Combating Terrorism: Increased Oversight and Accountability Needed over Pakistan Reimbursement Claims for Coalition Support Funds
Published: 2008-06-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The United States has reimbursed Pakistan, a key ally in the global war on terror, about $5.56 billion in Coalition Support Funds (CSF) for its efforts to combat terrorism along its border with Afghanistan. The Department of Defense (Defense) provides CSF to 27 coalition partners for costs incurred in direct support of U.S. military operations. Pakistan is the largest recipient of CSF, receiving 81 percent of CSF reimbursements as of May 2008. This report focuses on (1) the extent to which Defense has consistently applied its guidance to validate the reimbursements claimed by Pakistan and (2) how the Office of the Defense Representative to Pakistan's (ODRP) role has changed over time. To address these objectives, GAO reviewed CSF oversight procedures, examined CSF documents, and interviewed Defense officials in Washington, D.C., U.S. Central Command in Florida, and Pakistan.
section_title: What GAO Found
paragraphs: Defense Comptroller issued new guidance in 2003 to enhance CSF oversight. The guidance calls for, among other things, CSF reimbursement claims to contain quantifiable information that indicates the incremental nature of support (i.e., above and beyond normal operations), validation that the support or service was provided, and copies of invoices or documentation supporting how the costs were calculated. While Defense generally conducted macro-level analytical reviews called for in its guidance, such as determining whether the cost is less than that which would be incurred by the United States for the same service, for a large number of reimbursement claims Defense did not obtain detailed documentation to verify that claimed costs were valid, actually incurred, or correctly calculated. GAO found that Defense did not consistently apply its existing CSF oversight guidance. For example, as of May 2008, Defense paid over $2 billion in Pakistani reimbursement claims for military activities covering January 2004 through June 2007 without obtaining sufficient information that would enable a third party to recalculate these costs. Furthermore, Defense may have reimbursed costs that (1) were not incremental, (2) were not based on actual activity, or (3) were potentially duplicative. GAO also found that additional oversight controls were needed. For example, there is no guidance for Defense to verify currency conversion rates used by Pakistan, which if performed would enhance Defense's ability to monitor for potential overbillings. Defense's guidance does not specifically task ODRP with attempting to verify Pakistani military support and expenses, despite recognition by Defense officials that such verification is best performed by U.S. officials in Pakistan, who have access to Pakistani officials and information. As such, ODRP did not try to verify Pakistan CSF claims from January 2004 through August 2006. Beginning in September 2006, without any formal guidance or directive to do so from U.S. Central Command or the Defense Comptroller, ODRP began an effort to validate Pakistani military support and expenses. This increased verification effort on the part of ODRP contributed to an increase in the amount of Pakistani government CSF claims disallowed and deferred. Prior to ODRP's increased verification efforts, the average percentage of Pakistani claims disallowed or deferred for January 2004 through August 2006 was a little over 2 percent. In comparison, the average percentage of Pakistani claims disallowed or deferred for September 2006 through February 2007 was 6 percent and for the most recent claims (March 2007 through June 2007) processed in February 2008, was approximately 22 percent. However, ODRP's continued oversight activity is not assured, as Defense had not developed formal guidance delineating how and to what degree ODRP should attempt to verify Pakistani claims for reimbursement. GAO recognizes that Defense may not be able to fully verify every Pakistani claim without the ability to access Pakistani records or do onsite monitoring. However, such ability would enhance CSF oversight.

section_title: Letter
paragraphs: Following the attacks of September 11, 2001, the United States began  reimbursing coalition partners for their logistical and combat support of  U.S. military operations in the global war on terror. These  reimbursements, known as Coalition Support Funds (CSF), have  reimbursed 27 coalition allies for incremental costs (i.e., costs above and  beyond the partner country’s normal operating costs) incurred in direct  support of U.S. military operations. Pakistan is the largest recipient of CSF  payments, receiving $5.56 billion of $6.88 billion (81 percent) of all CSF  reimbursements as of May 2008. CSF is structured as a reimbursement  mechanism whereby the U.S. Department of Defense (Defense) policy is to  validate that support was provided, costs were incurred, and that these  costs were incremental to a country’s normal military operations. In  Pakistan, most of the reimbursements through CSF are intended to enable  the government of Pakistan to attack terrorist networks in the Federally  Administered Tribal Areas (FATA) and stabilize the border areas.  Congress granted the Secretary of Defense the authority to make CSF  payments “in such amounts as the Secretary may determine in   discretion, based on documentation determined by the Secretary of  Defense to adequately account for the support provided.” Any such  determination by the Secretary shall be final and conclusive. Despite this  broad authority, concerns have been raised, given the large amounts of  CSF reimbursement payments to Pakistan, about the level of  accountability and oversight over these funds.
This report focuses on (1) the extent to which Defense has consistently  applied its guidance to validate the reimbursements claimed by Pakistan  and (2) how the Office of Defense Representative to Pakistan’s (ODRP)  role has changed over time.
