Global War on Terrorism: Observations on Funding, Costs, and	 
Future Commitments (18-JUL-06, GAO-06-885T).			 
                                                                 
After the terrorist attacks of September 11, 2001, the President 
announced a Global War on Terrorism (GWOT), requiring the	 
collective instruments of the entire federal government to	 
counter the threat of terrorism. Ongoing military and diplomatic 
operations overseas, especially in Iraq and Afghanistan,	 
constitute a key part of GWOT. These operations involve a wide	 
variety of activities such as combating insurgents, civil	 
affairs, capacity building, infrastructure reconstruction, and	 
training military forces of other nations. The U.S. has reported 
substantial costs to date for GWOT related activities and can	 
expect to incur significant costs for an unspecified time in the 
future, requiring decision makers to consider difficult 	 
trade-offs as the nation faces increasing long-range fiscal	 
challenges. GAO has issued several reports on current and future 
financial commitments required to support GWOT military 	 
operations, as well as diplomatic efforts to stabilize and	 
rebuild Iraq. This testimony discusses (1) the funding Congress  
has appropriated to the Department of Defense (DOD) and other	 
U.S. government agencies for GWOT-related military operations and
reconstruction activities since 2001; (2) costs reported for	 
these operations and activities and the reliability of DOD's	 
reported costs, and (3) issues with estimating future U.S.	 
financial commitments associated with continued involvement in	 
GWOT.								 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-885T					        
    ACCNO:   A57086						        
  TITLE:     Global War on Terrorism: Observations on Funding, Costs, 
and Future Commitments						 
     DATE:   07/18/2006 
  SUBJECT:   Budget obligations 				 
	     Cost analysis					 
	     Counterterrorism					 
	     Defense cost control				 
	     Defense procurement				 
	     Financial analysis 				 
	     Future budget projections				 
	     Military appropriations				 
	     Military forces					 
	     Military operations				 
	     Terrorism						 
	     Warfare						 
	     Afghanistan					 
	     Global War on Terrorism				 
	     Iraq						 

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GAO-06-885T

     

     * Summary
     * Background
     * Funding for the Global War on Terrorism
     * The U.S. Has Reported Hundreds of Billions in Costs of Ongoi
          * DOD's Reported Costs for Military Operations
          * DOD's Reported Costs Have Steadily Grown
          * U.S. Government Agencies Have Reported Obligating Most of Th
     * Global War on Terrorism Costs Will Likely Continue for the F
          * Future DOD Costs
               * Extent and Duration of Military Operations
               * Facilities to Support Overseas Troops
               * Equipment Restoration and Replacement
          * Future Nation-Building Costs
          * Future Costs for Veterans
          * Order by Mail or Phone

Testimony

Before the Subcommittee on National Security, Emerging Threats, and
International Relations, Committee on Government Reform, House of
Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 2:00 p.m. EDT

Tuesday, July 18, 2006

GLOBAL WAR ON TERRORISM

Observations on Funding, Costs, and Future Commitments

Statement of David M. Walker Comptroller General of the United States

GAO-06-885T

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss our work to date on the funding,
reported costs,1 and future commitments of the Global War on Terrorism
(GWOT) overseas. I recently testified on the National Strategy for Victory
in Iraq, in which I stated that there are some positive attributes to the
new strategy, including a clear purpose and scope.2 The strategy also
identifies U.S. involvement in Iraq as a "vital national interest and the
central front in the war on terror." However, among its deficiencies is
the absence of current and future cost data for Iraq. After the terrorist
attacks of September 11, 2001, the President announced a Global War on
Terrorism, requiring the collective instruments of the entire federal
government to counter the threat of terrorism. The United States and its
partners are attacking terrorists both at home and abroad, denying
terrorists sanctuary and sponsorship, disrupting the financing of terror,
and building and maintaining a united global front against terrorism.
Ongoing military and diplomatic operations overseas constitute a key part
of GWOT and involve a wide variety of activities such as combating
insurgents, civil affairs, capacity building, reconstruction operations,
and training military forces of other nations. These operations are
currently focused on Iraq and Afghanistan. Clearly, costs to the United
States in financial terms in no way compare to the loss of human life. To
date, over 2,800 military personnel have died as a result of GWOT
operations and many more have been wounded in action.

As I have highlighted in previous testimony, our nation is not only
threatened by external security threats, but also from within by growing
fiscal imbalances due primarily to known demographic trends and rising
health care costs.3 These trends are compounded by the near-term deficits
arising from new discretionary and mandatory spending as well as lower
revenues as a share of the economy. If left unchecked, these fiscal
imbalances will ultimately impede economic growth, have an adverse effect
on our future standard of living, and in due course affect our ability to
address key national and homeland security needs. These factors create the
need to make choices that will only become more difficult and potentially
disruptive the longer they are postponed. The United States' commitment to
GWOT will likely involve the continued investment of significant
resources, requiring decision makers to consider difficult trade-offs as
the nation faces increasing fiscal challenges, including a growing debt
burden and interest costs on such debt, in the years ahead.

1For purposes of this testimony, the term "costs" refers to the
obligations that have been incurred by U.S. agencies in support of GWOT.
Obligations are incurred through actions such as orders placed, contracts
awarded, services received, or similar transactions made during a given
period that will require payments during the same or a future period.

2 GAO, Rebuilding Iraq: More Comprehensive National Strategy Needed to
Help Achieve U.S. Goals and Overcome Challenges, GAO-06-953T (Washington,
D.C.: July 11, 2006).

3GAO, Defense Management: Key Elements Needed to Successfully Transform
DOD Business Operations, GAO-05-629T (Washington, D.C.: Apr. 28, 2005).

