Defense Budget: DOD Needs to Improve Reporting of Operation and Maintenance Base Obligations
Published: 2016-08-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: O&M is DOD's largest category of appropriations and constitutes about 43 percent of the President's total request for DOD of $582.7 billion in fiscal year 2017. The President requested $251 billion for DOD's total O&M funding, which included approximately $206 billion for O&M base and $45 billion for O&M OCO.
Senate Report 114-49 included a provision for GAO to review the effects of budgetary constraints on DOD's base funding within its O&M appropriations accounts. This report (1) identifies the trends in enacted funding for DOD's O&M base appropriations accounts since fiscal year 2009; (2) describes how much O&M funding DOD has transferred or reprogrammed, and the effect of this realignment on base obligations; and (3) evaluates the extent to which DOD reported to Congress its O&M obligations for its base and OCO budgets. GAO analyzed DOD's O&M budget justification materials and execution reports since 2009 and interviewed DOD officials.
section_title: What GAO Found
paragraphs: Congress enacted funding for the Department of Defense's (DOD) Operation and Maintenance (O&M) into multiple base appropriations accounts, which are used to pay for day-to-day programs and activities. This enacted funding generally has increased each year since fiscal year 2009, with the exception of fiscal year 2013, when sequestration reduced funding for O&M base.
GAO found that DOD used its authorities to realign about $146.9 billion of its funding from fiscal years 2009 through 2015 (that is, moving funds through transfers from one account to another, and reprogrammings within an account). During GAO's review, the effects of such realignments on base obligations were not readily apparent because DOD did not report its O&M base obligations to Congress separately from its O&M overseas contingency operations (OCO) obligations used to support war-related programs and activities. GAO estimated O&M base obligations since fiscal year 2009 and found that DOD's realignment of funds led to its O&M base obligations exceeding O&M base enacted amounts in each fiscal year and by an annual average of 5.6 percent (see figure).
DOD reported to Congress a combination of O&M base and O&M OCO obligations in its budget justification materials and execution reports, but it did not separately report its O&M base obligations by account for each of its multiple O&M base appropriations. These materials and reports are key documents that help Congress appropriate, conduct oversight of, and provide control over funds. The Senate Appropriations Committee has expressed concern in its report accompanying a bill for DOD's fiscal year 2015 appropriations that it does not have a clear understanding of OCO funding used to support DOD's day-to-day programs and activities. The services track O&M obligations by base and OCO appropriations for OCO reporting purposes, but DOD's financial management regulations do not require it to congressionally report O&M base obligations separately for each account in its budget justification materials and execution reports. By revising its guidance to require congressional reporting on O&M base obligations for each account in these materials and reports, DOD could provide complete information to assist Congress in better understanding and overseeing DOD's full funding needs for O&M base.
section_title: What GAO Recommends
paragraphs: To assist Congress in its oversight of the O&M budget, GAO recommends that DOD revise its guidance on preparing budget materials and execution reports to require the addition of O&M base obligations for each account. DOD did not concur, citing the inability of its current financial systems to easily distinguish base obligations. GAO believes the recommendation is valid as discussed in the report.

section_title: Letter
paragraphs: The Department of Defense (DOD), like other federal agencies, operates  within congressionally set appropriation levels that require prioritizing  expenses and investments to balance its strategic and operational  activities and to mitigate risks. As DOD’s largest single category of  appropriations, operation and maintenance (O&M) base funding is used  to pay for day-to-day programs and activities—including operating  support for installations, training and education, civilian personnel,  maintenance, contracted services, and defense health—some of which  are directly linked to military readiness. In addition, Congress  appropriates O&M overseas contingency operations (OCO) funding to  support contingency and other operations. In committee reports  accompanying defense appropriation acts, the House and Senate  appropriations committees have on several occasions expressed concern  that DOD relies on a portion of its OCO appropriations to fund O&M  programs and activities that began in response to contingency operations  but have continued after these operations ended. In the budget for fiscal  year 2017, the President requested $251 billion for DOD’s total O&M  funding, which included approximately $206 billion for O&M base and $45  billion for O&M OCO. This $251 billion request constituted 43 percent of  the President’s total request for DOD of $582.7 billion for fiscal year 2017.
Senate Report 114-49 accompanying, a proposed version of the National  Defense Authorization Act for Fiscal Year 2016, includes a provision for  GAO to evaluate the effects of budgetary constraints on DOD’s available  base funding within the O&M appropriations accounts. This report (1)  identifies the trends in enacted and planned funding for DOD’s O&M base  appropriations since fiscal year 2009; (2) describes the amount of O&M  funding DOD has transferred or reprogrammed, and the effect of this  realignment on O&M base obligations; and (3) evaluates the extent to  which DOD reported to Congress its O&M obligations for its base and  OCO budgets.
