Global War on Terrorism: DOD Needs to More Accurately Capture and Report the Costs of Operation Iraqi Freedom and Operation Enduring Freedom
Published: 2009-03-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since September 11, 2001, Congress has provided about $808 billion to the Department of Defense (DOD) for the Global War on Terrorism (GWOT) in addition to funding in DOD's base budget. Prior GAO reports have found DOD's reported GWOT cost data unreliable and found problems with transparency over certain costs. In response, DOD has made several changes to its cost-reporting procedures. Congress has shown interest in increasing the transparency of DOD's cost reporting and funding requests for GWOT. Under the Comptroller General's authority to conduct evaluations on his own initiative, GAO assessed (1) DOD's progress in improving the accuracy and reliability of its GWOT cost reporting, and (2) DOD's methodology for reporting GWOT costs by contingency operation. For this engagement, GAO analyzed GWOT cost data and applicable guidance, as well as DOD's corrective actions.
section_title: What GAO Found
paragraphs: While DOD and the military services continue to take steps to improve the accuracy and reliability of some aspects of GWOT cost reporting, DOD lacks a sound approach for identifying costs of specific contingency operations, raising concerns about the reliability of reported information, especially on the cost of Operation Iraqi Freedom. Specifically, the department has undertaken initiatives such as requiring components to sample and validate their GWOT cost transactions and launching a new contingency cost-reporting system that will automate the collection of GWOT cost data from components' accounting systems and produce a new report comparing reported obligations and disbursements to GWOT appropriations data. Also, the military services have taken several steps to correct weaknesses in the reliability of their cost data. Limitations in DOD's approach to identifying the costs of Operation Iraqi Freedom and Operation Enduring Freedom may, in some cases, result in the overstatement of costs, and could lead to these costs being included in DOD's GWOT funding requests rather than the base budget. DOD guidance emphasizes the importance of accurately reporting the cost of contingency operations. However, while the Army and Marine Corps are capturing totals for procurement and certain operation and maintenance costs, they do not have a methodology for determining what portion of these GWOT costs are attributable to Operation Iraqi Freedom versus Operation Enduring Freedom and have reported all these costs as attributable to Operation Iraqi Freedom. In addition, the military services have reported some costs, such as those for Navy forward-presence missions, as part of Operation Iraqi Freedom or Operation Enduring Freedom, even though they are not directly attributable to either operation. In September 2005, DOD expanded the definition of incremental costs for large-scale contingencies, such as those for GWOT, to include expenses beyond direct incremental costs. This expanded definition provides no guidance on what costs beyond those attributable to the operation can be considered incremental and reported. Consequently, the military services have made their own interpretations as to whether and how to include costs not directly attributable to GWOT contingency operations. Without a methodology for determining what portion of GWOT costs is attributable to Operation Iraqi Freedom or Operation Enduring Freedom, reported costs for Operation Iraqi Freedom may be overstated. Furthermore, unless DOD reconsiders whether expenses not directly attributable to specific GWOT operations should be included as incremental costs, the military services may continue to include these expenses as part of Operation Iraqi Freedom and Operation Enduring Freedom, reported costs for both operations may be overstated, and DOD may continue to request funding for these expenses in GWOT funding requests instead of including them as part of the base budget. Expenses beyond those directly attributable to either operation may be more reflective of the enduring nature of GWOT and its cost implications should be part of the annual budget debate.

section_title: Letter
paragraphs: Since the September 11, 2001, terrorist attacks, the Department of Defense  (DOD) has been engaged in domestic and overseas military operations in  support of the Global War on Terrorism (GWOT) around the world. These  operations include Operation Noble Eagle aimed at defending the United  States homeland against terrorist attacks; Operation Enduring Freedom  that takes place principally in and around Afghanistan, but also covers  additional operations in the Horn of Africa, the Philippines, and elsewhere;  and Operation Iraqi Freedom that focuses principally on Iraq. Congress  has provided about $808 billion in supplemental and annual appropriations  for GWOT since 2001, and DOD has reported total GWOT costs of about  $654.7 billion as of September 2008. For fiscal year 2009, Congress has  provided DOD with about $65.9 billion for GWOT as of March 2009, and  DOD plans on requesting an additional $75.5 billion for GWOT for the  remainder of the fiscal year. This is in addition to about $512.7 billion  already provided in DOD’s base budget for other functions. Obtaining an  accurate picture of DOD costs is of critical importance given the need to  evaluate trade-offs and make more effective use of defense dollars in light  of the nation’s long-term fiscal challenge and the current financial crisis. In  the past, we have reported on the need for DOD to become more  disciplined in its approach to developing plans and budgets, including  building more GWOT costs into the base defense budget.
