Global War On Terrorism: Fiscal Year 2006 Obligation Rates Are	 
Within Funding Levels and Significant Multiyear Procurement Funds
Will Likely Remain Available for Use in Fiscal Year 2007	 
(13-NOV-06, GAO-07-76). 					 
                                                                 
Because of broad congressional interest, GAO is examining the	 
costs of military operations in support of the Global War on	 
Terrorism (GWOT) under the Comptroller General's authority to	 
conduct evaluations on his own initiative. In September 2005, GAO
reported the Department of Defense (DOD) cannot ensure reported  
GWOT obligations are complete, reliable, and accurate, and	 
recommended improvements. In this report, GAO (1) compared	 
supplemental and annual appropriations identified for GWOT in	 
fiscal year 2006 to the military services' reported obligations  
as of June 2006 and their cost projections for the remainder of  
the fiscal year, and (2) examined DOD's efforts to improve the	 
reliability of GWOT obligation data. For this engagement, GAO	 
analyzed fiscal year 2006 GWOT related appropriations and	 
reported obligations, and DOD's corrective actions.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-76						        
    ACCNO:   A63245						        
  TITLE:     Global War On Terrorism: Fiscal Year 2006 Obligation     
Rates Are Within Funding Levels and Significant Multiyear	 
Procurement Funds Will Likely Remain Available for Use in Fiscal 
Year 2007							 
     DATE:   11/13/2006 
  SUBJECT:   Appropriated funds 				 
	     Budget obligations 				 
	     Cost analysis					 
	     Cost of war					 
	     Data integrity					 
	     Defense appropriations				 
	     Defense budgets					 
	     Defense cost control				 
	     Defense economic analysis				 
	     Military appropriations				 
	     Military forces					 
	     Military operations				 
	     Reporting requirements				 
	     Terrorism						 
	     Transparency					 
	     Global War on Terrorism				 

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GAO-07-76

   

     * [1]Results in Brief
     * [2]Background
     * [3]Fiscal Year 2006 Rates of Obligations Are Within Funding Lev

          * [4]Fiscal Year 2006 Rates of Obligation for Military Personnel
          * [5]Fiscal Year 2006 Rates of Obligation for Operation and Maint
          * [6]GWOT Appropriations for Procurement in Fiscal Year 2006 Will

     * [7]DOD and the Military Services Have Taken Specific Steps Inte

          * [8]DOD and the Military Services Have Established New Monthly V
          * [9]Cost Reporting Procedures Do Not Provide Visibility and Tran
          * [10]Inaccuracies in Reported GWOT Obligations Continue to Exist

     * [11]Conclusions
     * [12]Matter for Congressional Consideration
     * [13]Agency Comments and Our Evaluation
     * [14]GAO Contact
     * [15]Acknowledgments
     * [16]GAO's Mission
     * [17]Obtaining Copies of GAO Reports and Testimony

          * [18]Order by Mail or Phone

     * [19]To Report Fraud, Waste, and Abuse in Federal Programs
     * [20]Congressional Relations
     * [21]Public Affairs

Report to Congressional Committees

United States Government Accountability Office

GAO

November 2006

GLOBAL WAR ON TERRORISM

Fiscal Year 2006 Obligation Rates Are Within Funding Levels and
Significant Multiyear Procurement Funds Will Likely Remain Available for
Use in Fiscal Year 2007

GAO-07-76

Contents

Letter 1

Results in Brief 4
Background 8
Fiscal Year 2006 Rates of Obligations Are Within Funding Levels and
Significant Multiyear Procurement Funds Will Likely Remain Available for
Use in Fiscal Year 2007 11
DOD and the Military Services Have Taken Specific Steps Intended to
Improve GWOT Cost Reporting Procedures and Data Reliability; Some Problems
Remain 15
Conclusions 23
Matter for Congressional Consideration 24
Agency Comments and Our Evaluation 24
Appendix I Scope and Methodology 29
Appendix II DOD's Process for Reporting GWOT Obligations 33
Appendix III Comments from the Department of Defense 36
Appendix IV GAO Contact and Staff Acknowledgments 39

Tables

Table 1: Fiscal Year 2006 Appropriations Identified for GWOT for the
Military Services 9
Table 2: DOD's Six Largest Obligation Categories from Fiscal Year 2001
through Fiscal Year 2006 (June) 20
Table 3: DOD Supplemental and Cost of War Execution Report for Fiscal Year
2006 35

Figures

Figure 1: Military Services' Fiscal Year 2006 Reported GWOT Military
Personnel Obligations of Appropriations Identified for GWOT through June
2006 12
Figure 2: Military Services' Fiscal Year 2006 Reported GWOT Operation and
Maintenance Obligations of Appropriations Identified for GWOT through June
2006 13
Figure 3: Military Services' Fiscal Year 2006 Reported GWOT Procurement
Obligations of Appropriations Identified for GWOT through June 2006 15

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United States Government Accountability Office

Washington, DC 20548

November 13, 2006

Congressional Committees

Since the September 11, 2001, terrorist attacks, Congress has provided the
Department of Defense (DOD) with about $381 billion, as of June 2006, in
supplemental and annual appropriations for military operations both in the
United States and overseas in support of the Global War on Terrorism
(GWOT).^1 DOD received about $114.4 billion in appropriations for GWOT in
fiscal year 2006, $49 billion of which was received in its annual
appropriation and $65.4 billion of which came through a supplemental
appropriation. The portion of annual appropriations for GWOT, also known
as "Title IX" or "bridge" funding,^2 was provided to pay for ongoing
military operations during the first part of the fiscal year. In June
2006, Congress passed a supplemental appropriation to provide funding for
GWOT operations through the remainder of the fiscal year. Of the $114.4
billion provided in fiscal year 2006, about $93.3 billion was appropriated
to the military services for military personnel, operation and
maintenance, and procurement. The remaining funds provided, about $21.1
billion, were for defensewide agencies; research, development, test, and
evaluation; and military construction. In fiscal year 2006 through June,
DOD reported total obligations of about $63 billion for GWOT, including
about $54 billion for Operation Iraqi Freedom (OIF) and about $9 billion
for Operation Enduring Freedom (OEF).

DOD compiles and reports obligations^3 incurred to support GWOT in a
monthly Supplemental and Cost of War Execution Report. This document is
used by senior DOD leadership, along with other information, in evaluating
the costs of the war and formulating future budget requests to fund GWOT.
The document identifies the monthly and cumulative reported incremental
GWOT obligations. DOD reports these obligations by appropriation,
contingency operation,^4 and military service or defense agency. According
to Volume 12, Chapter 23 of the DOD Financial Management Regulation, the
monthly cost reports are typically compiled in the 45 days after the end
of the reporting month in which the obligations are incurred.^5 DOD has
prepared monthly reports on the obligations incurred for its involvement
in GWOT since fiscal year 2001.

^1 For purposes of this report, GWOT refers to the ongoing military
operations overseas.

^2 Title IX is the section of the annual defense appropriation that
outlines emergency spending provisions for operations in support of GWOT.

^3 According to Department of Defense Financial Management Regulation,
7000.14-R, vol. 1, Definitions, p. xvii (December 2001), obligations are
incurred through actions such as orders placed, contracts awarded,
services received, or similar transactions made by federal agencies during
a given period that will require payments during the same or a future
period.

We have conducted a series of reviews under the Comptroller General's
authority examining the reported obligations and funding for military
operations in support of GWOT. In July 2004, we issued a report stating
that large amounts of DOD's obligations were being reported in
miscellaneous "other" categories, which provided little insight into how
those funds had been spent.^6 In September 2005, we issued a report
identifying numerous reliability issues with DOD's reported GWOT
obligation data, which make it difficult for DOD and Congress to know
reliably how much the war is costing, examine details on how appropriated
funding is being spent, or have historical data useful in considering
future funding needs.^7 Over the years, we have made a series of
recommendations to the Secretary of Defense intended to improve the
transparency and reliability of DOD's GWOT obligation data, including
recommendations that DOD (1) revise the cost reporting guidance so that
large amounts of reported obligations are not shown in "miscellaneous"
categories, and (2) take steps to ensure that reported GWOT obligations
are reliable. In response, the Department has implemented many of our
previous recommendations.

^4 DOD defines contingency operations to include small, medium, and
large-scale campaign-level military operations, including support for
peacekeeping operations, major humanitarian assistance efforts,
noncombatant evacuation operations, and international disaster relief
efforts.

^5 Volume 12, Chapter 23 of DOD's Financial Management Regulation,
7000.14R generally establishes financial policy and procedures related to
DOD contingency operations. Volume 6A, Chapter 2 and Volume 3, Chapter 8
of the DOD Financial Management Regulation also include provisions to
ensure the accuracy of cost reporting.

