Report to the Subcommittee on 

Defense, Committee on Appropriations, 

U.S. Senate 

United States General Accounting Office 

GAO 

April 2003 DEFENSE BUDGET 

Tracking of 

Emergency Response 

Funds for the War on 

Terrorism 

GAO-03-346 
While DOD followed the Office of Management and Budget’s (OMB) 

guidance in managing the initial $15 billion in war on terrorism funds that 

were placed in the Defense Emergency Response Fund in fiscal years 2001 

and 2002, DOD provided its components with limited guidance on how to 

use these funds. DOD allocated the funds according to OMB’s 10 funding 

categories. However, DOD’s designations of allowable line items for each 

category were broad and, thus, could be interpreted in different ways. Also, 

while OMB directed that the funds were to be used for urgent and known 

needs, DOD did not define those needs further. Finally, DOD directed the 

components to use an internal financial management regulation for 

contingency funding to determine if costs were incremental or not; however, 

as we have reported previously, these regulations are insufficient for this 

purpose. In the absence of detailed guidance military officials sometimes 

had to use their best judgment in obligating emergency response funds. 

DOD’s ability to track the use of emergency response funds has varying 

limitations depending on the appropriation. For the fiscal years 2001 and 

2002 emergency response funds managed separately in the Defense 

Emergency Response Fund ($15 billion), DOD can report a breakdown 

of obligations by its 10 funding categories, but cannot correlate this 

information with its appropriation account structure. For emergency 

response funds provided in fiscal years 2002 and 2003 ($20.5 billion) that 

were transferred into or placed directly into DOD’s regular appropriations 

accounts, DOD cannot use its accounting system to track the use of these 

funds because they are commingled with those appropriated for other 

purposes. While DOD has an alternative process intended to track 

obligations for contingency operations related to the war on terrorism, it 

cannot identify the portion of obligations that are funded with emergency 

response funds. DOD acknowledged these limitations and, in December 

2002, began requiring additional reporting on the use of these funds. 

DOD partially concurred with this report, noting it clearly told components 

to use DOD’s financial regulation for guidance and also held meetings for 

clarification. DOD agreed funds were commingled, but noted it had a 

process to track incremental costs for the war on terrorism. 

DOD Emergency Response Funds (fiscal years 2001 through 2003) 

Dollars in billions 

Fiscal year Total Appropriation type 

2001/2002 $17.5 Emergency supplementals ($15 billion Defense Emergency 

Response Fund, $2.3 billion other accounts, and $0.2 billion 

rescinded) 

2002 13.4 Supplemental 

2003 7.1 Annual appropriation 

Total $38.0

Source: DOD. 

As of January 2003, Congress had 

provided a total of $38 billion to the 

Department of Defense (DOD) to 

cover emergency response costs 

related to the war on terrorism. 

Appropriated in different ways in 

fiscal years 2001, 2002, and 2003, 

these funds are meant to pay 

for expenses that DOD would 

not normally incur, such as 

contingency military operations 

and Pentagon building repairs. 

Because our prior work raised 

questions about DOD’s oversight 

of contingency fund spending, GAO 

was asked to review DOD’s 

management of emergency 

response funds, specifically: 

• DOD’s adherence to OMB 

guidance in managing funds 

and the sufficiency of DOD’s 

guidance on the use of these 

funds, and 

• DOD’s ability to track the use 

of emergency response funds 

in general. 

We limited our review of DOD’s 

guidance to the initial funds placed 

in the Defense Emergency 

Response Fund. We did not verify 

the accuracy of the data contained 

in DOD’s obligation reports or the 

appropriateness of individual 

expenditures. 

Because DOD is revising its 

guidance and compiling more data 

based on our prior work, we are 

not making a new 

recommendation. 

www.gao.gov/cgi-bin/getrpt?GAO-03-346.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Sharon Pickup 

at (202) 512-9619 or pickups@gao.gov. 

Highlights of GAO-03-346, a report to the 

Chairman and Ranking Minority Member, 

Subcommittee on Defense, Committee on 

Appropriations, U.S. Senate 

April 2003

DEFENSE BUDGET

Tracking of Emergency Response Funds 

for the War on Terrorism 
Page i GAO-03-346 Defense Budget 

Letter 1

Results in Brief 3

Background 5

DOD Provided Limited Internal Guidance on Use of Initial 

Emergency Response Funds 7

DOD’s Ability to Track the Use of Emergency Response Funds Has 

Varying Limitations 10

Agency Comments and Our Evaluation 13

Appendix I Scope and Methodology 16 

Appendix II Appropriation of Emergency Response Funds 

to DOD for Fiscal Years 2001, 2002, and 2003 18 

Appendix III OMB Guidelines and Criteria for Emergency 

Funding Requests Related to the Terrorist Attacks 

of September 11, 2001 21 

Appendix IV Comments from the Department of Defense 23 

Appendix V GAO Contacts and Staff Acknowledgments 25 

Tables 

Table 1: Status of Funds in the Defense Emergency Response Fund 

as of December 2002 8

Table 2: Transfer of Emergency Response Funds to DOD 

(fiscal years 2001 through 2003) 18

Figures 

Figure 1: Emergency Response Funding Categories and Sample 

Line Items 6

Contents 
Page ii GAO-03-346 Defense Budget 

Figure 2: Comparison Between Defense Emergency Response 

Funding Categories and DOD Appropriation Accounts 19

Figure 3: Congressional Designation of Fiscal Year 2002 

Emergency Response Funds for the Air Force 19

Figure 4: Congressional Designation of Fiscal Year 2003 

Emergency Response Funds for the Air Force 20

Abbreviations 

DOD Department of Defense 

OMB Office of Management and Budget 

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Page 1 GAO-03-346 Defense Budget 