To meet internal and legislative reporting requirements, DOD compiles  GWOT cost data and prepares various reports that itemize these costs by  appropriation account, military service or defense agency, and  contingency operation. DOD uses these cost data, along with other  information, internally to evaluate cost trends and formulate GWOT  funding requests, and externally to inform Congress on the costs of the  war. Congress uses DOD’s historical cost data to monitor costs, evaluate  funding needs, and to make GWOT-related funding decisions. Over time,  DOD’s approach to reporting costs and requesting funds for GWOT  contingency operations has evolved. Since GWOT contingency operations  began in 2001, DOD has used existing financial-management guidance,  designed for small-scale contingency operations, to establish policies and  procedures for estimating the budget and reporting costs. In 2005, DOD  amended this guidance to include large-scale contingency operations, like  those in support of GWOT. In contrast to the guidance for small-scale  contingency operations, the amended guidance for large-scale  contingencies allows DOD components to include expenses in their cost  reporting beyond direct incremental costs, but provides no guidance on  what costs beyond those attributable to the operation can be considered  incremental and reported. Incremental costs are defined as additional  costs to DOD components that would not have been incurred had the  contingency operation not been supported. DOD has also revised its  guidance for building GWOT funding requests, beginning with its fiscal  year 2007 supplemental funding request, directing DOD components to  include funding needs related to what it characterized as the “longer war  on terror,” or costs beyond those directly attributable to Operation  Enduring Freedom and Operation Iraqi Freedom. DOD’s previous  guidance for building GWOT funding requests directed components to  request funding only for the incremental costs above base-budget funding  needed to support specific forces and capabilities required to execute  Operation Enduring Freedom and Operation Iraqi Freedom during the  fiscal year.
Over the years, we have reported on the need to improve the accuracy and  reliability of DOD’s cost reporting and transparency of funding requests  for GWOT, and have made a series of recommendations to the Secretary of  Defense. For example, we previously identified inaccuracies in reported  costs for GWOT, and noted the lack of a systematic process and sufficient  management oversight to ensure GWOT cost data are accurately recorded.  DOD has implemented many of our recommendations, and continues to  focus greater management attention to improve GWOT cost reporting.
More recently, we reported on the lack of transparency of DOD’s funding  requests for GWOT, raising concerns over DOD’s expansion of allowable  incremental costs to include costs for longer-term items. Specifically, in  November 2007, we reported that changes in DOD’s funding guidance  resulted in billions of dollars being added to DOD’s GWOT funding  requests for the “longer war against terror,” making it difficult to  distinguish between the incremental costs to support specific contingency  operations and longer-term costs typically associated with DOD’s base  budget. We recommended that DOD issue guidance defining what  constitutes the “longer war against terror,” identify what costs are related  to that longer war, and build these costs into the base defense budget.  Although DOD agreed with our recommendations to some extent, as of  March 2009, it has not yet taken specific action.
In the past few years, Congress has shown interest in increasing the  transparency of DOD’s cost reporting and funding requests for GWOT,  particularly in the amount of detail available on the costs of specific  contingency operations. In fiscal year 2006, Congress required DOD to  submit reports of war-related procurement, equipment maintenance, and  infrastructure costs by contingency operation. In fiscal year 2007,  Congress required the President, for each fiscal year thereafter, to submit  full-year estimates of all funds required to support GWOT along with its  annual budget submission. More recently, in the Duncan Hunter National  Defense Authorization Act for Fiscal Year 2009, Congress required that in  any future annual or supplemental budget request, DOD separately display  any funding requested for military operations in Afghanistan and military  operations in Iraq, and provide a detailed description of the assumptions  underlying this funding request for each operation.
Ensuring reliability and transparency in DOD’s cost reporting will be  important as the new administration and Congress evaluate DOD’s funding  needs for GWOT in fiscal year 2009 and beyond. To assist Congress in its  oversight role, we assessed (1) DOD’s progress in improving the accuracy  and reliability of its GWOT cost reporting, and (2) DOD’s methodology for  reporting GWOT costs by contingency operation, including the types of  costs reported for those operations. We prepared this report under the  Comptroller General’s authority to conduct evaluations on his own  initiative.
To assess DOD’s progress in improving the accuracy and reliability of its  GWOT cost reporting, we analyzed information reported in DOD’s monthly  Supplemental and Cost of War Execution Report (cost-of-war report) and  cost data in the military services’ individual accounting systems. We then  obtained and reviewed guidance issued by DOD and the military services  regarding data analysis and methods for reporting costs for GWOT. We  also interviewed key officials from the Office of the Under Secretary of  Defense (Comptroller), the Defense Finance and Accounting Service  (DFAS), the Army, Navy, Marine Corps, and Air Force to obtain  information about specific processes and procedures DOD and the  military services have undertaken to improve the accuracy and reliability  of reported GWOT cost information. To assess DOD’s methodology for  reporting GWOT costs by contingency operation, including the types of  costs reported for those operations, we analyzed GWOT cost data in  DOD’s monthly cost-of-war reports, including the source data for those  reports in the military services’ individual accounting systems. We then  obtained and reviewed guidance issued by DOD and the military services  for identifying and reporting GWOT costs by contingency operation. We  also interviewed officials from the Under Secretary of Defense  (Comptroller), Army, Navy, Marine Corps, and Air Force to determine how  they interpreted and implemented this guidance. As previously reported,  we found the data in DOD’s cost-of-war reports to be of questionable  reliability. Consequently, we are unable to ensure that DOD’s reported  costs for GWOT are complete, reliable, and accurate, and they should  therefore be considered approximations. Further details about our scope  and methodology can be found in appendix I.
