    Defense Logistics: Army and Marine Corps Cannot Be Assured That
    Equipment Reset Strategies Will Sustain Equipment Availability
    While Meeting Ongoing Operational Requirements (19-SEP-07,
    GAO-07-814).

    Congress has appropriated billions of dollars for equipment
    repair, replacement, and recapitalization, collectively known as
    equipment reset. Because of the potential for equipment reset
    costs to affect the Department of Defense's (DOD) future budget
    requirements and related readiness concerns, GAO initiated this
    review under the Comptroller General's authority. GAO's
    objectives were to determine the extent to which the Army and
    Marine Corps (1) track and report equipment reset expenditures in
    a way that confirms that funds appropriated for reset are
    expended for that purpose and (2) can be assured that their reset
    strategies will sustain equipment availability while meeting
    ongoing operational requirements. GAO reviewed equipment reset
    policies and analyzed related budget data.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-814
        ACCNO:   A76498
      TITLE:     Defense Logistics: Army and Marine Corps Cannot Be
    Assured That Equipment Reset Strategies Will Sustain Equipment
    Availability While Meeting Ongoing Operational Requirements
         DATE:   09/19/2007
      SUBJECT:   Appropriated funds
    	     Army procurement
    	     Combat readiness
    	     Defense budgets
    	     Defense procurement
    	     Equipment maintenance
    	     Financial management
    	     Logistics
    	     Military budgets
    	     Military forces
    	     Military materiel
    	     Military procurement
    	     Program evaluation
    	     Reporting requirements
    	     Strategic planning
    	     Program goals or objectives
    	     Program implementation
    	     Afghanistan
    	     Iraq

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    GAO-07-814

         * [1]Results in Brief
         * [2]Background
         * [3]Army and Marine Corps Do Not Report Expenditures within Proc
         * [4]Army and Marine Corps Cannot Be Assured That Reset Implement

              * [5]Reset Implementation Strategies Do Not Target Shortages of E
              * [6]Reset Implementation Strategies Do Not Give Priority to Depl

         * [7]Conclusions
         * [8]Recommendations for Executive Action
         * [9]Matter for Congressional Consideration
         * [10]Agency Comments and Our Evaluation
         * [11]GAO's Responses to DOD's Technical Comments
         * [12]GAO Contact
         * [13]Acknowledgments
         * [14]GAO's Mission
         * [15]Obtaining Copies of GAO Reports and Testimony

              * [16]Order by Mail or Phone

         * [17]To Report Fraud, Waste, and Abuse in Federal Programs
         * [18]Congressional Relations
         * [19]Public Affairs
         * [20]PDF6-Ordering Information.pdf

              * [21]Order by Mail or Phone

    Report to Congressional Committees

    United States Government Accountability Office

    GAO

    September 2007

    DEFENSE LOGISTICS

    Army and Marine Corps Cannot Be Assured That Equipment Reset Strategies
    Will Sustain Equipment Availability While Meeting Ongoing Operational
    Requirements

    GAO-07-814

    Contents

    Letter 1

    Results in Brief 5
    Background 10
    Army and Marine Corps Do Not Report Expenditures within Procurement
    Accounts in a Way That Confirms That Funds Appropriated for Reset Are
    Expended for That Purpose 17
    Army and Marine Corps Cannot Be Assured That Reset Implementation
    Strategies Will Sustain Equipment Availability While Meeting Ongoing
    Operational Requirements 21
    Conclusions 26
    Recommendations for Executive Action 27
    Matter for Congressional Consideration 27
    Agency Comments and Our Evaluation 28
    Appendix I Scope and Methodology 34
    Appendix II Marine Corps Reset Categories 36
    Appendix III Army and Marine Corps Ground Equipment and Rotary Aircraft
    Deployed and Total Equipment on Hand as of March 2007 38
    Appendix IV Comments from the Department of Defense 40
    Appendix V GAO Contact and Staff Acknowledgments 59

    Tables

    Table 1: Breakdown of Army and Marine Corps Fiscal Year 2007 Reset
    Execution Funding Plans 14
    Table 2: Comparison of Army and Marine Corps Sub-cost Categories within
    the FMR for Operation and Maintenance and Procurement Accounts 19
    Table 3: Army Equipment Deployed to OIF/OEF and Total Equipment on Hand as
    of March 2007 38
    Table 4:: Marine Corps Equipment Deployed to OIF/OEF and Total Equipment
    on Hand as of March 2007 39

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    United States Government Accountability Office
    Washington, DC 20548

    September 19, 2007

    Congressional Committees

    Continuing military operations in Iraq and Afghanistan are taking a toll
    on the condition and readiness of military equipment. Harsh combat and
    environmental conditions in theater over sustained periods of time
    exacerbate equipment repair, replacement, and recapitalization problems
    that existed before the onset of combat operations in Iraq and
    Afghanistan. Upon returning from operations, equipment is reset in
    preparation for future operations. Although the Army and Marine Corps
    continue to meet mission requirements and report high readiness rates for
    deployed units, these services are operating with increasing risk to
    overall readiness due to equipment shortages and equipment readiness
    shortfalls. As a result, costs to repair, replace, and recapitalize
    equipment, collectively known as reset, will increase significantly in
    future Department of Defense (DOD) annual budgets. Continuing military
    operations in Iraq and Afghanistan are taking a toll on the condition and
    readiness of military equipment. Harsh combat and environmental conditions
    in theater over sustained periods of time exacerbate equipment repair,
    replacement, and recapitalization problems that existed before the onset
    of combat operations in Iraq and Afghanistan. Upon returning from
    operations, equipment is reset in preparation for future operations.
    Although the Army and Marine Corps continue to meet mission requirements
    and report high readiness rates for deployed units, these services are
    operating with increasing risk to overall readiness due to equipment
    shortages and equipment readiness shortfalls. As a result, costs to
    repair, replace, and recapitalize equipment, collectively known as reset,
    will increase significantly in future Department of Defense (DOD) annual
    budgets.

    In response to DOD's request for funds to meet its needs for equipment
    reset, Congress has appropriated tens of billions of dollars. Congress has
    provided the Army and Marine Corps with more than $49 billion in
    supplemental^1 appropriations since fiscal year 2002 for the reset of
    equipment in addition to the billions of dollars provided to DOD to
    sustain military equipment in its annual or baseline budgets.^2 In fiscal
    year 2007 alone, the Army received $17.1 billion for equipment reset,
    almost double the $8.6 billion in funding the Army received for equipment
    reset programs in fiscal year 2006. Of the $17.1 billion, the Army plans
    to fund reset with $8.6 billion from operation and maintenance
    appropriations and $8.5 billion from procurement appropriations. The
    Marine Corps received $5.8 billion in fiscal year 2007, slightly more than
    the $5.1 billion it received in fiscal year 2006. Of the $5.8 billion,^3
    the Marine Corps plans to In response to DOD's request for funds to meet
    its needs for equipment reset, Congress has appropriated tens of billions
    of dollars. Congress has provided the Army and Marine Corps with more than
    $49 billion in supplemental^1234 appropriations since fiscal year 2002 for
    the reset of equipment in addition to the billions of dollars provided to
    DOD to sustain military equipment in its annual or baseline budgets. In
    fiscal year 2007 alone, the Army received $17.1 billion for equipment
    reset, almost double the $8.6 billion in funding the Army received for
    equipment reset programs in fiscal year 2006. Of the $17.1 billion, the
    Army plans to fund reset with $8.6 billion from operation and maintenance
    appropriations and $8.5 billion from procurement appropriations. The
    Marine Corps received $5.8 billion in fiscal year 2007, slightly more than
    the $5.1 billion it received in fiscal year 2006. Of the $5.8 billion, the
    Marine Corps plans to fund reset with $0.9 billion from operation and
    maintenance appropriations and $4.9 billion from procurement
    appropriations.

    ^1Supplemental appropriations for reset are used to fund the incremental
    costs above the baseline budget that are necessary to repair and replace
    equipment needed for ongoing operations.

    ^2The baseline budget funds equipment maintenance for nondeployed
    equipment and the purchase of equipment to fulfill longer-term equipment
    requirements.

    ^3The total $5.8 billion reset funding includes $0.7 billion initially
    appropriated for procurement of Mine Resistant Ambush Protected vehicles,
    which was later reclassified as a cost of war, not reset.

    The Army Chief of Staff^5 and Commandant of the Marine Corps^6 have
    testified about the extraordinary demands placed on the services'
    equipment and concerns regarding their abilities to support extensive
    reset efforts while also transforming to a more flexible and more
    deployable force. According to the Army Chief of Staff, only through a
    fully funded reset program can the Army extend the life of its equipment
    and remain ready for future conflicts. The Commandant of the Marine Corps
    also stated that timely delivery of replacement equipment through reset
    funding is crucial to sustaining high readiness rates in theater as well
    as improving readiness rates for forces at home.

    As we have testified before the House Committee on Armed Services,^7 the
    Army and Marine Corps will face a number of ongoing and long-term
    challenges that will affect the timing and cost of equipment reset, such
    as Army and Marine Corps transformation initiatives, depot capacity
    issues, the potential transfer of U.S. military equipment to Iraqi
    Security Forces, and the possibility of continuing logistical support for
    Iraqi Security Forces. We also observed that while the precise dollar
    estimate for the reset of Army and Marine Corps equipment will not be
    known until operations in Iraq and Afghanistan cease, it will likely cost
    billions of dollars to repair and replace equipment. While the services
    are working to refine overall requirements, the total requirements and
    costs are unclear and raise a number of questions as to how the services
    will afford them. We concluded that until the services are able to firm up
    these requirements and cost estimates, neither the Secretary of Defense
    nor Congress will be in a sound position to weigh the trade-offs between
    competing requirements and risks associated with degraded equipment
    readiness.

    ^4Reset is funded through two appropriations--operation and maintenance
    appropriations and procurement appropriations. Operation and maintenance
    appropriations fund repair and maintenance of equipment while procurement
    appropriations primarily fund replacement of equipment. Recapitalization
    of equipment is further subdivided into rebuild, which is funded with
    operation and maintenance appropriations, and upgrade (enhanced
    capability), which is funded with procurement appropriations.

    ^5Army Posture Statement, Statement before the House Committee on Armed
    Services, 110th Cong. (2007) (statement of Gen. Peter J. Schoomaker, U.S.
    Army Chief of Staff). Statement on the Army's Reset Strategy and Plan for
    Funding Reset Requirements, Statement before the House Committee on Armed
    Services, 109th Cong. (2006) (statement of Gen. Peter J. Schoomaker, U.S.
    Army Chief of Staff).

    ^6Marine Posture Statement, Statement before the Senate Committee on Armed
    Services, 110th Cong. (2007) (statement of Gen. James T. Conway,
    Commandant of the Marine Corps). Statement before the House Committee on
    Armed Services, 109th Cong. (2006) (statement of Gen. Mike Hagee,
    Commandant of the Marine Corps).

    ^7GAO, Defense Logistics: Preliminary Observations on the Army's
    Implementation of Its Equipment Reset Strategies, [22]GAO-07-439T
    (Washington, D.C.: Jan. 31, 2007), and Defense Logistics: Preliminary
    Observations on Equipment Reset Challenges and Issues for the Army and
    Marine Corps, [23]GAO-06-604T (Washington, D.C.: Mar. 30, 2006).

    Over the past several years, we also have reported on related equipment
    issues, including the lack of equipment program strategies;^8 poor
    condition of pre-positioned equipment, which could lead to near-term
    operational risks in the event of another large-scale conflict;^9 and
    challenges related to replacing Army National Guard equipment left in the
    Operation Iraqi Freedom (OIF) theater to support ongoing operations.^10
    Furthermore, we have reported on the lack of transparency and inaccuracies
    in reported Global War on Terrorism (GWOT) obligations,^11 and that DOD
    was unable to accurately track and report equipment reconstitution costs
    in its supplemental budget requests because the services' accounting codes
    were capturing GWOT and other obligations that were not incurred
    exclusively for equipment reconstitution. In addition to these issues, we
    have also reported on long-standing problems with DOD's accounting
    systems^12 and personnel issues.^13 Moreover, the John Warner National
    Defense Authorization Act for Fiscal Year 2007 directed the Secretary of
    the Army to submit a report to the congressional defense committees in
    conjunction with the President's annual budget submission, which includes
    information about reset expenditures as well as future funding for reset
    requirements.^14

    ^8GAO, Military Readiness: DOD Needs to Reassess Program Strategy, Funding
    Priorities, and Risks for Selected Equipment, [24]GAO-04-112 (Washington,
    D.C.: Dec. 19, 2003), and Military Readiness: DOD Needs to Identify and
    Address Gaps and Potential Risks in Program Strategies and Funding
    Priorities for Selected Equipment, [25]GAO-06-141 (Washington, D.C.: Oct.
    25, 2005).

    ^9GAO, Defense Logistics: Improved Oversight and Increased Coordination
    Needed to Ensure Viability of the Army's Prepositioning Strategy,
    [26]GAO-07-144 (Washington, D.C.: Feb. 15, 2007), and Defense Logistics:
    Better Management and Oversight of Prepositioning Programs Needed to
    Reduce Risk and Improve Future Programs, [27]GAO-05-427 (Washington, D.C.:
    Sept. 6, 2005).

    ^10GAO, Reserve Forces: Army National Guard's Role, Organization, and
    Equipment Need to Be Reexamined, [28]GAO-06-170T (Washington, D.C.: Oct.
    20, 2005).

    ^11GAO, 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, [29]GAO-07-76
    (Washington, D.C.: Nov. 13, 2006), and Defense Management: Processes to
    Estimate and Track Equipment Reconstitution Costs Can Be Improved,
    [30]GAO-05-293 (Washington, D.C.: May 5, 2005).

    Because of the potential for reset costs to significantly affect DOD's
    budget requirements in the coming years and related equipment readiness
    issues, this report focuses on tracking and reporting reset costs and the
    relationship between Army and Marine Corps equipment reset implementation
    strategies and their ability to sustain equipment availability. We
    performed our work under the authority of the Comptroller General^15 to
    conduct reviews on his own initiative and are reporting the results to you
    because of your oversight roles. Our objectives were to identify the
    extent to which the Army and Marine Corps (1) track and report equipment
    reset expenditures in a way that confirms that funds appropriated for
    reset are expended for that purpose and (2) can be assured that their
    reset implementation strategies will sustain equipment availability while
    meeting ongoing operational requirements.