To identify the trends in enacted and planned funding for DOD’s O&M  accounts since fiscal year 2009, we analyzed data on enacted and other  available base funding from DOD’s budget materials. We began with  fiscal year 2009 because it was the first year after the surge in both Iraq  and Afghanistan and would provide us with a 7-year period of data. All  enacted funding amounts are in nominal dollars as presented in the  budget materials. In addition, we interviewed officials from the Office of  the Under Secretary of Defense (OUSD) Comptroller and the military  services’ financial management offices about O&M base funding. To  identify how DOD’s base funding plans for O&M compared to its enacted  funding levels since fiscal year 2009, we analyzed summary data from  DOD’s O&M 5-year funding plans for O&M to determine the differences.  We verified the accuracy of data that we obtained with OUSD Comptroller  and Cost Assessment and Program Evaluation officials and determined  that the data were sufficiently reliable for the purposes of this audit with  attribution to DOD and the source documents.
To describe the amount of O&M funding DOD has transferred or  reprogrammed and the effect of this realignment on O&M base  obligations since 2009, we analyzed data from DOD’s execution reports,  budget materials, and financial management officials from the military  services. Our analysis goes through fiscal year 2015, as this was the last  full year of data available during our review. We also interviewed OUSD  Comptroller and military service financial management officials to  understand DOD’s process for transferring and reprogramming funds,  including congressional notification. We verified the accuracy of the data  that we obtained with OUSD Comptroller officials and determined that the  data were sufficiently reliable for the purposes of this audit with attribution  to DOD and the source documents. To understand the differences  between DOD’s O&M base obligations and the amount Congress  designated for O&M base programs and activities, we estimated O&M  base obligations because DOD does not report this information  separately from O&M OCO obligations in its budget justification materials  or execution reports as discussed later in the report. To do this, we  compiled and summed O&M OCO obligations reported in the OCO  budget justification books for each O&M base account and subtracted this  amount from total O&M obligations reported in DOD’s O&M base budget  exhibits at the account level. We took similar steps to estimate base  obligations by each subactivity group within the military services’ O&M  base accounts. Next, we compared enacted amounts with our estimated  total O&M base obligations. We grouped the military service-level  subactivity groups into 11 categories of similar activities and compared  the congressional designations for the 11 categories to estimated base  obligations for the corresponding categories. We verified our data with  OUSD Comptroller and military service financial management officials  and determined that the data were sufficiently reliable with attribution to  DOD and source documents.
To evaluate the extent to which DOD reported O&M base and OCO  obligations to Congress, we reviewed the information available in DOD’s  budget justification materials and execution reports in light of federal  internal control and accounting standards that outline how information  should be recorded and communicated to management and others. For  more information on our scope and methodology, see appendix I.
We conducted this performance audit from August 2015 to August 2016  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
subsections: section_title: Overview of DOD’s O&M Budget
paragraphs: DOD identifies 32 accounts for fiscal year 2017 under the appropriation  category of O&M, including both base and OCO funding. Among the  military services, each of their components receives its own O&M  appropriations and has corresponding accounts—active (Army, Navy,  Marine Corps, and Air Force), reserve (Army Reserve, Navy Reserve,  Marine Corps Reserve, and Air Force Reserve), and National Guard  (Army National Guard and Air National Guard). Additionally, there are  O&M accounts for defense-wide and other DOD programs, such as the  defense health program.
In support of DOD’s budget request included in the annual President’s  budget, DOD financial management officials prepare separate  congressional budget justification materials by account for O&M base and  O&M OCO. Each set of O&M budget justification materials is divided first  into budget activities, such as operating forces and mobilization for the  military services’ O&M accounts. For some O&M accounts, the budget  activities are then divided into activity groups. For example, the defense- wide budget justification materials for O&M are divided by activity group,  which represent a defense agency. For other O&M accounts, the budget  activities are further divided into subactivity groups. For example, the  military service justification materials for O&M are divided first into various  activity groups, such as installation support and weapons support, and  then into subactivity groups, such as depot maintenance and operating  support for installations.