We performed our work from January 2008 through March 2009 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.
subsections: section_title: Background
paragraphs: DOD contingency operations, such as those in support of GWOT, can  involve a wide variety of activities such as combating insurgents, training  the military forces of other nations, and conducting small-scale  reconstruction and humanitarian relief projects. Volume 12, chapter 23 of  the DOD Financial Management Regulation, 7000.14-R establishes  financial policies and procedures for contingency operations and generally  guides the DOD components’ spending by defining what constitutes  incremental costs and by providing examples of eligible incremental  costs. The costs incurred for contingency operations include the pay of  mobilized reservists, as well as the special pays and allowances for  deployed personnel, such as imminent danger pay and foreign duty pay;  the cost of transporting personnel and materiel to the theater of operation  and supporting them upon arrival; and the operational cost of equipment  such as vehicles and aircraft, among many other costs. Costs that are  incurred regardless of whether there is a contingency operation, such as  the base pay of active duty military personnel, are not considered  incremental and therefore are funded in DOD’s base budget.
DOD reports its GWOT-related costs in terms of obligations, which are  incurred through actions such as orders placed, contracts awarded,  services received, or similar transactions. When obligations are incurred,  the DOD components enter them into their individual accounting systems.  An obligation entry may include a number of different identifiers,  including information such as funding source and the contingency  operation, and the category of cost as determined by the individual  component. Volume 12, chapter 23 of the DOD Financial Management  Regulation directs components to capture contingency costs within their  existing accounting systems and at the lowest possible level of  organization. Individual obligation data that are coded as being in support  of GWOT are recorded and sent through the component’s chain of  command where they are aggregated at successively higher command  levels.
In a series of reports, we have identified numerous problems in DOD’s  processes for recording and reporting obligations, raising significant  concerns about the overall reliability of DOD’s reported obligations. In  addition, DOD’s financial management has been on GAO’s list of high-risk  areas requiring urgent attention and transformation since 1995. Factors  affecting the reliability of DOD’s reported obligations include long- standing deficiencies in hundreds of nonintegrated financial management  systems requiring manual entry of some data in multiple systems, and the  lack of a systematic process to ensure that data are correctly entered into  those systems. On its own initiative and in response to our  recommendations, DOD has placed greater management focus on  weaknesses in GWOT cost reporting, such as establishing additional  procedures for analyzing variances in reported obligations and disclosing  underlying reasons for significant changes. In addition, DOD established a  Senior Steering Group in February 2007, including representatives from  DOD, DFAS, and the military services, in an effort to standardize and  improve the GWOT cost-reporting process and to increase management  attention to the process. In conjunction with the Senior Steering Group, a  GWOT Cost-of-War Project Management Office was established to monitor  work performed by auditing agencies and to report possible solutions and  improvements to the Senior Steering Group. It is tasked with leading  initiatives in improving the credibility, transparency, and timeliness of  GWOT cost reporting. DOD’s efforts are ongoing and we have continued to  monitor its progress as GWOT cost reporting has evolved.
section_title: DOD and the Military Services Continue to Take Steps to Improve Some Aspects of the Accuracy and Reliability of GWOT Cost Reporting
paragraphs: DOD and the military services continue to take steps to improve some  aspects of the accuracy and reliability of GWOT cost reporting. Some  examples are discussed below. Because efforts to implement some of  these initiatives are still in the early stages, their effect on the reliability of  GWOT cost reporting is uncertain.
subsections: section_title: DOD Has Several Ongoing Initiatives to Improve Accuracy and Reliability of GWOT Cost Data
paragraphs: DOD has undertaken several initiatives to improve the accuracy and  reliability of its GWOT cost data. First, to promote the goal of continually  improving its cost-of-war processes and reports, in February 2008, DOD  required its components to statistically sample and validate their fiscal  year 2008 GWOT obligation transactions on a quarterly basis beginning  with the first quarter of fiscal year 2008. DOD also required its  components to review randomly sampled non-GWOT obligations to  determine whether the transactions were properly classified as non-GWOT  versus GWOT. According to DFAS officials, the new requirement has  improved the reliability of reported GWOT obligations because DOD  components are taking actions to improve their GWOT cost reporting  procedures and are making corrections when errors such as missing or  illegible supporting documentation, missing codes, and miscoded  transactions are found. DFAS plans to include a requirement to review and  validate GWOT obligation data in an update to volume 3, chapter 8 of the  DOD Financial Management Regulation.
