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



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

Report 1: The federal government, through the Department of Energy, operates four regional power marketing administrations (PMAs), created by statute: the Bonneville Power Administration (BPA), the Southeastern Power Administration (SEPA), the Southwestern Power Administration (SWPA), and the Western Area Power Administration (WAPA)  Each PMA operates in a distinct geographic area of the coterminous United States (see Figure 1 )  Congressional interest in the PMAs has included diverse issues such as rate setting, cost and compliance associated with the Endangered Species Act (ESA; P L  93-205 ; 16 U S C  §§1531 et seq ), and questions of privatization of these federal agencies  In general, the PMAs came into being because of the government's need to dispose of electric power produced by federal dams constructed largely for irrigation, flood control, or other purposes, and to achieve small community and farm electrification—that is, providing service to customers whom it would not have been profitable for a private utility to serve  With minor exceptions, these agencies market the electric power produced by federal dams constructed, owned, and operated by the Corps of Engineers (Corps) and the U S  Bureau of Reclamation (BOR)  PMAs must give preference to public utility districts and cooperatives (e g , "preference customers"), selling their power at cost-based rates set at the lowest possible rate consistent with sound business principles  The Federal Energy Regulatory Commission (FERC) regulates PMA rates to ensure that they are set high enough to repay the U S  Treasury on schedule for the portion of federal facility costs that have been allocated to hydropower beneficiaries  Since FY2011, power revenues associated with the PMAs have been classified as discretionary offsetting receipts (i e , receipts that are available for spending by the PMAs), thus the agencies are sometimes noted as having a "net-zero" spending authority  Only the capital expenses of WAPA and SWPA require appropriations from Congress  Each PMA also has unique elements and regional issues that affect its business  They are discussed in alphabetical order  Created by the Bonneville Project Act of 1937 (16 U S C  §832) just before the completion of two large dams in the Pacific Northwest—Bonneville Dam in 1938 and Grand Coulee Dam in 1941—BPA was the first PMA  Though it serves a smaller geographical area, BPA is on par with WAPA (which serves the largest area) in the size of its transmission system  The agency operates and maintains about 75% of the high voltage transmission lines in its service territory, which includes Idaho, Oregon, Washington, western Montana and small parts of eastern Montana, California, Nevada, Utah, and Wyoming  BPA also markets wholesale electricity from 31 federally owned hydropower facilities in the Northwest  These generation facilities are owned both by the Corps and BOR  BPA differs from the other three PMAs in that it is self-financed: it receives no federal appropriations  Since passage of the Federal Columbia River Transmission System Act of 1974 (16 U S C  §838), BPA has covered its operating costs through power rates set to ensure repayment to the Treasury of capital and interest on funds used to construct the Columbia River power system  BPA also has permanent Treasury borrowing authority, which it may use for capital on large projects  This money is repaid with interest, through power sales  As of 2018, BPA had $5 53 billion of bonds outstanding to the U S  Treasury, with BPA's current borrowing authority capped by Congress at $7 70 billion  BPA has also looked at other financing options as it approaches its debt limit, looking at nonfederal debt refinancing, lease-purchases, and other asset management strategies  BPA has initiated strategies and a financial plan to address a changing power generation and demand market, as it endeavors to meet its mandate for cost-based electric power rates  These plans are outlined in its Strategic Plan for 2018 to 2023, and address goals from financial health to infrastructure modernization  Wholesale power prices in the United States are generally trending downward, while BPA's firm power rates have trended upward  BPA repays its funding from the U S  Treasury largely through electricity sales to customers  While BPA generates its electricity from hydropower (which is traditionally one of the lower-cost means of power generation), increasing amounts of renewable electricity from growing wind and solar capacity installations in the Pacific Northwest are challenging BPA's price competitiveness, and perhaps its ability to repay its debts in a timely manner  In 2014, BPA entered into the Regional Cooperation Agreement (RCA) with the State of Washington to address the debt of Energy Northwest, a "joint action agency formed by the Washington state legislature in 1957" to manage public power utility costs  Energy Northwest owns and operates four electric power generation facilities: White Bluffs Solar Station, Packwood Lake Hydroelectric Project, Nine