Certified as in Direct Suppor
     * Appendix IV: Scope and Methodology
     * Appendix V: Comments from the Department of Defense
     * Appendix VI: GAO Contact and Staff Acknowledgments
          * GAO Contact
          * Acknowledgments
               * Order by Mail or Phone

Report to Congressional Committees

United States Government Accountability Office

GAO

September 2006

MILITARY PERSONNEL

Actions Needed to Strengthen Management of Imminent Danger Pay and Combat
Zone Tax Relief Benefits

GAO-06-1011

Contents

Letter 1

Results in Brief 5
Background 9
DOD's Management of Its Imminent Danger Pay Program Could Benefit from
Additional Oversight 13
DOD Does Not Have a Departmentwide Policy to Monitor Cross-Month Travel to
Areas Designated for Imminent Danger Pay or Combat Zone Tax Relief
Benefits 19
DOD Tracks Imminent Danger Pay and Combat Zone Tax Relief Benefits and
Reports Some Data to Congress 27
Conclusions 27
Recommendations for Executive Action 28
Matter for Congressional Consideration 29
Agency Comments and Our Evaluation 29
Appendix I Areas Currently Designated for Imminent Danger Pay and Combat
Zone Tax Relief Benefits 33
Appendix II Presidentially Designated Combat Zones and Congressionally
Legislated Qualified Hazardous Duty Areas 35
Appendix III Military Service Certified as in Direct Support of Combat
Zone Operations 38
Appendix IV Scope and Methodology 39
Appendix V Comments from the Department of Defense 44
Appendix VI GAO Contact and Staff Acknowledgments 48

Tables

Table 1: Summary of Imminent Danger Pay and Combat Zone Tax Relief
Benefits 11
Table 2: Number and Duration of Cross-Month Trips Eligible for 1 or 2
Months of Imminent Danger Pay or Combat Zone Tax Relief Benefits, October
1, 2002, to September 30, 2005 23
Table 3: Duration of Cross-Month Trips Eligible for 1 or 2 Months of
Imminent Danger Pay or Combat Zone Tax Relief Benefits by Combatant
Command, October 1, 2002, to September 30, 2005 24
Table 4: Duration of Cross-Month Travel to Areas Not Designated for
Imminent Danger Pay or Combat Zone Tax Relief Benefits, October 1, 2002,
to September 30, 2005 25
Table 5: Port Visits to Areas within the U.S. European Command That Are
Designated for Imminent Danger Pay or Combat Zone Tax Relief Benefits 26
Table 6: Summary of Areas Designated for Imminent Danger Pay and Combat
Zone Tax Relief Benefits 33
Table 7: Combat Zones as of July 2006 36
Table 8: Qualified Hazardous Duty Areas as of July 2006 37
Table 9: Areas Certified by DOD Where Military Service Is in Direct
Support of Combat Zone Operations as of July 2006 38

Figure

Figure 1: Terrorist Threat Levels and Associated Number of Designated
Imminent Danger Pay Areas as of July 2006 18

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United States Government Accountability Office

Washington, DC 20548

September 28, 2006

Congressional Committees

In recognition of the dangers military servicemembers face and the
sacrifices they make on behalf of the United States, Congress has
established several special pays and benefits. In particular,
servicemembers who are assigned, deployed, or travel on temporary duty to
certain foreign areas are eligible for certain special pays and benefits.
These include (1) imminent danger pay for servicemembers on duty in
foreign areas designated by the Secretary of Defense in which a
servicemember is subject to the threat of physical harm or imminent danger
on the basis of civil insurrection, civil war, terrorism, or wartime
conditions1 and (2) combat zone tax relief benefits that permit
servicemembers to exclude all or a portion of their compensation from
federal taxes while serving in specific areas designated by the President
through Executive Order, known as combat zones, or in areas designated by
Congress, known as qualified hazardous duty areas (see app. I and II).2

Servicemembers may also qualify to receive combat zone tax relief benefits
when they are performing military duty outside of a combat zone or in a
congressionally established qualified hazardous duty area if (1) duty in
this area is in direct support of military operations in a combat zone or
qualified hazardous duty area and (2) the duty qualifies a servicemember
for hostile fire or imminent danger pay based on the risks and dangers
related to the combat zone.3 If a servicemember travels to an area
designated for imminent danger pay or combat zone tax relief benefits, and
the travel begins during one month and concludes during another month
(known as cross-month travel), the servicemember receives 2 full months of
the special pay and benefit.4 Combat zone tax relief benefits can provide
significant financial benefits, especially if a servicemember qualifies
for this benefit on more than one occasion during a calendar year.

1 See 37 U.S.C. 310; Department of Defense Instruction 1340.9, Special Pay
for Duty Subject to Hostile Fire or Imminent Danger Pay (Apr. 10, 1992),
and the Financial Management Regulation, Volume 7A, Chapter 10 (Feb.
2006). Servicemembers who have been (1) subject to hostile fire or
explosion of a hostile mine; (2) on duty in an area in close proximity to
a hostile fire incident and the servicemembers are in danger of being
exposed to the same dangers; or (3) injured, wounded, or killed by hostile
fire, mines, or any kind of hostile action, receive hostile fire pay
instead of imminent danger pay. Commanders at the lowest level of command
certify that the member has met the requirements for entitlement to
hostile fire pay within a given month, except when the member is under
orders on official duty in one of the IDP-designated areas listed in
appendix I.

2 In this report, we used the term combat zone tax relief benefits to
describe tax exclusions provided to servicemembers under 26 U.S.C. S:112.
However, there are other kinds of tax benefits for servicemembers serving
in combat zones or qualified hazardous duty areas that are not addressed
in this report, such as extensions for filing income tax returns and
exemptions from telephone excise taxes. Servicemembers may have other tax
deductions and exclusions that reduce their taxable income.

The Department of Defense (DOD) is responsible for designating imminent
danger pay areas and certifying locations where military service is in
direct support of combat zone operations. Over the past few decades, DOD
has designated an increasing number of areas for imminent danger pay.
Since imminent danger pay was first authorized on October 1, 1983, the
number of areas designated for this pay has increased from a few to 54
areas due primarily to the global security environment, according to DOD.5
DOD has stated that a goal is to limit imminent danger pay to only those
servicemembers who face the threat of physical harm or imminent danger,6
and DOD's guidance requires at least annual reviews of designated areas to
determine whether conditions warrant the continued designation. In
addition, since September 2001, DOD has certified military service in
several countries as directly supporting combat operations in Afghanistan
and Iraq. Currently, these locations include Djibouti, Jordan, Pakistan,
the Philippines, and Yemen, among others (see app. III).

We have previously reported that clear policies, procedures, criteria, and
management oversight are needed to help agencies use resources effectively
and efficiently to meet organizational and program objectives.7 We also
previously reported that the federal government's total costs to provide
military compensation are substantial and rising and that the nation's
growing fiscal concerns will require DOD and the federal government to
consider difficult trade-offs in the years ahead.8 According to DOD, since
the beginning of the Global War on Terrorism, military basic pay has
increased approximately 25 percent. DOD has reported paying more than $2
billion in hostile fire and imminent danger pay to servicemembers
assigned, deployed, or traveling on temporary duty.9 Furthermore, the
Defense Finance and Accounting Service calculated that between tax years
2003 and 2005, active duty servicemembers collectively qualified to
exclude more than $26 billion of their compensation as a result of
performing duty that qualified for combat zone tax relief benefits. This
amount includes servicemembers who performed duty in areas that DOD has
designated as in direct support of military operations in combat zones.

3 26 CFR S:1.1121-1(e) and DOD Financial Management Regulation 7A, Chapter
44, S:440103(c)(6).

4 Servicemembers receive imminent danger pay and combat zone tax relief
benefits for an entire month regardless of the amount of time spent in a
designated area. These benefits are not prorated. See 37 U.S.C. S:310 and
26 U.S.C. S:112.

5 Department of Defense Authorization Act, 1984, Pub. L. No. 98-94 S:905
(1983).

6 Under Secretary of Defense (Personnel and Readiness) Memorandum for
Director, Joint Staff, Annual Review of Designation of Foreign Locations
as Imminent Danger Areas for Imminent Danger Pay (IDP) Purposes (Jan. 30,
2006).

7 GAO, Standards for Internal Control in the Federal Government,
GAO/00-21.3.1AIMD- (Washington, D.C.: November 1999), and Internal Control
Management and Evaluation Tool, GAO-01-1008G (Washington, D.C.: August
2001).

Because of broad congressional interest in military pay and compensation,
we prepared this report under the authority of the Comptroller General to
conduct evaluations at his own initiative.10 Our objectives were to
evaluate DOD's (1) process for reviewing imminent danger pay area
designations and (2) internal controls over servicemembers' temporary duty
travel to areas designated for imminent danger pay and combat zone tax
relief benefits. We are also providing information on DOD's tracking and
reporting of imminent danger pay and combat zone tax relief benefits to
Congress. We are addressing this report to you because of your
jurisdiction over the issues discussed in this report.

To evaluate DOD's process for reviewing imminent danger pay area
designations, to understand how servicemembers become eligible for combat
zone tax relief benefits, and to understand how DOD reports data
associated with this pay and benefit, we analyzed legislation,
regulations, and DOD guidance. We compared this guidance to the objectives
and fundamental concepts of internal control defined in Standards for
Internal Control in the Federal Government.11 We also held discussions
with knowledgeable officials from the Office of the Under Secretary of
Defense (Personnel and Readiness), the Joint Chiefs of Staff, each of the
services, and the geographic combatant commands.12 We also reviewed
questionnaires completed by commanders at unified combatant commands with
geographic responsibility and used by the Office of the Under Secretary of
Defense (Personnel and Readiness) to evaluate area designations and the
threat of imminent danger. To understand the extent to which DOD has
internal controls in place to monitor servicemembers' temporary duty
travel to foreign areas designated for imminent danger pay or combat zone
tax relief benefits, we reviewed DOD's Foreign Clearance Guide that
establishes DOD policy for military personnel traveling overseas as well
as combatant commands' travel policies. We discussed these with officials
responsible for approving travel in accordance with the Foreign Clearance
Guide. We also obtained and analyzed 28,404 travel vouchers processed by
individual servicemembers using the Defense Travel System, from October 1,
2002, through September 30, 2005. To assess the reliability of these data,
we interviewed knowledgeable officials, reviewed relevant documentation,
and conducted electronic testing. We found these data to be sufficiently
reliable for the purposes of our work. However, data limitations prevented
us from determining the full extent of temporary duty travel to areas
designated for imminent danger pay or combat zone tax relief benefits, the
total number of trips taken by individual servicemembers during fiscal
years 2003 through 2005, or how much of this travel crossed calendar
months. Furthermore, we were unable to extrapolate travel patterns from
the Defense Travel System to DOD travel as a whole. Under DOD's Financial
Management Regulations, authorizing officials are responsible for
determining the necessity of trips and funds availability for temporary
duty travel.13 Further, DOD guidance states that DOD airlift authorizing
officials shall ensure that an official purpose is served by air travel.14
Therefore, we did not evaluate whether the purpose of the trips were
valid, but we did note that the U.S. Central Command and U.S. Army,
Europe, have developed policies and controls to preclude, in their view,
the appearance of abuse of imminent danger pay and combat zone tax relief
benefits. We conducted our review from October 2005 through July 2006 in
accordance with generally accepted government auditing standards. See
appendix IV for more information about our scope and methodology.