    To address our first objective, we reviewed the monthly Supplemental and
    Cost of War Execution Reports, analyzed equipment reset funding requests,
    and discussed equipment reset tracking and reporting systems with Army and
    Marine Corps officials to determine the extent to which their financial
    management systems confirmed that funds appropriated for reset are
    expended for that purpose. We reviewed reported obligations and
    expenditures and budget estimates for Army and Marine Corps equipment
    reset funding and determined that the reliability of these data was
    sufficient for our purposes. To address our second objective, we examined
    service policies and processes for developing reset plans and discussed
    with Army and Marine Corps officials the services' equipment reset
    implementation strategies and how they plan to sustain equipment
    availability while meeting ongoing operational requirements. We did not
    review the services' overall equipping strategies. We also selected five
    pieces of high-demand equipment for review and compared the services'
    planned reset activities to equipment requirements.^16 These equipment
    items were identified by service officials as well as previous GAO reports
    as items critical to ongoing operations, and large numbers of these
    equipment items have gone through multiple rotations or have been in
    constant use in the OIF theater. Our review included only major end items,
    primarily ground equipment and rotary aircraft. We reviewed inventory
    numbers, location of equipment (e.g., items deployed or nondeployed), and
    acquisition plans for future procurement of new equipment. For work under
    both objectives, we held discussions at service headquarters responsible
    for developing and executing equipment reset implementation strategies,
    met with officials from commands responsible for executing reset programs,
    met with an Army Division preparing to deploy to Iraq in 2007, and met
    with officials in the Office of the Secretary of Defense (OSD) to discuss
    overall reset policies and programs. We reviewed reported obligations and
    expenditures and budget estimates for Army and Marine Corps equipment
    reset funding and determined that the reliability of these data was
    sufficient for our purposes. We performed our work from October 2005
    through April 2007 in accordance with generally accepted government
    auditing standards. Appendix I contains more detailed information about
    our scope and methodology.

    ^12 [31]GAO-05-293 .

    ^13GAO, Reserve Forces: Plans Needed to Improve Army National Guard
    Equipment Readiness and Better Integrate Guard Into Army Force
    Transformation Initiatives, [32]GAO-06-111 (Washington, D.C.: Oct. 4,
    2005).

    ^14Pub. L. No. 109-364, S 323 (2006).

    ^1531 U.S.C. S 717.

    Results in Brief

    Although the Army and Marine Corps track and report equipment reset
    expenditures in the operation and maintenance accounts in detail, they do
    not report detailed equipment reset expenditures within the procurement
    accounts in a way that confirms that funds appropriated for reset are
    expended for that purpose because there is no requirement to report
    procurement expenditures beyond what is required by the DOD Financial
    Management Regulation (FMR).^17 While the Conference Report accompanying
    the DOD appropriations act for 2007 directed the Secretary of Defense to
    periodically provide a detailed accounting of obligations and expenditures
    of funds provided in Title IX of the act, which includes funds provided
    for reset, by program and subactivity group and to provide a listing of
    equipment procured using funds appropriated under Title IX of this act,^18
    the Army and Marine Corps are not legally required to provide this
    detailed accounting. The Army and Marine Corps currently provide detailed
    reports of obligations and expenditures within the operation and
    maintenance accounts, but have chosen not to provide the same detailed
    accounting of obligations and expenditures within the procurement
    accounts. Consequently, neither DOD nor Congress can be assured that
    procurement funds appropriated for equipment reset are being obligated and
    expended for equipment reset for deploying units and units preparing to
    deploy to Iraq and Afghanistan instead of other, more long-term equipment
    needs. As we recently testified,^19 as of fiscal year 2007, the Army has
    begun to track and report reset obligations and expenditures in its
    operation and maintenance account. According to Army officials, the Army
    segregates the cost of reset from other costs and tracks expenditures to
    ensure that funds appropriated for this purpose are expended for this
    purpose. Unlike the Army, the Marine Corps began tracking and reporting
    reset execution in its operation and maintenance account when it began
    receiving reset funding in fiscal year 2006. The Marine Corps established
    a special identification code within its financial management systems to
    identify obligations and expenditures related to equipment reset. With
    regard to the procurement accounts, however, the Army's and the Marine
    Corps' monthly Supplemental and Cost of War Execution Reports^20 identify
    the costs of equipment reset as just one line, instead of reporting these
    costs at lower sub-cost categories,^21 such as vehicle procurement. The
    Army provides additional monthly reports to Congress detailing the status
    of procurement reset obligations in total dollars as well as a summary of
    the number of equipment items replaced or recapitalized; however, it does
    not provide a breakdown of the dollars associated with those quantities.
    The Marine Corps does not provide these additional reports because it was
    not required or requested to provide such reports but could provide
    reports at the budget line item level if requested. Until the Army and
    Marine Corps are required to report the obligation and expenditure of
    funds appropriated for reset in the procurement accounts at lower sub-cost
    category levels, similar to the level of detail they report for
    obligations and expenditures in the operation and maintenance accounts,
    Congress will not have the visibility it needs to exercise effective
    oversight and to determine if the amount of funding appropriated for
    equipment reset has been most appropriately used for the purposes
    intended, such as addressing the short-term needs of deploying units and
    units preparing to deploy to Iraq and Afghanistan. Furthermore, because
    the Army was not required to track the execution of its reset
    appropriations from the onset of operations, it does not have historical
    execution data upon which to base future cost estimates.^22 As we have
    reported, historical execution data would provide a basis for estimating
    future funding needs.^23

    ^16The five equipment items we profiled are the M1 Tank, Bradley Fighting
    Vehicle (Army only), High Mobility Multi-Purpose Wheeled Vehicle, Heavy
    Expanded Mobility Tactical Truck (Army only), and the Marine Corps CH-53E
    helicopter.

    ^17DOD Financial Management Regulation, vol. 12, ch. 23, "Contingency
    Operations Cost Categories and Definitions," S 230406. According to an OSD
    official, the updated version referred to in this report, although not yet
    available online, was adopted in January 2007.

    ^18H.R. Conf. Rep. No. 109-676, at 359 (2006), which accompanied the
    Department of Defense Appropriations Act, 2007, Pub. L. No. 109-289
    (2006).

    ^19 [33]GAO-07-439T .

    ^20DOD provides monthly Supplemental and Cost of War Execution Reports to
    Congress by service, defense agency, contingency operation, and
    appropriation.

    ^21DOD Financial Management Regulation, vol. 12, ch. 23, "Contingency
    Operations Cost Categories and Definitions," S 230406 refers to these more
    detailed costs as sub-cost categories.

    The Army and Marine Corps cannot be assured that their reset
    implementation strategies will sustain equipment availability for deployed
    units as well as units preparing for deployment to Iraq and Afghanistan
    while meeting ongoing operational requirements because neither the Army's
    nor the Marine Corps' reset implementation strategies target shortages of
    available equipment and prioritize equipment needs of units preparing for
    deployment over longer-term modernization goals. According to the Army's
    Army Force Generation Model (ARFORGEN) implementation strategy and reset
    implementation guidance,^24 the primary goal of reset is to prepare units
    for deployment and to improve next-to-deploy units' equipment-on-hand
    levels. However, the Army's reset implementation strategy is based on
    resetting equipment that it expects will be returning to the United States
    in a given fiscal year and not on targeting shortages of equipment for
    units preparing for deployment to Iraq and Afghanistan. Similarly, the
    Marine Corps' reset goal is to ensure that the Corps is equipped to
    perform both ongoing operations and future missions. However, neither the
    Army nor the Marine Corps can ensure that their reset implementation
    strategies can achieve these goals because neither service's reset
    implementation strategies target shortages of available equipment needed
    to equip deploying units and units preparing for other missions and
    contingencies in order to minimize operational risk. For example, as part
    of their fiscal year 2007 reset strategy, the Army plans to recapitalize
    more than 7,500 High Mobility, Multi-Purpose Wheeled Vehicles (HMMWV) at a
    cost of $455 million; however, these recapitalized HMMWVs will not be
    available to train or equip units deploying for OIF missions due to
    inadequate force protection and will have limited training value to
    deploying units primarily because the unarmored HMMWVs have different
    handling characteristics and configurations than the armored HMMWVs used
    in Iraq. In addition, the Army's fiscal year 2007 reset strategy includes
    plans to modernize Abrams Tanks and Bradley Fighting Vehicles (Bradley) to
    accelerate achieving long-term strategic goals under the Army's modularity
    initiative. While deploying Army units have not experienced shortages of
    these items, accelerating modernization programs in general to achieve a
    modular force structure may be sacrificing other short-term needs for
    longer-term goals. According to Army officials, reset prepares units for
    the next mission, which can be either current (e.g., OIF/Operation
    Enduring Freedom (OEF)) or future (e.g., full-spectrum contingency
    operations) missions; thus, accelerating modernization of the Abrams Tanks
    and Bradleys would prepare units for future missions.^25 Although deployed
    Army and Marine Corps units and units about to deploy generally report
    high readiness rates, the services have reported a decrease in nondeployed
    units' reported readiness rates,^26 in part due to equipment shortages.
    The Army Chief of Staff has testified that the Army has had to take
    equipment from nondeployed units in order to provide it to deployed units,
    which increases risk to next-to-deploy units and limits the Army's ability
    to respond to emerging contingencies. In contrast, the Marine Corps reset
    planning process emphasizes replacing equipment; however, actions required
    to support this strategy have adversely affected readiness of nondeployed
    Marine Corps units. For example, as the Commandant of the Marine Corps has
    testified,^27 the Marine Corps has had to choose between providing
    equipment to units preparing to deploy to Iraq and Afghanistan and unit
    training for other contingencies while also deploying troops to support
    other operations, such as humanitarian and disaster relief efforts in
    Pakistan and the Philippines, Theater Security Cooperation events in
    Central America and parts of Africa, and protecting our embassies. Until
    the services' reset implementation strategies target shortages of
    equipment needed to equip units preparing for deployment and ensure that
    those units are given priority over longer-term equipment needs, the Army
    and Marine Corps will be unable to minimize operational risk by ensuring
    that the needs of deploying units can be met.

    ^22Army officials initially stated that because they were not required to
    track execution data at the onset of operations, they could not provide
    those historical data. Subsequently, Army officials provided execution
    data as of fiscal year 2002 broken down by operation and maintenance
    (i.e., field-level repair, depot-level repair, Army pre-positioned stock,
    and recapitalization--rebuild) and procurement (i.e.,
    recapitalization--upgrade and replacement). However, Army officials stated
    that they had to extrapolate these numbers because the data were not
    tracked that way at the onset of operations.

    ^23 [34]GAO-07-76 and [35]GAO-05-293 .

    ^24Army FRAGO, FY07 Reset FRAGO (Sept. 29, 2006).

    ^25Equipment reset is one element of the services' overall equipment
    strategies. For example, the Army leverages all available equipment such
    as left behind equipment, theater-provided equipment, and new procurement
    as part of its overall equipping strategy within the ARFORGEN
    implementation strategy of which reset is a component. The Marine Corps'
    strategic ground equipment working group (SGEWG) implements the
    Commandant's guidance and prioritizes equipment distribution as part of an
    overall decision-making process employed by the Commandant of the Marine
    Corps.

    ^26Nondeployed units reporting readiness under the Unit Status Reporting
    System include units preparing to deploy.

    We are recommending that the Secretary of Defense direct the Under
    Secretary of Defense, Comptroller to amend the FMR to require a more
    detailed accounting of obligations and expenditures within the procurement
    accounts for equipment reset, similar to the services' reporting of reset
    obligations and expenditures within the operation and maintenance
    accounts.^28 We are also recommending that the Secretary of Defense direct
    the Secretary of the Army and Commandant of the Marine Corps to assess
    their approaches to equipment reset to ensure that their priorities
    address equipment shortages in the near term to minimize operational risk
    and meet the needs of deploying units.

    In commenting on a draft of this report, the department did not agree with
    either of our two recommendations. DOD stated that formalizing procedures
    by amending the FMR would be unwieldy and cost prohibitive and that
    creating additional line items for each procurement program would add
    complexity and duplication to existing reports. The intent of our
    recommendation is not that the department create a complex accounting
    system within each procurement account. Rather, we are recommending that
    the department report reset obligations and expenditures at the sub-cost
    category level, similar to the operation and maintenance accounts to
    provide Congress with the visibility it needs to identify the types of
    equipment that are being procured with the reset funds it appropriates,
    such as aircraft, vehicles, or communication and electronic equipment. We
    have modified our recommendation to be clearer as to the level of detail
    we are recommending for the reporting of obligations and expenditures in
    the procurement accounts and added a matter for congressional
    consideration suggesting that Congress should consider directing the
    Secretary of Defense to direct the Under Secretary of Defense,
    Comptroller, to amend the FMR. Regarding our second recommendation, DOD
    stated that there is no need to direct the services to assess their
    approaches to reset because the services already continually assess their
    approaches to reset. We continue to believe that the Army's and Marine
    Corps' equipment reset implementation strategies should target short-term
    equipment shortages for deploying units and units preparing for deployment
    rather than long-term modernization goals, which would be more consistent
    with both the Army's and Marine Corps' definitions and goals for their
    reset programs. DOD also provided a number of technical comments, which we
    considered and incorporated as appropriate. DOD's comments and our
    evaluations are discussed in detail in a later section of this report.
    DOD's written comments are reprinted in appendix IV.

    ^27Marine Posture Statement, Statement before the Senate Committee on
    Armed Services, 110th Cong. (2007) (statement of Gen. James T. Conway,
    Commandant of the Marine Corps).

    ^28In response to a recommendation from a GAO report ( [36]GAO-05-293 ),
    DOD modified its Cost of War report to break down into further detail the
    operation and maintenance reconstitution category into field-,
    intermediate-, and depot-level maintenance. According to an OSD official,
    in January 2007, DOD amended its financial management regulations to
    establish reset-specific categories within operation and maintenance
    (i.e., field-, intermediate-, and depot-level maintenance) and one overall
    reset-specific category within procurement.