^6 GAO, Military Operations: Fiscal Year 2004 Costs for the Global War on
Terrorism Will Exceed Supplemental, Requiring DOD to Shift Funds from
Other Uses, [22]GAO-04-915 (Washington, D.C.: July 21, 2004).

^7 GAO, Global War on Terrorism: DOD Needs to Improve the Reliability of
Cost Data and Provide Additional Guidance to Control Costs, [23]GAO-05-882
(Washington, D.C.: Sept. 21, 2005).

To assist Congress in its oversight role and to help it consider future
GWOT funding needs, we prepared this report under the Comptroller
General's authority to conduct evaluations on his own initiative. In it we
assess the outlook of fiscal year 2006 reported GWOT obligations and
funding based on data through June 2006, and determine DOD's progress in
addressing problems we identified regarding the reliability of DOD's
reported GWOT obligation data. We (1) compared supplemental and annual
appropriations identified for GWOT in fiscal year 2006 to the military
services' reported obligations as of June 2006 and their cost projections
for the remainder of the fiscal year, and (2) examined the extent to which
DOD has taken steps to improve its cost reporting procedures and the
reliability of its reported GWOT obligation data.

To compare the military services' reported obligations against available
funding appropriated for GWOT in fiscal year 2006, we analyzed copies of
DOD's monthly Supplemental and Cost of War Execution Report for October
2005 through June 2006 and reviewed applicable supplemental and annual
appropriations and DOD reports on the transfer of funds between various
appropriation accounts. We also interviewed key officials from the Office
of the Under Secretary of Defense (Comptroller)^8 and the Army, Navy,
Marine Corps, and Air Force to determine if their projected GWOT
obligations are within fiscal year 2006 funding levels. As previously
reported, we found the data in DOD's monthly Supplemental and Cost of War
Execution Report to be of questionable reliability. Consequently, we are
unable to ensure that DOD's reported obligations for GWOT are complete,
reliable, and accurate, and they should therefore be considered
approximations. In addition, as recently as November 2005, DOD
acknowledged that systemic weaknesses with its financial management
systems and business operations continue to impair its financial
information. To examine the steps DOD has taken to improve the reliability
of its reported GWOT obligations, we interviewed key officials from the
DOD Comptroller and the Army, Navy, Marine Corps, and Air Force to
determine the extent to which our previous recommendations have been
implemented. We also reviewed any new guidance issued by DOD regarding the
analysis and reporting of obligations for contingencies. In addition, we
performed limited testing of the reported GWOT obligations for military
personnel and discussed with DOD and military service financial managers
their specific processes and procedures used to ensure that reported GWOT
obligation data provided by the subordinate commands are accurate and
reliable.

^8 For purposes of this report, we refer to the Office of the Under
Secretary of Defense (Comptroller) as the DOD Comptroller.

We performed our work from January 2006 through September 2006 in
accordance with generally accepted government auditing standards.

Results in Brief

As of June 2006, which represents 9 months (75 percent) of fiscal year
2006, the military services reported obligating about $51.6 billion (55
percent) of the $93.3 billion they received for GWOT in supplemental and
annual appropriations for military personnel, operation and maintenance,
and procurement. Our analysis of reported obligations and the military
services' forecasts of their likely costs for fiscal year 2006 suggest
that the rates of obligation for military personnel and operation and
maintenance are within fiscal year 2006 GWOT funding levels and
significant amounts of multiyear procurement funds will likely remain
available for use in fiscal year 2007. As of June, the military services
reported obligating about 85 percent of military personnel funds and 60
percent of operation and maintenance funds. Fiscal year 2006 rates of
obligation for military personnel for GWOT are within GWOT funding levels
for all military services except the Army. According to military service
officials, the Army experienced higher than anticipated obligations for
military personnel due primarily to increased recruitment and retention
incentives offered to assist in manning the force during GWOT and
increased death gratuity benefits provided in the National Defense
Authorization Act for fiscal year 2006. The Army expects to be able to
cover these obligations by transferring about $591 million in funds from
other appropriations accounts into the military personnel account under
authority granted by Congress.^9 In addition, the military services' rates
of obligation for operation and maintenance for GWOT are within fiscal
year 2006 GWOT funding levels for all military services. According to
military service officials, operation and maintenance obligations in June
2006 were lower than anticipated due to reduced spending relating to
contracts and certain operations bills. For example, the Army reduced
spending on contracts for selected base closures and restructuring in Iraq
because of the security environment and uncertainty regarding receipt of
supplemental funding. Furthermore, for fiscal year 2006, GWOT-related
procurement funds are expected to remain largely unobligated by the end of
the fiscal year, and will remain available in fiscal year 2007.
Procurement funds appropriated in one fiscal year may remain available in
future fiscal years because they are available for obligation over
multiple years. For fiscal year 2006, the military services received about
32 percent ($6.8 billion) of procurement funding in Title IX as part of
the annual appropriation and 68 percent ($14.7 billion) in the
supplemental appropriation. As of June, the military services have spent
about 68 percent of the procurement funds received through Title IX. Given
the time required to negotiate new procurement contracts, military service
officials stated that they were prevented from obligating much of their
procurement funds received in the supplemental appropriation prior to the
end of the fiscal year and therefore expect reported monthly procurement
obligations to be higher in the last month of fiscal year 2006 and in
early fiscal year 2007. However, given that at the time of this report DOD
had only reported obligations through June 2006, we were unable to
determine how much funding would remain at the end of the fiscal year.
Since it is likely that much of the procurement funding from fiscal year
2006 will remain available in fiscal year 2007, knowledge of what those
available amounts are and how DOD plans to spend them would assist
congressional decision makers in determining DOD's future funding needs.

^9 DOD uses "transfer authority" to shift funds between appropriation
accounts, for example, between military personnel and operation and
maintenance. Transfer authority is granted by Congress to DOD usually
pursuant to specific provisions in authorization or appropriation acts.
The ability to shift funds within a specific appropriation account, like
operation and maintenance, is referred to as "reprogramming." In general,
DOD does not need statutory authority to reprogram funds within an account
as long as the funds to be spent would be used for the same general
purpose of the appropriation and the reprogramming does not violate any
other specific statutory requirements or limitations.

DOD and the military services have taken specific steps intended to
improve the accuracy and reliability of their reported GWOT obligation
data. Some problems remain with transparency over certain costs and
inaccuracies in reported obligations. In response to our previous
recommendation to improve the accuracy and reliability of reported GWOT
obligation data, in August 2005 the DOD Comptroller issued guidance^10 to
the secretaries of the military services and the directors of the defense
agencies to help DOD components^11 more accurately and consistently report
obligations for contingencies such as GWOT. This guidance directed DOD
components to perform a monthly variance analysis to review and validate
that their reported obligations are accurate and provide a fair
representation of ongoing activities, and to include an explanation of
variances that exceed a certain threshold. The DOD Comptroller also issued
guidance directing submitting DOD components to attest to the accuracy of
their monthly obligation data contained in DOD's Supplemental and Cost of
War Execution Report and affirm that the report provides a fair
representation of ongoing activities. Because these efforts are in the
early stages of implementation, we have not fully evaluated their impact.
The Army also made improvements to the accuracy of its imminent danger pay
reporting shortly after the issuance of our September 2005 report and
DOD's guidance regarding the analysis of contingency operations costs. In
addition to these efforts, further improvements are needed in the cost
reporting process. For example, existing cost reporting procedures limit
the visibility over or transparency of certain obligations because DOD
continues to report large amounts of obligations in miscellaneous "other"
categories. For example, in fiscal year 2005, about $12.8 billion (or 26
percent of all obligations) reported in the operation and maintenance
account were in "other supplies and equipment" and "other services and
miscellaneous contracts." This trend has continued in fiscal year 2006.
Little has been done DOD-wide to further refine reporting of these
miscellaneous obligations in DOD's cost-of-war reports, although the Army
has taken some steps at the headquarters level to reduce the amounts
reported in these "other" categories by revising its reporting methodology
to redirect some of the obligations into reporting categories that more
closely describe the obligations. Moreover, while the components have
taken steps to improve their reporting of GWOT obligations, as required by
DOD's financial management regulation, inaccuracies in DOD's reported
obligations continue to exist. For example, we found that DOD's
cost-of-war reports understated total GWOT obligations because they did
not include about $1.1 billion in obligations for fiscal year 2005 tied to
the training and equipping of Afghan and Iraqi security forces. According
to DOD officials, because the funds for these purposes became available
later in the fiscal year, DOD did not have a reporting format in the
cost-of-war reports for these obligations and planned to amend its
September 2005 cost-of-war report at some point to reflect them. Without
transparent and accurate reporting of GWOT obligations, the public,
Congress, and DOD will continue to be unable to reliably know how much the
war is costing, examine details on how appropriated funds are being spent,
or have historical information useful in determining future funding needs.

