For Release on Delivery

Expected at 2:00 p.m.

Tuesday,

February 29, 2000

GAO/T-NSIAD-00-98

DEFENSE BUDGET

Visibility and

Accountability of O&M

Fund Movements

Statement for the Record by Norman J. Rabkin, Director

National Security Preparedness

National Security and International Affairs Division

Testimony

Before the Subcommittee on Military Readiness,

Committee on Armed Services, House of Representatives

United States General Accounting Office

GAO
Page 1 GAO/T-NSIAD-00-98

Mr. Chairman, Members of the Subcommittee:

At the request of this Subcommittee, we are submitting a statement for the

record in conjunction with today’s hearings on the adequacy of the

Department of Defense’s (DOD) fiscal year 2001 budget request as it

relates to readiness needs. Specifically, the subcommittee asked that we

summarize the results of our analysis of the Operation and Maintenance

(O&M) appropriations of active components and Defense-wide agencies

from fiscal year 1994 through 1998. We issued a report on this work in

February 2000.1 The objectives of our work were to

• identify the aggregated differences between the amounts Congress initially

designated2 for O&M subactivities, (especially the readiness-related

subactivities) and those DOD reported as obligated for the same

subactivities;

• identify those O&M subactivities where DOD obligated funds differently

than congressionally initially designated in each year of the 5-year period

we examined (1994 through 1998); and

• assess information available to Congress to track DOD’s movement of

funds among O&M subactivities.

Since 1989, O&M has accounted for an average of 35 percent of the total

Defense budget, making it DOD’s largest appropriation group. For fiscal

year 2000, Congress has provided about $104 billion for O&M. O&M is

directly related to military readiness because it provides funds for training

troops for combat and for maintaining tanks, airplanes, ships, and related

equipment. O&M accounts also fund a wide range of activities that are less

directly related to readiness. These include many day-to-day activities such

as civilian personnel management and payments, transportation, health,

and child care. Congressional defense committees have expressed

concerns about the extent to which funds that directly affect readiness

have been reduced to pay for other O&M expenses.

To request funding from Congress, DOD divides its services’ O&M budget

requests into four budget activities: (1) operating forces, (2) mobilization,

(3) training and recruiting, and (4) administration and servicewide

1Defense Budget: DOD Should Further Improve Visibility and Accountability of O&M Fund

Movements (GAO/NSIAD-00-18, Feb. 9, 2000).

2We use the term “congressionally designated,” “congressional designation,” or variations of these

terms throughout to refer to amounts set forth at the subactivity group level in an appropriation act’s

conference report. These recommended amounts are not binding unless they are also incorporated

directly or by reference into an appropriation act or other statute.
Page 2 GAO/T-NSIAD-00-98

activities.3 DOD further divides its budget activities into various activity

groups, then again into subactivity groups. The number and names of the

activity and subactivity groups differ with each service. Although Congress

reviews DOD’s budget proposal for the services and Defense-wide

activities at the subactivity level, it makes appropriations at the aggregated

account level—that is, for the Army, the Navy, the Marine Corps, the Air

Force, and the Defense-wide O&M accounts. However, to indicate how it

expects O&M funds to be spent, Congress designates in its conference

report on annual appropriations acts, specific amounts for each

subactivity group, Defense-wide agency, field activity, and program.

In addition, Congress has directed DOD to provide semiannual reports on

transfers from certain high-priority readiness-related subactivities within

the Operating Forces budget activity.4 Included in the reports are data on

the funds moved into or out of these subactivities, as well as explanations

of the movements.

From fiscal year 1994 through 1998, DOD changed funding amounts for

245 O&M subactivities by almost $43 billion compared with the amounts

Congress initially designated for them. These changes included both

decreases and increases to the amounts designated by Congress. DOD

moved almost $16 billion out of and $27 billion into O&M subactivities.

The changes made to these O&M subactivities accounted for about

12 percent of the total amounts initially appropriated for O&M during the

period. Over half of the $43 billion was moved out of or into ($9 billion out

of and $13.5 billion into) 81 O&M subactivities DOD considers directly

related to readiness, while $10 billion was moved out of or into

($5.5 billion out of and $4.4 billion into) 28 O&M subactivities that

Congress considers high-priority readiness-related.