Canyon Wind Project, and the Columbia Generating Station  The Regional Cooperation debt is "the issuance of new bonds by Energy Northwest to refund outstanding bonds shortly before their maturities when substantial principal repayments were and are due " According to BPA, this allows for "integrated debt management" for the combined total debt portfolios of BPA and Energy Northwest, with a net effect reducing the "weighted average interest rate and the maturity of BPA's overall debt portfolio" over the life of the program  This refinancing, according to BPA, has enabled BPA to prepay higher-interest-rate federal obligations, and has "preserved or restored U S  Treasury borrowing authority " However, the debt service of the RCA is "borne by BPA ratepayers through BPA rates " BPA estimates that the "aggregate potential principal amount" of RCA refunding through bonds issued in fiscal years 2019 through 2030 could exceed $4 0 billion  BPA is responsible for maintaining and modernizing the generation and transmission infrastructure of its systems, and preserving and enhancing its physical and cybersecurity  With energy and capacity markets changing in the western United States (especially with the growing need to integrate increasing amounts of variable renewable sources), and the development of the Energy Imbalance Market (EIM) in the West, BPA is considering whether to join the EIM, and how this might affect its operations and customers  Environmental, fishing, and tribal advocates have sued the federal government over concerns that operating rules for hydropower dams on the Columbia and Snake Rivers (i e , operations consistent with the National Marine Fisheries Service Biological Opinion) are inadequate to ensure survival of species threatened or endangered under the Endangered Species Act  In addition, several environmental groups filed a lawsuit blaming the dams for warm river waters in summer 2015 that resulted in the deaths of about 250,000 adult sockeye salmon migrating up the Columbia and Snake Rivers  Some of these parties have sought to remove the four lower dams on the Snake River to ensure survival of some salmon and steelhead species  In 2016, a federal judge overturned a previous management plan for the dams, finding that it would not be sufficient to protect salmon runs, and ordered a new management plan that could include removing the dams  However, in 2018, President Trump issued a Presidential Memorandum accelerating the process for a new management plan, requiring the biological opinion to be ready by 2020  The memorandum ordered the Secretary of the Interior and the Secretary of Commerce "to appropriately suspend, revise, or rescind any regulations or procedures that unduly burden" water infrastructure projects so they "are better able to meet the demands of their authorized purposes " How this will affect the fish endangerment finding is unclear at this time  The Southeastern Power Administration was created in 1950 by the Secretary of the Interior to carry out the functions assigned to the Secretary by the Flood Control Act of 1944 (P L  78-534) in 11 states (Alabama, Florida, Georgia, Illinois, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia)  SEPA is unique among the four PMAs in two ways  It is the smallest PMA, with just over 40 employees, and, unlike the other three agencies, SEPA does not operate or maintain any transmission facilities, and thus contracts with other utilities for transmitting the federal power it markets to more than 12 million consumers  Southeastern markets approximately 3,400 MW of power produced at 22 multipurpose water projects, operated and maintained by the Corps  SEPA's facilities are aging; for instance, in 2018 it reported that its Cumberland System customers have agreed to fund $1 2 billion of planned rehabilitations of the nine hydroelectric facilities in the Corps' Nashville District  According to SEPA, it has an overcapacity issue  Projections for electricity load growth (in consultation with its preference customers) made before the 2008 economic downturn reportedly led to SEPA acquiring additional capacity it currently does not use  As a result, municipalities and electric cooperatives in SEPA's service area will have to make economic decisions regarding how to handle this excess capacity


Report 2:  As of 2018, at least one preference customer has terminated its contract with SEPA due to this issue  Section 5 of the Flood Control Act of 1944 (P L  78-534) established the Southwestern Power Administration  SWPA markets hydroelectric power in Arkansas, Kansas, Louisiana, Missouri, Oklahoma, and Texas from 24 multipurpose Corps dams with a combined capacity of 2,194 MW  SWPA serves more than 100 preference customer utilities with more than 8 million end-use customers  The agency manages nearly 1,400 miles of high-voltage transmission lines  SWPA is the only U S  electrical balancing area supported solely by hydroelectric generation, and its use of the reservoirs and river systems within the SWPA marketing area must be balanced with flood control and other required uses so that the power needs of its customers can be met  SWPA states