Background

Following the terrorist attacks of September 11, 2001, the United States  began military operations to combat terrorism both in the United States  and overseas. Operations to defend the United States from terrorist  attacks are known as Operation Noble Eagle. Overseas operations to  combat terrorism are known as Operation Enduring Freedom, which  takes place principally in Afghanistan, and Operation Iraqi Freedom,  which takes place in and around Iraq. Figure 1 shows the primary  locations where U.S. forces conducted operations in support of the war  in fiscal year 2003.
To support the war in fiscal year 2003, Congress appropriated $68.7 billion  to DOD: $6.1 billion in the Consolidated Appropriations Resolution, 2003,  and $62.6 billion in the Emergency Wartime Supplemental Appropriations  Act, 2003. While most of these funds were only available for expenditure  in fiscal year 2003, some could be expended in subsequent fiscal years.  Of the $68.7 billion appropriated for GWOT, almost $16 billion was  appropriated in the fiscal year 2003 Wartime Supplemental to a transfer  account called the Iraqi Freedom Fund. The Iraqi Freedom Fund is a  special account providing funds for additional expenses for ongoing  military operations in Iraq, and those operations authorized by P.L. 107-40  (Sept. 13, 2001), Authorization for Use of Military Force, and other  operations and related activities in support of the global war on terrorism.
Congress has also appropriated funds for the reconstruction of Iraq and  Department of State and U.S. Agency for International Development  projects. We are reviewing the contracts involved in the reconstruction,  as well as the funding for other projects and will be issuing separate  reports on these issues.

	Obligations for GWOT Operations

As of September 30, 2003, DOD reported obligating a total of over  $61 billion in fiscal year 2003 in support of the war. Among the operations  that comprised the war on terrorism, Operation Iraqi Freedom amounted  to about $39 billion or 64 percent of the total obligations, as shown in  figure 2. The obligations reported for Iraqi Freedom are probably  understated and the obligations reported for Operation Enduring Freedom  overstated because, according to DOD officials, the initial obligations  associated with the build up to Iraqi Freedom were charged to Enduring  Freedom. Officials in the Office of the Under Secretary of Defense  (Comptroller) reclassified reported obligations to the appropriate  operation after Iraqi Freedom began, based on anticipated and projected  GWOT operations.
Of the overall reported amount obligated within DOD for GWOT during  fiscal year 2003, the Army reported the largest amount of obligations,  46 percent of the total, as shown in figure 3. (The Army had the largest  number of military personnel engaged in the war.) In addition to the  obligations reported by the other military services, about 13 percent of  DOD’s GWOT obligations were reported by a total of 15 other DOD  organizations, such as the Defense Information Systems Agency and the  Defense Logistics Agency. Of these DOD organizations, the Defense  Logistics Agency reported the largest amount of obligations—over  $3.6 billion.
The obligations reported for GWOT fall into three categories—operation  and maintenance, military personnel, and investment. Operation and  maintenance account funds obligated in support of the war are used  for a variety of purposes, including transportation of personnel,  goods, and equipment; unit operating support costs; and intelligence,  communications, and logistics support. Military personnel funds obligated  in support of the war cover the pay and allowances of mobilized reservists  as well as special payments or allowances for all qualifying military  personnel both active and reserve, such as Imminent Danger Pay and  Family Separation Allowance. Investment funds obligated for the war are  used for procurement, military construction, and research, development,  test and evaluation. As shown in figure 4, GWOT obligations reported in  the operation and maintenance account amount to almost $44 billion or  71 percent of the total.
The Consolidated Department of Defense Terrorist Response Cost Report  displays obligations in all accounts by specific categories. As previously  cited, chapter 23 of the DOD Financial Management Regulations, which  governs how all DOD organizations report financial data for contingency  operations, defines these categories. Within the operation and  maintenance account, the operating support category had the largest  amount of reported obligations for fiscal year 2003—over $32 billion or  74 percent of the total. This category, which includes obligations incurred  for such things as training, operational support, equipment maintenance,  and troop support, had the highest level of obligations, in part reflecting  the cost of using civilian contractors to provide housing, food, water, and  other services to over 180,000 troops deployed overseas in support of  GWOT. A large part of the operating support costs category—48 percent— is in two miscellaneous categories, other supplies and equipment  ($7 billion) and other services and miscellaneous contracts ($8.5 billion).
Most of the remaining reported GWOT obligations, $15.6 billion or  26 percent, were in the military personnel accounts. Within the military  personnel account, the category reserve component called to active duty  had the highest level of reported obligations—almost $9.3 billion or  59 percent of the total. This category captures the obligations reported for  the salaries paid to reservists mobilized for active duty. According to  service officials, more reservists were called to active duty than originally  estimated and remained on active duty longer than planned. As with  operation and maintenance obligations, there was also a large  miscellaneous category, other military personnel, which accounted for  about $3.8 billion, or 24 percent, of all military personnel obligations.
In discussing the results of our analysis with the Office of the Under  Secretary of Defense (Comptroller) and the military services, there was  recognition of the large amount of obligations captured in miscellaneous  categories. The Office of the Under Secretary of Defense (Comptroller) is  considering how best to provide more specific detail in future cost reports.

