Bulk Fuel: Actions Needed to Improve DOD's Fuel Consumption Budget Data
Published: 2016-09-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD and the military services estimate total funding needs for fuel in annual budget requests by using planned consumption (measured in barrels of fuel) and a standard price per barrel set by DOD.
Senate Report 114-49, accompanying a bill for the National Defense Authorization Act for fiscal year 2016, included a provision for GAO to review DOD's approach to estimating fuel consumption. Among other objectives, this report (1) describes the military services' reported actual spending on fuel consumption compared to their budget estimates since 2012, and factors that were reported to have contributed to any differences, and (2) assesses the steps DOD takes to report accurate and complete fuel consumption data in annual budget requests. GAO analyzed DOD budget documents, including military service and DLA fuel data for fiscal years 2012 through 2015 and interviewed DOD officials responsible for preparing fuel consumption budget materials.
section_title: What GAO Found
paragraphs: The military services' total obligations for fuel consumption spending decreased from a high of about $13 billion in fiscal year 2012 to a low of about $10.1 billion in fiscal year 2015 but differed from budget estimates, which officials largely attributed to changes in operations and training that affected fuel consumption. Specifically, each of the military services either over- or underestimated its actual fuel consumption spending when compared to budget estimates (see figure).
Military Services' Reported Actual Versus Estimated Fuel Consumption Spending, Fiscal Years 2012 through 2015
The Department of Defense (DOD) takes some steps to report fuel consumption data in annual budget requests, but it does not fully reconcile differences in the military services' reported actual fuel consumption data and does not include some fuel consumption data. For each budget request, DOD validates the military services' fuel consumption data by ensuring that the budget estimates align with DOD's funding priorities, among other steps. However, GAO's analysis found differences between the military services' reported fuel consumption spending and Defense Logistics Agency (DLA) data on fuel sales to them. For example, DOD reported that the Navy's actual obligations for fuel consumption spending in fiscal year 2014 were about $2.7 billion less than what DLA's fuel sales data show was sold. DOD had not established an approach to reconcile such differences. Having an approach to reconcile differences would provide DOD with a means to determine if any actions are needed to better assess the accuracy of the military services' reported fuel consumption data. Further, GAO's analysis found that DOD's budget requests for fuel did not include details in two areas that could be used by Congress to evaluate funding requests for fuel. First, the budget requests excluded fuel volume data that were collected during the budget development process. Fuel volume data would provide another measure of fuel consumption to justify DOD's funding requests. Second, the requests did not separate actual fuel consumption spending for day-to-day activities, such as training, from war-related spending, which has varied considerably from budget estimates. Without additional data in these two areas, Congress does not have full visibility over the amount of fuel volume the military services require for their activities or trends in fuel consumption spending for non-war-related purposes.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD (1) develop an approach to reconcile the military services' and DLA fuel consumption data and (2) report more complete fuel consumption data to Congress. DOD concurred with the first recommendation and did not concur with the second recommendation, stating that providing additional fuel consumption information could be useful, but doing so would be difficult and labor intensive. GAO believes the recommendation remains valid to ensure that Congress has information to assess trends in fuel consumption, as discussed in the report.

section_title: Letter
paragraphs: The Department of Defense (DOD) generally, and the military services in  particular, are the largest consumers of fuel in the United States  Government. Specifically, in fiscal year 2015, the military services  reported fuel consumption spending of about $10.1 billion. For each fiscal  year, DOD’s fuel customers, such as the military services, estimate the  amount of fuel they will consume, and DOD sets a standard price per  barrel that it will charge its fuel customers. However, our previous work  has shown that DOD has faced challenges in estimating its fuel costs. In  2014, we reported that during fiscal years 2009 through 2013, DOD’s  actual costs for fuel differed considerably from its budget estimates. For  example, in 2009, DOD overestimated its bulk fuel costs by about $3  billion and underestimated its bulk fuel costs in 2012 by about $3.2 billion.  Although fluctuations in the market price for fuel were, on average, the  primary driver of the differences between DOD’s actual and estimated  fuel costs, our analysis showed that changes in actual fuel consumption  during these same years accounted for, on average, 26 percent of the  difference. In November 2015, we reported on several weaknesses in  DOD’s methodology for establishing the standard price for its fiscal year  2016 budget request. We made recommendations to improve DOD’s  methodology for developing the standard price for fiscal year 2017 and for  future fiscal years. We discuss actions DOD has taken to address these  recommendations later in this report.
Senate Report No. 114-49, which accompanied a proposed Senate bill  for the National Defense Authorization Act for Fiscal Year 2016, included  a provision for us to review the military services’ fuel consumption  estimates in DOD’s annual budget requests. This report (1) describes the  military services’ reported actual spending on fuel consumption compared  to their budget estimates since 2012 and factors that the services  reported to have contributed to any differences; (2) assesses the steps  DOD takes to report accurate and complete fuel consumption data in its  annual budget requests; and (3) evaluates the extent to which DOD’s  approach for determining the fiscal year 2017 standard price it will charge  to fuel customers is consistent with federal budget guidance and leading  practices for a credible and well-documented cost estimate.
To describe the military services’ reported actual spending on fuel  consumption compared to their budget estimates since 2012 and factors  that were reported to have contributed to any differences, we analyzed  DOD’s operation and maintenance (O&M) budget justification materials  for fiscal years 2012 through 2015. We compared data on actual  obligations reported in the military services’ O&M budget justification  materials for fuel consumption against the military services’ spending  estimates for fuel consumption for these same years. We focused our  analysis on fiscal years 2012 through 2015, because this period covered  the most recent complete year of actual fuel consumption and provided  three years of consumption data to analyze any trends. To determine the  reliability of the data, we obtained information on how the data were  collected, managed, and used through interviews with and questionnaires  to relevant officials and determined that the data presented in our findings  were sufficiently reliable to present trends in this report on the military  services’ actual and estimated O&M spending for fuel consumption for  fiscal years 2012 through 2015. We interviewed an official from the Office  of the Under Secretary of Defense (OUSD) Comptroller who is  responsible for managing the bulk fuel program and officials with the  military services to better understand any factors that contributed to  differences between actual and estimated fuel consumption.
To assess the steps DOD takes to report accurate and complete fuel  consumption data in annual O&M budget requests, we analyzed DOD’s  O&M budget justification materials for fiscal years 2012 through 2015 as  well as military service and Defense Logistics Agency (DLA) fuel data.  We interviewed an official from the OUSD Comptroller who is responsible  for managing the bulk fuel program, officials with military service budget  and financial management offices, and DLA to determine how O&M  budget justification materials generally, and fuel consumption estimates  specifically, are prepared, evaluated, and reported to Congress. We also  interviewed officials from DLA to determine how DLA reports its fuel sales  to the military services. To understand the differences, if any, between the  military services’ fuel consumption data and DLA fuel sales, we analyzed  actual obligations for fuel consumption spending reported in the military  services’ O&M budget materials for fiscal years 2012 through 2015 and  compared the data with DLA data on fuel sales to the military services for  these same years. To determine the reliability of both the O&M budget  justification data and DLA fuel sales data provided to us by DOD, we  obtained information on how the data were collected, managed, and used  through interviews with and questionnaires to relevant officials. We  assessed the information against federal internal controls and  accounting standards that describe practices regarding how information  should be recorded and communicated to management and others. We  determined that the data were sufficiently reliable to present the military  services’ total O&M obligations for fuel consumption spending for fiscal  years 2012 through 2015 and DLA fuel sales data to the military services  for these same years. However, as discussed later in this report, we  identified differences in the fuel consumption data reported by the military  services and DLA. To understand the differences between the military  services’ O&M base request for fuel and actual fuel consumption for O&M  base programs and activities, we calculated O&M base spending,  because DOD does not report this information separately from O&M  Overseas Contingency Operations (OCO) spending in its budget  justification materials. To do this, we compiled and summed O&M OCO  obligations for fuel consumption spending reported in the O&M OCO  budget materials for each military service for fiscal years 2012 through  2015 and subtracted this amount from total O&M obligations for fuel  consumption spending reported in the military services’ budget exhibits,  which included the total of O&M base obligations and O&M OCO  obligations. We then compared this amount to fuel consumption  estimates included in the military services’ O&M base budget requests for  each fiscal year.
