United States General Accounting Office

GAO Report to Congressional Committees

March 1996 DOD BULK FUEL

Services’ Fuel

Requirements Could

Be Reduced and Funds

Used for Other

Purposes

G O A

years

1921 - 1996

GAO/NSIAD-96-96

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-270986 

March 28, 1996

Congressional Committees

In our September 1995 report1

 on the military services’ fiscal year 1996

operation and maintenance budget requests, we identified overstated bulk

fuel requirements as an area where the Congress could reduce the

services’ budget requests. This report is being done under our basic

legislative authority. It updates our initial findings on bulk fuel and

identifies additional funds in the services’ bulk fuel budgets that exceed

requirements.

Background The Defense Fuel Supply Center (DFSC) has the primary responsibility for

providing the services with the fuel they need. DFSC purchases the fuel

from commercial sources and sells it to the services. Although DFSC is the

primary source, the services also buy a small amount of fuel direct from

commercial sources.2

The services determine their fuel requirements and budget requests based

on flying hours, steaming days, tank training miles, and base operations

needs. The services advise DFSC of their requirements so that DFSC can

determine the amount of fuel that it will need to satisfy the services’

operating requirements, provide for war reserves, and meet the needs of

its other defense customers.

Results in Brief For fiscal year 1996, the Army’s, the Navy’s, and the Air Force’s budget

requests for bulk fuel totaled $4.12 billion. Of this total, the three services

planned to buy $107 million, or 2.6 percent, from commercial sources.

Therefore, the amount of funds requested to buy fuel from DFSC was about

$4.01 billion.

Based on historical usage data adjusted for factors expected to occur in

fiscal year 1996, DFSC estimates that the services’ fuel purchases in fiscal

year 1996 will be about $3.57 billion, or about $440 million less than the

amount the services requested in their budgets. This estimate is lower than

our estimate when the services submitted their budget requests in

January 1995. At that time, we estimated that the services would purchase

1

1996 DOD Budget: Potential Reductions to Operation and Maintenance Program

(GAO/NSIAD-95-200BR, Sept. 26, 1995).

2

We are reviewing fuel purchases from commercial sources and will report on this matter separately.

Page 1 GAO/NSIAD-96-96 DOD Bulk Fuel
B-270986 

about $3.68 billion of fuel in fiscal year 1996 sales, or about $330 million

less than the amount requested.

Bulk Fuel

Requirements Are

Overstated

At the time the services submitted their fiscal year 1996 budget requests to

the Congress, the Army, the Navy, and the Air Force estimated their bulk

fuel needs from DFSC at 126.7 million barrels, costing about $4.01 billion. At

the same time, DFSC estimated that, based on historical usage data, the

services would require 116.5 million barrels of fuel, costing about

$3.68 billion. Based on usage data for fiscal year 1995 adjusted to reflect

known changes in fiscal year 1996, DFSC’s February 1996 estimate was that

the services would buy about 113.5 million barrels of fuel from DFSC at a

cost of about $3.57 billion. This difference represents about 13.2 million

barrels and $440 million less than what the services included in their

budget requests. Table 1 shows each of the services’ fuel requirements and

DFSC’s estimate of sales to the services in fiscal year 1996.

Table 1: Bulk Fuel Requirements in the

Fiscal Year 1996 Budget Request and

DFSC’s Estimate of Sales to the

Services Budget estimate DFSC estimated sales Difference

Numbers in millions

Service Barrels Dollars Barrels Dollars Barrels Dollars

Army 10.5 $316.9 7.5 $236.2 3.0 $80.7

Navy 46.5 1,461.2 39.3 1,236.6 7.2 224.6

Air Force 69.7 2,235.2 66.7 2,100.9 3.0 134.3

Total 126.7 $4,013.3 113.5 $3,573.7 13.2 $439.6

The Department of Defense (DOD) and service officials do not agree that

their bulk fuel budget requests are overstated. They pointed out that the

DFSC estimates are as of a point in time and that requirements change

constantly. They also said that reducing their fuel budget requests would

hamper their flexibility to meet other emerging requirements that were not

funded in the budget. We agree that the services’ fuel needs change

frequently as a result of changing requirements. However, the services’

own data show a trend that they do not use all of the funds budgeted for

fuel for that purpose. For example:

• For fiscal years 1991 through 1994, the Army’s average annual fuel usage

for training purposes was about 1.75 million barrels—about $55 million—

less than budgeted. DOD officials agree that the Army historically

overstates its training budget, and said that doing so allows the Army to

reprogram the funds to meet other readiness requirements.

