prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: Postal retiree health benefits are provided as part of the Federal Employees Health Benefits Program (FEHBP)  FEHBP covers federal employees and retirees, including postal and nonpostal retirees, who receive health insurance from companies that contract with OPM  Retiree participation is voluntary; in fiscal year 2018, about 500,000 postal retirees have participated in FEHBP  Funding requirements for postal retiree health benefits are established by law, which divides responsibility among USPS, the federal government, and postal retirees  USPS is responsible for a specific percentage of premiums, the federal government is responsible for paying a prorated share, and retirees are responsible for the rest  The funding requirements for these benefits changed in 2006  Before then, a “pay-as- you-go” system governed USPS’s payments, which required USPS to pay its share of premiums for current postal retirees  The 2006 Postal Accountability and Enhancement Act (PAEA) required USPS to start fully “prefunding” retiree health benefits  This meant that USPS was required to make annual prefunding payments to a newly established fund to build up funds to cover USPS’s share of future postal retiree health benefit costs  PAEA also established the RHB Fund as a new fund in the U S  Treasury for USPS to deposit money into, and specified that beginning in fiscal year 2017, the fund would be used by OPM to pay USPS’s share of postal retiree premiums for health benefits  Under PAEA, the first 10 years of prefunding payments were fixed—ranging from $5 4 billion to $5 8 billion annually from fiscal years 2007 to 2016  From fiscal years 2007 through 2016, USPS was also required to continue “pay-as-you-go” payments for its share of premiums for current retirees  The permanent schedule for USPS payments to prefund postal retiree health benefits under PAEA started in fiscal year 2017  We have reported that USPS’s financial condition continues to deteriorate and its outlook is bleak  We have separately issued reports and testimonies that examined USPS’s financial condition, including its liabilities, and identified strategies and options for USPS and Congress to reduce postal costs, generate revenue, and restructure the funding of USPS’s pension and retiree health benefits  Looking forward, we have reported that USPS is facing unsustainable financial challenges as First- Class Mail volume continues to decline  USPS has recently reported that its revenue generation options are constrained, including by the price cap on market-dominant mail, and that any cost-cutting opportunities within its control are “relatively limited and dwindling ” USPS stated that the opportunity for further cost savings within its control will not come close to filling its financial gap  With respect to actions taken by companies and state governments, we have previously reported on the long-term trend for these organizations to eliminate or reduce retiree health benefits  Factors contributing to this decline include financial challenges for companies and states, current and expected retiree health benefit costs, and the legal ability to change retiree health benefit programs  The RHB Fund is on an unsustainable path and is projected to be depleted in 12 years under the status quo  USPS has missed approximately $38 billion in payments to the fund since fiscal year 2010, and the fund’s balance is declining  Beginning in fiscal year 2017, OPM started drawing from the fund to pay USPS’s share of premiums for postal retirees’ health benefits  OPM’s payments in that year exceeded the fund’s income from interest, and OPM projects that, based on the status quo, future payments will continue to exceed the fund’s income from interest  As long as USPS continues to miss its annual payments—which were nearly $4 3 billion in fiscal year 2017 and are $4 5 billion in fiscal year 2018—the fund is on track to be depleted in fiscal year 2030 based on OPM projections requested by us (see fig  1)  We reported similar results in our December 2012 report on postal retiree health benefits  At our request, OPM conducted a sensitivity analysis in which alternative projections were made that assumed USPS made payments to the fund of $1 billion per year or $2 billion per year; these alternative projections extended the fund’s projected depletion date from fiscal year 2030 to fiscal years 2032 or 2035, respectively (see fig  2)  OPM estimates the number of postal retirees eligible for federal retiree health benefits will remain near the current level of 500,000 through fiscal year 2035  The outlook for the RHB Fund is poor as USPS has inadequate resources to cover its required payments to the RHB Fund and, in our view, based on past practices and USPS statements, appears unlikely to make partial payments  USPS has repeatedly testified that its required payments to the RHB Fund are “unaffordable” relative to its current financial situation and outlook  In this regard, USPS accumulated net losses of more than $65 billion in the last 11 years and has budgeted for a net loss of about $5 billion in fiscal year 2018  Further, USPS reached its statutory borrowing limit of $15 billion in 2012  Although USPS accumulated liquid assets (cash and cash equivalents) of about $10 5 billion at the end of fiscal year 2017, it did not make $6 9 billion in required payments for retiree health and pension benefits  According to USPS officials, USPS did not make these payments in order to preserve liquidity and cover operational costs  If the RHB Fund is depleted, PAEA requires USPS to fill the resulting financial gap by resuming “pay-as-you-go” payments for its share of retiree health premiums that are currently being paid by the fund  However, PAEA does not address how funding will be provided or whether benefits will be provided if the fund becomes depleted and USPS does not make payments to cover its share of premiums  OPM and USPS have identified the following issues should the fund be depleted: According to OPM: (1) The RHB Fund is the initial funding source for USPS’s share of postal retirees’ health insurance premiums as long as money remains in the fund  (2) If the fund is depleted, then USPS becomes the funding source responsible for paying USPS’s share of these premiums  (3) Regardless of whether funds are available to pay USPS’s share of premiums, postal retirees are statutorily entitled to remain enrolled in their FEHBP plans  (4) Therefore, if the fund is depleted and USPS does not pay its share of premiums, the providers of these FEHBP plans would be underpaid  According to USPS: (1) Current law does not appear to contemplate a situation in which USPS itself is unable to make payments to the RHB Fund after the fund is depleted  (2) The law does not condition postal retirees’ eligibility for health benefits upon the fund or the payment of government contributions by USPS and the federal government  (3) Therefore, USPS stated it is reasonable to expect that postal retirees would remain eligible for health coverage even if USPS is unable to make payments to the RHB Fund after it is depleted  Regarding who would pay for their health coverage at this point, USPS stated that ultimately, it would be up to Congress to legislate a resolution to the funding issue  As the above projections show, the RHB Fund could be depleted in as little as 12 years—and USPS may be unable to cover its share of retiree health insurance premiums should its financial condition remain precarious  Depletion of the fund could affect postal retirees—who have provided a vital service to the nation—as well as USPS, postal customers and other stakeholders, including the federal government  Survey data we reviewed indicate that most companies do not offer retiree health benefits and that the number of companies providing such benefits is decreasing over time  For example, the percentage of all private and public organizations (e g , state or local governments) with more than 200 employees that offer employee health benefits and that also offer retiree health benefits is estimated to have declined from 40 percent in 1999 to 25 percent in 2017, according to annual surveys conducted by the Henry J  Kaiser Family Foundation and the Health Research & Educational Trust (Kaiser/HRET)  Focusing specifically on the results for private for-profit companies, the 2017 Kaiser/HRET survey estimated that only 11 percent of companies with at least 200 employees that offered health benefits to active employees also offered retiree health benefits in 2017, the smallest percentage since comparable data were measured in 2012  The 2017 Kaiser/HRET survey also estimated that the percentage of companies offering retiree health benefits was greater among companies with at least 5,000 employees (35 percent) than those with 1,000 to 4,999 employees (18 percent) and those with 200 to 999 employees (9 percent) (see fig  3)  Surveys sponsored by the Agency for Healthcare Research and Quality (AHRQ) have estimated similar trends for private sector establishments with at least 1,000 employees and with 100-999 employees  According to the AHRQ surveys, an estimated 25 percent of private sector establishments with at least 1,000 employees offered health insurance coverage to retirees age 65 and older in 2016, down from 41 percent in 2003  For retirees under 65, an estimated 32 percent offered such coverage in 2016, down from 42 percent in 2003 (see fig  4)  Based on reports we reviewed and experts we interviewed, many companies that have retained their retiree health benefits have done so by making changes to control costs, including tightening eligibility and restructuring benefits  Depending on the company, the changes have applied to new hires, current employees, or retirees  Specific changes have included the following: Tightening eligibility: Some companies have made new employees and/or employees hired after a given date ineligible to receive retiree health benefits, while other companies have increased the minimum age and/or length of service requirements for eligibility, according to reports and experts we interviewed  Restructuring benefits: Many companies have restructured retiree health benefits to reduce the level of the benefit, to shift costs to retirees, and to change how the benefits are provided  For example, some companies have shifted from an approach under which a company pays a percentage of premiums for a selected health benefit plan, to an approach under which a company pays a fixed dollar amount that employees may put toward health care costs  The 2017 Kaiser/HRET survey estimated that 30 percent of private and public organizations with 200 or more employees that offer retiree health benefits provide a fixed dollar amount that the retiree can use to purchase a retiree health plan they choose  Experts on retiree health benefits that we interviewed told us such companies often shift costs to retirees by maintaining defined contributions at the same level over time, even as overall health care costs increase  Based on multiple reports and experts, nearly all state governments continue to offer retiree health benefits to at least some state government retirees but generally have shifted some costs from the state to retirees and/or active employees in various ways  For example, in 2016, the Pew Charitable Trusts and the John D  and Catherine T  MacArthur Foundation reported on the following recent changes at the state level related to eligibility for retiree health benefits, benefit levels, and aspects of how the benefits coordinate with Medicare: Tightening eligibility or limiting benefit levels: Most states varied eligibility for retiree health benefits based on factors such as age and years of service, and varied benefit levels based on factors such as date of hire, date of retirement, or vesting eligibility; some states varied benefit levels based on years of service  Between 2000 and 2015, more than a dozen states changed the minimum age or the number of state service years required for retirees to be eligible for health benefits  During that timeframe, at least 10 states adopted formulas for prorating benefits that required different premium-sharing amounts based on years of service, or altered existing prorating formulas, bringing the total to 31 states that used prorating in 2015  At least 5 states stopped making any contributions to health premiums for certain retirees  Medicare coordination: Thirty-five states provided employer- sponsored Medicare Advantage or Medicare Part D plans, known as Employer Group Waiver Plans, to provide health or prescription drug benefit coverage for Medicare-eligible retirees since these options were authorized in 2003  According to the report, “These cost- saving programs provide states with financial subsidies from the federal Medicare program to provide Medicare plus wraparound benefits ” We identified eight potential policy approaches to address the financial sustainability of postal retiree health benefits, primarily based on a review of legislative proposals and pertinent literature on actions that were taken by private companies and state governments and are discussed above  These approaches fall into three categories: (1) approaches that shift costs to the federal government; (2) approaches that reduce benefits or increase costs to postal retirees and/or postal employees; and (3) approaches that change how the benefits are financed  These eight approaches are not mutually exclusive, nor are they an exhaustive list of possible approaches  Each approach could include a range of specific options; thus, even if successfully implemented, no one approach would necessarily be sufficient to make postal retiree health benefits financially sustainable  Although our discussion of the various policy approaches specifically addresses postal retiree health benefits, most approaches could address federal retiree health benefits more broadly, as both postal and non-postal federal employees participate in the same federal health benefits program  All approaches we identified have different potential effects and would require congressional action because current law establishes certain requirements for postal retiree health benefit plans, including basic rules for benefits, enrollment, and participation, and how benefits are to be paid for  Because the RHB Fund has a large and growing financial gap, any approach that would have a significant financial impact could affect the federal government, postal retirees, postal employees, USPS, and customers to varying degrees  Medicare Integration: Various legislative proposals have been made to increase postal retirees’ participation in Medicare—a shift that would decrease USPS’s costs but increase Medicare’s costs, according to analyses by the Congressional Budget Office (CBO)  These proposals would establish a program within FEHBP for active postal employees and postal retirees  Under these bills, Medicare-eligible postal retirees enrolled in this program would generally also be required to be enrolled in Medicare Parts A, B, and D  According to CBO analyses, the bills would have resulted in USPS savings, in part because increased participation in Medicare would shift primary responsibility for covering certain health care services to Medicare for those who enroll  As we have previously reported, the primary policy decision for Congress to make is whether to increase postal retirees’ use of Medicare  Supplemental federal appropriations: If the RHB Fund becomes depleted and USPS does not fill the financial gap, supplemental federal appropriations could be an alternative if Congress wants benefits to continue at the same level  As previously noted, OPM officials told us that regardless of whether funds are available to pay USPS’s share of premiums, postal retirees are statutorily entitled to remain enrolled in their FEHBP plans  However, supplemental federal appropriations for postal retiree health benefits could increase the federal budget deficit  In addition, supplemental appropriations for postal retiree health benefits would be inconsistent with USPS functioning as a self-financing entity that covers its costs with revenue it generates  Tighten eligibility or reduce or eliminate retiree health benefits: As some companies and state governments have done, eligibility restrictions could be tightened for postal retiree health benefits, or other actions could reduce the level of benefits or even eliminate benefits, such as making new hires ineligible to receive retiree health benefits  The effects would depend on the specific changes and whether they were made to apply to current retirees, current employees, or future hires  Depending on the extent of the changes, this approach would reduce USPS’s liability for postal retiree health benefits and thereby reduce its unfunded liability  Increase premium payments by postal retirees