To address our objectives, we obtained information on CSF procedures  from relevant officials at the Office of the Under Secretary of Defense for  Comptroller (Comptroller), the Office of the Under Secretary of Defense  for Policy, U.S. Central Command (CENTCOM), ODRP, and the State  Department’s Bureau of Political-Military Affairs. We also examined all  CSF oversight documentation provided to us, including Pakistani  government reimbursement claims, ODRP memos, CENTCOM validation  memos, Comptroller evaluations, and other CSF documentation from  February 2002 through February 2008 (February 2008 was when the latest  claim, for March through June 2007, was reimbursed). To assess the  application of current CSF guidance, we examined the CSF oversight  documentation noted above from January 2004 through February 2008. We  chose this time frame because a previous Defense Inspector General  report had already examined the pre-January 2004 CSF oversight controls  and made recommendations to improve oversight. We evaluated these  controls against all available Comptroller criteria and guidance, as well as  internal control standards and general cost accounting criteria for  adequacy, eligibility, and reasonableness. As part of our data reliability  process, we confirmed that the data provided by the Comptroller were  accurately recorded in the software we used to analyze the data. To assess  the oversight role played by ODRP, we met with the relevant ODRP,  CENTCOM, and Comptroller officials, as well as with other officials from  the U.S. Embassy and Pakistan’s Ministries of Defense and Interior. We  visited Peshawar, near the FATA, to discuss operations being reimbursed  with CSF funds with the U.S. consulate and Pakistan’s 11th Army Corps  and Frontier Corps.
This is the fourth in a series of products we plan to release assessing  various aspects of the U.S. engagement with Pakistan to combat  terrorism. We plan to issue a fifth product that assesses the U.S. security,  political, and development assistance activities used to meet U.S. strategic  goals in Pakistan, as well as the progress of these efforts.
We conducted this performance audit from September 2007 through June  2008 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. (See app. I for details on  our scope and methodology.)
subsections: section_title: Background
paragraphs: In late 2001, as the United States focused on toppling the Taliban regime  and fighting al Qaeda in Afghanistan, Pakistan’s importance as an ally in  the global war on terror increased. According to Defense, Pakistan’s  military operations and other contributions to Operation Enduring  Freedom in Afghanistan quickly threatened to become unsustainable on its  $2.5 billion defense budget. As a result, Defense requested supplemental  funding from Congress to provide payments to Pakistan for logistical and  military support in connection with Operation Enduring Freedom. In  response, Congress passed the Defense Appropriations Act for Fiscal Year  2002, stipulating that the “Defense Emergency Response Fund” could be  used by the Secretary of Defense to reimburse coalition partners for  logistical and military support to U.S. military operations. This funding  became known as Coalition Support Funds.
To provide Defense with maximum flexibility, Congress passed the  Defense Appropriations Act for Fiscal Year 2002, which granted the  Secretary of Defense the authority to make CSF payments notwithstanding  any other provision of law in such amounts as the Secretary may  determine in his discretion, based on documentation determined by  the Secretary to adequately account for the logistical and military support  provided by partner nations. Any such determination by the Secretary  shall be final and conclusive. The act did, however, require Defense to  provide a 15-day notification of upcoming CSF reimbursements. Congress  continued to provide funding for Pakistan through Defense without  requiring specific accountability controls until 2008. Subsequent  legislation required Defense to provide quarterly reports to the House and  Senate Committees on Appropriations and the House and Senate Armed  Services Committees on the use of funds made available for payments to  Pakistan and other CSF recipients. Despite these revisions to the reporting  requirements, Congress has consistently left decision-making on the  suitability of documentation to the discretion of the Secretary of Defense.
Defense, on its own, has instituted guidance that goes beyond what is  mandated in law.
According to Defense, CSF is critical to ensure Pakistan’s continued  support of U.S. efforts to combat terrorism. Defense officials stated that  without CSF or a similar mechanism to reimburse Pakistan for support in  Operation Enduring Freedom, Pakistan could not afford to deploy military  forces along the Pakistan-Afghanistan border to support U.S. military  operations in Afghanistan. Defense also indicates that 84 percent of all  containerized cargo and approximately 40 percent of all fuel for U.S. and  coalition forces operating in Afghanistan passes through Pakistan.  According to Defense officials, CSF has been a major factor in Pakistan’s  ongoing cooperation in support of U.S. goals in Pakistan and Afghanistan.
Defense has used CSF to reimburse Pakistan for Operation Al Mizan, a  major deployment of the Pakistan army in the North West Frontier  Province and the Federally Administered Tribal Areas (FATA) that border  Afghanistan that began in 2001 and has continued in various phases to this  date. Defense also states that CSF payments to Pakistan have played a  key role in supporting U.S. national security goals in Pakistan to combat  terrorists that threaten U.S. interests in America, Pakistan, Afghanistan,  and Western Europe. The CSF reimbursements to Pakistan from October  2001 through June 2007 (the latest period of support reimbursed by  Defense) are shown in figure 1.
subsections: section_title: Evolution of the CSF Oversight Process
paragraphs: In a February 2002 internal memo, the Comptroller expressed  dissatisfaction with Defense’s ability to verify the costs claimed in  Pakistan’s December 2001 reimbursement claim. The Comptroller noted  that the reimbursement claim contained total costs but no supporting  details. For example, the claim reported a total cost for army airlift  without providing information on number of sorties flown, the dates,  costs, time frames, purpose, number or types of aircraft flown, or number  of man-hours involved. According to the February 2002 memo, the  government of Pakistan was unprepared or unable to reconstruct these  costs in a verifiable manner in line with standard U.S. government  accounting practices and expectations. Staff at CENTCOM in Tampa,  Florida, and at ODRP in the embassy were unable to fill in such details.
Despite this concern, the Defense Office of General Counsel concluded,  based on the statutory authority provided to the Secretary of Defense, that  the Secretary of Defense could legally reimburse all of the cost categories  identified by the Comptroller as legally defensible. The United States  eventually reimbursed Pakistan $300 million.