8 GAO, Military Personnel: DOD Needs to Improve the Transparency and
Reassess the Reasonableness, Appropriateness, Affordability, and
Sustainability of Its Military Compensation System, GAO-05-798
(Washington: D.C., July 19, 2005), and Global War on Terrorism:
Observations on Funding, Costs, and Future Commitments, GAO-06-885T
(Washington, D.C.: July 18, 2006).

9 We have previously reported on the lack of reliability in DOD's reported
costs related to the Global War on Terrorism, including military pay. See
GAO, 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) and GAO-06-885T .

10 31 U.S.C. S:717(b)(1)(2000).

11 GAO/00-21.3.1AIMD- .

12 The Unified Combatant Commands with geographic responsibility are
composed of forces from two or more services and have broad and continuing
missions for specific geographic areas. The commands organized on a
geographical basis include (1) the U.S. Central Command, (2) the European
Command, (3) the U.S. Northern Command, (4) the U.S. Pacific Command, and
(5) the U.S. Southern Command. None of the U.S. Northern Command's
geographic area of responsibility is eligible for imminent danger pay or
combat zone tax relief.

13 DOD Financial Management Regulation 7000.14-R, Volume 9, Chapter 2,
Section 020401(C) (April 2006). (Hereinafter cited as DODFMR, Vol. 9, Ch.
2, Section 020401(C) (April 2006)).

                                Results in Brief

DOD's processes for reviewing existing imminent danger pay areas can be
improved. While combatant commanders have taken the initiative
periodically to make recommendations to designate or terminate imminent
danger pay areas, DOD has not conducted annual reviews of existing
imminent danger pay areas in accordance with its guidance to ensure that
conditions in these areas continue to warrant such designation. Also, DOD
has not updated its guidance to reflect current responsibilities for
initiating and managing annual reviews or to include factors used to
determine when conditions in foreign areas pose the threat of physical
harm or imminent danger to servicemembers on duty in these locations.
According to the Standards for Internal Control in the Federal
Government,15 clear policies, procedures, and criteria are needed to help
agencies use resources effectively and efficiently to meet organizational
and program objectives. The Standards also  emphasize the importance of
management oversight and review to ensure that programs continue to meet
their intended goals and comply with law and policies. DOD's imminent
danger pay guidance requires the unified combatant commanders to
continuously appraise conditions within designated areas to ensure that
these areas continue to present the threat of physical harm or imminent
danger from civil insurrection, civil war, terrorism, or wartime
conditions, and to submit their recommendations to continue or terminate
area designations, at least annually, to the Chairman, Joint Chiefs of
Staff, for review. At any time, unified combatant commanders may recommend
that additional areas be designated for imminent danger pay or that
existing area designations be terminated. The Chairman, in turn, evaluates
designation recommendations and, if the Chairman recommends them for
approval, forwards the unified combatant commander's recommendations to
the Under Secretary of Defense (Personnel and Readiness).16 In practice,
however, officials in the Office of the Under Secretary of Defense
(Personnel and Readiness) have assumed responsibility for initiating and
directly managing these reviews. However, the combatant commanders have
not forwarded their recommendations to the Chairman, Joint Chiefs of
Staff, on existing designations at least annually, and the Under Secretary
of Defense (Personnel and Readiness) has not requested the combatant
commanders to do so. Rather, the Office of the Under Secretary of Defense
(Personnel and Readiness) requested the combatant commanders to conduct
these reviews six times between 1992 and 2006, and the 2006 review is
ongoing. In the absence of annual reviews, unified combatant commanders
continued to recommend the designation of additional areas for imminent
danger pay as well as the termination of some designated areas during that
time period and the overall number of designated areas increased from 34
to 54. According to DOD, the overall number of designated areas increased
during that time due to the changing global security environment and the
increase in the number of areas where servicemembers face imminent danger,
including areas supporting Operation Enduring Freedom and Operation Iraqi
Freedom. When DOD has conducted reviews of areas designated for imminent
danger pay, it has queried combatant commanders using a set of factors to
determine the nature of threats to servicemembers arising from civil war,
civil insurrection, terrorism, or wartime conditions within designated
imminent danger pay areas. However, the department has not incorporated
these factors into its imminent danger pay guidance. In addition, DOD has
not updated its imminent danger pay guidance since 1992 to reflect that
the Office of the Under Secretary of Defense (Personnel and Readiness) has
assumed responsibility for initiating reviews of imminent danger pay area
designations. By conducting annual reviews in accordance with its
guidance, DOD could strengthen its oversight of imminent danger pay
designations to ensure that conditions in designated areas continue to
pose the threat of physical harm or imminent danger to servicemembers and
that these areas should continue to be designated. Furthermore, updating
DOD's guidance to include the current processes and factors used for
reviewing and designating imminent danger pay areas would clarify
responsibilities and establish standard criteria for use in meeting the
program's objectives.

14 DOD Directive 4500.56, DOD Policy on the Use of Government Aircraft and
Air Travel, Enclosure 2, Section E.2.1.2 (April 1999). (Hereinafter cited
as DODD 4500.56, Section E.2.1.2 (Apr. 1999)).

15 GAO/00-21.3.1AIMD- .

16 DODI 1340.9 refers to the Assistant Secretary of Defense (Force
Management and Personnel) rather than the Under Secretary of Defense
(Personnel and Readiness). The Secretary of Defense established the
position of the Under Secretary of Defense (Personnel and Readiness) in
1994. At this time, the functions, relationships, and authorities assigned
to the Assistant Secretary of Defense (Force Management and Personnel)
were assigned to the Under Secretary of Defense (Personnel and Readiness).
DOD Directive 5124.2, Under Secretary of Defense for Personnel and
Readiness (P&R), (Oct. 31, 1994).

Internal controls over servicemembers' temporary duty travel to areas
designated for imminent danger pay or combat zone tax relief benefits need
to be strengthened. While two DOD components have instituted policies to
regulate and monitor cross-month travel to these areas, there is no
similar departmentwide policy to ensure that travel to areas designated
for imminent danger pay or combat zone tax relief benefits need to cross
calendar months. Data limitations prevented us from determining the full
extent of temporary duty travel to areas designated for imminent danger
pay and combat zone tax relief benefits, as well as how much of this
travel crossed calendar months. The U.S. Central Command and U.S. Army,
Europe-which collectively account for 62 percent of imminent danger pay
areas and 86 percent of areas designated for combat zone tax relief
designation-have developed policies and controls to monitor and regulate
cross-month travel to areas designated for imminent danger pay and combat
zone tax relief benefits to preclude, in their view, the appearance of
abuse of these benefits. It is DOD's policy to minimize the number of
visits and visitors to overseas areas as well as demands on equipment,
facilities, time, installation services, and personnel visited. In
addition, DOD's temporary duty travel policy and its Foreign Clearance
Guide,17 which implements this policy, provide mechanisms for the
combatant commands to regulate travel to foreign locations. Before any DOD
servicemember makes an official visit to a foreign country, including
areas where servicemembers qualify for imminent danger pay or combat zone
tax relief, the visit must be reviewed and approved by both the U.S.
embassy in the host country (country clearance) as well as by the
sponsoring unified commander (theater clearance). DOD's Foreign Clearance
Guide permits a unified combatant command to grant theater clearance or to
delegate this authority to component commands, subordinate commands,
special agencies, or units to be visited. The Standards for Internal
Control in the Federal Government18 recommend that agencies establish
internal controls to monitor and review operations and programs to ensure
that they meet their goals. Moreover, we consider establishing such
controls, including policies and oversight mechanisms, a best practice
that can help ensure appropriate application of benefits such as imminent
danger pay and combat zone tax relief benefits. Two components, the
Central Command and the U.S. Army, Europe, have developed their own
policies and internal controls to regulate and monitor cross-month travel
to preclude, in their view, the perceived abuse of imminent danger pay and
combat zone tax relief benefits. To enforce its policy, the U.S Central
Command has established an electronic database with internal controls that
automatically alert officials to any proposed temporary duty travel that
crosses calendar months. The U.S. Army, Europe, requires that all
cross-month travel be approved by at least a colonel and its Internal
Review and Audit Compliance Office periodically reviews travel to specific
areas to monitor whether cross-month travel occurs. However, DOD's
departmentwide policies do not establish internal controls to monitor or
regulate cross-month travel, including to foreign areas designated for
certain special pays and benefits, such as imminent danger pay and combat
zone tax relief, and, with the exception of U.S. Army, Europe, DOD does
not conduct periodic audits of cross-month travel to determine whether
servicemembers are scheduling travel in a fiscally responsible manner or
attempting to maximize this pay and benefit through cross-month travel.
Our analysis of 28,404 vouchers for temporary duty travel that were
processed using the Defense Travel System between October 1, 2002, and
September 30, 2005, found that cross-month travel does occur in 3 percent
of the vouchers, thereby qualifying the servicemember for 2 full months of
imminent danger pay and combat zone tax relief. We also obtained data from
the U.S. Naval Forces, Europe, for 56 ship port visits between fiscal
years 2003 and 2005 to areas designated for imminent danger pay or combat
zone tax relief benefits within the European Command's area of
responsibility. By establishing internal controls such as a departmentwide
policy and periodic audits to monitor cross-month travel, DOD could ensure
all areas are covered and further strengthen its management of imminent
danger pay and combat zone tax relief benefits.

17 DOD Directive Number 4500.54, Official Temporary Duty Travel Abroad,
November 21, 2003 and DOD Directive 4500.54-G, Foreign Clearance Guide,
June 6, 2006.

18 GAO/00-21.3.1AIMD- .

DOD tracks the cost of imminent danger pay and servicemembers'
compensation that qualifies for combat zone tax relief benefits. While DOD
reports the cost of imminent danger pay to Congress as part of its budget
request, the department does not report servicemembers' compensation that
qualifies for combat zone tax relief benefits. Combat zone tax relief
benefits could allow servicemembers to exclude a significant portion of
their compensation from federal taxes. For example, enlisted personnel and
warrant officers may exclude all military compensation earned during one
month. In 2006, the maximum amount of compensation for commissioned
officers that is eligible for combat tax zone relief is $6,724.50 per
month. The reporting of combat zone tax relief benefit data to Congress
could provide information on the extent of this benefit and aid Congress
in its oversight role.

We are making recommendations to strengthen DOD's internal controls and
management of imminent danger pay and combat zone tax relief benefits,
including monitoring travel to areas designated for these benefits, as
well as to assist Congress in its oversight role. In commenting on a draft
of this report, DOD generally agreed with two of our recommendations and
disagreed with a third recommendation to monitor cross-month travel. DOD
believes that it has sufficient travel procedures and reviews over
cross-month travel. Our work indicates otherwise, and, thus, we continue
to believe that our recommendation has merit. DOD's comments and our
evaluation of them can be found at the end of this report. DOD's comments
are reprinted in appendix V. In addition, because of the substantial tax
benefits that servicemembers receive when performing duty in combat zones,
we have added a matter for congressional consideration. Congress should
consider requiring DOD to periodically report the amount of
servicemembers' total compensation that qualifies for combat zone tax
relief benefits.