that it uses alternative financing and offsetting collection authorities to fund expenses and purchase power to help SWPA meet its obligations while minimizing congressional appropriations  Periodically, SWPA has been challenged by low water conditions  It has a rain-based water supply—rather than one that is snow-based, like the mountain snowpack water supply of WAPA and BPA—and sells power from a comparatively small reservoir system which stores that water  Extended dry periods sometimes mean that SWPA must purchase replacement power and energy to meet its contractual obligations  This means that SWPA requires congressional authority to use its revenues from power sales over the long term—across high and low water years  Prior year balances have been available to Southwestern so that we are financially prepared and able to achieve rate stability for our customers  This authority is critical to operating our program according to sound business principles  Southwestern's program is funded by authority to use receipts, alternative financing, and other authorities approved by Congress, including appropriations, which represent only 6 5% of Southwestern's total program  Created by the Department of Energy Organization Act of 1977 ( P L  95-91 ), WAPA is the newest and largest of the PMAs in terms of service area  WAPA's service area covers 1 3 million square miles, and its power—transmitted by a high voltage grid over 17,000 miles long—serves customers in 15 western states  WAPA markets and transmits hydropower from 56 federal dams operated by BOR, and the Corps  It also sells hydropower power produced by facilities administered by the International Boundary and Water Commission, and markets the United States' 24 3% share (547 megawatts) of the coal-fired Navajo Generating Station in Arizona  In addition to the types of public bodies traditionally served as preference customers by the other PMAs, WAPA has developed a policy to give preference to Native American tribes regardless of their utility status  WAPA has been working with other regional entities to address the changing electric power needs of its customers  In 2014, WAPA published its Strategic Roadmap 2024, titled "Powering the Energy Frontier " The document is intended to serve as WAPA's strategic plan to guide the agency's actions for the next 10 years  However, according to some, the developing Energy Imbalance Market in the West may provide additional options for WAPA to address transmission development needs to balance regional generation and demand  An issue of continuing importance to WAPA is its role in relieving transmission congestion within its marketing area  There are a number of constrained transmission paths in the West whose limited capacity to transfer power may reduce the ability of utilities to serve electric loads on a seasonal or ongoing basis  In 2009, Section 402 of the American Recovery and Reinvestment Act ( P L  111-5 ) amended the Hoover Power Plant Act of 1984 to give WAPA authority to borrow up to $3 25 billion from the U S  Treasury to pursue transmission projects that integrate renewable generation sources into the electric transmission grid  The law provides authority to construct and upgrade transmission lines to help deliver renewable resources to market  Western created the Transmission Infrastructure Program, also known as TIP, to implement this new initiative  Several transmission projects have been initiated under the program  Previous budget proposals and legislation have proposed repealing WAPA's loan authority, but to date, none of these proposals have been enacted  In 2015, WAPA's Upper Great Plains (UGP) region joined the Southwest Power Pool (SPP), a Regional Transmission Organization (RTO)  Under the operating agreement with SPP, WAPA was required to transfer functional control of UGP's eligible transmission facilities to SPP  WAPA is the first PMA to formally join an RTO, and states that benefits to date from joining SPP have significantly exceeded the original estimate of $11 5 million per year  WAPA reports that two of its other regions are considering joining SPP  For Water Year 2017, WAPA reported that it delivered 26,148 gigawatt-hours of hydroelectric power to its customers, which is 101% of average annual power sales  The West has been experiencing periodic droughts for a number of years, resulting in lower snowmelts and less water in storage and available for power generation  To help smooth the resulting annual differences, a "drought-adder" reduction program has been implemented in recent years  A drought-adder charge was levied to help repay deferred drought costs accrued during the 2000s in the Rocky Mountain and Upper Great Plains regions  The balance was paid a year ahead of schedule and, as of this year, has resulted in $40 million annual savings for more than 50 percent of WAPA's customers in Colorado, Wyoming, Montana, Kansas, Nebraska, the Dakotas and the western sections of Minnesota and Iowa  This is the second year that 417 of WAPA's customers, out of 700, have had a rate reduction  The drought-adder component of the rate remains available to WAPA to adjust to the variable