Every year from fiscal year 1994 through 1998 DOD obligated a different

amount than Congress designated for the same 63 subactivities. (See

appendix I, tables 2 and 3 for details.) In total, DOD moved about

$19 billion out of or into these subactivities ($6.2 billion was moved out

and $12.6 billion was moved in). About $4.3 billion was moved out of and

about $6.7 billion was moved into 30 subactivities DOD considers directly

related to readiness for a total of about $11 billion. The 30 subactivities

include 11 of the high-priority readiness-related subactivities. Further, of

the 11 subactivities, DOD moved $3.2 billion out of 6 subactivities

3The Marine Corps is an exception with only three budget activities and does not include the

mobilization budget activity.

410 U.S.C. 483.

Summary
Page 3 GAO/T-NSIAD-00-98

Congress considers high-priority readiness-related (e.g., Army divisions,

Navy ship depot maintenance, Air Force primary combat forces), while

moving $2.3 billion into 5 others (e.g., Army base operations for land

forces, Navy mission and other flight operations, Marine Corps operational

forces).

In recent years DOD has improved the information it gives to Congress on

the movement of O&M funds. But this budget information is still

incomplete and does not provide adequate details of where funds are

moved and why. Changes in the way DOD presents budget justification

materials, as well as congressionally mandated changes in the level of

details to be provided by DOD, have improved DOD’s budget information

available to Congress. In particular, the high-priority readiness-related

transfer reports offer the most information available on why DOD moves

funds among selected subactivities. However, the statutory requirement

for these reports will expire when DOD submits its fiscal year 2000 report.

In addition, from fiscal years 1994 through 1998, little information was

available to Congress about what DOD terms “fact-of-life” movements,

which DOD says are made to reflect changes that occur between the time

DOD formulates its budget request and the time Congress passes the

appropriation act. DOD reported over $1 billion in fact-of-life adjustments

to its fiscal year 1999 O&M appropriations. DOD’s financial management

regulation does not define these adjustments and provides no guidance on

when it is appropriate to make such adjustments, who should approve

them, or how much funding can be moved. Without any such guidance

governing these movements, DOD and Congress cannot evaluate whether

the movements of funds are appropriate.

To enhance congressional oversight, we recommended in our February

2000 report that DOD take actions to further improve the visibility and

accountability of funds moved within the O&M appropriations. DOD

agreed with our recommendation to provide more guidance on the fact-oflife adjustments. DOD did not agree with our recommendation to continue

to provide Congress reports on transfers of funds in high-priority

readiness-related subactivities because DOD believes the information is

available in several other reports. However, because we do not believe

these reports collectively provide the same information, we changed our

recommendation to a matter for congressional consideration.

DOD has considerable flexibility in using O&M funds and can move them

in several ways and at different times during the fiscal year. As shown in

figure 1, DOD can “adjust” funding after an initial appropriation is made

through

Background
Page 4 GAO/T-NSIAD-00-98

• adjustments directed by Congress in conference reports on appropriation

acts and

• fact-of-life adjustments DOD believes are necessary due to changes—such

as unplanned force structure changes—that have occurred since the

budget was formulated.

After it makes these fund movements, DOD establishes a new “adjusted”

baseline budget. It can then move funds among subactivities through

• reprogramming actions, to move funds from one budget activity to another

within the same account;

• statutorily authorized transfers, to move funds from other Defense

appropriations (such as Procurement);

• transfers from congressionally established, centrally managed accounts

(such as for overseas contingencies);

• supplemental appropriations that Congress provides for additional

expenses during the year; and

• rescissions, with which Congress cancels appropriated funds.
Page 5 GAO/T-NSIAD-00-98

Figure 1: How O&M Funds Are Moved Throughout the Fiscal Year

a

In the conference report on the appropriations act, conferees direct DOD to make

changes to its budget baseline. These changes are known as unallocated adjustments

and general provisions.