and/or postal employees: As some companies and state governments have done, premium payments for postal retiree health benefits by postal retirees and/or postal employees could be increased  For example, as others have reported, some companies and state governments have required retirees to pay 100 percent of the health insurance premium for their retiree health benefits  Similarly, a larger share of retiree health premiums could be borne by postal retirees or postal employees could be required to pay for retiree health benefits before they retire  Such changes would require changes to current law that allocates specific financial responsibility for payments among USPS, the federal government, and retirees participating in FEHBP, as active postal employees make no payment for retiree health benefits under current law  The expenses of the RHB Fund could be decreased by these approaches that shift costs to postal retirees, postal employees, or both  Depending on how much of the costs are shifted, the additional costs could increase the challenge for retirees to ensure their accumulated resources last throughout retirement, or for postal employees to save for retirement  Further, as we have reported, rising health care costs can increase the overall amount individuals may need to save to ensure they have an adequate income once they retire  Change the federal contribution to a fixed subsidy: As some companies and state governments have done, postal retiree health benefits could be shifted to a structure with a fixed amount subsidizing the benefit  This amount could be adjusted over time; any adjustments might or might not keep up with costs  Depending on the initial size of the fixed subsidy and any adjustments over time, this approach could reduce the expenses of the RHB Fund and USPS’s required payments  RHB Fund expenses could be reduced over time if the fixed subsidy increases less than postal retiree health premiums  This approach would require changes to current law and regulations that prescribe the federal government’s financial contribution to FEHBP  For example, CBO recently identified one option to change FEHBP’s statutory structure from a premium-sharing structure that is required by law to fixed subsidies for health benefits  Under this option, the fixed subsidies would grow at the rate of inflation rather than at the average rate of growth for FEHBP premiums; CBO stated this change would be expected to slow the growth of federal contributions to FEHBP  A fixed subsidy for retiree health benefits could increase incentives for retirees to make less costly decisions with respect to health care  However, this approach could result in greater cost exposure for retirees, who may face difficult decisions regarding their health care, particularly if their financial resources are limited  As we have reported, individuals face the risk that rising and unpredictable health care or long-term care costs may lead them to draw down their retirement savings faster than expected  Establish a non-federal voluntary employees’ beneficiary association (VEBA) for postal retiree health benefits: As some companies have done to provide retiree health benefits separately from the employer, a VEBA outside the federal government could be established to manage postal retiree health benefits  This approach means that postal retiree health benefits would be provided through the VEBA instead of through the OPM-administered FEHBP  The non-federal VEBA would administer the postal retiree health benefits program, including determining the specific benefits that would be provided and the level of contributions from the VEBA members—who could include retirees and employees—and the investing of its assets  Such an approach would require determining the VEBA’s governance structure, funding sources, level of funding, type of investments, and associated market risks  One issue could be determining the source and level of initial funding for a new VEBA for postal retiree health benefits, such as whether initial funding would come from the RHB Fund, the Treasury, or both  Other issues could be what funds would be provided to the VEBA going forward, including the source(s) and level of funding, and what the benefit levels would be  If the entire RHB Fund were transferred into a VEBA, the current level of benefits would ultimately not be sustainable unless further funding is provided from one or more sources, such as from USPS, retirees, active employees, or the federal government  Thus, trade-offs would involve what level of benefits would be provided, who would bear the costs, and what might happen if VEBA assets decline or become depleted  Reduce the required level of prefunding: Proposed legislation includes an 80 percent funding target for postal retiree health benefits instead of the 100 percent target established by current law  This would reduce USPS’s required payments to the RHB Fund but could increase costs for future postal ratepayers and increase the risk that USPS may not be able to pay for these costs  As previously discussed in this report, state governments either do not prefund their retiree health benefits or generally have a low level of prefunding  We have expressed concern about a proposed 80 percent funding target for postal retiree health benefits that would have the effect of carrying a permanent unfunded liability equal to roughly 20 percent of USPS’s liability, which could be a significant amount  As we previously reported, an alternative could be to build in a schedule to achieve 100 percent funding in a later time period after the 80 percent level is achieved  Although USPS payments with an 80 percent funding target would reduce USPS’s required payments, fully funded benefits protect against an inability to make payments later, make promised benefits less vulnerable to cuts, and protect USPS’s long-term viability  Further, reducing the funding target is unlikely to have any effect as long as USPS continues to make no payments to the RHB Fund, as discussed earlier  We continue to believe that as long as USPS is required by law to pay its share of retiree health benefits premiums, it is important for USPS to prefund its retiree health benefit liability to the maximum extent that its finances permit  We recognize that multiple options exist to prefund benefits and amortize unfunded liability and that no prefunding approach will be viable unless USPS can make the payments and maintain liquidity  As we have reported, making affordable prefunding payments would protect the viability of USPS by not saddling it with bills later on, when employees are already retired and no longer helping it to generate revenue; making payments can also make the promised benefits more secure  We also have reported that deferring payments can pass costs from current to future postal ratepayers  To the extent prefunding is postponed by using a lower funding target, larger payments will be required later, when they likely would be supported by lower levels of profitable First-Class Mail volume  Outside investment: Proposed legislation would initially require 25 percent of the RHB Fund to be invested in index funds modeled after those used for federal Thrift Savings Plan investments  The objective of investing RHB Fund assets outside of U S  Treasury securities would be to seek a greater rate of return on these assets in an attempt to reduce unfunded liabilities and the amount of required prefunding payments  Such outside investment would require legislation because current law limits RHB Fund assets to U S  Treasury securities that are backed by the full faith and credit of the federal government  A higher rate of return on RHB Fund assets could reduce long-term funding needs  However, there are other considerations  For example, we have reported that if fund assets were invested in non-Treasury securities, the fund may experience losses in a market downturn and would thus have reduced assets available for health care  Assuming there would be no explicit federal guarantee of the value of the invested assets, we stated that USPS is not well positioned to deal with a potentially significant decline in their value, given its significant operating losses and continuing decline in mail volume  We also reported that the impact of any asset losses could be magnified because a market downturn that negatively affects asset value could be associated with a more general economic downturn that negatively affects USPS mail volume and revenues  About a half million postal retirees receive retiree health benefits  Postal retirees have provided a vital service to the nation, and resolving a key aspect of their future situation warrants congressional action  Failure to address the poor financial outlook of the RHB Fund could pose serious consequences for these retirees as well as USPS, postal customers, and other stakeholders, including the federal government  It is reasonable to believe that USPS will not be able to fill the financial gap once the RHB fund is depleted—a situation that could occur in as little as 12 years under the status quo  There is no certainty on what actions should be taken to address this problem  However, we have identified multiple approaches that could be used, individually or in combination, that Congress could consider to help address the financial shortfall in this area  All of these approaches have different potential effects, and it is up to Congress to consider the merits of the approaches and determine the most appropriate action to take  It would be preferable to take action when careful consideration is possible, rather than wait until lack of adequate funding could disrupt postal retiree health benefits  Congress should consider passing legislation to put postal retiree health benefits on a more sustainable financial footing  We provided a draft of this report to OPM and USPS for their review and comment  OPM provided technical comments, which we incorporated as appropriate  USPS provided a written response, which is reproduced in appendix II of this report  In its written response, USPS stated that it concurred with our matter for congressional consideration that congressional action is necessary to achieve a financially sustainable Postal Service Retiree Health Benefits Fund (RHB Fund)  However, USPS said our discussion of potential policy approaches for postal retiree health benefits would benefit from additional context and balance  USPS also put forth additional information for three of the potential policy approaches highlighted in our report  Our report presents a high-level overview of eight potential policy approaches  It was not designed to be a comprehensive catalog of possible options with an analysis of the various considerations relevant to each  With regard to the Medicare integration approach, USPS stated that increased Medicare participation by postal retirees is not limited to the “full Medicare integration option,” as represented in our report and identified variations of such an approach  USPS said readers would benefit from a fuller picture of Medicare integration practices, stating that among employers that continue to provide retiree health benefits, full Medicare integration is a uniform best practice  USPS cited a 2014 report that said Medicare integration is the most common arrangement for employer-provided retiree health benefits, adding that retiree health benefits for Medicare-eligible employees are assumed to be merely supplemental to Medicare as a matter of course  Our report discussed Medicare integration by state governments, but did not present recent data on the percentage of private companies that coordinate their retiree health benefits with Medicare because such data are not publicly available  Additionally, USPS said our report framed the issue of Medicare integration as “solely” a tradeoff between USPS and Medicare costs while there are other factors to consider, such as the relative benefits to USPS compared to the overall cost for the Medicare program  As we noted in our report, the eight potential policy approaches were not designed to be mutually exclusive, nor an exhaustive list of possible approaches  Additionally, we recognize there are various factors related to this approach, but that the primary one is whether to increase postal retirees’ use of Medicare which would lead to further increasing Medicare costs  Second, USPS said it believed our statements about approaches for changing the level of prefunding for retiree health benefits below the 100 percent level were misplaced, citing “universally accepted practices” for other entities to “pay-as-you-go” (i e , not prefund at all), or to prefund at much lower levels  We have reported on such funding levels in the past as well  However, a proposed 80 percent funding target for postal retiree health benefits would have the effect of carrying a permanent unfunded liability equal to roughly 20 percent of USPS’s liability, which could be a significant amount  As we previously reported, an alternative could be to build in a schedule to achieve 100 percent funding in a later time period after the 80 percent level is achieved  As our report also explained, although USPS payments with an 80 percent funding target would reduce USPS’s required payments, fully funded benefits protect against an inability to make payments later, make promised benefits less vulnerable to cuts, and protect USPS’s long-term viability  Finally, USPS said that our statements about potential risks associated with investment of assets outside the U S  Treasury seem disproportionate given USPS’s view that diversification of assets set aside for retiree health benefits is “universally accepted” as a best practice  We recognize that a higher rate of return on RHB Fund assets could reduce long-term funding needs for the RHB Fund  However, there are considerations specific to USPS  For example, assuming there would be no explicit federal guarantee of the value of the invested assets, we stated that USPS is not well positioned to deal with a potentially significant decline in their value, given its significant operating losses and continuing decline in mail volume  We also noted that, as we have previously reported, the impact of any asset losses could be magnified because a market downturn that negatively affects asset value could be associated with a more general economic downturn that also negatively affects USPS mail volume and revenues  In summary, we believe our report presents a balanced description of a wide range of possible policy options; it does not endorse or recommend any particular option for Congress  As we concluded, all of these approaches have different potential effects, and the information we present, as well as the additional views presented by USPS, provide critical information for congressional decision-makers to assess as they consider the merits of the approaches and determine the most appropriate action to take  As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies to the appropriate congressional committees; the Postmaster General; and the Director of the Office of Personnel Management  In addition, the report will be available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions concerning this report, please contact me at (202) 512-2834 or rectanusl@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff that made key contributions to this report are listed in appendix III  End of year net funded status (unfunded) (55 0) Missed USPS payments to the fund (53 5) (52 0) (48 6) (46 2) (47 8) (48 3) (48 9) (54 8) (52 1) payments due on Sept  30, 2017, of $955 million for the amortization of USPS’s unfunded liability for postal retiree health benefits, and $3 3 billion for the “normal costs” of retiree health benefits  The “normal cost” is the annual expected growth in liability attributable to an additional year of employees’ service  In addition to the individual named above, Derrick Collins (Assistant Director); Kenneth John (Analyst-in-Charge); Amy Abramowitz; Taiyshawna Battle; William Colwell; Swati Deo; John Dicken; Leia Dickerson; William Hadley; James Leonard; Emei Li; Thanh Lu; Sara Ann Moessbauer; Joshua Parr; Malika Rice; Matthew Rosenberg; Amy Rosewarne; Frank Todisco; and Crystal Wesco made key contributions to this report 