April 30, 2003 

The Honorable Ted Stevens 

Chairman 

The Honorable Daniel K. Inouye 

Ranking Minority Member 

Subcommittee on Defense 

Committee on Appropriations 

United States Senate 

As of January 2003, Congress had provided a total of about $38 billion to 

fund the Department of Defense’s (DOD) efforts to recover from and 

respond to the September 11, 2001, terrorist attacks.1

 Following the 

attacks, Congress initially provided, and the President approved, about 

$17.5 billion in emergency response funds to DOD through two emergency 

supplemental appropriations in fiscal years 2001 and 2002. Because of the 

urgent circumstances, Congress sought an expeditious means to provide 

funds to DOD and, with the Office of Management and Budget (OMB), 

agreed that DOD could manage these initial funds in the Defense 

Emergency Response Fund—an existing account that is separate from 

DOD’s regular appropriations accounts.2

 Of the initial $17.5 billion, DOD 

received about $15 billion in the Defense Emergency Response Fund, 

$2.3 billion was provided to other accounts, and $0.2 billion was rescinded. 

Concerned about dual accounting, Congress provided the remaining 

$20.5 billion in two subsequent appropriations in fiscal year 2002 and 

fiscal year 2003 to DOD’s regular appropriation accounts either through 

transfers from the Defense Emergency Response Fund or directly.3

 Among 

other things, DOD is using emergency response funds to cover the cost of 

repairs to the Pentagon and contingency operations related to the global 

 1

 For purposes of this report, we refer to these funds as “emergency response” funds. 

2

 This fund was established in 1989 to fund DOD’s expenses for supplies and services 

provided in response to natural or manmade disasters or emergencies. DOD’s regular 

appropriations accounts include operation and maintenance; procurement; research, 

development, test and evaluation; and military personnel. 

3

 For the emergency supplementals of fiscal years 2001 and 2002, Congress specifically 

designated in statutes the use of appropriated funds for responses to the September 11, 

2001, attacks. For the two subsequent appropriations in fiscal years 2002 and 2003, 

Congress designated funds for responses to the attacks in conference report language 

rather than in the pertinent statutes. 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-346 Defense Budget 

war on terrorism. In general, applicable OMB and DOD guidance requires 

funds provided for the war on terrorism to be used for expenses that are 

emergency and incremental in nature—expenses that DOD would have 

otherwise not incurred. 

For the past several years, we have been reviewing cost and funding issues 

associated with overseas contingency operations. Among other things, we 

have reported about the need to strengthen DOD’s oversight of funds 

appropriated for contingency operations, including improving guidance to 

clarify incremental costs.4

 In March 2002, you requested that we continue 

this effort by examining DOD’s oversight of the Defense Emergency 

Response Fund and the cost of contingency operations in the Balkans and 

Southwest Asia. In June 2002, we briefed your staff on the preliminary 

results of this work. In September 2002, we reported on the costs 

associated with operations in the Balkans and Southwest Asia.5

 This report 

summarizes our observations on (1) the extent to which DOD had adhered 

to OMB’s guidance for managing funds provided separately for the 

Defense Emergency Response Fund (appropriated in the first two 

emergency supplemental appropriations), (2) the sufficiency of DOD’s 

guidance to its components on the use of these funds, and (3) its ability in 

general to track the use of emergency response funds. We are also 

providing information on DOD’s plans to expand its reporting on the use 

of emergency response funds. 

More recently, in February and April of 2003 appropriations, DOD received 

about $73 billion in additional funding for war on terrorism-related 

expenses. However, this review is limited to the $38 billion in funds 

provided under four previous appropriations. In performing our work, we 

did not verify the accuracy of the data contained in DOD obligation 

 4

 For example, see U.S. General Accounting Office, Defense Budget: Need to 

Strengthen Guidance and Oversight of Contingency Operations Costs, GAO-02-450

(Washington, D.C.: May 2002). 

5

 U.S. General Accounting Office, Defense Budget: Contingency Operations in the Balkans 

May Need Less Funding in Fiscal Year 2003, GAO-02-1073 (Washington, D.C.: Sept. 2002). 
Page 3 GAO-03-346 Defense Budget 

reports or the appropriateness of individual expenditures.6 For details on 

our scope and methodology, see appendix I. 

DOD adhered to OMB guidance in managing the allocation of the 

$15 billion in emergency response funds provided to the Defense 

Emergency Response Fund under fiscal years 2001 and 2002 emergency 

supplemental appropriations, but provided limited guidance to military 

components on the use of these funds. In accordance with OMB guidance, 

DOD allocated funds to its components in 10 funding categories and did 

not transfer these funds to its regular accounts. These funds were to be 

used for emergency and incremental needs. While DOD designated 

allowable line items for each funding category, these designations were 

broad and subject to interpretation. For example, DOD designated 

“mobilization of guard and reserves” as an allowable line item. 

Mobilization involves many factors such as special pay, transportation, 

and equipment; however, DOD did not specify which could be funded. 

Furthermore, OMB, among other things, directed that any requirement to 

be funded must reflect an urgent and known need. However, DOD did not 

establish any specific parameters to define the meaning of urgent and 

known. To determine incremental needs, components were to rely on 

DOD’s internal financial management regulation.7

 As we reported in May 

2002, this regulation does not provide sufficient guidance on the types of 

costs defined to be incremental. In the absence of detailed guidance, 

command officials were sometimes uncertain on whether expenses were 

allowable and often had to use their best judgment in obligating 

emergency response funds. Because DOD is in the process of improving its 

guidance based on recommendations from our prior work, we are not 

making a recommendation in this report. 

DOD’s ability to track the use of funds appropriated for the war on 

terrorism has varying limitations depending on the appropriation. For 

 6

 We note GAO has designated DOD’s financial management area as high risk due to 

long-standing deficiencies in DOD’s systems, processes, and internal controls. Among other 

things, these deficiencies affect DOD’s ability to ensure basic accountability and maintain 

control of funds. For example, DOD does not have the systems and processes in place to 

capture the required cost information from the hundreds of millions of transactions it 

processes each year. (See U.S. General Accounting Office, Major Management Challenges 

and Program Risks: Department of Defense, GAO-03-98 (Washington, D.C.: Jan. 2003.) 