Source: Our depiction, based on Defense Financial Management Regulation DOD

7000.14-R, conference reports on the appropriations acts, and interviews with officials

from the Office of the Under Secretary of Defense (Comptroller).

DOD fact-of-life

adjustments

DOD fact-of-life

adjustments

DOD reprogramming actions

Statutorily authorized transfers

from other appropriations

Transfers from centrally managed

accounts

• Drug interdiction

• Environmental restoration

• Overseas contingency operations

Supplemental appropriations

Rescissions

DOD reprogramming actions

Statutorily authorized transfers

from other appropriations

Transfers from centrally managed

accounts

• Drug interdiction

• Environmental restoration

• Overseas contingency operations

Supplemental appropriations

Rescissions

Congressional

designation

(initial baseline)

Congressional

designation

(initial baseline)

New adjusted baseline

New adjusted baseline

DOD reported obligation

DOD reported obligation

Congressional adjustments

•Unallocated adjustmentsa

•General provisions

Congressional adjustments

•Unallocated adjustmentsa

•General provisions

February

September

October

Fiscal year

November

A ctio ns

A mounts
Page 6 GAO/T-NSIAD-00-98

DOD financial management regulations, which reflect agreements between

DOD and the authorization and appropriation committees, provide general

guidelines for reprogramming. For example, congressional notification is

required for O&M reprogramming actions of $15 million or more.

We compared the initial congressional designations for O&M subactivities

as identified in conference reports on Defense appropriation acts with

DOD’s reported obligations for the same subactivities and found that from

fiscal year 1994 through 1998, DOD moved almost $43 billion out of or into

245 O&M budget subactivities after the conferees made initial funding

designations. This amount represents about 12 percent of all the services’

and Defense-wide agencies’ O&M appropriations over the 5-year period

and includes all fact-of-life adjustments, reprogramming actions,

statutorily authorized transfers, and supplemental appropriations (see

table 1).

Table 1: Differences Between Initial Congressional Designations and DOD’s Reported Obligations, by O&M

Budget Activity, Fiscal Years 1994-98 a

Constant 1999 dollars in millions

O&M account Operating

forces Mobilization

Training and

recruiting

Administration and

servicewide

Total

difference

Army $9,873.8b$284.0 $1,248.4 $4,515.5 $15,921.7

Navy 6,641.7 338.9 540.2 3,392.7 10,913.5

Marine Corps 603.6 c251.5 152.8 1,007.9

Air Force 5,023.4 2,248.7 874.1 4,026.9 12,173.1

Defense-wide 383.4 67.4 19.6 2,341.8 2,812.2

Total $22,525.9 $2,939.0 $2,933.8 $14,429.7 $42,828.4 a

Initial congressional designations for each O&M subactivity as reported in annual

conference reports on Defense appropriations acts for fiscal years 1994-98.

b

Amount does not include Army data for fiscal year 1996, when the Army restructured its

Operating Forces budget activity.

c

The Marine Corps does not have a separate budget activity for Mobilization.

Amounts may not total due to rounding.

Source: Our analysis, based on Defense O&M budget data.

These changes included both decreases (about $16 billion) and increases

(about $27 billion) to initial congressional designations. In addition,

• over half of the $43 billion was moved out of or into ($9 billion out of and

$13.5 billion into) 81 O&M subactivities DOD considers directly related to

readiness, and

DOD Obligations

Differed Substantially

From Initial

Congressional

Designations
Page 7 GAO/T-NSIAD-00-98

• about $10 billion was moved out of or into ($5.5 billion out of and

$4.4 billion into) 28 O&M subactivities that Congress considers highpriority readiness-related.

Our recent report contains more detailed information on the differences

between initial congressional designations and DOD obligations, by

individual O&M subactivity and Defense-wide agency, from fiscal year

1994 through 1998.