DOD submits to Congress annual budget justification materials that  provide details at the budget activity, activity group, or subactivity group  level. Congress separately appropriates amounts for O&M base and O&M  OCO activities into existing O&M base accounts. Congress directs how  O&M funds are to be spent by designating specific amounts at the activity  level in conference reports or explanatory statements accompanying  annual appropriations acts. DOD financial management officials execute  both O&M base and O&M OCO funds from the base O&M account. For  example, Army financial management officials execute both O&M base  funding and O&M OCO funding from the Army base O&M account.
section_title: DOD’s Five-Year Funding Plan
paragraphs: DOD conducts an annual process for determining its budget request and  allocating resources. This includes developing a 5-year funding plan by  appropriation that identifies the immediate budget priorities and future  projections for the next 4 fiscal years, and is called the Future Years  Defense Program. The Future Years Defense Program reflects  decisions made in DOD’s annual budget process and represents  estimated funding that the President requests from Congress for the  current budget year and at least the 4 fiscal years following it. In 1987,  Congress directed the Secretary of Defense to submit the 5-year funding  plan, in part, to establish a mechanism to help inform DOD and Congress  on current and planned funding needs as decisions are made. The 5- year funding plans are specific to DOD’s total base funding and do not  include OCO funding.
section_title: Transfers and Reprogramming
paragraphs: Provisions of annual defense appropriations and authorization acts  provide DOD with authority to transfer funds. DOD can realign funds (1)  between appropriations accounts through transfers and (2) within an  account’s budget activity from the same appropriations account through  reprogrammings. While transfers require statutory authority, DOD officials  may also realign, or reprogram, O&M base funds within an appropriations  account’s budget activity as part of their duty to manage their funds and  do not require statutory authority to do so. For both transfers and  reprogrammings, Congress requires notification of DOD’s fiscal year  baseline for application of reprogramming and transfer authorities prior to  funds becoming available for reprogramming or transfer. Further, if a  transfer or reprogramming exceeds threshold amounts established by  Congress, prior approval of a congressional committee is required. For  example, effective for fiscal year 2015, the basic reprogramming  threshold for O&M that requires DOD to notify Congress in writing was a  cumulative increase or decrease of $15 million. However, the military  services can transfer or reprogram funds that are below threshold  amounts between budget activities within O&M base accounts without  requiring written congressional approval.
section_title: DOD’s Enacted Funding for O&M Base Generally Increased Each Fiscal Year since 2009 But Was Less Than DOD Had Planned, and Congress Made Additional O&M Funding Available
paragraphs: DOD’s enacted funding for O&M base has generally increased each year  since fiscal year 2009, with the exception of fiscal year 2013. Enacted  funding, set by Congress, establishes how much the department can  obligate in a given fiscal year, unless the amounts are subsequently  adjusted through additional congressional action or DOD’s use of its  authorities to transfer funds between appropriations accounts. Based on  DOD’s data, enacted funding for O&M base in nominal dollars increased  by 7 percent from about $185.0 billion in fiscal year 2009 to about $198.5  billion in fiscal year 2016 (see figure 1).
Our analysis of the budget year of DOD’s 5-year funding plans for O&M  base from fiscal years 2009 through 2016 found that since fiscal year  2011, DOD consistently planned for more O&M base funding than  Congress enacted. The 5-year funding plans—also known as the Future  Years Defense Plan—consist of a budget year (first fiscal year) and out- years (4 subsequent fiscal years beyond the budget year), and are  intended to help inform Congress on current and future planned funding  needs. Congress enacted more funding than DOD planned in the fiscal  year 2009 budget year and the amount enacted was the same as planned  in the fiscal year 2010 plan. Since 2011 the enacted amount was less  than the planned amount by between 1.8 and 7.2 percent. Figure 2  provides details on DOD’s funding plans and enacted amounts for O&M  base.
Further, between the funding plans for fiscal year 2009 and fiscal year  2015, planned O&M base funding in the out-years was adjusted  downward relative to the previous year until fiscal year 2016, when it  slightly increased. For example, in the fiscal year 2011 plan, DOD  estimated that its planned funding in the out-years would increase by 12.9  percent ($27.4 billion) between the first and the last out-year of the plan  (fiscal years 2012-2015), but in the fiscal year 2012 plan, DOD decreased  its estimate of planned funding in the out-years (fiscal years 2013-2016)  as compared to the fiscal year 2011 plan by 8.4 percent ($18.1 billion).  The decrease relative to the previous year continued until the fiscal year  2016 plan when DOD adjusted its plans upward for fiscal years 2018 and  2019 from the amounts in the fiscal year 2015 plan, as shown above in  figure 2.