To evaluate the extent to which DOD’s approach for determining the fiscal  year 2017 standard price charged to fuel customers is consistent with  federal budget guidance and leading practices for a credible and well- documented cost estimate, we compared the methodology DOD selected  to establish the fiscal year 2017 standard price with the Office of  Management and Budget’s (OMB) A-11 Circular, which governs federal  agencies’ budget development and with GAO’s Cost Estimating and  Assessment Guide, which outlines a compilation of best practices,  including characteristics of a credible and well-documented cost estimate,  that federal cost-estimating organizations and industry use to develop and  maintain reliable cost estimates. We also interviewed an official from the  OUSD Comptroller who is responsible for managing the bulk fuel program  and reviewed documentation on DOD’s analysis of various methodologies  it examined to develop the fiscal year 2017 standard price. We did not  evaluate the relative costs or benefits of the methodologies that DOD  considered—such as the limitations or uncertainties that may be inherent  in selecting one methodology over another. Appendix I provides further  details on our scope and methodology.
We conducted this performance audit from July 2015 to September 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
paragraphs: Congress provides the military services with O&M funds for certain  expenses, such as pay and benefits for most of DOD’s civilians;  operations at military bases; training, education, and medical care for  individual service members; and fuel and spare parts for DOD equipment,  among other expenses. When developing annual O&M funding requests,  the military services report that estimates of their fuel consumption are  based on planned activity levels, which can vary by service. For example,  the Air Force, Navy, and Marine Corps estimate their fuel consumption  based on planned operational and training flying hours. According to  Navy and Marine Corps officials, the Navy estimates its fuel consumption  based on a planned number of steaming days for ship operations (i.e., the  number of days a ship is not in port), and the Marine Corps estimates its  fuel consumption for its ground units based on the number of days for  planned training exercises. The Army estimates its fuel consumption  based on historical fuel usage rates for vehicle miles during training  events and operational fuel requirements as determined by Army major  commands and Army operations and plans.
In general, the military services follow a similar process for estimating fuel  consumption requirements, with some differences in the extent to which  they use actual fuel consumption data to estimate future fuel  consumption. For example, officials from both the Air Force and Navy  reported using historical averages to calculate fuel consumption  estimates for their flying hour program and ship operations. However, the  Air Force uses five years of data while the Navy uses three years of data  to estimate fuel consumption for ship operations and data from the  previous year to calculate fuel consumption estimates for its air  operations. Officials with two military services—the Army and the Marine  Corps—stated that they used other data points to approximate actual fuel  consumption in order to calculate a fuel consumption estimate. For  example, according to Army officials, the Army uses three to five years of  sample test data from ground vehicles and equipment, fuel efficiency  rates in technical manuals, and manufacturer’s data for equipment to  approximate fuel efficiency for each type of equipment item. Taken  together, the Army uses these data points to approximate its actual fuel  consumption. According to Marine Corps officials, the Marine Corps  bases its fuel consumption requirements on the previous year’s sales  data from DLA and adjusts its fuel consumption estimate to reflect  changes in operational and training requirements for the budget request  year.
The military services and other fuel customers use O&M funding to  reimburse DOD for the costs of purchasing bulk fuel on the world market  to support their operations. The military services calculate their total O&M  funding needs for fuel in a given fiscal year by using their planned volume  of fuel consumption expressed in millions of barrels of fuel and the  standard price per barrel that DOD will charge its fuel customers for fuel.  The OUSD Comptroller, in coordination with DLA, estimates and sets a  standard price for its fuel and other fuel-related commodities for each  budget request. For its fiscal years 2016 and 2017 budget estimates,  DOD established the standard price based on two components: the  projected cost of refined fuel and operating costs, which cover various  overhead and transportation costs. According to DOD officials, in setting  the standard price, DOD endeavors to closely approximate the actual per  barrel price that will be paid during budget execution, which occurs almost  a year later. If the actual market price of fuel is higher than the price DOD  is charging its customers, DOD will have to pay more for fuel than it is  being reimbursed from its customers. If the actual price is lower than the  standard price, DOD will be reimbursed with more cash than it  anticipated.
DOD and military service financial management officials prepare budget  justification materials for their O&M funding requests on an annual basis.  Beginning in fiscal year 2010, the military services have prepared  separate budget justification materials for O&M base and O&M OCO  funding requests. O&M base funding is used to pay for enduring day-to- day programs and activities—including fuel for training activities. O&M  OCO funding is used to support activities associated with overseas  contingency operations. DOD’s Financial Management Regulation  governs how the military services formulate these budget requests and  communicate them to Congress. Specifically, the Regulation directs  statutory and regulatory financial management requirements, systems,  and functions for all appropriated and non-appropriated, working capital,  revolving and trust fund activities. For fuel consumption estimates, the  military services prepare two principal budget exhibits:
Petroleum, Oil, and Lubricants Consumption and Costs budget exhibit  (the “OP-26”): Contains information on direct consumption by type of  petroleum product. The military services prepare and submit to the  OUSD Comptroller three separate exhibits for each budget  submission: (1) OP-26A for flying hours; (2) OP-26B for unit fuel  costs; and (3) OP-26C for sources of purchases for petroleum, oil,  and lubricants consumption. According to DOD’s Financial  Management Regulation, the OP-26 is not provided to Congress with  the budget justification materials accompanying the President’s  annual budget request.
Summary of Price and Program Changes budget exhibit (the “OP- 32”): Contains information by specific line items detailing, among  other items, Defense-wide Working Capital Fund supplies and  materials purchases related to fuel consumption, such as fuel  purchases from the DLA’s Defense Fuel Supply Center and locally- purchased fuel. According to DOD’s Financial Management  Regulation, the OP-32 is provided to Congress with the budget  justification materials accompanying the President’s annual budget  request.
DLA, as the department-wide executive agent for bulk petroleum, is  tasked with executing supply chain management for all bulk fuel owned  by DOD. DLA utilizes the Defense-wide Working Capital Fund to  purchase bulk fuel for customers. DOD prepares Defense-wide Working  Capital Fund operating and capital budget materials. These budget  materials describe DLA’s budget requests, provide justifications for any  changes in the budget request from previous years, and report changes  in the standard price of fuel across fiscal years. Generally, DOD’s O&M  budget justification materials for fuel consumption present data for three  years, including actual total obligations for fuel consumption spending for  the previous fiscal year, estimated obligations for fuel consumption  spending for the current fiscal year, and estimated obligations for fuel  consumption spending for the budget request fiscal year.