hydropower resource—a lasting risk if drought conditions persist in WAPA's territory  Moderate to extreme drought conditions have been reported in parts of the western United States  In addition to issues specific to individual PMAs, some recent proposals have applied to multiple PMAs  In 2018, the Trump Administration proposed to sell the transmission assets owned and operated by the federal Power Marketing Administrations  The proposal suggested that "eliminating or reducing" the federal government's role in owning and operating transmission assets and increasing the private sector role would "encourage a more efficient allocation of economic resources and mitigate unnecessary risk to taxpayers " The proposal calls for federal transmission infrastructure assets (lines, towers, substations, and/or rights of way) to be sold, with the private sector and/or state and local entities potentially taking over the transmission functions now provided by the PMAs  The Federal entities that would result after such sales could contract with other utilities to provide transmission service for the delivery of Federal power just as the Southeastern Power Administration, which does not own transmission lines, already does  The proposal reports that according to the Administration's FY2019 budget justification, the sale of federal transmission assets would result in a net budgetary savings of $9 5 billion, in total, over a 10-year window  Reportedly, the Administration dropped the plan due to stakeholder opposition, with the Department of Energy stating that such a sale of PMA transmission assets would not proceed unless directed by Congress  Proposals to sell all or part of the PMAs are not new, and have been made in some form by almost every President since Reagan  However, Congress has sought to prevent executive branch alterations of PMA structures and authority  Under Section 208 of the Urgent Supplemental Appropriations Act, 1986 ( P L  99-349 ), the executive branch is prohibited from spending funds to study or draft proposals to transfer from federal control any portion of the assets of the PMAs unless specifically authorized by Congress  The Trump Administration divestment proposal could have had an indirect impact on the original congressional intent for the PMAs to provide electricity at the lowest possible cost  This in turn could require changes to the following provisions: Flood Control Act of 1944, as amended (FCA; 16 U S C  §825s et seq  ); The 1937 Bonneville Project Act (BPA; 16 U S C  §832c ); and The Reclamation Project Act of 1939 (RPA; 43 U S C  §485h(c))   These laws also stipulate a preference of public bodies for the sale of federal power  Selling federally owned transmission assets could potentially affect the "lowest possible" rates of sale, and the statutory preference for publicly or cooperatively owned utilities to be the vehicle for sale of electric power produced by federal facilities 

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.

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



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

Report 1: 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 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: Cluster munitions are weapons that open in mid-air and disperse smaller submunitions—anywhere from a few dozen to hundreds—into an area  They can be delivered by aircraft or from ground systems such as artillery, rockets, and missiles  Cluster munitions are valued militarily because one munition can kill or destroy many targets within its impact area, and fewer weapons systems are needed to deliver fewer munitions to attack multiple targets  Cluster munitions also permit a smaller force to engage a larger adversary and are considered by some an "economy of force" weapon  Many cluster munitions rely on simple mechanical fuzes that arm the submunition based on its rate of spin and explode on impact or after a time delay  A newer generation of sensor-fuzed submunitions is being introduced by a number of nations to improve the munitions' and submunitions' accuracy and to reduce the large number of residual unexploded submunitions  These sensor-fuzed submunitions are designed to sense and destroy vehicles without creating an extensive hazard area of unexploded submunitions  Cluster bombs were first used in World War II, and inclusive of their debut, cluster munitions have been used in at least 21 states by at least 13 different countries  Cluster munitions were used extensively in Southeast Asia by the United States in the 1960s and 1970s, and the International Committee of the Red Cross (ICRC) estimates that in Laos alone, 9 million to 27 million unexploded submunitions remained after the conflict, resulting in over 10,000 civilian casualties to date  Cluster munitions were used by the Soviets in Afghanistan, by the British in the Falklands, by the Coalition in the Gulf War, and by the warring factions in Yugoslavia  In Kosovo and Yugoslavia in 1999, NATO forces dropped 1,765 cluster bombs containing approximately 295,000 submunitions  From 2001 through 2002, the United States dropped 1,228 cluster bombs containing 248,056 