We found that various factors influenced the changes in the out-year  amounts since the fiscal year 2009 plan. For example, according to DOD  documents, the 5-year plan for fiscal year 2011 reflected the defense  objectives outlined in the 2010 Quadrennial Defense Review and the  corresponding increase in requirements to carry out those objectives. The  department then began to reduce its planned growth in fiscal year 2012,  as compared to fiscal year 2011, according to DOD budget documents  and DOD officials, based on a variety of initiatives intended to improve  the efficiency of DOD’s business operations by reducing excess overhead  costs. In fiscal years 2013 through 2015, DOD further reduced its base  O&M funding plans as it realigned its entire discretionary budget closer to  expected appropriations. According to DOD documents and officials, this  was achieved through a combination of continued efficiency initiatives  and economic adjustments, among other reductions. However, in fiscal  year 2016, DOD’s funding plans did not include further reductions.  According to DOD’s fiscal year 2016 budget request and DOD officials,  the department concluded that it could not execute its updated defense  strategy at the expected appropriation level.
Congress made additional funding available to DOD’s O&M base  programs and activities in fiscal years 2009 through 2016. Specifically,  Congress made additional funding available to DOD’s O&M base in two  areas: OCO funding for programs and activities requested in the base  budget and OCO funding for readiness-related efforts.
OCO Funding for Programs and Activities Requested in the Base  Budget: In fiscal years 2009 through 2016, according to DOD’s data,  Congress made additional funding available by designating O&M  supplemental or OCO funding to be used for certain O&M base  programs and activities for which DOD had requested O&M base  funding. For example, Congress directed additional funding from  fiscal years 2009 through 2016, ranging from $405 million in fiscal  year 2013 to $9.2 billion in fiscal year 2014. According to DOD  officials and budget documents, Congress gave the department the  approval to transfer this OCO funding for base programs and  activities.
OCO Funding for Readiness-Related Efforts: In fiscal year 2015,  Congress provided $1 billion in OCO funding to be used for  supporting DOD’s readiness efforts. According to DOD officials, this  OCO funding could be used to support O&M base programs and  activities that relate to readiness-related efforts, such as increased  training, depot maintenance, and operations support for installations.
Conversely, the sequestration in fiscal year 2013 reduced DOD’s O&M  base funding when across-the-board spending reductions were applied to  all nonexempt appropriations accounts across the government. The  reductions resulted in a decrease of $11.9 billion to DOD’s O&M base, to  $182.8 billion, the lowest level since fiscal year 2009. Figure 3 shows  DOD’s enacted funding for O&M base with changes directed by Congress  and as a result of sequestration.
section_title: DOD Has Realigned $146.9 Billion of O&M Funding since Fiscal Year 2009
paragraphs: Our analysis of DOD data for the military services’ and defense-wide  agencies’ O&M accounts—from fiscal years 2009 through 2015—found  that DOD realigned $146.9 billion by transfers between O&M base, O&M  OCO, and other appropriations accounts and reprogrammings within  O&M accounts. These realigned funds represented 11 percent of the  $1,336.5 billion enacted for these accounts.  According to DOD and  military service officials, they used existing statutory authorities to transfer  (realign funds between appropriations accounts) or reprogram (realign  funds from the same appropriation within an account’s budget activity)  O&M funding to adjust to differences in their budget year funding plans  and respond to emerging requirements, such as disaster response and  new contingency operations. The officials stated that this flexibility helps  the department to manage risk associated with priority missions by  ensuring that resources are aligned appropriately. DOD relied on legal  authority with congressional approval where necessary to realign  about $71.3 billion (48.5 percent) of these funds from transfers between  or reprogrammings within appropriations. DOD also reprogrammed about  $75.6 billion (51.5 percent) of these funds between budget activities  within accounts in amounts that did not require prior congressional  approval (see figure 4).
We estimated that after the department used its authorities to transfer  funds, DOD’s base obligations subsequent to fiscal year 2009 were  greater than amounts enacted by Congress for O&M base funding by an  annual average of 5.6 percent. During the period of our review, DOD did  not report O&M base obligation amounts separately from O&M OCO  amounts in its budget justification materials or execution reports;  therefore, we estimated base obligations for O&M. We found in 5 of the 7  fiscal years we estimated that O&M base obligations—consisting of  enacted and realigned amounts—were 5.6 percent to 8.7 percent greater  than congressionally enacted amounts ($10.9 billion and $16.7 billion,  respectively). The exceptions were fiscal years 2009 and 2013, when  DOD obligated 1 percent and 2.6 percent more, respectively, than the  enacted amount, even with reductions in fiscal year 2013 resulting from  sequestration (see figure 5).