The Defense-wide Working Capital Fund covers DLA’s costs for  purchasing bulk fuel and is reimbursed through its sale of fuel to the  military services and other customers at a standard price. The standard  price is intended to remain unchanged until the next budget year. This  helps to shield the military services from market price volatility by allowing  the cash balance in the fund to absorb minor fuel price fluctuations. For  example, from fiscal years 2010 through 2015, the military services  purchased an average of approximately 102 million barrels per year from  DOD. Therefore, a standard price increase of even $1 per barrel would  result in a $102 million difference from the military services’ budget  requests. According to DOD’s Financial Management Regulation, working  capital funds were established to satisfy recurring DOD requirements  using a businesslike buyer-and-seller approach, and the goal for the  Defense-wide Working Capital Fund is to remain revenue neutral,  allowing the fund to break even over time—that is, to neither make a gain  nor incur a loss.
During the year the budget is executed, the actual price for a barrel of fuel  on the world market may be higher or lower than DOD’s standard price. If  the actual price is higher, the cash balance in the Defense-wide Working  Capital Fund will go down. If the actual price is lower, the cash balance in  the fund will go up. To correct for these fluctuations, DOD may adjust the  standard price for the following year. For example, DOD may increase the  standard price to make up for losses in the previous year and bolster the  cash balance in the fund. Alternatively, DOD may decrease the standard  price to reimburse the military services, which had paid a higher price the  previous year. DOD can also cover fund losses during the execution year  by obtaining an appropriation from Congress, transferring funds from  another DOD account into the fund, or adjusting the standard price out of  cycle.
Figure 1 illustrates the process and the main organizations involved in  budgeting for fuel.
section_title: Military Services’ Reported Actual Spending on Fuel Consumption Has Differed from Budget Estimates since Fiscal Year 2012, Which Officials Attributed Largely to Changes in Operations and Training
paragraphs: During fiscal years 2012 through 2015, the military services reported a  decrease in total obligations for fuel consumption spending but reported  actual obligations differed from budget estimates during these years,  which officials attributed to changes in operations and training that  affected the level of fuel consumption. Specifically, each of the military  services either over- or underestimated actual obligations for fuel  consumption spending when compared to their budget estimates. DOD  officials identified changes in operations and training levels during these  years as the primary reasons for the differences between actual and  estimated spending on fuel consumption, although other factors, such as  changes in the standard price DOD charges its fuel customers, have  contributed to differences in prior years.
subsections: section_title: Military Services’ Reported Actual Spending on Fuel Consumption Decreased from Fiscal Years 2012 through 2015 but Differed from Budget Estimates
paragraphs: In fiscal years 2012 through 2015, the military services’ reported a  decrease in total obligations for fuel consumption spending from a high of  about $13 billion in fiscal year 2012 to a low of about $10.1 billion in fiscal  year 2015. The Army reported the greatest overall decrease in total  obligations for fuel consumption spending during these years, from a high  of about $3.4 billion in fiscal year 2012 to a low of about $1.3 billion in  fiscal year 2015. Decreases reported in total obligations for fuel  consumption spending for these fiscal years varied by military service, as  shown in figure 2.
Our analysis of DOD’s budget justification materials comparing the  military services’ reported actual obligations for fuel consumption  spending against their budget estimates found that each of the military  services over- or underestimated fuel consumption spending in each  fiscal year from 2012 through 2015. For example, the Army  underestimated its fuel consumption spending by about $840 million in  fiscal year 2012, while the Navy overestimated its spending by about $2.4  billion in fiscal year 2014. The differences in actual obligations and  estimated spending reported for each military service are shown in figure  3.
section_title: Military Services Identified Various Factors that Contributed to Differences between Actual and Estimated Spending on Fuel Consumption
paragraphs: According to military service officials, differences between actual  obligations and estimated spending on fuel consumption are mainly  attributable to changes in planned operations and training. For example:   Army budget officials told us that fiscal year 2015 marked a change in its  mission in Afghanistan, from the end of Operation Enduring Freedom to  the beginning of Operation Freedom’s Sentinel. According to these  officials, changes in operational missions were the main driver of the  difference between its actual and estimated fuel consumption spending  for that fiscal year.
Air Force financial management officials identified changes in fighter and  tanker support during overseas missions as factors that contributed to  differences between its actual and estimated fuel consumption spending.
One Navy budget official told us that delays in the delivery of ships and  equipment can lead to differences between actual and estimated fuel  consumption spending. For example, Navy budget officials cited the delay  in deployment of the Littoral Combat Ship in fiscal year 2015, noting that  they included fuel consumption spending estimates for these ships in  annual budget requests for that year, but the ships were not yet ready to  deploy, and thus the fuel consumption spending estimates were over  stated.
Marine Corps budget officials told us that it is difficult to identify an  accurate budget estimate for fuel consumption spending up to 18 months  in advance of the year of budget execution, because factors like a change  in operational tempo or a sudden need to deploy or redeploy forces can  have a significant effect on actual fuel consumption spending.
Officials told us that other factors can result in differences between actual  and estimated spending on fuel consumption, such as inclement weather  or maintenance issues. For example, Air Force and Navy officials stated  that inclement weather can affect fuel efficiency for air and ship  operations or result in delays or the cancellation of training activities.  Army officials stated, for instance, that entire training schedules have  been canceled as a result of inclement weather. Unforeseen maintenance  issues during the year of budget execution can also have an effect on fuel  consumption spending. For example, Army officials stated that funding  budgeted for fuel can be used for spare parts and other costs related to  operation and maintenance instead of fuel, which has contributed to  differences between actual and estimated spending on fuel consumption.
Budgetary actions that affect O&M funding levels for fuel have also  affected actual consumption spending, according to service officials. In  fiscal year 2013, for example, officials reported that actual fuel  consumption spending was lower than estimated spending as a result of  actions DOD took to address sequestration. In our prior work, we  highlighted several actions identified by DOD officials that DOD and the  military services took to address these budgetary reductions. For  instance, all four of the military services cancelled or reduced participation  in training exercises in fiscal year 2013. Additionally, the Air Force stood  down 17 of 62 operational squadrons for 3 months during fiscal year 2013  and reduced flying hours for 10 other squadrons for a period of 1 to 3  months.
Military service officials also described changes in the standard price that  DOD charges its fuel customers that can result in differences between  actual and estimated fuel consumption spending.  The military services  use the standard price as a key component when developing their O&M  budget requests. If DOD changes the standard price actually charged to  fuel customers during the year of budget execution, the military services’  O&M budgets can be affected as a result. For instance, in 2014, we  reported that from fiscal years 2009 through 2013, the differences  between the price DOD paid for fuel and the standard price it charged its  fuel customers accounted for, on average, 74 percent of the difference  between DOD’s actual and estimated fuel costs. DOD officials told us  that they try to avoid changes to the standard price when possible to  avoid the negative effect on the military services’ O&M budgets. We  found that for fiscal years 2012 through 2015, DOD generally kept the  standard price it charged fuel customers the same throughout the year or  decreased it. For example, DOD decreased the standard price three  times in fiscal year 2012 (from $165.90 to $97.02 per barrel) and left it  unchanged for fiscal years 2013 and 2014. In fiscal year 2015, DOD  decreased the standard price from $155.40 to $136.92 per barrel. As a  result, changes in the standard prices charged to fuel customers had a  limited effect on the differences between actual and estimated fuel  consumption spending for these years.
