DOD Bulk Fuel: Services' Fuel Requirements Could Be Reduced and Funds
Used for Other Purposes (Letter Report, 03/28/96, GAO/NSIAD-96-96).

GAO reviewed the Defense Fuel Supply Center's (DFSC) and the military
services' management of their bulk fuel requirements, focusing on the
services' fiscal year (FY) 1996 budget requests.

GAO found that: (1) for FY 1996, the services requested $4.01 billion to
purchase 126.7 million barrels of bulk fuel from DFSC, but DFSC
estimated that the services' budget request is overstated by $440
million; (2) the services' actual FY 1996 requirements will total about
$3.57 billion; (3) Department of Defense and service officials believe
that the fuel estimates are not overstated, since requirements change
constantly and reducing their budget requests would hamper their
flexibility in meeting emerging requirements; (4) the services' data
trends show that they do not use all of their budgeted fuel funds and
use unspent funds and fuel credits for other purposes; (5) the services
also do not recognize the amounts of fuel they return to DFSC for credit
when making their fuel use estimates; and (6) Congress reduced the
Navy's fuel budget request by $100 million, but did not adjust the other
services' budget requests.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-96
     TITLE:  DOD Bulk Fuel: Services' Fuel Requirements Could Be Reduced 
             and Funds Used for Other Purposes
      DATE:  03/28/96
   SUBJECT:  Military budgets
             Budget cuts
             Fuel supplies
             Future budget projections
             Unobligated budget balances
             Defense contingency planning
             Reprogramming of appropriated funds
             Military appropriations
             Funds management
             Energy consumption

             
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Cover
================================================================ COVER


Report to Congressional Committees

March 1996

DOD BULK FUEL - SERVICES' FUEL
REQUIREMENTS COULD BE REDUCED AND
FUNDS USED FOR OTHER PURPOSES

GAO/NSIAD-96-96

DOD Bulk Fuel

(703121)


Abbreviations
=============================================================== ABBREV

  DFSC - Defense Fuel Supply Center
  DOD - Department of Defense

Letter
=============================================================== LETTER


B-270986

March 28, 1996

Congressional Committees

In our September 1995 report\1 on the military services' fiscal year
1996 operation and maintenance budget requests, we identified
overstated bulk fuel requirements as an area where the Congress could
reduce the services' budget requests.  This report is being done
under our basic legislative authority.  It updates our initial
findings on bulk fuel and identifies additional funds in the
services' bulk fuel budgets that exceed requirements. 


--------------------
\1 1996 DOD Budget:  Potential Reductions to Operation and
Maintenance Program (GAO/NSIAD-95-200BR, Sept.  26, 1995). 


   BACKGROUND
------------------------------------------------------------ Letter :1

The Defense Fuel Supply Center (DFSC) has the primary responsibility
for providing the services with the fuel they need.  DFSC purchases
the fuel from commercial sources and sells it to the services. 
Although DFSC is the primary source, the services also buy a small
amount of fuel direct from commercial sources.\2

The services determine their fuel requirements and budget requests
based on flying hours, steaming days, tank training miles, and base
operations needs.  The services advise DFSC of their requirements so
that DFSC can determine the amount of fuel that it will need to
satisfy the services' operating requirements, provide for war
reserves, and meet the needs of its other defense customers. 


--------------------
\2 We are reviewing fuel purchases from commercial sources and will
report on this matter separately. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

For fiscal year 1996, the Army's, the Navy's, and the Air Force's
budget requests for bulk fuel totaled $4.12 billion.  Of this total,
the three services planned to buy $107 million, or 2.6 percent, from
commercial sources.  Therefore, the amount of funds requested to buy
fuel from DFSC was about $4.01 billion. 

Based on historical usage data adjusted for factors expected to occur
in fiscal year 1996, DFSC estimates that the services' fuel purchases
in fiscal year 1996 will be about $3.57 billion, or about $440
million less than the amount the services requested in their budgets. 
This estimate is lower than our estimate when the services submitted
their budget requests in January 1995.  At that time, we estimated
that the services would purchase about $3.68 billion of fuel in
fiscal year 1996 sales, or about $330 million less than the amount
requested. 