Report 2: As part of the annual budget formulation process for each fiscal year, DOD establishes for each of nine foreign currencies, a foreign currency budget rate (units of foreign currency per one United States (U S ) Dollar) to use when developing O&M and MILPERS funding requirements for overseas expenditures  Foreign currency budget rates for a particular fiscal year are established approximately 18 months prior to the fiscal year when overseas obligations will be incurred and disbursements made  For example, in June 2015, OUSD(C) issued guidance to, in part, instruct the services on the foreign currency rates to use in building their fiscal year 2017 budgets  In February 2016, as part of the President’s budget, DOD submitted its proposed fiscal year 2017 budget to Congress, and it began incurring obligations against subsequently appropriated amounts on October 1, 2016  DOD has used various methodologies for establishing the foreign currency budget rates  In 2005, we reviewed DOD’s methodology for developing its foreign currency budget rates and reported that DOD’s approach for estimating its foreign currency requirements for the fiscal year 2006 budget was a reasonable approach for forecasting foreign currency rates that could produce a more realistic estimate than its historical approach  In its fiscal year 2006 through 2016 budget requests, DOD used a centered weighted average model that combined both a 5-year average of exchange rates and an average of the most recently observed 12 months of exchange rates  For its fiscal year 2017 request, DOD adjusted its methodology to establish the foreign currency budget rates  Specifically, DOD established its foreign currency rates by calculating a 6-month average of Wall Street Journal rates published every Monday from May 25, 2015, to November 16, 2015  According to an OUSD(C) official, the 6-month average more closely represented foreign currency exchange rates experienced by the department during budget formulation, and it accounted for the strength of the U S  Dollar, which had increased as compared with its historical 5- year average  DOD’s analysis found that the use of the 5-year historical average would have resulted in substantial gains when compared with gains expected from application of the 6-month average  More specifically, DOD projected gains of about $1 billion using the 5-year average of rates  During the fiscal year for which a budget is developed, DOD incurs obligations for its overseas O&M and MILPERS activities  Those obligations are recorded using the foreign currency budget rates  DOD uses various methods for selecting foreign currency rates to liquidate those obligations through disbursements, which may differ from the budget rates  DOD’s preferred payment method for foreign currency transactions is the Department of Treasury’s (Treasury) comprehensive international payment and collection system—the International Treasury Services (ITS gov) system—which serves federal agencies making payments in nearly 200 countries  ITS gov offers a number of rates, including advanced rates available up to 5 days in advance of disbursement, and the spot rate  The spot rate is the price for foreign currencies for delivery in 2 business days  While advanced rates, like spot rates, are based on the current market rate, advanced rates at the time they are selected are generally higher than the spot rate, with the 5-day advanced rate being the highest, because the rates are locked in ahead of the actual value date  While the spot rate can be more cost-effective, it requires immediate transaction processing, which may not be feasible for all disbursements  Differences between obligations incurred at the foreign currency budget rates and the amounts that DOD actually disburses drive gains or losses in the appropriated amounts DOD has available for its planned overseas expenditures  For example, if DOD budgeted for the U K  Pound at a rate of  6289 (that is, 1 U S  Dollar buys  6289 U K  Pounds) as it did in fiscal year 2016, and the rate experienced at the time of disbursement was  6845, then DOD would have requested more funds than were actually needed for transactions involving the U K  Pound  That would have resulted in a gain from the transaction—meaning that DOD would need less funds than were budgeted for the transaction  Conversely, a current rate that is lower than what was budgeted will result in a loss—and DOD would require more funds than were budgeted for the transaction  Within each of the services’ O&M and MILPERS appropriations accounts, amounts are available for overseas activities  Amounts obligated for overseas activities, along with associated foreign currency gains and losses, are managed by the services as part of the overall management of their O&M and MILPERS appropriations accounts  Service components use foreign currency fluctuation accounts within their O&M and MILPERs appropriations to manage realized gains and losses in direct programs due to fluctuations in foreign exchange rates  The service-level foreign currency fluctuation accounts are maintained at various budgetary levels within the service components  In fiscal year 1979, Congress appropriated $500 million to establish the FCFD account for purposes of maintaining the budgeted level of operations in the MILPERS and O&M appropriation accounts by mitigating substantial gains or losses to those appropriations caused by foreign currency rate fluctuations  FCFD appropriations are different from the O&M and MILPERS appropriations in two ways  First, FCFD account amounts are no-year amounts, meaning that they are available until expended, while in general, O&M and MILPERS appropriations are 1-year amounts and expire at the end of the fiscal year for which they were appropriated  Expired O&M and MILPERS amounts remain available only for limited purposes for 5 additional fiscal years  At the end of the 5-year expired period, any remaining O&M or MILPERS amounts, obligated or unobligated, are canceled and returned to Treasury  Second, FCFD account amounts may be used only to pay obligations incurred because of fluctuations in currency exchange rates of foreign countries, while O&M amounts are available for diverse expenses necessary for the operation and maintenance of the services and MILPERS amounts are available for service personnel-related expenses, such as pay, permanent changes of station travel, and expenses of temporary duty travel, among other purposes  Amounts from the FCFD account may be transferred to service-level foreign currency fluctuation accounts within O&M and MILPERS appropriation accounts to offset losses in buying power due to unfavorable differences between the budget rate and the foreign currency exchange rate prevailing at the time of disbursement  The FCFD account may be replenished in several ways  Amounts transferred from the FCFD to O&M and MILPERS appropriations may be returned when not needed to liquidate obligations because of subsequent favorable foreign currency rates in relation to the budget rate, or because other amounts have become available to cover obligations  A transfer back to the FCFD of unneeded amounts must be made before the end of the second fiscal year of expiration following the fiscal year of availability of the O&M or MILPERS appropriation to which the funds were originally transferred  Amounts may also be transferred to the FCFD account even if they did not originate there  Specifically, DOD may transfer to the FCFD account any unobligated O&M and MILPERS amounts unrelated to foreign currency exchange fluctuations so long as the transfers are made not later than the end of the second fiscal year of expiration of the appropriation  While multiple transfers of these unobligated amounts may be made during a fiscal year, any such transfer is limited so that the amount in the FCFD account does not exceed the statutory maximum of $970 million at the time of transfer  When the FCFD account balance is at the maximum balance, the services normally retain in their service- level O&M and MILPERs foreign currency fluctuation accounts any gains resulting from favorable foreign currency rates  Finally, any amounts transferred, whether from the FCFD account to an O&M or MILPERS account, or from an O&M or MILPERS account to the FCFD, are merged with the account and assume the characteristics of that account, including the period of availability of the funds contained in the account  Visibility of service-level foreign currency fluctuation account and FCFD transactions is maintained through the services’ accounting systems and execution reports  DOD uses the following reports to track its foreign currency funds: Foreign Currency Fluctuations, Defense Report (O&M): provides data on O&M foreign currency gains and losses for each service, by currency, including data on projected gains or losses for any remaining obligations that have not yet been liquidated and disbursed at the time of the report  Foreign Currency Fluctuation, Defense Report (MILPERS): provides data on MILPERS foreign currency gains and losses for each service, by currency, including data on projected gains or losses for any remaining obligations that have not yet been disbursed at the time of the report  In 2013 we analyzed and reported on carryover balances in federal accounts, which amounted to $2 2 trillion in fiscal year 2012, and we found that greater examination of carryover balances by an agency provides opportunities for enhanced oversight of their management of federal funds and may help identify opportunities for potential budgetary savings  Carryover balances are composed of both obligated and unobligated amounts  Only accounts with multi-year or no-year amounts, such as the FCFD, may carry over amounts that remain legally available for new obligations from one fiscal year to the next  DOD’s carryover balances would include FCFD account balances carried from one year to the next  DOD’s FCFD account is composed of unobligated carryover amounts that accumulate when unneeded for transfer to O&M and MILPERS accounts to cover foreign currency fluctuations  FCFD unobligated carryover balances include any expired, unobligated balances from the military services’ O&M and MILPERS accounts, which can include any gains due to favorable foreign currency fluctuations that are not used to cover other losses and that are transferred into the FCFD  DOD revised its foreign currency budget rates in fiscal years 2014 through 2016, which resulted in budget rates in these years that were more closely aligned with rates published by Treasury  Furthermore, the revised budget rates in fiscal years 2014 through 2016 decreased DOD’s projected O&M and MILPERS funding needs  The revised budget rates also decreased potential gains and losses in the amount of funds that DOD had available for its planned overseas expenditures  DOD revised its foreign currency budget rates in fiscal year 2014 and continued to do so in fiscal years 2015 and 2016 before making adjustments to its methodology in fiscal year 2017  According to an OUSD(C) official, the methodology developed in 2017 resulted in budget rates that were more closely aligned with market rates than in previous years, making revision of the 2017 budget rates unnecessary  DOD’s revisions to its foreign currency budget rates in fiscal years 2014 through 2016 resulted in rates that more closely aligned with those published by Treasury  Further, they decreased the expected gains that would have otherwise resulted from a substantial increase in the strength of the U S  Dollar, in fiscal years 2014 through 2016, relative to other foreign currencies from the time the budget rates were set as compared with the rates available once the fiscal year began  Prior to fiscal year 2014, DOD did not revise its foreign currency budget rates  DOD officials did not provide an explanation for why the budget rates for fiscal years 2009 through 2013 were not revised  DOD developed, in November 2015, a set of standard operating procedures that describe the methodology it used for formulating budget rates for the nine foreign currencies included in its budget submission  These procedures also state that DOD is required to update the budget rates once an appropriation is enacted for the fiscal year  For example, if Congress reduces DOD’s appropriations due to favorable foreign currency rates, such as the $1 5 billion reduction in DOD’s total fiscal year 2016 appropriations, OUSD(C) then revises the budget rates to absorb the reduced funding levels  OUSD(C) officials stated that other factors are also considered when determining whether to revise the foreign currency budget rates, and that the department communicates the revised budget rates to the DOD components and Congress  For example, OUSD(C) assesses the value of each of the nine foreign currencies used to develop the budget request relative to the strength of the U S  Dollar during the fiscal year  An OUSD(C) official also noted that the effects that the rate changes would have across these foreign currencies are also considered prior to submitting recommended rate revisions to the OUSD(C) leadership for approval  The official stated that one currency may be experiencing a loss, while another is experiencing a gain, which can affect whether to revise the rates and what those revisions should be  Additionally, the OUSD(C) official stated that “significant” projected gains or losses could drive a revision to the foreign currency budget rates, and that an informal $10 million threshold for projected gains and losses is used to determine when the foreign currency budget rates are revised  According to OUSD(C) officials, DOD components and Congress were notified when the budget rates were revised during fiscal years 2014 through 2016, including an explanation for why the rates were revised  OUSD(C) also includes the budget rates for each of the nine foreign currencies on its website and identifies any instances in which the budget rates were revised with the effective date of any rate revisions  Our analysis of DOD’s use of revised budget rates during fiscal years 2014 through 2016 found that the revised budget rates for those years were more closely aligned with rates published by Treasury  More specifically, for the nine foreign currencies included in DOD’s budget, our analysis comparing DOD’s initial and revised budget rates for fiscal years 2009 through 2017 with average Treasury rates for these years found that DOD’s budget rates differed from Treasury rates by less than 10 percent in about 64 percent of the total 162 occurrences we examined  While we are unaware of any criteria that suggest how closely DOD’s foreign currency budget rates should align with market rates, we used 10 percent as a basis for our analysis because Treasury’s guidance states that amendments to its published exchange rates are required if rates differ from current rates by 10 percent or more  We further examined these occurrences to determine what the differences were between the DOD and Treasury rates before and after DOD began revising its budget rates in fiscal year 2014  Of the 162 occurrences we reviewed, there were 90 occurrences included in our comparison for fiscal years 2009 through 2013, and 72 occurrences were included in our comparison for fiscal years 2014 through 2017  Our analysis shows the following: For fiscal years 2014 through 2017, DOD’s budget rates for its nine foreign currencies differed from Treasury rates by less than 10 percent in about 71 percent of the occurrences  This increased from about 59 percent of the occurrences for the period of fiscal years 2009 through 2013, before DOD began revising its rates after the fiscal year began  For fiscal years 2014 through 2017, DOD’s budget rates differed from Treasury’s rates by 10 percent or more after DOD began revising its rates in fiscal year 2014 in about 29 percent of the occurrences, which is a decrease from about 41 percent of the occurrences prior to fiscal year 2014  Figure 2 below shows the number of occurrences in which DOD’s initial and revised rates differed from Treasury rates by less than 10 percent, and the occurrences in which DOD’s rates differed from Treasury rates by 10 percent or more  The occurrences that are less than 10 percent of Treasury rates are most closely aligned with Treasury rates  According to DOD officials, the differences between DOD’s foreign currency budget rates and Treasury rates are driven primarily by market volatility (that is, the differences in the foreign currency rates from when DOD formulates its budget rates, prior to the fiscal year, and the foreign currency rates determined by Treasury when obligated amounts are liquidated through disbursements during the fiscal year)  According to the OUSD(C) official responsible for formulating and revising the foreign currency budget rates, the delay that occurs between the time when a budget rate is set (approximately 18 months prior to the beginning of a particular fiscal year) and the actual fiscal year is a major factor for why the budget rate may be revised  According to the official, the market rates experienced during fiscal years 2014 through 2016 were substantially different from those expected when the budget rates for those years were developed  Therefore, DOD revised its budget rates during these years to more closely align with market rates experienced  Specifically, this official stated that DOD revised its budget rates during fiscal years 2014 through 2016 to decrease the expected gains that