7

 Department of Defense Financial Management Regulation, DOD 7000.14-R, vol. 12, 

chapter 23 on Contingency Operations, February 2001. 

Results in Brief 
Page 4 GAO-03-346 Defense Budget 

funds provided under the fiscal years 2001 and 2002 emergency 

supplemental appropriations that were managed separately in the Defense 

Emergency Response Fund ($15 billion), DOD is able to provide a 

breakdown of obligations for the 10 funding categories, but reporting 

proved to be cumbersome because the categories do not correlate with 

DOD’s regular appropriations accounting structure. For funds provided 

under the two subsequent DOD appropriations in fiscal years 2002 and 

2003 ($20.5 billion), DOD is not able to separately track the use of 

emergency response funds. As generally occurs with funds in any 

appropriation, these funds are commingled in DOD’s regular 

appropriations accounts with funds appropriated for other purposes. 

Because DOD’s accounting system only captures data on total obligations 

and does not distinguish sources of funds, DOD is not able to identify 

those obligations that are funded from emergency response funds. While 

DOD has an alternative process intended to track incremental costs 

(obligations) of contingency operations, including operations related to 

the war on terrorism, these operations are funded from multiple sources. 

Because of the aforementioned characteristics of its accounting system, 

DOD cannot identify the portion of contingency operations-related 

obligations funded with emergency response funds. 

During our review, DOD officials acknowledged the limitations in their 

ability to specifically track the use of emergency response funds and, in 

November 2002, established additional reporting requirements related 

to the use of emergency response funds. In general, components will 

continue to report obligations for funds provided under the first two 

emergency supplementals that were managed separately in the Defense 

Emergency Response Fund. DOD will also compile additional data on 

emergency response funds provided under the two subsequent 

appropriations, including a more detailed breakdown of incremental costs 

for contingency operations, obligations from supplemental funds, and 

obligations from funds borrowed from baseline programs to pay for 

expenses related to the war on terrorism. According to DOD officials, 

components will rely on parallel tracking systems at the command and 

unit level to compile this data. At this point, these officials believe it would 

be too costly and time-consuming to modify DOD’s accounting system to 

generate more detailed funding and obligation data. Rather, they 

emphasized the expanded reporting requirements will provide the 

management information that DOD needs to oversee the obligation of 

emergency response funds, justify needs for any additional funding, and 

provide transparency to Congress, OMB, and others. Because the 

components are still compiling data, we are not making a recommendation 
Page 5 GAO-03-346 Defense Budget 

in this report but will monitor DOD’s progress in compiling the additional 

data during our ongoing review of contingency operation costs. 

As of January 2003, Congress had provided about $38 billion, through a 

total of four appropriations, for DOD’s emergency response needs related 

to the war on terrorism. In September 2001 and December 2001, Congress 

enacted two emergency supplemental appropriations to quickly provide 

initial funds to meet the emergency needs of DOD and other federal 

agencies to recover from and respond to the September 11 terrorist 

attacks.8

 These supplementals, enacted in two separate fiscal years, fiscal 

year 2001 and fiscal year 2002, provided about $17.5 billion to DOD. Given 

the urgent circumstances, Congress sought an expeditious mechanism to 

transfer funds and, therefore, provided funds to DOD through the Defense 

Emergency Response Fund. This fund is a distinct account and DOD 

manages it separately from its regular appropriations accounts. Of the 

initial $17.5 billion, DOD received about $15 billion in the Defense 

Emergency Response Fund, $2.3 billion was provided to other accounts, 

and $0.2 billion was rescinded. 

Shortly after the September 11, 2001, attacks, OMB and DOD agreed on 

certain parameters for managing funds placed in the Defense Emergency 

Response Fund, including that funds would be obligated in 10 funding 

categories. OMB stipulated that DOD was to manage the allocation of 

funds within the 10 categories and could not transfer these funds to its 

regular appropriations accounts. Moreover, OMB used these categories in 

its reports to Congress on the expenditure of the funds. 

Based on DOD’s limited estimates regarding requirements for each 

category, OMB apportioned funds to the Defense Emergency Response 

Fund.9

 According to DOD officials, these estimates had to be prepared 

quickly, within days of the attacks, and reflected the best judgment of 

DOD’s needs at the time without knowing the exact nature of the U.S. 

response to the attacks. For each category, DOD also identified multiple 

 8

 2001 Emergency Supplemental Appropriations Act for Recovery from and Response to 

Terrorist Attacks on the United States, Pub. L. No. 107-38 (2001) and Department of 

Defense and Emergency Supplemental Appropriations for Recovery from and Response to 

Terrorist Attacks on the United States Act, 2002, Pub. L. No. 107-117 (2002). 

9

 Funds under the two initial supplemental appropriations were appropriated to a 

governmentwide emergency response fund and subsequently apportioned to DOD and 

other federal agencies. 

Background 
Page 6 GAO-03-346 Defense Budget 

line items for which expenses could be incurred. Figure 1 identifies the 

10 categories and identifies some of the line items that DOD established 

for one of the categories. 

Figure 1: Emergency Response Funding Categories and Sample Line Items 

The 10 categories do not correlate with DOD’s existing appropriation 

accounts (see app. II). However, the expenses related to a category 

would be similar to the types of expenses funded under several 

appropriation accounts. For example, DOD may incur operation and 

maintenance, and procurement expenses under the categories of improved 

command and control and enhanced force protection. Because the 

10 funding categories established by OMB and DOD did not correlate 

with DOD’s existing appropriation account structure, a dual system of 

accounting emerged, which some believed to be cumbersome for tracking 

purposes. Therefore, for subsequent appropriations—a second 

supplemental appropriation in fiscal years 2002 and DOD’s regular 

appropriation in fiscal year 200310—Congress changed its method of 

providing funds. Specifically, in these appropriations, DOD received about 

$20.5 billion in funds either through the Defense Emergency Response 

Fund (fiscal year 2002) to its regular appropriation accounts or directly to 

 10 2002 Supplemental Appropriations Act for Further Recovery From and Response to 

Terrorist Attacks on the United States, Pub. L. No. 107-206 (2002) and Department of 

Defense Appropriations Act, 2003, Pub. L. No. 107-248 (2002). 
Page 7 GAO-03-346 Defense Budget 

its appropriation accounts (fiscal year 2003).11 Appendix II provides 

additional details on these two appropriations. 