submunitions in Afghanistan, and U S  and British forces used almost 13,000 cluster munitions containing an estimated 1 8 million to 2 million submunitions during the first three weeks of combat in Iraq in 2003  Senior U S  government officials have stated that the United States has not used cluster munitions since 2003, during the intervention in Iraq  It is widely believed that confusion over U S  cluster submunitions (BLU-97/B) that were the same color and size as air-dropped humanitarian food packets played a major role in the U S  decision to suspend cluster munitions use in Afghanistan but not before using them in Iraq  In 2006, Israeli use of cluster munitions against Hezbollah forces in Lebanon resulted in widespread international criticism  Israel was said to have fired significant quantities of cluster munitions—primarily during the last 3 days of the 34-day war after a U N  cease-fire deal had been agreed to —resulting in almost 1 million unexploded cluster bomblets to which the U N  attributed 14 deaths during the conflict  Reports maintain that Hezbollah fired about 113 "cluster rockets" at northern Israel and, in turn, Israel's use of cluster munitions supposedly affected 26% of southern Lebanon's arable land and contaminated about 13 square miles with unexploded submunitions  One report states that there was a failure rate of upward of 70% of Israel's cluster weapons  The fundamental criticisms of cluster munitions are that they disperse large numbers of submunitions imprecisely over an extended area, that they frequently fail to detonate and are difficult to detect, and that submunitions can remain explosive hazards for decades  Civilian casualties are primarily caused by munitions being fired into areas where soldiers and civilians are intermixed, inaccurate cluster munitions landing in populated areas, or civilians traversing areas where cluster munitions have been employed but failed to explode  Two technical characteristics of submunitions—failure rate and lack of a self-destruct capability—have received a great deal of attention  There appear to be significant discrepancies among failure rate estimates  Some manufacturers claim a submunition failure rate of 2% to 5%, whereas mine clearance specialists have frequently reported failure rates of 10% to 30%  A number of factors influence submunition reliability  These include delivery technique, age of the submunition, air temperature, landing in soft or muddy ground, getting caught in trees and vegetation, and submunitions being damaged after dispersal, or landing in such a manner that their impact fuzes fail to initiate  Submunitions lacking a self-destruct capability—referred to as "dumb" munitions—are of particular concern because they can remain a hazard for decades, thereby increasing the potential for civilian casualties  Some nations are developing "smart" or sensor-fuzed weapons with greater reliability and a variety of self-destruct mechanisms intended to address the residual hazard of submunitions  Experts maintain that self-destruct features reduce—but do not eliminate—the unexploded ordnance problem caused by cluster munitions and that the advantage gained by using "smart" cluster munitions is negated when high-failure rate and/or "dumb" cluster munitions are used in the same area  For some nations, replacing "dumb" and high-failure rate cluster munitions may not be an option—China, Russia, and the Republic of Korea maintain that they cannot afford to replace all current submunitions with "smart" submunitions  In an effort to restrict or ban specific types of weapons used in armed conflicts, 51 states negotiated the CCW in 1980  When the treaty entered into force in December 1983, it applied only to incendiary weapons, mines and booby-traps, and weapons intended to cause casualties through very small fragments  Since then, some states-parties have added provisions through additional protocols to address other types of weapons  Acting in accordance with the recommendation of a group of experts established during the 2006 CCW review conference, states-parties to the convention decided in 2007 to "negotiate a proposal to address urgently the humanitarian impact of cluster munitions " Negotiations took place in 2008 and 2009, but the parties have not reached agreement on a new proposal  The experts group continued negotiations in 2011 "informed by" a Draft Protocol on Cluster Munitions  However, the CCW states-parties were unable to reach agreement on a protocol during their November 2011 review conference  Described as "frustrated with the CCW process," a number of CCW members—led by Norway—initiated negotiations in 2007 outside of the CCW to ban cluster munitions  On May 30, 2008, they reached an agreement to ban cluster munitions  The United States, Russia, China, Israel, Egypt, India, and Pakistan did not participate in the talks or sign the agreement  During the Signing Conference in Oslo on December 3-4, 2008, 94 states signed the convention and 4 of the signatories ratified the convention at the same time  China, Russia, and the United States did not sign the convention, but France, Germany, and the United Kingdom