In 2003, at the request of the Comptroller, the Defense Inspector General  performed an audit of the CSF oversight process for all countries seeking  CSF reimbursements. The report found deficiencies in both Defense’s CSF  guidance, as well as the supporting documentation CSF recipients  provided to support their claims. It recommended improvements in  Defense’s analysis of CSF reimbursement requests and greater  documentation requirements for countries seeking reimbursement. In  response, the Comptroller published guidance in December 2003 to clarify  the roles and responsibilities of CENTCOM and other regional combatant  commanders and of the Comptroller in the CSF oversight process. The  2003 guidance notes that Congress provided the Secretary of Defense with  the authority to determine how much to reimburse partner countries, and  how much documentation was required to adequately account for the  support provided. However, the guidance also stated that CENTCOM and  the Comptroller are to obtain sufficient documentation to validate that  Pakistani military support had been provided and that costs were incurred,  reasonable, and appropriate under the CSF program. Table 1 summarizes  the review criteria in the December 2003 Comptroller guidance. We  address the implementation of these and other criteria in greater detail  later in this report.
Under the December 2003 guidance and oversight process, Pakistan would  first submit its claim for reimbursement to ODRP at the U.S. Embassy in  Islamabad. According to Comptroller guidance, ODRP would assist the  Pakistani military in formulating the reimbursement claim before sending  the claim to CENTCOM in Tampa, Florida. CENTCOM would then conduct  its own review in an attempt to link claimed expenses to U.S. military  operations before forwarding the claim package to the Comptroller. Under  this process, ODRP and CENTCOM staff can make recommendations to  defer or disallow costs based on their analysis of the Pakistan submission;  however, the Comptroller makes the final recommendation to the  Secretary of Defense on which costs should be paid, deferred, or  disallowed.
The Department of State, the Office of Management and Budget, and  Congress also have a role in the CSF oversight process after the  Comptroller has finished its review. The Department of State and the  Under Secretary of Defense for Policy must each verify that the CSF  reimbursement is consistent with the U.S. government’s national security  policy and does not adversely affect the balance of power in the region. In  addition, Defense is required to consult with the Director of the Office of  Management and Budget during the CSF process. Defense is also required  to provide a 15-day notification of the upcoming reimbursement, as well as  quarterly reports to the House and Senate Committees on Appropriations  and the House and Senate Armed Services Committees on the use of funds  made available for payments to Pakistan and other CSF recipients.  Congress passed the National Defense Authorization Act for Fiscal Year  2008, which now requires Defense to submit an itemized description of  logistic support, supplies, and services “provided by Pakistan to the United  States for which the United States provided reimbursement” during the  period beginning February 1, 2008 and ending September 30, 2009. The  CSF process is detailed in figure 2.
In July 2006, the Comptroller provided the Pakistani government with a  cost template and information intended to clarify the types of costs that  were reimbursable under CSF and the information the Comptroller  required to support Pakistan’s reimbursement claims.  Furthermore,  according to Defense, the Office of the Under Secretary of Defense for  Policy emphasized the importance of enhancing transparency within  Pakistan’s CSF claims in a June 2007 letter to the Pakistan Ministry of  Defense.
section_title: Defense Did Not Consistently Apply Its Existing Guidance, and Additional Procedures Are Needed to Ensure Accountability over CSF to Pakistan
paragraphs: We found that Defense did not consistently apply existing CSF guidance  and that certain deficiencies existed in their oversight procedures. We  reviewed the Pakistani claims for January 2004 through June 2007, as well  as related CENTCOM and Comptroller memos, to determine if DOD had  consistently applied the Comptroller criteria issued in December 2003. The  memos prepared by the Comptroller generally included the four macro- level analytical reviews outlined in the criteria; however, implementation  of these criteria was not sufficient to validate claimed costs. For example,  the Comptroller generally performed a comparison of total claimed costs  to the estimated U.S. cost to provide the same services; however, there  was not enough information in the Pakistani claims to determine that the  claimed amount and the estimated U.S. cost included the same expenses  or that the claimed costs were valid. Defense guidance developed by the  Comptroller calls for obtaining sufficient information to validate Pakistani  claims to determine that costs were incurred, reasonable, and appropriate.  However, Defense did not fully implement this criteria. For example,  Defense reimbursed Pakistan over $2 billion for claims from January 2004  through June 2007 without obtaining detailed documentation that would  allow a third party to recalculate the costs. In addition, Defense often did  not adequately document the basis for their decisions to allow or disallow  claims, and we found inconsistencies in Defense payments that were not  explained. As a result, Defense may have paid costs that were (1) not  incremental, (2) not based on actual activity, or (3) potentially duplicative.  We also found that additional oversight controls were needed. Specifically,  while Comptroller guidance calls for a historical comparison of claimed  costs, the guidance does not indicate why or how the comparison should  be performed. Additionally, Defense did not verify the currency  conversion rates used by Pakistan from January 2004 through June 2007  and, as a result, may have overpaid Pakistani claims due to the devaluation  of the Pakistan rupee.
subsections: section_title: Defense Made Payments without Obtaining Detailed Documentation to Support Pakistani Claims
paragraphs: The Comptroller’s CSF guidance states that Pakistani claims should  include associated invoices. In the absence of such support, CENTCOM  officials should obtain from Pakistan a detailed description of how these  costs were computed. For example, claims for fuel should include  information such as total fuel consumed, the number and types of vehicles  supported, and best available assessments of the number of miles driven  or hours employed. However, we found that few of the Pakistani claims  we reviewed met the criteria contained in the Comptroller’s guidance. For  example, 76 percent of the army’s costs from January 2004 through June  2007 lacked sufficient information to allow Defense to perform basic  recalculations needed to verify the claims, such as quantity times price.  Despite the lack of documentation, Defense reimbursed Pakistan more  than $2.2 billion. An official at ODRP with a role in reviewing CSF  reimbursement claims stated that, based on the scarce details provided in  the CSF claims, it was nearly impossible to know the actual cost of  claimed items. When we discussed this issue with the Comptroller’s office,  they indicated that the Pakistani claims do not provide enough detail to  explain the context of the costs, which makes it difficult to determine  whether the costs are incremental (i.e., that claimed costs are above and  beyond the partner country’s normal operating costs) and, therefore,  whether under the Comptroller’s guidance the costs should be reimbursed.