My testimony today will focus on the financial commitments required to
support military operations associated with GWOT in Iraq and Afghanistan,
as well as diplomatic efforts to stabilize and rebuild Iraq. Specifically,
I will discuss (1) the funding Congress has appropriated to the Department
of Defense (DOD) and other U.S. government agencies for GWOT-related
military operations and reconstruction and stabilization activities since
2001, (2) costs reportedly incurred for these operations and activities
and the reliability of DOD's reported costs, and, (3) issues with
estimating the future financial commitments associated with the United
States' continued involvement in GWOT.

In preparing this testimony, we have relied on previously issued GAO
reports4 and testimonies on the costs and other aspects of military
operations and reconstruction and stabilization activities, as well as a
large body of ongoing work on GWOT-related topics. We performed our work
in accordance with generally accepted government auditing standards.

                                    Summary

Since the beginning of GWOT in 2001, Congress has appropriated about $430
billion to DOD and other U.S. government agencies for military and
diplomatic efforts in support of GWOT. This funding has been provided
through regular appropriations as well as supplemental appropriations,
which are provided outside of the normal budget process. Since September
2001, DOD has received about $386 billion for GWOT military operations,
including funding for homeland defense through Operation Noble Eagle. This
$386 billion includes "bridge" funding in fiscal years 2005 and 2006 to
continue GWOT operations until supplemental appropriations could be
enacted. In addition, U.S. government agencies, including the Department
of State (State), DOD, and the United States Agency for International
Development (USAID), have received about $44 billion since 2001 to fund
reconstruction and stabilization programs in Iraq ($34.5 billion) and
Afghanistan ($9 billion) with an additional $400 million for the
Commanders' Emergency Response Program in Iraq and Afghanistan. For fiscal
year 2007, DOD has requested another $50 billion in bridge funding for
military operations and other U.S. government agencies have requested $771
million for reconstruction and stabilization activities.

4For example, 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, Rebuilding Iraq:
Governance, Security, Reconstruction, and Financing Challenges,
GAO-06-697T (Washington, D.C.: Apr. 25, 2006).

Since 2001, U.S. government agencies have reported hundreds of billions of
dollars in costs associated with GWOT; however, we have previously
reported on our concerns with DOD's data reliability and cost reporting.5
DOD has reported incremental costs of about $273 billion for overseas
GWOT-related activities through April 2006. This amount includes almost
$215 billion for operations in Iraq and almost $58 billion for operations
in Afghanistan, the Horn of Africa, the Philippines, and elsewhere.6 These
reported costs do not include obligations for intelligence and the Army's
modular force transformation. The difference between the amount
appropriated and DOD's reported costs through April 2006 can generally be
attributed to unreported costs for intelligence and Army modular force
transformation, as well as funding for procurement, military construction,
and research, development, test, and evaluation, which can be obligated
over multiple years, that has not yet been obligated. However, our prior
work has found numerous problems with DOD's processes for recording and
reporting costs for GWOT, including long-standing deficiencies in DOD's
financial management systems and business processes, the use of estimates
instead of actual costs, and the lack of adequate supporting
documentation. For example, we found inadvertent double counting in a
portion of DOD's reported costs amounting to almost $1.8 billion from
November 2004 through April 2005. Furthermore, DOD's reported costs for
GWOT operations overseas have grown steadily in each fiscal year through
fiscal year 2005-from about $105 million in fiscal year 2001, to begin
preparation for operations in Afghanistan, to about $81.5 billion in
fiscal year 2005. With this steady growth, it is important to ensure that
all commands seek to control costs to the extent possible. In addition to
reported costs for military operations, about $23 billion has been
obligated for Iraqi reconstruction and stabilization, as of January 2006.
However, U.S. government agencies, other than DOD, do not formally track
all GWOT costs. This, along with DOD's cost reliability and reporting
problems, make it difficult for the decision makers to reliably know how
much the war is costing, to determine how appropriated funds are being
spent, and to use historical data to predict future trends.

5 GAO-05-882 .

6 In addition to the costs for overseas operations, DOD has also reported
obligations of $27.7 billion through April 2006 for operations in defense
of the homeland U.S., under Operation Noble Eagle.

The United States' commitments to GWOT will likely involve the continued
investment of significant resources, requiring decision makers to consider
difficult trade-offs as the nation faces increasing fiscal challenges in
the years ahead. Predicting future costs will be difficult because they
are dependent on several direct and indirect cost variables; however, they
are likely to be in the hundreds of billions of dollars. Future cost
variables for DOD include the extent and duration of military operations,
the facilities that will be needed to support servicemembers overseas,
force redeployment plans and the costs to repair and replace damaged or
destroyed equipment used during operations. Future cost variables for
other U.S. government agencies include the efforts to help form national
and provincial governments and build management capacity as well as
capable and loyal security forces in both Afghanistan and Iraq. There will
also be further need for funding reconstruction activities to restore,
sustain, and protect critical infrastructure. Another long-term cost
associated with GWOT will be caring for veterans. The Department of
Veterans' Affairs (VA) estimated that more than 100,000 GWOT veterans are
currently using VA facilities, and future healthcare costs will likely
increase as more servicemembers require treatment from injuries and mental
health conditions such as post-traumatic stress disorder. There will also
be future commitments associated with payments to those veterans with
long-term disabilities. With GWOT costs likely continuing for the
foreseeable future, decision makers will have to carefully weigh
priorities and make difficult financial decisions. In assessing
trade-offs, we would encourage DOD to consider moving other GWOT costs
into the baseline budget, as it has done with Operation Noble Eagle. This
is consistent with our prior suggestion that, once an operation reaches a
known level of effort and costs are more predictable, more funding should
be built into the baseline budget.