Second, DOD is initiating a new contingency cost-reporting system in  fiscal year 2009 called the Contingency Operations Reporting and Analysis  System. DOD’s goals are to automate the collection of GWOT cost data  from DOD components and improve the timeliness of cost-of-war  reporting. This system pulls elements of GWOT transaction data directly  from DOD components’ accounting systems into its data store. Limited  features of the system became available for use in October 2008 and it  should be fully operational by September 2009. Upon completion of the  project, this system should allow DOD and external users to have a  consolidated location to view and analyze data for the cost of war, disaster  relief, and all other contingencies. Users will have access through a Web  browser and should be able to filter data and perform various analyses.  Previously, the DOD components individually gathered and manually  entered their GWOT cost data monthly into a template provided by DFAS  for cost-of-war reporting. According to DFAS officials, the new system is  designed to ensure better reliability and eliminate the possibility of manual  errors.
Third, DFAS is issuing a redesigned monthly cost-of-war report through  the Contingency Operations Reporting and Analysis System, starting in  fiscal year 2009, to replace DOD’s monthly Supplemental and Cost of War  Execution Report, which was provided to external customers, including  Congress, the Office of Management and Budget, and GAO. The first new  cost-of-war report, commonly referred to as the Contingency Operations  Status of Funds Report, was issued in December 2008 and covered costs  for October 2008. According to DOD, this redesigned report should  improve transparency over GWOT costs by comparing appropriated  GWOT supplemental and annual funding to reported obligations and  disbursements. The previous cost-of-war report displayed obligations  (both monthly and cumulative by fiscal year) by appropriation,  contingency operation, and DOD component, but did not compare  obligations to appropriated funding.
section_title: Military Services Have Taken Actions to Correct Weaknesses in the Reliability of GWOT Cost Data
paragraphs: The military services have also taken actions to correct weaknesses in the  reliability of their GWOT cost data. Examples for each of the services are  discussed below. Since these actions have only recently been  implemented, their effect on the reliability of GWOT cost reporting is  uncertain.
subsections: section_title: Marine Corps
paragraphs: We found that the Marine Corps was not reporting obligations in  descriptive cost categories in the DOD Supplemental and Cost of War  Execution Report as required in volume 12, chapter 23 of the DOD  Financial Management Regulation, which DOD established to provide  better transparency over reported costs. Specifically, the Marine Corps  was reporting obligations in the miscellaneous category of “other supplies  and equipment” rather than the more descriptive cost categories. We  brought this issue to the attention of both DFAS and the Marine Corps  office responsible for submitting monthly cost data to DFAS. Marine Corps  officials acknowledged the absence of the data and indicated that they  would attempt to provide further breakdown of the Marine Corps’  reported obligations in future reports. In June 2008, the Marine Corps  revised its cost-reporting procedures to provide further breakdown of  reported obligations for “other supplies and equipment” in DOD’s cost-of- war reports. In addition, Marine Corps officials told us that in May 2008  they streamlined their cost-of-war reporting by centralizing their GWOT  cost data-gathering and reporting procedures. Prior to this time,  commands would individually submit their monthly GWOT cost data to  Marine Corps headquarters. According to Marine Corps officials, the new  procedures have improved the visibility and reliability of reported costs  across the service, especially at the command level.
section_title: Air Force
paragraphs: We found that the Air Force was reporting some operation and  maintenance obligations in the miscellaneous cost categories for “other  supplies and equipment” and “other services and miscellaneous contracts”  rather than reporting these obligations in the more descriptive cost  categories that DOD had established. We brought this issue to the  attention of both DFAS and the Air Force office responsible for submitting  monthly cost-of-war data to DFAS. In response, the Air Force and DFAS  revised the Air Force’s cost-reporting procedures so that costs could only  be reported in the more descriptive cost categories.
section_title: Army
paragraphs: Our analysis of the fiscal year 2008 Army obligation data showed that the  Army was misusing certain accounting codes to capture costs for GWOT  contingency operations. Army officials told us that commands were  incorrectly using these codes to record costs for activities that were not  adequately funded in the base budget such as contracts for security guards  and other anti-terrorism force-protection measures for facilities and  installations located outside of the continental United States.  Consequently, almost $2 billion in obligations for operation and  maintenance was included in DOD’s cost-of-war report for costs that may  not be directly attributable to GWOT contingency operations. In addition,  the Army reported about $220 million in GWOT obligations for operation  and maintenance costs associated with its modular restructuring  initiative. Army officials told us that the Army modular restructuring  initiative is not an incremental cost and therefore should not have been  included in the cost-of-war report. The Army has addressed these issues  for fiscal year 2009 by revising its cost code structure and eliminating cost  codes that commands have misused in the past.