    Background

    As a result of operations related to OIF, the Army and Marine Corps
    continue to face an enormous challenge to reset their equipment due to the
    increased usage of equipment, pace of operations, and amount of equipment
    to be reset. At the onset of operations in 2003, the Army and Marine Corps
    deployed with equipment that in some cases was already more than 20 years
    old. As of January 2007, about 25 percent of the Army's total on-hand
    wheeled and tracked vehicles and about 19 percent of the Army's rotary
    wing aircraft were deployed to OIF/ OEF. In addition, in March 2007 the
    Commandant of the Marine Corps testified that approximately 30 percent of
    all Marine Corps ground equipment and nearly 25 percent of Marine Corps
    active duty aviation squadrons are engaged overseas.^29 Most of the Marine
    Corps equipment is not rotating out of theater at the conclusion of each
    force rotation due to low equipment density. Appendix III provides a
    comparison of Army and Marine Corps ground equipment and rotary aircraft
    deployed to OIF/OEF to total equipment on hand.

    ^29Marine Posture Statement, Statement before the Senate Committee on
    Armed Services, 110th Cong. (2007) (statement of Gen. James T. Conway,
    Commandant of the Marine Corps).

    As we stated in our January 2007 testimony,^30 the services are operating
    this equipment at a pace well in excess of peacetime operations. The harsh
    operating environments in Iraq and environmental factors such as heat,
    sand, and dust have taken a toll on sensitive components. Troop levels and
    the duration of operations are also factors that affect funding
    requirements. Army officials have recently testified that the Army's truck
    fleet is experiencing an operational tempo that is five to six times the
    peacetime rate, causing excessive wear that is further exacerbated by the
    addition of heavy armor kits required to enhance force protection.^31
    Marine Corps officials also testified that ground equipment and rotary
    wing aircraft are experiencing operational tempos from two to five times
    the peacetime rate, thus increasing equipment maintenance and replacement
    costs.^32

    The Army generally defines equipment reset as the repair,^33
    recapitalization, or replacement of equipment in accordance with the
    standardized definition OSD and the services began using in 2006.^34
    Repairs can be made at the field level or sustainment (depot) level. Army
    field level maintenance is intended to bring equipment back to the 10/20
    series Technical Manual standard, and is usually performed at
    installations where the equipment is stationed.^35 Sustainment-level
    maintenance is work performed on equipment that exceeds field-level reset
    capabilities. Sustainment-level maintenance may be done at Army depots by
    contractors, by installation maintenance activities, or a combination of
    the three, and is coordinated by the Army Materiel Command. Army officials
    testified in January 2007 that from the beginning of combat operations
    through the end of fiscal year 2006, the Army has reset more than 200,000
    pieces of equipment and plans to reset about 117,000 major items of
    equipment in fiscal year 2007.

    ^30 [37]GAO-07-439T .

    ^31Army Equipment Reset, Gen. Charles Anderson, Director Force
    Development, Army G-8, et al., Statement before the House Committee on
    Armed Services, Subcommittees on Readiness and Air and Land Forces (Jan.
    31, 2007).

    ^32U.S. Marine Corps and U.S. Navy Reset Requirements, Statement before
    the House Committee on Armed Services, Subcommittees on Readiness and
    Seapower and Expeditionary Forces, 110th Cong. (2007) (statement of Lt.
    Gen. Emerson N. Gardner, Jr., Deputy Commandant Programs and Resources,
    U.S. Marine Corps).

    ^33Repair includes the special technical inspection and repair of
    aircraft.

    ^34According to an OSD official, during the summer of 2006, OSD and the
    services began using a standardized definition of reset. Reset is defined
    as actions taken to restore units to a desired level of combat capability
    with the units' future mission. It encompasses maintenance and supply
    activities that restore and enhance combat capability to unit and
    pre-positioned equipment that was destroyed, damaged, stressed, or worn
    out beyond economic repair due to combat operations by repairing or
    rebuilding the equipment or procuring replacement equipment. Included are
    major repairs/overhauls and recapitalization (rebuild or upgrade) funded
    by procurement; research, development, test, and evaluation; and operation
    and maintenance that enhance existing equipment through the insertion of
    new technology or restore selected equipment to a zero-miles/zero-hours
    condition.

    The Marine Corps initially defined equipment reset as restoring/enhancing
    combat capability to its pre-OIF/OEF condition and included
    recapitalization, reconstitution, and modernization of equipment.^36 The
    Commandant of the Marine Corps recently testified that the Marine Corps
    moved depot maintenance and attrition losses from cost of war^37 to reset,
    which increased its fiscal year 2007 reset estimate, following the
    adoption of the standardized definition of reset costs across the services
    during the summer of 2006.^38 Reset estimates are in addition to cost of
    war estimates. Equipment returning from combat theaters is evaluated and
    transported to either a maintenance depot or to a Marine Corps unit's home
    station for repair. Equipment is repaired to a "Code A" condition, which
    means that the unit restores a majority of the usable life remaining on
    all major components or to like-new condition but is not considered to be
    in a zero-miles/zero-hours condition.

    Recapitalization includes rebuilding or repairing equipment to a level
    that improves the performance capabilities of the equipment or returns the
    equipment to a zero-miles/zero-hours level. The objectives of the Army's
    recapitalization process include extending sequipment service life;
    reducing operating and support costs; enhancing capability; and improving
    system reliability, maintainability, safety, and efficiency. The Army
    recapitalizes equipment either at depots/arsenals with Army Materiel
    Command, the original equipment manufacturer, or a partnership of the two
    overseeing operations. The Marine Corps has established a principle end
    item rotation plan, which essentially rebuilds equipment and extends its
    service life. This maintenance is done at the depot level.

    ^35Army reset cost estimates do not include contractor logistics support
    for equipment readiness, field-level maintenance required to keep
    equipment operational, or the replacement of ammunition.

    ^36The Marine Corps reset model further breaks down recapitalization,
    reconstitution, and modernization into a total of 16 categories, for
    example, pre-positioned equipment. See app. II for a complete list of the
    16 reset categories.

    ^37Costs of war are the costs associated with personnel, personnel
    support, operations, and transportation.

    ^38Marine Posture Statement, Statement before the Senate Committee on
    Armed Services, 110th Cong. (2007) (statement of Gen. James T. Conway,
    Commandant of the Marine Corps).

    Replacement is the procurement of new equipment to replace battle losses,
    washouts, and critical equipment deployed and left in theater but needed
    for homeland defense and homeland security and other critical missions.
    Army officials recently testified that the Army is replacing and upgrading
    more than 50,000 pieces of equipment in fiscal year 2007. The types of
    equipment the Army plans to replace range from Apache, Black Hawk, and
    Chinook helicopters; ground combat vehicles such as Abrams Tanks and
    Bradleys; and wheeled vehicles such as Strykers and HMMWVs. The Army's
    fiscal year 2007 requirement for procurement or investment of major items
    of equipment is $8.5 billion, which includes $2.5 billion to replace
    reserve component equipment left in theater as theater-provided
    equipment.^39 Marine Corps officials testified^40 that a significant
    portion of their reset requirement is for the replacement of equipment.
    For example, of the total $10.2 billion requirement, the Marine Corps has
    received $8.8 billion from fiscal year 2006 through fiscal year 2007 for
    procurement of new equipment.

    Army and Marine Corps reset funding generally includes ground and aviation
    equipment, combat losses, and pre-positioned equipment. The services fund
    field-level and some depot-level maintenance from the operation and
    maintenance appropriations, while procurement appropriations fund most
    recapitalization and all procurement of new equipment as part of reset.
    The Army's fiscal year 2007 reset execution plan includes about 46 percent
    operation and maintenance funding and 54 percent procurement funding,
    while the Marine Corps plan includes about 16 percent operation and
    maintenance funding and 84 percent procurement funding. Table 1 provides a
    breakdown of Army and Marine Corps reset execution funding plans for
    fiscal year 2007.

    ^39Theater-provided equipment includes major equipment items, such as
    up-armored HMMWVs left in theater by units returning to the United States
    and retained in theater to hand off to follow-on units. The Army has
    designated these items as critical for OIF/OEF missions.

    ^40U.S. Marine Corps and U.S. Navy Reset Requirements, Statement before
    the House Committee on Armed Services, Subcommittees on Readiness and
    Seapower and Expeditionary Forces, 110th Cong. (2007) (statement of Lt.
    Gen. Emerson N. Gardner, Jr., Deputy Commandant Programs and Resources,
    U.S. Marine Corps).

    Table 1: Breakdown of Army and Marine Corps Fiscal Year 2007 Reset
    Execution Funding Plans

                            Army              Marine Corps
                           Dollars
                                in     Percentage       Dollars in Percentage
    Reset category     billions       of total       billions^a   of total
    Repair (operation
    and maintenance)       $7.8  46                                   $0.9  16
    Field-level
    maintenance             3.7
    Sustainment-level
    maintenance             4.1
    Recapitalization        4.3  25
    Rebuild (operation
    and maintenance)        0.7
    Upgrade
    (procurement)           3.6
    Replacement
    procurement)            5.0  29                                    4.9  84
    Total FY 07
    funding^b             $17.1 100                                   $5.8 100

    Sources: Army G-8 and Marine Corps' Programs and Resources Contingency
    Cell.

    aTotal $5.8 billion reset funding includes $0.7 billion initially
    appropriated for procurement of Mine Resistant Ambush Protected vehicles
    (MRAP) that was later reclassified as a cost of war, not reset.

    bArmy and Marine Corps reset funding includes funding for ground and
    aviation equipment, combat losses, and pre-positioned equipment. In
    addition to operation and maintenance and procurement appropriations, the
    Marine Corps also receive funds from Operation and Maintenance Navy, Navy
    Aircraft Procurement, Navy Weapons Procurement, and Navy Other Procurement
    appropriation accounts. The Marine Corps reset funding also includes about
    $8 million from the Research and Development appropriation account.

    The services' fiscal year 2007 reset execution plans reflect assumptions
    made about the condition of equipment at the end of operations and each
    service's equipping philosophy. For example, prior to OIF/OEF, Army units
    traditionally deployed and redeployed with their own equipment sets and
    rotated equipment back to the United States when equipment required
    repairs that exceeded field-level maintenance capabilities. After
    operations began, the Army developed and implemented initiatives to keep
    large amounts of equipment in theater (known as theater-provided
    equipment) in order to maintain high equipment readiness rates for combat
    units and improve availability of equipment in theater. The Army
    calculates reset funding requirements each year based on the projected
    amount of equipment returning during the following fiscal year that can be
    repaired in that fiscal year and on the documented losses that have
    occurred. Army officials estimate that about 15 percent of equipment will
    be recapitalized or replaced and about 85 percent will be repaired after
    operations cease. In contrast, the Marine Corps, as an expeditionary
    service, traditionally leaves equipment in theater for subsequent rotating
    forces. Equipment remains in use on a near-continuous basis at an
    operating tempo that far exceeds normal peacetime usage. Rotation of
    equipment was not possible after operations began because spare equipment
    was not available for use while equipment was in depot maintenance. Marine
    Corps officials recently testified that they have developed a principal
    end item rotation plan that allows equipment to be sent back to the United
    States for depot-level maintenance cycles. This rotation plan extends the
    service life and applies the latest technology available to ensure that
    the best possible equipment is returned to theater. Marine Corps officials
    estimate that more than 80 percent of equipment will be replaced and about
    20 percent will be repaired after operations cease.

    Over the past several years, we have reported on equipment reset concerns,
    including the lack of equipment program strategies, poor condition of
    pre-positioned equipment, and challenges related to replacing Army
    National Guard equipment left in the OIF theater to support ongoing
    operations. For example, for certain equipment items, the Army and Marine
    Corps have not developed complete sustainment, modernization, and
    replacement strategies or identified funding needs for all priority
    equipment such as the Army's Bradley and Marine Corps' CH-46E Sea Knight
    helicopter.^41 Also, because DOD has drawn heavily on pre-positioned
    stocks to support ongoing operations in Iraq, it faces some near-term
    operational risks should another large-scale conflict emerge.^42 Moreover,
    Army National Guard inventories have been depleted by strategies requiring
    large amounts of equipment to be left in theater to equip other units, and
    the Guard will likely face growing shortages and challenges in regaining
    readiness for future missions until plans to replace this equipment are
    implemented and completed.^43 In our report on reliability of contingency
    operations obligations data, we found that while DOD had taken steps to
    improve its cost-reporting procedures, lack of transparency and
    inaccuracies in reported contingency operations obligations continue to
    exist.^44 Similarly, we have reported that DOD was unable to accurately
    track and report equipment reconstitution^45 costs in its supplemental
    budget requests because the services' accounting codes were capturing
    contingency operations and other obligations that were not incurred
    exclusively for equipment reconstitution. We recommended that the
    Secretary of Defense direct the services to develop comprehensive and
    consistent methods for tracking and reporting equipment reconstitution
    obligations, which include equipment repair, replacement, and
    recapitalization, collectively known as reset. In response to our
    recommendation, DOD has revised its FMR to improve reporting of equipment
    reconstitution by providing a more detailed breakdown of the equipment
    reconstitution category within the operation and maintenance account for
    the monthly Supplemental and Cost of War Execution Reports but did not
    address the procurement accounts. DOD now reports operation and
    maintenance equipment reconstitution costs by organizational-level
    maintenance, intermediate-level maintenance, depot-level maintenance, and
    contractor logistics support. However, until additional actions are taken,
    such as improving the services' financial systems' ability to track
    obligations, we stated that our recommendation will not be fully
    implemented. In addition to these concerns, we also have reported on
    long-standing concerns about DOD's accounting systems^46 and personnel
    issues,^47 which could also have an impact on equipment reset. Moreover,
    Congress has required the Secretary of Defense to submit detailed
    information on reset expenditures for each of the services with their
    annual budget requests as part of the Fiscal Year 2007 National Defense
    Authorization Act.^48

    ^41 [38]GAO-04-112 and [39]GAO-06-141 .

    ^42 [40]GAO-07-144 and [41]GAO-05-427 .

    ^43 [42]GAO-06-170T .

    ^44 [43]GAO-07-76 and [44]GAO-05-293 .