would have otherwise resulted during these fiscal years from a substantial increase in the strength of the U S  Dollar relative to other foreign currencies from the time the budget rates were set as compared with more favorable rates available once the fiscal year began  In order to more closely align its budget rates with market rates, DOD introduced a new methodology to establish the foreign currency budget rates for fiscal year 2017 because DOD anticipated approximately $1 billion in projected gains if it used the prior methodology  As a result of this change in the methodology, according to the OUSD(C) official, DOD did not experience substantial gains or losses in fiscal year 2017  Therefore, DOD did not revise its foreign currency budget rates during fiscal year 2017  However, as previously stated, the official did not provide an explanation as to why the budget rates for fiscal years 2009 through 2013 were not revised  DOD’s use of revised foreign currency budget rates decreased DOD’s projected O&M and MILPERS funding needs and any potential gains and losses that would have occurred due to foreign currency fluctuations during fiscal years 2014 through 2016  Because DOD uses its budget rates to establish its projected annual O&M and MILPERS funding requirements for planned overseas expenditures, any revisions to the budget rates affect DOD’s estimate of its funding needs  For example, our analysis shows that as a result of revising its budget rates during fiscal years 2014 through 2016, DOD’s projected funding needs for the period of fiscal years 2009 through 2017 decreased from about $60 2 billion to about $57 5 billion—a decrease of about $2 7 billion  To further show the effect that changing foreign currency rates could have on DOD’s projected funding for planned overseas expenditures for fiscal years 2009 through 2017, we also compared DOD’s projected O&M and MILPERS funding needs, based on its initial and revised foreign currency budget rates, against projected funding needs based on the use of foreign currency rates published by Treasury during the fiscal year  Our analysis shows that DOD’s projected O&M and MILPERS foreign currency funding needs using Treasury rates would have been about $58 4 billion, or about $885 million more than the $57 5 billion that DOD had projected using its initial and revised budget rates  DOD also uses foreign currency budget rates to calculate gains or losses attributable to foreign currency fluctuations  Specifically, DOD determines gains and losses due to foreign currency fluctuations by comparing the budget rate (that is, initial or revised budget rate) used to incur obligations against a more current market rate at the time it liquidates its obligations through disbursements  Therefore, revisions to the budget rates not only change DOD’s projected O&M and MILPERS funding requirements for the fiscal year in which the revisions occur, but also change the baseline from which the potential gains or losses would result when DOD liquidates its overseas O&M and MILPERS obligations through disbursements  For example, in fiscal year 2016, Congress reduced DOD’s total appropriations by $1 5 billion  As a result of this reduction and favorable foreign currency rates, DOD revised its fiscal year 2016 budget rates in February 2016 and applied the revised foreign currency budget rates in its calculations of gains and losses due to foreign currency fluctuations since the beginning of the fiscal year to absorb the reduced funding level  In applying the revised budget rates, a $30 million gain DOD had previously projected became a projected loss of about $186 2 million  The use of revised budget rates also affects the movement of funds from the FCFD account  For example, if the use of the revised budget rate creates a loss and DOD is unable to cover the increased costs to its O&M or MILPERS appropriations, funds from the FCFD account may be used to cover its planned overseas expenditures  DOD has taken some steps to reduce costs in selecting foreign currency rates to liquidate its obligations through disbursements  However, DOD organizations are not always selecting the most cost-effective rates to convert U S  Dollars, and DOD has not determined whether opportunities exist to achieve additional efficiencies when making disbursements  DOD liquidates its obligations through disbursements for overseas expenditures using Treasury’s ITS gov system, which provides DOD organizations with a choice of foreign currency rates to apply when making disbursements in a foreign currency  The foreign currency rate chosen determines how many U S  Dollars must be paid for the transaction  Treasury officials explained that customers may choose either the spot rate or an advanced rate  The spot rate is the price for foreign currencies for delivery in 2 business days  Treasury officials explained that advanced rates are exchange rates that are “locked in” and guaranteed by the bank processing the disbursement 5, 4, or 3 days in advance of payment processing, which is known as the “value date” of a disbursement  Normally, the cost of the rate increases the further from the date of disbursement that it is locked in  While DOD often uses a 5-day advanced rate to make its disbursements, the other rate options available, such as a 3-day advanced and a spot rate, can be more cost-effective  We analyzed data provided by Treasury from its ITS gov system and found that for disbursements made during the period of June and July 2017, the 5-day advanced rate was more costly than the 3-day advanced rate  In instances where the spot rate was available, we found that it was also more cost-effective than either the 3- day or 5-day advanced rates  For example, for those transactions processed through ITS gov on June 13, 2017, DOD would have paid 1 U S  Dollar for  881 European Euros if using the 5-day advanced rate;  883 European Euros if using the 3-day advanced rate; and  889 European Euros if using the spot rate  In the case of the Army, an Army Financial Management Command official provided us information indicating that the service has estimated potential cost savings that would result from more consistently selecting 3-day advanced rates through the ITS gov system to make overseas disbursements of amounts, rather than the 5-day advanced rate  More specifically, the Army estimated between $8 million and $10 million in annual savings by transitioning from a 5-day to a 3-day advanced rate when selecting foreign currency rates  According to officials, the Army has transitioned all paying locations to the 3-day advanced rate  The Army estimates that these locations have produced $6 04 million in savings through February 2018  Although the Army indicated that it also planned to analyze whether use of the spot rate was feasible, it had not conducted this review at the time of our review  Data provided to us by Treasury from its ITS gov system indicate that in June and July of 2017, the Air Force used the 5-day advanced rate exclusively for its disbursements, while the Navy and Marine Corps relied on both the 5-day and the 3-day advanced rates  Our analysis of these data show the Air Force would have achieved total savings for those 2 months of about $258,000 if it had made its disbursements using the 3- day versus the 5-day advanced rate  The savings resulting from each transaction varied based on the amount of the transaction  For example, on June 13, 2017, the Air Force disbursed a payment exceeding $3 7 million and would have saved more than $9,000 for that transaction if the 3-day advanced rate had been used  For the same single transaction, if the spot rate had been used instead of the 5-day advanced rate, the Air Force would have saved more than $31,000  The savings associated with the Navy’s and Marine Corps’ disbursements for the same 2-month period showed the potential for less dramatic savings of less than $100 because the Navy and Marine Corps used the 3-day advanced rate as opposed to the 5-day advanced rate for most of its disbursements  Where information on the spot rate was available, its use, as opposed to either the 5-day or 3-day advanced rate, would have resulted in additional savings opportunities for those 2 months  While these examples are illustrative of cost savings opportunities in June and July 2017, Treasury data show that in fiscal year 2016, DOD disbursed more than $11 8 billion through ITS gov and, as of July 2017, had disbursed more than $9 6 billion through ITS gov  Our analysis suggests that DOD could achieve further cost savings by more consistently selecting cost-effective foreign currency rates, such as the 3-day advanced or spot rates, with which to make disbursements  In selecting foreign currency rates, DOD’s Financial Management Regulation states that disbursements should be computed to avoid gains or deficiencies (losses) due to fluctuations in rates of exchange to the greatest extent possible  If there is no rate of exchange established by agreement between the U S  government and the foreign country, then foreign currency transactions are to be conducted at the prevailing rate  The prevailing rate of exchange is the most favorable rate legally available for acquisition of foreign currency for official disbursement and other exchange transactions  Additionally, GAO’s Standards for Internal Control in the Federal Government calls for management to periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity’s objectives or addressing related risks  DOD disbursement organizations have flexibility in selecting foreign currency rates to use when making disbursements using ITS gov  There is no DOD-wide requirement for the services to review the rates used to make disbursements and, except for the Army, the services have not conducted such a review  This step is necessary to determine whether there are opportunities for savings by more consistently selecting cost- effective foreign currency rates  We discussed disbursement processes with DOD and Air Force, Navy, and Marine Corps financial management officials, including the factors considered when selecting foreign currency rates  In addition, a Defense Finance and Accounting Service official noted that currencies can have criteria specifying when a payment is made and provided us the ITS gov user’s guide, which addresses “special currency requirements,” such as those that would drive advanced payment for a currency  For example, the user’s guide indicates that payment for transactions involving the Afghanistan Afghani must be made 2 days in advance of the value date, and cannot be made on a Friday  However, information that is contained in the ITS gov user’s guide and that we received from a Treasury official indicate that none of the nine foreign currencies for which DOD budgets place restrictions on when payment must be made; and therefore, this consideration should not drive the use of a specific rate at disbursement  Marine Corps financial management officials told us that the foreign currency rate selected at disbursement is at the discretion of the disbursing officer based on operational requirements, with the understanding that the most favorable rate for the government is the preference, while balancing mission requirements and the time necessary to process the transaction  These officials acknowledged that the 3-day advanced rate can be more cost-effective to the government but indicated that there are occasions when the 5-day advanced rate should be used because it provides more time to process the payments from deployed locations operating in different time zones or with limited communication capabilities  However, we found that OUSD (C) officials and financial management officials with the headquarters of the Air Force, Navy, and Marine Corps were not involved in disbursement, were unaware of what rates were being used at disbursement, and had not reviewed the rationale for selecting one rate over another  For example, Air Force and Navy headquarters officials we spoke with were unable to provide insight as to what drives the decision to use one rate over another  One Navy financial management official told us that he was unaware of any Navy policy that directs a specific rate to be used when disbursing funds, and suggested that the absence of such a policy provides the flexibility for officials to determine which approach is best  Headquarters, Marine Corps officials also stated that they did not monitor foreign currency rates used for disbursements or the reasons why one rate was selected over another  Based on our inquiry, officials indicated that they would analyze the foreign currency rates used for disbursements in 2017 and whether opportunities existed to achieve savings by using other rates available through ITS gov  A Marine Corps official subsequently provided us with information that showed that two of three disbursing offices that currently utilize ITS

ground_truth: USPS is required to prefund its share of health benefits costs for its retirees. To do so, USPS is required to make payments into the RHB Fund, which is administered by OPM. However, USPS has not made any payments to the fund since fiscal year 2010. At the end of fiscal year 2017, USPS had missed $38.2 billion in payments, leaving the fund 44 percent funded. Pursuant to law, beginning in fiscal year 2017, OPM started drawing from the fund to cover USPS's share of postal retirees' health benefits premiums. GAO was asked to review issues related to the sustainability of the RHB Fund. This report examines (1) the financial outlook for the RHB Fund and (2) policy approaches for postal retiree health benefits, among other topics. GAO evaluated financial projections for the RHB Fund from OPM. GAO reviewed laws and regulations and identified policy approaches primarily by identifying legislative proposals, and literature on actions of companies and state governments to address retiree health benefits. These approaches are not exhaustive or mutually exclusive. GAO also interviewed experts in retiree health benefits and postal stakeholders, chosen on the basis of relevant publications and prior GAO work, and interviewed and obtained written responses from OPM and USPS officials. The financial outlook of the Postal Service Retiree Health Benefits Fund (RHB Fund) is poor. At the end of fiscal year 2017, the fund's assets declined to $49.8 billion and unfunded liabilities rose to $62.2 billion. Based on Office of Personnel Management (OPM) projections requested by GAO, the fund is on track to be depleted in fiscal year 2030 if the United States Postal Service (USPS) continues to make no payments into the fund. Annual payments of $1 billion or $2 billion into the fund would extend the projected depletion date by 2 to 5 years (see figure). USPS has said that its required payments to the fund are unaffordable relative to its current financial situation and outlook. For the past 11 years USPS has incurred large operating losses that it expects will continue. Additionally, USPS has stated that its opportunities for revenue generation and cost-cutting are limited. USPS reported that it did not make required fund payments in 2017 in order to preserve liquidity and cover operational costs. If the fund becomes depleted, USPS would be required by law to make the payments necessary to cover its share of health benefits premiums for current postal retirees. Current law does not address what would happen if the fund becomes depleted and USPS does not make payments to cover those premiums. Depletion of the fund could affect postal retirees as well as USPS, customers, and other stakeholders, including the federal government. About 500,000 postal retirees receive health benefits and OPM expects that number to remain about the same through 2035. GAO identified three categories of policy approaches for postal retiree health benefits, based on legislative proposals and pertinent literature. First, some approaches, such as generally requiring eligible postal retirees to participate in Medicare, would shift costs to the federal government. Second, some approaches would reduce benefits or increase costs to postal retirees and/or employees. Third, some approaches would change how benefits are financed (see table). All of these approaches have different potential effects and would require congressional action. Thus, it is up to Congress to consider the merits of different approaches and determine the most appropriate action to take. It would be preferable to take action when careful consideration is possible, rather than wait until lack of adequate funding could disrupt postal retiree health benefits. Congress should consider passing legislation to put postal retiree health benefits on a more sustainable financial footing. USPS agreed that congressional action is needed and offered views on some policy approaches discussed in this report.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.