section_title: Navy
paragraphs: During the course of our work, we found that the Navy lacked a  centralized and documented process for its GWOT cost reporting. For  example, Navy headquarters had little visibility over how lower-level  commands record and report their GWOT costs. Moreover, the Navy’s  cost-reporting process relied on the use of several computer-operated  spreadsheets that required manual data input. The Navy also did not have  formal guidance for GWOT cost reporting. In addition, our prior work had  revealed that the Navy’s Atlantic Fleet and Pacific Fleet used different  approaches for allocating a ship’s normal operating costs and GWOT  costs. In September 2008, the Navy issued formal guidance for GWOT  cost reporting in response to weaknesses in internal controls for  contingency cost reporting that were identified as a result of its quarterly  validations of GWOT obligation transactions. According to the Navy, the  new guidance will increase the visibility of its costs, standardize its cost- reporting process for contingency operations, and increase the ability to  audit its financial systems. Further, beginning in fiscal year 2008, the  Atlantic Fleet and Pacific Fleet began using the same cost model for  calculating how much of a ship’s total operating costs should be allocated  to GWOT. This cost model estimates a ship’s GWOT operating costs by the  number of days that it is deployed in support of a military operation.  According to the Navy, this cost model is part of a broader initiative to  improve and coordinate financial management processes at both the  Atlantic Fleet and Pacific Fleet.
section_title: DOD’s Approach to GWOT Cost Reporting Does Not Reliably Represent the Costs of Each Contingency Operation
paragraphs: Although DOD has taken steps to improve certain aspects of its GWOT  cost reporting, its approach to identifying the costs of specific operations  has, in some cases, resulted in the overstatement of costs, particularly for  Operation Iraqi Freedom, and in other cases, for both contingencies. Since  2001, DOD has reported significant costs in support of Operation Iraqi  Freedom and Operation Enduring Freedom. However, we found that  reported costs for Operation Iraqi Freedom may be overstated due to  weaknesses in DOD’s methodology for reporting its GWOT costs by  contingency operation. Furthermore, the military services have reported  some costs that are not directly attributable to the support of either  Operation Iraqi Freedom or Operation Enduring Freedom.
subsections: section_title: DOD Has Reported Significant Costs for Operation Iraqi Freedom and Operation Enduring Freedom
paragraphs: As of September 2008, DOD had reported total obligations of about $654.7  billion for GWOT, including about $508.4 billion, or 78 percent, for  Operation Iraqi Freedom, about $118.2 billion, or 18 percent, for Operation  Enduring Freedom, and about $28.1 billion, or 4 percent, for Operation  Noble Eagle. As figure 1 shows, since fiscal year 2001, Operation Iraqi  Freedom has accounted for the largest amount of total reported  obligations among these three operations. However, DOD’s reporting of  costs for GWOT does not reliably represent the costs of contingency  operations, for reasons discussed below.
section_title: Weaknesses Exist in DOD’s Methodology for Reporting GWOT Costs by Contingency Operation
paragraphs: We found that reported costs for Operation Iraqi Freedom may be  overstated due to weaknesses in DOD’s methodology for reporting its  GWOT costs by contingency operation. Volume 12, chapter 23 of the DOD  Financial Management Regulation emphasizes the importance of cost  reporting and requires DOD components to make every effort possible to  capture and accurately report the cost of contingency operations.  Furthermore, this regulation states that actual costs should be reported,  but when actual costs are not available, DOD components are required to  establish and document an auditable methodology for capturing costs.  While the Army and Marine Corps are capturing totals for procurement  and certain operation and maintenance costs, they do not have a  methodology for determining what portion of these GWOT costs is  attributable to Operation Iraqi Freedom versus Operation Enduring  Freedom. For example, both military services reported their GWOT costs  for procurement and certain operation and maintenance activities as costs  exclusively attributable to Operation Iraqi Freedom, although a portion of  these costs are attributable to Operation Enduring Freedom. In fiscal year  2008:    The Army reported about $30.2 billion in GWOT procurement  obligations as costs tied to Operation Iraqi Freedom and none as part  of Operation Enduring Freedom, even though, according to Army  officials, some of these costs were incurred in support of Operation  Enduring Freedom. These reported obligations include both non-reset- related and reset-related procurement for items such as aircraft,  munitions, vehicles, communication and electronic equipment, combat  support, up-armored High Mobility Multipurpose Wheeled Vehicles,  and countermeasures for improvised explosive devices.
The Army reported obligations of about $8 billion for operation and  maintenance associated with reset for Army prepositioned stocks,  depot maintenance, recapitalization, aviation special technical  inspection and repair, and field maintenance as part of Operation Iraqi  Freedom but none for Operation Enduring Freedom, even though,  according to Army officials, some of these costs were incurred in  support of Operation Enduring Freedom.
The Marine Corps reported $3.9 billion in procurement obligations as  costs tied to Operation Iraqi Freedom but none as part of Operation  Enduring Freedom, even though, according to Marine Corps officials,  some of these costs were incurred in support of Operation Enduring  Freedom. As in the case of the Army, these reported obligations  include non-reset-related and reset-related procurement for various  items.
The Marine Corps reported obligations of about $1.1 billion for  operation and maintenance for “reconstitution/resetting the force” as  part of Operation Iraqi Freedom but none for Operation Enduring  Freedom, even though, according to Marine Corps officials, some of  these costs were incurred in support of Operation Enduring Freedom.