We found other examples where Defense officials did not obtain sufficient  information necessary to validate the claims and did not adequately  document the basis for their decisions to allow or disallow claims. As a  result, there were inconsistencies in Defense’s reimbursement of certain  costs. For example, as illustrated in figure 3, Defense paid Pakistani navy  claimed costs for boats for about half of the months and disallowed them  the other half, despite no discernable differences in the level of support  the Pakistani government provided for the claims.
We identified additional inconsistently reimbursed costs that contained no  discernable differences in the level of support. For example, the  Comptroller generally disallowed Pakistani army claims for bulletproof  jackets but occasionally paid them. Conversely, the Comptroller generally  paid for army telephone cables but occasionally disallowed these costs.  Without better support for the rationale behind disallowed costs, we could  not determine if these costs were reimbursed consistent with the  Comptroller’s guidance.  According to Defense officials, payments were  made based on informed judgment, however they could not provide  documentation to support each instance.
subsections: section_title: Defense Paid Costs That May Not Have Been Incremental
paragraphs: Comptroller guidance states that reimbursement claims must clearly  indicate the incremental nature of the logistical and military support  provided—i.e., that claimed costs are above and beyond the partner  country’s normal operating costs. However, we found that the Pakistani  claims did not provide such information, which led to differences among  Defense officials as to whether the claims should be disallowed or  deferred until Pakistan could provide additional support.
Defense paid Pakistan $200 million in radar expenses from January 2004  through February 2007. For the March through June 2007 claims, ODRP  recommended the Comptroller disallow the costs, reasoning that this was  not an incremental expense, as terrorists in the FATA did not have air  attack capability. However, the Comptroller took the position that  Pakistan likely incurred some increased costs by using the radars to police  the airspace over the Northwest Frontier Province (i.e., to patrol, monitor,  and provide air traffic control) and provide air traffic control for U.S.  military support flights into Afghanistan. The Comptroller nonetheless  agreed that the claims lacked sufficient detail to determine whether these  charges were definitively incremental. In the March through June 2007  claim package, the Comptroller chose to defer the air defense radar costs  until Pakistan could provide better justification for the charges.
section_title: Defense May Have Paid Costs That Were Not Based on Actual Activity or Expenses
paragraphs: According to the Comptroller’s criteria, both the Comptroller and  CENTCOM are responsible for validating that claimed costs are associated  with actual activities and are based on documentation that adequately  accounts for the support provided. However, the documentation we  reviewed as part of our audit did not provide sufficient support that all  claimed costs were based on actual activity or expenses. For example,  Defense paid more than $30 million for army road construction and over  $15 million for army bunker construction without adequate support.  Defense paid these costs despite a CENTCOM recommendation to  disallow the claims for road construction in September and October 2006  due to insufficient documentation. For the most recent claims processed  in February 2008, covering the months March 2007 through June 2007,  concerns about the validity of these charges led ODRP to request that the  Pakistani military provide the coordinates of the roads and bunkers built.  As of June 2008, Pakistan had not provided this additional information,  and Defense has not paid these costs.
We also found large unexplained differences between the average costs of  food per person for each force, as shown in figure 4.
As figure 4 shows, navy monthly food costs per person were generally  higher than monthly air force and army food costs per person. Navy claims  for food rapidly increased from approximately $445 per sailor in June 2005  to $800 per sailor in December 2005, while air force and army food costs  per person remained stable. Despite these anomalies, the Comptroller  continued to pay the navy $800 per sailor for food until September 2006,  when the Comptroller partially disallowed these costs, reducing the cost  of navy food to the same amount as that paid for the army (approximately  $200 per person). In November 2006, Defense approved navy food cost at  approximately the same level as that paid for the air force (approximately  $400 per person). However, the Comptroller deferred all navy food costs  for the March through June 2007 claim period (processed in February  2008), pending receipt of additional justification from Pakistan.
In addition, we found that Defense paid the Pakistani navy more than $1.5  million in possibly inflated costs for damage to navy vehicles. On average,  Defense paid the Pakistani navy more than $5,700 per vehicle per month in  damages, in comparison with the army’s average claim of less than $100  per vehicle per month. According to the most recent navy claims, these  vehicles generally consisted of passenger cars and SUVs that were not  involved in combat. By contrast, the army vehicles were used to conduct  military operations in the FATA and border region.
section_title: Defense Paid Costs That Were Potentially Duplicative
paragraphs: Comptroller guidance calls for CENTCOM to ensure that costs are not  counted twice; however, none of the CENTCOM memos we reviewed  provided any indication that a review for duplicate costs had been  performed. As a result, Defense paid more than $8.9 million in potentially  duplicative costs. For example, the most recent Pakistani navy claim (June  2007) includes cost categories titled “vehicle damage” and “cost of vehicles  repaired,” but there is no detail provided to explain the differences  between these two categories, and there was insufficient detail to  determine whether some or all of the claimed costs were unique or  duplicative. This claim also included the categories “cost of fuel for  vehicles” and “average cost of running of vehicle deployment on  operation,” which could also contain duplicate charges. The detail  provided within these categories was insufficient to determine the  difference between these costs, and therefore they could contain duplicate  charges. Despite this lack of detail, we found that Defense paid the  Pakistani navy an average of over $19,000 per vehicle per month (more  than $3.7 million per year) to operate, maintain, and repair a fleet of  fewer than 20 passenger vehicles without sufficient information to  determine that these costs were not duplicative.