On September 14, 2001, OMB issued specific guidelines and criteria for 

federal departments and agencies to apply in identifying and evaluating 

requirements to be funded under the initial emergency supplemental 

appropriations. This guidance covered two areas—response and recovery, 

and preparedness and mitigation—and outlined 15 conditions to be met. 

Among other things, these conditions stipulated that requirements must be 

known, not speculative; urgent, not reasonably handled at a later time; and 

unable to be reasonably met through the use of existing agency funds. 

Appendix III lists OMB’s guidelines and criteria. 

Because expenses related to contingency operations could be funded with 

emergency response funds, DOD also relied on its existing financial 

management regulation for guidance. Specifically, volume 12, chapter 23 

of this regulation requires that costs incurred in support of contingency 

operations be limited to the incremental costs of the operation—costs that 

are above and beyond the baseline costs for training, operations, and 

personnel. The regulation further states that incremental costs are 

additional costs that would not have been incurred had the contingency 

operation not been supported. 

DOD adhered to OMB guidance in managing the allocation of $15 billion in 

initial emergency response funds placed in the Defense Emergency 

Response Fund after the September 11th attacks. While DOD instructed its 

components to follow OMB guidelines and internal DOD guidelines and 

financial regulations in obligating emergency response funds, it did not 

provide specific internal guidance to assist the components in determining 

allowable expenses. As a result, command officials were sometimes 

uncertain on the appropriateness of expenses and often had to rely on 

their best judgment in obligating these funds. 

 11 Of the $20.5 billion, $11.3 billion was provided to the Defense Emergency Response Fund 

and subsequently most has been transferred as needed to DOD’s regular appropriation 

accounts. The remainder was appropriated directly to appropriation accounts. The fiscal 

year 2003 Appropriations Act provided DOD’s regular appropriation and did not specifically 

identify emergency response funds. Rather, the related conference report, H.R. 107-732, 

shows how Congress designated funds to be used for emergency response including dollar 

amounts and specific purposes within DOD’s regular appropriation account. 

DOD Provided 

Limited Internal 

Guidance on Use of 

Initial Emergency 

Response Funds 
Page 8 GAO-03-346 Defense Budget 

In accordance with OMB guidance, DOD reported on its allocation of 

funds to its components in 10 funding categories and did not transfer these 

funds into its regular appropriation accounts. As of December 2002, DOD 

reported it had obligated about $14 billion of the $15 billion provided in 

the emergency supplementals of fiscal years 2001 and 2002 (see table 1). 

Table 1: Status of Funds in the Defense Emergency Response Fund as of 

December 2002 

Dollars in billions 

Funding category Allocation Obligated Unobligated

Increased Situational Awareness $3.531 $3.301 $0.230

Enhanced Force Protection 1.349 1.310 0.039

Improved Command and Control 1.391 1.351 0.040

Increased Worldwide Posture 4.894 4.836 0.058

Offensive Counterterrorism 1.821 1.741 0.080

Procurementa

0 0 0

Initial Crisis Response 0.489 0.460 0.029

Pentagon Repairs/Upgrades 0.563 0.563 0

Other Requirements 0.216 0.191 0.025

Airport Security 0.225 0.217 0.007

Unallocated 0.526 0 0.526

Totalb

$15.006 $13.970 $1.036

Source: DOD reported data as of December 31, 2002. 

a

Although funding was not allocated to the Procurement category, procurements were funded under 

other categories. 

b

Figures may not add due to rounding. 

The data shown in table 1 are based on monthly obligation reports from 

DOD’s defense financial accounting system database. These funds do not 

expire and, therefore, are available until used. We did not verify the 

accuracy or completeness of this data. 

As table 1 shows, as of December 31, 2002, DOD reported data shows over 

$1 billion of the funds in the Defense Emergency Response Fund remains 

unobligated. Over half of that amount, $526 million, had not been allocated 

to the 10 funding categories. According to DOD officials, in March 2003, 

DOD plans to review the status of the unobligated funds and validate 

whether requirements for the funds continue to exist. 

DOD Adhered to 

OMB Guidance 

Managing Emergency 

Response Funds 
Page 9 GAO-03-346 Defense Budget 

For each of the 10 funding categories established by OMB and DOD, 

DOD identified line items that could be funded under the 10 categories. 

However, these line items were broad in nature and DOD did not identify 

the specific types of expenses that could be funded within each line item. 

In addition, OMB, among other things, directed that any requirement to be 

funded must reflect an urgent and known need. However, DOD did not 

establish any specific parameters to define the meaning of urgent and 

known. Also, in the event that funds in the Defense Emergency Response 

Fund would be needed to meet the requirements of contingency 

operations, DOD stipulated that funds would be used to cover the 

incremental costs of contingency operations. DOD directed components to 

use its existing financial management regulation in reporting incremental 

costs, but it did not offer any further guidance as to how commands were 

to distinguish incremental from baseline costs. In May 2002, we reported 

that DOD’s financial management regulation did not provide sufficient 

information on what types of costs met DOD’s definition of incremental 

costs, which resulted in various interpretations among the services—and 

even among units within a service—as to appropriate and proper 

expenditures.12 As a result, we recommended that DOD expand its 

financial management regulation to include more comprehensive 

guidance governing the use of contingency funds. DOD agreed with our 

recommendation and, as of April 2003, is still working on revisions to its 

guidance. Because DOD is in the process of improving its guidance based 

on recommendations from our prior work, we are not making a new 

recommendation in this report. 