The reason military service officials gave for not separating equipment- related costs between the two operations was that it was difficult to do so.  Army officials told us that when actual costs cannot be clearly attributed  to Operation Iraqi Freedom or Operation Enduring Freedom, they report  all of these costs as part of Operation Iraqi Freedom since it is viewed as  the larger of the two operations in terms of costs and funding. Marine  Corps officials stated that they did not always know where GWOT  equipment purchased with procurement appropriations ultimately went.  These officials told us that they believed that the vast majority of the  equipment was delivered to Iraq since, prior to April 2008, the bulk of  Marine Corps forces had been deployed to Iraq in support of Operation  Iraqi Freedom. While this assumption could be generally correct, without  data on where equipment was delivered it is unclear what costs were  incurred to support each operation. We observed that the command  responsible for the acquisition and sustainment of war-fighting equipment  for the Marine Corps did not have a cost code for Operation Enduring  Freedom. As a result, all of the Marine Corps’ reported obligations for  procurement and equipment-related operation and maintenance expenses  were being coded in support of Operation Iraqi Freedom. Without a  methodology for determining what portion of total GWOT obligations is  attributable to Operation Iraqi Freedom or Operation Enduring Freedom,  reported costs for Operating Iraqi Freedom may be overstated and cost  information for both operations will remain unreliable.
section_title: Military Services Have Reported Some Costs That Are Not Directly Attributable to Operation Iraqi Freedom or Operation Enduring Freedom
subsections: section_title: Marine Corps
paragraphs: The Marine Corps reported about $1.4 billion in obligations for  procurement and operation and maintenance in fiscal year 2008 in support  of Grow the Force—a long-term force-structure initiative—as part of  Operation Iraqi Freedom. Grow the Force is an initiative that was  announced by the President in January 2007 to increase the active duty  end-strength of the Army and Marine Corps. According to Marine Corps  strategic guidance, this increase in force structure will provide the Marine  Corps with additional resources needed to fight what the Marine Corps  refers to as the “long war.” The guidance outlines the Marine Corps’  strategic plan for force employment to meet the need for  counterinsurgency and building partnership capacity in support of the  National Defense Strategy and multinational efforts in the “Global War on  Terrorism/Long War.” The Marine Corps established a cost code for  capturing Grow the Force costs. A Marine Corps official told us that they  reported all obligations in support of Grow the Force as part of Operation  Iraqi Freedom because, prior to April 2008, the majority of Marines  deployed overseas were stationed in Iraq. Marine Corps officials at  commands we visited told us that examples of their commands’ reported  obligations for operation and maintenance in support of Grow the Force  included civilian labor and infrastructure costs for bases and facilities  located inside the United States. These officials further stated that these  costs were necessary to accommodate the increased size of the force.  Similarly, at one Marine Corps command, we found reported GWOT costs  for the repair and renovation of sites and facilities located within the  United States for the purpose of improving security against terrorism.  Marine Corps officials at this command said that these security initiatives  included costs for such items as barbed wired fences, automatic vehicle  gates, automobile barricades, and security cameras. These officials further  stated that Marine Corps headquarters instructed them to code these costs  as part of Operation Iraqi Freedom. The Marine Corps reported about  $42.4 million in obligations for operation and maintenance for these  security costs in fiscal year 2008.
section_title: Air Force
paragraphs: The Air Force established a code for capturing “long war/reconstitution”  operation and maintenance costs based on changes in DOD’s funding  guidance for GWOT requests in fiscal year 2007. Air Force guidance  defines “long war” costs as all incremental costs related to the war on  terror beyond costs strictly limited to Operation Iraqi Freedom and  Operation Enduring Freedom. These costs include reconstitution/reset  costs for combat losses, accelerated wear and necessary repairs to  damaged equipment or replacement to newer models when existing  equipment is no longer available or economically feasible, and costs to  accelerate specific force capabilities to carry out GWOT. Among the costs  included in this code are forward-presence deployments or what the Air  Force calls Theater Security Packages, which is a forward-basing concept  involving both bombers and select fighter aircraft that is conducted in the  Pacific Command area of responsibility. Air Force officials told us that  because there is no category to report recurring or longer-term costs  separately from established GWOT contingency operations, they report  long war costs, including costs related to Theater Security Packages, as  part of Operation Iraqi Freedom since it is the largest operation. The Air  Force reported about $464 million in long-war costs for fiscal year 2008.