section_title: Opportunities Exist to Improve CSF Oversight Controls
paragraphs: We found deficiencies in the Comptroller’s guidance concerning historical  comparison of claimed costs and verification of currency conversions.  Specifically, we found that while Comptroller guidance calls for a  historical comparison of claimed costs, it does not indicate how this  comparison should be performed. In addition, we found that CSF guidance  does not require Defense to identify or evaluate the exchange rates used to  convert claimed costs from Pakistani rupees into U.S. dollars, and, as a  result, potential overbillings may have gone undetected.
subsections: section_title: Potentially Significant Cost Fluctuations Were Not Investigated
paragraphs: The Comptroller guidance calls for the Comptroller to perform a historical  comparison of claimed costs to previous reimbursements made by the  United States for similar support. Such an analysis could identify costs  that do not reflect actual activity levels. However, we found that the  Comptroller’s guidance does not describe how the comparison should be  performed. In our audit, we found that some of Pakistan’s claimed costs  experienced potentially significant unexplained fluctuations from month  to month. Although the Comptroller noted some of these fluctuations, we  found that it did not investigate the reasons behind them. For example,  Defense paid the army’s largest cost claimed in April 2006, which  experienced a 12 percent ($2.8 million) increase from March, without  investigating this fluctuation. As a result, Defense may be paying for costs  based on activities that did not occur.
section_title: Currency Conversions Were Not Verified
paragraphs: CSF guidance does not require Defense to identify or evaluate the  exchange rates used for claims presented in U.S. dollars. Foreign currency  exchange rates, such as those computed by the International Monetary  Fund (IMF), fluctuate. As a result, transactions made in a foreign  currency can result in transaction gains or losses. Since January 2004, the  Pakistani rupee has declined over 6 percent against the U.S. dollar.  Consequently, fewer dollars should have over time purchased more  rupees, resulting in a lower cost to the CSF program. Pakistani  reimbursement claims are presented in U.S. dollars; however, the  Comptroller did not verify the currency conversions calculated by  Pakistan. Although the Comptroller was not required to do so, lack of such  verification may have resulted in overpayment of Pakistan claims. For  example, on one cost category we reviewed, Defense may have overpaid  more than $1.25 million over 12 months because it did not consider the  currency conversion used to calculate the cost. In performing our review,  we used the claimed amounts and exchange rates that were stated in  Pakistan’s September and October 2004 claims, and we converted the  claimed cost into rupees. We then converted the claimed cost back into  U.S. dollars using the applicable IMF exchange rates and compared the  resulting figure with the amount paid by Defense. Figure 5 illustrates the  results of our analysis and shows that CSF would have been billed fewer  dollars had IMF exchange rates been used.
Most of the Pakistani claims do not provide enough information to  determine if the costs were appropriately converted from rupees to  dollars. Therefore, we were unable to calculate the potential overbilling  for all claims for the entire period under review. However, if Pakistan has  been using a fixed exchange rate, then Defense has likely overpaid its  reimbursements. If the rupee continues to decline against the dollar, future  Pakistani claims calculated using a fixed exchange rate will become more  and more inflated over time.
section_title: ODRP Began Playing a Larger Role in the CSF Oversight Process in Late 2006; However, ODRP’s Continued Oversight Is Not Assured
paragraphs: Defense’s 2003 guidance did not specifically task ODRP with attempting to  verify Pakistani military support and expenses, despite recognition by  Defense officials that such verification is best performed by U.S. officials  in Pakistan, who have direct access to Pakistani officials and information.  As such, ODRP did not try to verify Pakistani CSF claims until September  2006, when, without any formal guidance or directive to do so, ODRP  began an effort to validate Pakistani military support and expenses. This  increased verification effort contributed to an increase in the amount of  disallowals and deferrals of the Pakistani government’s CSF claims from  an average of a little over 2 percent from January 2004 through August  2006, an average of 6 percent from September 2006 through February 2007,  and 22 percent for the most recent claims (March 2007 through June 2007)  processed in February 2008. Despite this increased effort, there is no  assurance that ODRP will continue this level of oversight because Defense  has not issued formal guidance delineating ODRP verification  responsibilities.
subsections: section_title: Defense Never Formally Tasked ODRP to Attempt to Verify That Pakistani Military Support Was Provided and That Costs Were Incurred
paragraphs: According to the Standards for Internal Control in the Federal  Government, clear delegation of authority and responsibility is important  to establishing an effective internal control system. Defense officials in  Washington, at CENTCOM, and at the U.S. Embassy in Islamabad stated  that U.S. officials in Pakistan are best suited to perform primary  verification that Pakistani military support was provided and that claimed  costs were actually incurred. ODRP officers have access to a broad range  of Pakistani military officials, including some involved in military  operations, and can conduct limited field visits and onsite inspections if  permitted by the Pakistani government. By contrast, Comptroller staff are  located thousands of miles from Pakistan and lack the level of access  available to ODRP officials. Despite this, Defense never explicitly tasked  ODRP with performing such verification efforts.