Report 2: gov for disbursements use the 3-day advanced rate exclusively and one uses the 5-day advanced rate  The official noted that a technical issue within ITS gov has restricted the disbursing office currently using the 5-day advanced rate from choosing any other rate, but that the service was further assessing options to correct the issue  In our conversations with an official in OUSD(C) about why the other services had not reviewed the foreign currency rates used for disbursements to determine what was being paid through ITS gov and whether there was an opportunity for savings, the official commented that OUSD(C) had not directed the services to conduct any reviews in this area  This official was unaware that different foreign currency rates were used to make disbursements, and assumed that the military services all make disbursements in the same way  However, as discussed above, the services are using different rates resulting in inconsistency across the department  The official further indicated that DOD could perform a review to determine the cost differences of using one disbursement rate over another  Absent a review of the rates the services are using in making disbursements and whether cost savings could be achieved by more consistently selecting the most cost-effective foreign currency rates available for use at disbursement, DOD is at risk for paying more to convert U S  Dollars for overseas expenditures than would otherwise be required  In fiscal years 2009 through 2016, DOD used the FCFD account to cover losses that the services experienced due to foreign currency fluctuations in 6 of the 8 years we reviewed  However, DOD does not effectively manage the FCFD account balance based on projected gains or losses  Transfers of expired unobligated balances from MILPERS and O&M accounts into the FCFD account have been made to replenish the account balance to the statutory limit of $970 million, without consideration of projected losses due to foreign currency fluctuations  Furthermore, DOD’s financial reporting on foreign currency fluctuations for fiscal years 2009 through 2016 contains incomplete and inaccurate information  In fiscal years 2009 through 2016, DOD transferred approximately $1 92 billion out of the FCFD account to cover losses that the services experienced due to foreign currency fluctuations in 6 of the 8 years we reviewed  For these years, DOD transferred funds from the FCFD account to the services’ MILPERS and O&M accounts during the fiscal year in which the funds were obligated for overseas expenses  The transfer amounts were based on both losses realized from actual disbursements and projected losses for any remaining obligations to be liquidated  The projected losses were calculated based on the current foreign currency market rates as of the time of the calculation  Based on the service-level data we reviewed, all of the services reported that they experienced losses in at least 5 of the fiscal years we reviewed  For example, the Army reported that it experienced losses in its MILPERS account for 5 of 8 years, while the Marine Corps reported that it experienced losses in its O&M and MILPERS accounts in each of the 8 years  In addition to the transfers to cover losses within the services’ MILPERS and O&M accounts, in fiscal year 2013 DOD transferred an additional $969 million to the Defense Working Capital Fund to offset fuel cost losses  Since fiscal year 2012, DOD has maintained the FCFD end-of-year account balance at $970 million—the maximum allowed by statute  To replenish the funds that were transferred out of the FCFD account, DOD transferred unobligated balances to the FCFD account from the services’ O&M and MILPERS accounts  While DOD can also replenish the FCFD account or absorb foreign currency losses in certain currencies by transferring to the FCFD account any gains experienced by the services, our analysis found that DOD did not transfer any gains into the FCFD account for fiscal years 2009 through 2016  Figure 3 shows the transfers into and out of the FCFD account and the end-of-year FCFD account balance for fiscal years 2009 through 2016  Our analysis also shows that DOD transferred funds to maintain the FCFD account at its maximum balance since 2012, despite experiencing fewer losses due to foreign currency fluctuations than it had experienced in fiscal years 2009 to 2011  Of the $1 92 billion transferred from the FCFD account to the services’ MILPERS and O&M accounts to cover losses, $464 5 million was transferred since fiscal year 2012, when DOD began maintaining its FCFD account at the maximum level  During that time, some of the services experienced foreign currency gains, while others experienced losses  For example, at the end of fiscal year 2013 the Navy reported a total realized and projected cumulative gain for its O&M and MILPERS accounts of about $98 6 million  In that same year, the Marine Corps reported a cumulative realized and projected loss for its O&M and MILPERS accounts of approximately $12 7 million  Had DOD not transferred unobligated funds back into the FCFD account, it would have retained a positive balance of approximately $505 5 million  However, DOD maintained the account balance at $970 million by transferring approximately $495 3 million in unobligated balances into the account  As part of its management of the FCFD account balance, DOD analyzes data on realized and projected losses as the basis for transferring funds from the FCFD account to the services’ MILPERS and O&M accounts to cover losses  However, DOD does not consider projected losses when making transfers of unobligated O&M and MILPERS balances into the FCFD account  Figure 4 below shows the FCFD account balance that DOD has maintained in relation to the transfers out of the account to cover losses  Specifically, according to the OUSD(C) official responsible for managing the FCFD account, DOD maintains the FCFD account balance at $970 million to maximize unobligated balances within the military services’ O&M and MILPERS accounts before they are canceled and are no longer available to DOD  In addition, this official stated that DOD prefers to maintain the maximum balance in case it is needed due to sudden, unfavorable swings in foreign currency exchange rates  Our review of the documentation used to make transfers into and out of the FCFD account corroborates that DOD maintains the FCFD account balance to maximize the retention of unobligated balances  Specifically, we found instances in which the documentation states that the transfers of unobligated balances into the FCFD account were made for the purpose of replenishing the account balance to the statutory limit  For example, DOD transferred $89 million from the FCFD account to the Army for losses it had realized and projected in fiscal year 2014, and later transferred unobligated balances of the same amount back into the account  DOD’s documentation states that this transfer of unobligated balances was made for the purpose of replenishing the account to $970 million in order to finance estimated foreign currency losses resulting from the decline in value of the U S  Dollar  However, the transfer to the Army already covered the realized losses and projected losses for any remaining disbursements  In other words, estimated foreign currency losses had already been accounted for at the time of the transfer to the Army  In addition, based on data reported by the Air Force, Marine Corps, and Navy, DOD had an estimated cumulative gain of about $30 million for fiscal year 2014 based on the other services’ gains and losses, which could have been transferred to the FCFD account to absorb any additional foreign currency losses elsewhere  However, DOD did not transfer those gains to the FCFD account  Similarly, based on data reported by these services, DOD experienced cumulative realized and projected gains of more than $200 million in fiscal year 2013 and about $92 6 million in fiscal year 2015, but it did not transfer any gains to the FCFD account because the account balance had already reached its maximum using transferred unobligated balances  Despite replenishing the account balance to the maximum amount for the purpose of covering additional losses, the FCFD transfers have not been made to fully offset losses in some years, further raising questions about the need to maintain the balance at the statutory cap of $970 million annually  Specifically, in 3 of the 6 years in which DOD transferred funds from the FCFD account to the services’ MILPERS and O&M accounts, DOD did not use the FCFD account to fully cover the losses that the Air Force, Marine Corps, and Navy experienced  In fiscal year 2011, for example, DOD’s transfers out of the FCFD account to these services covered about 88 percent of the reported MILPERS and O&M losses that these services had realized and projected to lose by the end of the fiscal year  In fiscal year 2012, FCFD transfers covered almost 72 percent of the MILPERS and O&M realized and projected losses reported by the Air Force, Marine Corps, and Navy, as of the end of the fiscal year  In fiscal year 2016, DOD FCFD transfers to these services covered approximately 55 percent of their reported MILPERS and O&M realized and projected losses by the end of the fiscal year  The OUSD(C) official we spoke with stated that FCFD transfers to cover losses begin with a request from the services, and the OUSD(C) office and the services then coordinate on the final transfer amount  In addition, some service officials told us that they try to cover their losses using each service’s available funding before reaching out for assistance from the FCFD account  Therefore, based on a service’s ability to cover the loss, it may not always request an FCFD transfer to cover the full amount of realized and projected losses  Further, according to an OUSD(C) official, the timing of a service’s request for an FCFD transfer may also affect any differences between the amount transferred and the actual losses experienced  Specifically, if a service requests a transfer early in the fiscal year based on realized and projected losses, actual losses experienced as of the end of the fiscal year may be greater than or less than the transfer amount due to foreign currency fluctuations  Using transfers of unobligated balances, DOD has maintained its FCFD account balance at the maximum level allowed by statute because it has not analyzed realized and projected losses to determine what size account balance is necessary to meet the intended purpose of the account  In our prior work, we have developed key questions for evaluating federal account balances that agencies may use to identify the amount of the balance necessary to maintain agency or program operations  Through examination of carryover balances, oversight of agencies’ management of federal funds may be enhanced  Specifically, we reported that understanding an agency’s processes for estimating and managing carryover balances provides information to assess how effectively agencies anticipate program needs, and ensure the most efficient use of resources  To estimate and manage carryover balances, agencies may consider such factors as future needs of the account, economic indicators, and historical data  If an agency does not have a robust strategy in place to manage carryover balances or is unable to adequately explain or support the reported carryover balance, then a more in-depth review is warranted  In those cases, balances may either fall too low to efficiently manage operations or rise to unnecessarily high levels, producing potential opportunities for those funds to be used more efficiently elsewhere  When asked about maintaining the balance at a level necessary to cover losses, rather than at the maximum level allowed by statute, the OUSD(C) official indicated that the OUSD(C) takes a cautious approach and prefers to have the additional flexibility allowed by the higher balance  Further, the official stated that it would be difficult for DOD to attempt to base its unobligated balance transfers and the FCFD account balance on analysis and evaluation, given the unpredictable nature and constant volatility of foreign currency rates  Our guidelines on evaluating carryover balances acknowledge that external events beyond an agency’s control can dramatically affect carryover balances  However, the challenges that are inherent in predicting foreign currency rates do not preclude DOD from conducting analysis to glean insight as to the appropriate size for the balance of the account and what potential opportunities for savings might exist  Specifically, our guidelines suggest that agencies would benefit from considering the sources and fiscal characteristics of an account with carryover balances  In this case, the FCFD account can receive funds from transfers of unobligated balances and realized foreign currency gains  In addition, DOD can make multiple transfers throughout a fiscal year and can transfer funds from the FCFD to and from the services’ O&M and MILPERS accounts simultaneously, if necessary  These characteristics of the FCFD account already provide the department with flexibility, indicating that DOD may be positioned to manage the FCFD balance in a more analytical manner based on any projected losses  Without analyzing any realized or projected losses to determine what balance may be needed to meet the FCFD account’s intended purpose, the account balance may be kept at a higher level than is necessary  As a result, although an exact amount is unknown, DOD may be maintaining balances in the FCFD account that are hundreds of millions of dollars higher than needed to cover any losses it has experienced, and these funds may have been more efficiently used in supporting other defense activities or returned to Treasury after the account is canceled by law  DOD prepares financial reports to monitor the status of its foreign currency funds, but some of DOD’s financial reporting on foreign currency fluctuations for fiscal years 2009 through 2016 is incomplete and inaccurate  DOD’s Financial Management Regulation establishes reporting requirements specifically for tracking all transactions that increase or decrease the FCFD  In accordance with that guidance, the services provide data from their accounting systems to the Defense