Defense Modernization Account: Operations and Benefits (Letter Report,
06/11/99, GAO/NSIAD-99-134).

Pursuant to a legislative requirement, GAO provided information on the
operations and benefits of the Department of Defense's (DOD) Defense
Modernization Account, focusing on: (1) the status of funding and uses
of the account; and (2) whether DOD has reported to the six
congressional committees on the activities of the account as required by
the National Defense Authorization Act for Fiscal Year 1996.

GAO noted that: (1) neither DOD nor the services have ever transferred
funds into the Defense Modernization Account, and hence it has never
been used; (2) the services maintained that the reason for the
inactivity in the account is that funds have not been available; (3) in
fact, the legislation prohibits the transfer of funds to the account if
the secretary of a military department or the Secretary of Defense
determines that there are greater priorities for the use of funds; (4)
according to the Air Force, it uses available funds for other purposes
such as reprogrammings or as offsets to congressionally directed
rescissions; (5) the Marine Corps stated that it does not have excess
funds in support of installations, facilities, or procurement; (6) the
Navy emphasized the lack of availability of funds to use for the
account; (7) the Army stated that it has not been able to afford
transfers to the account because of tight budgets, readiness priorities,
and support for contingency operations not always completely reimbursed
by supplemental appropriations; (8) GAO also found that DOD has never
submitted any of the required quarterly reports on the activities of the
account to the specified congressional committees; (9) according to DOD,
the reason reports have not been submitted is that the account has been
inactive; and (10) nevertheless, had DOD submitted reports, the
committees would have been informed that the account has been inactive.

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

 REPORTNUM:  NSIAD-99-134
     TITLE:  Defense Modernization Account: Operations and Benefits
      DATE:  06/11/99
   SUBJECT:  Unexpended budget balances
	     Reporting requirements
	     Defense economic analysis
	     Defense cost control
	     Defense appropriations
	     Military budgets
	     Prioritizing
	     Reprogramming of appropriated funds
	     Special fund accounts
IDENTIFIER:  DOD Defense Modernization Account

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Rev-LG logo.eps GAO United States General Accounting Office

Report to Congressional Committees

June 1999 DEFENSE MODERNIZATION ACCOUNT

Operations and Benefits

GAO/NSIAD-99-134

  GAO/NSIAD-99-134

Page 1 GAO/NSIAD-99-134 Defense Modernization United States
General Accounting Office Washington, D. C. 20548 National
Security and

International Affairs Division

B-282491 Letter June 11, 1999 Congressional Committees The
Secretary of Defense or the secretary of a military department may
transfer certain unexpired funds from their appropriations 1 to
the Defense Modernization Account, established by law in 1996. 2
Funds must come from savings achieved through efficient management
of procurement or support of installations and facilities. 3
Account funds may be used only for increasing procurement or for
modernizing an existing system or a system being procured under an
ongoing procurement program. Congressional

intent in establishing the account was to encourage savings by the
Department of Defense (DOD) and its military departments and to
make those savings available for meeting shortfalls in funding for
modernization. DOD is required to submit quarterly reports on the
activities of the account

to the six committees specified in the legislation. 4 The
legislation establishing the account requires us to review
operations and benefits by March 1, 2000, and again by March 1,
2003. To satisfy the first review requirement, we determined the
status of the funding and uses

of the account, and whether DOD has reported to the six committees
on the activities of the account.

Neither DOD nor the services have ever transferred funds into the
Defense Modernization Account, and hence it has never been used.
The services maintained that the reason for the inactivity in the
account is that funds have not been available. In fact, the
legislation prohibits the transfer of funds to the account if the
secretary of a military department or the

1 At the end of the period of availability of a fixed- year
appropriation, the appropriation expires and is available only for
recording, adjusting, and liquidating obligations chargeable to
that appropriation. 2 Section 912 of the National Defense
Authorization Act for Fiscal Year 1996 (P. L. 104- 106). 3 The
statute provides that the Secretary of Defense and the secretaries
of military departments may transfer unexpired funds in
appropriation accounts available for procurement and unexpired
funds available in the last 30 days of a fiscal year for support
of installations and facilities, which are excess to requirements,
to the Defense Modernization Account.

4 The Senate Committees on Armed Services, on Appropriations, and
on Governmental Affairs and the House Committees on National
Security (now the Committee on Armed Services), on Appropriations,
and on Government Reform and Oversight.

B-282491 Page 2 GAO/NSIAD-99-134 Defense Modernization Secretary
of Defense determines that there are greater priorities for the
use of funds. According to the Air Force, it uses available funds
for other

purposes such as reprogrammings or as offsets to congressionally
directed rescissions. The Marine Corps stated that it does not
have excess funds in support of installations, facilities, or
procurement. The Navy emphasized the lack of availability of funds
to use for the account. The Army stated that it has not been able
to afford transfers to the account because of tight budgets,
readiness priorities, and support for contingency operations not
always completely reimbursed by supplemental appropriations.

We also found that DOD has never submitted any of the required
quarterly reports on the activities of the account to the
specified congressional committees. According to DOD, the reason
reports have not been submitted is that the account has been
inactive. Nevertheless, had DOD submitted reports, the committees
would have been informed that the account has been inactive.

DOD concurred with our findings. DOD also noted that considerable
work had been done to formulate policies and procedures for
operation of the account. To satisfy our final review requirement,
we plan to look at the account and report on its status before
March 1, 2003. Please call me on (202) 512- 5140 if you or your
staff have any questions about this report.

Mark E. Gebicke Director, National Security Preparedness Issues

B-282491 Page 3 GAO/NSIAD-99-134 Defense Modernization List of
Congressional Committees The Honorable John W. Warner

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

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

The Honorable Floyd Spence Chairman The Honorable Ike Skelton
Ranking Minority Member Committee on Armed Services House of
Representatives

The Honorable Jerry Lewis Chairman The Honorable John P. Murtha
Ranking Minority Member Subcommittee on Defense Committee on
Appropriations House of Representatives

The Honorable Fred Thompson Chairman The Honorable Joseph I.
Lieberman Ranking Minority Member Committee on Governmental
Affairs United States Senate

B-282491 Page 4 GAO/NSIAD-99-134 Defense Modernization The
Honorable Dan Burton Chairman

The Honorable Henry A. Waxman Ranking Minority Member Committee on
Government Reform House of Representatives

(701152) Lett er

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