                                   Background

The United States is engaged in a comprehensive effort to protect and
defend the homeland and defeat terrorism. Using all instruments of
national power, the United States and its partners are attacking
terrorists both at home and abroad, denying terrorists sanctuary and
sponsorship, disrupting the financing of terror, and building and
maintaining a united global front against terrorism. After the terrorist
attacks of September 11, 2001, military operations began with Operation
Noble Eagle, which is aimed at defending the U.S. homeland from terrorist
attacks, and Operation Enduring Freedom, which takes place principally in
and around Afghanistan, but also covers additional operations in the Horn
of Africa, the Philippines, and elsewhere. In 2003, DOD began Operation
Iraqi Freedom, which takes place in and around Iraq. DOD and the military
services are responsible for carrying out these operations. Recently, DOD
reported about 132,000 U.S. military personnel are deployed to Iraq and
about 15,000 are deployed to Afghanistan.

Diplomatic efforts are also underway to rebuild areas in and around Iraq
and Afghanistan, as well as to assist these countries in rebuilding their
governments and creating secure nations. State is responsible for all U.S.
activities in Iraq except security and military operations. Other U.S.
government agencies also play significant roles in this reconstruction
effort, including the USAID and the U.S. Army Corps of Engineers. The
Multi-National Security Transition Command-Iraq, which operates under the
Multi-National Force-Iraq, leads coalition efforts to train, equip, and
organize Iraqi security forces. In Afghanistan, USAID manages the majority
of reconstruction programs and operations. Other U.S. agencies provide
additional assistance, including DOD. Members of the North Atlantic Treaty
Organization also play a key role in training and equipping Afghan forces.

Since 2001, DOD has prepared reports on the costs of its involvement in
GWOT. The costs of military contingency operations are referred to as
"incremental costs," which are costs that are directly attributable to the
operation and would not otherwise have been incurred, were it not for the
operation. Specifically, the costs are above and beyond baseline training,
operations, and personnel costs. Incremental costs include the pay of
mobilized reservists as well as the special pays and allowances for
deployed personnel, such as imminent danger pay and foreign duty pay for
those personnel serving in Operation Iraqi Freedom and Operation Enduring
Freedom; the cost of transporting personnel and materiel to the theater of
operation and supporting them upon arrival; and the operating cost of
equipment, such as vehicles and aircraft, among many other costs. Costs
that are incurred regardless of whether there is a contingency operation,
such as the base pay of active duty military personnel, are not considered
incremental.

DOD tracks the obligations incurred to support GWOT and produces a monthly
cost report, which is distributed throughout the department and used by
senior DOD leadership, along with other information, in discussing the
cost of the war. It is also used in formulating future budget requests to
fund GWOT. The report identifies the monthly and cumulative incremental
GWOT obligations. DOD reports the costs by service, defense agency,
contingency operation, and appropriation. On October 1, 1998, DOD
implemented a standard contingency cost breakdown structure consisting of
55 cost categories to improve contingency cost reporting consistency
between its multiple services and agencies. Examples of cost categories
include facilities/base support and airlift. Furthermore, this cost
breakdown structure was also to facilitate future efforts to understand
and interpret differences between estimated and actual costs. DOD
Financial Management Regulation 7000.14-R, volume 12, chapter 23,
generally establishes financial policy and procedures related to DOD
contingency operations. The regulation incorporates the common cost
categories and multiple subcategories, which were established in 1998 and
updated in September 2005, that are used to report DOD's monthly GWOT
costs.

Obligations are the foundation of all GWOT cost reporting. For example,
operation and maintenance obligations in support of GWOT represent tens of
thousands, if not hundreds of thousands, of individual transactions
ranging in value from one penny to millions of dollars. When obligations
are incurred, the military services enter them into their accounting
systems using accounting codes. Using the Army as an example, an Army
budget activity, such as an installation or unit, initially obligates
funds for acquired goods and services by using the Standard Army
Accounting Classification Code. An obligation entry includes information
on the funding source; the operational mission, such as Operation Iraqi
Freedom; and the category of cost. The cost categories are established by
the services.

                    Funding for the Global War on Terrorism

Since 2001, Congress has appropriated about $430 billion to DOD and other
U.S. government agencies for military operations and reconstruction and
stabilization activities supporting GWOT. Much of the funding has come in
the form of supplemental appropriations. Some funding has also come
through the normal baseline budget appropriated to the departments. For
example, in fiscal years 2005 and 2006, DOD was provided so-called
"bridge" funding-$25 billion and $50 billion, respectively-through its
regular appropriation, which was intended to fund operations from the
beginning of the fiscal year until a supplemental appropriation could be
enacted. Also, funds are appropriated to the various appropriations
accounts for each department and are not specifically designated for
operations in Iraq or Afghanistan. Since September 2001, DOD has received
about $386 billion to fund military operations supporting GWOT. In
addition, about $44 billion has been made available to U.S.
agencies-including DOD, USAID, and State-for reconstruction and
stabilization efforts in Iraq ($34.5 billion) and Afghanistan ($9 billion)
with an additional $400 million for use in Iraq and Afghanistan through
the Commander's Emergency Response Program. These efforts include training
and equipping of security forces and repairing critical infrastructure.
(See table 1.) For fiscal year 2007, DOD has requested another $50 billion
in bridge funding for military operations and other U.S. government
agencies have requested $771 million for reconstruction and stabilization
activities.