   BULK FUEL REQUIREMENTS ARE
   OVERSTATED
------------------------------------------------------------ Letter :3

At the time the services submitted their fiscal year 1996 budget
requests to the Congress, the Army, the Navy, and the Air Force
estimated their bulk fuel needs from DFSC at 126.7 million barrels,
costing about $4.01 billion.  At the same time, DFSC estimated that,
based on historical usage data, the services would require 116.5
million barrels of fuel, costing about
$3.68 billion.  Based on usage data for fiscal year 1995 adjusted to
reflect known changes in fiscal year 1996, DFSC's February 1996
estimate was that the services would buy about 113.5 million barrels
of fuel from DFSC at a cost of about $3.57 billion.  This difference
represents about 13.2 million barrels and $440 million less than what
the services included in their budget requests.  Table 1 shows each
of the services' fuel requirements and DFSC's estimate of sales to
the services in fiscal year 1996. 



                                Table 1
                
                  Bulk Fuel Requirements in the Fiscal
                  Year 1996 Budget Request and DFSC's
                   Estimate of Sales to the Services

                         (Numbers in millions)


                      Barrel           Barrel           Barrel  Dollar
Service                    s  Dollars       s  Dollars       s       s
--------------------  ------  -------  ------  -------  ------  ------
Army                    10.5   $316.9     7.5   $236.2     3.0   $80.7
Navy                    46.5  1,461.2    39.3  1,236.6     7.2   224.6
Air Force               69.7  2,235.2    66.7  2,100.9     3.0   134.3
======================================================================
Total                  126.7  $4,013.   113.5  $3,573.    13.2  $439.6
                                    3                7
----------------------------------------------------------------------
The Department of Defense (DOD) and service officials do not agree
that their bulk fuel budget requests are overstated.  They pointed
out that the DFSC estimates are as of a point in time and that
requirements change constantly.  They also said that reducing their
fuel budget requests would hamper their flexibility to meet other
emerging requirements that were not funded in the budget.  We agree
that the services' fuel needs change frequently as a result of
changing requirements.  However, the services' own data show a trend
that they do not use all of the funds budgeted for fuel for that
purpose.  For example: 

  -- For fiscal years 1991 through 1994, the Army's average annual
     fuel usage for training purposes was about 1.75 million
     barrels-- about $55 million-- less than budgeted.  DOD officials
     agree that the Army historically overstates its training budget,
     and said that doing so allows the Army to reprogram the funds to
     meet other readiness requirements. 

  -- The services return fuel to DFSC for credit.\3 However, in
     determining their annual fuel needs, the services do not give
     consideration to the returns, only gross purchases.  For fiscal
     year 1996, DFSC estimates that the Navy and the Air Force will
     return about 6 million barrels for credit valued at about $189
     million.  According to DOD officials, the fuel credits represent
     funds that the services then use for other purposes. 

In September 1995, we reported that the three services' fuel budget
requests were overstated about $330 million based on their budget
requests of $4.01 billion, and estimated DFSC sales to the services
of
$3.68 billion.  Based on the information provided in our September
report, the Congress reduced the Navy's fuel budget request by $100
million but did not adjust the other services' fuel requests. 


--------------------
\3 As ships and aircraft are readied for maintenance, the fuel tanks
are emptied and the fuel is returned to DFSC for credit. 


   MATTER FOR CONGRESSIONAL
   CONSIDERATION
------------------------------------------------------------ Letter :4

Because the services' bulk fuel budgets are still overstated about
$340 million ($440 million less the $100 million congressional
reduction), the Congress may want to rescind the $340 million and
apply them to other unfunded emerging requirements. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :5

DOD did not concur with our suggestion that the Congress may want to
rescind $340 million of the fiscal year 1996 funding that was
appropriated for fuel purchases.  DOD officials said that fuel is a
major element of logistics preparedness and is budgeted in accounts
that are intended to be flexible in order to respond to changing
requirements.  DOD also said that our analysis was at a point in time
and because requirements can change, a decision to rescind the fuel
funds could result in underfunding a major component of readiness. 
To support their position, DOD said that the fuel account has
overexecuted\4 its budget in 2 of the last 4 years.  It also said
that our estimate of fiscal year 1995 fuel usage, which was used in
determining the fiscal year 1996 requirement, was understated 5
million barrels. 