^10 DOD Comptroller, Memorandum: Analysis of Contingency Operation Costs
(Aug. 30, 2005).

^11 "Components" refers to all military services and DOD agencies.

In a draft of this report, we made two recommendations to DOD to improve
the transparency and accuracy of its cost reporting. DOD agreed with one
recommendation to revise Volume 12, Chapter 23 of the DOD Financial
Management Regulation to provide additional subcategories for "other
supplies and equipment," "other services and miscellaneous contracts," and
"other military personnel" to provide further breakdown of reported
obligations in miscellaneous categories and, in fact, in October 2006,
issued a revision to Chapter 23 to provide such breakdowns. We believe
this meets the intent of our recommendation and removed the recommendation
from the final report. DOD disagreed with the basis of a second
recommendation to amend the September 2005 version of DOD's Supplemental
and Cost of War Execution Report to include the unreported Afghan and
Iraqi security forces fund obligations for fiscal year 2005. In its
comments, DOD stated that this information was provided to Congress in
another report and therefore did not agree with our observation that the
costs were "understated". DOD also stated it had revised its September
2005 cost-of-war report to reflect these obligations. However, since DOD
has already issued and provided us with an amended September 2005
cost-of-war report including the about $1.1 billion in fiscal year 2005
obligations, we believe this fulfills the intent of our recommendation and
removed the recommendation from the final report. DOD's comments and our
evaluation of them can be found at the end of this report. DOD's comments
are reprinted in appendix III.

In addition, since it is likely significant multiyear procurement funding
from fiscal year 2006 will remain available in fiscal year 2007, we have
included a matter for congressional consideration. Congress should
consider requiring DOD to provide information on how much procurement
funding remains available for obligation at the conclusion of the fiscal
year and how the department intends to obligate this funding and any other
procurement funding received or requested for GWOT in fiscal year 2007 and
beyond. DOD also did not agree with our matter for congressional
consideration, stating that it has plans for reconstituting forces
deployed in the war on terror and that it is not reasonable to infer that
these funds are available for other purposes. We do not believe that our
report implies that any previously appropriated procurement funding is
available for other purposes. On the contrary, we stated that significant
multiyear funds will remain available at the end of fiscal year 2006 for
procurement purposes. Given that DOD received more procurement funding
with the enactment of the fiscal year 2007 defense appropriation and
authorization bills and is expected to request more in a fiscal year 2007
supplemental appropriation, we believe it is important that Congress have
a complete picture of all funding DOD has available for procurement
purposes when considering future appropriations requests from DOD and have
retained the matter.

Background

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. Military
operations to combat terrorism began with Operation Noble Eagle, which is
aimed at defending the United States homeland against terrorist attacks,
and Operation Enduring Freedom (OEF), which takes place principally in and
around Afghanistan, but also covers additional operations in the Horn of
Africa, the Philippines, and elsewhere.^12 In 2003, the United States
began Operation Iraqi Freedom (OIF), which takes place principally in
Iraq. These operations involve a wide variety of activities such as
combating insurgents, training the military forces of other nations, and
conducting small-scale reconstruction and humanitarian relief projects.
DOD and the military services are responsible for carrying out these
operations.

To fund these operations in fiscal year 2006, Congress provided DOD with
funding for GWOT as part of its annual appropriations, known as "Title IX"
or "bridge" funding, and through supplemental appropriations. This funding
totaled about $114.4 billion, of which about $93.3 billion went to the
military services' three major appropriations accounts: military
personnel, operation and maintenance, and procurement. The remaining funds
provided, about $21.1 billion, were for defensewide agencies; research,
development, test and evaluation; and military construction. As shown in
table 1, the military services received about $15.9 billion for military
personnel, about $55.9 billion for operation and maintenance, and about
$21.5 billion for procurement.

^12 From fiscal year 2001 through fiscal year 2004, military operations in
defense of the homeland were funded through supplemental appropriations.
Since fiscal year 2005, DOD has funded these operations through its
regular annual budget.

Table 1: Fiscal Year 2006 Appropriations Identified for GWOT for the
Military Services

Dollars in billions                                                 
                              Army  Navy Marine Corps Air Force Totals 
Military personnel                                                  
Title IX                  $ 5.1 $ 0.1        $ 0.5     $ 0.5        
Supplemental                6.8   0.9          0.8       1.2        
Total                      11.9   1.0          1.3       1.7 $ 15.9 
Operation and maintenance                                           
Title IX                   21.6   1.8          1.9       2.5        
Supplemental               18.0   2.8          1.7       5.6        
Total                      39.6   4.6          3.6       8.1   55.9 
Procurement                                                         
Title IX                    4.6   0.3          1.7       0.1        
Supplemental                9.0   1.0          2.6       2.2        
Total                      13.6   1.3          4.3       2.3   21.5 
Grand total                                                    93.3 

Source: GAO analysis of Pub. L. No. 109-148 (2005) and Pub. L. No. 109-234
(2006).

Note: Totals may not compare to those in the report due to rounding.

In addition to the funds appropriated to the military services, since 2003
Congress has also appropriated funds to the Iraqi Freedom Fund (IFF), a
special account providing funds available for 2 fiscal years and that can
be transferred to the military services' appropriations accounts. DOD may
transfer funds from the IFF to other accounts to cover additional expenses
for ongoing military operations in Iraq, operations authorized by the
Authorization for Use of Military Force,^13 and other operations and
related activities in support of GWOT. In fiscal year 2006 through June,
DOD had transferred about $3.7 billion of the funds originally
appropriated to the IFF into the military services' appropriations
accounts, most of which were to cover the expenses for classified programs
and to defeat improvised explosive devices.

For fiscal year 2006 through June, DOD has reported total obligations of
about $63 billion for GWOT, including about $54 billion for OIF and about
$9 billion for OEF. DOD began the fiscal year operating under a continuing
resolution^14 and legislation providing the $49 billion bridge funding was
not passed until December 2005, causing the services to curtail spending
early in the fiscal year. Additionally, military service officials stated
they had anticipated receiving supplemental appropriations in May, but
since this funding was not appropriated until June, the military services
took steps to reduce costs until supplemental funds were received,
including postponing payment of bills and delaying certain maintenance
activities. Appendix II contains an explanation of DOD's process for
reporting obligations.

^13 Pub. L. No. 107-40 (Sept. 18, 2001).

Between September 2001 and June 2006, Congress provided DOD with about
$381 billion in supplemental and annual appropriations for military
operations in support of GWOT. DOD reported total obligations^15 of about
$287 billion for overseas GWOT-related activities from September 2001
through June 2006, including about $227 billion for operations in Iraq and
about $60 billion for operations in Afghanistan, the Horn of Africa, the
Philippines, and elsewhere. In addition to overseas obligations, DOD
reported about $27.7 billion in obligations related to defense of the U.S.
homeland from 2001 through June 2006.

^14 A continuing resolution is a joint resolution enacted by Congress,
providing budget authority for federal agencies and programs to continue
in operation until the regular appropriations acts are enacted.

^15 DOD's reported obligations do not include obligations for classified
activities, which are not captured in DOD's monthly Supplemental and Cost
of War Execution Report. However, on the basis of conference reports for
various supplemental appropriations acts, the Congressional Budget Office
estimates those costs are at least $25 billion.

Fiscal Year 2006 Rates of Obligations Are Within Funding Levels and Significant
Multiyear Procurement Funds Will Likely Remain Available for Use in Fiscal Year
2007

Our analysis of reported obligations and the military services' forecasts
of their likely costs for fiscal year 2006 suggest that the rates of
obligation for military personnel and operation and maintenance are within
fiscal year 2006 GWOT funding levels and significant amounts of multiyear
procurement funds will likely remain available for use in fiscal year
2007. As of June, the military services reported obligating about 85
percent of military personnel funds and 60 percent of operation and
maintenance funds. Fiscal year 2006 rates of obligation for military
personnel for GWOT are within GWOT funding levels for all military
services except the Army, due primarily to increased recruitment and
retention incentives offered by the Army to assist in manning the force
during GWOT and increased death gratuity benefits provided in the National
Defense Authorization Act for fiscal year 2006. The military services'
rates of obligation for operation and maintenance for GWOT are within
fiscal year 2006 GWOT funding levels for all military services, although
they curtailed spending in multiple categories due to uncertainty relating
to receipt of supplemental funding. For fiscal year 2006, the GWOT
procurement funds appropriated to the military services are largely
expected to remain unobligated and will remain available in fiscal year
2007. Procurement funds may remain available in future fiscal years
because they are available for obligation over multiple years.