While overall obligations exceeded enacted amounts in each year due to  transfers and reprogrammings, we also found that consistent patterns of  difference existed within certain categories of spending. Among the  military services’ accounts (including the active, reserves, and National  Guard), we found that after the military services had reprogrammed funds  from the amounts designated by Congress, their obligations for O&M  base subsequent to 2009 were consistently different from designated  amounts for at least 3 consecutive years in 3 out of 11 specific categories  of similar O&M subactivity groups. Specifically, we found, as shown in  figure 6:
Base Operating Support: In each fiscal year since 2009 the military  services obligated more than Congress designated for the 7-year  period collectively by a total of $17.9 billion.
Administrative and Management Functions: In each fiscal year since  2009, the military services obligated more than Congress designated  for the 7-year period collectively by a total of about $5.4 billion.
Mobilization: Since fiscal year 2012, the military services obligated  more than Congress designated for the 4-year period collectively by a  total of about $1.2 billion.
In interviews with OUSD Comptroller officials, we discussed these  consistent patterns of differences in obligations as compared with what  was designated by Congress. Officials stated that it is often difficult to  predict some requirements 2 years before they occur. However, in the  area of base operating support, where costs are often more fixed and  predictable, officials told us that they reviewed the military services’  obligations and became aware in 2015 of the Army’s consistent pattern of  obligating amounts greater than Congress designated. Officials told us  that they have since taken steps to better align the request with the  requirement by issuing guidance to the Army to incorporate information  on prior spending levels in this area within the budget request for fiscal  year 2017. In addition, they discussed that in fiscal years 2011 and 2012  the difference from the designated amount for the Air Force resulted from  the use of O&M base funding to support OCO requirements.
In addition, our analysis found that there was no consistent pattern of  differences between spending and what was designated by Congress  among the two categories of subactivity groups that are most directly  related to readiness—maintenance and weapon systems support and  operational tempo and training. For these two categories, spending  varied most years between under- and over-obligations. In addition, since  fiscal year 2014, the largest magnitude of over-obligation has not been in  these categories, but in base operating support as previously discussed  (see figure 7).
section_title: DOD Reported Obligations to Congress on O&M OCO but Not O&M Base Obligations
paragraphs: DOD has reported its O&M OCO obligations to Congress, but it has not  reported its O&M base obligations. Instead, DOD has reported a  combination of O&M base and OCO obligations in its O&M base budget  justification materials and execution reports. Congressional budget  justification materials and O&M execution reports are key documents that  help Congress make appropriations decisions, conduct oversight, and  provide control over funds. DOD information on O&M base obligations is  important in enabling Congress to have a more complete understanding  of what costs paid for by DOD’s OCO appropriations are intended for  base activities. The FASAB Handbook of Federal Accounting Standards  and Other Pronouncements, as Amended suggests that agencies should  provide reliable and timely information on the full costs of their federal  programs aimed at assisting congressional and executive decision  makers in allocating federal resources and making decisions to improve  operating economy and efficiency. In addition, Standards for Internal  Control in the Federal Government emphasizes using quality and  complete information to make decisions and communicate such  information externally.
The Senate Appropriations Committee’s report accompanying a bill for  DOD’s fiscal year 2015 appropriations stated that the committee does not  have a clear understanding of enduring activities funded by the OCO  budget. The committee noted the potential for risk in continuing to fund  non-contingency-related activities through the OCO budget. The  committee directed the Secretary of Defense to submit a report showing  the transfers of OCO funding to the base budget for fiscal year 2016 at  the time of the President’s budget submission for fiscal year 2017. This  request to show transfers of OCO funding to the base demonstrates that  having information on base obligations at a detailed level is useful to  Congress as it aims to better understand the magnitude of spending for  base activities to date and in the future. OUSD Comptroller officials told  us that the department has not provided the report because the evolution  of threats in U.S. Central Command’s area of responsibility creates  uncertainty over its enduring missions. We made a similar  recommendation in 2014 that DOD develop guidance for transitioning  enduring programs and activities funded through OCO appropriations to  the base budget request. DOD partially concurred with that  recommendation, and in the fiscal year 2016 base budget request the  department proposed to outline a plan to complete this transition,  beginning in 2017, by 2020. However, according to DOD officials, the  department has suspended the timeline to complete this transition due to  the mission uncertainty discussed above.