                                   Background

Congress has given the president the authority to issue executive orders
designating and terminating areas as combat zones. Since 1950, U.S.
presidents have designated combat zones in Korea, Vietnam, the Persian
Gulf area, the Kosovo area, and Afghanistan. U.S. presidents terminated
combat zone designations for Korea in 1955 and Vietnam in 199619. See
appendix II for information on the current combat zones. In addition,
Congress has established qualified hazardous duty areas where
servicemembers serving in such areas receive the same tax treatment as
members serving in presidentially designated combat zones.20 Congress has
specified in this legislation, however, that a servicemember on duty in a
qualified hazardous duty area is only entitled to combat zone tax relief
benefits if that member would also be entitled to hostile fire or imminent
danger pay. Congress has designated seven qualified hazardous duty areas
since 1995 (see app. II).

19 See appendix II, table 7 for a list of the regions that constitute the
Persian Gulf Area and the Kosovo area.

20 In addition, Congress has also stated that it was the sense of Congress
that servicemembers receiving hostile fire pay or imminent danger pay
should receive the same treatment under federal income tax laws as
servicemembers serving in combat zones. See Pub. L. No. 106-65, S:677
(1999) and Pub. L. No. 106-398, S:1089 (2000).

DOD is responsible for prescribing regulations for imminent danger pay and
for certifying locations where military service is in direct support of
combat zone operations. Servicemembers who perform duty in certain foreign
areas may be eligible for imminent danger pay as well as income tax
relief, in the form of combat zone tax relief benefits, as summarized in
table 1.21 See appendixes I, II, and III for information about the
locations designated for imminent danger pay or combat zone tax relief
benefits.

21 Under Section 5928 of Title 5, U.S. Code and Department of State
regulations, federal civilian employees serving in foreign areas may be
eligible for a danger pay allowance when the Secretary of State determines
that civil war, civil insurrection, terrorism, or wartime conditions
threaten physical harm or imminent danger to the health or well-being of a
majority of employees officially stationed or detailed to a post in
foreign area. To qualify for the danger pay allowance, which is paid for
those hours for which employees receive basic compensation and ranges from
15 to 35 percent of base salary each month depending on the level of
danger specified for a given area and the presence of nonessential
personnel and dependents at the post, a federal civilian employee must be
assigned or on detail to a post for at least 4 cumulative hours in 1 day
during a given month. Alternatively, federal civilian employees who
accompany U.S. military forces designated by the Secretary of Defense as
eligible for imminent danger pay receive $225 a month when authorized by
the Secretary of State. Federal civilian employees may not receive both
imminent danger pay and danger pay during the same month. Federal civilian
employees are not eligible for combat zone tax relief benefits.

Table 1: Summary of Imminent Danger Pay and Combat Zone Tax Relief
Benefits

Benefit      Description                 Dollar amount     Authority      
Imminent     Compensates a servicemember $225/month        37 U.S.C.      
danger pay   on duty in foreign areas                      S:310(a)(2)(D) 
                designated by the Secretary Members receive                  
                of Defense where the        the entire $225   DOD Instruction
                servicemember is subject to if they serve at  1340.9         
                the threat of physical harm least part of 1   
                or imminent danger on the   day in a          
                basis of (1) civil          designated zone   
                insurrection, (2) civil     during the month. 
                war, (3) terrorism, or (4)                    
                wartime conditions. Within                    
                a designated area, DOD may                    
                limit imminent danger pay                     
                to servicemembers who                         
                perform duty in an area's                     
                airspace, land, or waters,                    
                or designate the entire                       
                area depending on the                         
                threat.                                       
                                                              
                The Secretary of Defense                      
                has delegated                                 
                responsibility for                            
                designating areas to the                      
                Under Secretary of Defense                    
                (Personnel and Readiness).                    
Combat zone  Servicemembers may qualify  Enlisted          26 U.S.C. S:112
tax relief   for combat zone tax relief  personnel and                    
                when serving in (1)         warrant officers  Pub. L. No.    
                presidentially designated   may exclude all   104-117 (1996) 
                combat zones, (2)           military                         
                congressionally legislated  compensation      Pub. L. No.    
                qualified hazardous duty    earned during     106-21 (1999)  
                areas, or (3) areas where   that month. For   
                the Secretary of Defense    commissioned      
                has certified military      officers,         
                service as directly         compensation is   
                supporting military         free of federal   
                operations in combat zones  income tax up to  
                or qualified hazardous duty the maximum       
                areas.                      amount of         
Combat zones A combat zone is any area   enlisted pay plus 
                that the president          any imminent      
                designates by executive     danger or hostile 
                order as an area in which   fire pay          
                U.S. Armed Forces are or    received.         
                have engaged in combat                        
                after June 24, 1950. An     In 2006, the      
                area ceases to be a combat  maximum amount of 
                zone on the dates the       compensation for  
                president designates by     commissioned      
                executive order.            officers that is  
Qualified    Congress designates         eligible for      
hazardous    qualified hazardous duty    combat tax zone   
duty areas   areas by legislation.       relief is         
                Servicemembers on duty in   $6,499.50 plus    
                these areas are entitled to $225 imminent     
                the same benefits afforded  danger pay, or    
                service in a presidentially $6,724.50 per     
                designated combat zone if   month.            
                the Secretary of Defense                      
                also designates the                           
                qualified hazardous duty                      
                area for hostile fire or                      
                imminent danger pay. a                        
In direct    The Secretary of Defense                      26 C.F.R.      
support of   has delegated                                 S:1.112-1      
combat zone  responsibility for                                           
operations   certifying that areas meet                    IRS Revenue    
                eligibility criteria to the                   Ruling 70-671  
                Under Secretary of Defense                    (1970)         
                (Personnel and Readiness).                                   
                Certification requires that                   DOD FMR        
                                                              44103(c)       
                   o  service is in direct                                   
                   support of military                                       
                   operations in combat                                      
                   zones,                                                    
                   o  service qualifies the                                  
                   servicemember for                                         
                   hostile fire pay or                                       
                   imminent danger pay, and                                  
                   o  hostile fire pay or                                    
                   imminent danger pay is                                    
                   related to activities                                     
                   and circumstances in the                                  
                   combat zone or qualified                                  
                   hazardous duty area.                                      

Source: GAO presentation of DOD Financial Management Regulation and 37
U.S.C. S:310, 26 U.S.C. S:112, 26 C.F.R. S:112-1, Internal Revenue Service
Revenue Ruling 70-671 (1970), Pub. L. No. 104-117 (1996), Pub. L. No.
106-21 (1999) and DOD Financial Management Regulation 44103(c).

aServicemembers who have been (1) subject to hostile fire or explosion of
a hostile mine; (2) on duty in an area in close proximity to a hostile
fire incident and the servicemembers are in danger of being exposed to the
same dangers; or (3) injured, wounded, or killed by hostile fire, mines,
or any kind of hostile action, receive hostile fire pay as opposed to
imminent danger pay, at a rate of $225 per month. Servicemembers receive
the entire $225 if they serve at least part of 1 day on a designated zone
during the month. 37 U.S.C. S:310.

The Under Secretary of Defense (Comptroller) in coordination with the
director of the Defense Finance and Accounting Service is responsible for
maintaining and updating the Financial Management Regulation, Volume 7A,
that provides financial management policy and procedures for DOD,
including imminent danger pay and combat zone tax relief benefits. In
DOD's imminent danger pay guidance, the Under Secretary of Defense
(Personnel and Readiness) requires unified combatant commanders to
continually appraise the conditions within areas designated for imminent
danger pay to ensure that the designation is warranted, and to forward
written recommendations, at least annually, to the Chairman, Joint Chiefs
of Staff, who evaluates these designations to determine whether conditions
in these areas continue to present the threat of physical harm or imminent
danger from civil war, civil insurrection, terrorism, or wartime
conditions. The Chairman forwards area designations that he recommends for
approval to the Under Secretary of Defense (Personnel and Readiness) with
support for these recommendations.

The Secretary of Defense has delegated the responsibility for designating
imminent danger pay areas and certifying military service as in direct
support of combat zone operations to the Under Secretary of Defense
(Personnel and Readiness) who is responsible for DOD personnel policy,
including oversight of military compensation, and as such, serves as the
focal point for imminent danger pay. DOD's imminent danger pay guidance
requires the unified combatant commanders to continuously appraise
conditions within designated areas to ensure that these areas continue to
present the threat of physical harm or imminent danger from civil
insurrection, civil war, terrorism, or wartime conditions, and to submit
their recommendations to continue or terminate area designations, at least
annually, to the Chairman, Joint Chiefs of Staff, for review. At any time,
unified combatant commanders may recommend that additional areas be
designated for imminent danger pay or that existing area designations be
terminated. The Chairman, in turn, evaluates designation recommendations
and, if the Chairman recommends them for approval, forwards the unified
combatant commander's recommendations to the Under Secretary of Defense
(Personnel and Readiness). In practice, however, officials in the Office
of the Under Secretary of Defense (Personnel and Readiness) have assumed
responsibility for initiating and directly managing these reviews.

     DOD's Management of Its Imminent Danger Pay Program Could Benefit from
                              Additional Oversight

DOD's processes for reviewing existing imminent danger pay areas and
combat zones can be improved. While combatant commanders have taken the
initiative periodically to make recommendations to designate or terminate
imminent danger pay areas, DOD has not conducted annual reviews of
existing imminent danger pay areas in accordance with its guidance to
ensure that conditions in these areas continue to warrant such
designations. Also, DOD has not updated its guidance to reflect that the
Office of the Under Secretary of Defense (Personnel and Readiness) has
assumed responsibility for initiating and managing annual reviews. In
addition, DOD also has not incorporated factors contained in
questionnaires completed by combatant commanders that the Office of the
Under Secretary of Defense (Personnel and Readiness) uses to evaluate when
conditions in foreign areas pose the threat of physical harm or imminent
danger to servicemembers performing duty in designated locations. By
conducting annual reviews of existing designations in accordance with its
guidance, DOD could strengthen its oversight of imminent danger pay
designations to ensure that conditions in designated areas continue to
pose the threat of physical harm or imminent danger to servicemembers and
that these areas should continue to be designated. Furthermore, updating
DOD's guidance to include the current processes and factors used for
reviewing and designating imminent danger pay areas would clarify
responsibilities and establish standard criteria for use in meeting the
program's objectives.

DOD Has Not Conducted Annual Reviews of Imminent Danger Pay Designations in
Accordance with Its Guidance

Imminent danger pay was first authorized in October 1983.22 Between
1992-when DOD revised its guidance to require annual reviews, as opposed
to semiannual reviews, of imminent danger pay area designations-and 2006,
the number of designated areas increased from 34 to 54 areas. (See
appendix I for a list of areas currently designated for imminent danger
pay).

While DOD guidance requires the combatant commanders to continuously
appraise conditions in designated areas and to forward recommendations to
the Chairman, Joint Chiefs of Staff, to continue or terminate these
designations at least annually, in practice, the Office of the Under
Secretary of Defense has assumed responsibility for initiating and
managing these reviews. The combatant commanders have not forwarded their
recommendations on existing designations to the Chairman, Joint Chiefs of
Staff, at least annually, nor has the Under Secretary of Defense
(Personnel and Readiness) requested the combatant commanders to do so.
Between 1992 and 2006, the Under Secretary of Defense (Personnel and
Readiness) requested the unified combatant commanders to conduct six
reviews of designated imminent danger pay areas. Reviews were conducted in
1992, 1993, 1995, 1997, and 2002; the 2006 review is ongoing, and
officials in the Office of the Under Secretary of Defense (Personnel and
Readiness) expect to complete it by October. In the absence of annual
reviews, the combatant commanders have taken the initiative to
periodically recommend the designation or termination of imminent danger
pay areas.