were among the 18 NATO members to do so  The convention was to enter into force six months after the deposit of the 30 th ratification  The United Nations received the 30 th ratification on February 16, 2010, and the convention entered into force on August 1, 2010  As of January 2, 2019, 105 states were party to the convention  The Convention on Cluster Munitions (CCM), inter alia, bans the use of cluster munitions, as well as their development, production, acquisition, transfer, and stockpiling  The convention does not prohibit cluster munitions that can detect and engage a single target or explosive submunitions equipped with an electronic self-destruction or self-deactivating feature —an exemption that seemingly permits sensor-fuzed or "smart" cluster submunitions  U S  officials were concerned that early versions of the CCM would prevent military forces from non-states-parties from providing humanitarian and peacekeeping support and significantly affect NATO military operations, but the version signed May 30, 2008, does permit states-parties to engage in military cooperation and operations with non-states-parties (Article 21, Paragraph 3)  Then-Acting Assistant Secretary for Political-Military Affairs Stephen Mull stated in May 2008 that the United States relies on cluster munitions "as an important part of our own defense strategy," and that Washington's preferred alternative to a ban is "to pursue technological fixes that will make sure that these weapons are no longer viable once the conflict is over " U S  officials note that Cluster munitions are available for use by every combat aircraft in the U S  inventory, they are integral to every Army or Marine maneuver element and in some cases constitute up to 50 percent of tactical indirect fire support  U S  forces simply can not fight by design or by doctrine without holding out at least the possibility of using cluster munitions  The United States also maintains that using cluster munitions reduces the number of aircraft and artillery systems needed to support military operations, and that if cluster munitions were eliminated, significantly more money would need to be spent on new weapons systems, ammunition, and logistical resources  Officials further suggest that if cluster munitions were eliminated, most militaries would increase their use of massed artillery and rocket barrages, which would likely increase destruction of key infrastructure  Then-Department of State Legal Adviser Harold Koh stated November 9, 2009, that the United States has determined that its "national security interests cannot be fully ensured consistent with the terms" of the CCM  The Barack Obama Administration announced on November 25, 2011, that the United States would continue to implement the DOD policy on cluster munitions issued June 19, 2008, which recognized the need to minimize harm to civilians and infrastructure but also reaffirmed that "cluster munitions are legitimate weapons with clear military utility " The central directive in the Pentagon's policy was the unwaiverable requirement that cluster munitions used after 2018 must leave less than 1% of unexploded submunitions on the battlefield  Prior to that deadline, U S  use of cluster munitions that did not meet this criterion required combatant commander approval  On November 30, 2017, then-Deputy Secretary of Defense Patrick Shanahan issued a revised policy on cluster munitions  The memorandum describing the policy noted that [c]luster munitions provide the Joint Force with an effective and necessary capability to engage area targets, including massed formations of enemy forces, individual targets dispersed over a defined area, targets whose precise location are not known, and time-sensitive or moving targets  Cluster munitions are legitimate weapons with clear military utility, as they provide distinct advantages against a range of threats in the operating environment  Additionally, the use of cluster munitions may result in less collateral damage than the collateral damage that results from use of unitary munitions alone  Since the inception of the 2008 policy, in the midst of extended combat operations in Iraq and Afghanistan, we have witnessed important changes in the global security environment and experienced several years of budgets that under-invested in replacement systems and the modernization of the Joint Force more broadly  Our adversaries and our potential adversaries have developed advanced capabilities and operational approaches specifically designed to limit our ability to project power  Both Shanahan and Admiral Harry Harris Jr  have also argued that sustaining the current U S  cluster munitions arsenal is necessary to prepare for a potential conflict with North Korea  The revised policy reverses the 2008 policy that established an unwaiverable requirement that cluster munitions used after 2018 must leave less than 1% of unexploded submunitions on the battlefield  Combatant commanders can use cluster munitions that do not meet the 1% or less unexploded submunitions standard in extreme situations to meet immediate warfighting demands  Furthermore, the new policy does not establish