section_title: Navy
paragraphs: The Navy reported costs for forward-presence missions as part of GWOT  contingency operations even though the Navy routinely deploys its forces  around the globe in peacetime as well as wartime. As these GWOT  contingency operations have evolved over time, it has become increasingly  difficult to determine what costs can be deemed as incremental expenses  in support of these operations from costs that would have been incurred  whether or not these contingency operations took place, such as ship  operating costs for the Navy. For example, the Atlantic and Pacific surface  commands, which are responsible for managing the Navy’s surface ships,  reported obligations for costs associated with ship operations and port  visits for ships deployed on forward-presence missions in the Western  Pacific. Navy officials told us that some of these ships are stationed out of  Hawaii, Japan, and Guam and operate near Malaysia, the Philippines, and  Thailand. According to Navy officials, these ships are spending more time  at sea and visiting more foreign ports in an effort to provide additional  presence in support of GWOT. In 2008, Navy officials stated that Navy  guidance expanded the definition of incremental costs in support of  Operation Enduring Freedom to include those costs associated with forces  operating in the Southern Command area of responsibility. We found that  the Atlantic and Pacific surface commands reported obligations for ship  operating costs and port visit costs for ships deployed on humanitarian  missions in Central and South America. Navy officials said that ships  deployed on humanitarian missions have visited countries such as El  Salvador and Peru. These officials told us that the Navy considers the  humanitarian missions to be GWOT-related because they benefit the  security of the United States by spreading goodwill and reducing the  expansion of terrorism in foreign nations. Costs for these missions are  included within the Atlantic and Pacific surface commands’ ship operating  costs for GWOT, which according to our analysis represented about 21  percent (about $875 million) of the Atlantic Fleet and Pacific Fleet’s total  GWOT reported obligations for operation and maintenance (about $4.2  billion) in fiscal year 2008.
Until DOD reconsiders whether expenses not directly attributable to  specific GWOT contingency operations are incremental costs, the military  services may continue to include these expenses as part of Operation Iraqi  Freedom and Operation Enduring Freedom. Furthermore, reported costs  for both operations may be overstated and costs not directly attributable  to either operation may continue to be included in DOD’s GWOT funding  requests rather than the base budget.
section_title: Conclusions
paragraphs: In light of the nation’s long-term fiscal challenge and the current financial  crisis, DOD will need a more disciplined approach to budgeting and  evaluating trade-offs as it continues to support ongoing operations and  prepares for future threats. As the department prepares additional GWOT  funding requests for military operations in support of Operation Iraqi  Freedom and Operation Enduring Freedom, reliable and transparent cost  information will be of critical importance in determining the future  funding needs for each operation. However, DOD’s approach to cost  reporting does not reliably represent the costs of these contingency  operations. Although DOD has reported significant costs for Operation  Iraqi Freedom and Operation Enduring Freedom, the cost for Operation  Iraqi Freedom may be overstated, since DOD does not have a methodology  to determine what portion of its total reported GWOT obligations for  procurement and certain operation and maintenance costs is attributable  to each operation. Furthermore, it is difficult to determine whether some  expenses not directly attributable to Operation Iraqi Freedom and  Operation Enduring Freedom are actually incremental costs and incurred  to support those operations. Expenses beyond those directly attributable  to either operation may be more reflective of the enduring nature of  GWOT and the United States’ changed security environment since 9/11 and  thus should be part of what DOD would request and account for as part of  its base budget. Due to the enduring nature of GWOT, its cost implications  should be part of the annual base budget debate, especially in light of the  competing priorities for an increasingly strained federal budget.
section_title: Recommendations for Executive Action
paragraphs: In order to improve the transparency and reliability of DOD’s reported  obligations for GWOT by contingency operation, we recommend that the  Secretary of Defense direct the Under Secretary of Defense (Comptroller)  to (1) ensure DOD components establish an auditable and documented  methodology for determining what portion of GWOT costs is attributable  to Operation Iraqi Freedom versus Operation Enduring Freedom when  actual costs are not available, and (2) develop a plan and timetable for  evaluating whether expenses not directly attributable to specific GWOT  contingency operations are incremental costs and should continue to be  funded outside of DOD’s base budget.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, DOD agreed with our first  recommendation and partially agreed with our second recommendation.  The department’s comments are discussed below and are reprinted in  appendix II.
DOD agreed with our recommendation that it ensure its components  establish an auditable and documented methodology for determining what  portion of GWOT costs is attributable to Operation Iraqi Freedom versus  Operation Enduring Freedom when actual costs are not available. In its  comments, DOD noted that it believes its components, for the most part,  have established formal guidance to strengthen internal controls and  capture all costs associated with Operation Iraqi Freedom and Operation  Enduring Freedom from within their accounting systems. However, DOD  noted that the DOD Financial Management Regulation does include  guidance for DOD components to develop auditable methodologies, and  when actual cost by operation is not available, its components are  required to internally document the methodology used to develop a  derived estimate of the cost. DOD stated that it intends to strengthen the  guidance in its Financial Management Regulation to require an annual  review of the methodologies used to allocate these costs. DOD believes  this action will help promote reasonable cost allocations and consistent  cost-of-war reporting throughout the department.
DOD partially agreed with our second recommendation that it develop a  plan and timetable for evaluating whether expenses not directly  attributable to specific GWOT contingency operations are incremental  costs and should continue to be funded outside of DOD’s base budget.   DOD noted that it has been reporting contingency costs for several years  and its objective is to include all incremental costs attributable to the war  effort. DOD also stated that, as part of its continuing efforts to improve  both budgeting and reporting of war costs, it collaborated with the Office  of Management and Budget to refine the criteria used for determining  where costs will be budgeted, either in the base or contingency budgets,  and ultimately reported. DOD noted that it will use the refined criteria to  inform the development of portions of the fiscal year 2009 Overseas  Contingency Operations Supplemental Request and the full fiscal year  2010 Overseas Contingency Operations Request, which has not yet been  submitted to Congress. As a result, we have not yet been able to evaluate  DOD’s actions to assess whether they meet the intent of our  recommendation, but will review these actions when the budget requests  are finalized and submitted to Congress.