Fiscal Year 2006 Rates of Obligation for Military Personnel for GWOT Are Within
GWOT Funding Levels for All Military Services Except the Army

Fiscal year 2006 rates of obligation for military personnel for GWOT are
within GWOT funding levels for all military services except the Army. The
Army experienced higher than anticipated obligations for military
personnel due primarily to increased recruitment and retention incentives
offered to assist in manning the force during GWOT and increased death
gratuity benefits provided in the National Defense Authorization Act for
fiscal year 2006. To avoid a problem in the last quarter of the fiscal
year, the Army included a transfer action in the so-called fiscal year
2006 omnibus reprogramming request DOD submitted to Congress. This action
transfers about $591 million in funds from various appropriation accounts
to the Army's military personnel account and fund the Army's remaining
military personnel needs for fiscal year 2006. As figure 1 shows, after 9
months, or 75 percent of the fiscal year, the Army reported obligations of
91 percent, the Navy 63 percent, the Marine Corps 72 percent, and Air
Force 68 percent of available GWOT appropriations.

Figure 1: Military Services' Fiscal Year 2006 Reported GWOT Military
Personnel Obligations of Appropriations Identified for GWOT through June
2006

Notes: June 2006 represents 75 percent of the fiscal year and is an
indication of where DOD would be if it had obligated its available funding
equally each month throughout the fiscal year. Reported obligations
include those from both the active and reserve components. We have
previously assessed the reliability of DOD's obligations data and found
that while the data we report reflect the data used by DOD to advise
Congress on the cost of the war, they may not accurately reflect the true
dollar value of GWOT obligations.

Fiscal Year 2006 Rates of Obligation for Operation and Maintenance for GWOT Are
Within Fiscal Year 2006 GWOT Funding Levels for All Military Services

The military services' rates of obligation for operation and maintenance
for GWOT are within fiscal year 2006 GWOT funding levels for all military
services. As shown in figure 2, after 9 months, or 75 percent of the
fiscal year, the Army reported obligations of 61 percent, the Navy 49
percent, the Marine Corps 58 percent, and the Air Force 62 percent of
available GWOT appropriations. The military services' reported GWOT
operation and maintenance obligations are less than anticipated because
they curtailed spending at the beginning of the year due to uncertainty
relating to the receipt of supplemental funding. For example, sustainment
contracts in Iraq, Afghanistan, and Kuwait were scaled back due to the
unpredictability of fiscal year 2006 funding. In addition, Army officials
stated that contracts for selected base closures and restructuring in Iraq
have been scaled back due to the security environment. As previously
stated, the Navy is reporting lower than anticipated obligations for
operation and maintenance because many Navy components took steps to
reduce spending early in the fiscal year. For example, Navy officials
stated that they withheld payment of certain operations bills, such as
transportation, and deferred obligations for depot maintenance to stay
within available funding as the military services awaited receipt of
supplemental funding.

Figure 2: Military Services' Fiscal Year 2006 Reported GWOT Operation and
Maintenance Obligations of Appropriations Identified for GWOT through June
2006

Notes: June 2006 represents 75 percent of the fiscal year and is an
indication of where DOD would be if it had obligated its available funding
equally each month throughout the fiscal year. Reported obligations
include those from both the active and reserve components. We have
previously assessed the reliability of DOD's obligations data and found
that while the data we report reflect the data used by DOD to advise
Congress on the cost of the war, they may not accurately reflect the true
dollar value of GWOT obligations.

GWOT Appropriations for Procurement in Fiscal Year 2006 Will Largely Remain
Unobligated and Remain Available for Future Fiscal Years

For fiscal year 2006, the GWOT procurement funds appropriated to the
military services are largely expected to remain unobligated and will
remain available in future fiscal years. Procurement funds can remain
available for future fiscal years because they generally are available for
obligation over multiple years. For fiscal year 2006, the military
services received about 32 percent ($6.8 billion) of procurement funding
in Title IX as part of the annual appropriation and 68 percent ($14.7
billion) in the supplemental appropriation. As of June the military
services have spent about 68 percent of the procurement funds received
through Title IX.

We project that DOD's procurement obligations will remain low in fiscal
year 2006 for two reasons. First, the majority of the fiscal year 2006
procurement appropriations were provided in the GWOT supplemental
appropriation, which the military services did not receive until June
2006. Second, officials stated that supplemental funds had been expected
in May 2006 but were not received until June 2006 and the time required to
negotiate new procurement contracts may prevent the military services from
obligating much of their procurement funds prior to the end of fiscal year
2006. As a result, significant procurement funds will remain available in
fiscal year 2007. Figure 3 shows, the percentage of the total available
GWOT procurement appropriations obligated through June 2006. According to
military service officials, they expect higher procurement obligations
late in fiscal year 2006 and into early fiscal year 2007. At the time of
this report, DOD had only reported obligations through June 2006;
therefore, we were unable to determine how much funding would remain at
the end of the fiscal year. DOD received more procurement funding with the
enactment of the fiscal year 2007 defense appropriation bill. Since it is
likely that much of the procurement funding from fiscal year 2006 will
remain available in fiscal year 2007, knowledge of what those available
amounts are and how DOD plans to spend them would assist congressional
decision makers in determining DOD's future funding needs.

Figure 3: Military Services' Fiscal Year 2006 Reported GWOT Procurement
Obligations of Appropriations Identified for GWOT through June 2006

Notes: Reported obligations include those from both the active and reserve
components. We have previously assessed the reliability of DOD's
obligations data and found that while the data we report reflect the data
used by DOD to advise Congress on the cost of the war, they may not
accurately reflect the true dollar value of GWOT obligations.

DOD and the Military Services Have Taken Specific Steps Intended to Improve GWOT
Cost Reporting Procedures and Data Reliability; Some Problems Remain

DOD and the military services have taken specific steps intended to
improve the accuracy and reliability of their reported GWOT obligation
data. Some problems remain with transparency over certain costs and
inaccuracies in reported obligations. The DOD Comptroller has established
new monthly variance reporting and affirmation requirements, and the
military services have improved the accuracy of some of their reported
obligations. In addition to these efforts, further improvements are needed
in the cost reporting process. For example, existing cost reporting
procedures do not provide transparency and visibility over certain GWOT
obligations because DOD and the military services continue to report large
obligations in miscellaneous "other" categories that provide little
insight on how those funds have been spent. We also continue to find
inaccuracies in the overall reported GWOT obligations due to unreported
obligations related to the training and equipping of Afghan and Iraqi
security forces. Until DOD takes steps to address these problems, it will
continue to be difficult for Congress and DOD to reliably know how much
the war is costing, examine details on how appropriated funds are being
spent, or have historical information useful to determine future funding
needs.

DOD and the Military Services Have Established New Monthly Variance Reporting
and Affirmation Requirements, and Have Improved the Accuracy of Some Reported
Obligation Data

The DOD Comptroller has established new monthly variance reporting and
affirmation requirements intended to improve GWOT cost reporting
procedures, and the military services have improved the accuracy of some
reported obligations. Specifically, in response to our previous
recommendation to improve the accuracy and reliability of reported GWOT
obligation data, the DOD Comptroller, in August 2005, issued guidance^16
to the secretaries of the military services and the directors of the
defense agencies to help DOD components more accurately and consistently
report obligations for contingencies such as GWOT. This guidance directed
DOD components to perform a monthly variance analysis to review and
validate that their reported obligations are accurate and provide a fair
representation of ongoing activities, and to include an explanation of
variances that exceed a certain threshold.^17 Thresholds triggering the
variance analysis review differ by cost category.

DOD components were directed to use, to the fullest extent possible,
actual obligation data as captured in the official accounting systems.
When obligation data were not available in the accounting system, then an
auditable alternative methodology was to be established providing
explanation of all sources used to capture the data other than official
accounting systems. For example, when using alternate data sources, DOD's
variance analysis guidance requires each DOD component to provide detail
on the type or description of the cost, the cost category impacted, an
explanation of why data are not available from the accounting system, a
description of the criteria or methodology used to calculate costs, and
the mechanism used to track these costs. Each of the military services
directed its major and subordinate commands to complete the monthly
variance analysis, and submit the analysis to the command level, where
financial management officials are expected to review obligations data for
discrepancies. In early fiscal year 2006, DOD set up a task force under
the leadership of the DOD Comptroller to develop and refine DOD's efforts
to improve the reliability of its reported obligations, including the
variance analyses. This task force includes representatives from each of
the military services' financial management and comptroller offices, as
well as representatives from Defense Finance and Accounting Service.

^16 DOD Comptroller, Memorandum: Analysis of Contingency Operation Costs
(Aug. 30, 2005).