In the absence of detailed guidance, command officials often had to 

use their best judgment in deciding how to spend the defense emergency 

response funds, and we found the same type of uncertainty among 

commands as we reported in May 2002. For example, command officials 

told us that determining what could be purchased from each category 

and line item was often difficult because the categories and line items 

were broad and generally differed from DOD’s regular appropriation 

accounts. For example, DOD designated mobilization of guard and 

reserves as an allowable line item for the category of increased worldwide 

posture. Mobilization involves many factors, such as special pay, 

transportation, and equipment, but DOD did not specify which could be 

appropriately funded. 

 12 GAO-02-450. 

DOD Provided Limited 

Internal Guidance 

for Specific Use of Funds 
Page 10 GAO-03-346 Defense Budget 

We also found differing interpretations existed as to whether requirements 

were urgent or known. Some commands used emergency response funds 

on items that could not be delivered in a reasonable time frame to be 

considered urgent. For example, one command purchased a RC-135 

Rivet Joint aircraft for intelligence, communications, and reconnaissance. 

Typically, this aircraft would not be fielded for 8 years because it needed 

multiple contractors to install and test its integrated electronics suite. 

In another example, one command, before it knew its specific role in 

supporting the war on terrorism, obligated $52 million for spare parts 

based on an analysis of prior usage. By contrast, another command was 

reluctant to obligate funds until its specific role had been determined. 

Moreover, in some cases, command officials were unclear about how 

to determine the incremental costs to their regular appropriations. 

For example, commands used emergency response funds to pay for 

accelerated ship maintenance that was already planned for future budgets 

and to purchase computer and communication upgrades that were 

previously unfunded from the regular appropriation. 

DOD officials told us that they had to quickly develop funding 

requirements after the terrorists attacks and used OMB guidance and 

available DOD instructions to instruct their components on how the funds 

could be used. The officials said that obligating funds in 10 categories and 

related line items that were not directly related to their appropriation 

accounts was confusing. In recognizing the lack of detailed guidance, DOD 

officials also told us that they maintained constant communication among 

all levels of DOD, especially at the command and unit levels, in order to 

review and clarify the use of emergency response funds. Furthermore, the 

officials said that they believe most of the funds were obligated for 

appropriate purposes. 

DOD’s ability to track funds appropriated for the war on terrorism has 

varying limitations depending on the appropriation. For funds provided 

under the two emergency supplemental appropriations of fiscal years 2001 

and 2002 and managed out of the Defense Emergency Response Fund, 

DOD is able to report a breakdown of obligations by the 10 categories, 

but found that tracking these obligations was cumbersome because the 

categories do not correlate with its regular appropriations account 

structure. For the two subsequent appropriations in fiscal year 2002 and 

2003, DOD cannot separately identify obligations funded with emergency 

response funds because these funds are commingled with funds 

appropriated for other purposes, and DOD’s accounting system does not 

distinguish among obligations. For example, in its fiscal year 2003 

DOD’s Ability to Track 

the Use of Emergency 

Response Funds Has 

Varying Limitations 
Page 11 GAO-03-346 Defense Budget 

appropriation, Congress appropriated about $3.7 billion for the Air Force’s 

operation and maintenance subactivity group related to primary combat 

forces, including about $389 million in emergency response funds for 

expenses related to the war on terrorism, and about $3.3 billion for 

expenses not related to the war on terrorism. All of these funds were 

commingled in the Air Force’s operation and maintenance account. Within 

DOD’s accounting system, DOD records obligations, but does not identify 

the source of funds. Therefore, at any given time, DOD is only able to 

track and report total obligations for operation and maintenance purposes 

and cannot separately identify obligations funded from emergency 

response funds. 

DOD officials agreed that DOD’s accounting system does not separately 

track obligations funded with emergency response funds, but they 

emphasized that DOD has established procedures intended to track 

obligations for contingency operations, including operations associated 

with the war on terrorism such as in Afghanistan. Under DOD’s financial 

management regulation, DOD components are required to track and report 

the incremental costs (obligations) for each contingency operation. DOD 

established a special code for each operation, and components track 

obligations in a management tracking system separate from DOD’s 

accounting system. The components report the total obligations for each 

contingency operation according to four specific cost categories: 

personnel, personnel support, operating support, and transportation—and 

by appropriation account. This information is reported monthly and is 

provided to Congress. However, the contingency cost categories do not 

correlate with DOD’s appropriation accounting structure. Also, funding 

for contingency operations comes from both special funding sources 

such as emergency response funds, as well as, the regular peacetime 

appropriations given to components. Because DOD’s accounting system 

does not separately track obligations by funding source, DOD’s reporting 

does not identify the portion of contingency operations-related obligations 

funded with emergency response funds. 

During our review, DOD acknowledged the limitations of its ability to 

track the war on terrorism obligations and acknowledged the continued 

interest of Congress, OMB, GAO, and other organizations regarding the 

use of the funds. Starting in December 2002, DOD expanded its reporting 

on obligations associated with the war on terrorism and contingency 

operations. Specifically, in addition to continuing the separate tracking 

of fiscal year 2001 and fiscal year 2002 emergency supplemental funds 

contained in the Defense Emergency Response Fund, components are 

DOD Sets Up 

Additional Reporting 

Requirements Intended 

to Improve Tracking 
Page 12 GAO-03-346 Defense Budget 

now required to report more detailed data on obligations associated 

with the two subsequent appropriations in fiscal year 2002 and 2003. 

The additional reporting requirements are as follows: 

• For the fiscal year 2002 supplemental, components are, on a monthly 

basis, to describe the purpose of the obligation, provide the amount, and 

identify the appropriation account. 