	Funding Adequacy for GWOT Varied by Service

The adequacy of funding available for fiscal year 2003 GWOT obligations  reported in military personnel and operation and maintenance accounts  varied by service. The funding available for the war consists of funds  directly appropriated to the military services for GWOT, the net transfer of  funds from the Iraqi Freedom Fund, and reprogrammed funds originally  appropriated to the services for peacetime operations.
Within the military personnel accounts, as shown in table 1, in fiscal year  2003 the Army, Navy, and Air Force reported more obligations in support  of the war than they received in funding for the war. To cover the shortfall  in GWOT funding, these services had to use funds appropriated for their  budgeted peacetime operations. Officials from each of these services  explained that the shortfall was a relatively small portion of their budgeted  peacetime military personnel account. For example, the Army’s reported  shortfall of $155.2 million represents less than 1 percent of its total  peacetime appropriation. The Marine Corps, which had augmented its  GWOT military personnel appropriation with funds from its peacetime  military personnel account, ended the fiscal year with slightly less in  obligations than it had in available funding—$1.8 million or less than  1 percent of its peacetime appropriation.
Within the operation and maintenance accounts, as shown in table 2, in  fiscal year 2003 the Army, Air Force, and Navy received funding that  exceeded their reported GWOT obligations. At the same time the Marine  Corps reported more GWOT obligations than it received in funding.
In discussing our analysis of the difference between GWOT obligations  and funding with the Army, Air Force, and Navy, we were told the  following.
The Army reported slightly more funding than obligations for the war.
At the end of fiscal year 2003, the Army reported obligations that initially  appeared to be more than $500 million less than the available funding.  However, as of January 2004, the Army has subsequently updated its  fiscal year 2003 reporting to reflect about $470 million in additional  reported obligations. According to Army officials, the Army had not  included in the September 30, 2003, consolidated cost report $494 million  in obligations reported to support the Coalition Provisional Authority in  Iraq. The Army received GWOT funding in fiscal year 2003 to support this  organization, but the obligations were not captured in the Army’s  accounting system used to record most other Army obligations. The Army  also cancelled some obligations made before the end of the fiscal year,  resulting in a total adjustment to the fiscal year 2003 cost report of  $470 million. Thus the Army ended the year with about $30 million more in  funding than reported obligations.
Air Force officials told us that the $176.6 million, which appeared to be  unobligated GWOT funding, was actually obligated late in the fiscal year.  According to the officials, that amount was obligated for flying operations  requirements that the Air Force decided were related to the war, but were  not reported as such.
Navy officials told us that the apparent unobligated GWOT funds  ($299 million) were in fact obligated in support of the war but were  originally, and incorrectly, reported as obligations in support of budgeted  peacetime operations. These officials said that they would be updating  their reporting for obligations incurred in fiscal year 2003 to reflect an  additional $299 million in operation and maintenance obligations for the  war. At the same time, the Navy returned $198 million to the Iraqi Freedom  Fund that it believed was in excess of its operation and maintenance  requirements for the war. The available funding in table 2 was adjusted to  reflect the return of the $198 million. Returning these funds is in keeping  with recommendations we made in our September 2003 report discussed  above to monitor the obligation of funds in the services’ operation and  maintenance accounts and ensure that all funds transferred to the services  that are not likely to be obligated by the end of the fiscal year are  transferred back to the Iraqi Freedom Fund.
In subsequent work we plan to review GWOT obligations to detail the  specific purposes for which funds were used and to determine whether the  service requirements for which funding was obligated were war-related.  The additional Air Force flying operations’ requirements and the funds the  Navy recharacterized as being in support of the war will be included in  that review.
While the Marine Corps obligated $72.5 million more for GWOT than it had  in funds at the end of fiscal year 2003, it, like the Navy, returned money to  the Iraqi Freedom Fund. At the end of fiscal year 2003, Marine Corps  officials believed that they could not obligate $152.2 million that had been  transferred to the Marine Corps’ operation and maintenance account from  the Iraqi Freedom Fund before the end of the fiscal year and so transferred  it back to the fund. In retrospect, however, the Marines obligated more  than expected. According to Marine Corps officials, this shortfall was  covered by using normal peacetime operation and maintenance  appropriations that units deployed in support of GWOT were not going  to use.
As noted with the Army and Navy analyses, the services have reported  obligation updates to the Office of the Under Secretary of Defense  (Comptroller) for inclusion in the Defense Finance and Accounting  Service’s Consolidated DOD Terrorist Response Cost report for fiscal year  2003. The Defense Finance and Accounting Service is issuing monthly  fiscal year 2003 update reports as the obligation data is updated, which  must be added to the report as of September 30, 2003, to determine the  total fiscal year 2003 obligations reported in support of GWOT.