    ^45At the time of that report ( [45]GAO-05-293 ), the term
    reconstitution,was used instead of reset. Reconstitution was defined as
    units restoring their equipment to a condition that enables them to
    conduct training exercises, achieve required readiness levels, and prepare
    for future deployments.

    ^46 [46]GAO-06-111 .

    ^47 [47]GAO-05-293 .

    Army and Marine Corps Do Not Report Expenditures within Procurement Accounts in
    a Way That Confirms That Funds Appropriated for Reset Are Expended for That
    Purpose

    Although the Army and Marine Corps track and report equipment reset
    expenditures in the operation and maintenance accounts in detail, they do
    not report detailed equipment reset expenditures within the procurement
    accounts in a way that confirms that funds appropriated for reset are
    expended for that purpose because there is no requirement to report
    procurement expenditures beyond what is required by the DOD FMR. While the
    Conference Report accompanying the DOD appropriations act for 2007
    directed the Secretary of Defense to periodically provide a detailed
    accounting of obligations and expenditures of funds provided in Title IX
    of the act, which includes funds provided for reset, by program and
    subactivity group^49 and to provide a listing of equipment procured using
    funds appropriated under Title IX of this act,^50 the Army and Marine
    Corps are not legally required to provide this more detailed level of
    accounting. The Army and Marine Corps currently track and report
    obligations and expenditures at detailed levels within the operation and
    maintenance accounts, consistent with this guidance. However, despite the
    fact that they track reset obligations and expenditures in detail within
    the procurement accounts, they do not report those expenditures at the
    same level of detail. Between fiscal years 2003 through 2007 the Army
    received more than $14 billion in reset funding for procurement of new
    equipment. The Marine Corps received about $8 billion from fiscal year
    2006 through fiscal year 2007 for procurement of new equipment as well.
    Army and Marine Corps officials stated that they could provide an
    historical accounting of those reset obligations and expenditures if
    required to do so. As we recently testified, as of fiscal year 2007, the
    Army has begun to track and report obligations and expenditures in its
    operation and maintenance account, as directed by the Conference Report.
    According to Army officials, the Army segregates the cost of reset from
    other costs and tracks expenditures to ensure funds appropriated for this
    purpose are expended for this purpose. The Army has also designated
    separate codes to capture cost data within the financial accounting system
    within the operation and maintenance accounts broken down by Army
    pre-positioned stocks, depot maintenance, recapitalization, aviation
    special technical inspection and repair, and field maintenance. Each of
    the Army's commands uses these codes to record the execution of operation
    and maintenance reset funds. The Defense Finance and Accounting Service
    collects these reset cost data and provides them to the Army for various
    reports on the status of reset obligations and expenditures. Unlike the
    Army, the Marine Corps began tracking reset execution in its operation and
    maintenance account when it began receiving reset funding in fiscal year
    2006. The Marine Corps established a special interest code within its
    financial management systems to identify operation and maintenance
    obligations and expenditures related to equipment reset.

    ^48John Warner National Defense Authorization Act for Fiscal Year 2007,
    Pub. L. No. 109-364, S 323 (2006).

    ^49While the Conference Report does not specifically make reference to the
    operation and maintenance and procurement accounts, these are the two
    accounts through which DOD funds equipment reset.

    ^50H.R. Conf. Rep. No. 109-676, at 359 (2006), which accompanied the
    Department of Defense Appropriations Act, 2007, Pub. L. No. 109-289
    (2006).

    Neither the Army's nor the Marine Corps' monthly Supplemental and Cost of
    War Execution Reports further breaks down the procurement accounts similar
    to the way the services break down the operation and maintenance accounts
    at the sub-cost category level. Currently, the DOD FMR does not require
    accounting for reset obligations and expenditures at detailed sub-cost
    category levels within the procurement accounts.^51 The monthly reports
    reflect one line item for reset within the procurement accounts. The FMR
    reset sub-cost category includes the funding for major repairs/overhauls
    and recapitalization of equipment^52 within the procurement and research,
    development, test, and evaluation accounts. Table 2 compares sub-cost
    categories for the operation and maintenance and procurement accounts for
    the monthly Supplemental and Cost of War Execution Reports as prescribed
    by the Financial Management Regulation.

    ^51DOD Federal Management Regulation, vol. 12, ch. 23, "Contingency
    Operations Cost Categories and Definitions," S 230406. The reset sub-cost
    category applicable to procurement funds, 6.1.7, encompasses procurement
    activities that restore and enhance combat capability to unit and
    pre-positioned equipment that was destroyed, damaged, stressed, or worn
    out beyond economic repair due to combat operations by procuring
    replacement equipment and includes major repairs, overhauls, and
    recapitalization funded through both procurement and research,
    development, test, and evaluation.

    ^52Recapitalization within the procurement sub-cost category includes
    rebuilds or upgrades that enhance existing equipment through new
    technology or restore selected equipment to a zero-miles/zero-hours
    condition.

    Table 2: Comparison of Army and Marine Corps Sub-cost Categories within
    the FMR for Operation and Maintenance and Procurement Accounts

                                                     Procurement sub-cost
    Operation and maintenance sub-cost categories categories
    Reset organizational-level maintenance        Reset
    Reset intermediate-level maintenance
    Reset depot-level maintenance
    Reset contractor logistic support

    Sources: DOD Supplemental and Cost of War Execution Reports.

    As shown in table 2, the Army and Marine Corps report reset costs at a
    more detailed level within the operation and maintenance accounts than the
    procurement accounts. Operation and maintenance reset organizational-level
    and intermediate-level maintenance includes equipment repairs/overhauls,
    and reset depot-level maintenance includes equipment rebuilding that would
    improve performance capabilities or extend the service life of the
    equipment. Procurement reset funds the replacement or upgrade of
    equipment.

    The Army provides additional monthly reports to Congress detailing the
    status of procurement reset obligations in total dollars as well as a
    summary of the number of equipment items replaced or recapitalized;
    however, it does not provide a breakdown of the dollars associated with
    those quantities. The Marine Corps does not provide these additional
    reports because it was not required or requested to provide such reports
    but could provide reports at the budget line item detail level if
    requested. The process for tracking the execution of reset funding within
    the Army's procurement account involves communications with the individual
    program executive offices and managers for the purchase of equipment
    included under reset. Funds that come from reset appropriations are
    designated as such in funding authorization documents that are sent to the
    program executive offices and managers. Once the program managers receive
    these funds, they execute the funding according to the specifications
    outlined in the funding authorization documents. The program managers
    update and report back to Army headquarters on a monthly basis on the
    numbers of equipment procured as well as the dollar amounts associated for
    reset. The Army tracks procurement obligations and expenditures manually
    outside the financial accounting system. As it has done with the operation
    and maintenance account, the Marine Corps established a special interest
    code within its financial management system beginning in fiscal year 2006
    to identify obligations and expenditures related to equipment reset within
    the procurement account.

    Until the Army and Marine Corps are required to report the obligation and
    expenditure of funds appropriated for reset in the procurement accounts at
    a more detailed level, similar to reporting of obligations and
    expenditures in the operation and maintenance accounts, they will be
    unable to ensure that these funds are being obligated and expended for
    equipment reset for deploying units and units deploying to Iraq and
    Afghanistan instead of other, more long-term equipment needs. Furthermore,
    Congress will not have the visibility it needs to exercise effective
    oversight and to determine if the amount of funding appropriated for
    equipment reset has been most appropriately used for the purposes
    intended. In addition, because the Army was not required to track the
    execution of its reset appropriations from the onset of operations, it
    initially did not have historical execution data^53 upon which to base
    future cost estimates. As we have reported, historical execution data
    would provide a basis for estimating future funding needs.^54 The
    Congressional Budget Office has also testified that better estimates of
    future reset costs could be provided to Congress if more information was
    available on expenditures incurred to date.^55 Without historical
    execution data, the Army must rely on assumptions and models based on its
    own interpretations of the definition of reset, and may be unable to
    submit accurate budget requests to obtain future reset funding.

    ^53Army officials initially stated that because they were not required to
    track execution data at the onset of operations they could not provide
    that historical data. Subsequently, Army officials provided execution data
    as of fiscal year 2002 broken down by operation and maintenance (i.e.,
    field-level repair, depot-level repair, Army pre-positioned stock, and
    recapitalization--rebuild) and procurement (i.e.,
    recapitalization--upgrade and replacement). However, Army officials stated
    that they had to extrapolate these numbers because the data were not
    tracked that way at the onset of operations.

    ^54 [48]GAO-07-76 and [49]GAO-05-293 .

    ^55Congressional Budget Office, Issues in Budgeting for Operations in Iraq
    and the War on Terrorism (Washington, D.C.: Jan. 18, 2007).

    Army and Marine Corps Cannot Be Assured That Reset Implementation Strategies
    Will Sustain Equipment Availability While Meeting Ongoing Operational
    Requirements

    The Army and Marine Corps cannot be assured that their reset
    implementation strategies will sustain equipment availability for deployed
    units as well as units preparing for deployment to Iraq and Afghanistan
    because neither the Army's nor the Marine Corps' reset implementation
    strategies target shortages of equipment on hand and prioritize needs of
    units preparing for deployment over longer-term modernization goals.^56
    According to the Army's ARFORGEN implementation strategy and reset
    implementation guidance,^57 the primary goal of reset is to prepare units
    for deployment and to improve next-to-deploy units' equipment-on-hand
    levels. However, the Army's reset implementation strategy is not based on
    aggregate equipment requirements to improve the equipment-on-hand levels
    of units preparing for deployment to Iraq and Afghanistan. Instead, the
    Army's reset implementation strategy is based on resetting equipment that
    it expects will be returning to the United States in a given fiscal year.
    Similarly, the Marine Corps' reset goal is to ensure that the Corps is
    equipped to perform both ongoing operations and other future missions;
    however, more than 80 percent of the Marine Corps' fiscal year 2006 and
    fiscal year 2007 reset budget requests are for procurement of new
    equipment that will not be available for many months. Although deployed
    Army and Marine Corps units and units about to deploy generally report
    high reported readiness rates, the services have reported a decrease in
    nondeployed units' reported readiness rates. Furthermore, the Army's and
    Marine Corps' reset implementation strategies do not ensure that reset of
    equipment needed to support units that are preparing for deployment are
    given priority over other longer-term equipment needs, such as equipment
    modernization in support of the Army's modularity initiative, because
    reset implementation strategies are not linked to meeting deploying unit
    equipment needs.

    ^56Equipment reset is one element of the services' overall equipment
    strategies. For example, the Army leverages all available equipment, such
    as left behind equipment, theater-provided equipment, and new procurement
    as part of its overall equipping strategy within the ARFORGEN
    implementation strategy of which reset is a component. The Marine Corps'
    SGEWG implements the Commandant's guidance and prioritizes equipment
    distribution as part of an overall decision-making process employed by the
    Commandant of the Marine Corps.

    ^57Army FRAGO, FY07 Reset Frago (Sept. 29, 2006).

    Reset Implementation Strategies Do Not Target Shortages of Equipment on Hand to
    Mitigate Operational Risk

    The Army and Marine Corps reset implementation strategies do not
    specifically target shortages of equipment on hand among units preparing
    for deployment to Iraq and Afghanistan in order to mitigate operational
    risk.^58 Although deployed Army and Marine Corps units and units about to
    deploy generally report high reported readiness rates, the services have
    reported a decrease in nondeployed units' reported readiness rates, in
    part due to equipment shortages. According to the Army's ARFORGEN
    implementation strategy and reset implementation guidance,^59 the primary
    goal of reset is to prepare units for deployment and to improve
    next-to-deploy units' equipment-on-hand levels. Army officials stated that
    reset prepares next-to-deploy units for missions that could include either
    current (e.g., OIF/OEF) or future (e.g., full-spectrum contingency
    operations) missions. However, as we have testified,^60 some units
    preparing for deployment have reported shortages of equipment on hand, as
    well as specific equipment item shortfalls that affect their ability to
    carry out their missions. For example, according to an Army unit preparing
    to deploy, the model HMMWVs the unit was given to train with were limited
    in number and were significantly different from the armored HMMWVs it was
    expecting to use while in theater. While the Army's plan to recapitalize
    more than 7,500 (HMMWV) in fiscal year 2007 at a cost of $455 million may
    raise overall HMMWV equipment-on-hand levels of nondeployed units in the
    United States, Army officials have stated that this recapitalization
    program will not directly provide HMMWVs to train or equip units deploying
    for OIF missions. This is because the HMMWVs produced by the
    recapitalization program are unarmored and do not offer adequate force
    protection, and thus are not being deployed to the OIF theater. Moreover,
    these HMMWVs have limited training value for deploying units primarily
    because the unarmored HMMWVs have different handling characteristics and
    configurations than the armored HMMWVs used in Iraq. In addition, Army^61
    and Marine Corps^62 unit commanders preparing for deployments may
    subjectively upgrade their units' overall readiness levels, which may mask
    the magnitude of equipment shortfalls. For example, some deploying units
    may report high readiness rates even though unit commanders have noted
    equipment shortages in the readiness reports' remarks sections with plans
    to fall in on theater-provided equipment.^63 As we have testified,^64
    since 2003, deploying units have continued to subjectively upgrade their
    overall readiness as they approach their deployment dates, despite
    decreasing overall readiness levels among those same units. Units can
    continue to report shortages throughout their training cycles that affect
    their ability to train. Army leaders have testified to Congress that
    timely reset of equipment is fundamental to enabling them to sustain their
    current global commitments as well as prepare for emerging threats.
    However, since the Army's current reset planning process is based on
    resetting equipment that it expects will be returning to the United States
    in a given fiscal year, and is not based on aggregate equipment
    requirements to improve the equipment-on-hand levels of deploying units,
    the Army cannot be assured that its reset programs will provide sufficient
    equipment to train and equip deploying units for ongoing and future
    requirements.

    ^58The Army defines operational risk as the ability to achieve military
    objectives in a near-term conflict or other contingency.

    ^59The Army's fiscal year 2007 framework for reset, FRAGO, provides
    details on equipment-related reset with the desired end state of rapidly
    restoring the capability of the Army to meet current and future Combatant
    Commander operational demands.

    ^60 [50]GAO-07-439T .