In Pakistan’s case, the Comptroller’s 2003 guidance did not specify  whether this verification should take place in Pakistan or from CENTCOM  in Florida. The guidance simply indicated that ODRP should assist  Pakistan in formulating their claims. However, the guidance did not  require or suggest that ODRP attempt to verify that Pakistan’s claimed  military support had been provided or that its costs were actually  incurred. For example, it did not recommend that ODRP conduct any  oversight activities, such as onsite inspections of completed Pakistani  construction or a comparison of flight hours to maintenance costs.
section_title: ODRP Initiated Verification of Pakistani Support and Costs; Contributed to Increases in the Amount of Claims Deferred or Disallowed
paragraphs: In late 2006, without any formal guidance or directive to do so from  CENTCOM or the Comptroller, ODRP began an effort to verify that  Pakistani military support was provided and costs were actually incurred  as claimed in the military’s requests for reimbursement. According to  ODRP officials, this new effort stemmed from a concern that some of  Pakistan’s reported costs may not have been valid or properly supported.  They also stated that the Comptroller’s July 2006 presentation to Pakistani  officials helped ODRP conduct more detailed verification because  Pakistan began to provide greater detail in its reimbursement claims.  ODRP officials who were in Pakistan from July 2005 through March 2008  stated they had received no training or guidance from Defense on whether,  or how, to conduct verification of Pakistani reimbursement claims. These  officials said that the 2006 presentation was the first time they had seen  any guidance on what could or could not be reimbursed under the CSF  program or what type of information was needed to support Pakistan’s  reimbursement claims.
As a result, ODRP recommended for the first time that Defense disallow or  defer costs that it found questionable, beginning with Pakistan’s  September through October 2006 claim. For example, ODRP  recommended that the Comptroller disallow payments to Pakistan for  procurement of bulletproof vests, radios, and road construction due to  insufficient information necessary to verify the costs. Defense eventually  disallowed approximately $13 million of the September through October  2006 reimbursement claim.
ODRP’s increased verification efforts contributed to significantly larger  disallowals and deferrals ($81.2 million) in the most recently processed  (February 2008) Pakistan government reimbursement claims for the  months of March through June 2007. ODRP recommended deferring  payment on $38.1 million in claimed costs until the Pakistani government  provided information necessary to verify its claims. For example, ODRP  recommended deferring payment to Pakistan on its reimbursement  request for $22.3 million in helicopter maintenance costs. ODRP found that  even though the United States had paid Pakistan $55 million in CSF  reimbursements for maintenance of helicopters in the border area, only a  few of these helicopters were fully operational. According to ODRP  officials, the Pakistani army was not maintaining the helicopters, causing  essential systems to malfunction. Given the poor readiness rates, ODRP  recommended that the Comptroller defer payment on Pakistan’s  helicopter maintenance claims until a process could be implemented to  ensure that Pakistan could maintain its helicopter fleet. ODRP also  recommended disallowing payment on an additional $42.3 million to  Pakistan for such things as air defense radars, procurement of tents and  vests, and funding for Pakistan’s joint staff headquarters operations.
After ODRP submitted its recommendations, CENTCOM and the  Comptroller performed their own reviews of the reimbursement claim (see  fig. 6).
The Comptroller disagreed with some of ODRP’s recommendations. For  example, ODRP recommended disallowing $26.4 million for the  maintenance of air defense radars since terrorists in the border region  possessed no air force. The Comptroller noted, however, that these radars  could also provide air traffic control for Pakistani military aircraft  operating in the area and for U.S. military flights to Afghanistan. As a  result, the Comptroller modified ODRP’s recommendations to disallow  certain costs and instead deferred payment on these costs until Pakistan  could provide more information to support the reimbursement request.  However, as of May 2008, Defense has not paid any of these deferred CSF  costs because Pakistan has not provided evidence to indicate that these  costs were valid. Figure 7 shows the increased CSF disallowals and  deferrals during ODRP’s increased oversight activity in the September  through October 2006 claims, and particularly in the latest claim period  (March through June 2007), when Defense disallowed or deferred a total  of $81.2 million over these four months.
The amount disallowed or deferred for March through June 2007  represents a significant increase in CSF oversight by Defense. For  example, from January 2004 through August 2006, Defense disallowed or  deferred an average of a little more than 2 percent of each monthly  Pakistani reimbursement claim, for a total of $59.4 million over a 32-month  period. In comparison, the average percentage of Pakistani claims  disallowed or deferred for September 2006 through February 2007 was 6  percent or $33.3 million over a 6-month period and for the most recent  claims (March 2007 through June 2007) processed in February 2008, was  approximately 22 percent, or $81.2 million in a four month period. This  four month period accounts for approximately 53 percent of the total CSF  funding disallowed or deferred by Defense since January 2004 ($173.92  million).
Based on our assessment, it appears that ODRP began this increased  oversight effort without any formal guidance or directive to do so. The  Comptroller has provided no formal guidance that stipulates ODRP should  verify that Pakistani military support has actually been performed and that  expenses were actually incurred. Furthermore, officials at ODRP from  2005 to early 2008 said that the Comptroller had provided no guidance or  training on the level of oversight they should provide. Despite this lack of  guidance, in November 2007, officials at the Comptroller and the Office of  the Under Secretary of Defense for Policy stated that ODRP was in fact  responsible for performing this oversight. However, as of May 2008,  Defense had not formalized any new guidance on ODRP’s verification  responsibilities.
section_title: No Guidance to Ensure Continued Oversight by ODRP
paragraphs: Despite ODRP’s increased oversight activity, continuity of this oversight is  not assured. According to Standards for Internal Control in the Federal  Government, clear delegation of authority and responsibility is important  to establishing an effective internal control system. However, as of May  2008, ODRP continued to lack formal guidance or training that explicitly  described either its oversight responsibilities or the procedures for  conducting such oversight. Staff at ODRP stated they had previously  received little to no guidance or training on their specific role in analyzing  Pakistani CSF reimbursement claims. Formal guidance is especially  important in Pakistan, where U.S. officials are generally limited to 1-year  tours due to the status of the U.S. mission in Islamabad as a high-risk post.  Because of the constant turnover of Defense officials in Pakistan, clear  guidance is needed to ensure the continuity of oversight efforts.