section_title: DOD Does Not Fully Reconcile Differences in Reported Fuel Consumption Spending and Does Not Include Certain Fuel Consumption Data in Annual Budget Requests
paragraphs: DOD takes some steps to report fuel consumption data in annual budget  estimates, but it does not fully reconcile differences between the military  services’ reported actual fuel consumption spending and DLA’s reported  fuel sales and does not include certain data that the Congress could use  to evaluate the military services’ funding requests for fuel. For each  budget request, DOD validates the military services’ fuel consumption  data by reviewing the military services’ fuel consumption estimates to  ensure that the estimates align with DOD’s overall funding priorities,  among other steps. However, DOD does not reconcile differences  between the military services’ actual obligations for fuel consumption  spending reported in O&M budget requests and DLA’s reported fuel sales  to the military services that could potentially improve the accuracy of the  military services’ annual budget estimates. Further, DOD’s annual O&M  budget requests for fuel contain some actual and estimated fuel  consumption spending data, but the requests did not include fuel volume  data or separate the military services’ actual O&M base obligations for  day-to-day activities, such as training, from its actual O&M OCO  obligations for fuel consumption spending.
subsections: section_title: DOD and the Military Services Perform Steps to Validate and Report Fuel Consumption Data When Developing Annual Budget Requests
paragraphs: Each military service develops an annual O&M funding estimate for fuel  consumption based on planned activity levels, such as flying hours,  steaming days, tank miles, and base operations, among other factors,  and the standard price provided by the OUSD Comptroller. Consistent  with requirements established in DOD’s Financial Management  Regulation, the military services each prepare an OP-26 (“Petroleum, Oil,  and Lubricants Consumption and Costs”) and OP-32 (“Summary of Price  and Program Changes”) budget exhibit to justify their O&M funding  requests for fuel consumption. More specifically, the military services  prepare the OP-26 budget exhibit for planned fuel consumption that  describes estimates for a total of both O&M base and O&M OCO fuel  volume requirements (i.e., millions of barrels of fuel) and dollars, which  are used by the military services and the OUSD Comptroller to gauge the  effect of any fuel price changes on DOD’s O&M funding requests during  the budgeting process. For example, during the budget development  process, the services prepare the OP-26 budget exhibit showing fuel  volume requirements and the standard price to develop their O&M  funding estimates. An OUSD Comptroller official explained that the  department would use the OP-26 data to assess any effect on the military  services’ O&M estimates and funding needs if it were to adjust the  standard price for the President’s budget request submission, but it does  not submit the OP-26 to Congress with its annual O&M budget  justification materials. Separately, the military services prepare individual  OP-32 budget exhibits for their O&M base and O&M OCO funding  requests. The OP-32 exhibits summarize the total price and program  changes in dollars from the previous fiscal year to the current fiscal year  and from the current fiscal year to the budget request year. Unlike the  OP-26, DOD submits the OP-32 to Congress with the budget justification  materials accompanying the President’s annual budget request.
According to an OUSD Comptroller official who oversees the bulk fuel  program, the OUSD Comptroller evaluates the military services’ fuel  consumption estimates contained in these budget exhibits to ensure that  they align with overall DOD funding priorities to support the President’s  budget request and that the data are consistent among all exhibits. The  official stated these budget exhibits are also reviewed to ensure that the  military services’ fuel consumption estimates are in line with historical fuel  consumption. The official stated that the OUSD Comptroller reviews DLA  data on fuel sales to the military services as one point of comparison  when evaluating the military services’ fuel consumption budget estimates,  but the official noted that differences between DLA and the military  services’ fuel sales data can exist. Specifically, DLA reports its actual and  estimated fuel sales in the Defense-wide Working Capital Fund budget  exhibit provided annually to Congress. DLA also publishes a fact book  each fiscal year, which contains information regarding DLA’s business  operations that includes data on fuel sales to the military services, among  other information. Following the requirements established in DOD’s  Financial Management Regulation, the OP-32 budget exhibits are then  incorporated into the overall O&M budget request for each service.
section_title: DOD Does Not Reconcile Differences between the Military Services’ Fuel Consumption Budget Data and DLA Fuel Sales
paragraphs: Based on our review of military service and DLA data for fiscal years  2012 through 2015, we found significant differences between the military  services’ reported actual obligations for fuel consumption spending  reported in annual O&M budget requests and DLA fuel sales data. For  example, in the President’s budget request for fiscal year 2016 that was  submitted to Congress in February 2015, DOD reported that the Navy’s  actual obligations for fuel consumption spending in fiscal year 2014 were  about $2.7 billion less than what DLA’s fuel sales data show was sold to  the Navy in that year. In addition, in this same budget request, DOD  reported that the Army’s actual obligations for fuel consumption spending  in fiscal year 2014 were about $1.2 billion more than what DLA’s fuel  sales data show was sold to the Army for the same fiscal year. Figure 4  shows differences between military services’ actual obligations for fuel  consumption spending that were reported in the President’s annual  budget requests and fuel sales to the military services reported by DLA  for fiscal years 2012 through 2015.
DLA and military service officials provided some explanations for why  differences may exist between the military services’ actual obligations for  fuel consumption spending reported in annual budget requests and DLA  fuel sales data, but neither DLA nor the military services could fully  account for these differences, even though they compared the two data  sets during the budget review process during the budget review process.  For example, according to DOD officials, DLA fuel sales for an individual  service may include sales to DOD’s combatant commands, such as U.S.  Transportation Command. Officials explained that the large differences  between the Air Force’s reported obligations for fuel consumption  spending and DLA’s fuel sales to the Air Force could be attributable to the  inclusion of fuel sales to U.S. Transportation Command in DLA’s data  sets if Air Force aircraft flew missions for the command. However, the  obligations for fuel consumption spending would not necessarily be  accounted for in the Air Force’s data.
Additionally, according to an official from the OUSD Comptroller, the Air  Force might purchase fuel from DLA in order to support an Army mission.  The Army would then be responsible for reimbursing the Air Force for this  fuel consumption.
Another reason for these discrepancies, officials explained, is the result of  the military services’ accounting practices for fuel consumption spending.  For example, when an Air Force aircraft is used to support a U.S.  Transportation Command or other DOD component mission, the fuel  purchased from DLA for that aircraft is initially charged to an Air Force  account. Officials stated that through a monthly review of accounting  records, the Air Force’s fuel charges for that particular aircraft would  eventually be charged to the appropriate DOD component organization.  Yet, DLA would not be informed of the final consumer of the fuel, and  would thus record the sale of the fuel to the Air Force. DOD and military  service officials stated these reasons would not account for all  discrepancies between DLA’s data and military services’ actual  obligations for fuel consumption spending. However, despite these  significant differences in military service and DLA data, DOD officials  were unable to provide an analysis or other documentation that explained  the differences between the military services’ actual obligations for fuel  consumption spending reported in annual budget requests and DLA fuel  sales data.