Table 1: Total GWOT Military Operations and Reconstruction and
Stabilization Funding for Fiscal Years 2001 through 2006

Budget authority                                                   
in millions                                                        
                     FY 2001 FY 2002 FY 2003 FY 2004  FY 2005 FY 2006   Total 
Military           16,623  17,749  73,546  61,400 100,888b 116,022 386,228 
operationsa                                                        
Reconstruction          -     500   4,800  21,800    9,100   7,730  43,930 
and                                                                
stabilizationc                                                     
Total              16,623  18,249  78,346  83,200  109,988 123,722 430,128 

Source: GAO.

aGAO analysis based on congressional appropriations acts.

bOf this total, $25 billion was available to DOD in FY 2004 for military
operations.

cGAO analysis for Iraq and Congressional Research Service reports for
Afghanistan. Reconstruction and Stabilization funds are for Iraq and
Afghanistan only.

The $386 billion DOD has received to fund military operations supporting
GWOT also includes funding for homeland defense under Operation Noble
Eagle. This operation was funded through supplemental appropriations for
DOD until fiscal year 2005, when it was moved into DOD's baseline budget.
This movement is consistent with our prior suggestion that, once an
operation reaches a known level of effort and costs are more predictable,
more funding should be built into the baseline budget. This $386 billion
also includes funding for DOD's intelligence programs, as well as other
DOD initiatives, such as the Army's efforts to transform its traditional
division-based force into a more rapidly deployable modular force that is
better able to conduct joint and expeditionary operations. Beginning in
fiscal year 2007, the Army's modular transformation will be included in
DOD's regular baseline appropriation. Prior to passage of the most recent
supplemental appropriation, military service officials told us that they
had already spent the $50 billion bridge that was included in the fiscal
year 2006 defense appropriations act and had started to use baseline
appropriations for GWOT activities, as well as undertake cost-cutting
measures until the supplemental was enacted.7 DOD has requested another
$50 billion in bridge funding as part of its fiscal year 2007 budget.

In addition to the funding provided to support military operations,
Congress has appropriated about $44 billion to DOD and other U.S.
government agencies to support important reconstruction and stabilization
activities in Iraq and Afghanistan since 2001. These activities support
GWOT objectives because they help train and equip local security forces,
and help establish the foundations of a sound economy with the capacity to
deliver essential services, such as clean water and reliable electricity.
A growing economy also provides employment opportunities as an alternative
to recruitment efforts made by insurgents. Since 2003, about $34.5
billion8 has been provided to support these types of activities in Iraq
and, since September 2001, about $9 billion to support these activities in
Afghanistan. The recent supplemental appropriation also provided an
additional $400 million for the Commander's Emergency Response Program for
use in Iraq and Afghanistan. This would bring total reconstruction and
stabilization funding to over $44 billion.

Funding for reconstruction and stabilization efforts has supported the
following activities, among others:

           o  Training and equipping of Iraqi security forces. Since fiscal
           year 2003, about $11.7 billion has been made available for U.S.
           security and justice programs in Iraq, including funds to train
           and equip the Iraqi security forces. Over the past several months,
           the Secretaries of State and Defense have cited progress in
           developing Iraqi security forces, and reported that the numbers of
           operational army personnel and trained and equipped police have
           increased from about 142,000 in March 2005 to about 266,000 in
           June 2006. However, as we have previously reported, the number of
           trained and equipped forces does not provide reliable information
           on their capabilities.9 In addition, the administration received
           $3.0 billion in the recent fiscal year 2006 supplemental
           appropriation to continue moving the Iraqi security forces toward
           stand-alone operational capacity.
           o  Restoring Iraq's essential services. Since fiscal year 2003,
           about $10.5 billion has been made available for restoring
           essential services in Iraq, specifically activities in the oil,
           water, health, and electricity sectors. U.S. reconstruction
           efforts have helped increase electricity generation capacity,
           restart crude oil production, and restore some water treatment
           plants. However, key reconstruction goals in the oil, electricity,
           and water sector have yet to be achieved due to security,
           management, and sustainment challenges in U.S.-funded projects.
           The administration received an additional $1.5 billion in the
           recent supplemental appropriation for reconstruction assistance to
           Iraq, including $50 million to USAID's Iraq Community Action
           Program and $50 million for democracy, rule of law, and
           reconciliation programs.
           o  Training and equipping the Afghan national army. The United
           States led the international effort to train and equip the Afghan
           national army, which is crucial to both long-term security and
           U.S. counter-terror efforts. About 26,500 troops have been trained
           and equipped and the defense force is projected to reach up to
           70,000 military and civilian personnel, according to State
           reporting. The administration has received $1.9 billion in the
           fiscal year 2006 supplemental appropriation to further prepare
           Afghan security forces to operate without U.S. support.

7Emergency Supplemental Appropriations Act for Defense, the Global War on
Terror, and Hurricane Recovery, 2006, Pub. L. No. 109-234 (2006).

8The $34.5 billion includes funding for the following activities and
programs: security and justice; restoring essential services such as oil,
electricity, and water; other sectors; and administrative costs.

The U.S. government also funds a variety of other programs that indirectly
support GWOT. For example, Congress provides funding for security
assistance on a worldwide basis to help train or equip foreign security
forces (military and police). In fiscal year 2006, Congress provided an
estimated $4.5 billion for two security assistance programs, the
International Military Education and Training program and Foreign Military
Financing program. In addition, the U.S. government reported costs of $1.2
billion on worldwide public diplomacy programs in fiscal year 2005.

9GAO, Rebuilding Iraq: Preliminary Observations on Challenges in
Transferring Security Responsibilities to Iraqi Military and Police,
GAO-05-431T , (Washington, D.C., Mar. 14, 2005).