a deadline to replace cluster munitions exceeding the 1% rate, and these munitions will be removed only after new munitions that meet the 1% or less unexploded submunitions standard are fielded in sufficient quantities to meet combatant commander requirements  However, the new DOD policy stipulates that the department "will only procure cluster munitions containing submunitions or submunition warheads" meeting the 2008 UXO requirement or possessing "advanced features to minimize the risks posed by unexploded submunitions " Specifically, DOD's revised policy stipulates the following: Continuing or beginning with their respective FY2019 budgets, the military departments will program for capabilities to replace cluster munitions currently in active inventories that do not meet the above-described standards for procuring new cluster munitions  The department's annual Program and Budget Review will be used to assess the sufficiency of the replacement efforts  The department's operational planners should plan for the availability of cluster munitions  The approval authority to employ cluster munitions that do not meet the standards prescribed by this policy for procuring new cluster munitions, however, rests with the combatant commanders  In accordance with their existing authorities, commanders may use cluster munitions that meet the standards prescribed by this policy for procuring new cluster munitions  The military departments and combatant commands, in keeping with U S  legal obligations under CCW Protocol V on Explosive Remnants of War and consistent with past practices, will continue to record and retain information on the use of cluster munitions and provide relevant information to facilitate the removal or destruction of unexploded submunitions  The military departments and combatant commands will maintain sufficient inventories and a robust stockpile surveillance program to ensure operational quality and reliability of cluster munitions  In extremis, to meet immediate warfighting demand, combatant commanders may accept transfers of cluster munitions that do not meet the above-described cluster-munition procurement standards  Cluster munitions that do not meet the standards prescribed by this policy for procuring new cluster munitions will be removed from active inventories and demilitarized after their capabilities have been replaced by sufficient quantities of munitions that meet the standards in this policy  The department will not transfer cluster munitions except as provided for under U S  law  The operational use of cluster munitions that include Anti-Personnel Landmines (APL) submunitions shall comply with presidential policy  Furthermore, the Deputy Secretary of Defense Expect(s) the Department to achieve the goals in this policy as rapidly as industry can support  Combatant Commanders will continue to ensure that the employment of cluster munitions is consistent with the law of war and applicable international agreements in order to minimize their harmful effects on civilian populations and infrastructure  In developing a new generation of cluster munitions less dangerous to civilians, DOD will need to determine whether such a high level of performance is achievable under both controlled laboratory conditions and real-world conditions  Factors such as delivery technique, landing in soft or muddy ground, getting caught in trees and vegetation, and submunitions being damaged after dispersal or landing could result in an appreciable number of dud submunitions, even if they have a self-deactivation feature  DOD and the services have been and are currently involved in efforts to reduce cluster munitions failure rates  The Army's Alternative Warhead Program (AWP) is intended to assess and recommend new technologies to reduce or eliminate cluster munitions failure rates  The AWP program is viewed as particularly relevant, as the Pentagon estimates that "upward of 80 percent of U S  cluster munitions reside in the Army artillery stockpile " In December 2008, the Army decided to cease procurement of a Guided Multiple Launch Rocket System (GMLRS) warhead—the Dual-Purpose Improved Conventional Munition (DPICM) warhead—because its submunitions had a dud rate up to 5%  The Air Force has also acquired cluster munitions that comply with the less than 1% failure rate—the CBU-97 Sensor Fuzed Weapon (SFW) and the CBU-105 WCMD/SFW  While DOD's new 2017 cluster munitions policy calls for DOD to continue its efforts to meet the 1% or less unexploded submunitions standard "as rapidly as industry can support," it is not yet known how this policy will affect the aforementioned programs or how it could result in the establishment of new programs  It may be argued that even with advances in "sensor-fuzed" type submunitions that seek out and destroy certain targets, cluster munitions are still essentially an indiscriminate area weapon in an era where precision weapons are increasingly becoming the military norm  In Operation Desert Storm in 1991, only about 10% of ordnance used were precision-guided, but by the time of the Iraq invasion in 2003, "the ratio of 'smart' to dumb weapons was nearly reversed " Since