DOD has reported O&M OCO obligations to Congress at the levels of  information—that is, budget activity, activity group, or subactivity group  level—presented in its O&M OCO budget justification materials by each  O&M OCO account. It reported all four military services by active,  reserves, and National Guard accounts; defense-wide accounts; and  defense health account. However, in its O&M base budget justification  materials and O&M execution reports, DOD reported combined  obligations for the base and OCO appropriations in each appropriations  account that receives both types of O&M appropriations. For example,  in fiscal year 2009, we calculated from each account’s OCO budget  justification materials that DOD’s O&M OCO obligations were $83.9  billion, and DOD reported that in the same period its total O&M  obligations were $270.6 billion. Subtracting O&M OCO obligations from  O&M total obligations reveals that O&M base obligations would be  approximately $186.7 billion for fiscal year 2009, as we showed  previously in figure 5. While the total level of O&M base obligations can  be readily estimated, the effects of the realignment of funds on categories  of similar subactivity groups is not so readily apparent. As discussed in  the previous section, in some cases there are consistent patterns of over- obligation across certain categories of subactivity groups.
According to OUSD Comptroller officials, DOD components track  obligations by base and OCO appropriation, but DOD’s Financial  Management Regulation—issued by the OUSD Comptroller—does not  require the department to report to Congress on O&M base obligations at  the levels of information presented by account in its base budget  justification materials and execution reports. Additionally, the officials  stated that Congress has not asked the department to report O&M base  obligations separately from OCO obligations.
Military service officials confirmed that they track both base and OCO  O&M obligations in their financial accounting systems and provide the  OCO obligation information to OUSD Comptroller for reporting purposes.  However, when we asked the OUSD Comptroller officials if they could  include O&M base obligations in their budget justification materials and  execution reports, the officials stated that it would be resource-intensive  to report O&M base obligations separately from O&M OCO at the level of  information presented for each account because the information is not  integrated into one common financial accounting system. Instead, the  military services currently use different accounting codes in their  individual financial accounting systems to track base and OCO  obligations. When we discussed manually estimating O&M base  obligations with OUSD Comptroller officials as we had done, they  acknowledged that they have used an approach similar to ours for  internal estimates of O&M base obligations for total O&M, total account,  and lower-level account information.
Since 1995, our work on risk to federal government operations has  included DOD’s financial management as an area of high risk because it  lacks accurate, timely, and useful information, among other things, that  have limited DOD’s ability to ensure basic financial accountability, to  prepare auditable financial statements, and to make sound decisions  affecting the department’s operations. Evaluating how DOD currently  collects cost information on base activities in connection with ongoing  efforts to improve financial systems to address these limitations could  help the department identify ways to more consistently and efficiently  capture and report this information in the future. Until DOD revises its  guidance to require reporting of O&M base obligations at the level of  information presented for each account in its budget justification materials  and execution reports, Congress will not have complete information to  better understand DOD’s full funding needs for its O&M base programs  and activities and to oversee the O&M budget.
section_title: Conclusions
paragraphs: Although operation and maintenance accounts are the largest category of  DOD’s appropriations, DOD does not report O&M base obligations to  Congress separately from O&M OCO obligations in its budget justification  materials and O&M execution reports. It currently has the means to  collect this information for internal purposes. Further, as the department  works to improve its financial systems to achieve financial auditability,  DOD has the opportunity to begin collecting consistent information more  efficiently in this area of its budget across the department’s various  organizations. In light of federal accounting and internal control  standards, agencies should inform Congress on the full costs of their  programs to assist with allocating federal resources and conducting  oversight. DOD could do this by requiring the inclusion of O&M base  obligations at the level of information presented in each account’s reports  to Congress.
section_title: Recommendation for Executive Action
paragraphs: To ensure that Congress will have more complete information on DOD’s  full funding needs for its O&M base budget and to conduct oversight of  DOD’s use of OCO funds to support base programs and activities, we  recommend that the Secretary of Defense direct the OUSD Comptroller to  revise its guidance on preparing budget justification materials and  execution reports for Congress to require the addition of O&M obligations  used for base programs and activities at the level of information  presented for each account.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOD for review and comment. In its  written comments, which are summarized below and reprinted in  appendix II, DOD did not concur with the recommendation.
In its written comments, DOD noted that many of its financial accounting  systems currently in use cannot distinguish between O&M base and OCO  obligations easily, and that due to limited resources as a result of  headquarters reductions, the requirement to manually identify these  obligations in O&M budget justification materials and quarterly O&M  execution reports will be extremely labor intensive. DOD further noted  that once all DOD components convert from these financial accounting  systems, the department should be able to report O&M base and OCO  obligations consistently and effectively.