  The U.S. Has Reported Hundreds of Billions in Costs of Ongoing Military and
    Reconstruction and Stabilization Operations, but Data Weaknesses Make It
             Difficult to Reliably Know Cost of Military Operations

Since GWOT began in 2001, U.S. government agencies have reported hundreds
of billions of dollars in costs for overseas military and reconstruction
operations; however, as we have previously reported, data reliability and
reporting concerns make it difficult to know DOD's total GWOT costs. Since
2001, DOD has reported costs of about $273 billion on overseas GWOT
military operations through the end of April 2006. The department's
reported costs have grown steadily from a reported about $105 million in
fiscal year 2001, to begin preparations for operations in Afghanistan, to
over $81.5 billion in fiscal year 2005. U.S government agencies have
reported costs of about $23 billion for Iraqi reconstruction and
stabilization. However, U.S. government agencies, other than DOD, do not
formally track all GWOT costs. This, along with DOD's cost reliability and
reporting problems, make it difficult for the decision makers to reliably
know how much the war is costing, to determine how appropriated funds are
being spent, and to use historical data to predict future trends.

DOD's Reported Costs for Military Operations

Since the attacks of September 11, 2001, DOD has reported cumulative
incremental costs of about $273 billion, through the end of April 2006, on
military operations overseas in support of GWOT. This amount includes
almost $215 billion for operations in Iraq and almost $58 billion on
operations in Afghanistan, the Horn of Africa, the Philippines, and
elsewhere. This does not include obligations for intelligence activities
and the Army's modular force transformation. The difference between the
amount appropriated and DOD's reported costs through April 2006 can
generally be attributed to these unreported obligations for intelligence
and Army modular force transformation, as well as funding for procurement,
military construction, and research, development, test, and evaluation,
which can be obligated over multiple years, that has not yet been
obligated. In addition to the costs for overseas operations, DOD has also
reported obligations of $27.7 billion through April 2006 for operations in
defense of the homeland U.S., under Operation Noble Eagle.

To date, the largest reported costs for the overseas GWOT operations have
typically been associated with two of DOD's appropriations
accounts-operation and maintenance and military personnel. Operation and
maintenance expenses cover a number of things, such as operational support
for housing, food, and services; transportation to move people and
supplies and equipment into the theaters; and the repair of equipment.
Military personnel expenses include military pay and allowances for
mobilized reservists, as well as the special payments or allowances, such
as imminent danger pay and the family separation allowance that all
qualifying military personnel receive. While expenses for operation and
maintenance, and military personnel have tended to be among the highest,
DOD has also reported incurring costs for procurement of equipment and
other items.

As we have reported in the past, we have significant concerns about the
overall reliability of DOD's reported cost data. As a result, neither DOD
nor Congress can reliably know how much the war is costing. As we reported
in September 2005, we found numerous problems with DOD's processes for
recording and reporting costs for GWOT.10 Factors affecting the
reliability of DOD's reported costs include long-standing deficiencies in
DOD's financial management systems and business processes, the use of
estimates instead of actual costs, and the lack of supporting
documentation. In at least one case, our work showed that some reported
costs may have been materially overstated. Specifically, reported
obligations for mobilized Army reservists in fiscal year 2004 were based
primarily on estimated rather than actual information and differed from
related payroll information by as much as $2.1 billion, or 30 percent of
the amount DOD reported in its cost report. In addition, we found
inadvertent double counting in a portion of DOD's reported costs amounting
to almost $1.8 billion from November 2004 through April 2005.

In our September 2005 report, we made several recommendations to the
Secretary of Defense to (1) undertake a series of steps to ensure that the
services' reported GWOT costs are accurate and reliable; (2) direct the
Office of the Under Secretary of Defense (Comptroller) to oversee the
services' efforts and to develop a systematic process to review and test
the reliability of the overall GWOT reports; (3) expand the department's
financial management regulation for contingency operations to include
contingencies as large as GWOT; and (4) establish guidelines to control
costs and require the services to keep the Comptroller's office informed
of their efforts in this area.

Since the time of our report, we know that DOD has taken some measures in
response to our recommendations intended to improve the reliability and
accuracy of its cost reports, such as requiring the military services to
identify variances in reported costs from month to month, and determine
the causes. However, our initial review suggests that DOD and the services
have yet to take sufficient action to fully implement these measures and
that certain weaknesses in cost reporting continue to exist. Without
aggressive action on the part of DOD and the services, the reliability of
cost reports will remain in question. Also, there has been an ongoing
issue with the timeliness of DOD's cost reporting. For example, the cost
reports for October through December 2005 were not issued until March
2006. To address this long-standing problem, Congress, in the National
Defense Authorization Act for Fiscal Year 2006, directed that DOD provide
the cost reports to GAO no later than 45 days after the end of the month
being reported.11 DOD has now provided GAO with the March and April cost
reports on schedule.

10 GAO-05-882 .

DOD's Reported Costs Have Steadily Grown

DOD's reported costs for GWOT operations have grown steadily in each
fiscal year through fiscal year 2005-from about $105 million in fiscal
year 2001 to about $81.5 billion in fiscal year 2005. For fiscal year
2006, as of April 2006, DOD has reported obligations of about $49 billion;
about $41.9 billion for Iraq and about $7.5 billion for Afghanistan. These
amounts include about

           o  $22.5 billion in operating support, which pays for
           transportation, fuel, maintenance, housing, food, services, and
           other items;
           o  $5.3 billion for procurement of equipment and other items;
           o  $9.9 billion in military personnel costs, including special
           pays and allowances for deployed military personnel;
           o  $2.9 billion for personnel support, including clothing and
           medical support;
           o  $4.0 billion for transportation, including airlift and sealift;
           o  $2.6 billion in support for the Iraq Security Forces;
           o  $813 million for the Afghanistan Security Forces; and,
           o  $474 million in support of coalition forces.