^17 The DOD components submit their monthly variance reports to the
Defense Finance and Accounting Service along with their reported
obligation data.

DOD began including the variance analyses with the November 2005 DOD
Supplemental and Cost of War Execution Report. In reviewing the variance
analysis submissions since then, we have noted improvements in both the
variance analysis submissions as well as the explanations provided on the
use of alternate data sources. Military service officials stated that the
variance analysis highlighted several problems and allowed them to correct
the mistakes before submitting their reports to the DOD Comptroller for
inclusion in the monthly DOD Supplemental and Cost of War Execution
Report. In June 2006, DOD issued revised guidance^18 for analyzing
obligations for contingency operations based on the experiences of the DOD
components with the variance analysis over the last several months.

Because efforts to implement the variance analysis are still in the early
stages, we have not fully evaluated the impact of this new initiative on
cost reporting. However, in reviewing the June 2006 variance submission,
we identified two examples of where additional explanation could be
provided. For example, in reviewing the Air Force's June 2006 variance
report for military personnel obligations--which includes imminent danger
pay, hardship duty pay, and family separation pay--we found that the Air
Force had used an alternative data source, but provided limited
explanation as to the criteria and methodology it used to track these
obligations. Our past work has shown significant problems with DOD's
reported obligations data, in particular its military personnel
obligations, including imminent danger pay. Upon discussion with Air Force
officials, they recognized that their explanation could be expanded to
provide further clarification. We also found problems with the
explanations provided for variances in the Marine Corps' June 2006
operation and maintenance obligations for GWOT. For example, the Marine
Corps reported that its obligations for transportation in support of OEF
had decreased by 81 percent, due to the refinement of transportation
obligations in previous months. However, no further explanation is
provided as to what types of refinements were made and how these
refinements resulted in reductions in obligations. Similarly, the Marine
Corps Reserve reported that its obligations for personnel support for OIF
had changed by 900 percent due to a realignment of expenses. However, no
explanation is provided as to where the obligations were realigned and why
the realignment was made. Marine Corps officials subsequently stated that
the variance explanation for transportation was not fully addressed due to
an administrative oversight and the variance explanation for personnel
support was not provided because, in their view, the small obligations
reported, totaling $1000, which is associated with the variance, did not
warrant explanation. Because the variance analysis process is relatively
new, we are not making recommendations at this time, but will continue to
monitor this process in the future.

^18 DOD Comptroller Memorandum: Revised Instructions for Analysis of
Contingency Operation Costs (June 13, 2006).

Furthermore, to help ensure that the obligations for contingency
operations being reported were as accurate as possible, DOD developed an
affirmation process. In March 2006, the DOD Comptroller issued initial
guidance^19 directing submitting DOD components to attest to the accuracy
of their monthly obligation data contained in DOD's Supplemental and Cost
of War Execution Report and affirm that the report provides a fair
representation of ongoing activities. The affirmation was to accompany the
monthly GWOT cost report and would be provided to the Defense Finance and
Accounting Service by the comptroller or financial manager of the
associated DOD component. However, shortly thereafter, the DOD Comptroller
instructed the military services to delay submission of their affirmation
memos until revised guidance could be issued. Revised guidance was issued
in late June 2006, to allow for further delegation of the affirmation
authority. All other requirements for the affirmation were unchanged.
Specifically, DOD's guidance now requires that each military service's
Assistant Secretary for Financial Management & Comptroller, the Deputy, or
the Director for Budget provide the affirmation. However, we note that it
does not contain criteria or factors that could be considered during the
review process. In discussions with military service officials, some
military services are relying on the judgment of their major and
subordinate commands that the costs are indeed accurate as a basis for
their affirmation, while others have instituted additional management
reviews of the reported costs. Because this affirmation process is new, we
are making no recommendations regarding the process at this time, but will
continue to monitor this process in the future.

^19 DOD Comptroller Memorandum: Accuracy of Contingency Operation and
Disaster Relief Cost Reports (Mar. 3, 2006).

Finally, we found that the Army made improvements to the accuracy of its
imminent danger pay reporting shortly after the issuance of our September
2005 report and DOD's guidance regarding the analysis of contingency
operations costs. As part of our work last year, we conducted limited
testing of military personnel obligations data and reported wide monthly
swings in imminent danger pay with little correlation to the numbers of
deployed personnel.^20 Reported imminent danger pay obligations for GWOT
should correlate to the approximate number of deployed forces in eligible
areas.^21 In our September 2005 report we noted a reporting discrepancy
for DOD's reported imminent danger pay in fiscal year 2004. The reported
obligations suggested that more than 1 million personnel were deployed in
support of OIF and OEF, while according to DOD only about 221,300
personnel from all the military services were deployed. DOD was able to
identify the accounting error and provide a revised obligations figure.
Our analysis of reported Army imminent danger pay for fiscal year 2006
through May 2006 shows that the accuracy of these data improved, with
reduced monthly swings and closer correlation to the actual number of
deployed personnel.

Cost Reporting Procedures Do Not Provide Visibility and Transparency over
Certain Obligations

Existing cost reporting procedures do not provide visibility and
transparency over certain obligations because DOD continues to obligate
large amounts of funds in miscellaneous "other" categories that provide
little insight on how those funds have been spent. For example, in fiscal
year 2005, close to 26 percent of obligations reported in the operation
and maintenance account were in "other supplies and equipment" and "other
services and miscellaneous contracts."^22 This trend has continued in
fiscal year 2006. As shown in table 2, from fiscal year 2001 through June
of fiscal year 2006, DOD has reported operation and maintenance
obligations in the cost reports of $26.5 billion for "other services and
miscellaneous contracts" and obligations of $23.9 billion for "other
supplies and equipment." During this time frame, DOD has reported military
personnel obligations of about $15.7 billion for "other military
personnel."

^20 [24]GAO-05-882 .

^21 As of October 1, 2002, all military personnel--both Active and Reserve
Component--in areas designated as eligible for imminent danger pay receive
$225 per month. Such areas include, but are not limited to, the countries
of Iraq, Afghanistan, Kuwait, Qatar, Bahrain, and Saudi Arabia. The
monthly amount is payable in full without being prorated or reduced, for
each month, during any part of which a service member qualifies and
regardless of the actual period of time served on active or inactive duty
during that month.

^22 The percentage of reported obligations in this category includes
obligations for Operation Noble Eagle, Operation Enduring Freedom, and
Operation Iraqi Freedom.

Table 2: DOD's Six Largest Obligation Categories from Fiscal Year 2001
through Fiscal Year 2006 (June)

Dollars in thousands                                                       
                                                  FY 2006 as of Total FY 2001 
Category                               FY 2005          June  to June 2006 
Reserve components called to active $8,398,240    $6,033,225   $37,809,078 
duty                                                                       
Operation OPTEMPO (fuel, petroleum,  8,344,809     7,964,114    34,024,022 
oils, lubricants, and spare parts)                                         
Facilities/base support              9,118,936     5,982,880    28,885,801 
Other services/miscellaneous         6,609,012     2,979,547    26,584,689 
contracts                                                                  
Other supplies & equipment           6,250,765     3,901,483    23,982,627 
Other military personnel             2,541,957     3,792,359    15,775,832 

Source: GAO's analysis of DOD's reported GWOT data.

Note: The reported obligations in this chart include obligations for
Operation Noble Eagle, Operation Enduring Freedom, and Operation Iraqi
Freedom.

We have previously stated our concerns that while the miscellaneous
"other" categories defined in DOD's Financial Management Regulation
provide a uniform framework for capturing obligations, they do not provide
the specificity or transparency needed for Congress and others to
understand clearly how funds appropriated for contingency operations are
being used, particularly since these categories involve billions of
dollars in reported obligations. We have reported for several years, and
as recently as July 2004, that large amounts of reported obligations for
GWOT are in miscellaneous "other" categories in both the operation and
maintenance and the military personnel accounts.^23 For example, in our
report on fiscal year 2003 funding^24 we pointed out that almost 35
percent of obligations reported in the operation and maintenance account
were in "other supplies and equipment" and "other services and
miscellaneous contracts." We previously recommended that DOD revise its
cost reporting guidance so that the use of miscellaneous "other"
categories is minimized when reporting obligations.

^23 GAO, Military Operations: Fiscal Year 2004 Costs for the Global War on
Terrorism Will Exceed Supplemental, Requiring DOD to Shift Funds from
Other Uses, [25]GAO-04-915 (Washington, D.C.: July 21, 2004).

^24 GAO, Military Operations: Fiscal Year 2003 Funding and Reported
Obligations in Support of the Global War on Terrorism, [26]GAO-04-668
(Washington, D.C.: May 13, 2004).