Finance and Accounting Service to generate reports that are used as a tool with which the services and OUSD(C) can monitor how they are expending funds appropriated for overseas expenditures  For O&M appropriations, the Foreign Currency Fluctuations, Defense (O&M) report provides data on foreign currency gains and losses for each service, by currency, including data on projected gains or losses for any remaining obligations that have not yet been disbursed at the time of the report  The Foreign Currency Fluctuations, Defense Report (MILPERS) provides similar information for the MILPERS appropriation  We reviewed end-of-year Foreign Currency Fluctuations, Defense (O&M) and (MILPERS) reports for fiscal years 2009 through 2016 and found that some of the reporting for O&M was incomplete and inaccurate, which hampers the quality of information available to manage the FCFD account  For instance, we found the following: Incomplete data in the Foreign Currency Fluctuations Defense (O&M) reports: In our review of the end-of-year Foreign Currency Fluctuations Defense (O&M) and (MILPERS) reports we observed several instances of incomplete data in the O&M reports, and these affect managers’ ability to make sound decisions to manage foreign currency gains and losses  First, for the Navy, we found that the report data showed, for multiple currencies across fiscal years 2011 through 2016, values in the realized variance column, indicating that the service had experienced a gain or loss in a particular currency; however, the reports showed values of zero in other columns that are necessary for calculating the gain or loss  Second, the Air Force data for the Turkey Lira, in fiscal year 2012, showed a gain or loss without any data indicating what would have driven the gain or loss  Third, in one instance, Marine Corps data on obligations for fiscal year 2011 were missing from the end-of-year reports until 2014  Missing obligation data for these end-of-year reports indicate a limitation in using these reports for tracking actual gains and losses  Inaccurate data in the Army’s Foreign Currency Fluctuations Defense (O&M) reports: The Army’s Foreign Currency Fluctuation Defense (O&M) reports are inaccurate and cannot be used to reliably track gains or losses, and this hinders managers from making sound decisions regarding the Army’s foreign currency gains and losses  The reports are inaccurate in that the Army’s accounting system charges disbursements to the current fiscal year appropriation rather than to the fiscal year appropriation that incurred the obligation, as required by the Financial Management Regulation  According to officials from the Army Budget Office, the Army designed its General Fund Enterprise Business System (GFEBS) to record disbursements to the current fiscal year based on differing interpretations of a previous version of the Regulation  Because the Army is not recording its disbursements to the fiscal year appropriation as the other services are, Army data are inaccurate and cannot be used by the OUSD(C) official responsible for overseeing DOD’s foreign currency program to track the Army’s foreign currency transactions and maintain full visibility of DOD’s overall gains and losses in a given fiscal year  Army Budget Office officials acknowledged that the Army will need to modify its system to record disbursements consistent with Financial Management Regulation guidance, but it has not developed a plan or timeline for doing so  Without accurate reporting of the Army’s foreign currency transactions, DOD lacks information for tracking and helping to manage the Army’s foreign currency gain and losses  DOD’s Financial Management Regulation specifies the data that must be included in the Foreign Currency Fluctuations Defense (O&M) and (MILPERS) reports and the roles and responsibilities of the services as well as the Defense Finance and Accounting Service for ensuring the quality of those data  However, we identified data issues in our analysis that indicate that quality is inconsistent  For example, officials from the Navy stated that they had observed the incomplete data for some currencies and speculated that the incompleteness was attributable to data entry errors  Similarly, according to an OUSD(C) official, the Defense Finance and Accounting Service is notified when discrepancies are found in the reports and the Defense Finance and Accounting Service officials coordinate with the services to correct the data  However, neither Navy nor the Defense Finance and Accounting Service officials have corrected the data  Although DOD’s Financial Management Regulation specifies the data that are to be included, as well as roles and responsibilities of the services and the Defense Finance and Accounting Service, it does not identify who is responsible for correcting erroneous or missing data  According to an OUSD(C) official, correcting reporting issues is an area that OUSD(C), the Defense Finance and Accounting Service, and the services can improve on, and they would benefit from guidance in the Financial Management Regulation that establishes the steps that should be taken for making such corrections  Further, GAO’s Standards for Internal Control in the Federal Government and the Federal Accounting Standards Advisory Board’s Handbook of Federal Accounting Standards and Other Pronouncements, as Amended, both establish the importance of using reliable and complete information for making decisions  In addition, DOD’s Financial Management Regulation establishes responsibilities for both the DOD components and the Defense Finance and Accounting Service to establish appropriate internal controls to ensure that financial reporting data are complete, accurate, and supportable, in order for managers to make sound decisions and exercise proper stewardship over these resources  Effectively managing foreign currency gains and losses as well as any projected gains or losses for any remaining obligations that have not yet been liquidated through disbursement requires complete and accurate data  OUSD(C) and service officials recognize the importance of reliable data, as well as the need to take steps to improve the quality of the foreign currency gains and losses data  Without OUSD(C) establishing guidance to ensure that the Foreign Currency Fluctuation Defense (O&M) report data that tracks foreign currency gains and losses are complete, DOD and Congress do not have information to make sound decisions and exercise proper stewardship over resources due to foreign currency fluctuations  Furthermore, until the Army establishes a plan and timeline for modifying its system to record foreign currency disbursements in an accurate manner, the Army and DOD will lack quality information for tracking and helping to manage the Army’s and DOD’s foreign currency gain and losses  Congress provides DOD with a significant amount of funding each year to purchase goods and services overseas and to pay service-members stationed abroad  DOD develops and can revise foreign currency budget rates to determine its funding needs and calculate any gains or losses that result from DOD’s overseas expenditures  The Army has estimated potential cost savings that would result from more consistently selecting a more cost-effective foreign currency rate for making disbursements to liquidate its overseas O&M obligations  However, DOD has not fully determined whether additional cost-saving opportunities exist because the services have not reviewed the rates used for foreign currency disbursements  Absent a review of the foreign currency rates the services are using at disbursement, including whether cost-saving opportunities exist, by more consistently selecting cost-effective foreign currency rates, DOD risks paying more than would be required otherwise  Further, while DOD has used the FCFD account to cover losses that resulted from foreign currency fluctuations, it has not managed the FCFD account balance by basing the transfers of unobligated balances into the FCFD account on an analysis of realized and projected losses  Without basing its FCFD account balance on such analyses, DOD may be maintaining balances in the FCFD account that are hundreds of millions of dollars higher than needed to cover any losses it has experienced, and these amounts may have been more efficiently used supporting other defense activities or ultimately returned to Treasury, once expired  Moreover, DOD has not established guidance and other procedures to ensure that complete and accurate data are included in financial reporting on foreign currency funds, and this limits the quality of information available to effectively manage the FCFD account  We are making the following four recommendations to DOD  The Secretary of Defense ensures that: The Under Secretary of Defense (Comptroller), in coordination with the U S  Army, Air Force, Navy, and Marine Corps, should conduct a review of the foreign currency rates used at disbursement to determine whether cost-saving opportunities exist by more consistently selecting cost- effective rates at disbursement  (Recommendation 1) The Under Secretary of Defense (Comptroller) should analyze realized and projected losses to determine the necessary size of the FCFD account balance and use the results of this analysis as the basis for transfers of unobligated balances to the account  (Recommendation 2) The Under Secretary of Defense (Comptroller) should revise the Financial Management Regulation to include guidance on ensuring that data are complete and accurate, including assignment of responsibility for correcting erroneous data in its Foreign Currency Fluctuations Defense (O&M) reports  (Recommendation 3) The Secretary of the Army should develop a plan with timelines for implementing changes to its General Fund Enterprise Business System to accurately record its disbursements, consistent with DOD Financial Management Regulation guidance  (Recommendation 4) We provided a draft of this report to DOD for review and comment  In its written comments, reproduced in appendix II, DOD concurred with our first, third, and fourth recommendations and outlined its plan to address them  DOD partially concurred with our second recommendation that the Under Secretary of Defense (Comptroller) analyze realized and projected losses to determine the necessary size of the FCFD account balance and use the results of the analysis as the basis for transfers of unobligated balances to the account  DOD also provided technical comments, which we incorporated in the report, where appropriate  In partially concurring with our second recommendation, DOD stated that projecting foreign currency gains or losses can be difficult given that foreign currency rates can be volatile due to various factors, such as trade balances, money supply, and national income, as well as arbitrary disturbances that affect foreign currency rates that cannot be predicted or forecasted, such as the departure of the United Kingdom from the European Union  DOD noted that because of the risk and volatility associated with foreign currency rates, the Congress established the FCFD account  We agree that forecasting foreign currency rates is challenging due to market volatility and include examples in our report of the effect of foreign currency rate fluctuations on DOD’s planned foreign currency obligations  Our report also describes the relationship between gains and losses and foreign currency fluctuations, and the movement of funds from the FCFD account to offset any losses  As our report also discusses, DOD calculates actual and projected losses due to foreign currency fluctuations and uses those projections as the basis, at least in part, for any transfers out of the FCFD account to cover losses experienced in the military services’ O&M and MILPERS appropriations  However, our report also notes that DOD does not consider its calculations of actual and future projected losses when making transfers of unobligated O&M and MILPERS balances to replenish the FCFD account  Instead, since fiscal year 2012, DOD has kept the FCFD account balance at the maximum level allowed by statute by using unobligated balances before they are canceled and are no longer available to DOD, regardless of whether the funds were needed in the account to offset any projected losses  DOD’s comments also stated that projecting gains or losses for foreign currency to determine the size of the FCFD account opens the door to greater uncertainty and risk at a time when the department is working to rebuild readiness and implement the National Defense Strategy  Our report describes the characteristics of the FCFD account that provide DOD with flexibility to manage market volatility, thereby helping to address uncertainty and reduce risk  For example, DOD can make multiple transfers of funds to the FCFD account throughout a fiscal year in response to unforeseen foreign currency fluctuations  The FCFD account can also receive funds from transfers of actual foreign currency gains and/or unobligated balances  As we also noted, DOD made use of its authority to transfer expired unobligated MILPERS and O&M amounts into the FCFD account in the event that actual losses exceeded the projected amounts and additional transfers were deemed necessary  We continue to believe that by analyzing actual and projected losses and basing the transfer of any unobligated balances on these losses, DOD would be better positioned to determine the size of the FCFD account balance that is necessary to meet its intended purpose  Further, such analyses would provide opportunities to more efficiently use unobligated balances for other defense activities or return the balances to Treasury  We are sending copies of this report to the Secretary of Defense, the Under Secretary of Defense (Comptroller), the Secretary of the Army, the Secretary of the Navy, the Secretary of the Air Force, the Commandant of the Marine Corps, and appropriate congressional committees  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-5431 or russellc@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 III  To describe the Department of Defense’s (DOD) revised foreign currency budget rates since 2009 and the relationship between the revised budget rates and DOD’s projected Operation and Maintenance (O&M) and Military Personnel (MILPERS) funding