then, this trend toward greater precision has continued, if not accelerated with the development of precision rocket, artillery, mortar munitions, and smaller precision aerial bombs designed to reduce collateral damage  Given current and predicted future precision weaponry trends, cluster munitions might be losing their military relevance—much as chemical weapons did between World War I and World War II  According to the State Department, the U S  military suspended its use of cluster munitions in Iraq and Afghanistan in 2003  For subsequent military operations, where cluster munitions would otherwise have been the weapon of choice, Congress might review what types of weapons were substituted in place of cluster munitions and how effective they were in achieving the desired tactical results  Also worth considering are effects-based weapons systems and operations, which seek to achieve the same or similar effect against a potential target without applying a "kinetic solution" such as a cluster munition  Such insights could prove valuable in analyzing U S  policy options on the future of cluster munitions  DOD's November 2017 revised policy on cluster munitions potentially raises a number of issues for possible congressional consideration  With limits on cluster munition use after 2018 rescinded, how does this affect combatant commanders' operational plans in their respective theaters? Does this mean a lesser degree of military risk because combatant commanders can employ cluster munitions to meet warfighting demands, possibly translating into fewer forces needed to achieve the same result when the 2008 policy was in effect? Despite DOD emphasis on achieving a 1% or less unexploded submunitions standard "as rapidly as industry can support," will DOD funding restrictions slow or stall programs previously intended to replace those systems that exceeded 1% because there no longer is an urgent operational need to replace those systems? In a similar manner, will defense industry view this as a renewed opportunity to develop systems with a 1% or less unexploded submunitions standard or take a more sanguine view that since DOD is no longer time constrained to develop and field 1% or less weapons that funding these programs will be less of a priority and, therefore, an unprofitable venture? Another possible issue for consideration is how this U S  policy reversal on the military use of cluster munitions will be perceived by the international community and how this might affect future U S  and international military treaty initiatives  Consolidated Appropriations Acts The Consolidated Appropriations Act, 2010 ( P L  111-117 ), which the President signed into law December 16, 2009, prohibits the provision of military assistance for cluster munitions, the issuing of defense export licenses for cluster munitions, or the sale or transfer of cluster munitions or cluster munitions technology unless "the submunitions of the cluster munitions, after arming, do not result in more than 1 percent unexploded ordnance across the range of intended operational environments " Moreover, any agreement "applicable to the assistance, transfer, or sale of such cluster munitions or cluster munitions technology" must specify that the munitions "will only be used against clearly defined military targets and will not be used where civilians are known to be present or in areas normally inhabited by civilians " Subsequent appropriations laws have included similar provisions; the most recent is the Consolidated Appropriations Act, 2019 ( P L  116-6 ), which the President signed into law on February 15, 2019  

ground_truth: Cluster munitions are air-dropped or ground-launched weapons that release a number of smaller submunitions intended to kill enemy personnel or destroy vehicles. Cluster munitions were developed in World War II and are part of many nations' weapons stockpiles. Cluster munitions have been used frequently in combat, including the early phases of the current conflicts in Iraq and Afghanistan. Cluster munitions have been highly criticized internationally for causing a significant number of civilian deaths, and efforts have been undertaken to ban and regulate their use. The Department of Defense (DOD) continues to view cluster munitions as a military necessity but in 2008 instituted a policy to reduce the failure rate of cluster munitions to 1% or less after 2018. In November 2017, a new DOD policy was issued that essentially reversed the 2008 policy. Under the new policy, combatant commanders can use cluster munitions that do not meet the 1% or less unexploded submunitions standard in extreme situations to meet immediate warfighting demands. In addition, the new policy does not establish a deadline to replace cluster munitions exceeding the 1% rate and states that DOD "will retain cluster munitions currently in active inventories until the capabilities they provide are replaced with enhanced and more reliable munitions." Potential issues for Congress include cluster munitions in an era of precision weapons, other weapons in lieu of cluster munitions, and the potential impact of DOD's 2017 revised cluster munitions policy.