22 Pub. L. No. 98-94 S:905 (1983).

According to DOD officials, the Under Secretary of Defense (Personnel and
Readiness) deferred several reviews because of anticipated policy
revisions and concerns about creating additional work for combatant
commanders while they are engaged in ongoing operations. For instance, DOD
deferred the 1998 review pending the anticipated revision of its imminent
danger pay guidance to incorporate criteria for determining whether
conditions in designated areas continue to pose the threat of physical
harm or imminent danger from civil war, civil insurrection, terrorism, or
wartime conditions to servicemembers. However, this revision did not
occur. The department initiated the ongoing 2006 review shortly after we
began our review. According to officials from the Office of the Under
Secretary of Defense (Personnel and Readiness), the department deferred
reviews between 2002 and 2006 because it did not want to create additional
work for combatant commanders during ongoing operations, and department
officials also believe that conditions in most designated areas had not
changed sufficiently since the terrorist attacks of September 11, 2001,
and the start of the Global War on Terrorism to result in termination of
designated areas. Although DOD guidance calls for the combatant commanders
to forward recommendations to continue or to terminate imminent danger pay
areas at least annually, this has occurred at longer intervals ranging
from 2 to 5 years.

As a result of combatant commander's recommendations as well as annual
reviews of imminent danger pay areas conducted by the combatant commanders
at the request of the Under Secretary of Defense (Personnel and
Readiness), the department has terminated area designations where
conditions no longer pose the threat of physical harm or imminent danger
from civil war, civil insurrection, terrorism, or wartime conditions. For
instance, as a result of the 1993 review, DOD terminated imminent danger
pay designation for areas including Oman, the United Arab Emirates,
Bahrain, Qatar, and the Gulfs of Oman and Aden as well as the Arabian Sea
because the department determined that conditions no longer posed the
threat of physical harm or imminent danger toward servicemembers. The
department has also denied requests from unified combatant commanders to
designate new areas for imminent danger pay when there is not sufficient
information to demonstrate that conditions pose a threat of physical harm
or imminent danger to servicemembers on duty in the location, based on
criteria used in a questionnaire and accompanying threat assessments.

By conducting annual reviews of existing designations in accordance with
its guidance, DOD could strengthen its oversight of imminent danger pay
designations to ensure that conditions in designated areas continue to
pose the threat of physical harm or imminent danger to servicemembers and
that these areas should continue to be designated.

DOD Has Not Updated Guidance to Reflect Current Responsibilities or Incorporated
Factors to Define Criteria

DOD has not updated its imminent danger pay guidance to (1) reflect the
responsibility of the Office of the Under Secretary of Defense (Personnel
and Readiness) for initiating and managing annual reviews of imminent
danger pay areas or (2) to incorporate factors that DOD uses to evaluate
and define when servicemembers face imminent danger. Updating guidance to
include the current processes and factors used for reviewing and
designating imminent danger pay areas would clarify responsibilities and
establish standard criteria for use in meeting the objectives of the
imminent danger pay program.

First, while DOD's imminent danger pay area guidance requires the unified
combatant commanders and Joint Chiefs of Staff to conduct reviews of areas
designated for imminent danger pay at least annually, in practice, the
Under Secretary of Defense (Personnel and Readiness) has directly managed
these reviews since the mid-1990s. However, as previously discussed, the
combatant commanders have not forwarded recommendations on existing
designations to the Chairman, Joint Chiefs of Staff, on an annual basis in
accordance with DOD's guidance and the Under Secretary of Defense
(Personnel and Readiness) has not requested them to do so on an annual
basis. In addition, DOD has not updated its imminent danger pay guidance
to show that the Under Secretary of Defense (Personnel and Readiness) has
been assigned the functions, relationships, and authorities previously
assigned to the position of the Assistant Secretary of Defense (Force
Management and Personnel).

Second, the Federal Managers' Financial Integrity Act of 1982 states that
agencies must establish internal administrative controls in accordance
with the standards prescribed by the Comptroller General.23 The
Comptroller General published these standards in Standards for Internal
Control in the Federal Government, which sets out management control
standards for all aspects of an agency's operations. These standards are
intended to provide reasonable assurance of meeting agency objectives. Two
of the standards of internal control-risk assessment and control
activities-state that an agency should establish clear objectives as well
as appropriate policies, procedures, and plans with respect to its
activities to ensure effective and efficient use of resources to meet
organizational objectives.24

Neither the statute that authorizes imminent danger pay nor DOD guidance
define what constitutes the threat of physical harm or imminent danger or
contain criteria to determine this. However, in 1997, DOD developed a
questionnaire that contains specific factors that it continues to use to
evaluate requests from combatant commands to designate new imminent danger
pay areas as well as to review existing imminent danger pay designations.
These factors help DOD to gather consistent information that supports its
goal to limit imminent danger pay to those members placed in direct or
imminent danger. The factors consider

           o  acts of violence against U.S. personnel, such as
           assassinations, homicides, sabotage, kidnapping, aggravated
           battery, property damage, terrorizing, extortion, rioting, and
           commandeering vessels or hijacking aircraft;
           o  insurrection, war, or wartime conditions, including fighting
           that occurs sufficiently close to servicemembers that creates a
           substantial probability of death or bodily injury to
           servicemembers, causes servicemembers to fear for their safety, or
           creates danger to human life or property;

           o  terrorism conditions, including the existence of terrorist
           organizations that have the intent or ability to harm
           servicemembers or terrorist threat levels indicative of an
           imminent threat;

           o  security environment, that places U.S. forces at risk. DOD also
           considers existing security measures including threat condition
           levels and operating tempo levels, as well as restrictions on
           leave and off-duty travel and measures taken by the host
           government to protect servicemembers;

           o  travel restrictions, including restriction of servicemembers to
           duty stations, installations, or defined sections of the area; and

           o  presence of dependents in the area, including school-age
           dependents, whether dependents are targets, and the security
           measures in place to protect them.

23 Federal Managers' Financial Integrity Act of 1982, Pub. L. No. 97-255,
S:2 (1982).

24 GAO/00-21.3.1.AIMD-

We reviewed 54 completed questionnaires for imminent danger pay-some for
the same countries over a period of time-that were submitted by combatant
commands to the Office of the Under Secretary of Defense (Personnel and
Readiness) between 1998 and 2005. We found that DOD is using information
supplied on these questionnaires, in conjunction with threat assessments,
to inform decisions to designate new imminent danger pay areas and to
review existing designations to ensure that they continue to be
appropriately designated. For instance, DOD denied requests from the U.S.
Central Command to designate Turkmenistan and Kazakhstan for imminent
danger pay in 2001 because the support provided in the questionnaires did
not demonstrate an imminent threat of physical harm or danger to
servicemembers based on civil war, civil insurrection, terrorism, or
wartime conditions in those areas. DOD also denied a request from the U.S.
European Command in 2003 to designate a number of areas, including
Bulgaria, Romania, Hungary, and Cyprus, for imminent danger pay based on
the probability of increased danger to military personnel due to their
involvement in combat operations related to Iraq as well as general
terrorist threats to DOD personnel. The Office of the Under Secretary of
Defense (Personnel and Readiness) determined that there was not sufficient
support of an imminent threat of personal harm to servicemembers on
official duty in these areas. In contrast, DOD has designated areas, such
as Ethiopia, for imminent danger pay based on facts and circumstances that
indicate the likelihood that U.S. personnel might be harmed as a result of
civil unrest. Beginning in 2006, Congress authorized the Secretary of
Defense to retroactively designate an area for imminent danger pay,
subject to the availability of appropriated funds.25

25 National Defense Authorization Act for Fiscal Year 2006, Pub. L. No.
109-163, S:636 (2006) (codified at 37 U.S.C. S:310(c)).

Despite the demonstrated usefulness of these questionnaires to decision
makers, DOD has not incorporated factors contained in the questionnaire
into its imminent danger pay guidance. For example, DOD does not include
minimum terrorist threat levels, one such potential factor identified in
the questionnaire, in its imminent danger pay guidance. While terrorist
threat levels for a country may change over time and are raised and
lowered on the basis of new information and analysis, in the past DOD
officials responsible for overseeing imminent danger pay have considered
establishing minimum terrorist threat levels of "high" or "significant" to
help assess the imminence of threats and dangers from terrorism. Although
DOD has yet to do so, we believe that establishing a minimum terrorist
threat level threshold needed for an area to be designated for imminent
danger pay could help to limit imminent danger pay to those servicemembers
who truly face an imminent threat or danger to their lives and would
likely reduce the number of imminent danger pay area designations.
Currently, DOD identifies terrorist threat levels using the Defense
Intelligence Agency's four step scale (see fig. 1) that describes the
severity of a threat. 26

Figure 1: Terrorist Threat Levels and Associated Number of Designated
Imminent Danger Pay Areas as of July 2006

26 These steps, from highest to lowest, are high, significant, moderate,
and low. The categories reflect the existence of terrorist groups as well
as their history, capability, and intent to harm servicemembers.

For example, using Defense Intelligence Agency terrorism threat levels, if
current threat levels for designated areas remain constant and DOD was to
establish a minimum terrorist threat level of "significant" for areas to
be designated for imminent danger pay, then designations for 19 currently
designated areas with threat levels below "significant" would be
terminated. These areas include Angola, Burundi, Croatia, and Haiti.
However, 29 areas with "high" or "significant" terrorist threat levels,
such as Indonesia, the Philippines, Columbia, Iraq, Kuwait, Malaysia,
Qatar, and Syria, would continue to qualify for imminent danger pay. Due
to changing world circumstances since July 2006, the terrorist threat
levels may have changed.

DOD Does Not Have a Departmentwide Policy to Monitor Cross-Month Travel to Areas
     Designated for Imminent Danger Pay or Combat Zone Tax Relief Benefits

Internal controls over servicemembers' temporary duty travel to areas
designated for imminent danger pay or combat zone tax relief benefits need
to be strengthened. While two DOD components have instituted policies to
regulate and monitor cross-month travel to these areas, there is no
similar departmentwide policy to ensure that travel to areas designated
for imminent danger pay or combat zone tax relief benefits needs to cross
calendar months. Data limitations prevented us from determining the full
extent of temporary duty travel to areas designated for imminent danger
pay and combat zone tax relief benefits, as well as how much of this
travel crossed calendar months. However, the U.S. Central Command and U.S.
Army, Europe-which collectively account for 62 percent of imminent danger
pay areas and 86 percent of areas designated for combat zone tax relief
benefits-have developed policies and controls to monitor and regulate
cross-month travel to areas designated for imminent danger pay and combat
zone tax relief benefits to preclude, in their view, the appearance of
abuse of these benefits. Our review of data from DOD's Defense Travel
System as well as data for ship port visits to the U.S. European Command's
area of responsibility show that cross-month travel does occur. By
establishing internal controls such as a departmentwide policy and
periodic audits to monitor cross-month travel, DOD could ensure that all
areas are covered and further strengthen its management of imminent danger
pay and combat zone tax relief benefits.