Costs for the remainder of fiscal year 2006 are expected to be higher than
DOD anticipated, in part because the Army has been unable to follow
through with plans to close a number of forward operating bases and
consolidate troops at some of the larger locations. Also, savings
resulting from a United States and coalition hand-off of operations in
Afghanistan to troops from nations representing the North Atlantic Treaty
Organization is not expected to be realized until after fiscal year 2007.
Furthermore, the rising cost of fuel is likely to push costs even higher
than envisioned at the start of the fiscal year.

11Pub. L. No. 109-163, S:1221(c) (2006).

In examining the historical growth of reported overseas GWOT costs, the
largest increase has been in operations and maintenance expenses. For
example, between fiscal year 2002 and fiscal year 2005, DOD has reported
increases in these expenses from about $7.6 billion to about $48.7
billion. According to DOD, some of this increase is attributable to higher
fuel costs and increased operational support costs for contracts to
provide housing, food, and services for the military locations in Iraq and
Afghanistan. For the same time frames, reported obligations for military
personnel have increased from about $3.4 billion to about $14.9 billion,
and reported procurement obligations have increased from $0 to about $16.5
billion.

With the steady growth in reported GWOT costs, we believe there is a need
to ensure that all commands seek to control costs to the extent possible.
As we reported in September 2005, individual commands have taken steps to
control costs and DOD policy generally advises its officials of their
financial management responsibilities to ensure the prudent use of
contingency funding.12 However, DOD has not established guidelines that
would require commands to take steps to control costs and keep DOD
informed of these steps as we recommended in our prior report. In the
absence of such guidelines and reports, DOD cannot be sure that enough is
being done to control costs.

U.S. Government Agencies Have Reported Obligating Most of Their Reconstruction
and Stabilization Program Funding

U. S. government agencies have reported obligating $23 billion for Iraqi
reconstruction and stabilization, as of January 2006. However, U.S.
government agencies, other than DOD, do not formally track all GWOT costs.
Among other uses, these funds have been used for infrastructure repair of
the electricity, oil, water, and health sectors; training and equipping of
Iraqi security forces (military and police); and administrative expenses.

State reports that the remaining funds will not be used for large
reconstruction projects, but to sustain the projects that have already
been built and to build greater capacity at the national, provincial, and
municipal levels for better and more responsive governments.

12 GAO-05-882 .

 Global War on Terrorism Costs Will Likely Continue for the Foreseeable Future

It appears the United State's military and diplomatic commitments in Iraq
and Afghanistan will continue for the foreseeable future and are likely to
be in the hundreds of billions of dollars. However, costs are difficult to
predict because they depend on several direct and indirect cost variables.
DOD's future costs will likely be affected by the pace and duration of
military operations, the types of facilities needed to support troops
overseas, force redeployment plans, and the amount of damaged or destroyed
equipment that will need to be repaired or replaced. Other future costs to
the U.S. government include nation-building and reconstruction efforts and
treating injured GWOT veterans. These costs will require administration
decision makers and Congress to consider difficult trade-offs as the
nation faces increasing fiscal challenges in the years ahead.

Future DOD Costs

The future costs associated with DOD's commitments to GWOT depend on
several variables, including (1) the extent and duration of operations,
(2) the types of facilities that will be required to support troops
overseas, and (3) the amount of equipment that will need to be restored or
replaced. As DOD has done with Operation Noble Eagle, we would encourage
the department to consider moving other GWOT costs into the baseline
budget. This is consistent with our prior suggestion that, once an
operation reaches a known level of effort and costs are more predictable,
more funding should be built into the baseline budget.13 Doing so will
assist decision makers in determining investment priorities and making
trade-offs among funding needs.

  Extent and Duration of Military Operations

It is uncertain how long DOD will be engaged in a high pace of military
operations associated with GWOT, making it difficult to predict costs
associated with future troop levels and mission requirements. There has
also been some discussion of reducing the number of troops in Iraq and
Afghanistan. However, DOD officials have not announced information about
the level or timing of any troop reduction or redeployment plans. While it
would appear that reducing the number of troops in theater could lower
costs for these operations, we have seen from previous operations in
Bosnia and Kosovo that costs may rise due to the increased use of
contractors to replace the military personnel. Bases still have to be
maintained, even with fewer military members in them. Also, if the pace of
operations remains high because of security concerns or hostilities, costs
for force protection, fuel, and other items could remain high.

13GAO, Bosnia: Costs Are Exceeding DOD's Estimate, GAO/NSIAD-96-024BR
(Washington, D.C.: July 25, 1996).

  Facilities to Support Overseas Troops

The United States does not currently have any basing agreements with Iraq.
DOD has constructed facilities in Iraq and neighboring countries
supporting missions in both Iraq and Afghanistan. Examples of facilities
funded by military construction funds and other appropriations funding
include force protection, airfield and road improvements, fuel handling,
power and water distribution, and support facilities. The Secretary of
Defense recently testified that already some 30 U.S. military bases have
been returned to Iraqi control or closed altogether.14 If the United
States decides to enter into agreements with the new governments in Iraq
and Afghanistan to have an enduring presence in these countries, costs to
make our temporary bases into more permanent facilities could be
significant.

  Equipment Restoration and Replacement

Sustained GWOT operations have and will continue to take a toll on the
condition and readiness of military equipment. The United States faces
short-and long-term costs to maintain and restore equipment in theater, as
well as reequip units as these missions end and the units return to their
home stations. The uncertainties of how long ongoing operations will
continue make it difficult to estimate future costs of maintaining and
replacing this large amount of equipment.