As stated in the report, we agree that our analysis of the fiscal
year 1996 fuel requirements is a snapshot at a point in time.  We
also agree that requirements do change.  For example, we reviewed the
fuel account in May and June 1995 and we estimated that for fiscal
year 1996, the services would buy about 116.8 million barrels of fuel
from DFSC at a cost of about $3.7 billion.  In this report, we have
revised the estimated buys from DFSC for fiscal year 1996 downward to
113.5 million barrels at a cost of about $3.6 billion. 

The documentation provided by DOD to support its position that the
fuel budget was overexecuted in 2 of the past 4 years showed that the
overexecution was due to fuel used during contingency situations. 
The fuel for contingencies are not included in DOD's budget request
but are included in total fuel usage data.  The amount of fuel used
was then compared to the amount of funds initially received from the
Congress but not the amount included in the supplemental
appropriation.  Therefore, when usage is compared to the budget
request, it appears that the budget was overexecuted when, in fact,
the fuel budget was underexecuted. 

DOD's comment that our estimate of fiscal year 1995 fuel usage was
understated 5 million barrels is incorrect.  At the time of our
analysis, at the end of the third quarter of fiscal year 1995, we
estimated fiscal
year 1995 net fuel requirements\5 at 118 million barrels for the Air
Force and the Navy.  Our estimate did not include contingency funds
used to purchase fuel.  When contingency funds are included, the net
requirement increases to 121.7 million barrels as compared to actual
DFSC sales of 122 million barrels for fiscal year 1995. 

We continue to believe that budget requests should reflect the best
estimate of what is needed for the purpose for which the funds are
being requested.  In those cases where the request is excessive to
meet known needs, the Congress may want to redirect the funds to
other purposes rather than allowing DOD to decide where to use the
funds.  A complete text of DOD's comments are in appendix I. 


--------------------
\4 As used in this report, overexecute means that the services used
more fuel than what was asked for in the budget request. 

\5 Net fuel requirements are total gross requirements less fuel
returned to DFSC for credit. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :6

We obtained the latest available data from DFSC showing estimated
fuel sales to the Army, the Navy, and the Air Force and compared this
data to the amounts the services had asked for in their respective
budget requests.  We then verified the planned usage data with
service comptroller officials responsible for developing the
estimates.  To ensure that the projected fuel sales data were valid,
we obtained actual fuel sales and usage data for fiscal year 1995
from DFSC and held discussions with the service officials responsible
for monitoring fuel usage.  Based on the records provided by DFSC, we
also confirmed that the services received credits for fuel returned
to DFSC. 

We performed our review at DOD, DFSC, and the military services'
headquarters.  In addition, we reviewed fuel consumption data at the
Air Force Air Combat Command, Langley Air Force Base, Virginia; and
the Navy's Atlantic Command, Norfolk, Virginia. 

We performed our review from October 1995 to January 1996 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :6.1

We are sending copies of this report to the Secretaries of Defense,
the Army, the Navy, and the Air Force; the Director, Office of
Management and Budget; and other interested congressional committees. 
Copies will also be made available to others upon request. 

If you or your staff have any questions concerning this report,
please call me at (202) 512-5140.  Major contributors to this report
are listed in appendix II. 

Mark E.  Gebicke
Director, Military Operations
 and Capabilities Issues


List of Congressional Committees

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

The Honorable John McCain
Chairman,
The Honorable John Glenn
Ranking Minority Member
Subcommittee on Readiness
Committee on Armed Services
United States Senate

The Honorable John R.  Kasich
Chairman,
The Honorable Martin Olav Sabo
Ranking Minority Member
Committee on the Budget
House of Representatives

The Honorable Herbert H.  Bateman
Chairman,
The Honorable Norman Sisisky
Ranking Minority Member
Subcommittee on Military Readiness
Committee on National Security
House of Representatives

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




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Sharon A.  Cekala
Robert J.  Lane

NORFOLK REGIONAL OFFICE

Thomas A.  Pantelides
Robert W.  Wagner
Cora M.  Bowman

*** End of document. ***