No Departmentwide Monitoring of Cross-Month Travel Occurs, but Two Commands Have
Taken Steps to Regulate Cross-Month Travel

Internal controls over servicemembers' temporary duty travel to areas
designated for imminent danger pay or combat zone tax relief benefits need
to be strengthened. It is DOD's policy to minimize the number of visits
and visitors to overseas areas as well as demands on equipment,
facilities, time, installation services, and personnel. 27 In addition,
DOD's temporary duty travel policy and its Foreign Clearance Guide,28
which implements this policy, provide mechanisms for the unified combatant
commands to regulate travel to foreign locations. Before any servicemember
makes an official visit to a foreign country, including areas where
servicemembers qualify for imminent danger pay or combat zone tax relief
benefits, the visit must be reviewed and approved by both the U.S. embassy
in the host country (country clearance) as well as by the sponsoring
unified commander (theater clearance). DOD's Foreign Clearance Guide
permits the unified combatant command to grant theater clearance or to
delegate this authority to component commands, subordinate commands,
special agencies, or units to be visited. The Standards for Internal
Control in the Federal Government29 recommend that agencies establish
internal controls to monitor and review operations and programs to provide
reasonable assurance that these meet their goals. Moreover, we consider
establishing such controls, including policies and oversight mechanisms, a
best practice that can ensure that cross-month travel needs to cross
calendar months, especially to areas designated for imminent danger pay or
combat zone tax relief benefits. With the exception of U.S. Army, Europe,
DOD does not conduct periodic audits of cross-month travel.

Although there is no requirement to do so, the U.S. Central Command and
U.S. Army, Europe-which collectively account for 62 percent of imminent
danger pay areas and 86 percent of areas designated for combat zone tax
relief designation-have developed policies and internal controls to
monitor and regulate cross-month travel to areas for which they provide
theater clearance. According to U.S. Central Command officials, they
instituted this policy to preclude, in their view, the appearance of abuse
of imminent danger pay and combat zone tax relief benefits. Specifically,
the U.S. Central Command-which consists of 29 (approximately 55 percent)
of the areas currently designated for imminent danger pay and 20
(approximately 71 percent) of the areas currently designated for combat
zone tax relief benefits-precludes travel that crosses months to its area
of responsibility. According to U.S. Central Command officials, the
command instituted this policy in 2003 as a result of the high pace of
operations and to preclude, in their view, the abuse of imminent danger
pay and combat zone tax relief benefits. All five sea areas and all but 3
of the 27 countries in the U.S. Central Command's area of responsibility
are designated for imminent danger pay, and 16 of these countries as well
as all sea areas are designated for combat zone tax relief benefits (see
app. I).

27 DOD Directive Number 4500.54, Official Temporary Duty Travel Abroad,
November 21, 2003.

28 DOD 4500.54-G, DOD Foreign Clearance Guide.

29 GAO/00-21.3.1AIMD- .

To enforce its policy, the U.S. Central Command has established an
electronic database with internal controls that automatically alert
officials to any proposed temporary duty travel that crosses calendar
months. Officials in the U.S. Central Command's Travel Clearance Office,
which is responsible for granting theater clearance, review all requests
from servicemembers not assigned to the U.S. Central Command to travel to
countries in the command's area of responsibility. If the proposed travel
dates cross calendar months, the Travel Clearance Office requests that the
traveler changes the dates of the trip or provide justification for why
the trip needs to occur at that time. According to a command official,
appropriate justification may include mission requirements or the limited
availability of flights. However, according to an official, most travelers
choose to change the dates of travel to avoid crossing months.

In 2005, U.S. Army, Europe, which was delegated authority by the U.S.
European Command to approve travel to locations in the former Federal
Republic of Yugoslavia, instituted a policy precluding cross-month
travel-although this was minimal-to Bosnia-Herzegovina; Croatia; Serbia
and Montenegro, including Kosovo; Macedonia; and Slovenia in order to
prevent, in their view, the perceived abuse of combat zone tax relief
benefits. These areas, excluding Slovenia, are designated for imminent
danger pay and combat zone tax relief benefits and constitute
approximately 8 percent of the areas currently designated for imminent
danger pay and approximately 14 percent of the areas currently designated
for combat zone tax relief benefits. In addition, U.S. Army, Europe,
requires that a colonel or general officer approve all cross-month travel,
and its Internal Review and Audit Compliance Office periodically reviews
travel to specific areas to monitor whether cross-month travel occurs.
According to an official in the U.S. Army, Europe, Internal Review and
Audit Compliance Office, cross-month travel accounted for 1.6 percent of
all travel to countries for which U.S. Army, Europe, approves theater
clearance requests. Although no similar policy precludes cross-month
travel to Georgia, a country for which the U.S. Marine Corps Forces,
Europe, has been delegated authority by the U.S. European Command to
approve travel, an official who is responsible for approving travel to
this location told us that since January 2005 the U.S. Marine Corps
Forces, Europe, has monitored travel requests for potential cross-month
travel. Neither U.S. Naval Forces, Europe, nor U.S. Air Forces in Europe
has policies to monitor temporary duty travel that crosses calendar
months. We did not determine the amount of cross-month travel conducted by
servicemembers under these commands.

In contrast, neither U.S. European Command (excluding U.S. Army, Europe),
U.S. Pacific Command, or U.S. Southern Command-which collectively account
for 20 (about 38 percent) imminent danger pay areas and 4 (about 14
percent) combat zone tax relief benefits-have policies that address
temporary duty travel that crosses calendar months.

Although two commands have instituted policies and internal controls to
preclude the perceived abuse of imminent danger pay and combat zone tax
relief by regulating and monitoring cross-month travel, no requirement
exists for DOD to monitor cross-month travel to 38 percent of areas
currently designated for imminent danger pay and 14 percent of areas
currently designated for combat zone tax relief benefits. By establishing
internal controls, such as a departmentwide policy and periodic audits to
monitor cross-month travel, DOD could ensure that all areas are covered
and further strengthen its management of imminent danger pay or combat
zone tax relief benefits.

Analysis of Defense Travel System Vouchers Indicates That Cross-Month Travel
Occurs

Our analysis of data from the Defense Travel System indicates that
cross-month travel does occur during temporary duty travel. We reviewed
28,404 vouchers for temporary duty travel that were processed using the
Defense Travel System for travel that occurred between fiscal years 2003
and 2005. During about 18 percent (5,152) of these trips, a servicemember
traveled to an area that is designated for imminent danger pay or combat
zone tax relief benefits at some point during the trip regardless of
whether the trip crossed months. About 93 percent (1,469) of the 1,576
trips that crossed calendar months were to countries within the Central
Command's and European Command's areas of responsibility.

We found that 1,576 (about 6 percent) of the 28,404 trips processed using
the Defense Travel System from fiscal year 2003 through fiscal year 2005
involved cross-month travel to an area designated for imminent danger pay
or combat zone tax relief benefits, including trips during which
servicemembers were eligible for imminent danger pay or combat zone tax
relief benefits during 1 or 2 months. For instance, servicemembers
traveling in areas designated for imminent danger pay or combat zone tax
relief benefits qualified for 2 full months of imminent danger pay and
combat zone tax relief benefits for 745 (about 3 percent) of the 28,404
trips. Also, during 831 (about 3 percent) of the 28,404 trips, individual
servicemembers traveled to areas designated for imminent danger pay or
combat zone tax relief benefits at some point during a single month,
although their travel crossed calendar months. As a result, these
servicemembers qualified for 1 month of imminent danger pay or combat zone
tax relief benefits. As depicted in table 2, we also found that the 1,576
cross-month trips ranged in duration from 2 days to more than 15 days.

Table 2: Number and Duration of Cross-Month Trips Eligible for 1 or 2
Months of Imminent Danger Pay or Combat Zone Tax Relief Benefits, October
1, 2002, to September 30, 2005

                       2 days or 3 to 4 5 to 6 7 to 14     15 or Total number 
Fiscal year              less   days   days    days more days     of trips 
2003                        0      0      1       0         2            3 
2004                        0      2      7      82        45          136 
2005                        6    115    154     674       488        1,437 
Total number of                                                            
trips                       6    117    162     756       535        1,576

Source: GAO analysis of Defense Travel System data.

Note: The majority of our data reflect travel that occurred during fiscal
year 2005. Defense Travel System data for fiscal years 2003 and 2004 were
minimal because DOD locations were just beginning to transition from using
approximately 43 legacy systems for processing travel vouchers during this
time frame.

The six trips that involved cross-month travel lasting 2 days or less were
to Afghanistan, Haiti, Iraq, and the Philippines for training, meetings,
special missions, and site visits.

Most of these 1,576 cross-month trips were to the U.S. Central Command's
area of responsibility and the majority was longer than 7 days in
duration, as shown in table 3.

Table 3: Duration of Cross-Month Trips Eligible for 1 or 2 Months of
Imminent Danger Pay or Combat Zone Tax Relief Benefits by Combatant
Command, October 1, 2002, to September 30, 2005

                                       Combatant command
                      Central     European     Pacific     Southern     Total
Trip duration      Command      Command     Command      Command     trips
2 days or less                  3           0            1       2       6 
3 to 4 days                   100           9            3       5     117 
5 to 6 days                   117          41            4       0     162 
7 to 14 days                  628          71           37      20     756 
15 or more                    405          95           32       3     535 
days                                                               
Total                       1,253         216           77      30   1,576 

Source: GAO analysis of temporary duty travel vouchers processed using the
Defense Travel System.

The Air Force and the Army account for the majority of cross-month travel.
In addition, we found that officers at the O-3 and O-4 pay grades
accounted for the greatest number of cross-month trips by active duty
officers to areas designated for imminent danger pay and combat zone tax
relief benefits during fiscal years 2003 through 2005. In contrast,
officers at the O-7, O-8, O-9, and O-10 pay grades made the least number
of cross-month trips to areas designated for imminent danger pay or combat
zone tax relief benefits. Enlisted servicemembers at the E-3, E-5, and E-6
pay grades made the majority of cross-month trips by active duty enlisted
servicemembers to areas designated for this special pay or benefit during
fiscal years 2003 through 2005.

In comparison, we found that 23,083 (about 81 percent) of the 28,404 trips
processed using the Defense Travel System from fiscal year 2003 through
fiscal year 2005 involved travel to areas that were not designated for
either imminent danger pay or combat zone tax relief during fiscal years
2003 to 2005.30 Further, we found that 4,414 trips (about 16 percent) of
the 28,404 trips crossed calendar months, but did not include travel to
areas designated for imminent danger pay or combat zone tax relief
benefits. Of these 4,414 trips, 3,058 (about 69 percent) were 7 or more
days in duration and 1,356 (about 31 percent) were less than a week in
duration, as shown in table 4.

30 Between fiscal years 2003 and 2005, individual servicemembers processed
23,253 vouchers for temporary duty travel to areas not designated for
either imminent danger pay or combat zone tax relief benefits using the
Defense Travel System. However, 170 of these trips that involved
cross-month travel were dropped from our analysis due to incomplete data.
As a result, in our analysis we used 23,083 vouchers for temporary duty
travel to areas that were not designated for imminent danger pay or combat
zone tax relief benefits.

Table 4: Duration of Cross-Month Travel to Areas Not Designated for
Imminent Danger Pay or Combat Zone Tax Relief Benefits, October 1, 2002,
to September 30, 2005

                       2 days or 3 to 4 5 to 6 7 to 14     15 or Total number 
Fiscal Year              less   days   days    days more days     of trips 
2003                        0      2      2       5        67           76 
2004                       32     47     88     181       178          526 
2005                      223    426    536   1,479     1,148        3,812 
Total number of                                                            
trips                     255    475    626   1,665     1,393        4,414

Source: GAO analysis of Defense Travel System data.