needs, we reviewed DOD’s foreign currency budget rates for the period of fiscal years 2009 through 2017, and we identified any years during which DOD revised the initial budget rates  We compared DOD’s initial foreign currency budget rates and revised foreign currency budget rates with rates published by the U S  Treasury Department (Treasury) for fiscal years 2009 through 2017  This period corresponded with data available to us on DOD’s initial and revised rates and allowed for use of the most current data available, since DOD had not yet decided whether or not to revise the fiscal year 2018 budget rates, while we were conducting our audit work  We chose rates published by Treasury for this comparison because Treasury has the sole authority to establish for all foreign currencies or credits the exchange rates at which such currencies are to be reported by all agencies of the government  Because Treasury rates are issued quarterly, we averaged Treasury’s first and second quarter rates for each currency and compared the Treasury average with DOD’s initial budget rates  Similarly, we computed an average of the third and fourth quarter Treasury rates for each currency and compared them with the DOD initial or revised budget rates, where applicable  These comparisons are meant to show the difference between DOD’s budget rates and Treasury rates for the first 6 months of the fiscal year, and the difference between DOD’s revised exchange rates and Treasury rates for the last 6 months of the fiscal year  Further, we analyzed the extent to which DOD’s budget rates were within 10 percent of Treasury rates during these same years  We chose 10 percent as the basis for our analysis because Treasury’s guidance states that amendments to the quarterly rates will be published during the quarter to reflect significant changes in the quarterly data, such as rate changes of 10 percent or more  Additionally, to understand the effect that revising the budget rates had on DOD’s O&M and MILPERS funding estimates and on potential gains or losses due to foreign currency fluctuations, we used a three-step approach  First, we identified the amount of O&M and MILPERS funds DOD requested for each currency  We converted the U S  Dollars requested to the total amount of foreign currency needed by multiplying the U S  Dollars requested by DOD’s initial budget rate  Second, we determined the total amount of U S  Dollars required using the revised rates by dividing the total amount of foreign currency needed using DOD’s initial budget rate by DOD’s revised budget rate  We used this same approach to determine the total amount of U S  Dollars required using the average Treasury rates  Third, we computed the differences in DOD’s O&M and MILPERS foreign currency funding needs by subtracting the U S  Dollars required to meet its foreign currency needs based on the average Treasury rates from the amounts required based on DOD’s initial budget rates and DOD’s revised budget rates, respectively  We discussed further with officials from the Office of the Under Secretary of Defense, Comptroller (OUSD(C)) the factors considered in revising the rates and whether those factors are communicated within and outside of the department  To evaluate the extent to which DOD has taken steps to reduce costs in selecting foreign currency rates at which to make disbursements and determine whether opportunities exist to gain additional savings, we reviewed accounting standards and any guidelines that exist regarding disbursements and calculations of foreign currency gains and losses, such as DOD’s Financial Management Regulation 7000 14-R, which calls for the use of prevailing foreign currency rates to make disbursements  We also discussed with agency officials how those guidelines are being carried out, and whether DOD or the services have developed guidance that instructs the services in selecting rates used for disbursements in foreign currencies  Additionally, we examined a non-generalizable selection of data for DOD disbursements made during the months June and July 2017 from Treasury’s International Treasury Service (ITS gov) system to determine which rates DOD used during this period and what savings might be achievable from using alternate rates  We chose data from those 2 months because it was the most recent data available on disbursements at the time Treasury provided the data for our review  Additionally, we discussed with officials from OUSD(C) and the services any analysis and ongoing efforts to transition to more cost-effective rates, including savings that may result  To assess the extent to which DOD has effectively managed the Foreign Currency Fluctuations, Defense (FCFD) account to cover losses, and maintained quality information to manage these funds, we analyzed DOD data for fiscal years 2009 through 2016 on foreign currency gains and losses reported by each of the services as reported in their Foreign Currency Fluctuation, Defense (O&M) and (MILPERS) reports; movements of funds between the FCFD account and the services’ O&M and MILPERS accounts; and the end-of-year FCFD account balances  We chose this time period in order to capture years in which both gains and losses were experienced, and for which DOD had complete data on gains and losses, fund transfers, and end-of-year balances for the FCFD account  Because the Army charges disbursements to the current fiscal year appropriation instead of the fiscal year appropriation that incurred the obligation, we requested that the Army adjust its reported data on foreign currency gains and losses and provide information consistent with how the other services report them, and with DOD’s Financial Management Regulation  However, the Army was unable to provide us with data that were consistent with what was provided by the other services at the time of our review  We, therefore, were unable to use Army data for purposes of comparison with data provided by the other services  We compared the end-of-year FCFD account balances and the use of the account with guidelines established in our prior work on the importance of examining unobligated balances  Additionally, we reviewed and analyzed DOD financial reports on foreign currency gains or losses and compared the reports, including any identified discrepancies, against best practices and standards on accurate reporting and maintaining quality information, such as those in GAO’s Standards for Internal Control in the Federal Government, and the Federal Accounting Standards Advisory Board’s Handbook of Federal Accounting Standards and Other Pronouncements, as Amended  To determine the reliability of the data used in addressing these objectives, we analyzed DOD and Treasury foreign currency rates, data on DOD foreign currency disbursements, and DOD financial reporting data on foreign currency gains and losses to identify any missing or inaccurate information, and we discussed with agency officials any identified abnormalities and how the information was extracted from systems, when appropriate  We found the data to be sufficiently reliable for the purposes of our reporting objectives, with the exception of the financial reporting on financial gains and losses  Specifically, based on problems with the completeness and accuracy of DOD’s financial reporting on foreign currency gains and losses, we found that these data were not sufficiently reliable for the purpose of computing exact totals for the gains and losses DOD experienced  However, because DOD uses these data as the basis for decisions related to management of the FCFD account, we included the data in our analysis to provide insight into the scope of gains and losses experienced  We also spoke with OUSD(C), military service, and Treasury officials regarding the process and systems used to input the reviewed data and generate the foreign currency reports we reviewed  We conducted this performance audit from February 2017 to April 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  In addition to the contact named above, Matt Ullengren, Assistant Director; and Tulsi Bhojwani, Justin Bolivar, Carol Bray, Amie Lesser, Kelly Liptan, Felicia Lopez, Leah Nash, Randy Neice, Jacqueline McColl, Mike Silver, Roger Stoltz, Susan Tindall, John Trubey, Elaine Vaurio, and Cheryl Weissman made key contributions to this report 
Report 2:  After a Houthi-fired missile with alleged Iranian origins landed deep inside Saudi Arabia in November 2017, the coalition instituted a full blockade of all of Yemen's ports, including the main port of Hudaydah, exacerbating the country's humanitarian crisis  The White House issued four press statements on the conflict between November 8 and December 8, including a statement on December 6 in which President Trump called on Saudi Arabia to "completely allow food, fuel, water, and medicine to reach the Yemeni people who desperately need it  This must be done for humanitarian reasons immediately " On December 20, 2017, the Saudi-led coalition announced that it would end its blockade of Hudaydah port for a 30-day period and permit the delivery of four U S -funded cranes to Yemen to increase the port's capability to off-load commercial and humanitarian goods  The next day, the White House issued a statement welcoming "Saudi Arabia's announcement of these humanitarian actions in the face of this major conflict " As the Saudi-led coalition intervention entered its fourth year, some in the Senate also proposed use of the War Powers Resolution as a tool for ending U S  support for the coalition's military intervention  On February 28, 2018, Senator Bernie Sanders introduced S J Res  54 , a joint resolution to "direct the removal of United States Armed Forces from hostilities in the Republic of Yemen that have not been authorized by Congress (except for those U S  forces engaged in counterterrorism operations directed at al Qaeda or associated forces) " Efforts in the Senate followed a late 2017 attempt in the House (see Table 1 below), in which a concurrent resolution directing the President to remove U S  forces from Yemen was tabled in favor of a House-passed nonbinding resolution  Throughout 2018, between Congress and the Trump Administration and within Congress itself, there was disagreement as to whether U S  forces assisting the Saudi-led coalition have been introduced into active or imminent hostilities for purposes of the War Powers Resolution  Some Members claimed that by providing support to the Saudi-led coalition, U S  forces have been introduced into a "situation where imminent involvement in hostilities is clearly indicated" based on the criteria of the War Powers Resolution  The Trump Administration disagreed  In February 2018, the Acting Department of Defense General Counsel wrote to Senate leaders describing the extent of current U S  support , and reported that "the United States provides the KSA-led coalition defense articles and services, including air-to-air refueling; certain intelligence support; and military advice, including advice regarding compliance with the law of armed conflict and best practices for reducing the risk of civilian casualties " On March 20, 2018, the Senate considered S J Res  54 on the floor  During debate, arguments centered on a number of issues, ranging from concern over exacerbating Yemen's humanitarian crisis to reasserting the role of Congress in authorizing the use of armed force abroad  After then-Foreign Relations Committee Chairman Senator Bob Corker promised to propose new legislation and hold hearings scrutinizing U S  policy in Yemen, a majority of Senators voted to table a motion to discharge the Foreign Relations committee from further consideration of S J Res  54   Senator Robert Menendez made remarks expressing conditional support for Senator Corker's approach, a view shared by some other Senators who voted to table the motion  The Foreign Relations Committee held a hearing on Yemen a month later  In parallel testimony before Congress, U S  defense officials stated that while the United States refueled Saudi aircraft and provided advice on targeting techniques, CENTCOM did not track coalition aircraft after they were refueled and did not provide advice on specific targets  Then-Assistant Secretary of Defense for International Security Affairs Robert S  Karem testified that "It's correct that we do not monitor and track all of the Saudi aircraft aloft over Yemen " During the same hearing, U S  officials acknowledged that pressure from Congress has altered how the Administration deals with the coalition over the Yemen conflict  Acting Assistant Secretary of State for Near Eastern Affairs David Satterfield told Senator Todd Young and the SFRC the following: Senator, your efforts, the efforts of your colleagues in this body and on this Committee have been exceedingly helpful in allowing the Administration to send a message from whole of government regarding the very specific concerns we have over any limitations, restrictions, constraints on the ability of both humanitarian and commercial goods specifically to include fuel to have unrestricted and expeditious entry into Yemen  And that messaging which comes from us, the Executive Branch, also comes from this body is extremely important  After the promised hearing, the Senate Foreign Relations Committee also proposed new legislation to place conditions on U S  assistance to the coalition  In May, the committee reported S J Res  58 to the Senate; it would have prohibited the obligation or expenditure of U S  funds for in-flight refueling operations of Saudi and Saudi-led coalition aircraft that were not conducting select types of operations if certain certifications cannot be made and maintained  The Senate Armed Services Committee incorporated the provisions of the SFRC-reported text of S J Res  58 as Section 1266 of the version of the FY2019 National Defense Authorization Act (NDAA) that it reported to the Senate on June 5, 2018 ( S  2987 )  The provision was modified further and passed by both the House and Senate as Section 1290 of the conference version of the FY2019 NDAA ( H R  5515 )  It was signed into law as P L  115-232 in mid-August, giving the Administration until mid-September 2018 to make certain certifications  In a statement accompanying the President's signing of P L  115-232 into law, President Trump objected to