In response to our recommendations, in January 2005, DOD expanded the cost
categories for contingency operations in the DOD Financial Management
Regulation to include an additional category for military personnel
obligations related to active component end strength. These obligations
had previously been recorded in the "other military personnel" category.
However, DOD did not refine reporting of the other miscellaneous
obligations in DOD's cost-of-war reports. On its own initiative, the Army
has taken some steps to provide better transparency over the operation and
maintenance obligations previously reported in the "other services and
miscellaneous contracts" category. Specifically, it has revised its
reporting methodology to redirect some of its contracting obligations into
other reporting categories more directly tied to the contracted activity.
For example, the Army is now reporting obligations for information
technology contracts tied to DOD's Projects and Contracting Office^25
under the command, control, communications, computers, and intelligence
cost category. It has also begun reporting contract obligations associated
with the special technical inspection and repair process at the Army's
Aviation and Missile Command under the reporting category for intermediate
level maintenance. However, the Navy, Marine Corps, and Air Force have yet
to take similar steps. On the basis of our work, in October 2006 DOD
updated its guidance on the reporting of obligations in miscellaneous
"other" categories to more fully reflect these obligations.

Inaccuracies in Reported GWOT Obligations Continue to Exist

We continue to find inaccuracies in the overall reported GWOT obligations.
For example, DOD had not reported certain obligations tied to the training
and equipping of Afghan and Iraqi security forces in fiscal year 2005.
Based on our work, DOD has since taken corrective action. In September
2005, DOD issued an update to the DOD Financial Management Regulation
governing contingency operations, adding an additional cost reporting
category called "Other Support Costs," in the DOD Supplemental and Cost of
War Execution Report.^26 This "Other Support Costs" category includes
obligations such as the reimbursement of coalition countries for
logistical and military support, lift and sustainment for coalition
partners during military operations, training and equipping the Afghan
National Army and the Armed Forces of Iraq, and obligations tied to the
Commander's Emergency Response Program. ^27

^25 In May 2004, the President signed National Security Presidential
Directive 36, which established the Projects and Contracting Office as a
temporary organization within DOD. The Projects and Contracting Office
provides acquisition and project management support for the reconstruction
effort in Iraq.

At the time of a draft of this report, DOD had not yet reported
obligations tied to the training and equipping of Afghan and Iraqi
security forces for fiscal year 2005. While DOD has begun reporting
obligations incurred for these activities in fiscal year 2006, the DOD
Comptroller's office had not amended its previously reported obligations
for fiscal year 2005 to include these obligations. According to DOD
officials, because the funds for these purposes became available later in
the fiscal year, DOD did not have a reporting format in the cost-of-war
reports for these obligations and planned to amend its September 2005
cost-of-war report at some point to reflect them. For example, DOD had not
reported more than $1.1 billion in obligations tied to these categories,
the majority of which is for the Armed Forces of Iraq. Excluding these
obligations from the cost-of-war reports understates DOD's total GWOT
obligations for fiscal year 2005, and limits Congress's visibility over
DOD's total fiscal year 2006 GWOT requirements. However, in October 2006,
DOD did amend the September 2005 cost-of-war report to reflect the $1.1
billion in fiscal year 2005 obligations.

In reviewing the Army's fiscal year 2006 obligations to finance the
training and equipping of the Afghan National Army, we found that the
obligations reported by the Army in DOD's GWOT cost reports were being
understated between the October 2005 and March 2006 cost reports, when
compared to the Office of Management and Budget's (OMB) SF 133 Report on
Budget Execution and Budgetary Resources^28 for the same time period. In
total, we found that the Army had understated obligations by almost $371
million. In discussions with the DOD Comptroller, we pointed out that the
obligations data being reported to OMB were different from the data being
reported to DOD for its GWOT cost-of-war report. According to DOD
Comptroller officials, prior to fiscal year 2005 appropriations for the
training and equipping of the Afghan National Army flowed to the Defense
Security Cooperation Agency for obligation through the Foreign Military
Sales program. After the Afghanistan Security Forces Fund was established
in fiscal year 2005, the Defense Security Cooperation Agency began
transferring the funds directly to the Foreign Military Sales program for
use by the Army. Additionally, the DOD Comptroller noted that upon
transfer from the Afghanistan Security Forces Fund, DOD and OMB consider
these funds fully obligated, since the funds will not be spent elsewhere.
However, the Defense Security Cooperation Agency and the Army were not
reporting the transferred amounts as obligations, but were instead
reporting the amount of funds disbursed through the Foreign Military Sales
program. The Army's lower obligation data were appearing in DOD's
Supplemental and Cost of War Execution Report from October 2005 through
March 2006. Once this matter came to light, DOD Comptroller officials took
action to reflect the accurate obligations against the Afghanistan
Security Forces Fund. The April 2006 report reflects the corrected
cumulative obligations through April 2006.

^26 These "Other" costs are reported in up to 20 categories and are
included as subsidiary reports to the Army's and the Defense Security
Cooperation Agency's DOD Supplemental and Cost of War Execution Report.

^27 The Commander's Emergency Response Program provides funds to military
commanders for small-scale reconstruction and humanitarian relief projects
in Iraq and Afghanistan.

^28 The Office of Management and Budget's SF 133 Report on Budget
Execution and Budgetary Resources fulfills the requirement in 31 U.S.C. S
1511 - 1514 that the President review federal expenditures at least four
times a year. The report provides a basis to determine obligation patterns
and provide historical reference that can be used to help prepare the
President's budget, program operating plans, and spend-out rate estimates.

Conclusions

While the military services expect increases in the amount of reported
obligations for procurement in the last month of fiscal year 2006, much of
this multiyear funding will remain available in fiscal year 2007. Since it
is likely that much of the procurement funding from fiscal year 2006 will
remain available in fiscal year 2007, knowledge of those amounts and how
DOD plans to spend them would ensure congressional decision makers have
additional information to use in determining DOD's future funding needs.
While DOD has taken steps to improve its cost reporting procedures and the
reliability of its reported GWOT obligation data, lack of transparency and
inaccuracies in reported GWOT obligations continue to exist. The large
obligations in miscellaneous categories do not provide decision makers
with transparency over how those funds have been spent, while
underreported obligations understate DOD's total GWOT obligations. Until
DOD and the military services revise their cost reporting procedures to
address these problems, it will continue to be difficult for the public,
Congress, and DOD to reliably know how much the war is costing, examine
details on how appropriated funds are being spent, or have historical
information useful in determining future funding needs.

Matter for Congressional Consideration

When conducting its deliberations over DOD's funding needs, Congress
should consider requiring DOD to provide fiscal year-end information on
how much procurement funding remains available for obligation at the
conclusion of fiscal year 2006. Congress should also require DOD to
provide a plan detailing how the department intends to obligate this
funding and any other procurement funding received or requested for GWOT
for fiscal year 2007 and beyond.

Agency Comments and Our Evaluation

In written comments on a draft of this report, DOD agreed with one
recommendation made in the draft report and disagreed with the second. DOD
also provided technical comments and we have incorporated them in the
report as appropriate.

DOD agreed with our recommendation that Volume 12, Chapter 23 of the DOD
Financial Management Regulation be revised to provide additional
subcategories for "other supplies and equipment," "other services and
miscellaneous contracts," and "other military personnel" to provide
further breakdown of reported obligations in miscellaneous categories. DOD
further stated that it has updated the DOD Financial Management Regulation
to expand the cost categories of the data reported in its monthly
Supplemental and Cost of War Execution Reports. This guidance, issued in
October 2006, adds elements that expand these "other" cost categories into
more descriptive subcategories that provide additional details on DOD's
reported obligations for pay and allowances, permanent changes of station,
temporary storage, supplies and equipment and contract services. We
believe this meets the intent of our recommendation and removed the
recommendation from the final report.