Note: The majority of our data reflect travel that occurred during fiscal
year 2005. Defense Travel System data for fiscal years 2003 and 2004 were
minimal because DOD locations were just beginning to transition from using
43 legacy systems for processing travel vouchers during this time frame.

However, due to data limitations, we were unable to determine whether this
travel was representative of temporary duty travel departmentwide.

U.S. Navy Ships Make Port Visits to Designated Areas and These Visits May Cross
Calendar Months

Data provided by U.S. Naval Forces, Europe, indicate that some ships make
port visits to areas designated for imminent danger pay or combat zone tax
relief benefits, and that some of these port visits cross calendar months
thus qualifying servicemembers for 2 months of imminent danger pay, and
more significantly, combat zone tax relief benefits. Although ship
commanders determine ship movements within an operating area, U.S. Naval
Forces, Europe, determines the location of port visits based on security
concerns and joint exercises and operations, among other considerations.
The U.S. Naval Forces, Europe, provided data on port visits made by Navy
ships for fiscal years 2003 through 2005 to areas designated for imminent
danger pay or combat zone tax relief benefits within the U.S. European
Command's area of responsibility. According to these data, for which we
did not validate the accuracy, 56 ships made port visits to areas
designated for imminent danger pay or combat zone tax relief benefits
within the U.S. European Command's area of responsibility during this
time. Seven of these ships made port calls to areas designated for
imminent danger pay or combat zone tax relief that crossed calendar months
(see table 5).

Table 5: Port Visits to Areas within the U.S. European Command That Are
Designated for Imminent Danger Pay or Combat Zone Tax Relief Benefits

                                                Number          
                                        Number of port          
                                          of    calls           
                                        ships    that           
                                        making crossed          
                           Designated    port  calendar         
                           for combat   calls   months          
Country/sea   Designated   zone tax     Fiscal   Fiscal Purpose Fiscal Fiscal Fiscal           
area of port  for imminent relief         year     year of port   year   year   year    Fiscal 
visit         danger pay   benefits       2003     2004 visits    2005   2003   2004 year 2005
Croatia       June 22,     November          4        9       8      2      0      2 Quality   
              1992-        1995-present                                              of life   
              present                                                                port      
                                                                                     visit     
                                                                                               
                                                                                     Refueling 
                                                                                               
                                                                                     Training  
                                                                                     exercise  
Israel        January 31,  January 1,        4        5       5      1      1      0 Quality   
              2002-present 2003-July                                                 of life   
                           31, 2003                                                  port      
                                                                                     visit     
                                                                                               
                                                                                     Training  
                                                                                     exercise  
Mediterranean March 19     March 19,         1        1       0      0      0      0 Quality   
Sea (east of  2003-July    2003-July                                                 of life   
30DEG east)   31, 2003     31, 2003                                                  port      
                                                                                     visit     
Turkey        March 1,     September        10        9       0      0      1      0 Quality   
              1998-present 21, 2001-                                                 of life   
                           December 31,                                              port      
                           2005                                                      visit     

Source: U.S. Navy, Europe.

Note: Data provided by the U.S. Naval Forces, Europe, are from fiscal year
2003 through fiscal year 2005. Areas may have been designated for imminent
danger pay or combat zone tax relief benefits prior to the time of our
review, such as was the case with Croatia and Israel. These designations
may still be in effect.

According to U.S. Naval Forces, Europe, the purpose of these port visits
was generally for quality of life reasons or part of training or
exercises.

DOD paid approximately $7.5 million to the 26,849 servicemembers who
qualified for imminent danger pay for 1 month and the 3,284 servicemembers
who qualified for 2 months of imminent danger pay because the port visit
crossed calendar months. We did not determine how much compensation
servicemembers qualified to exclude from federal taxes as a result of
these port visits.

We focused on port visits made by ships and did not obtain individual
ships' logs to determine whether ships crossed into sea areas designated
for imminent danger pay or combat zone tax relief benefits while en route
to other destinations or while performing operations. We also did not
obtain similar data for the U.S. Central Command because most ports and
all sea areas in its area of responsibility are designated for imminent
danger pay or combat zone tax relief benefits. We also did not obtain this
information from the U.S. Southern Command or U.S Pacific Command because
few countries and no sea areas in their areas of responsibility are
designated for imminent danger pay or combat zone tax relief benefits.

 DOD Tracks Imminent Danger Pay and Combat Zone Tax Relief Benefits and Reports
                             Some Data to Congress

DOD tracks the cost of imminent danger pay and servicemembers'
compensation that qualify for combat zone tax relief benefits. While DOD
tracks and reports the cost of imminent danger pay to Congress as part of
its budget request, the department does not report the amount of
servicemembers' compensation that qualifies for combat zone tax relief
benefits. Combat zone tax relief benefits could allow servicemembers to
exclude a significant portion of their compensation from federal taxes.
For example, enlisted personnel and warrant officers may exclude all
military compensation earned during one month. For commissioned officers,
compensation is free of federal income tax up to the maximum amount of
enlisted pay plus any imminent danger or hostile fire pay received. In
2006, the maximum amount of compensation for commissioned officers that is
eligible for combat tax zone relief is $6,499.50 plus $225 imminent danger
pay, or $6,724.50 per month.31 The Defense Finance and Accounting Service
reports servicemembers' compensation that qualifies for combat zone tax
relief benefits to the services' financial management offices. However,
there is no requirement for DOD to report this information to Congress.
The reporting of combat zone tax relief benefit data to Congress could
provide information on the extent of this benefit and aid Congress in its
oversight role.

                                  Conclusions

With concerns about the long-term sustainability of rising costs
associated with military compensation, it is important that DOD
effectively manage its imminent danger pay program to ensure that only
those servicemembers who are subject to the threat of physical harm or
imminent danger on the basis of civil war, civil insurrection, terrorism,
or wartime conditions while on duty in a designated foreign area receive
imminent danger pay. While DOD has significantly increased the number of
areas designated for imminent danger pay over the past 14 years, it has
conducted reviews of these areas only six times between 1992 and 2006, and
the current review is ongoing. In addition, we believe that updating
guidance to reflect the responsibility of the Office of the Under
Secretary of Defense (Personnel and Readiness) for reviewing area
designations and incorporating factors into its guidance to determine what
specifically constitutes imminent danger, would clarify responsibilities
and establish standard criteria for use in meeting the objectives of the
imminent danger pay program.

31 Servicemembers may have other tax deductions and exclusions that reduce
their taxable income.

Clearly, it is important that servicemembers are appropriately compensated
for the duties they perform, particularly when there are risks associated
with those duties. It is also important that DOD ensure the need for
cross-month travel as both the U.S. Central Command and U.S. Army, Europe,
are doing. Although these two commands have instituted policies and
internal controls to preclude the perceived abuse of imminent danger pay
and combat zone tax relief by regulating and monitoring cross-month
travel, no requirement exists for DOD to monitor cross-month travel to 38
percent of areas currently designated for imminent danger pay and 14
percent of areas currently designated for combat zone tax relief benefits.
Managing these programs effectively is important, as the nation's growing
fiscal concerns will require DOD and the federal government to consider
difficult trade-offs in the years ahead. In addition, internal controls to
monitor cross-month travel could ensure all designated areas are covered
and further strengthen DOD's management of imminent danger pay and combat
zone tax relief benefits.

Finally, combat zone tax relief benefits can be substantial. Congress may
benefit from obtaining information on servicemembers' total compensation
that qualifies for combat zone tax relief benefits as a means to assist in
providing oversight of this benefit.

                      Recommendations for Executive Action

To strengthen DOD's internal controls and management of imminent danger
pay and to monitor cross-month travel, we recommend that the Secretary of
Defense direct the Under Secretary of Defense (Personnel and Readiness) to
take the following three actions:

           o  Update DOD's imminent danger pay guidance to (1) reflect the
           office responsible for reviewing and designating imminent danger
           pay areas and (2) incorporate factors that clearly define what
           constitutes the presence of imminent threat or dangers to
           servicemembers on duty in foreign areas.

           o  Request the designated organizations to conduct reviews of
           areas designated for imminent danger pay in accordance with DOD's
           guidance, and, if necessary, update its guidance to reflect the
           appropriate time period for conducting these reviews.

           o  Establish departmentwide policies and internal controls that
           include periodic audits to monitor cross-month travel to ensure
           that the travel needs to cross calendar months.

                     Matter for Congressional Consideration

In light of the substantial tax benefits that servicemembers receive when
performing duty in combat zones, Congress should consider the following
action:

           o  Require DOD to periodically report the amount of
           servicemembers' total compensation that qualifies for combat zone
           tax relief benefits to Congress.

                       Agency Comments and Our Evaluation

In written comments on a draft of this report, DOD generally concurred
with two of our three recommendations, but did not concur with our
recommendation to establish a departmentwide policy and internal controls
to monitor cross-month travel to ensure that the travel needs to cross
calendar months. DOD also provided separate technical comments which we
have incorporated in the report, as appropriate.

DOD concurred with our recommendation to update DOD's imminent danger pay
guidance. DOD acknowledged that there are informal processes and
additional guidance and concurs that its informal policy should be updated
to reflect the office currently responsible for the review and to provide
additional clarification and guidance as to what factors are considered in
determining whether imminent danger pay is warranted.

DOD partially concurred with our recommendation to conduct comprehensive
reviews of imminent danger pay area designations, noting it had conducted
reviews six times since 1992 and expects to complete its ongoing review by
October 31, 2006. DOD stated that the department believes that
comprehensive reviews of imminent danger pay should be conducted at least
biennially. DOD's current imminent danger pay guidance requires at least
annual reviews of areas designated for imminent danger pay. We continue to
believe that DOD should conduct reviews of areas designated for imminent
danger pay in accordance with its guidance, which is reflected in our
recommendation. If DOD believes that the appropriate time period for
conducting these reviews is biennially, as reflected in its comments, then
DOD should update its imminent danger pay guidance accordingly.

DOD did not concur with our recommendation to establish departmentwide
policies and internal controls that include periodic audits to monitor
cross-month travel to ensure that the travel needs to cross calendar
months. DOD stated in written comments that doing so would add unnecessary
bureaucracy and cost to its travel system and believes that our
recommended action is already implemented in existing travel procedures
that require thorough review and management of the necessity and
cost-effectiveness of travel by DOD personnel. Further, DOD commented that
our review found no apparent abuse of cross-month travel and the two
commands that collectively account for the majority of imminent danger pay
and combat zone tax relief benefits have developed theater-specific
policies and controls to monitor and regulate cross-month travel. As
stated in our scope and methodology and the report, data limitations
prevented us from determining the full extent of temporary duty travel to
areas designated for imminent danger pay and combat zone tax relief
benefits, as well as how much of this travel crossed calendar months.
Further, we reviewed only temporary duty travel vouchers processed using
DOD's Defense Travel System. We did not review travel that was processed
in DOD's numerous legacy travel systems, and therefore did not reach any
conclusions as to whether servicemembers have scheduled travel in a
fiscally responsible manner or have attempted to maximize this pay and
benefit by scheduling cross-month travel. We recognize DOD has procedures
in place to review and authorize travel. Our recommendation addresses the
need to have greater monitoring of travel trends. Moreover, although two
commands have instituted policies and internal controls to preclude the
perceived abuse of imminent danger pay and combat zone tax relief by
regulating and monitoring cross-month travel, no requirement exists for
DOD to monitor cross-month travel to the 38 percent of areas currently
designated for imminent danger pay and the 14 percent of areas currently
designated for combat zone tax relief benefits not covered by these two
commands. Also, while we recognize that these commands currently reflect
the majority of areas designated for imminent danger pay and combat zone
tax relief benefits, security conditions are subject to change over time.
Therefore, we continue to believe our recommendation has merit and that
internal controls to monitor cross-month travel departmentwide are needed
to ensure all designated areas are covered and further strengthen DOD's
management of imminent danger pay and combat zone tax relief benefits.