DOD has not established an approach to reconcile data on fuel  consumption reported by the military services and DLA fuel sales to the  military services, although DLA’s Strategic Plan for 2015-2022  emphasizes DLA’s commitment to collaborating with the military services  to increase transparency. The plan highlights the need to have an  ongoing, open dialogue with the military services about DLA’s costs. On  an annual basis, DLA coordinates with the military services to define  estimated fuel requirements, which DLA uses to purchase fuel worldwide  for eventual sale to the military services. DOD officials told us that  during the annual budget development process, the OUSD Comptroller  uses DLA’s fuel sales data to validate the military services O&M fuel  consumption estimates; however, neither OUSD Comptroller, DLA, nor  the military services act to reconcile any differences between data on  DLA’s fuel sales and the military services’ actual obligations for fuel  consumption spending. These officials noted that the directive  establishing DLA as the department’s executive agent for bulk fuel does  not require DLA to record or report fuel sales data to the military services  or other fuel customers or reconcile any differences with the military  services’ data, and there is no department-wide policy that requires  consistency between DLA fuel sales data and military service actual  obligations for fuel consumption spending. Standards for Internal Control  in the Federal Government states that appropriate control activities  include the establishment of activities to monitor performance measures  and indicators, which may include comparisons and assessments relating  different sets of data to one another so that analyses of the relationships  can be made and appropriate actions taken.
The OUSD Comptroller official who is responsible for the bulk fuel  program told us that, based on issues we raised during the course of our  work, the department is taking some initial steps to understand the  differences between the military services’ and DLA’s fuel consumption  data. Specifically, the department held a series of initial working group  meetings in April and May 2016 to discuss the military services’ fuel  consumption O&M budget exhibits and DLA’s process for reporting its  fuel sales, including how DLA fuel sales are recorded and reported and  how DLA’s data relate to the information the military services report in  their O&M budget justification materials. For example, in May 2016, the  OUSD Comptroller, DLA, and the military services discussed possible  adjustments to DOD’s accounting practices for fuel consumption  spending to more accurately record DLA fuel sales to fuel customers.  However, while DOD held an initial set of working groups at the time of  our review, it did not have specific plans or milestones to address the  limitations and inconsistencies between the military services’ and DLA’s  data, although an OUSD Comptroller official agreed that a more formal  process to reconcile differences would help validate the military services’  annual O&M budget estimates for planned fuel consumption spending.  Given the significant differences between the military services’ and DLA’s  fuel data, having an approach to reconcile differences would provide DOD  with a means to understand any discrepancies in its fuel consumption  data and better assess the accuracy of the military services’ actual fuel  consumption spending that is reported in annual budget requests.
section_title: DOD’s Annual Budget Requests Provided to Congress Do Not Include Certain Fuel Consumption Data
paragraphs: DOD’s annual O&M budget requests and the accompanying budget  justification materials provide Congress with certain information on the  military services’ actual and estimated fuel consumption spending that  can help it make appropriations decisions, conduct oversight, and provide  control over funds. However, the Senate Armed Services Committee has  expressed its concern with DOD’s fuel consumption estimates, noting that  as DOD transitions from large-scale contingency operations in  Afghanistan, the military services' fuel consumption estimates should be  more consistent as full-spectrum training resumes. The committee also  stated that given recent fuel price fluctuations due to changes in the  global oil market, accurate fuel consumption estimates become even  more important in trying to adequately determine budget requests,  particularly in times of fiscal constraints. Standards for Internal Control in  the Federal Government emphasizes using quality and complete  information to make decisions and communicate such information  externally. Moreover, the Handbook of Federal Accounting Standards  states that agencies should provide reliable and timely information on the  full costs of their federal programs in order to assist congressional and  executive decision makers in allocating federal resources and making  decisions to improve economy and efficiency.
subsections: section_title: DOD Provides Some Fuel Consumption Spending Data in Its Annual Budget Requests
paragraphs: Our analysis of DOD’s annual O&M budget requests to Congress found  that they contain some actual and estimated fuel consumption spending  data. For example, the OP-32 budget exhibits included in DOD’s annual  O&M budget materials provide the military services’ fuel consumption  spending estimates for both their O&M base and O&M OCO funding  needs for the current fiscal year and budget request year. In addition, the  military services’ budget exhibits report data on actual obligations for fuel  consumption spending for the total of both O&M base and O&M OCO  spending combined for the prior fiscal year. The military services also  report actual obligations for O&M OCO-only fuel consumption spending  for the prior fiscal year in the OP-32 budget exhibit accompanying the  O&M OCO budget request for each service. Separately, DLA reports  information on its energy management activities in the Defense-wide  Working Capital Fund budget justification materials provided to Congress  on an annual basis. These budget materials include DLA’s estimated fuel  sales to the military services (for both O&M base and O&M OCO) for the  current fiscal year and budget request year and actual fuel sales to the  military services (for O&M OCO only) for the prior fiscal year. Also  included are details on DLA’s overhead costs and the standard price the  military services will be charged for fuel.
section_title: Fuel Volume Data and O&M Base Obligations Are Not Included in Budget Requests
paragraphs: We also found, however, that DOD’s annual budget requests do not  provide information in two areas that could be used by Congress to  evaluate the military services’ funding requests for fuel. Specifically,  DOD’s budget requests did not (1) provide fuel volume data and (2)  separate the military services’ actual O&M base obligations for fuel  consumption spending for day-to-day activities from its actual O&M OCO  obligations for war-related fuel consumption spending. The military  services do provide the OUSD Comptroller with actual and estimated fuel  volume data in the OP-26 budget exhibits during the budget development  process. These budget exhibits describe the volume of fuel (i.e., millions  of barrels of fuel) that the military services estimate they will use for a  total of their base and OCO needs when developing annual budget  estimates. However, although DOD collects and evaluates fuel volume  data from the military services, it does not include the OP-26 budget  exhibits in the O&M budget justification materials it provides annually to  Congress. According to an OUSD Comptroller official who oversees the  bulk fuel program, DOD’s historical practice has been to use the fuel  volume requirements data included on the OP-26 during the budget  development process. Although the DOD Financial Management  Regulation states that the OP-26 will not be included with the military  services’ budget justification materials submitted to Congress, it does not  specifically preclude DOD from providing fuel volume information. The  official could not explain the reasoning behind the Financial Management  Regulation direction to exclude the OP-26 from DOD’s budget request.  Because the military services’ O&M funding estimates for fuel can be  affected by market price fluctuations from one year to the next, fuel  volume data would provide another measure of estimated or actual fuel  consumption to justify DOD’s funding requests for fuel.
Additionally, the military services’ O&M budget materials submitted to  Congress do not report actual O&M base obligations for fuel consumption  spending separately from actual O&M OCO obligations for the prior fiscal  year. For example, as noted above, the OP-32 budget exhibits  accompanying the military services’ O&M budget requests provide data  on (1) actual obligations for the total of O&M base and O&M OCO fuel  consumption spending combined and (2) O&M OCO-only spending.  According to the OUSD Comptroller official who oversees the bulk fuel  program, DOD and the military services collect and track O&M base  obligations and O&M OCO obligations for fuel consumption spending  separately, but DOD’s Financial Management Regulation does not  require O&M base obligations to be reported separately from O&M OCO  obligations in its budget justification materials and does not specifically  preclude DOD from doing so. This official also stated that Congress has  not asked the department to report O&M base obligations for fuel  consumption spending separately from its O&M OCO obligations.
Table 1 shows the extent to which DOD’s various O&M budget  documents contain fuel consumption information and are reported to  Congress.