Page 2 GAO/NSIAD-96-96 DOD Bulk Fuel
B-270986 

• The services return fuel to DFSC for credit.3 However, in determining their

annual fuel needs, the services do not give consideration to the returns,

only gross purchases. For fiscal year 1996, DFSC estimates that the Navy

and the Air Force will return about 6 million barrels for credit valued at

about $189 million. According to DOD officials, the fuel credits represent

funds that the services then use for other purposes.

In September 1995, we reported that the three services’ fuel budget

requests were overstated about $330 million based on their budget

requests of $4.01 billion, and estimated DFSC sales to the services of 

$3.68 billion. Based on the information provided in our September report,

the Congress reduced the Navy’s fuel budget request by $100 million but

did not adjust the other services’ fuel requests.

Matter for

Congressional

Consideration

Because the services’ bulk fuel budgets are still overstated about

$340 million ($440 million less the $100 million congressional reduction),

the Congress may want to rescind the $340 million and apply them to other

unfunded emerging requirements.

Agency Comments

and Our Evaluation

DOD did not concur with our suggestion that the Congress may want to

rescind $340 million of the fiscal year 1996 funding that was appropriated

for fuel purchases. DOD officials said that fuel is a major element of

logistics preparedness and is budgeted in accounts that are intended to be

flexible in order to respond to changing requirements. DOD also said that

our analysis was at a point in time and because requirements can change, a

decision to rescind the fuel funds could result in underfunding a major

component of readiness. To support their position, DOD said that the fuel

account has overexecuted4

 its budget in 2 of the last 4 years. It also said

that our estimate of fiscal year 1995 fuel usage, which was used in

determining the fiscal year 1996 requirement, was understated 5 million

barrels.

As stated in the report, we agree that our analysis of the fiscal year 1996

fuel requirements is a snapshot at a point in time. We also agree that

requirements do change. For example, we reviewed the fuel account in

May and June 1995 and we estimated that for fiscal year 1996, the services

would buy about 116.8 million barrels of fuel from DFSC at a cost of about

3

As ships and aircraft are readied for maintenance, the fuel tanks are emptied and the fuel is returned

to DFSC for credit.

4

As used in this report, overexecute means that the services used more fuel than what was asked for in

the budget request.

Page 3 GAO/NSIAD-96-96 DOD Bulk Fuel
B-270986 

$3.7 billion. In this report, we have revised the estimated buys from DFSC

for fiscal year 1996 downward to 113.5 million barrels at a cost of about

$3.6 billion.

The documentation provided by DOD to support its position that the fuel

budget was overexecuted in 2 of the past 4 years showed that the

overexecution was due to fuel used during contingency situations. The

fuel for contingencies are not included in DOD’s budget request but are

included in total fuel usage data. The amount of fuel used was then

compared to the amount of funds initially received from the Congress but

not the amount included in the supplemental appropriation. Therefore,

when usage is compared to the budget request, it appears that the budget

was overexecuted when, in fact, the fuel budget was underexecuted.

DOD’s comment that our estimate of fiscal year 1995 fuel usage was

understated 5 million barrels is incorrect. At the time of our analysis, at

the end of the third quarter of fiscal year 1995, we estimated fiscal 

year 1995 net fuel requirements5

 at 118 million barrels for the Air Force

and the Navy. Our estimate did not include contingency funds used to

purchase fuel. When contingency funds are included, the net requirement

increases to 121.7 million barrels as compared to actual DFSC sales of

122 million barrels for fiscal year 1995.