    ^61Army Regulation 220-1Field Organizations: Unit Status Reporting (Dec.
    19, 2006).

    ^62Marine Corps Order P3000.13D, Marine Corps Status of Resources and
    Training System Standing Operating Procedures (Apr. 17, 2002).

    While the Marine Corps' reset implementation strategy is focused on
    ensuring that the Marine Corps is equipped to perform both ongoing
    operations and future missions, their priority for equipment reset is to
    support deployed forces. This strategy reflects Marine Corps leaders'
    expectations that short-term deployed unit requirements can be met by
    using equipment currently deployed to the OIF theater, and that in the
    long term, much of that deployed equipment will ultimately need to be
    replaced, based on the expectation that many items will be damaged or
    degraded beyond economical repair. In order to maintain high mission
    capable rates for deployed forces and ensure that units preparing to
    deploy have sufficient equipment to conduct predeployment training
    programs, the Marine Corps has supplemented the equipment deployed to the
    OIF theater by drawing additional equipment from its maritime
    pre-positioning ships and pre-positioned stocks in Norway. In addition, it
    continues to cross-level and redistribute equipment across the Corps.
    Actions required to support this strategy have adversely affected
    readiness of nondeployed units with a decrease in nondeployed Marine Corps
    unit readiness. As a result, the Marine Corps has had to make trade-offs
    between unit training for other types of contingencies and units preparing
    to deploy to OIF. Marine Corps leaders have testified on the critical role
    that reset plays in ensuring that deployed and nondeployed reported
    equipment readiness rates remain acceptable. While the reported readiness
    rates of Marine Corps units deployed to the OIF theater remain high,
    Marine Corps officials have recognized the need to continue to invest in
    the readiness of deployed equipment--both through the purchase of
    replacement equipment and through increased rotation of major deployed
    equipment items in maintenance facilities in the OIF theater and the
    United States. The Marine Corps' goal for its reset funding requests for
    fiscal year 2006 and fiscal year 2007 was to address the aggregate set of
    equipment shortfalls created by the impact of OIF and OEF on its equipment
    inventories. Beginning in fiscal year 2005, the Marine Corps conducted a
    detailed appraisal of the impact of OIF and OEF on its equipment based on
    a set of business rules and assumptions on what types of shortfalls could
    be included in its reset estimate, and like the Army, made item-by-item
    decisions on whether to repair, recapitalize, or replace each item. Its
    final reset requirement addressed three major categories of equipment
    needs: requirements to replace equipment committed to OIF operations in
    Iraq, Afghanistan, and the Horn of Africa as well as related shortfalls in
    the United States; reconstitution of pre-positioned equipment and other
    strategic reserves; and modernization requirements to provide equipment
    needed to support OIF-related force structure needs, such as special units
    created to train Iraqi forces and other foreign military forces.
    Reflecting the emphasis on replacing equipment, more than 80 percent of
    the Marine Corps' reset funding for fiscal years 2006 and 2007 is for
    procurement.^65

    ^63Army and Marine Corps commanders report readiness for deployments using
    "percent effective" ratings that capture the unit commander's overall
    assessment of his/her unit's ability to perform its current mission
    despite low levels of equipment on hand, equipment serviceability, or
    personnel readiness categories that would result in lower overall
    "C-Ratings," which units typically use to report readiness.

    ^64 [51]GAO-07-439T .

    Until the services' reset implementation strategies target shortages of
    equipment needed to equip units preparing for deployment, the Army and
    Marine Corps will be unable to minimize operational risk by ensuring that
    the needs of deploying units can be met.

    ^65According to DOD officials, the level of spending on replacement versus
    recapitalization is high because of low equipment density.

    Reset Implementation Strategies Do Not Give Priority to Deploying Unit Equipment
    Needs over Longer-Term Equipment Needs

    The Army's and Marine Corps' reset implementation strategies do not ensure
    that the repairing, replacing, and recapitalization of equipment needed to
    support units that are preparing for deployment are being given priority
    over other longer-term equipment needs because reset implementation
    strategies are not linked to meeting deploying unit equipment needs.
    Although Army reset implementation strategies are primarily based on plans
    for repairing, recapitalizing, or replacing equipment returning from
    overseas theaters in a given fiscal year, the Army's reset strategy also
    has included funding requests for certain items to accelerate achieving
    longer-term strategic goals under the Army's modularity initiative. For
    example, in addition to the planned fiscal year 2007 sustainment-level
    reset of almost 500 tanks and more than 300 Bradleys expected to return
    from the OIF theater, the Army also intends to spend approximately $2.4
    billion in fiscal year 2007 reset funds to take more than 400 Abrams Tanks
    and more than 500 Bradleys from long-term storage or from units that have
    already received modernized Bradleys for depot-level upgrades. These
    recapitalizations will allow the Army to accelerate its progress in
    achieving a modular force structure^66 by providing modernized Abrams
    Tanks and Bradleys to several major combat units 1 or 2 years ahead of
    schedule. Army officials believe achieving these modularity milestones for
    Abrams Tanks and Bradleys will achieve greater commonality in platforms
    and reduce overall logistical and financial requirements by reducing the
    number of variants that must be supported. However, accelerating
    modernization programs to achieve a modular force structure may be
    sacrificing short-term needs for longer-term goals.

    The Marine Corps' reset planning process does not include an evaluation of
    trade-offs between the shorter-term need to improve the degraded readiness
    of Marine Corps units in the United States against longer-term
    requirements for procurement to replace deployed items that may not affect
    readiness for some time.^67 For example, the Marine Corps has requested
    supplemental appropriations to procure 3,700 MRAPs to replace HMMWVs,
    while also planning to procure additional HMMWVs as part of reset to
    replace older variants and deployed A2 HMMWVs severely degraded due to OIF
    missions.^68 However, many of these HMMWVs will not be fielded for more
    than 2 years. In the short term, the Marine Corps needs the MRAPs for
    increased force protection while the requirement for HMMWV replacements
    will continue beyond OIF/OEF. Until reset implementation strategies are
    linked to equipment needs of deploying units, the Army and Marine Corps
    will be unable to prioritize their reset plans and funding to ensure that
    the short-term needs of deploying units can be met.

    ^66The Army Modular Heavy Brigade Combat Team (HBCT) force structure calls
    for 31 HBCTs equipped with combinations of two different types of Abrams
    Tanks and Bradleys. Seventeen HBCTs would be equipped with the digitized
    Abrams M1A2 System Enhancement Program Tanks and digitized M2A3 Bradleys.
    The remaining 14 HBCTs would be equipped with the Abrams M1A1 Integrated
    Management Tanks and Bradley Operation Desert Storm upgraded vehicles.

    ^67According to DOD officials, the Marine Corps' reset strategy of
    replacement versus recapitalization is high because of low equipment
    density.

    Conclusions

    Since fiscal year 2002, Congress has appropriated more than $38 billion
    for Army equipment reset and about $10.9 billion for the Marine Corps. In
    addition, the Army estimates that future funding requirements for
    equipment reset will be about $12 billion to $13 billion per year for the
    foreseeable future. The Marine Corp estimates that its future funding
    requirements for equipment reset will be about $2 billion to $3 billion.
    At a time when the nation faces increased financial constraints, it is
    important for both DOD and Congress to be in a position to weigh the
    trade-offs between competing requirements and risk associated with
    degraded equipment readiness, so that they can make sound investment
    decisions on the use of the reset funding. Until the Army and Marine Corps
    are required to report the obligation and expenditure of funds
    appropriated for reset in the procurement accounts at a more detailed
    level, similar to reporting of obligations and expenditures for the
    operation and maintenance accounts, they will be unable to ensure that
    these funds are being obligated and expended for equipment reset for
    deploying units and units deploying to Iraq and Afghanistan instead of
    other, more long-term equipment needs. Furthermore, Congress will not have
    the visibility it needs to exercise effective oversight and to determine
    if the amount of funding appropriated for equipment reset has been most
    appropriately used for the purposes intended.

    The Army's and Marine Corps' reset implementation strategies need to
    ensure that priority is given to repairing, replacing, and modernizing the
    equipment that is needed to equip units preparing for deployment to Iraq
    and Afghanistan. The current shortages of equipment on hand for units that
    are preparing for deployment could potentially decrease overall force
    readiness if equipment availability shortages are not filled prior to
    these units' deployments. Without prioritizing reset implementation
    strategies and funding so that shortages of equipment on hand are
    targeted, the Army and Marine Corps will be unable to minimize operational
    risk by ensuring they maintain their ability to equip deploying units.
    Until reset implementation strategies are linked to equipment needs of
    deploying units, the Army and Marine Corps will be unable to prioritize
    their reset plans and funding to ensure that the short-term needs of
    deploying units are filled. Furthermore, as the Army and Marine Corps move
    forward with equipment reset, they will need to establish more transparent
    linkages among the objectives of their reset implementation strategies,
    the funds requested for reset, the obligation and expenditure of
    appropriated reset funds in both the operation and maintenance and
    procurement accounts, and equipment requirements and related priorities.

    ^68According to DOD officials, MRAPs are being procured exclusively for
    OIF and, as such, are considered a cost of war. Accordingly, the Marine
    Corps reclassified $0.7 billion of fiscal year 2007 reset funding as cost
    of war funding.

    Recommendations for Executive Action

    We are making the following two recommendations.

    To provide Congress with the visibility it needs to exercise effective
    oversight and to determine if the funding appropriated for equipment
    replacement and recapitalization within the procurement accounts has been
    most appropriately used for the purposes intended, we recommend that the
    Secretary of Defense direct the Under Secretary of Defense, Comptroller,
    to amend the FMR to require that the monthly Supplemental and Cost of War
    Execution Reports identify expenditures within the procurement accounts
    for equipment reset at more detailed sub-cost category levels, similar to
    reporting of obligations and expenditures in the operation and maintenance
    accounts.

    To ensure that the Army's and Marine Corps' reset implementation
    strategies target shortages of equipment needed to equip units preparing
    for deployment to Iraq and Afghanistan, we recommend that the Secretary of
    Defense direct the Secretary of the Army and Commandant of the Marine
    Corps to assess their approaches to equipment reset to ensure that their
    priorities address equipment shortages in the near term to minimize
    operational risk and ensure that the needs of deploying units can be met.

    Matter for Congressional Consideration

    Congress should consider directing the Secretary of Defense to direct the
    Under Secretary of Defense, Comptroller to amend the FMR in order to
    require a more detailed accounting of reset obligations and expenditures
    within the procurement accounts, similar to the department's reporting of
    reset obligations and expenditures within the operation and maintenance
    accounts. Specifically, as stated in our recommendations, the reporting of
    reset obligations and expenditures within the procurement accounts at more
    detailed sub-cost category levels would enhance the monthly Supplemental
    and Cost of War Execution Reports as well as provide greater visibility to
    Congress for exercising effective oversight and determining if the amount
    of funding appropriated for equipment reset has been most appropriately
    used for the purposes intended.

    Agency Comments and Our Evaluation

    In written comments on a draft of this report, DOD did not concur with our
    two recommendations. DOD's written comments are reprinted in appendix IV.

    Regarding the first recommendation that DOD direct the Office of Secretary
    of Defense, Comptroller, to amend the FMR to provide for a more detailed
    accounting of obligations and expenditures within the procurement accounts
    for equipment reset to enhance monthly Supplemental and Cost of War
    Execution Reports, DOD did not concur and stated that formalizing
    procedures at the DOD level through amending the FMR would be unwieldy and
    cost prohibitive. The department believes that the creation of additional
    detailed line items for each program involved in reset would add too much
    complexity and duplication to existing reports. DOD also stated that a
    single line item in each procurement account for all equipment reset,
    similar to the operation and maintenance account, would not adequately
    describe the individual equipment undergoing reset, whether replacement or
    overhaul. The intent of the recommendation is not that the department
    creates a complex accounting system within each procurement account.
    Rather, we are recommending that the department report reset obligations
    and expenditures at more detailed sub-cost category levels, similar to the
    operation and maintenance accounts, to provide Congress with the
    visibility it needs to identify the types of equipment that are being
    procured with the reset funds it appropriates, such as aircraft, vehicles,
    or communication and electronic equipment. We have modified our
    recommendation to be clearer as to the level of detail we are recommending
    for the reporting of obligations and expenditures in the procurement
    accounts.

    While the department believes handling the procurement accounts in the
    same manner as the operation and maintenance accounts would not be
    informative because the procurement accounts are considerably more complex
    than the operation and maintenance accounts, we continue to believe that
    the department should amend the DOD FMR to incorporate a more detailed
    breakdown of the procurement accounts similar to the way the Army and
    Marine Corps already track and report those obligations and expenditures
    in the operation and maintenance accounts. DOD further cited an
    alternative accounting method it is pursuing with the Defense Finance and
    Accounting Service, which DOD believes may increase visibility within the
    procurement account but not at the individual item level. However, DOD
    officials did not provide documentation on this new proposed accounting
    method when we requested it.

    Furthermore, subsequent to receiving agency comments, we noted that the
    June 2007 Supplemental and Cost of War Execution Report, received in
    mid-August, reflected a more detailed reporting of procurement sub-cost
    categories similar to what was suggested in our recommendation. According
    to DOD officials, this is an out-of-cycle change to improve visibility of
    reset and other program details related to GWOT. The FMR does not reflect
    this change nor does it define the new sub-cost categories. Consequently,
    we were unable to determine what funding was included in each sub-cost
    category. We believe that requiring a more detailed accounting of
    obligations and expenditures within the procurement accounts at the
    sub-cost category level, similar to reporting of obligations and
    expenditures in the operation and maintenance accounts, would provide
    Congress the visibility it needs to exercise effective oversight and
    determine if the amount of reset funding appropriated for equipment
    replacement and recapitalization is most appropriately used for the
    purposes intended. Army and Marine Corps officials have stated that they
    are currently able to track reset obligations and expenditures within the
    procurement accounts and already provide a similar level of detail in
    their budget justifications. Because the department did not agree with our
    recommendation, we have added a matter for congressional consideration
    suggesting that Congress should consider directing the Secretary of
    Defense to direct the Under Secretary of Defense, Comptroller, to amend
    the FMR in order to require a more detailed accounting of reset
    obligations and expenditures within the procurement accounts as is done
    within the operation and maintenance accounts. Specifically, as stated in
    our recommendations, a more detailed accounting of obligations and
    expenditures within the procurement accounts would enhance monthly
    Supplemental and Cost of War Execution Reports as well as provide greater
    visibility to Congress to exercise effective oversight and determine if
    the funding provided for reset within the procurement accounts is most
    appropriately used for the purposes intended.