• For the fiscal year 2003 appropriation, components are, on a monthly 

basis, to identify which funds they are obligating from their peacetime 

budget to directly support the global war on terrorism, i.e., components 

are using their baseline budget for the war on terrorism obligations. 

The report is to describe the purpose of the obligation and the amount 

and identify what activities were not being accomplished and the 

appropriation account affected. This is referred to as “cash flowing.” 

Furthermore, components are to start compiling and reporting on four 

additional cost categories for contingency operations: reconstitution of 

forces and capability, recapitalization, classified programs, and working 

capital fund. DOD officials stated the data are compiled from individual 

command and unit management tracking systems, which are not linked 

with DOD’s accounting system, referred to as parallel tracking. 

According to DOD officials, the additional reporting is expected to provide 

the management information that DOD needs to better manage and 

oversee the war on terrorism obligations and that Congress and others 

need to exercise oversight responsibilities. Officials believe that requiring 

components to provide additional data on obligations is preferable to 

modifying the accounting system to distinguish war on terrorism-related 

obligations from other obligations. Officials told us that modifying the 

accounting system would be too costly, time consuming, and the effort 

would not justify the value added at this time. Also, officials point out that 

the additional work involved and learning curve associated with a 

modified accounting system would pose problems because of the 

complexity involved with additional reporting, the time involved with 

obtaining staff competency, and the need to retrain staff due to assignment 

rotations. As of February 2003, components were still compiling data; 

therefore, we are not making a recommendation in this report, but will 

continue to review DOD’s expanded reporting efforts in our ongoing 

review of contingency operations costs. 
Page 13 GAO-03-346 Defense Budget 

In written comments on a draft of this report, DOD partially concurred 

with the report (see app. IV). Specifically, DOD disagreed that guidance 

provided to components on how to use emergency response funds was 

not sufficient. DOD stated that components were clearly instructed to 

treat expenses as incremental costs as defined in DOD’s financial 

management regulation and that subsequent meetings were held to clarify 

this guidance. DOD also noted that, because the category structure used 

for emergency response funds was unique, some confusion existed among 

the components. DOD stated that the confusion dissipated as the 

components became more familiar with the structure. 

In our report, we recognized that DOD directed components to rely on the 

financial regulation, as well as other guidelines, and acknowledged DOD’s 

view that it maintained constant communication to review and clarify the 

use of emergency response funds. However, in our May 2002 report, we 

noted that the financial regulation does not provide sufficient guidance on 

the types of costs that are defined as incremental, which resulted in 

various interpretations among the services. DOD agreed with the 

recommendation made in that report that the regulation be expanded to 

include more comprehensive guidance. During our work conducted for 

this report, we found that command officials were sometimes uncertain 

about whether certain expenses were allowable, including how to 

determine incremental costs, and sometimes had to use their best 

judgment in obligating emergency response funds. We continue to believe 

that more comprehensive guidance is warranted. Because DOD is still 

revising the guidance based on prior GAO work, we are not making a new 

recommendation in this report. 

While DOD stated our report correctly said that DOD cannot correlate the 

funding categories for emergency response funds with its appropriation 

accounts, it believed we were only partially accurate in stating that DOD 

is unable to track all emergency response funds in its accounting system. 

DOD noted that it had implemented a process to track incremental costs 

related to the war on terrorism and, in particular, the Defense Finance 

Accounting Service collects cost information on contingencies from 

components. DOD also noted that it is implementing procedures to 

capture the incremental costs of Operation Iraqi Freedom. Our report 

specifically recognizes DOD has established procedures intended to track 

incremental costs for contingency operations including operations 

associated with the war on terrorism, and that the components report this 

type of information. However, we note that this information is compiled in 

a management tracking system separate from DOD’s accounting system. 

Furthermore, funding for contingency operations comes from both special 

Agency Comments 

and Our Evaluation 
Page 14 GAO-03-346 Defense Budget 

funding sources such as emergency response funds, as well as regular 

peacetime appropriations. Because DOD’s accounting system does not 

separately track obligations by funding source, DOD’s reporting does not 

identify the portion of contingency-operations related obligations funded 

with emergency response funds. 

Further, DOD partially agreed that its accounting system cannot report 

on the $20.5 billion in emergency response funds provided for the war on 

terrorism in fiscal years 2002 and 2003. DOD noted that it received only 

$13.5 billion and that, except for $305 million appropriated for Pentagon 

repairs, these funds went directly to component accounts and their 

execution is captured in accounting reports. DOD noted that components 

report separately on obligations of these funds. In subsequent discussions, 

a DOD comptroller official confirmed the accuracy of our calculation that 

DOD had received a total of $20.5 billion. As discussed previously, our 

report recognizes that components report separately on obligations 

related contingency operations, but that these reports do not distinguish 

the portion of contingency operations-related operations funded with 

emergency response funds. 

Unless you publicly announce its contents earlier, we plan no further 

distribution of this report until 30 days from the date of this letter. At that 

time, we will send copies of this report to interested congressional 

committees with jurisdiction over DOD’s budget. 

Also at that time, we will send copies of this report to the Secretary 

of Defense; the DOD Comptroller; the Secretaries of the Army, the Navy, 

and the Air Force; the Director of the Defense Finance and Accounting 

Service; the Director of the OMB, and others upon request. In addition, 

the report will be available at no charge on the GAO Web site at 

http://www.gao.gov/. 
Page 15 GAO-03-346 Defense Budget 

If you have any questions regarding this report, please contact me at 

(202) 512-9619 or pickups@gao.gov, or Gary Billen, Assistant Director, 

at (214) 777-5703 or billeng@gao.gov. Major contributors to this report are 

acknowledged in appendix V. 