The Army and Marine Corps will have the largest reset costs of the
services. DOD has reported Army equipment usage rates have averaged two to
eight times those of peacetime rates, while senior Marine Corps officials
testified that the ground equipment used by the Corps in ongoing
operations has experienced usage rates four to nine times that of
peacetime rates. We recently testified that the services are currently
funding their reset programs through the use of supplemental
appropriations and plan to rely on supplemental appropriations for reset
funding through at least fiscal year 2007.15 . The uncertainties of pace
and duration of ongoing operations as well as the overall condition of
major equipment items make it difficult to estimate future equipment reset
costs. Equipment used in operations in Iraq will eventually require more
intensive repair and overhaul than what is typically expected in
peacetime. While the services are working to refine overall requirements,
the total requirements and costs are unclear.

14"Senate Armed Services Committee Holds Hearing on Defense
Authorization", a speech presented by Secretary of Defense, Donald
Rumsfeld at the Senate Armed Services Committee, Feb. 7, 2006.

15GAO, Defense Logistics: Preliminary Observations on Equipment Reset
Challenges and Issues for the Army and Marine Corps, GAO-06-604T
(Washington, D.C.: Mar. 30, 2006).

In addition to resetting a large number of major equipment items, the Army
and Marine Corps must also plan to replace active, National Guard, and
Reserve equipment left in theater to support ongoing operations. As we
previously testified, in late 2003 the Army began to direct redeploying
National Guard and Reserve units to leave their equipment in theater for
use by deploying forces.16 DOD policy requires the Army to replace
equipment transferred to it from the Reserve Component including temporary
withdrawals or loans in excess of 90 days,17 yet at the time of our report
in October 2005, the Army had neither created a mechanism in the early
phases of the war to track Guard equipment left in theater nor prepared
replacement plans for this equipment, because the practice of leaving
equipment behind was intended to be a short-term measure. As of June 2006,
only 3 replacement plans have been endorsed by the Secretary of Defense,
all to replace National Guard equipment, while 22 plans are in various
stages of approval. While the exact dollar estimate for these replacements
will not be known until operations in Iraq cease, it will likely cost
billions of dollars.

Future Nation-Building Costs

Future cost variables for other U.S. government agencies include the
efforts to help form national and provincial governments and build
management capacity in both Afghanistan and Iraq and build capable and
loyal Iraqi and Afghani security forces. Also, there will be further need
for funding to restore, sustain, and protect infrastructure. The new Iraqi
government will need significant help in building the procurement,
financial management, and accountability systems needed to govern and
provide basic services to millions of its citizens. In addition, the 18
provincial governments will also require assistance in building management
capacity and delivering results to the Iraqi people that make a difference
in their daily lives. The costs of sustaining an Iraqi force of 266,000
personnel may require the Iraqi government to spend more money on
personnel, maintenance, and equipment than originally anticipated. In
addition, the new Iraqi security forces will have recurring training
needs, and will need additional assistance in replacing lost or stolen
equipment, and in developing improved logistical and sustainment
capabilities.

16GAO, Reserve Forces: Army National Guard's Role, Organization, and
Equipment Need to be Reexamined, GAO-06-170T (Washington, D.C.: Oct. 20,
2005).

17Department of Defense Directive 1225.6, Equipping the Reserve Forces
(Apr. 7, 2005).

While most of the reconstruction money for Iraq has been obligated,
additional funds will be needed to finance remaining reconstruction needs,
and to restore, sustain, and protect the infrastructure that has been
built to date. For example,

           o  Iraqi needs are greater than originally anticipated. In the
           next several years, Iraq will need an estimated $30 billion to
           reach and sustain oil capacity of 5 million barrels per day,
           according to industry experts and U.S. officials. For electricity,
           they will need $20 billion through 2010, according to the
           Department of Energy's Energy Information Administration. Iraqi
           budget constraints and limited government managerial capacity
           limit its ability to contribute to future rebuilding efforts.
           o  There is widespread corruption in Iraq. Reconstruction efforts
           have not taken the risk of corruption into account when assessing
           the costs of achieving U.S. objectives in Iraq. The International
           Monetary Fund, the World Bank, Japan, and the European Union
           officials cite corruption in the oil sector as a special problem.
           In addition, according to State officials and reporting documents,
           about 10 percent of refined fuels are diverted to the black
           market, and about 30 percent of imported fuels are smuggled out of
           Iraq and sold for a profit.
           o  Future international contributions for Iraq may be limited.
           Most of the U.S. funds have been obligated and about 70 percent of
           the $13.6 billion in international pledges are in the form of
           loans.
           o  The new U.S. embassy will be costly. The embassy is projected
           to cost about $592 million, but the full cost of establishing a
           diplomatic presence across Iraq is still unknown.
           o  Additional funds are needed to train and equip Afghan security
           forces. The United States, other donors, and the new Afghan
           government face significant challenges to establishing viable
           Afghan army and police forces.18 Although DOD and State have not
           yet prepared official cost estimates, the army and police programs
           could cost up to $7.2 billion to complete and about $600 million
           annually to sustain. Moreover, slow progress in resolving other
           Afghan security problems-the lack of an effective judiciary, the
           substantial illicit narcotics industry, and the continued presence
           of armed militias-threaten to undermine overall progress made
           toward providing nationwide security and ensuring the stability of
           the Afghan government.