	Agency Comments

In official oral comments on a draft of this report, officials from DOD’s  Office of the Under Secretary of Defense (Comptroller) stated that the  department had no objections to the report. DOD also provided technical  comments and we have incorporated them as appropriate.
We are sending copies of this report to the Chairmen and Ranking  Minority Members of the House and Senate Budget Committees, the  Secretary of Defense, the Secretaries of the military services, and the  Director, Office of Management and Budget. We will also make copies  available to others on request. In addition, the report will available at no  charge on the GAO Web site at http://www.gao.gov.
If you or your staff has any questions, please contact me on (757) 552-8100  or by e-mail at curtinn@gao.gov. Major contributors to this report were  Steve Sternlieb, Ann Borseth, Madelon Savaides, Leo Sullivan, and John  Buehler.

Summary:
Why GAO Did This Study

The Global War on Terrorism--principally involving operations in Afghanistan and Iraq--was funded in fiscal year 2003 by Congress's appropriation of almost $69 billion. To assist Congress in its oversight of spending, GAO is undertaking a series of reviews relating to contingency operations in support of the Global War on Terrorism. In September 2003, GAO issued a report that discussed fiscal year 2003 obligations and funding for the war through June 2003. This report continues the review of fiscal year 2003 by analyzing obligations reported in support of the Global War on Terrorism and reviews whether the amount of funding received by the military services was adequate to cover DOD's obligations for the war from October 1, 2002, through September 30, 2003. GAO will also review the war's reported obligations and funding for fiscal year 2004.

What GAO Found

In fiscal year 2003, DOD reported obligations of over $61 billion in support of the Global War on Terrorism. GAO's analysis of the obligation data showed that 64 percent of fiscal year 2003 obligations reported for the war on terrorism went for Operation Iraqi Freedom; among the DOD components, the Army had the most obligations (46 percent); and among appropriation accounts the operation and maintenance account had the highest level of reported obligations (71 percent). The adequacy of funding available for the Global War on Terrorism for fiscal year 2003 military personnel and operation and maintenance accounts varied by service. For military personnel, the Army, Navy, and Air Force ended the fiscal year with more reported obligations for the war than funding and had to cover the shortfalls with money appropriated for their budgeted peacetime personnel costs. For operation and maintenance accounts, the Army, Navy, and Air Force appeared to have more funding than reported obligations for the war. However, the Navy and Air Force have stated that the seeming excess funding ($299 million and $176.6 million respectively) were in support of the war on terrorism, but had not been recorded as such. Therefore, Navy and Air Force obligations exactly match funding. The Marine Corps used funds appropriated for its budgeted peacetime operation and maintenance activities to cover shortfalls in funding for the war.