Sharon L. Pickup 

Director, Defense Capabilities and Management 
Appendix I: Scope and Methodology 

Page 16 GAO-03-346 Defense Budget 

To determine the extent that the Department of Defense (DOD) adhered 

to the Office of Management and Budgets (OMB) guidance for managing 

funds provided separately for the Defense Emergency Response Fund 

(appropriated in the first two emergency supplemental appropriations) 

and the sufficiency of DOD’s guidance to its components on the use of 

these funds, we reviewed the guidance provided by OMB to federal 

government departments and agencies and the guidance provided by 

DOD to its defense components for justifying their obligations funded 

through the emergency supplementals of fiscal years 2001 and 2002. We 

interviewed knowledgeable DOD officials responsible for implementing 

this guidance, obtained DOD reports of emergency response fund 

allocations to DOD component commands, and used these reports to 

select sites for our subsequent visits. At DOD’s component commands, 

we interviewed officials and obtained reports or examples of obligations 

(purchases). We compared selected examples of obligations to OMB and 

DOD guidance. We also relied on prior GAO work regarding DOD’s 

guidance and reporting for contingency operations. 

To assess DOD’s ability to track the use of emergency funds provided to 

DOD in the emergency supplementals of fiscal years 2001 and 2002, the 

supplemental for fiscal year 2002, and the DOD appropriation for fiscal 

year 2003, we analyzed relevant DOD financial documents, including the 

Office of the Secretary of Defense monthly reports allocating the funds to 

services and commands and the Defense Finance and Accounting Service 

monthly obligation reports and accounting manuals. We did not verify the 

accuracy and completeness of this data. We also reviewed budget and 

accounting procedures and documents and interviewed knowledgeable 

DOD officials. 

We performed our work at the Office of the Secretary of Defense; the 

Office of the Comptroller; the headquarters of the Army, the Army 

Reserve, the Army National Guard, the National Guard, the Navy, and 

the Air Force; and the following commands and centers: 

• Transportation Command, Scott Air Force Base, Ill. 

• Army Forces Command, Fort McPherson, Ga. 

• Army Central Forces Command, Fort McPherson, Ga. 

• Air Force Aeronautical Services Center, Wright-Patterson 

Air Force Base, Ohio 

• Air Force Air Armament Center, Eglin Air Force Base, Fla. 

• Air Force Air Combat Command, Langley Air Force Base, Va. 

• Navy Atlantic Fleet Command, Norfolk Naval Base, Va. 

• Army Tank-Automotive and Armaments Command, Warren, Mich. 

Appendix I: Scope and Methodology 
Appendix I: Scope and Methodology 

Page 17 GAO-03-346 Defense Budget 

• Army Materiel Command, Alexandria, Va. 

• Air Force Materiel Command, Wright-Patterson Air Force Base, Ohio 

• Air Mobility Command, Scott Air Force Base, Ill. 

• Special Operations Command, MacDill Air Force Base, Tampa, Fla. 

• Pacific Command, Pearl Harbor, Hawaii 

• Air Force Special Operations Command, Hurlburt Field, Fla. 

• Army Special Operations Command, Fort Bragg, N.C. 

We performed our review between March 2002 and February 2003 in 

accordance with generally accepted government auditing standards. 
Appendix II: Appropriation of Emergency 

Response Funds to DOD for Fiscal Years 2001, 

2002, and 2003 

Page 18 GAO-03-346 Defense Budget 

As of January 2003, Congress appropriated a total of about $38 billion in 

fiscal years 2001, 2002, and 2003 to fund DOD’s expenses related to the 

war on terrorism. As table 2 shows, Congress provided these emergency 

response funds in four appropriations—two emergency supplementals 

(fiscal years 2001 and 2002), a fiscal year 2002 supplemental, and the fiscal 

year 2003 Defense appropriation—and used different methods to transfer 

funds to DOD. 

Table 2: Transfer of Emergency Response Funds to DOD (fiscal years 2001 through 2003) 

Dollars in billions 

Fiscal year Amount Appropriation type Method of funds transfer 

2001/2002 $17.5 Emergency supplementalsa Funds appropriated to a governmentwide emergency response fund and 

then apportioned by OMB. DOD’s funds were primarily apportioned to 

the Defense Emergency Response Fund.b

2002 13.4 Supplementalc Funds primarily appropriated to the Defense Emergency Response Fund 

and subsequently transferred, as needed, to DOD’s regular 

appropriation accounts.d

2003 $7.1 Regular appropriatione Funds appropriated directly to DOD’s regular appropriation accounts. 

Source: DOD. 

a

2001 Emergency Supplemental Appropriations Act for Recovery From and Response to Terrorist 

Attacks on the United States, Pub. L. No. 107-38 (2001), and Department of Defense and Emergency 

Supplemental Appropriations for Recovery from and Response to Terrorist Attacks on the United 

States Act, 2002, Pub. L. No. 107-117 (2002). 

b

Of this amount, DOD was apportioned $15 billion that was placed into the Defense Emergency 

Response Fund. The remainder was transferred to other DOD appropriations accounts or rescinded. 

c

2002 Supplemental Appropriations Act for Further Recovery From and Response to Terrorist Attacks 

on the United States, Pub. L. No. 107-206 (2002). 

d

Of the $13.4 billion, DOD received $11.9 billion for the Defense Emergency Response Fund but only 

$11.3 billion was placed into the fund. The remainder of $2.1 billion was appropriated to other DOD 

appropriation accounts. 

e

Department of Defense Appropriation Act, 2003, Pub. L. No. 107-248 (2002). 

Congress appropriated about $17.5 billion to fund DOD’s emergency 

needs in the aftermath of the September 2001 terrorist attacks during 

fiscal years 2001 and 2002. Of this amount, about $15 billion was 

eventually transferred to DOD’s Defense Emergency Response Fund. 