We continue to believe that budget requests should reflect the best

estimate of what is needed for the purpose for which the funds are being

requested. In those cases where the request is excessive to meet known

needs, the Congress may want to redirect the funds to other purposes

rather than allowing DOD to decide where to use the funds. A complete text

of DOD’s comments are in appendix I.

Scope and

Methodology

We obtained the latest available data from DFSC showing estimated fuel

sales to the Army, the Navy, and the Air Force and compared this data to

the amounts the services had asked for in their respective budget requests.

We then verified the planned usage data with service comptroller officials

responsible for developing the estimates. To ensure that the projected fuel

sales data were valid, we obtained actual fuel sales and usage data for

fiscal year 1995 from DFSC and held discussions with the service officials

responsible for monitoring fuel usage. Based on the records provided by

DFSC, we also confirmed that the services received credits for fuel returned

to DFSC.

5

Net fuel requirements are total gross requirements less fuel returned to DFSC for credit.

Page 4 GAO/NSIAD-96-96 DOD Bulk Fuel
B-270986 

We performed our review at DOD, DFSC, and the military services’

headquarters. In addition, we reviewed fuel consumption data at the Air

Force Air Combat Command, Langley Air Force Base, Virginia; and the

Navy’s Atlantic Command, Norfolk, Virginia.

We performed our review from October 1995 to January 1996 in

accordance with generally accepted government auditing standards.

We are sending copies of this report to the Secretaries of Defense, the

Army, the Navy, and the Air Force; the Director, Office of Management and

Budget; and other interested congressional committees. Copies will also

be made available to others upon request.

If you or your staff have any questions concerning this report, please call

me at (202) 512-5140. Major contributors to this report are listed in

appendix II.

Mark E. Gebicke

Director, Military Operations

 and Capabilities Issues

Page 5 GAO/NSIAD-96-96 DOD Bulk Fuel
B-270986 

List of Congressional Committees

The Honorable Ted Stevens

Chairman,

The Honorable Daniel K. Inouye

Ranking Minority Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable John McCain

Chairman,

The Honorable John Glenn

Ranking Minority Member

Subcommittee on Readiness

Committee on Armed Services

United States Senate

The Honorable John R. Kasich

Chairman,

The Honorable Martin Olav Sabo

Ranking Minority Member

Committee on the Budget

House of Representatives

The Honorable Herbert H. Bateman

Chairman,

The Honorable Norman Sisisky

Ranking Minority Member

Subcommittee on Military Readiness

Committee on National Security

House of Representatives

The Honorable C. W. Bill Young

Chairman,

The Honorable John P. Murtha

Ranking Minority Member

Subcommittee on National Security

Committee on Appropriations

House of Representatives

Page 6 GAO/NSIAD-96-96 DOD Bulk Fuel
Page 7 GAO/NSIAD-96-96 DOD Bulk Fuel
Contents

Letter 1

Appendix I 

Comments From the

Department of

Defense

10

Appendix II 

Major Contributors to

This Report

12

Table Table 1: Bulk Fuel Requirements in the Fiscal Year 1996 Budget

Request and DFSC’s Estimate of Sales to the Services

2

Abbreviations

DFSC Defense Fuel Supply Center

DOD Department of Defense

Page 8 GAO/NSIAD-96-96 DOD Bulk Fuel
Page 9 GAO/NSIAD-96-96 DOD Bulk Fuel
Appendix I 

Comments From the Department of Defense

Page 10 GAO/NSIAD-96-96 DOD Bulk Fuel
Appendix I 

Comments From the Department of Defense

Page 11 GAO/NSIAD-96-96 DOD Bulk Fuel
Appendix II 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Sharon A. Cekala

Robert J. Lane

Norfolk Regional

Office

Thomas A. Pantelides

Robert W. Wagner

Cora M. Bowman

(703121) Page 12 GAO/NSIAD-96-96 DOD Bulk Fuel
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