We identified those O&M subactivities that were obligated differently than

those initially congressionally designated in each of the 5 years in our

study period (1994-98) and found that DOD consistently obligated either

more or less funds for the same 63 O&M subactivities. (See appendix. I,

tables 2 and 3.) Specifically, DOD moved a total of about $19 billion–

$6.2 billion out of and $12.6 billion into–these 63 subactivities. Further,

• DOD moved about $4.3 billion out of and about $6.7 billion into 30

subactivities DOD considers directly related to readiness, and

• DOD moved about $3.2 billion out of six subactivities Congress considers

high-priority readiness-related (e.g., Army divisions, Navy ship depot

maintenance, Air Force primary combat forces), while moving $2.3 billion

into five others (e.g., Army base operations for land forces, Navy mission

and other flight operations, Marine Corps operational forces).

Again, our recent report presents more detailed data on each of these

subactivities.

The information DOD provides to Congress on the movement of funds

among O&M subactivities has improved, but additional improvements are

needed to enhance congressional oversight of these movements and to

ensure DOD can account for its use of O&M funds. Currently available

budget information is incomplete and does not provide adequate details of

where or why funds are moved. Our report discusses the following two

examples of how DOD could improve the visibility and accountability of

O&M fund movements.

• Congress has directed DOD to provide semiannual reports on transfers

from certain high-priority readiness-related subactivities within the

services’ Operating Forces budget activity.5Included in the reports are data

510 U.S.C. 483

DOD Consistently

Moved O&M Funds

Into and Out of

Certain Subactivities

Congress Has

Visibility Over Some

Movements of O&M

Funds
Page 8 GAO/T-NSIAD-00-98

on the funds moved into or out of these subactivities, as well as

explanations of the movements. However, the statutory requirement for

these reports will expire soon, and when it does, DOD does not plan to

continue providing these reports. DOD believes that the information is

redundant and is available in several other reports DOD provides to

Congress. We believe, however, that the high-priority readiness-related

transfer reports offer the most information available on why DOD moves

funds among selected subactivities. In view of the consistency with which

DOD has reported obligations that are different from initial congressional

designations for some readiness-related O&M subactivities, we noted in

our February 2000 report that Congress may wish to consider extending

the legislative requirement that DOD continue to provide the high-priority

readiness-related transfer reports.

• DOD does not have any formal guidance stating when it is appropriate to

make fact-of-life budget adjustments, which totaled over $1 billion in fiscal

year 1999 alone. We reported that little information was available to

Congress about these adjustments from fiscal year 1994 through 1998.

DOD’s financial management regulation does not define these adjustments

and provides no guidance on when it is appropriate to make them, who

should approve them, or how much funding can be moved. Without such

guidance, DOD and Congress cannot determine whether adjustments are

appropriate. We have recommended that in order to improve the

accountability of these fund movements, DOD should develop such

guidance in consultation with the House and Senate Committees on

Appropriations. DOD has agreed with our recommendation.

This concludes our formal statement. If you or other members of this

subcommittee have any questions, we will be pleased to answer them.

For future contacts regarding this statement, please contact Norman J.

Rabkin on (202) 512-5140. Individuals making key contributions to this

statement included Brenda Farrell and Laura Talbott.

Contacts and Staff

Acknowledgments
Page 9 GAO/T-NSIAD-00-98

Every year from fiscal year 1994 through 1998, DOD obligated a different

amount than Congress designated for the same 63 subactivities. Table 2

shows O&M subactivities and Defense-Wide agencies that consistently

obligated less funding than Congress initially designated. Table 3 shows

O&M subactivities and Defense-Wide agencies that consistently obligated

more funding than Congress initially designated.

Table 2: O&M Subactivities and Defense-Wide Agencies for Which DOD Consistently Obligated Less Funds Than