    In response to our second recommendation that the Secretary of Defense
    direct the Secretary of the Army and Commandant of the Marine Corps to
    assess their approaches to equipment reset to ensure that their priorities
    address equipment shortages in the near term to minimize operational risk
    and ensure that the needs of deploying units can be met, DOD did not
    concur, stating that there is no need to direct the services to assess
    their approaches to reset because the services already continually assess
    their approaches to equipment reset. The department believes that the
    Army's overall equipping strategy, of which reset is a component, along
    with its prioritization scheme (the Dynamic Army Resource Priority List)
    address equipment shortages in the near term to equip units that are
    deployed or deploying. The department also stated in its comments that the
    Marine Corps employs a documented, standardized, and flexible reset
    strategy designed to meet both current operational requirements and
    long-term reconstitution strategies. While we acknowledge that reset is
    only one component of the services' overall equipping strategies and that
    the services have stated that their overall equipping strategies ensure
    that deployed units or deploying units are equipped as required, as we
    stated in our report, the Army's primary goal for equipment reset is to
    prepare units for deployment and to improve next-to-deploy units'
    equipment-on-hand levels, and the Marine Corps' priority for equipment
    reset is to support deployed forces. However, the Army's and Marine Corps'
    implementation of their reset strategies do not necessarily address
    shortages of equipment in the short term. Instead, the Army's
    implementation of its reset strategy is based on plans for repairing,
    recapitalizing, or replacing equipment returning from overseas theaters in
    a given fiscal year, while the Marine Corps' implementation of its reset
    strategy is based on ensuring that Marine Corps units are equipped to
    perform both ongoing operations and other future missions. Congress has
    appropriated tens of billions of dollars since fiscal year 2002
    specifically to address equipment reset concerns raised by the Army and
    Marine Corps about equipment degraded by military operations in Iraq and
    Afghanistan. However, as we stated in our report, the Army planned to
    spend $2.4 billion in fiscal year 2007 reset funding to take more than 400
    Abrams Tanks and more than 500 Bradleys from long-term storage for
    depot-level upgrades, which would accelerate its modernization program by
    1 to 2 years. As we stated in our report, the Army's primary goal for
    equipment reset is to prepare units for deployment and to improve
    next-to-deploy units' equipment-on-hand levels. Thus, we believe reset
    funding should address shortages of equipment needed to equip deploying
    units and units preparing for deployment rather than accelerating
    modernization programs in general by procuring equipment, which may not be
    available for several years, for other equipment strategies such as
    homeland defense and homeland security. Therefore, we continue to believe
    our recommendation is appropriate and relevant.

    Lastly, DOD provided technical comments to improve the accuracy and
    clarity of the report, which we have reviewed and incorporated in the
    report as appropriate. DOD's specific comments and our responses to them
    are discussed in detail in appendix IV. In summary, DOD disagreed with our
    statements regarding reporting requirements for funds appropriated for
    equipment reset through operation and maintenance and procurement
    appropriations and Army and Marine Corps equipment reset implementation
    strategies. While we agree that DOD is currently not required to itemize
    the types of equipment replaced or recapitalized within the procurement
    accounts, we continue to believe that the Conference Report accompanying
    the DOD appropriations act for 2007 directed the Secretary of Defense to
    periodically provide a detailed accounting of reset obligations and
    expenditures of funds provided in Title IX of the act, which includes
    funds for reset, by program and subactivity group and to provide a listing
    of equipment procured using funds appropriated under Title IX of the act.
    Furthermore, we believe that detailed reporting of reset obligations and
    expenditures within the procurement accounts would provide Congress with
    the visibility it needs to exercise effective oversight over reset
    funding. Similarly, while we agree that reset is only one component of the
    Army and Marine Corps overall equipping strategies, we continue to believe
    Army and Marine Corps reset implementation strategies should target
    shortages of equipment needed to equip units preparing for deployment to
    Iraq and Afghanistan in the near term rather than using supplemental reset
    appropriations to fund longer-term modernization goals.

    We are sending copies of this report to the appropriate congressional
    committees, the Secretary of Defense, the Secretary of the Army, and the
    Commandant of the Marine Corps. We will also make copies available to
    others upon request. In addition, this report will be available at no
    charge on the GAO Web site at [52]http://www.gao.gov .

    If you or your staff has any questions, please contact me at (202)
    512-8365 or solisw@gao.gov. Contact points for our Offices of
    Congressional Relations and Public Affairs may be found on the last page
    of this report. Key contributors to this report are listed in appendix V.

    William M. Solis
    Director, Defense Capabilities and Management

    List of Congressional Committees

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

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

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

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

    Appendix I: Scope and Methodology

    To determine the extent to which the Army and the Marine Corps can track
    and report equipment reset expenditures in a way that confirms that funds
    appropriated for reset are expended for that purpose, we examined
    equipment reset funding requests submitted by the Army and the Marine
    Corps and amounts appropriated by Congress to the services for reset for
    fiscal years 2002 through 2007.^1 We collected data related to equipment
    reset cost estimates and met with Army and Marine Corps headquarters
    officials to discuss the services' definitions of reset and their reset
    assumptions. We reviewed reported obligations and expenditures and budget
    estimates for Army and Marine Corps equipment reset funding and determined
    that the reliability of these data was sufficient for our purposes. We
    also met with Army Budget Office and Marine Corps Programs and Resources
    officials to discuss and collect documentation on how their financial
    management systems track and report reset costs.

    To address whether the Army and Marine Corps can be assured that their
    equipment reset implementation strategies will sustain future equipment
    readiness for deployed as well as nondeployed units while meeting ongoing
    requirements, we examined the processes the services used to develop their
    reset funding requests and plans, as well as policies in place to execute
    reset. We did not review the services' overall equipping implementation
    strategies. To compare planned equipment reset activities to the Army's
    and Marine Corps' equipment requirements, we developed equipment profiles
    for five equipment items.^2 These equipment items were identified by
    service officials as well as previous GAO reports as items critical to
    ongoing operations. In addition, we selected these items based on the
    large number of vehicles that have gone through multiple rotations or have
    been in constant use in the Operation Iraqi Freedom (OIF) theater and
    because most of these equipment items may be undergoing repair,
    replacement, or recapitalization simultaneously. We conducted interviews
    and discussions with officials from Army Tank-automotive and Armaments
    Command and program managers for the various equipment items. Our review
    included only major end items, primarily ground equipment and rotary
    aircraft. We reviewed inventory numbers, location of equipment (e.g.,
    items deployed and nondeployed), and acquisition plans for future
    procurement of new equipment. We also collected and analyzed Army and
    Marine Corps readiness data.

    ^1The Marine Corps began receiving reset funding in fiscal year 2002.
    Prior to fiscal year 2002, the Marine Corps used the term reconstitution.

    ^2The five equipment items we profiled are the M1 Tank, Bradley Fighting
    Vehicle (Army only), High Mobility Multi-Purpose Wheeled Vehicle, Heavy
    Expanded Mobility Tactical Truck (Army only), and the Marine Corps CH-53E
    helicopter.

    For work under both objectives, we held discussions at service
    headquarters, met with officials from commands responsible for executing
    reset programs, met with an Army division preparing to deploy to Iraq in
    2007, and met with officials in the Office of the Secretary of Defense to
    discuss overall reset policies and programs.^3 We reviewed reported
    obligations and expenditures and budget estimates for Army and Marine
    Corps equipment reset funding and determined that the reliability of these
    data was sufficient for our purposes.

    We performed our work from October 2005 through April 2007 in accordance
    with generally accepted government auditing standards.

    We interviewed officials, and obtained documentation when applicable, at
    the following locations:

               o U.S. Army Headquarters, Washington, D.C.
               o Army Budget Office, Pentagon, Virginia
               o U.S. Army Materiel Command, Fort Belvoir, Virginia
               o U.S. Army Forces Command, Fort McPherson, Georgia
               o U.S. Army 3rd Infantry Division, Fort Stewart, Georgia
               o Institute for Defense Analysis, Alexandria, Virginia
               o U.S. Army National Guard, Arlington, Virginia
               o U.S. Army Tank-automotive and Armaments Command Headquarters,
               Warren, Michigan
               o U.S. Marine Corps Headquarters, Washington, D.C.
               o Marine Corps Programs and Resources, Pentagon, Virginia
               o Office of the Secretary of Defense, Washington, D.C.

    ^3 [54]GAO-06-141 .

    Appendix II: Marine Corps Reset Categories Appendix II: Marine Corps Reset
    Categories

    Category                 Definition
    OIF equipment density    Unit list of combat, combat support, and combat
    list (EDL)               service support equipment that is
                                authorized/required by MARCENT for operations in
                                the CENTCOM Area of responsibility (AOR).
    Operation Enduring       Unit list of combat, combat support, and combat
    Freedom (OEF) EDL        service support equipment that is
                                authorized/required by MARCENT for operations in
                                the CENTCOM AOR.
    Joint Task Force Horn of Unit list of combat, combat support, and combat
    Africa (HOA) EDL         service support equipment that is
                                authorized/required by MARCENT for operations in
                                the CENTCOM AOR.
    Home station shortfalls  Equipment that was removed from a
                                facility/activity in order to support operations
                                in the CENTCOM AOR and therefore results in a
                                shortfall that cannot be addressed from remaining
                                inventory. The equipment is essential for the
                                facility/activity to achieve its training
                                objectives, mission readiness, or both prior to
                                deploying to the CENTCOM AOR. A home station is
                                the garrison location, usually in the continental
                                United States, for a unit that is not deployed
                                for training or operational mission requirements.
    Training system          Equipment that was removed from a training
    shortfalls               facility/activity activity in order to support
                                operations in the CENTCOM AOR and therefore
                                results in a shortfall that cannot be addressed
                                from remaining inventory. The equipment is
                                essential for the facility/activity to achieve
                                its training goals/objectives.
    Global War on Terror     Other GWOT-related equipment requirements (e.g.,
    (GWOT) support equipment vehicle armoring and commercialization of
                                communications equipment in Iraq).
    Combat losses            Equipment that was destroyed as a result of use
                                in support of OIF, OEF, or HOA.
    Not complete combat      Equipment that was damaged not beyond economical
    losses                   repair as a result of use in support of OIF, OEF,
                                or HOA.
    Pre-positioned equipment Comprises two different sets of equipment:
                                Maritime Prepositioning Ships (MPS) and Marine
                                Corps Prepositioning Program - Norway (MCPP-N).
                                Any equipment off-loaded from MPS or sourced from
                                stores (MCPP-N) being used in support of GWOT
                                operations that must be procured for
                                reconstitution of those strategic assets.
    Depot maintenance afloat A pool of assets used to exchange serviceable for
    allowance (DMFA)         unserviceable equipment. The use of 30 percent of
                                Marine Corps ground equipment and 25 percent of
                                aviation assets in OIF/OEF has resulted in a
                                situation where the rotatable pool of equipment
                                used to sustain depot rework inductions is no
                                longer available and must be restored to continue
                                timely equipment restoration efforts. Selected
                                equipment in critical demand/low density was
                                identified in the DMFA component of the reset
                                estimate.
    Net war reserve material Equipment required to reconstitute war reserve
    requirements             material consumed or used in support of OIF, OEF,
                                or HOA.
    Force Structure Review   This initiative involves a rebalancing of the
    Group                    force to provide optimal capabilities and force
                                structure to prosecute the GWOT. Additional funds
                                are required to access, train, equip, and house
                                the new units and capabilities. If funding is not
                                received it will delay the availability of the
                                required capabilities necessary to successfully
                                prosecute the GWOT until the fiscal year
                                2008-2010 time frame.
    Iraqi training teams     Equipment procured for transition training of
                                Iraqi Security Forces.
    Foreign military         Equipment procured for units specifically
    training units           designated to train foreign security forces,
                                excluding Iraqi Security Forces.
    Urgent universal needs   Equipment determined critical for mission
    statements (UUNS)        contingency accomplishment that is not already
                                included in a deploying unit's table of allowance
                                or available in the existing inventory for which
                                an urgent need exists such that expedited
                                fielding is required (e.g., explosive ordnance
                                disposal robots and X-Ray Backscatter machines
                                for checkpoints). All UUNS requests are
                                validated/approved by the Marine Corps Oversight
                                Council.
    Operational enhancements Modernization requirements recommended by the
                                Marine Corps Equipment Review Group. This
                                includes equipment that is an update to the
                                existing Marine Corps table of equipment (T/E)
                                that increases capability over current gear,
                                which enhances individual warfighter
                                effectiveness, mission performance, and unit
                                readiness. The equipment procured will replace
                                existing unit T/E items.
    Modernization            Replacing legacy equipment with new, updated, and
                                different capabilities (e.g., Advanced Combat
                                Optical Gunsights where no rifle optics existed
                                before).

               Source: Appendix 2 of the U.S. Marine Corps' RESET Report to the
               House Appropriations Committee.

    			  Appendix III: Army and Marine Corps Ground Equipment and Rotary
    			  Aircraft Deployed and Total Equipment on Hand as of March 2007

               Tables 3 and 4 show the Army's and the Marine Corps' ground
               equipment and rotary aircraft deployed to OIF/OEF compared to the
               total equipment on hand as of March 2007.

               Table 3: Army Equipment Deployed to OIF/OEF and Total Equipment on
               Hand as of March 2007

                                       Equipment        Deployed       Percentage
    Items                           inventory       inventory         deployed
    Wheeled vehicles
    HEMTT                              12,836           3,282             25.6
    HET                                 2,394             912             38.1
    HMMWV                              95,970          23,818             24.8
    Tracked vehicles
    Bradley Fighting Vehicle            3,021             679             22.5
    Abrams Tank                         3,406             366             10.7
    M88                                 1,832             192             10.5
    Wheeled/tracked vehicles
    total                             119,459          29,249             24.5
    Rotary wing aircraft
    AH-64A/D                              689             120             17.4
    CH-47D                                392              63             16.1
    OH-58D                                354              60             16.9
    UH-60A/L                            1,362             293             21.5
    Rotary wing aircraft
    total                               2,797             536             19.2

               Legend: HEMTT = Heavy Expanded Mobility Tactical Truck; HET =
               Heavy Equipment Transporter; HMMWV = High Mobility Multi-Purpose
               Wheeled Vehicle.