Additional data on the military services’ actual fuel consumption could  assist Congress in determining funding levels that are needed for their  activities, including full-spectrum training. In the absence of such data,  congressional decision makers may not have the data they need to  assess any trends in actual O&M base obligation for non-war-related  purposes when evaluating the military services’ budget requests for fuel.  For example, although DOD does not report actual O&M base obligations  for fuel consumption spending separately from actual O&M OCO  obligations for prior fiscal years, we conducted an analysis to separate  the military services’ actual O&M base and actual O&M OCO obligations  for fuel consumption spending. In conducting this analysis, we calculated  O&M base obligations, because DOD does not report this information in  its budget justification materials, as noted above. To do this, we first  compiled and summed data on actual O&M OCO obligations for fuel  consumption spending reported in the OP-32 budget exhibits  accompanying the military services’ O&M OCO requests for fiscal years  2012 through 2015. We then subtracted this amount from the total O&M  obligations for fuel consumption spending for these same years that are  reported in the OP-32 budget exhibits accompanying the military services’  O&M base budget requests which, as we also noted above, included  actual obligations for fuel consumption spending in the prior fiscal year for  the total of both O&M base and O&M OCO obligations combined. We  then compared this amount to the estimates for fuel consumption  spending included in the military services’ O&M base budget request for  each fiscal year.
Our analysis found that the military services generally overestimated the  amount of actual O&M base fuel consumption spending for fiscal years  2012 through 2015, with one exception, as figure 5 shows. For example,  the Army, Navy, and Marine Corps each overestimated O&M base fuel  consumption spending each year during this time period. The amount and  percent difference of the overestimate for these services, comparing our  estimate of actual O&M base obligations for fuel consumption spending  with the original estimates, varied each year from a high of about $2.5  billion for the Navy in fiscal year 2014, or about a 280 percent difference  from its original estimate, to a low of about $17 million for the Marine  Corps in fiscal year 2013, or about a 17 percent difference from its  original estimate. Our analysis also showed that the Air Force over- estimated its O&M base fuel consumption in three out of the four years  during this time frame. For example, the Air Force underestimated O&M  base fuel consumption spending by about $477 million in fiscal year 2012,  or about a 13 percent difference from its original estimate. In fiscal year  2015, however, the Air Force overestimated its O&M base fuel  consumption spending by about $895 million, or about a 24 percent  difference from its original estimate.
Navy officials noted that congressional budget actions can affect the  amount of O&M base fuel consumption spending in a particular fiscal  year. Navy officials stated that, in fiscal year 2014, Congress realigned  funds from base funding to OCO funding, which resulted in a difference of  $800 million from the Navy’s original O&M base budget request for fuel.  This realignment then affected the base activities the Navy was able to  execute for that fiscal year. A Navy official noted that this realignment was  one explanation for the differences between actual and estimated fuel  consumption spending in the Navy’s O&M base spending for fuel.
DOD also produces additional sources of information that contain data  that could be used by decision makers to measure the military services’  fuel consumption, but these sources lack details in these same areas and  are not provided to Congress. For example, DLA publishes annually a  fact book in which, among other activities, it reports the total dollar  amount of fuel it recorded having sold to the military services for that  fiscal year, but the fact book does not report the fuel volume associated  with these sales. Further, according to a DLA official, DLA does not  submit the fact book to Congress with its annual budget request. As our  analysis shows, there is no single document or set of documents that  provides Congress with information on actual and estimated fuel volume  and fuel consumption spending that it could use to evaluate the military  services’ budget requests for fuel. Unless DOD reports more complete  information on its actual and estimated fuel consumption, Congress will  not have full visibility over the amount of fuel volume the military services  require on an annual basis for their activities, or trends in the military  services’ spending for non-war-related fuel consumption, which has  varied considerably from budget estimates.
section_title: DOD’s Approach for Determining the Fiscal Year 2017 Standard Price Methodology Is Consistent with Federal Budget Guidance and Leading Practices for a Credible Cost Estimate, but DOD Has Not Fully Documented Its Rationale for Estimating the Price
paragraphs: DOD’s approach for determining the fiscal year 2017 standard price of  fuel is consistent with federal budget guidance and leading practices for a  credible cost estimate, but DOD has not fully documented its rationale for  estimating the standard price. In 2014 and 2015, we found weaknesses  with DOD’s methodology for developing its standard price. DOD adjusted  its methodology for establishing the fiscal year 2017 standard price that  aligns with federal budget guidance and leading cost estimating practices  because DOD used valid and reliable data and it assessed the relative  risks and limitations of various pricing options. However, DOD has not  fully documented its process for establishing the standard fuel price as we  have previously recommended.
subsections: section_title: Prior Weaknesses Found with DOD’s Standard Price Methodology
paragraphs: In July 2014, we found that DOD had not updated its approach to  establishing the standard price for fuel to reflect current market conditions  since 2007, nor had it documented its rationale for the assumptions it  uses in estimating the standard price. We recommended that DOD  reevaluate its approach for establishing the standard price to allow DOD  to develop more informed estimates and be better positioned to minimize  risks and uncertainty resulting from changing market conditions. We also  recommended that DOD document its assumptions, including providing  detailed rationale for how it establishes the standard price.
In November 2015, we found that, consistent with our recommendation,  DOD had evaluated a range of options to establish the standard price for  the President's fiscal year 2016 budget request and developed a new  methodology. However, we found that the new methodology did not  reflect actual market conditions or fully account for risks to the reliability of  DOD’s fuel cost estimates. More specifically, we found that DOD had not  used valid and reliable data on market conditions when evaluating options  for adjusting its fuel pricing methodology because it used OMB's Gas and  Oil price index as a dollar value rather than applying it in its analyses as a  percentage to measure the change in prices from one year to the next.  Our analysis showed that applying the Gas and Oil price index as a  measure of a change in fuel prices from one year to the next produced  results that differed from what DOD found. For example, DOD applied the  Gas and Oil price index for fiscal year 2016 as a dollar price of $122.56  per barrel of refined fuel. In contrast, we calculated a refined fuel price  estimate between $58.10 and $83.58, depending on how the Gas and Oil  price index is applied to actual fuel prices.
Furthermore, we found that DOD's analysis of the methodology based on  the use of the price index did not review and understand the limitations  and risks to the reliability of its fuel estimate which, in this case, resulted  from determining a projected fuel price that applied the price index to  actual fuel prices that would be almost 2 years old at the time of DOD’s  budget request. According to its budget materials, DOD had a fiscal year  2016 estimate of planned fuel consumption totaling 81 million barrels of  fuel, which, according to our analysis, led DOD to request in its fiscal year  2016 budget request $9.9 billion for refined fuel based on the refined fuel  portion of the standard price of $122.56 per barrel of refined fuel. In  contrast, our analysis found that the difference between the estimates for  refined fuel when applying the Gas and Oil price index as a reflection of  the change in prices from fiscal year 2014 would have resulted in a  budget request based on the refined fuel portion of the standard price of  between about $8.6 billion and about $8.9 billion, depending on how the  price index was applied to fiscal year 2014 actual refined fuel prices.
As a result, we recommended that, in addition to fully implementing our  prior recommendations, DOD use valid and reliable data on market  conditions and review and understand the risks and limitations of using  data, such as actual fuel price data from 2 years prior when it developed  its standard price for fiscal year 2017 and future fiscal years. In  commenting on our draft report in November 2015, DOD agreed or  partially agreed with our previous recommendations but did not state the  reasons for the partial concurrence or what actions it planned to take in  response to our recommendations.
section_title: Fiscal Year 2017 Standard Price is Consistent with Federal Budget Guidance and Leading Practices for a Credible Cost Estimate, but DOD Has Not Fully Documented Its Rationale for Estimating the Price
paragraphs: For its fiscal year 2017 budget request, DOD adjusted its methodology to  address our prior recommendations. According to documentation from the  OUSD Comptroller, DOD evaluated three methodologies for developing  the fiscal year 2017 standard price. The first option DOD evaluated used  projections of the price of regular gasoline contained in the Energy  Information Administration’s November 2015 Short-Term Energy  Outlook to calculate a future price of regular grade gasoline upon which  to base the standard price. The second and third options calculated a  two-year percentage change in the Gas and Oil price index applied  against two different periods of actual average refined product costs. One  of these options used a 1-year average of DOD’s actual refined fuel costs  for fiscal year 2015; the other used a 5-year average of actual refined fuel  costs for fiscal years 2011 through 2015. According to DOD’s analysis,  DOD chose the option using the percent change in the Gas and Oil price  index applied against the most recent 1-year average of actual refined  product costs.