Congress Initially Designated, Fiscal Years 1994-98

Constant 1999 dollars in millions

O&M subactivity 5-year total

Congress’ initial

designationa

DOD’s

Obligation Difference

Percentage

difference

Army

Divisionsc,d $2,515.7 $1,935.8 $579.9 23.1

Claims 917.8 688.5 229.3 25.0

Corps combat forcesc,d 720.9 500.3 220.6 30.6

Servicewide communications 3,808.6 3,629.4 179.2 4.7

Land forces depot maintenancec,d 1,649.2 1,486.2 163.0 9.9

Echelon above corps forcesc,d 906.3 827.2 79.1 8.7

Civilian education and training 443.3 420.5 22.8 5.1

One station unit training 84.2 66.6 17.6 20.9

Subtotal $11,046.0 $9,554.5 $1,491.5

Navy

Ship depot maintenancec11,611.9 10,393.6 1,218.3 10.5

Weapons maintenanceb2,335.0 2,088.8 246.2 10.5

Air systems support 1,467.8 1,310.8 157.0 10.7

Flight training 1,630.5 1,509.4 121.1 7.4

Fleet ballistic missileb4,180.4 4,102.4 78.0 1.9

Cruise missileb568.0 529.0 39.0 6.9

Air operations and safety supportb 454.4 419.6 34.8 7.6

Space and electronic warfare systems 385.9 353.5 32.4 8.4

Coast Guard support 104.3 92.9 11.4 10.9

Electronic warfareb41.3 34.1 7.2 17.3

Junior reserve officer training corps 119.2 113.5 5.7 4.8

Fleet hospital program 95.0 92.4 2.6 2.7

Depot operations supportb6.3 5.7 0.6 10.0

Appendix I

O&M Subactivities and Agencies for Which

DOD Consistently Obligated Less or More

Funds Than Congress Initially Designated,

Fiscal Years 1994-98
Appendix I

O&M Subactivities and Agencies for Which

DOD Consistently Obligated Less or More

Funds Than Congress Initially Designated,

Fiscal Years 1994-98

Page 10 GAO/T-NSIAD-00-98

Constant 1999 dollars in millions

O&M subactivity 5-year total

Congress’ initial

designationa

DOD’s

Obligation Difference

Percentage

difference

Subtotal $23,000.0 $21,045.7 $1,954.3

Marine Corps

Base support for accession training 284.0 233.4 50.6 17.8

Maritime prepositioningb420.9 406.8 14.1 3.3

Base support for recruiting and other training and

education

43.6 30.0 13.6 31.1

Subtotal $748.5 $670.2 $78.3

Air Force

Primary combat forcesc13,448.3 12,459.9 988.4 7.3

Logistics operations 4,574.9 3,978.1 596.8 13.0

Space control systemsb1,874.2 1,551.8 322.4 17.2

Base support for other training 2,303.6 2,066.9 236.7 10.3

Global C3I and early warningb4,053.5 3,914.3 139.2 3.4

Launch vehiclesb 596.5 527.7 68.8 11.5

Satellite systemsb231.5 165.9 65.6 28.3

Arms control 168.9 131.5 37.4 22.2

Other personnel support 178.3 159.5 18.8 10.5

Subtotal $27,429.7 $24,955.6 $2,474.1

Defense-wide

On-Site Inspection Agencye464.5 352.7 111.8 24.1

Joint Chiefs of Staff 2,807.3 2,761.3 46.0 1.6

Defense Contract Audit Agency 1,754.7 1,733.5 21.2 1.2

Subtotal $5,026.5 $4,847.5 $179.0

Total $67,250.7 $61,073.5 $6,177.2 9.2

a

Initial congressional designations for each O&M subactivity as reported in DOD’s budget

estimates to Congress.

b

O&M subactivities located in the Operating Forces budget activity that DOD considers to

be most directly related to readiness.

c

O&M subactivities located in the Operating Forces budget activity that DOD considers to

be most directly related to readiness for which Congress also identified as high-priority

readiness-related for reporting fiscal year 1998 transfers.

d

Includes only fiscal year 1997 and 1998 because the Army restructured its Operating

Forces budget activity in fiscal year 1997 and did not maintain a link between the old and

the new budget structure. Four subactivities in the Army’s Operating Forces budget

activity in this table were affected by this change.
Appendix I

O&M Subactivities and Agencies for Which

DOD Consistently Obligated Less or More

Funds Than Congress Initially Designated,

Fiscal Years 1994-98

Page 11 GAO/T-NSIAD-00-98

e

On-Site Inspection Agency’s resources were transferred to the newly established

Defense Threat Reduction and Treaty Compliance Agency as of October 1, 1998.

Amounts may not total due to rounding.