In addition, the Comptroller has never provided guidance on how ODRP  and Defense representatives in other sovereign countries should verify  that the countries actually provided military support and that expenses  were actually incurred. ODRP is largely dependent upon the quality of  information supplied by the Pakistani military. According to Defense  officials, Defense lacks the authority to audit the internal finances of the  Pakistani military.  Because of this, ODRP staff described their analysis as  “macro-level verification,” whereby the reasonableness of high-level costs  reported in the Pakistani claim is judged through a comparison with other  information. For example, ODRP’s recommendation to defer helicopter  maintenance costs in the March through June 2007 claims stemmed from  their comparison of Pakistan’s reported maintenance costs against ODRP’s  knowledge of the low readiness rates of Pakistan’s helicopters. Although  such analyses can be supplanted by anecdotal information from  discussions with Pakistani military officials or through occasional visits to  the field, according to ODRP, the Pakistani government strictly controls  foreigners’ access to the FATA, making spot-checks difficult. The  Pakistani submissions are, therefore, the chief component of the ODRP  analysis.
ODRP officials said they doubted that ODRP would ever be able to fully  verify actual costs in Pakistan. First, the Pakistani military reports costs to  ODRP that are already aggregates of many smaller costs. For example,  food cost would include costs for procurement, transport, storage, and  field preparation that ODRP cannot directly monitor. Furthermore,  according to ODRP, although the Pakistani government generally keeps  detailed financial records, these records are usually in paper form and  electronic record keeping is rare. Additionally, the Pakistani military does  not possess automated systems to track logistics and supplies. Because of  these factors, information retrieval from the field and collation at the  Pakistani joint staff level can take a great deal of time and may entail a  certain amount of approximation and averaging. Given Pakistan’s record- keeping systems, it is unclear to what level of precision ODRP should be  expected to verify Pakistani support and incurred costs.
section_title: Conclusions
paragraphs: Coalition Support Funds are critical components of America’s global war  on terror and the primary support for Pakistani operations to destroy the  terrorist threat and close the terrorist safe haven in Pakistan’s FATA.  Following the attacks of September 11, 2001, Congress quickly authorized  emergency funding to prevent another attack, and given the grave and  immediate threat at the time, Congress recognized that ensuring  accountability for these funds was secondary to protecting the nation from  another attack. However, given the large amounts of funding provided to  Pakistan since October 2001, and indications that Pakistan will continue to  receive such payments in the future, we believe that Defense should  ensure it follows its own guidance and consider what other guidance is  needed.
Our assessment found that while CSF played a key role in Pakistan’s  support for our war on terror, Defense had not followed its existing  guidance and provided little oversight of the effort at the embassy in  Pakistan. Defense had concerns about the accuracy of Pakistan’s claims  from the very first claim submitted in 2001. Based on the lack of  supporting evidence in the Pakistani claims from January 2004 through  June 2007 (the latest claims reimbursed by Defense), we found that neither  Defense nor we could determine if Pakistan had actually incurred most of  the costs in their claims. Prior to 2004, it appears that there was even less  evidence to support Pakistan’s claims. As a result, we conclude that  Defense cannot accurately determine how much of the $5.56 billion in  costs reimbursed to Pakistan since 2001 were actually incurred.
As a result of these and other findings, we believe that Defense should  consistently implement its own CSF guidance to fully verify Pakistani  claims and ensure the effective use of CSF in meeting key U.S. national  security goals. While we recognize that CSF is used to support 27  countries in fighting terrorism, the fact that Pakistan receives 81 percent  of these funds indicates that Defense should provide oversight procedures  that reflect the role Pakistan plays as both the major recipient of CSF and  its role in supporting U.S. national security objectives in Pakistan and  Afghanistan. Additionally, we recognize that Defense may not be able to  fully verify all Pakistani claims without having the ability to access the  Pakistani government’s records and make site visits or conduct spot  checks. ODRP’s recent increased efforts, however, show that greater  oversight may be achieved through the use of U.S. representatives in  Pakistan.
section_title: Recommendations for Executive Action
paragraphs: To improve the impact and oversight of CSF payments to Pakistan, we  make the following five recommendations to the Secretary of Defense:    Consistently implement existing criteria to disallow or defer Pakistani  claims that do not include the documentation needed to verify the claims.
Define and formalize the roles and responsibilities of ODRP.
Work with the government of Pakistan to develop procedures to allow  ODRP or other U.S. representatives to conduct greater oversight of CSF  use in Pakistan, including the potential use of onsite inspections.
Clarify guidance for Comptroller analysis of cost fluctuations.
Develop and apply criteria to evaluate currency exchange rates to ensure  that the U.S. government is not overpaying for Pakistan operations.
section_title: Agency Comments and Our Evaluation
paragraphs: Defense provided written comments on the report, which are reproduced  in appendix II.