An official with the OUSD Comptroller who oversees the bulk fuel  program stated that several factors underpinned the department’s  decision to select the fiscal year 2017 standard price methodology. First,  leadership within the department felt strongly that fuel pricing should be  developed in a consistent manner for each budget cycle that is based on  information included in the Administration’s economic assumptions.  Second, the methodology DOD selected provided an estimate that  seemed reasonable compared with the actual fiscal year 2015 average  price for refined petroleum products. Finally, the official noted that the  methodology is based on actual fuel prices that were adjusted to account  for projected market changes.
Figure 6 shows a comparison of how DOD calculated the fiscal year 2017  standard price with the approach it used in prior years. For fiscal year  2017, DOD established the projected price of refined fuel at $105 per  barrel.
We evaluated DOD’s standard price methodology for fiscal year 2017 and  found that it is consistent with federal budget guidance and leading  practices for a credible cost estimate because DOD used valid and  reliable data and it assessed relative risks and limitations by reviewing  various pricing options. OMB’s Circular No. A-11 requires that federal  agencies’ budget submissions be consistent with OMB’s economic  assumptions. Our Cost Estimating and Assessment Guide states that one  characteristic of a credible cost estimate is the availability of valid data  that are suitable and relevant, and that data should be fully reviewed  before being used in a cost estimate to understand the limitations and  risks. In our prior work, we reported that DOD has discretion over which  economic assumptions provided by OMB to apply in developing its bulk  fuel estimates for budgeting purposes. For its fiscal year 2017  methodology, DOD (1) incorporated the administration’s economic  estimates and (2) applied the Gas and Oil price index against actual  refined fuel prices to develop a price estimate that, according to DOD’s  analysis, it concluded was reasonable compared with the fiscal year 2015  average price for refined petroleum products.
While DOD revised its standard price methodology to address our prior  recommendations, it has not fully documented its rationale for the  assumptions it used in estimating the fiscal year 2017 standard price. For  its fiscal year 2017 standard price, DOD documented parts of the  methodology it used. Specifically, DOD detailed in an internal OUSD  Comptroller memorandum the various options it considered, the reasons  why it chose the methodology it used, and the calculations it used to  arrive at its estimated standard price. However, we found that DOD has  not documented its process for establishing the standard price in three  areas. First, DOD has not documented a formalized process that  describes the steps it will take on an annual basis to determine the  standard price for future fiscal years. Second, documentation detailing the  options DOD considered and the rationale behind the methodology it  chose is not available to Congress and its fuel customers. Third, DOD  has not documented the formal review and approval of the new  methodology by senior Comptroller officials.
Our Cost Estimating and Assessment Guide states that a cost estimate  should be supported by detailed documentation that describes how it was  derived. According to the guide, the documentation should include,  among other things, the estimating methodology used to derive the costs  for each element of the cost estimate, and it should also discuss any  limitations of the data or assumptions. Further, a well-documented  methodology allows decision makers to understand and evaluate the  budget request and make proper determinations. In partially agreeing with  our 2014 recommendation, DOD noted the department did not have a  documented, specific, step-by-step process to develop the standard price  but that it priced fuel by using a formal process that had been presented  to the department’s leadership, briefed to congressional staff, discussed  with the administration, and reproduced in various instructional and  informational briefings and papers.
The OUSD Comptroller official responsible for managing the bulk fuel  program stated that the department does not have a similar formal  process for determining rates for other commodities and working capital  funds. The official stated that, therefore, DOD does not want to make the  bulk fuel standard price determination unique and apart from these other  commodities. However, because of concerns with the quality and  transparency of information available to congressional decision makers  and department fuel customers concerning the methodology selected  each year and its application to relevant data used in estimating fuel rate  prices for the next fiscal year, the Senate Armed Services Committee  directed DOD to submit detailed guidance to the congressional defense  committees no later than February 1, 2017, that includes the following  elements:
The steps DOD will take to develop and implement a process for the  annual review and selection and application of an appropriate  methodology for estimating fuel rate prices for the next fiscal year;
The process for identifying an appropriate methodology to assess the  accuracy of estimated fuel rate prices as compared with actual fuel  prices for the most recent fiscal year; and
The establishment of a detailed process for the annual development  of estimated fuel rate prices for the next fiscal year, to include  requiring documentation of the rationale for using one methodology  over another for estimating the next fiscal year’s fuel rate price and  the limitations and assumptions of underlying data, and establishing a  timeline for developing annual estimated fuel rate prices for the next  fiscal year.
We continue to believe that documentation by DOD of its assumptions  would provide greater transparency and clarify for fuel customers and  decision makers the process DOD uses to set the standard price, as we  recommended in 2014 and 2015.
section_title: Conclusions
paragraphs: The military services have reported actual spending on fuel consumption  that differed from their fuel consumption budget estimates, attributing  most of the differences to changes in operations and training that affected  fuel consumption during the year of budget execution. The OUSD  Comptroller takes some steps to validate the military services’ fuel  consumption estimates, but neither this office nor the military services  have an approach to reconcile the military services’ reported fuel  consumption spending data with DLA’s fuel sales during the annual  budget development process. Having an approach to reconcile  differences would provide DOD with a means to understand any  discrepancies in its fuel consumption data and determine whether any  actions are needed to better assess the accuracy of the military services’  actual fuel consumption spending that it reports to Congress in annual  budget requests. DOD’s O&M budget materials provide some actual and  estimated fuel consumption spending data but are limited in the amount  of information they convey because they do not provide data on fuel  volume or separate actual O&M base obligations for the military services’  fuel consumption spending for day-to-day activities from their O&M OCO  obligations. As a result, Congress does not have full visibility over the  amount of fuel volume the military services require on an annual basis for  their activities, or trends in the military services’ spending for non-war- related fuel consumption, which has varied considerably from budget  estimates. DOD adjusted the methodology it used to set the standard  price in fiscal year 2017 to address our prior recommendations, but it has  not fully documented the rationale it uses in the standard price process.  As we previously reported, until DOD documents its rationale for how it  establishes the standard price, fuel customers and decision makers will  not have the transparency and clarity they need to understand the  process and make fully informed decisions.
section_title: Recommendations for Executive Action
paragraphs: In order to improve the accuracy of the information included in the O&M  budget justification material submitted to Congress and provide complete  information to review the military services’ fuel consumption spending  requests, we recommend that the Secretary of Defense direct the Under  Secretary of Defense (Comptroller), in consultation with the military  services and DLA, to take the following two actions:
Develop an approach to reconcile data on fuel consumption reported  by the military services and fuel sales to the military services reported  by DLA and take any appropriate corrective actions to improve the  accuracy of actual fuel consumption spending data, and
Report complete fuel consumption information to Congress, to include  actual and estimated fuel volume and actual O&M base obligations for  fuel consumption spending separate from O&M OCO obligations. This  information could be provided as part of DOD’s annual O&M budget  justification materials, or through other reporting mechanisms.