We are sending copies of this report to interested congressional  committees; the Secretary of Defense; the Under Secretary of Defense  (Comptroller); and the Director, Office of Management and Budget. In  addition, the report is also available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions regarding this report, please  contact me at (202) 512-9619 or pickups@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 III.
section_title: Appendix I: Scope and Methodology
paragraphs: To accomplish this review, we obtained and reviewed copies of the  October 2007 through September 2008 monthly Department of Defense  (DOD) Supplemental and Cost of War Execution Reports from the Office  of the Undersecretary of Defense (Comptroller) to identify reported  Global War on Terrorism (GWOT) obligations by contingency operation  and appropriation account for the military services. We focused our  review on the obligations reported for military personnel, operation and  maintenance, and procurement, for the Army, Navy, Marine Corps and Air  Force, both active and reserve forces, as these data represent the largest  amount of GWOT costs.
As we have previously reported, we have found the data in DOD’s  Supplemental and Cost of War Execution Reports to be of questionable  reliability. Consequently, we are unable to ensure that DOD’s reported  obligations for GWOT are complete, reliable, and accurate, and they  should therefore be considered approximations. In addition, DOD has  acknowledged that systemic weaknesses with its financial management  systems and business operations continue to impair its financial  information. Despite the uncertainty about DOD’s obligation data, we are  using this information because it is the only way to approach an estimate  of the costs of the war. Also, despite the uncertainty surrounding the true  dollar figure for obligations, these data are used to advise Congress on the  cost of the war.
To assess DOD’s progress in improving the accuracy and reliability of its  GWOT cost reporting, we analyzed GWOT obligation data in DOD’s  monthly Supplemental and Cost of War Execution Reports as well as the  military services’ individual accounting systems. These systems included  the Army’s Standard Financial System, the Navy’s Standard Accounting  and Reporting System, the Marine Corps’ Standard Accounting, Budgeting  and Reporting System, and the Air Force’s Commanders Resource  Information System. We analyzed GWOT obligation data from these  accounting systems to better understand the military services’ GWOT cost- reporting procedures and how they used these data to report costs in  DOD’s monthly Supplemental and Cost of War Execution Reports. We  then obtained and reviewed guidance issued by DOD and the military  services regarding data analysis and methods for reporting obligations for  GWOT. We also interviewed key officials from the Office of the Under  Secretary of Defense (Comptroller), the Defense Finance and Accounting  Service, the Army, Navy, Marine Corps, and Air Force to obtain  information about specific processes and procedures DOD and the  military services have undertaken to improve the accuracy and reliability  of reported GWOT cost information.
To assess DOD’s methodology for reporting GWOT costs by contingency  operation, including the types of costs reported for those operations, we  analyzed GWOT obligation data in DOD’s monthly Supplemental and Cost  of War Execution Reports, including the source data for those reports in  the military services’ individual accounting systems. As previously  discussed, these systems included the Army’s Standard Financial System,  the Navy’s Standard Accounting and Reporting System, the Marine Corps’  Standard Accounting, Budgeting and Reporting System, and the Air  Force’s Commanders Resource Information System. We analyzed GWOT  obligation data from these accounting systems to determine how the  military services captured costs for specific contingency operations,  including the types of costs they included as part of these contingency  operations. We then obtained and reviewed guidance issued by DOD and  the military services for identifying and reporting GWOT obligations by  contingency operation. We also interviewed key officials from the Office  of the Under Secretary of Defense (Comptroller), the Army, Navy, Marine  Corps, and Air Force to determine how they interpreted and implemented  this guidance.
subsections: section_title: Army
paragraphs: Headquarters, Department of the Army, Washington, D.C.    U.S. Army Installation Management Command Headquarters,    Army Materiel Command, Ft. Belvoir, Virginia    Headquarters, U.S. Army Forces Command, Ft. McPherson, Georgia    U.S. Army Central Command, Ft. McPherson, Georgia    U.S. Army Installation Management Command, Southeast Region, Ft.
section_title: Navy
paragraphs: Department of the Navy, Headquarters, Washington, D.C.    Commander, Navy Installations Command Headquarters, Washington,  D.C.
section_title: Marine Corps
section_title: Air Force
section_title: Office of the Secretary of Defense
paragraphs: Office of the Under Secretary of Defense (Comptroller) Washington,  D.C.
section_title: Defense Finance and Accounting Service
section_title: Unified Commands
section_title: Office of Management and Budget
paragraphs: Office of Management and Budget, Washington, D.C.
We performed our work from January 2008 through March 2009 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: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, Ann Borseth, Assistant Director;  Richard Geiger; Susan Ditto; Linda Keefer; Ron La Due Lake; Deanna  Laufer; Lonnie McAllister; Eric Petersen; and Joseph Rutecki made key  contributions to this report.