For over two decades, we have recognized and brought attention to  DOD’s reliance on financial accounting systems with significant  weaknesses. In addition, we have consistently acknowledged that the  reliability of DOD’s financial information will be increasingly important to  the federal government’s ability to make sound resource allocation  decisions. While DOD is in the process of implementing various  enterprise resource planning systems to improve its financial accounting  departmentwide and implement an audit ready systems environment, as  required by Congress, we also recognize that DOD’s continued efforts will  take time.
However, in the interim, the revision we recommended to DOD’s  guidance would help to establish the consistent reporting of O&M base  and OCO obligations once those enterprise resource planning systems  are in place. Specifically, revised guidance for preparing congressional  budget justification materials and execution reports to require the addition  of O&M base obligations for each O&M account would position DOD  components to report O&M base obligations uniformly using their new  systems. Given this, we continue to believe that implementing the  recommendation would make more complete information available to  Congress on the amount of funds DOD is obligating for its day-to-day  programs and activities, and reflect the department’s full funding needs  for its O&M base budget.
DOD provided additional information in its comments as to the specific  reasons its current financial accounting systems cannot easily distinguish  between O&M base and OCO obligations, and how it reports O&M total  and OCO obligations to Congress rather than O&M base obligations at  the level of information presented for each account. As discussed in this  report, implementing this recommendation would provide Congress with  more detailed information about DOD’s O&M budget. DOD also provided  technical comments, which we incorporated into the report, as  appropriate.
We are sending copies of this report to the appropriate congressional  committees, and to the Secretary of Defense, Secretary of the Army,  Secretary of the Air Force, and Secretary of the Navy. In addition, the  report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (213) 830-1011 or vonaha@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 key contributions to this report  are listed in appendix III.
section_title: Appendix I: Scope and Methodology
paragraphs: Senate Report 114-49 accompanying a proposed version of the National  Defense Authorization Act for Fiscal Year 2016, includes a provision for  GAO to evaluate the effects of budgetary constraints on DOD’s available  base funding within the O&M appropriations accounts. This report: (1)  identifies the trends in enacted and planned funding for DOD’s O&M base  appropriations since fiscal year 2009; (2) describes the amount of O&M  funding DOD has transferred or reprogrammed, and the effect of this  realignment on O&M base obligations; and (3) evaluates the extent to  which DOD reported to Congress its O&M obligations for its base and  OCO budgets.
To identify the trends in enacted base funding for DOD’s O&M accounts  since fiscal year 2009, we analyzed data on enacted funding from DOD’s  budget justification materials from fiscal years 2009 through 2016. We  began with fiscal year 2009 because it was the first year after the surge in  both Iraq and Afghanistan and would provide us with a 7-year period of  data. All enacted funding amounts are in nominal dollars as presented in  the budget materials. In addition, we interviewed officials from the Office  of the Under Secretary of Defense (OUSD) Comptroller and the military  services’ financial management offices about O&M base funding. In some  years the budget justification materials were produced while DOD was  operating under a continuing resolution and contain an estimate of  funding under the continuing resolution. We verified the enacted data with  OUSD Comptroller officials to ensure that the data reflected enacted  amounts that were also reported to Congress after a defense  appropriation act in the annual Base for Reprogramming Actions report.  OUSD Comptroller provided revised amounts on enacted funding as  appropriate. We determined that the enacted funding amounts were  sufficiently reliable for the purposes of this audit with attribution to DOD.
To identify how DOD’s base funding plans for O&M compared with its  enacted funding levels since fiscal year 2009, we analyzed data specific  to O&M from DOD’s Future Years Defense Program summary tables. We  compared information from each 5-year plan—the budget year and total  for the 5 years—with the enacted funding information previously  discussed. We also compared each 5-year plan with the previous plan to  describe the changes between plans since fiscal year 2009. We reviewed  documentary information and interviewed officials from Cost Assessment  and Program Evaluation and OUSD Comptroller on the Future Years  Defense Program about the changes in plans since fiscal year 2009. We  verified the data on planned funding amounts with OUSD Comptroller  officials. All enacted funding amounts are in nominal dollars. We  determined that the data were sufficiently reliable for the purposes of this  audit with attribution to DOD and the source document.
To identify trends in other base funding available, we corroborated data  provided by the OUSD Comptroller officials with information in the  defense appropriations acts and defense appropriations joint explanatory  statements. All funding amounts are in nominal dollars. We determined  that the data on other funding available were sufficiently reliable for the  purposes of this audit with attribution to DOD.