DOD did not agree with the basis of our recommendation that it amend the
September 2005 version of DOD's Supplemental and Cost of War Execution
Report to include about $1.1 billion in unreported fiscal year 2005
obligations tied to the training and equipping of Afghan and Iraqi
security forces. In its comments, DOD stated that this information was
provided to Congress in an October 2005 report pursuant to Section 9010 of
the Department of Defense Appropriations Act, 2005^29 and therefore did
not agree with our observation that the fiscal year 2005 costs of the war
were "understated" by $1.1 billion. However, DOD stated it did amend the
September 2005 cost-of-war report to include the $1.1 billion in fiscal
year 2005 obligations, as we recommended, and noted this in their
comments. We recognize that DOD did report some of these obligations to
Congress in this October 2005 report entitled Report on the Military
Operations of the Armed Forces and the Reconstruction Activities of the
Department of Defense in Iraq and Afghanistan. However, in reviewing the
obligation figures included in this report, we note these figures do not
match those reported in DOD's amended September 2005 cost-of-war report
and the Office of Management and Budget's (OMB) SF 133 Report on Budget
Execution and Budgetary Resources for fiscal year 2005. According to a DOD
official, the figures in DOD's October 2005 report were preliminary and
did not reflect all technical adjustments. Furthermore, this official
stated that reports pursuant to Section 9010 no longer include obligations
against the Afghan and Iraqi security forces funds because these
obligation figures are being reported in DOD's monthly Supplemental and
Cost of War Execution Reports. As we discuss in this report, DOD's monthly
Supplemental and Cost of War Execution Report is used by senior DOD
leadership, along with other information, in evaluating costs of the war
and formulating future budget requests to fund GWOT. Since this document
does provide historical data with which to evaluate the costs of the war
and advise Congress, we believe it is important that DOD include all GWOT
related obligations in these reports. Since DOD has already issued and
provided us with an amended September 2005 cost-of-war report including
the about $1.1 billion in fiscal year 2005 obligations, we believe this
fulfills the intent of our recommendation and removed the recommendation
from the final report.

^29 Pub. L. No. 108-287 (Aug. 5, 2004).

With respect to our suggestion that Congress consider requiring DOD to
provide fiscal year-end information on how much procurement funding
remains available for obligation at the conclusion of fiscal year 2006 and
require DOD to provide a plan detailing how the department intends to
obligate this funding and any other procurement funding received or
requested for GWOT in fiscal year 2007 and beyond, DOD commented that it
has plans for reconstituting forces deployed in the war on terror and that
it is not reasonable to infer that these funds are available for other
purposes. DOD further stated that it had justified the procurement
requirements to Congress and already provides reports that clearly state
the status of obligations for all GWOT funds. We do not believe that our
report implies that any previously appropriated procurement funding is
available for other purposes. On the contrary, we stated that significant
multiyear funds will remain available at the end of fiscal year 2006 for
procurement purposes. Given that DOD received more procurement funding
with the enactment of the fiscal year 2007 defense appropriation bill and
is expected to request more in a fiscal year 2007 supplemental
appropriation, we believe it is important that Congress have a complete
and up-to-date picture of all funding DOD has available for procurement
purposes when considering future appropriations requests from DOD.

We are sending copies of this report to other interested congressional
committees; the Secretary of Defense; the Under Secretary of Defense
(Comptroller); and the Director, Office of Management and Budget. Copies
of this report will also be made available to others upon request. In
addition, this report will be available at no charge on the GAO Web site
at http://www.gao.gov.

If you have any questions regarding this report, please contact me at
(202) 512-9619 or [email protected]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. GAO staff who made major contributions to this report are
listed in appendix IV.

Sharon L. Pickup
Director, Defense Capabilities and Management

List of Congressional Committees

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

The Honorable Judd Gregg Chairman The Honorable Kent Conrad Ranking
Minority Member Committee on the Budget United States Senate

The Honorable Ted Stevens Chairman The Honorable Daniel K. Inouye Ranking
Minority Member Subcommittee on Defense Committee on Appropriations United
States Senate

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

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

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

Appendix I: Scope and Methodology

To compare the military services' reported obligations against available
funding appropriated for Global War on Terrorism (GWOT) in fiscal year
2006, we analyzed applicable annual and supplemental appropriations
provided to the military services and Department of Defense (DOD) reports
on GWOT obligations. To identify funding for the GWOT, we reviewed
applicable annual and supplemental DOD appropriations in fiscal year 2006.
We also reviewed DOD reports on the transfer or reprogramming of funds
among various appropriation accounts or budget activities to support GWOT.
To examine DOD's reported obligations, we obtained and analyzed copies of
the October 2005 through June 2006 monthly DOD Supplemental and Cost of
War Execution Report from the Office of the Under Secretary of Defense
(Comptroller) to identify reported obligations by operation and by
appropriation account for the military services. We focused our review on
the reported obligation of GWOT funds appropriated for military personnel,
operation and maintenance, and procurement for the Army, Air Force, Navy,
and Marine Corps, for both active and reserve forces, because they
represented more than 80 percent of the funds obligated in fiscal year
2006. We excluded classified programs from our review because obligations
for those programs are not reported in DOD's monthly Supplemental and Cost
of War Execution Report. In addition, for fiscal year 2006, we reviewed
the latest available obligation data and held discussions with the
military services on the results of their midyear budget reviews. We
compared the military services' reported obligations through June 2006,
the latest available reported obligation data at the time of our review,
to the supplemental appropriations provided to calculate the proportion of
funds obligated through June. We then compared those proportions to the
proportion of the fiscal year that has elapsed through June--which
represents 75 percent of the fiscal year--to assess whether based on
obligations through June funding is likely to be greater than, less than,
or equal to obligations. We also interviewed key officials from the Office
of the Under Secretary of Defense (Comptroller) and the Army, Navy, Marine
Corps, and Air Force to determine if their projected GWOT obligations are
within fiscal year 2006 funding levels. We recognize that funds are not
obligated equally each month throughout the fiscal year and that the
supplemental appropriation funding was not received by the military
services until June.

GWOT obligations provided in this report are DOD's claimed obligations as
reported in DOD's monthly Supplemental and Cost of War Execution Report.
As previously reported, we found the data in DOD's monthly Supplemental
and Cost of War Execution Reports to be of questionable reliability.
Consequently, we are unable to ensure that DOD's reported obligations for
GWOT are complete, reliable, and accurate, and they should therefore be
considered approximations. In addition, as recently as November 2005, DOD
acknowledged that systemic weaknesses with its financial management
systems and business operations continue to impair its financial
information. Despite the uncertainty about obligation data, we are
reporting the information because it is the only way to approach an
estimate of the costs of the war. Also, despite the uncertainty
surrounding the true dollar figure for obligations, these data are used to
advise Congress on the cost of the war.

To examine the steps DOD has taken to improve the reliability of its
reported GWOT obligations, we reviewed DOD Financial Management Regulation
Volume 12, Chapter 23, which establishes DOD's policies and procedures for
developing contingency budget estimates and cost reporting. We analyzed
DOD's emergency supplemental budget requests for fiscal year 2006, and
military service contingency operation financial management policies and
procedures. We analyzed the fiscal year 2006 GWOT cost reports and held
discussions with the DOD Comptroller and military service financial
management officials regarding the processes used to ensure that GWOT
obligation data provided were accurate and reliable. We conducted limited
testing of the Army's reported military personnel obligations,
specifically imminent danger pay, and discussed our work with officials
from the Army Budget Office and DOD Comptroller. We also obtained and
reviewed information on DOD's budget estimates, supplemental requests,
budget reprogramming and transfer documents, and other supporting
documentation. Lastly, we reviewed previous GAO reports and testimonies
and reports from other agencies regarding guidance and oversight of
contingency operations costs in DOD's accounting systems. As of September
2006, we determined that problems with the completeness and accuracy of
DOD's reported obligations continue and we discuss these problems
throughout the report.

We interviewed DOD representatives regarding GWOT obligations and funding
for fiscal year 2006 and the reliability of cost reporting in the
following locations:

           o Office of the Under Secretary of Defense (Comptroller),
           Washington, D.C.
           o U.S. Pacific Command, Camp H.M. Smith, Hawaii
           o Defense Finance and Accounting Service Center, Denver, Colorado
           o Headquarters, Department of the Army, Washington, D.C.
           o U.S. Army Installation Management Agency, Washington, D.C.
           o U.S. Army Installation Management Agency, Southeast Region, Fort
           McPherson, Georgia
           o U.S. Army Installation Management Agency, Pacific Region, Fort
           Shafter, Hawaii
           o Headquarters, U.S. Army Forces Command and Headquarters, Third
           Army (Army Central Command), Fort McPherson, Georgia
           o Headquarters, U.S. Army Pacific, Fort Shafter, Hawaii
           o Army Materiel Command, Fort Belvoir, Virginia
           o Headquarters, 25th Infantry Division, Schofield Barracks, Hawaii
           o U.S. Army Garrison, Schofield Barracks, Hawaii
           o Headquarters, U.S. Marine Corps, Washington, D.C.
           o U.S. Marine Corps Forces Pacific, Camp H.M. Smith, Hawaii
           o Marine Corps Central Command, MacDill AFB, Florida
           o Department of the Navy, Headquarters, Washington, D.C.
           o Commander, U.S. Pacific Fleet, Pearl Harbor, Hawaii.
           o Military Sealift Command, Washington, D.C.
           o Department of the Air Force, Headquarters, Washington, D.C.
           o U.S. Air Forces Pacific, Hickam Air Force Base, Hawaii
           o Air Force Air Combat Command, Langley Air Force Base, Virginia
           o Air Force Air Mobility Command, Scott Air Force Base, Illinois
           o U.S. Central Command Air Forces, Shaw Air Force Base, South
           Carolina

We performed our work from January 2006 through September 2006 in
accordance with generally accepted government auditing standards.