               Source: Army G-8.

               Table 4: Marine Corps Equipment Deployed to OIF/OEF and Total
               Equipment on Hand as of March 2007

                                                   Equipment  Deployed Percentage
    Items                                       inventory inventory   deployed
    Wheeled and tracked combat vehicles (WTCV)
    Amphibious assault vehicle                      1,218        95          8
    Light armored vehicle                             552        70         13
    M1A1 Tank                                         366        34          9
    M88 Tank Retriever                                 59         6         10
    Armored vehicle launched bridge                    18         0          0
    WTCV total                                      2,213       205          9
    Tactical vehicles
    Light tactical vehicle (HMMWV)                 15,480     4,207         27
    Medium tactical vehicle                         6,898     1,189         17
    Logistics vehicle system                        1,770       251         14
    5-ton trucks                                      663       160         24
    Tactical vehicle total                         24,811     5,807         23
    Support vehicles
    Construction equipment                          1,187       217         18
    Material handling equipment                     2,197       285         13
    Support vehicle total                           3,384       502         15
    Other equipment
    Communication and electronics equipment       155,446    21,617         14
    Engineering support items                      12,821     2,130         17
    Mobile electric power                           6,431       988         15
    Trailers                                       12,124     1,520         13
    Optics                                         36,687    19,735         54
    Small arms/crew served (excluding M16          25,752     5,209         20
    rifles and M9 pistols)
    Other equipment total                         249,261    51,199         21

               Legend: HMMWV = High Mobility Multi-Purpose Wheeled Vehicle.

               Source: Marine Corps Programs and Resources.

    Appendix IV: Comments from the Department of Defense

    Note: GAO comments supplementing those in the report text appear at the
    end of this appendix.

    See comment 2.

    See comment 1.

    See comment 3.

    See comment 10.

    See comment 9.

    See comment 8.

    See comment 7.

    See comment 6.

    See comment 5.

    See comment 4.

    See comment 13.

    See comment 12.

    See comment 11.

    See comment 19.

    See comment 18.

    See comment 17.

    See comment 16.

    See comment 15.

    See comment 14.

    See comment 24.

    See comment 23.

    See comment 22.

    See comment 21.

    See comment 20.

    See comment 29.

    See comment 28.

    See comment 27.

    See comment 26.

    See comment 25.

    See comment 30.

               The following are GAO's comments to the Department of Defense's
               (DOD) technical comments dated August 3, 2007.

    			  GAO's Responses to DOD's Technical Comments

                            1. DOD stated that our statement that "the Army and
                            Marine Corps do not report detailed equipment reset
                            expenditures within the procurement accounts in a way
                            that confirms that funds appropriated for reset are
                            expended for that purpose because DOD FMR does not
                            require them to specifically report procurement
                            expenditures for reset in detail" does not accurately
                            reflect what we were told, and suggested revising the
                            statement to reflect the fact that neither Congress
                            nor the DOD Financial Management Regulation (FMR)
                            require the services to specifically report
                            procurement expenditures for reset in detail. While
                            the Conference Report accompanying the DOD
                            appropriations act for 2007 directed the Secretary of
                            Defense to periodically provide a detailed accounting
                            of reset obligations and expenditures of funds
                            provided in Title IX of the act, which includes funds
                            for reset, by program and subactivity group and to
                            provide a listing of equipment procured using funds
                            appropriated under Title IX of this act,^1 the Army
                            and Marine Corps are not legally required to provide
                            this detailed accounting. The Army and Marine Corps
                            currently provide detailed reports of obligations and
                            expenditures within the operation and maintenance
                            accounts, but have chosen not to provide the same
                            detailed accounting of obligations and expenditures
                            within the procurement accounts. We have revised the
                            report as appropriate.
                            2. DOD disagreed with our statement that the Army and
                            Marine Corps cannot be assured that their reset
                            implementation strategies will sustain availability
                            for deployed units as well as units preparing for
                            deployment to Iraq and Afghanistan while meeting
                            ongoing operational requirements because neither the
                            Army's nor the Marine Corps' reset implementation
                            strategies target shortages of available equipment
                            and prioritize equipment needs of units preparing for
                            deployment over longer-term modernization goals. DOD
                            noted that the Army equipment strategy, of which
                            reset is a small but important component, has
                            sustained equipment availability for deployed and
                            deploying forces while meeting ongoing operational
                            requirements for the past 5 years. The Marine Corps
                            employs a documented, standardized, and flexible
                            reset strategy designed to meet both current
                            operational requirements and long-term reconstitution
                            strategies. While we acknowledge that reset is only
                            one component of the services' overall equipping
                            strategies, as we stated in our report, the Army's
                            primary goal for equipment reset is to prepare units
                            for deployment and to improve next-to-deploy units'
                            equipment-on-hand levels, and the Marine Corps'
                            priority for equipment reset is to support deployed
                            forces. However, the Army's and Marine Corps'
                            implementation of their reset implementation
                            strategies do not necessarily address shortages of
                            equipment in the short term. Instead, the Army's
                            implementation of its reset strategy is based on
                            plans for repairing, recapitalizing, or replacing
                            equipment returning from overseas theaters in a given
                            fiscal year, while the Marine Corps' implementation
                            of its reset strategy is based on ensuring that
                            Marine Corps units are equipped to perform both
                            ongoing operations and other future missions. For
                            example, as we stated in our report, an Army unit
                            preparing to deploy was given a limited number of
                            High Mobility Multi-Purpose Wheeled Vehicles (HMMWV),
                            which were significantly different from the armored
                            HMMWVs it was expected to use in Iraq. However, at
                            the same time the Army was planning to recapitalize
                            7,500 HMMWVs at a cost of $455 million, which would
                            have limited training value for deploying units
                            because the unarmored HMMWVs have different handling
                            characteristics than those they would use in Iraq.
                            Also, because the recapitalization did not include
                            armor, the HMMWVs would not be deployed and would not
                            fulfill the short-term needs of deploying units.

    ^1H.R. Conf. Rep. No. 109-676, at 359 (2006), which accompanied the
    Department of Defense Appropriations Act, 2007, Pub. L. No. 109-289
    (2006).

                            3. GAO agrees with the suggested change and revised
                            the report as appropriate.
                            4. DOD stated that our statement that we did not
                            review the services' overall equipping strategies
                            made it impossible for an accurate conclusion as to
                            whether the Army and Marine Corps will sustain
                            equipment availability of deployed and deploying
                            forces, because without reviewing the services'
                            overall equipping strategies we would not understand
                            the comprehensive efforts to meet equipment demands.
                            While we acknowledge that reset is only one component
                            of the services' overall equipping strategies, our
                            report focuses on the services' reset implementation
                            strategies and related reset funding, not the overall
                            equipping strategies, which would include other
                            equipment priorities such as modernization, homeland
                            defense, and homeland security. Further, as we have
                            previously testified,^2 for certain equipment items,
                            the Army and Marine Corps have not developed complete
                            sustainment, modernization, and replacement
                            strategies or identified funding needs for all
                            priority equipment items.

    ^2 [55]GAO-06-604T .

                            5. See comment 1.
                            6. GAO agrees with the suggested change and revised
                            the report as appropriate.
                            7. See comment 1.
                            8. GAO agrees with the suggested change and revised
                            the report as appropriate.
                            9. See comment 2.
                            10. See comment 2.
                            11. DOD stated that while it is true that the HMMWVs
                            that will be recapitalized will have minimal training
                            value, these vehicles will fill critical equipment
                            shortfalls for the Continental United States-based
                            units in support of homeland defense and homeland
                            security missions. Prior to September 11, 2001, the
                            Army was short $1.1 billion worth of HMMWVs. However,
                            as we stated in our report, the Army's primary goal
                            for equipment reset is to prepare units for
                            deployment and to improve next-to-deploy units'
                            equipment-on-hand levels, and the Marine Corps'
                            priority for equipment reset is to support deployed
                            forces. Reset implementation strategies should target
                            shortages of equipment needed to equip deploying
                            units and units preparing to deploy to Iraq and
                            Afghanistan, rather than other longer-term equipment
                            goals such as modernization, homeland defense, and
                            homeland security.
                            12. DOD disagreed with our statement that the Army's
                            fiscal year 2007 reset strategy includes plans to
                            modernize Abrams Tanks and Bradley Fighting Vehicles
                            to accelerate achieving long-term strategic goals
                            under the Army's modularity initiative, stating that
                            the plan to modernize these vehicles is to ensure
                            that units have the most capable equipment available
                            for the next mission. However, accelerating
                            modernization programs in general to achieve a
                            modular force structure may be sacrificing other
                            short-term needs for longer-term goals.
                            13. DOD disagreed with our statement that the Marine
                            Corps' reset planning process emphasizes replacing
                            equipment but that actions required to support this
                            strategy have adversely affected readiness of
                            nondeployed Marine Corps units preparing to deploy to
                            Iraq and Afghanistan and unit training for other
                            contingencies such as humanitarian and disaster
                            relief. DOD stated in its comments that the Marine
                            Corps does not specifically train for disaster relief
                            efforts and it is illogical to state that the Marine
                            Corps must prioritize equipment for such specific
                            disaster relief operations as Pakistan and the
                            Philippines as disasters are unpredictable and not a
                            primary objective of Marine Corps training. We
                            acknowledge that disaster relief operations are not
                            the primary objective of the Marine Corps training.
                            However, as part of its decision-making process on
                            how to invest its reset funds, the Marine Corps has
                            had to make trade-offs between short-term needs, for
                            example, units preparing to deploy to Iraq and
                            Afghanistan, and unit training for nondeployed units
                            for other contingencies and deploying troops for
                            other operations such as disaster relief; that is,
                            potentially longer-term needs. We have revised the
                            report as appropriate.
                            14. GAO agrees with the suggested change and revised
                            the report as appropriate.
                            15. GAO agrees with the suggested change and revised
                            the report as appropriate.
                            16. See comment 13.
                            17. See comment 1.
                            18. See comment 1.
                            19. See comment 1.
                            20. GAO agrees with the suggested change and revised
                            the report as appropriate.
                            21. DOD disagreed with our statement that because the
                            Army was not required to track the execution of its
                            reset appropriations from the onset of operations, it
                            does not have historical execution data upon which to
                            base future cost estimates and that it is
                            inconsistent with the statement that Army and Marine
                            Corps officials said that they could provide an
                            historical accounting of those reset obligations and
                            expenditures back to 2002 if required to do so. While
                            we agree that the Army now has historical execution
                            data upon which to base future cost estimates, at the
                            time of our review, Army officials stated that they
                            did not track execution data at the onset of
                            operations. Subsequently, Army officials provided
                            execution data as of fiscal year 2002 broken down by
                            operation and maintenance (i.e., field-level repair,
                            depot-level repair, Army pre-positioned stock, and
                            recapitalization--rebuild) and procurement (i.e.,
                            recapitalization--upgrade and replacement). However,
                            Army officials stated that they had to extrapolate
                            these numbers because the data were not tracked that
                            way at the onset of operations. We have revised the
                            report to reflect the Army's position.
                            22. See comment 21.
                            23. DOD disagreed with our statements that neither
                            the Army's nor the Marine Corps' reset implementation
                            strategies target shortages of available equipment
                            and prioritize needs of units preparing for
                            deployment over longer-term modernization goals and
                            stated that the phrase "because reset strategies are
                            not linked to meeting deploying unit equipment needs"
                            was most objectionable. Furthermore, DOD stated that
                            this statement contradicts an earlier assertion that
                            deployed Army and Marine Corps units and units about
                            to deploy generally report high readiness rates. As
                            we stated in our report, while we acknowledge that
                            reset is only one component of the services' overall
                            equipping strategies, we continue to believe that the
                            Army's and Marine Corps' reset implementation
                            strategies should target short-term equipment
                            shortages rather than longer-term modernization
                            goals. We believe the Army and Marine Corps should
                            use reset funding in accordance with the services'
                            stated goals of reset, that is, to prepare units for
                            deployment and to improve the next-to-deploy units'
                            equipment on hand. Using reset funding to accelerate
                            modernization goals by procuring new equipment that
                            may not be available for many years may be
                            sacrificing short-terms needs for longer-term goals.
                            The statement that deployed Army and Marine Corps
                            units and units about to deploy generally report high
                            readiness rates was taken out of context. As we
                            stated in our report, although deployed Army and
                            Marine Corps units and units about to deploy
                            generally report high readiness rates, the services
                            have reported a decrease in nondeployed units'
                            readiness rates, in part due to equipment shortages.
                            While the readiness of nondeployed units may not be
                            as high a priority as the readiness of deployed or
                            deploying units, nondeployed units can be called up
                            at any time should other contingencies occur.
                            24. DOD disagreed with our statement that a unit
                            preparing to deploy was given HMMWVs to train with
                            that were limited in number and were significantly
                            different from the armored HMMWVs it was expected to
                            use while in theater. DOD stated in its comments that
                            if we were referring to the Marine Corps the
                            statement is in fact incorrect because Marine Corps
                            units preparing for deployment through Mojave Viper
                            exercises train on identical equipment sets to those
                            currently in theater. The unit in question was an
                            Army unit. We have revised the report as appropriate.
                            25. See comment 21.
                            26. DOD agreed with our statement that the Marine
                            Corps has had to make trade-offs between unit
                            training for other types of contingencies and units
                            preparing to deploy to OIF. DOD stated in its
                            comments that the Marine Corps has placed a priority
                            on training units for OIF as that is presently the
                            largest and most deadly contingency the Marine Corps
                            is presently involved in and the Marine Corps has
                            limited financial and manpower resources and must
                            prioritize to ensure mission accomplishment and
                            combat casualty minimization. As we stated in our
                            report, the Commandant of the Marine Corps has
                            testified^3 that the Marine Corps has had to chose
                            between providing equipment to units preparing to
                            deploy to Iraq and Afghanistan and unit training for
                            other contingencies while also deploying troops to
                            support other operations, such as humanitarian and
                            disaster relief efforts in Pakistan and the
                            Philippines, Theater Security Cooperation events in
                            Central America and parts of Africa, and protecting
                            our embassies. We have revised our report as
                            appropriate.
                            27. DOD disagreed with our statement that the Army
                            and Marine Corps' reset strategies do not ensure that
                            the repairing, replacing, and recapitalization of
                            equipment needed to support units that are preparing
                            for deployment are being given priority over other
                            longer-term equipment needs because reset strategies
                            are not linked to meeting deploying unit equipment
                            needs, stating that the Army equipping strategies do
                            target equipment shortages and the Marine Corps'
                            level of spending on replacement versus
                            recapitalization is high because of low equipment
                            density. As we stated in our report, while we
                            acknowledge that reset is only one component of the
                            services' overall equipping strategies, the Army's
                            primary goal for equipment reset is to prepare units
                            for deployment and to improve next-to-deploy units'
                            equipment-on-hand levels, and the Marine Corps'
                            priority for equipment reset is to support deployed
                            forces. However, the Army's and Marine Corps' reset
                            implementation strategies do not necessarily address
                            shortages of equipment in the short term. Instead,
                            the Army's reset implementation strategy is based on
                            plans for repairing, recapitalizing, or replacing
                            equipment returning from overseas theaters in a given
                            fiscal year, while the Marine Corps' reset
                            implementation strategy is based on ensuring that
                            Marine Corps units are equipped to perform both
                            ongoing operations and other future missions. While
                            we acknowledge that the Marine Corps reset
                            implementation strategy may be focused on longer-term
                            goals due to low equipment density, we continue to
                            believe the Army's and Marine Corps' reset
                            implementation strategies should target short-term
                            equipment shortages to equip deploying units and
                            units preparing to deploy to Iraq and Afghanistan
                            rather than longer-term modernization goals. We have
                            revised the report as appropriate.