To describe how DOD has realigned O&M funds between O&M and other  appropriations through transfers, and within accounts through  reprogrammings, since fiscal year 2009, we analyzed data from DOD’s  4th Quarter O&M execution reports from fiscal years 2009 through 2015  to determine the extent to which DOD transferred and reprogrammed  O&M base and OCO funding. Our analysis goes through fiscal year  2015, as this was the last full year of data during our review. We  calculated the value of funds realigned between and within the military  services’ and defense-wide O&M accounts by two categories reported in  the execution reports—prior approval transfers and reprogrammings, and  below threshold reprogrammings. Funds realigned out of accounts are  presented as negative numbers in DOD’s execution reports. We used the  absolute value of the negative numbers to account for the total amount of  the realignment. We provided the amounts obtained from the execution  reports with OUSD Comptroller officials to verify the accuracy of the  information. Next, we calculated the total enacted O&M funding reported  in the execution reports for the military services’ and defense-wide  accounts and determined the percentage of the enacted O&M funding  that DOD reported moving. We also interviewed OUSD Comptroller and  the military services’ financial management officials to understand DOD’s  process for transferring and reprogramming funds, including any  notifications to Congress about them. All fund realignment amounts are in  nominal dollars, and we determined that the data were sufficiently reliable  for the purposes of this audit with attribution to DOD and the source  document.
To understand the differences between DOD’s base obligations and the  amounts that Congress designated for base O&M programs and  activities, we estimated O&M base obligations because DOD is not  required to report this information in its budget justification materials or  execution reports separately from O&M OCO obligations, and had not  reported the amounts. To estimate O&M base obligations for the O&M  title, we compiled and summed O&M OCO obligations reported in the  budget justification materials for each O&M base account. We then  subtracted the O&M OCO obligations from the total O&M obligations  reported in the O&M O-1 budget exhibit, which provides aggregate details  on O&M obligations. We verified the OCO and total O&M obligation data  with OUSD Comptroller officials. We compared estimated O&M base  obligations with the enacted funding information previously discussed.
Further, to understand the differences between O&M base obligations  and congressional designations for aggregate categories of similar  subactivity groups within the military services’ O&M base accounts, we  compiled congressional designations, O&M total, and O&M OCO  obligations by each of the subactivity groups from the military services’  O&M budget justification materials. To normalize obligations for the items  that were not enacted in the military services’ O&M base accounts but  were appropriated to other accounts and authorized to be transferred to  the military services’ O&M base accounts for execution, we obtained data  from the military services by subactivity group. Specifically, we obtained  data on transfers from the Environmental Restoration and Drug  Interdiction and Counterdrug Activities appropriation that were transferred  into the military services’ accounts. Next, to estimate O&M base  obligations, we subtracted O&M OCO obligations and obligations  associated with Environmental Restoration and Drug Interdiction and  Counterdrug Activities transfer amounts from total O&M obligations. We  grouped the unclassified subactivity groups from the military services’  O&M budget justification materials into 11 broad categories of similar  activities used in our prior sequestration work based on the activities and  functions of each subactivity group (see table 1). To ensure that the  budget categories and the placement of subactivity groups therein were  valid, we shared our updated approach with officials from OUSD  Comptroller, who did not make any suggested revisions.
We then compared the congressional designations with estimated O&M  base obligations for the 11 aggregate categories of similar subactivity  groups within the military services’ accounts to determine the amount and  percentage of difference in the same direction. We identified consistent  patterns of difference, defined as at least three consecutive years with a  difference. All amounts are in nominal dollars, and we determined that the  data were sufficiently reliable for the purposes of this audit with attribution  to DOD and the source.
Lastly, to evaluate the extent to which DOD reported O&M base and OCO  obligations to Congress, we reviewed the data presented in DOD’s  budget justification materials and execution reports to identify the type of  information available. We also reviewed DOD’s Financial Management  Regulations and congressional committee report language and  interviewed OUSD Comptroller officials to obtain information on the  organization of the budget justification materials. We reviewed this  information in light of federal internal control and accounting standards  that outline how information should be recorded and communicated to  management and others.
We conducted this performance audit from August 2015 to August 2016  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: Staff Acknowledgments
paragraphs: In addition to the contact named above, Tina Won Sherman (Assistant  Director), Tim Carr, Susan C. Langley, Amie Lesser, Felicia M. Lopez,  Kristiana D. Moore, Steve Pruitt, Richard Powelson, and Michael D. Silver  made key contributions to this report.