Source: Our analysis, based on Defense O&M budget data.

Table 3: O&M Subactivities and Defense-Wide Agencies for Which DOD Consistently Obligated More Funds Than

Congress Initially Designated, Fiscal Years 1994-98

Constant 1999 dollars in millions

5-year total

O&M subactivity

Congress’ initial

designationa

DOD’s

obligation Difference

Percentage

difference

Army

Miscellaneous activitiesb,d $216.0 $3,140.5 $2,924.5 1353.7

Base operations support for land forces

readinessc,d

5,198.8 5,620.4 421.6 8.1

Logistic support activities 1,667.0 1,984.4 317.4 19.0

Land forces operations supportc,d 1,325.8 1,528.8 203.0 15.3

Unified commandsb,d 119.6 225.5 105.9 88.6

Other personnel support 890.3 995.6 105.3 11.8

Management and operational

headquartersb,d

291.7 384.2 92.5 31.7

Subtotal $9,709.2 $13,879.4 $4,170.2

Navy

Planning, engineering, and design 1,398.7 3,056.2 1,657.5 118.5

Mission and other flight operationsc10,187.7 11,063.1 875.4 8.6

Mission and other ship operationsc 10,302.7 10,958.9 656.2 6.4

Combat support forcesb1,748.8 2,146.9 398.1 22.8

Space systems and surveillanceb809.0 1,039.4 230.4 28.5

Acquisition and program management 2,239.0 2,370.7 131.7 5.9

Warfare tacticsb 728.6 806.4 77.8 10.7

International headquarters and agencies 38.8 45.7 6.9 17.6

Subtotal $27,453.3 $31,487.3 $4,034.0

Marine Corps

Operational forcesc1,810.8 1,944.5 133.7 7.4

Recruiting and advertising 347.5 374.8 27.3 7.9
Appendix I

O&M Subactivities and Agencies for Which

DOD Consistently Obligated Less or More

Funds Than Congress Initially Designated,

Fiscal Years 1994-98

Page 12 GAO/T-NSIAD-00-98

Constant 1999 dollars in millions

5-year total

O&M subactivity

Congress’ initial

designationa

DOD’s

obligation Difference

Percentage

difference

Recruit training 38.3 43.6 5.3 14.1

Subtotal $2,196.6 $2,362.9 $166.3

Air Force

Other servicewide activities 2,760.1 4,935.4 2,175.3 78.8

Base support for logistics operations 3,553.6 3,894.1 340.5 9.6

Management and operational

headquartersb

572.1 911.8 339.7 59.4

Other combat operations supportb1,159.6 1,417.4 257.8 22.2

Administration 543.7 757.0 213.3 39.3

Training support 324.0 400.1 76.1 23.5

Subtotal $8,913.1 $12,315.8 $3,402.7

Defense-wide

Classified and communications agenciese20,643.4 21,146.9 503.5 2.4

U.S. Special Operations Command 5,514.8 5,795.1 280.3 5.1

Defense Security Service 1,012.5 1,035.8 23.3 2.3

Subtotal $27,170.7 $27,977.8 $807.1

Total $75,442.9 $88,023.2 $12,580.3 16.7

a

Initial congressional designations for each O&M subactivity as reported in DOD’s budget

estimates to Congress.

b

O&M subactivities located in the Operating Forces budget activity that DOD considers to

be most directly related to readiness.

c

O&M subactivities located in the Operating Forces budget activity that DOD considers to

be most directly related to readiness for which Congress also identified as high-priority

readiness-related for reporting fiscal year 1998 transfers.

d

Includes only fiscal year 1997 and 1998 because the Army restructured its Operating

Forces budget activity in fiscal year 1997 and did not maintain a link between the old and

the new budget structure. Five subactivities in the Army’s Operating Forces budget activity

in this table were affected by this change.

e

Includes the classified and communications agencies, the Defense Information Systems

Agency, and the Defense Mapping Agency.

Amounts may not total due to rounding.

Source: Our analysis, based on Defense O&M budget data.

(702045)
Page 13 GAO/T-NSIAD-00-98

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