OMB, in conjunction with DOD, identified 10 broad funding categories to 

govern the use of these funds. While funds in the Defense Emergency 

Response Fund were obligated for similar types of requirements funded 

under several of DOD’s regular appropriations account, such as for 

operation and maintenance and military personnel expenses, the 10 

categories do not directly correlate with DOD’s existing appropriation 

account structure. Figure 2 lists the Defense Emergency Response funding 

Appendix II: Appropriation of Emergency 

Response Funds to DOD for Fiscal Years 

2001, 2002, and 2003 

Fiscal Years 2001 and 2002 
Appendix II: Appropriation of Emergency 

Response Funds to DOD for Fiscal Years 2001, 

2002, and 2003 

Page 19 GAO-03-346 Defense Budget 

categories and provides examples of DOD’s regular 

appropriation accounts. 

Figure 2: Comparison Between Defense Emergency Response Funding Categories 

and DOD Appropriation Accounts 

In an emergency supplemental appropriation for fiscal year 2002, 

Congress appropriated $13.4 billion in emergency response funds, of 

which $11.3 billion was placed in the Defense Emergency Response 

Fund for subsequent transfer to DOD’s regular appropriation accounts. 

Furthermore, Congress designated the distribution of these funds by 

DOD component, appropriation account, and purpose. Figure 3 provides 

an example of how Congress designated the use of fiscal year 2002 

emergency response funds for the Air Force. 

Figure 3: Congressional Designation of Fiscal Year 2002 Emergency Response 

Funds for the Air Force 

Fiscal Year 2002 
Appendix II: Appropriation of Emergency 

Response Funds to DOD for Fiscal Years 2001, 

2002, and 2003 

Page 20 GAO-03-346 Defense Budget 

In fiscal year 2003, Congress appropriated $7.1 billion in emergency 

response funds to DOD as part of DOD’s regular appropriation, and these 

funds were appropriated directly to DOD’s regular appropriation accounts. 

In contrast to the fiscal year 2002 emergency supplemental, Congress 

provided more detail in designating the distribution of fiscal year 2003 

emergency response funds. In the conference report accompanying the 

fiscal year 2003 appropriation act, Congress designated specific funding 

levels by appropriation account, DOD component, budget activity, and 

subactivity group. Figure 4 provides an example of how Congress 

designated funding for the Air Force. 

Figure 4: Congressional Designation of Fiscal Year 2003 Emergency Response 

Funds for the Air Force 

a

DERF refers to the Defense Emergency Response Fund. 

Fiscal Year 2003 
Appendix III: OMB Guidelines and Criteria 

for Emergency Funding Requests Related to 

the Terrorist Attacks of September 11, 2001 

Page 21 GAO-03-346 Defense Budget 

In a September 14, 2001, memorandum, OMB provided the heads of 

federal departments and agencies with the following guidelines and 

criteria for requesting emergency funding related to the terrorist attacks 

of September 11, 2001. 

(1) The damage to be repaired must have been directly caused by the 

terrorist acts. 

(2) The absence of funding, and consequently a delay in damage repair, 

protection or other activities, would result in significant economic 

loss/hardship, attack risk or human endangerment/suffering, 

including the cost of enhanced security and relocation of employees 

to secure sites. 

(3) Any action ordered by the President to respond to the national 

security consequences of the events of September 11, 2001. 

(4) The requirement is known, i.e., not a speculative need. 

(5) The requirement is urgent, i.e., could not reasonably be handled at a 

later time. 

(6) The activity to be performed is an appropriate federal role and 

reflects an appropriate sharing of responsibility among state, local, 

private, and federal entities. 

(7) The level of funding is limited to the amount necessary to restore the 

entity/facility to current standards and requirements (e.g., damage to 

a 1950s building would be repaired using current building codes and 

standards and guidelines for counter-terrorism defense). 

(8) The requirement is not competitive with or duplicative of activities of 

other agencies with statutorily mandated disaster assistance 

programs such as Small Business Administration and Federal 

Emergency Management Agency. 

(9) The requirement cannot reasonably be met through the use of 

existing agency funds, e.g., through reprogramming actions or the use 

of other emergency funds. 

Appendix III: OMB Guidelines and Criteria 

for Emergency Funding Requests Related to 

the Terrorist Attacks of September 11, 2001 

Response and 

Recovery 
Appendix III: OMB Guidelines and Criteria 

for Emergency Funding Requests Related to 

the Terrorist Attacks of September 11, 2001 

Page 22 GAO-03-346 Defense Budget 

(10) Funds should address specific deficiencies, encountered or identified 

to prevent events such as those that occurred on September 11, 2001, 

and may include expenditures for: law enforcement and investigative 

activities; general preparation and response (planning, training, 

equipment, and personnel); physical protection of government 

facilities and employees; physical protection of the national populace 

and infrastructure; and governmental awareness of potential threats. 

(11) Funds can be used to enhance U.S. abilities to interdict 

terrorist threats. 

(12) The activity to be performed is an appropriate federal role and 

reflects an appropriate sharing of responsibility among state, local, 

private, and federal entities. 

(13) The requirement is urgent, i.e., could not reasonably be handled at a 

later time. 

(14) Activities are not competitive with or duplicative of activities of other 

agencies with statutorily mandated preparation programs such as 

DOD and Federal Emergency Management Agency. 

(15) The requirement cannot reasonably be met through the use of 

existing agency funds, e.g., through reprogramming actions or the use 

of other emergency funds. 

Preparedness and 

Mitigation 
Appendix IV: Comments from the Department 

of Defense 

Page 23 GAO-03-346 Defense Budget 

Appendix IV: Comments from the 

Department of Defense 
Appendix IV: Comments from the Department 

of Defense 

Page 24 GAO-03-346 Defense Budget 
Appendix V: GAO Contacts and Staff 

Acknowledgments 

Page 25 GAO-03-346 Defense Budget 

Sharon Pickup (202) 512-9619 

Gary Billen (214) 777-5703 

In addition to the names above, the following individuals made significant 

contributions to this report: Nancy Benco; Bruce Brown; George Duncan; 

Harry Jobes; Tom Mahalek; Charles Patton, Jr.; Kenneth Patton; and James 

Reid. 

Appendix V: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts 

Staff 

Acknowledgments 

(350254) 
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