In response to the other written comments provided by DOD, we modified the
report to acknowledge that the global security environment has played a
role in the increased number of areas designated for imminent danger pay
since 1992. In addition, we modified the report to reflect that danger pay
was first authorized on October 1, 1983, by Public Law 98-94, section 905.

We are sending copies of this report to congressional committees, the
Secretary of Defense, the secretaries of the Army, the Navy, the Air
Force; and the Commandant of the Marine Corps. We will also make copies
available to other interested parties upon request. In addition, the
report will be available at no charge on the GAO Web site at
http://www.gao.gov.

If you or your staff have any questions about this report, please call 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. The GAO contact and key contributors are listed in
appendix VI.

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

Appendix I: Areas Currently Designated for Imminent Danger Pay and Combat
Zone Tax Relief Benefits

Table 6 identifies the areas designated for imminent danger pay or combat
zone tax relief benefits as of July 2006.

Table 6: Summary of Areas Designated for Imminent Danger Pay and Combat
Zone Tax Relief Benefits

                                                              Combatant       
                              Designated for  Designated for  command         
                              imminent danger combat zone tax responsible for 
Area                       pay             relief          area            
Adriatic Sea                               X               European        
                                                              Command         
Afghanistan                X               X               Central Command 
Albania                                    X               European        
                                                              Command         
Algeria                    X                               European        
                                                              Command         
Angola                     X                               European        
                                                              Command         
Arabian Sea North of 10    X               X               Central Command 
degrees North latitude and                                 
West of 68 degrees East                                    
longitude                                                  
Azerbaijan                 X                               European        
                                                              Command         
Bahrain                    X               X               Central Command 
Bosnia-Herzegovina         X               X               European        
                                                              Command         
Burundi                    X                               European        
                                                              Command         
Colombia                   X                               Southern        
                                                              Command         
Cote d'Ivoire              X                               European        
                                                              Command         
Croatia                    X               X               European        
                                                              Command         
Democratic Republic of     X                               European        
Congo (formerly Zaire)                                     Command         
Djibouti                   X               X               Central Command 
East Timor                 X                               Pacific Command 
Egypt                      X                               Central Command 
Eritrea                    X                               Central Command 
Ethiopia                   X                               Central Command 
Georgia                    X                               European        
                                                              Command         
Greece (Athens)            X                               European        
                                                              Command         
Gulf of Aden               X               X               Central Command 
Gulf of Oman               X               X               Central Command 
Haiti                      X                               Southern        
                                                              Command         
Indonesia                  X                               Pacific Command 
Ionian Sea north of the                    X               European        
39th parallel                                              Command         
Iran                       X                               Central Command 
Iraq                       X               X               Central Command 
Israel                     X                               European        
                                                              Command         
Jordan                     X               X               Central Command 
Kenya                      X                               Central Command 
Kuwait                     X               X               Central Command 
Kyrgyzstan                 X               X               Central Command 
Lebanon                    X                               Central Command 
Liberia                    X                               European        
                                                              Command         
Macedonia                  X               X               European        
                                                              Command         
Malaysia                   X                               Pacific Command 
Oman                       X               X               Central Command 
Pakistan                   X               X               Central Command 
Persian Gulf               X               X               Central Command 
Philippines                X               X               Pacific Command 
Qatar                      X               X               Central Command 
Red Sea                    X               X               Central Command 
Rwanda                     X                               European        
                                                              Command         
Saudi Arabia               X               X               Central Command 
Serbia and Montenegro,     X               X               European        
including Kosovoa                                          Command         
Sierra Leone               X                               European        
                                                              Command         
Somalia                    X                               Central Command 
Sudan                      X                               Central Command 
Syria                      X               X               Central Command 
Tajikistan                 X               X               Central Command 
Turkey                     X                               European        
                                                              Command         
Uganda                     X                               European        
                                                              Command         
United Arab Emirates       X               X               Central Command 
Uzbekistan                 X               X               Central Command 
Yemen                      X               X               Central Command 

Source: DOD data; GAO presentation.

Note: Although a geographic command, the Northern Command's area of
responsibility-the continental United Stated, Alaska, and the surrounding
waters as well as the Gulf of Mexico, Puerto Rico, and the U.S. Virgin
Islands-are not eligible for imminent danger pay because they are not
foreign areas.

aFor purposes of this chart, Serbia and Montenegro are presented as one
area. However, when calculating the number of areas designated for
imminent danger pay, Serbia and Montenegro are considered separate areas.

Appendix II: Presidentially Designated Combat Zones and Congressionally
Legislated Qualified Hazardous Duty Areas

                                  Combat Zones

A combat zone is any area that the president designates by executive order
as an area in which U.S. Armed Forces are or have engaged in combat after
June 24, 1950. An area ceases to be a combat zone on the dates the
president designates by executive order. Since 1950, U.S. presidents have
designated combat zones in Korea, Vietnam, the Persian Gulf, the Kosovo
area, and Afghanistan. U.S. presidents terminated combat zone designations
for Korea in 1955 and Vietnam in 1996.

Enlisted personnel and warrant officers may exclude from taxes all
military compensation earned during the month that they serve in a combat
zone. For commissioned officers, compensation is free of federal income
tax up to the maximum amount of enlisted pay plus any imminent danger or
hostile fire pay received. In 2006, the maximum amount of compensation for
commissioned officers that is eligible for combat tax zone relief is
$6,499.50 plus $225 imminent danger pay, or $6,724.50 per month.1 Table 7
depicts the current combat zones.

1 Servicemembers may have other tax deductions and exclusions that reduce
their otherwise taxable income.

Table 7: Combat Zones as of July 2006

Combat zones                              Designated by   Date designated  
Afghanistan, including airspace above     Executive Order September 19,    
                                             13239           2001             
The Kosovo area including airspace above: Executive Order March 24, 1999   
Federal Republic of Yugoslavia            13119           
(Serbia/Montenegro) Albania Adriatic Sea                  
Ionian Sea north of the 39th parallel                     
Persian Gulf area, including airspace     Executive Order January 17, 1991 
above:                                    12744           
                                                             
      o  Arabian Sea north of 10 degrees                     
      north latitude and west of 68 degrees                  
      east longitude                                         
      o  Bahrain                                             
      o  Gulf of Aden                                        
      o  Gulf of Oman                                        
      o  Iraq                                                
      o  Kuwait                                              
      o  Oman                                                
      o  Persian Gulf                                        
      o  Qatar                                               
      o  Red Sea                                             
      o  Saudi Arabia                                        
      o  United Arab Emirates                                

Source: Executive Orders 12744, 13119, and 13239.

                         Qualified Hazardous Duty Areas

Servicemembers on duty in qualified hazardous duty areas designated by
Congress are entitled to the same benefits afforded those who serve in a
presidentially designated combat zone if the Secretary of Defense also
designates that qualified hazardous duty area for imminent danger pay.2 If
Congress designates a qualified hazardous duty area, but the Secretary of
Defense has not designated the area for imminent danger pay,
servicemembers deployed to the area are not eligible to receive combat
zone tax relief unless the qualified hazardous duty area becomes eligible
for imminent danger pay. If the Secretary of Defense terminates imminent
danger pay for a qualified hazardous duty area, members no longer receive
combat zone tax relief benefits. Table 8 depicts the current qualified
hazardous duty areas.

2 37 U.S.C. S:310.

Table 8: Qualified Hazardous Duty Areas as of July 2006

Qualified hazardous duty area          Authority         Date designated   
      o  Bosnia-Herzegovina               Public Law        November 21, 1995 
      o  Croatia                          104-117           
      o  Macedonia                                          
      o  Federal Republic of Yugoslavia   Public Law 106-21 March 24, 1999    
      (Serbia/Montenegro)                                   
      o  Albania                                            
      o  Adriatic Sea                                       
      o  Ionian Sea north of the 39th                       
      parallel                                              

Source: Public Laws 104-117 and 106-21.

Appendix III: Military Service Certified as in Direct Support of Combat
Zone Operations

DOD has certified military service as in direct support of military
operations in combat zones, thus qualifying servicemembers for combat zone
tax relief benefits (see table 9). Unlike the other areas identified in
the table, Jordan is the only area where DOD has certified military
service as in direct support of combat zone operations as part of both
Operation Enduring Freedom and Operation Iraqi Freedom.

Table 9: Areas Certified by DOD Where Military Service Is in Direct
Support of Combat Zone Operations as of July 2006

Area              Date of designation Combat zone Military operation       
      o  Pakistan    September 19, 2001  Afghanistan Operation Enduring       
      o  Tajikistan                                  Freedom                  
      o  Jordan                                      
      o  Uzbekistan  October 1, 2001                 
      o  Kyrgyzstan                                  
      o  Philippines January 9, 2002                 
      o  Yemen       April 10, 2002                  
      o  Djibouti    July 1, 2002                    
      o  Jordan      March 19, 2003      Iraq        Operation Iraqi Freedom  
      o  Syria       January 1, 2004                 

Sources: DOD Financial Management Regulation and Internal Revenue Service.

Appendix IV: Scope and Methodology

To evaluate DOD's processes for reviewing imminent danger pay areas and to
understand how servicemembers become eligible for combat zone tax relief,
we analyzed legislation and DOD regulations and guidance. We compared
these to the objectives and fundamental concepts of internal control
defined in Standards for Internal Control in the Federal Government and
Internal Control Management and Evaluation Tool. We also held discussions
with knowledgeable officials from the following offices, geographic
commands, and services:

           o  Commander, Navy Installations, Personnel Support Activity,
           Washington, D.C.
           o  Defense Finance and Accounting Service, Indianapolis, Indiana
           o  Defense Manpower and Data Center, Monterey, California and
           Arlington, Virginia
           o  Defense Travel System Office, Arlington, Virginia
           o  Department of Defense Inspector General, Inspector
           General/Hotline Cases and Senior Officials Investigation Offices,
           Arlington, Virginia
           o  Joint Chiefs of Staff, Personnel and Policy, Arlington,
           Virginia
           o  Office of Management and Budget, Washington, D.C.
           o  Under Secretary of Defense (Personnel and Readiness),
           Arlington, Virginia
           o  United States Air Forces in Europe, Ramstein Air Force Base,
           Germany
           o  United States Army, Europe, Heidelberg, Germany
           o  United States Central Command, MacDill Air Force Base, Tampa,
           Florida
           o  United States Department of State, Office of Allowances,
           Washington, D.C.
           o  United States European Command, Patch Barracks, Stuttgart,
           Germany
           o  United States Marine Corps Forces, Europe, Boeblingen, Germany
           o  United States Naval Forces, Europe, Commander, U.S. Sixth
           Fleet, Naples, Italy
           o  United States Pacific Command, Camp H.M. Smith, Honolulu,
           Hawaii

           United States Southern Command, Miami, Florida

To gain an understanding of DOD's rationale for designating certain areas
and to determine whether DOD followed its policy for designating and
reviewing imminent danger pay areas and areas certified as in direct
support of combat zones, we reviewed 54 imminent danger pay area
questionnaires completed by combatant commanders and used by DOD to
evaluate area designations and the threat of imminent danger. This
nonprobability sample of areas was selected to ensure that each geographic
combatant command was represented. In addition, we sought to include
imminent danger pay areas where designation was limited to either land, or
airspace, or water areas, or the designation was for the entire area
including land, air, or water areas. For purposes of our analysis, we
considered an area to be designated for imminent danger pay if DOD had
designated any portion of the area (land, airspace, or water) for imminent
danger pay. We also reviewed other relevant DOD documents related to DOD's
review of imminent danger pay and combat zone tax relief benefits from
1992 through 2006. We compared these against the standards for oversight
envisioned in Standards for Internal Control in the Federal Government and
the Internal Control Management and Evaluation Tool.