Appendix II: DOD's Process for Reporting GWOT Obligations

Obligations are the foundation of all Global War on Terrorism (GWOT) cost
reporting. The obligations incurred for military contingency operations
are referred to as "incremental," which are costs that are directly
attributable to the operation that would not have been incurred if it were
not for the operation.^1 The reported incremental obligations incurred for
these military or contingency operations 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 (OIF) and Operation Enduring
Freedom (OEF); the cost of transporting personnel and materiel to the
theater of operation and supporting them upon arrival; and the operational
cost of equipment such as vehicles and aircraft, among many other
obligations.^2 Obligations 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.

When obligations are incurred, the military services enter them into their
individual accounting systems. An obligation entry includes information on
the funding source; the operational mission, such as OIF; and the category
of cost, as determined by the individual military service. The Department
of Defense's (DOD) financial management regulation direct the military
services to capture contingency costs, which include GWOT obligations,
within their existing accounting systems and at the lowest possible level
of organization.

To improve the consistency of contingency-cost reporting between the
multiple military services and agencies, on October 1, 1998, DOD
implemented a standard contingency cost-breakdown structure. This
cost-breakdown structure was to facilitate future efforts to understand
and interpret differences between estimated and actual obligations.
Examples of cost categories include imminent danger or hostile fire pay,
facilities/base support, airlift, vehicle procurement, and major military
construction. Of the common cost categories and multiple subcategories
listed in DOD financial management regulation, 55 cost categories are used
to report DOD's monthly GWOT obligations.

^1 Sections 230406 and 230902 of DOD's Financial Management Regulation
7000.14-R, Volume 12, Chapter 23 "Contingency Operations" (September 2005)
provide additional information on incremental costs.

^2 Service members who are assigned, deployed, or traveling on temporary
duty to certain foreign areas are eligible for certain special pays and
benefits, such as imminent danger pay. 37 USC S 310 (a) (2) (D) (2006).

For GWOT cost reporting, individual obligation data that are coded as
being in support of GWOT are recorded and sent through the military
services' chain of command where they are aggregated at successively
higher command levels. Each military service and defense agency compiles
its reported obligations in the standard contingency cost breakdown
structure, and sends them to the Defense Finance and Accounting Service
(DFAS). DFAS aggregates the individual submissions into the monthly
Supplemental and Cost of War Execution Report. DFAS publishes 10 versions
of this report on a monthly basis, each of which specifies GWOT
obligations by operation, appropriation, and appropriate DOD component.^3
The monthly GWOT cost reports are then submitted to the DOD Comptroller
for review and further dissemination.^4 The versions of the report
published for fiscal year 2006 are listed in table 3.

^3 For fiscal year 2006, additional resources at DFAS were reassigned to
assist in producing and reviewing DOD's monthly Supplemental and Cost of
War Execution Report.

^4 The DOD Comptroller has two full-time employees dedicated to reviewing
the department's GWOT obligations reported in DOD's monthly Supplemental
and Cost of War Execution Report.

Table 3: DOD Supplemental and Cost of War Execution Report for Fiscal Year
2006

Fiscal years                                                  
2006 Summary                                                  
2006 Appropriations                                           
2005 Title IX Appropriation (Second Year Execution)           
2005 Iraq Security Forces Fund (Second Year Execution)        
2005 Coalition Support Fund (Second Year Execution)           
2005 Afghanistan Security Forces Fund (Second Year Execution) 
2005 Appropriations (Second Year Execution)                   
2004 Title IX Appropriation (Third Year Execution)            
2004 Appropriations (Third Year Execution)                    
2003 Appropriations (Fourth Year Execution)                   

Source: Defense Finance and Accounting Service.

Appendix III: Comments from the Department of Defense

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

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

Acknowledgments

In addition to the contact named above, Ann Borseth, Assistant Director;
Richard K. Geiger; Natalie Schneider; Kim Mayo; Renee S. Brown; and Lonnie
McAllister made key contributions to this report.

(350801)

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Highlights of [34]GAO-07-76 , a report to congressional committees

November 2006

GLOBAL WAR ON TERRORISM

Fiscal Year 2006 Obligation Rates Are Within Funding Levels and
Significant Multiyear Procurement Funds Will Likely Remain Available for
Use in Fiscal Year 2007

Because of broad congressional interest, GAO is examining the costs of
military operations in support of the Global War on Terrorism (GWOT) under
the Comptroller General's authority to conduct evaluations on his own
initiative. In September 2005, GAO reported the Department of Defense
(DOD) cannot ensure reported GWOT obligations are complete, reliable, and
accurate, and recommended improvements. In this report, GAO (1) compared
supplemental and annual appropriations identified for GWOT in fiscal year
2006 to the military services' reported obligations as of June 2006 and
their cost projections for the remainder of the fiscal year, and (2)
examined DOD's efforts to improve the reliability of GWOT obligation data.

For this engagement, GAO analyzed fiscal year 2006 GWOT related
appropriations and reported obligations, and DOD's corrective actions.

[35]What GAO Recommends

Because significant multiyear procurement funds from fiscal year 2006 will
likely remain available, GAO suggests Congress require DOD provide
year-end data on fund availability and plans for additional funds received
or requested. DOD disagreed, noting, among other things, it had already
justified its needs. To ensure appropriate transparency, GAO continues to
believe Congress needs updated data on DOD's plans.

As of June 2006, which represents 9 months (75 percent) of fiscal year
2006, the military services have reported obligating about $51.6 billion
(55 percent) of the $93.3 billion they received for GWOT in supplemental
and annual appropriations for military personnel, operation and
maintenance, and procurement. Our analysis of reported obligations and the
military services' forecasts of their likely costs for fiscal year 2006
suggest that the rates of obligation for military personnel and operation
and maintenance are within fiscal year 2006 GWOT funding levels and
significant amounts of multiyear procurement funds will likely remain
available for use in fiscal year 2007. The rates of obligation for
military personnel are within funding levels for all military services
except the Army, which plans to transfer about $591 million in funds from
other appropriations accounts to cover its military personnel obligations.
The rates of obligation for operation and maintenance are within funding
levels for all military services. As of June, the military services
reported obligating about 85 percent of military personnel funds and 60
percent of operation and maintenance funds. For various reasons, most
notably being that supplemental funds were not appropriated until June
2006, the military services do not expect to obligate a large portion of
procurement funds, which generally are available for multiple years, and
therefore these funds will remain available in fiscal year 2007. The
military services received about 32 percent ($6.8 billion) of procurement
funding in annual appropriations and 68 percent ($14.7 billion) in the
supplemental appropriation. As of June, the military services reported
obligating about 68 percent of the procurement funds received in the
annual appropriation.

DOD and the military services have taken specific steps intended to
improve the accuracy and reliability of their reported GWOT obligation
data. Some problems remain with transparency over certain costs and
inaccuracies in reported obligations. In response to GAO's prior
recommendations, DOD now requires components to perform a monthly variance
analysis to identify and explain significant changes in obligations and to
attest to the accuracy of monthly obligation reports, and affirm it
provides a fair representation of ongoing activities. Because these
efforts are in the early stages of implementation, GAO has not fully
evaluated their impact. Existing cost reporting procedures limit
transparency of certain obligations because DOD continues to report large
amounts in miscellaneous "other" categories. Also, DOD's cost reports for
fiscal year 2005 understated total GWOT obligations for that year because
they did not initially include about $1.1 billion in obligations tied to
the training and equipping of Afghan and Iraqi security forces. Without
transparent and accurate cost reporting, Congress and DOD will continue to
be unable to reliably know how much the war is costing, examine details on
how appropriated funds are being spent, or have historical data useful in
considering future funding needs. On the basis of GAO's work, DOD updated
its guidance on the reporting of obligations in miscellaneous "other"
categories and revised its September 2005 cost-of-war report to more fully
reflect past obligations.

References

Visible links

  22. http://www.gao.gov/cgi-bin/getrpt?GAO-04-915
  23. http://www.gao.gov/cgi-bin/getrpt?GAO-05-882
  24. http://www.gao.gov/cgi-bin/getrpt?GAO-05-882
  25. http://www.gao.gov/cgi-bin/getrpt?GAO-04-915
  26. http://www.gao.gov/cgi-bin/getrpt?GAO-04-668 
  33. http://www.gao.gov/cgi-bin/getrpt?GAO-07-076
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-07-076
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