provisions such as Section 1290, stating the Administration's view that such provisions "encompass only actions for which such advance certification or notification is feasible and consistent" with "[his] exclusive constitutional authorities as Commander in Chief and as the sole representative of the Nation in foreign affairs " As Congress continued to question the role of the United States in supporting coalition operations in Yemen, the pace and scale of fighting on the ground increased dramatically by the summer of 2018  On June 12, 2018, the Saudi-led coalition launched "Operation Golden Victory," aimed at retaking the Red Sea port city of Hudaydah  As coalition forces engaged Houthi militants in and around Hudaydah, humanitarian organizations warned that if port operation ceased, famine could become widespread throughout northern Yemen  On June 12, nine Senators wrote a letter to Secretary of State Pompeo and then-Secretary of Defense Mattis saying, "We are concerned that pending military operations by the UAE and its Yemeni partners will exacerbate the humanitarian crisis by interrupting delivery of humanitarian aid and damaging critical infrastructure  We are also deeply concerned that these operations jeopardize prospects for a near-term political resolution to the conflict " Several weeks later, Senator Robert Menendez, the ranking member on the Senate Foreign Relations Committee, placed a hold on a potential U S  sale of precision guided munitions to Saudi Arabia and the United Arab Emirates  In a June 28 letter to Secretary of State Pompeo and Secretary of Defense Mattis, Senator Menendez said, I am not confident that these weapons sales will be utilized strategically as effective leverage to push back on Iran's actions in Yemen, assist our partners in their own self-defense, or drive the parties toward a political settlement that saves lives and mitigates humanitarian suffering…  Even worse, I am concerned that our policies are enabling perpetuation of a conflict that has resulted in the world's worst humanitarian crisis  On August 9, the coalition conducted an airstrike that hit a bus in a market near Dahyan, Yemen, in the northern Sa'ada governorate adjacent to the Saudi border  The strike reportedly killed 51 people, 40 of whom were children  The coalition claims that its airstrike was a "legitimate military operation" and conducted in response to a Houthi missile attack on the Saudi city of Jizan a day earlier that killed a Yemeni national in the kingdom  The U S  State Department called on the Saudi-led coalition to conduct a "thorough and transparent investigation into the incident " Several Members of Congress wrote to the Administration seeking additional information regarding U S  operations in the wake of the August 2018 coalition strike at Dahyan  Several Senators also submitted an amendment to the FY2019 Defense Department appropriations act ( H R  6157 ) that would have prohibited the use of funds made available by the act to support the Saudi-led coalition operations in Yemen until the Secretary of Defense certifies in writing to Congress that the coalition air campaign "does not violate the principles of distinction and proportionality within the rules for the protection of civilians " The provision did not apply to support for ongoing counterterrorism operations against Al Qaeda and the Islamic State in Yemen  On September 12, Secretary of State Mike Pompeo issued a certification that would allow the use of FY2019 defense funds to support in-flight refueling of coalition aircraft to continue, per the terms of Section 1290 (see discussion above) of the FY2019 National Defense Authorization Act (NDAA, P L  115-232 )  Some Members of Congress criticized the Administration's actions, asserting that the coalition has not met the act's specified benchmarks for avoiding civilian casualties in Yemen  On September 26, several House Members introduced H Con Res  138 , which sought to direct the President to remove U S  Armed Forces from hostilities in Yemen, except for Armed Forces engaged in operations authorized under the 2001 Authorization for Use of Military Force, within 30 days unless and until a declaration of war or specific authorization for such use has been enacted into law  In response to a similar initiative in the Senate, the Administration submitted a detailed argument expressing its view that U S  forces supporting Saudi-led coalition operations are not engaged in hostilities in Yemen  By late 2018, the prospect of widespread famine in Yemen coupled with international reprobation over the killing of Jamal Khashoggi pressured the Administration and the coalition to accelerate moves toward peace talks  On October 30, then-Secretary of Defense James Mattis and Secretary of State Mike Pompeo called for all parties to reach a cease-fire and resume negotiations  On November 9, Secretary Mattis further announced that effective immediately, the coalition would use its own military capabilities—rather than U S  capabilities—to conduct in-flight refueling in support of its operations in Yemen  Though fighting continued along several fronts, on December 13, 2018, Special Envoy of the United Nations Secretary-General for Yemen Martin Griffiths brokered a cease-fire centered on the besieged Red Sea port city of Hudaydah (Yemen's largest port)  As part of the U N -brokered deal (known as the Stockholm Agreement), the coalition and the Houthis agreed to redeploy their forces outside Hudaydah city and port  The United Nations agreed to chair a Redeployment Coordination Committee (RCC) to monitor the cease-fire and redeployment  The international community praised the Stockholm Agreement as a first step toward broader de-escalation and a possible road map to a comprehensive peace settlement  Also on December 13, 2018, the Senate amended and passed S J Res  54 (56-41), which, among other things, directed the President to remove U S  forces from hostilities in Yemen, except U S  forces engaged in operations directed at Al Qaeda or associated forces  In the House, lawmakers twice narrowly approved rules resolutions containing provisions that made similar resolutions directing the President to remove U S  forces from hostilities in Yemen ineligible for expedited consideration ( H Res  1142 and H Res  1176 )  On December 13, the Senate also passed S J Res  69 , which, among other things, expresses the sense of the Senate that Saudi Crown Prince Mohammed bin Salman is responsible for the murder of the journalist Jamal Khashoggi and that there is no statutory authorization for United States involvement in hostilities in the Yemen civil war  The 115th Congress frequently debated the extent and terms of the United States' involvement in the ongoing conflict in Yemen  Lawmakers questioned the extent to which successive Administrations have adhered to existing law related to providing security assistance, including sales or transfers of defense goods and defense services, while upholding international human rights standards (e g , 22 U S C  §2754 or 22 U S C  §2304)  They also enacted new legislation that would condition or prohibit the use of U S  funds for some activities related to Yemen and extend legislative oversight over the executive branch's policy toward the war in Yemen  While the House and its Rules Committee voted to make resolutions with respect to war powers and Yemen ineligible for expedited consideration, the Senate passage of S J Res  54 at the conclusion of the 115 th Congress demonstrated growth in congressional opposition to U S  involvement in the Saudi-led coalition intervention in Yemen relative to previous years  Over time, the balance of votes shifted in favor of measures that could be described as critical or restrictive of U S  support for Saudi-led coalition operations with regard to arms sales, oversight measures, and war powers measures  Nevertheless, after nearly four years of conflict, it remains difficult to identify the locus of congressional consensus about Yemen  Many in the House and Senate state that they seek to preserve cooperative U S -Saudi relations in broad terms and express concern about Iranian activities in Yemen, while also expressing support for expanded humanitarian access and efforts to bring the conflict to a close  Some lawmakers express opposition to the intervention and U S  involvement on moral grounds, citing errant coalition airstrikes and the prospect of a looming famine  Others argue the conflict's continuation creates opportunities for Iran and Sunni Islamist extremist groups to expand their influence and operations in Yemen  Still others may have come to oppose continued U S  support for the intervention based on factors not directly related to Yemen itself, including the opaque mechanisms used by the executive branch to support the coalition and/or anger with the Saudi government over the killing of Jamal Khashoggi  It remains to be seen whether recent congressional consideration of Yemen legislation is a harbinger of broader efforts by Members of Congress to reassert congressional prerogatives toward U S  foreign policy writ large  Measures to enhance oversight over U S  support to the Saudi-led coalition and U S  strategy toward Yemen have received broad bipartisan support, while proponents of other recently considered arms sales and war powers measures have used mechanisms to ensure privileged consideration of their proposals  The 116 th Congress may continue to debate U S  support for the Saudi-led coalition and Saudi Arabia's conduct of the war in Yemen  It is uncertain whether lawmakers may also broaden the scope of their oversight activities beyond the current conflict to more fully address the root causes of Yemen's chronic instability  Even if the United States is no longer an active supporter of coalition military efforts, Yemen itself has been devastated by years of war and remains the world's worst humanitarian crisis  Experts expect Yemen to require sustained international attention and financial assistance in order to help local actors reach and sustain a political settlement  This suggests that Congress may grapple with questions about the conduct of U S  diplomacy, the provision of U S  security support, and the investment of U S  assistance and defense funds for years to come 

ground_truth: DOD requested about $60 billion for fiscal years 2009 - 2017 to purchase goods and services overseas and reimburse service-members for costs incurred while stationed abroad. DOD uses foreign currency exchange rates to budget and pay (that is, disburse amounts) for these expenses. It also manages the FCFD account to mitigate a loss in buying power that results from foreign currency rate changes. GAO was asked to examine DOD's processes to budget for and manage foreign currency fluctuations. This report (1) describes DOD's revision of its foreign currency budget rates since 2009 and the relationship between the revised rates and projected O&M and MILPERS funding needs; (2) evaluates the extent to which DOD has taken steps to reduce costs in selecting foreign currency rates to disburse funds to liquidate O&M obligations, and determined whether opportunities exist to gain additional savings; and (3) assesses the extent to which DOD has effectively managed the FCFD account balance. GAO analyzed data on foreign currency rates, DOD financial management regulations, a non-generalizable sample of foreign currency disbursement data, and FCFD account balances. The Department of Defense (DOD) revised its foreign currency exchange rates (“budget rates”) during fiscal years 2014 through 2016 for each of the nine foreign currencies it uses to develop its Operation and Maintenance (O&M) and Military Personnel (MILPERS) budget request. These revisions decreased DOD's projected O&M and MILPERS funding needs. DOD's revision of the budget rates during these years also decreased the expected gains (that is, buying power) that would have resulted from an increase in the strength of the U.S. Dollar relative to other foreign currencies. DOD did not revise its budget rates in fiscal years 2009 through 2013. For fiscal year 2017, DOD changed its methodology for producing budget rates, resulting in rates that were more closely aligned with market rates. According to officials, that change made it unnecessary to revise the budget rates during the fiscal year. DOD has taken some steps to reduce costs in selecting foreign currency rates used to pay (that is, disburse amounts) for goods and services, but DOD has not fully determined whether opportunities exist to achieve additional savings. The Army has estimated potential savings of up to $10 million annually by using a foreign currency rate available 3 days in advance of paying for goods or services rather than a more costly rate available up to 5 days in advance. The Army has converted to the use of a 3-day advanced rate. GAO's analysis suggests that DOD could achieve cost savings if the services reviewed and consistently selected the most cost-effective foreign currency rates when paying for their goods and services. Absent a review, DOD is at risk for paying more than it would otherwise be required to conduct its transactions. DOD used the Foreign Currency Fluctuations, Defense (FCFD) account to cover losses (that is, less buying power) due to unfavorable foreign currency fluctuations in 6 of the 8 years GAO reviewed. Since 2012, DOD has maintained the FCFD account balance at the statutory limit of $970 million, largely by transferring unobligated balances before they are cancelled from certain DOD accounts into the FCFD. However, DOD has not identified the appropriate FCFD account balance needed to maintain program operations by routinely analyzing projected losses and basing any transfers into the account on those expected losses. Thus, DOD may be maintaining balances that are hundreds of millions of dollars higher than needed, and that could have been used for other purposes or returned to the Treasury Department (see figure). GAO is making four recommendations, including that DOD review opportunities to achieve cost savings by more consistently selecting the most cost-effective foreign currency rates used for the payment of goods and services, and analyze projected losses to manage the FCFD account balance. DOD generally concurred with the recommendations.