To understand how DOD regulates and monitors temporary duty travel, and
cross-month travel in particular, we reviewed DOD's temporary duty travel
policy and its Foreign Clearance Guide that establishes DOD policy for
military personnel traveling overseas. We also reviewed travel policies
from the U.S Central Command and U.S. Army, Europe. We discussed these
policies with officials responsible for approving travel in accordance
with the Foreign Clearance Guide, and compared these with the standards
for internal control activities contained in the Standards for Internal
Control in the Federal Government. In addition, we interviewed personnel
in the U.S. Pacific Command and U.S. Southern Command who are
knowledgeable about these command's travel policies and requirements.
Because the U.S. European Command does not have a travel clearance office,
we spoke with service officials at the U.S. European Command who are
responsible for authorizing travel to certain locations.

To determine the extent to which servicemembers were making cross-month
trips to areas that would make them eligible to receive imminent danger
pay and combat zone tax relief benefits, we also analyzed 28,404 travel
vouchers obtained from the Defense Travel System for servicemembers
traveling on temporary duty between October 1, 2002, and September 31,
2005. In addition, we obtained data from the U.S. Naval Forces, Europe, on
ship port visits to areas within the U.S. European Command's area of
responsibility that are designated for imminent danger pay or for combat
zone tax relief benefits. We did not obtain similar data for the U.S.
Central Command because most ports and all sea areas in its area of
responsibility are designated for imminent danger pay or combat zone tax
relief benefits. We also did not obtain this information from the U.S.
Southern Command or U.S. Pacific Command because few countries and no sea
areas in their areas of responsibility are designated for imminent danger
pay or combat zone tax relief benefits. Under DOD's Financial Management
Regulations, authorizing officials are responsible for determining the
necessity of trips and funds availability for temporary duty travel.1
Further, DOD guidance states that DOD airlift authorizing officials shall
ensure that an official purpose is served by air travel.2 Therefore, we
did not evaluate whether the purposes of the trips were valid. We analyzed
travel vouchers from the Defense Travel System because it is the only
system that captures temporary duty travel from all four services.

We also reviewed data from the Defense Finance and Accounting Service's
Operational Data System that captures the balance of travel data for the
Army that is not processed using the Defense Travel System. Data from the
Operational Data System frequently were missing information about trip
destinations. As a result, we were unable to use these data to analyze
cross-month travel to areas designated for imminent danger pay or combat
zone tax relief benefits. We also did not review data processed in the 43
legacy systems used by the services to process travel vouchers because of
data reliability concerns.

Due to the large number of countries and sea areas within the U.S. Central
Command's area of responsibility that are designated for imminent danger
pay or combat zone tax relief and because most travel vouchers for
servicemembers assigned to the U.S. Central Command's headquarters during
the time period of our review were not processed using the Defense Travel
System, we sought to obtain travel data directly from several combatant
commands. We tested this approach with the U.S. Central Command. First, we
attempted to obtain data from the U.S. Central Command's finance office
that processes travel vouchers. Due to data limitations and concerns about
the accuracy of data in the automated business service system, a document
processing system used to approve travel orders, we were unable to use
this approach. Second, we sought to use theater clearance requests and
approvals to determine the extent of cross-month travel to the U.S.
Central Command's area of responsibility. However, database limitations
prevented us from using this approach. For instance, if more than one
servicemember was listed on a travel clearance request submitted to the
U.S. Central Command's travel clearance office, only the name of the most
senior official was listed in the database and information on the pay
grades of junior servicemembers would not be available for analysis. In
addition, we could not determine the accuracy of travel dates contained in
the Travel Clearance Office's database because itinerary changes are not
always captured in the database.

1 DODFMR, Vol. 9, Ch. 2, Section 020401(C) (April 2006).

2 DODD 4500.56, Section E.2.1.2 (Apr. 1999).

The scope of this review excluded servicemembers deployed or assigned to
foreign areas. The scope also excluded servicemembers who served as part
of crews on aircraft and, with the exception of data provide by the U.S.
Naval Forces, Europe, ships because aircraft and ship movements are
dictated by operational needs and mission requirements, and generally, do
not have the same degree of flexibility associated with scheduling
temporary duty travel. To assess the reliability of data obtained from the
Defense Travel System, we (1) reviewed existing documentation related to
the data sources, (2) electronically tested the data to identify problems
with completeness or accuracy, and (3) interviewed knowledgeable officials
about the data. We found these data to be sufficiently reliable for the
purposes of this report.

For purposes of our analysis, we defined cross-month travel as any
temporary duty travel of 30 days or fewer that begins during one month and
concludes during the following month. This cross-month travel may
encompass travel to a single location or multiple locations during a
30-day period. During this time, a servicemember may travel to areas
designated for imminent danger pay or combat zone tax relief, areas not
designated for these special pays and benefits, or to both areas
designated and not designated for such benefits.

However, we do not know the portion of overall travel that these trips
represent because some DOD locations were not using the Defense Travel
System to process travel vouchers during the time of our review. As a
result, we cannot extrapolate travel patterns based on the data we
obtained and analyzed from the Defense Travel System. We also requested
and received information on GAO's FraudNet hotline as well as the DOD
Inspector General hotline on inquiries related to servicemembers
scheduling cross-month travel to potentially maximize combat zone tax
relief benefits. GAO's FraudNet did not receive any calls concerning
servicemembers scheduling travel to maximize imminent danger pay or combat
zone tax relief benefits. Two calls received by the DOD Inspector
General's hotline were not substantiated. Additionally, we obtained data
from the Defense Finance and Accounting Service to determine the
compensation excluded from federal taxable wages for servicemembers for
calendar years 2003 through 2005 as a result of performing military
service that the Office of the Under Secretary of Defense (Personnel and
Readiness) certified as in direct support of combat zone operations and
for combat zone tax exclusion overall. We also obtained data from the
Defense Manpower and Data Center to estimate the total dollar amount of
imminent danger pay for service members for fiscal years 2003 through
2005. However, we did not use these data because sufficient information
was not available from the Defense Manpower and Data Center to validate
the accuracy of these data for this report. As stated earlier in this
report, we previously reported on the lack of reliability on DOD's
reported costs related to the Global War on Terrorism, including military
pay.

We conducted our review from October 2005 through July 2006 in accordance
with generally accepted government auditing standards.

Appendix V: Comments from the Department of Defense

Appendix VI: GAO Contact and Staff Acknowledgments

                                  GAO Contact

Sharon L. Pickup, (202) 512-9619 or [email protected]

                                Acknowledgments

In addition to the person named above, Ann Borseth, Assistant Director;
Krislin Bolling; Alissa Czyz; James Driggins; Ron La Due Lake; Katherine
Lenane; Grant Mallie; Oscar Mardis; David Mayfield; Ken Patton; Vanessa
Taylor; and John Van Schaik also made major contributions to this report.

(350758)

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www.gao.gov/cgi-bin/getrpt? GAO-06-1011 .

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and methodology, click on the link above.

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Highlights of GAO-06-1011 , a report to congressional committees

September 2006

MILITARY PERSONNEL

Actions Needed to Strengthen Management of Imminent Danger Pay and Combat
Zone Tax Relief Benefits

Servicemembers who are assigned, deployed, or travel on temporary duty to
certain foreign areas are eligible for special pays and benefits including
(1) imminent danger pay (IDP) when the Department of Defense (DOD)
determines that members are subject to the threat of physical harm or
imminent danger and (2) combat zone tax relief (CZTR) benefits, which
allow members to exclude earned income from federal taxes. If travel to
IDP- or CZTR-designated areas begins during one month and concludes during
another (known as cross-month travel), members could receive 2 full months
of benefits.

GAO conducted this review under the Comptroller General's authority to
initiate such reviews. GAO evaluated DOD's (1) process for reviewing IDP
areas and (2) internal controls over servicemembers' temporary duty travel
to areas designated for IDP and CZTR benefits. GAO is also providing
information on the reporting of IDP and CZTR data. GAO analyzed
legislation, guidance, travel vouchers, and internal control standards and
interviewed appropriate officials.

What GAO Recommends

GAO recommends that DOD strengthen management of IDP and CZTR benefits,
and added a matter for congressional consideration to improve reporting
DOD generally agreed with two recommendations and disagreed with a third
one to monitor cross-month travel.

DOD's processes for reviewing existing IDP areas could be improved. While
combatant commanders have taken the initiative periodically to make
recommendations to designate or terminate IDP areas, DOD has not conducted
annual reviews of existing IDP designations in accordance with its
guidance to ensure that conditions in these areas continue to warrant such
designation. Also, DOD has not updated its guidance to reflect current
responsibilities for initiating annual reviews or to include factors used
to determine when conditions in foreign areas pose the threat of physical
harm or imminent danger to servicemembers on duty in these locations. DOD
conducted 6 annual reviews between 1992 and 2006. When conducting reviews,
DOD has queried combatant commanders using a set of factors to determine
the nature of threats to servicemembers. However, DOD has not incorporated
these factors into its guidance. By conducting annual reviews in
accordance with its guidance, DOD could strengthen its oversight of IDP
designations to ensure that conditions in designated areas continue to
pose the threat of physical harm or imminent danger to servicemembers and
that these areas should continue to be designated.

Internal controls over servicemembers' temporary duty travel to areas
designated for IDP or CZTR benefits need to be strengthened. While two DOD
components have instituted policies to regulate and monitor cross-month
travel to these areas, there is no similar departmentwide policy to ensure
that travel to areas designated for IDP or CZTR benefits needs to cross
calendar months. Data limitations prevented GAO from determining the full
extent of temporary duty travel to areas designated for IDP and CZTR
benefits, as well as how much of this travel crosses calendar months. The
U.S. Central Command and U.S. Army, Europe-which collectively account for
62 percent of IDP areas and 86 percent of CZTR benefit areas-have
developed policies and controls to monitor and regulate cross-month travel
to areas designated for IDP and CZTR benefits to preclude, in their view,
the appearance of abuse of these benefits. By establishing internal
controls such as a departmentwide policy and periodic audits to monitor
cross-month travel, DOD could ensure all areas are covered and further
strengthen its management of IDP and CZTR benefits.

DOD tracks IDP costs and servicemembers' compensation that qualifies for
CZTR benefits. While DOD reports the cost of IDP to Congress as part of
its budget request, the department does not report servicemembers'
compensation that qualifies for CZTR benefits. Combat zone tax relief
benefits could allow servicemembers to exclude a significant portion of
their income from federal taxes. Reporting data on CZTR benefits to
Congress could provide information on the extent of this benefit and aid
Congress in its oversight role.
*** End of document. ***