    ^3Marine Posture Statement, Statement before the Senate Committee on Armed
    Services, 110th Cong. (2007) (statement of Gen. James T. Conway,
    Commandant of the Marine Corps).

                            28. DOD disagreed with our statement that the Army's
                            reset strategy has included funding requests for
                            certain items to accelerate achieving longer-term
                            strategic goals under the Army's modularity
                            initiative. DOD stated in its comments that
                            sustainment-level reset does give priority to
                            deploying unit needs and considers the need to
                            upgrade equipment as part of reset implementation
                            strategies, and that tank and Bradley upgrades
                            provide improved warfighting capabilities as well as
                            better reliability, availability, and maintenance
                            improvements while saving costs. While we acknowledge
                            that achieving these modularity milestones for Abrams
                            Tanks and Bradleys will achieve greater commonality
                            in platforms and reduce overall logistical and
                            financial requirements by reducing the number of
                            variants that must be supported, we continue to
                            believe that using reset funds to accelerate
                            modernization programs such as these by 1 to 2 years
                            to achieve a modular force structure as well as
                            funding other longer-term equipment goals, such as
                            homeland defense and homeland security, may be
                            sacrificing short-term needs for longer-term goals.
                            Also, as we stated in our report, the Army has
                            reported that modularity requirements (i.e.,
                            longer-term modernization goals) mirror the equipment
                            that the Army already procures for its units and it
                            is unable to precisely track modularity funds and
                            distinguish those funds from reset funds. We have
                            revised the report as appropriate.
                            29. DOD disagreed with our statement that the Marine
                            Corps' reset planning process does not include an
                            evaluation of trade-offs between the shorter-term
                            need to improve the degraded readiness of Marine
                            Corps units in the United States against longer-term
                            requirements for procurement to replace deployed
                            items that may not affect readiness for some time.
                            DOD stated in its comments that the narrative of the
                            paragraph appears to confuse the purpose and intent
                            of reset efforts and that reset is, in broad terms
                            and as pointed out in the introduction of the draft
                            report, restoring the capabilities affected by
                            operations in Iraq and Afghanistan to meet future
                            contingencies. DOD stated that Mine Resistant Ambush
                            Protected vehicles (MRAPs) are an equipment set
                            specific to the conflict in Iraq and, consequently,
                            will not be incorporated into the standard Marine
                            Corps inventory at the levels employed for current
                            operations and, as such, are considered operational
                            costs of war, not reset, and that HMMWVs are still
                            required in reset for future contingencies. While we
                            acknowledge that funding for MRAPs is considered a
                            cost of war, not a reset cost, the request for HMMWVs
                            has not been reduced to reflect the number of MRAPs
                            that will replace those HMMWVs. We continue to
                            believe that the Marine Corps' reset planning process
                            should include a trade-off between the shorter-term
                            need for MRAPs and the longer-term need for HMMWVs.
                            As we stated in our report, the Marine Corps as well
                            as the Army have noted equipment shortages in
                            readiness reports' remarks sections with deploying
                            units planning to fall in on equipment in theater.
                            And, as we have testified, since 2003, deploying
                            units have continued to subjectively upgrade their
                            overall readiness rates as they approach deployment
                            dates, despite decreasing overall readiness levels
                            among those same units. We have revised the report as
                            appropriate.
                            30. DOD stated in its comments that because we did
                            not review the services' overall equipping
                            strategies, the title should be changed to reflect
                            the title of the draft document presented at the exit
                            conference, Army and Marine Corps Equipment Reset
                            Strategies, because the current report title is
                            unsupported by fact. This report discusses reset
                            implementation strategies only and does not include
                            overall Army and Marine Corps equipping strategies.
                            As we have discussed in our report, the Army and
                            Marine Corps have not developed complete sustainment,
                            modernization, and replacement strategies or
                            identified funding needs for all priority
                            equipment.^4 Congress has appropriated tens of
                            billions of dollars specifically for equipment reset
                            since fiscal year 2002. This report is limited to a
                            discussion of how the Army and Marine Corps have
                            tracked and reported the obligation and expenditure
                            of those funds and how the services' strategies for
                            equipment reset can sustain equipment availability
                            while meeting ongoing operational requirements. We
                            continue to believe that the title of the report,
                            Defense Logistics: Army and Marine Corps Cannot Be
                            Assured That Equipment Reset Implementation
                            Strategies Will Sustain Equipment Availability While
                            Meeting Ongoing Operational Requirements, remains
                            valid and supported by the facts as we have presented
                            them and that the report does not warrant a change in
                            title.

    ^4 [56]GAO-06-141 .

               Appendix V: GAO Contact and Staff Acknowledgments

    			  GAO Contact

               William M. Solis (202) 512-8365 or [53]solisw@gao.gov

    			  Acknowledgments

               In addition to the contact named above, David A. Schmitt,
               Assistant Director; Renee Brown; Frank Cristinzio; Luke Hartig;
               Brent Helt; Donna M. Rogers; Yong Song; and Maria Storts made key
               contributions to this report.

    [59]What GAO Recommends

    GAO recommends that the Secretary of Defense (1) improve DOD's reporting
    of obligations and expenditures within the procurement accounts and (2)
    assess the services' approaches to equipment reset to ensure that their
    priorities address equipment shortages in the near term to equip units
    that are preparing for deployment. DOD did not agree with these
    recommendations. As a result, GAO is suggesting that Congress direct DOD
    to revise its Financial Management regulation pertaining to procurement
    funds.

    Although the Army and Marine Corps track and report equipment reset
    expenditures in the operation and maintenance accounts in detail, they do
    not report detailed equipment reset expenditures within the procurement
    accounts in a way that confirms that funds appropriated for reset are
    expended for that purpose because the DOD Financial Management Regulation
    does not require them to specifically report procurement expenditures for
    reset in detail. As directed by the Conference Report accompanying DOD's
    appropriations act for 2007, the Army and Marine Corps report detailed
    reset obligations and expenditures in their operation and maintenance
    accounts. While the Army and Marine Corps track reset expenditures and
    obligations in detail within the procurement accounts, they do not report
    those expenditures at the same level of detail as with the operation and
    maintenance accounts because they are not legally required do so. Neither
    the Army's nor the Marine Corps' monthly Supplemental and Cost of War
    Execution Reports identify the types of equipment at the subactivity group
    level, such as aircraft or vehicles. Until the Army and Marine Corps are
    required to report the obligation and expenditure of funds appropriated
    for reset in the procurement accounts at a more detailed level, Congress
    will not have the visibility it needs to exercise effective oversight and
    to determine if the amount of funding appropriated for equipment reset has
    been most appropriately used for the purposes intended.

    The Army and Marine Corps cannot be assured that their reset strategies
    will sustain equipment availability for deployed units as well as units
    preparing for deployment to Iraq and Afghanistan while meeting ongoing
    operational requirements because neither the Army's nor the Marine Corps'
    reset implementation strategies target shortages of equipment on hand and
    prioritize equipment needs of units preparing for deployment over
    longer-term modernization goals. While the Army's Force Generation
    implementation strategy and reset implementation guidance state that the
    goal of reset is to prepare units for deployment and to improve
    next-to-deploy units' equipment-on-hand levels, the Army's reset strategy
    is based on resetting equipment that it expects will be returning to the
    United States in a given fiscal year and not on targeting shortages of
    equipment for units preparing for deployment to Iraq and Afghanistan.
    Similarly, the Marine Corps' reset goal is to ensure that the Corps is
    equipped to perform both ongoing operations and future missions; however,
    over 80 percent of its reset budget is for procurement of equipment that
    will not be available for many months. Units can continue to report
    significant shortages during their training cycles that affect their
    ability to train. Thus, the services may be sacrificing short-term
    equipment needs for longer-term modernization goals. Until the services'
    reset strategies target shortages of equipment needed to equip units
    preparing for deployment and give priority to those units over longer-term
    needs, the Army and Marine Corps will be unable to minimize operational
    risk by ensuring the needs of deploying units can be met.

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    DC 20548

    (350994)

    To view the full product, including the scope
    and methodology, click on [57]GAO-07-814 .

    For more information, contact William M. Solis at (202) 512-8365 or
    williams@gao.gov.

    Highlights of [58]GAO-07-814 , a report to congressional committees

    September 2007

    DEFENSE LOGISTICS

    Army and Marine Corps Cannot Be Assured That Equipment Reset Strategies
    Will Sustain Equipment Availability While Meeting Ongoing Operational
    Requirements

    Congress has appropriated billions of dollars for equipment repair,
    replacement, and recapitalization, collectively known as equipment reset.
    Because of the potential for equipment reset costs to affect the
    Department of Defense's (DOD) future budget requirements and related
    readiness concerns, GAO initiated this review under the Comptroller
    General's authority. GAO's objectives were to determine the extent to
    which the Army and Marine Corps (1) track and report equipment reset
    expenditures in a way that confirms that funds appropriated for reset are
    expended for that purpose and (2) can be assured that their reset
    strategies will sustain equipment availability while meeting ongoing
    operational requirements. GAO reviewed equipment reset policies and
    analyzed related budget data.

    References

    Visible links
      22. http://www.gao.gov/cgi-bin/getrpt?GAO-07-439T
      23. http://www.gao.gov/cgi-bin/getrpt?GAO-06-604T
      24. http://www.gao.gov/cgi-bin/getrpt?GAO-04-112
      25. http://www.gao.gov/cgi-bin/getrpt?GAO-06-141
      26. http://www.gao.gov/cgi-bin/getrpt?GAO-07-144
      27. http://www.gao.gov/cgi-bin/getrpt?GAO-05-427
      28. http://www.gao.gov/cgi-bin/getrpt?GAO-06-170T
      29. http://www.gao.gov/cgi-bin/getrpt?GAO-07-76
      30. http://www.gao.gov/cgi-bin/getrpt?GAO-05-293
      31. http://www.gao.gov/cgi-bin/getrpt?GAO-05-293
      32. http://www.gao.gov/cgi-bin/getrpt?GAO-06-111
      33. http://www.gao.gov/cgi-bin/getrpt?GAO-07-439T
      34. http://www.gao.gov/cgi-bin/getrpt?GAO-07-76
      35. http://www.gao.gov/cgi-bin/getrpt?GAO-05-293
      36. http://www.gao.gov/cgi-bin/getrpt?GAO-05-293
      37. http://www.gao.gov/cgi-bin/getrpt?GAO-07-439T
      38. http://www.gao.gov/cgi-bin/getrpt?GAO-04-112
      39. http://www.gao.gov/cgi-bin/getrpt?GAO-06-141
      40. http://www.gao.gov/cgi-bin/getrpt?GAO-07-144
      41. http://www.gao.gov/cgi-bin/getrpt?GAO-05-427
      42. http://www.gao.gov/cgi-bin/getrpt?GAO-06-170T
      43. http://www.gao.gov/cgi-bin/getrpt?GAO-07-76
      44. http://www.gao.gov/cgi-bin/getrpt?GAO-05-293
      45. http://www.gao.gov/cgi-bin/getrpt?GAO-05-293
      46. http://www.gao.gov/cgi-bin/getrpt?GAO-06-111
      47. http://www.gao.gov/cgi-bin/getrpt?GAO-05-293
      48. http://www.gao.gov/cgi-bin/getrpt?GAO-07-76
      49. http://www.gao.gov/cgi-bin/getrpt?GAO-05-293
      50. http://www.gao.gov/cgi-bin/getrpt?GAO-07-439T
      51. http://www.gao.gov/cgi-bin/getrpt?GAO-07-439T
      52. http://www.gao.gov/
      53. mailto:solisw@gao.gov
      54. http://www.gao.gov/cgi-bin/getrpt?GAO-06-141
      55. http://www.gao.gov/cgi-bin/getrpt?GAO-06-604T
      56. http://www.gao.gov/cgi-bin/getrpt?GAO-06-141
      57. http://www.gao.gov/cgi-bin/getrpt?GAO-07-814
      58. http://www.gao.gov/cgi-bin/getrpt?GAO-07-814
      60. http://www.gao.gov/
      61. http://www.gao.gov/
      62. http://www.gao.gov/fraudnet/fraudnet.htm
      63. mailto:fraudnet@gao.gov
      64. mailto:JarmonG@gao.gov
      65. mailto:BeckerS@gao.gov
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