Defense generally concurred with our recommendations, and indicated  they had updated their CSF guidance to incorporate our  recommendations. We plan to review this guidance when it is made  available to us. In addition, Defense’s comments noted that our report did  not give sufficient weight to three areas. These include the Pakistan’s  significant contributions to the global war on terror enabled by CSF; the  fact that the Department has adhered to the law; and that Pakistan is a  sovereign country that may not meet U.S. accounting and administration  standards. However, our report does reflect Pakistan’s efforts in  combating terrorism and the role of CSF. Furthermore, we note several  times that Congress granted the Secretary of Defense the authority to  make CSF payments in such amounts as the Secretary may determine in  his discretion, based on documentation determined by the Secretary of  Defense to adequately account for the support provided.
Although we acknowledge that there are limitations in any arrangement  with another sovereign nation, we believe that Defense should work more  closely with Pakistan to improve their capacity to support these claims.  We note that the information provided by Pakistan has improved over  time, particularly when Defense has provided additional guidance to  Pakistan.  For example, following the Comptroller’s visit to Pakistan in  2006, Pakistan’s more detailed submissions allowed ODRP to conduct  greater oversight of Pakistan’s claims, leading to the increases in deferrals  and disallows in late 2006 and 2007. In addition, we did not assume that  Pakistan could provide receipts for all items; we assessed whether  Defense followed its guidelines. According to the Comptroller’s guidelines,  a recipient country’s reimbursement claim must contain quantifiable  information and supporting documentation on how costs were derived so  Defense can validate the claim. Most of Pakistan’s claims that we reviewed  lacked this information.
We also received technical comments from Defense, which we have  incorporated throughout the report, where appropriate.
We are sending copies of this report to interested congressional  committees, as well as the Secretaries of State and Defense. We will also  make copies available to others upon request. In addition, the report will  be available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-7331 or johnsoncm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff who made major contributions to this  report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: Legislation governing the Coalition Support Funds (CSF) program states  that the Secretary of Defense’s determination whether documentation  adequately supports reimbursement to key cooperating nations is final and  conclusive. Our review therefore focused on the extent to which Defense  has applied its own guidance to validate reimbursements and on Office of  the Defense Representative to Pakistan’s (ODRP) role in this process. To  conduct our review, we obtained information on current procedures from  relevant officials at the Office of the Under Secretary of Defense for  Comptroller (Comptroller), the Office of the Under Secretary of Defense  for Policy, U.S. Central Command (CENTCOM), ODRP, and the State  Department’s Bureau of Political-Military Affairs. We also examined all  CSF oversight documentation provided to us, including Pakistani  government reimbursement claims, ODRP memos, CENTCOM validation  memos, Comptroller evaluations, and other CSF documentation from  February 2002 through June 2007 (the latest period of support reimbursed  by Defense.) Additionally, we examined all Defense CSF guidance  provided to us.
To examine the extent to which Defense has applied its guidance to  validate costs claimed by Pakistan, we first reviewed a December 2003  Defense Inspector General report that cited deficiencies in the CSF  oversight process from October 2001 through May 2003. Because this  report led to new CSF oversight guidance in December 2003, our  assessment of Defense’s oversight controls focused on 42 monthly  reimbursement claims submitted by the Pakistani government from  January 2004 to June 2007. As part of our data reliability process, we  confirmed that the data provided by the Comptroller were accurately  recorded in the software we used to analyze the data. We did not verify the  reliability of Comptroller’s data processing. As part of this review, we  examined all available Comptroller criteria and guidance—including the  December 2003 guidance, as well as the July 2006 presentation to the  Pakistani government and the February 2008 flowchart. Using the  Comptroller criteria, the internal control standards, and general cost  accounting criteria for adequacy, eligibility, and reasonableness, we  recalculated selected portions of Pakistani claims for mathematical  accuracy;  reviewed items included in claims and noted items that may be  nonincremental under CSF, duplicative charges, and questionable dollar  amounts for the charges;   compared selected claims and payments over time to analyze consistency  reviewed ODRP cables and memos, CENTCOM analyses, and Comptroller  analyses for support for charges, disallowed amounts, and fluctuations in  claimed amounts;    compared supporting documentation to Comptroller-issued criteria to    compared supporting documentation to internal control criteria to  determine the sufficiency of Comptroller criteria and current oversight  procedures.
To assess the oversight role played by ODRP, we met with the officials  noted above, as well as with other officials from the U.S. Embassy and  Pakistan’s Ministries of Defense and Interior. We visited Peshawar, near  the Federally Administered Tribal Areas, to conduct discussions with the  U.S. consulate and Pakistan’s 11th Army Corps and Frontier Corps  regarding operations being reimbursed with CSF funds. We also examined  all of the previously mentioned CSF oversight documents and guidance.
We conducted this performance audit from September 2007 to June 2008  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: Pakistan CSF Reimbursement Claims, January 2004-June 2007a
paragraphs: Prior to increased ODRP role  Jan. 2004–Aug. 2006 avg. monthly disallow/defer  Jan. 2004–Aug. 2006 total disallow/defer  Sept. 2006–Feb. 2007 avg. monthly disallow/defer  Sept. 2006–Feb. 2007 total disallow/defer  Mar.–June 2007 avg. monthly disallow/defer  5,081,976.  The disallow/defer percentage for June 2004 does not take into account this figure.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Steve Sebastian, Director; Hynek  Kalkus, Assistant Director; Roger Stoltz, Assistant Director; Edward J.  George; David W. Hancock; Claude Adrien; Cara Bauer; Janice Friedeborn;  Arthur James; Jeffrey S. Beelaert; Lynn Cothern; Mark Dowling; and Jena  Sinkfield made key contributions to this report.