Future Costs for Veterans

Lastly, one of the variables that can influence how much these efforts
will cost the United States is the long-term cost of caring for our
veterans. Both improvements in medical care in the field and in body armor
have increased the survival rate of those who are seriously injured in
combat. However, seriously injured survivors will likely require
substantial long-term medical care from the VA, and may require extensive
inpatient and home and community-based support services to assist those
with traumatic brain injury, spinal cord injury, and other severely
disabling conditions. We also know that many servicemembers have been
exposed to intense and prolonged combat, which research has shown to be
strongly associated with the risk of developing post-traumatic stress
disorder. This disorder can occur after experiencing or witnessing a
life-threatening event and is the most prevalent mental health disorder
resulting from combat. Mental health experts predict that 15 percent or
more of the servicemembers returning from operations in Iraq and
Afghanistan will develop post-traumatic stress disorder.19 In addition to
an influx of more severely injured patients, the VA health care system
will be required to serve large numbers of returning veterans with shorter
term, more routine, health care needs.

18GAO, Afghanistan Security: Efforts to Establish Army and Policy Have
Made Progress, but Future Plans Need to be Better Defined, GAO-05-575
(Washington, D.C.: June 30, 2005). The estimates in this report have not
been updated.

19GAO, Post-Traumatic Stress Disorder: DOD Needs to Identify the Factors
Its Providers Use to Make Mental Health Evaluation Referrals for
Servicemembers, GAO-06-397 (Washington, D.C.: May 11, 2006).

VA has estimated that a little more than 100,000 veterans from operations
in Iraq and Afghanistan are currently using VA health care services. VA
originally underestimated by 77,000 the number of returning veterans who
would use its health care, which in part required the VA to request
additional appropriations in both fiscal years 2005 and 2006. Long-term
estimates of how many returning veterans will use VA health care and the
costs of that care are imprecise for a variety of reasons, including
uncertainty about the duration of operations in the theaters as discussed
above. But, current levels of usage by returning servicemembers indicate a
growing VA health care workload and costs. Furthermore, while we have no
clear idea of the magnitude, there will undoubtedly be long-term financial
commitments associated with payments to veterans with long-term
disabilities.

Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions you and the subcommittee members may have.

(350879)

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Highlights of GAO-06-885T , a testimony to the Chairman, Subcommittee on
National Security, Emerging Threats, and International Relations,
Committee on Government Reform, House of Representatives

July 18, 2006

GLOBAL WAR ON TERRORISM

Observations on Funding, Costs, and Future Commitments

After the terrorist attacks of September 11, 2001, the President announced
a Global War on Terrorism (GWOT), requiring the collective instruments of
the entire federal government to counter the threat of terrorism. Ongoing
military and diplomatic operations overseas, especially in Iraq and
Afghanistan, constitute a key part of GWOT. These operations involve a
wide variety of activities such as combating insurgents, civil affairs,
capacity building, infrastructure reconstruction, and training military
forces of other nations. The U.S. has reported substantial costs to date
for GWOT related activities and can expect to incur significant costs for
an unspecified time in the future, requiring decision makers to consider
difficult trade-offs as the nation faces increasing long-range fiscal
challenges.

GAO has issued several reports on current and future financial commitments
required to support GWOT military operations, as well as diplomatic
efforts to stabilize and rebuild Iraq. This testimony discusses (1) the
funding Congress has appropriated to the Department of Defense (DOD) and
other U.S. government agencies for GWOT-related military operations and
reconstruction activities since 2001; (2) costs reported for these
operations and activities and the reliability of DOD's reported costs, and
(3) issues with estimating future U.S. financial commitments associated
with continued involvement in GWOT.

Since 2001, Congress has appropriated about $430 billion to DOD and other
government agencies for military and diplomatic efforts in support of
GWOT. This funding has been provided through regular appropriations as
well as supplemental appropriations, which are provided outside of the
normal budget process. Since September 2001, DOD has received about $386
billion for GWOT military operations. In addition, agencies including the
Department of State, DOD, and the Agency for International Development
have received since 2001 about $44 billion to fund reconstruction and
stabilization programs in Iraq ($34.5 billion) and Afghanistan ($9
billion) and an additional $400 million to be used in both Iraq and
Afghanistan.

Since 2001, U.S. government agencies have reported significant costs
associated with GWOT, but GAO has concerns with the reliability of DOD's
reported cost data. Through April 2006, DOD has reported about $273
billion in incremental costs for GWOT-related operations overseas-costs
that would not otherwise have been incurred. DOD's reported GWOT costs and
appropriated amounts differ generally because DOD's cost reporting does
not capture some items such as intelligence and Army modular force
transformation. Also, DOD has not yet used funding made available for
multiple years, such as procurement and military construction. GAO's prior
work found numerous problems with DOD's processes for recording and
reporting GWOT costs, including long-standing deficiencies in DOD's
financial management systems and business processes, the use of estimates
instead of actual cost data, and the lack of adequate supporting
documentation. As a result, neither DOD nor the Congress reliably know how
much the war is costing and how appropriated funds are being used or have
historical data useful in considering future funding needs. GAO made
several recommendations to improve the reliability and reporting of GWOT
costs. In addition to reported costs for military operations, U.S.
agencies have obligated about $23 billion of $30 billion received for
Iraqi reconstruction and stabilization, as of January 2006.

U.S commitments to GWOT will likely involve the continued investment of
significant resources, requiring decision makers to consider difficult
trade-offs as the nation faces increasing fiscal challenges in the years
ahead; however, predicting future costs is difficult as they depend on
several direct and indirect cost variables. For DOD, these include the
extent and duration of military operations, force redeployment plans, and
the amount of damaged or destroyed equipment needed to be repaired or
replaced. Future cost variables for other U.S. government agencies include
efforts to help form governments and build capable and loyal security
forces in Afghanistan and Iraq, and meet the healthcare needs of veterans,
including providing future disability payments and medical services.
*** End of document. ***