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 concurred with the first recommendation and did not  concur with the second recommendation.
DOD concurred with the first recommendation that it develop an approach  to reconcile the military services’ and DLA fuel consumption data. DOD  stated that the OUSD Comptroller had established a working group with  representatives from the military services and DLA to reconcile fuel sales  reports. DOD further stated that the working group expected to complete  its work to support the development of the President’s Budget for fiscal  year 2018.
DOD did not concur with the second recommendation that it report more  complete fuel consumption information to Congress. DOD stated that it  agreed that including additional fuel consumption detail could be useful  information and stated that it will look at ways to incorporate additional  data in upcoming budget submissions. However, DOD stated that it would  be very difficult and labor intensive to implement a system to separate  base from OCO data and cited several reasons. Among those reasons,                                                                                                                                                                                                                                        DOD stated that many legacy financial systems currently in use cannot  easily distinguish between base and OCO execution data. DOD also  stated that manually identifying these data would be extremely labor  intensive. However, DOD stated that once all DOD components convert  from the legacy systems, the department should be able to report base  and OCO obligations consistently and effectively. We acknowledge  DOD’s ongoing efforts to transition from its legacy systems; however, in  our report, we note that fuel volume information is available and that the  military services already provide the OUSD Comptroller with actual and  estimated fuel volume data during the annual budget development  process. Further, our report discusses the basic steps we took to  calculate O&M base obligations separately from O&M OCO obligations  for fuel consumption spending with DOD’s existing budget materials.  These steps included compiling and summing data on actual O&M OCO  obligations for fuel consumption spending reported in budget exhibits  accompanying the military services’ O&M OCO requests and subtracting  these amounts from the total O&M obligations for fuel consumption  spending that are reported in the budget exhibits accompanying the  military services’ O&M base budget requests. As we noted in our report,  the budget exhibits include actual obligations for fuel consumption  spending for the total of both O&M base and O&M OCO obligations  combined. We then compared this amount to the estimates for fuel  consumption spending included in the military services’ O&M base budget  request.
DOD also stated that it is already required to report total obligations to  Congress by appropriation. However, neither the OMB circular that  governs federal agencies’ preparation, submission, and execution of their  budgets nor relevant sections of the U.S. Code preclude the department  from providing additional detail on O&M base obligations. As we discuss  in our report, the military services generally over-estimated the amount of  actual O&M base fuel consumption spending for the period we reviewed;  therefore, without additional data that distinguishes between O&M base  and O&M OCO spending, Congress does not have the information to  assess trends in the military services’ spending for non-war-related fuel  consumption, which has varied considerably from budget estimates.  Moreover, as we also noted in our report, DOD produces data in various  sources that could be used by decision makers to measure the military  services’ fuel consumption. DOD could report additional information on  actual O&M base obligations for fuel consumption spending as well as  actual and estimated fuel volume as we recommended as part of DOD’s  annual O&M budget justification materials, or through other reporting  mechanisms that the department determined would assist Congress in its  decision making. Without more complete information, Congress does not  have full visibility over the amount of fuel volume the military services  require on an annual basis for their activities.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Under Secretary of Defense  (Comptroller), the Secretaries of Army, Navy, and Air Force, and the  Commandant of the Marine Corps. 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 (202) 512-5431 or russellc@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: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) describe the military services’ reported actual  spending on fuel consumption compared to their budget estimates since  2012 and factors that were reported to have contributed to any  differences; (2) assess the steps the Department of Defense (DOD) takes  to report accurate and complete fuel consumption data in its annual  budget requests; and (3) evaluate the extent to which DOD’s approach for  determining the fiscal year 2017 standard price charged to fuel customers  is consistent with federal budget guidance and leading practices for a  credible and well-documented cost estimate.
To describe how the military services’ reported actual spending on fuel  consumption compared to their budget estimates since 2012 and factors  that were reported to have contributed to any differences, we analyzed  DOD’s operation and maintenance (O&M) budget justification materials  for fiscal years 2012 through 2015. We focused our analysis on fiscal  years 2012 through 2015 because this period covered the most recent  complete year of DOD fuel sales and provided three years of cost data to  analyze any trends. We identified the specific accounting lines in each  O&M budget exhibit related to fuel for both O&M base and O&M  Overseas Contingency Operations (OCO) fuel consumption. We then  compared the military services’ reported actual obligations for fuel  consumption spending that are contained in these accounting lines  against the military services’ budget estimates. To determine the reliability  of the data, we obtained information on how the data were collected,  managed, and used through interviews with and questionnaires to  relevant officials and determined that the data presented in our findings  were sufficiently reliable to present trends in this report on the military  services’ actual and estimated O&M spending for fuel consumption for  fiscal years 2012 through 2015. We interviewed an official from the Office  of the Under Secretary of Defense (OUSD) Comptroller, who is  responsible for managing the bulk fuel program, and budget and financial  management officials with the military services to better understand any  factors that contributed to differences between actual and estimated fuel  consumption.
To assess the steps DOD takes to report accurate and complete fuel  consumption data in annual budget requests, we analyzed DOD’s budget  justification materials for fiscal years 2012 through 2015, as well as  military service and Defense Logistics Agency (DLA) fuel data. We  interviewed an official from the OUSD Comptroller who is responsible for  managing the bulk fuel program, officials with military service budget and  financial management offices, and DLA to determine how O&M budget  justification materials generally, and fuel consumption estimates  specifically, are prepared, evaluated, and reported to Congress. We  interviewed officials from each military service to determine how budget  justification materials are prepared for their annual O&M budget requests.  We interviewed officials from DLA to determine how it reports its fuel  sales to the military services. To understand the differences between the  military services’ fuel consumption data and DLA fuel sales, we analyzed  the military services’ actual obligations for fuel consumption spending  reported in their O&M budget materials for fiscal years 2012 through 2015  against DLA data on fuel sales to the military services for these same  years. To determine the reliability of both the O&M budget justification  data and DLA fuel sales data provided to us by DOD, we obtained  information on how the data were collected, managed, and used through  interviews with and questionnaires to relevant officials. We assessed the  information against federal internal controls and accounting standards  that describe practices regarding how information should be recorded and  communicated to management and others. We determined that the data  were sufficiently reliable to present the military services’ total O&M  obligations for fuel consumption spending for fiscal years 2012 through  2015 and DLA fuel sales data to the military services for these same  years. However, as discussed in this report, we identified differences in  the fuel consumption data reported by the military services and DLA. To  understand the differences between the military services’ O&M base  request for fuel and actual fuel consumption for O&M base programs and  activities, we calculated O&M base spending, because DOD does not  report this information separately from O&M OCO spending in its budget  justification materials. To do this, we compiled and summed the O&M  OCO obligations for fuel consumption spending that were reported in the  O&M OCO budget materials for each military service for fiscal years 2012  through 2015 and subtracted this amount from total O&M obligations for  fuel consumption spending reported in the military services’ O&M base  budget exhibits (which included the total of O&M base obligations and  O&M OCO obligations). We then compared this amount to fuel  consumption estimates included in the military services’ O&M base  budget requests for each fiscal year. We assessed this information  against the Standards for Internal Control in the Federal Government  and Handbook of Federal Accounting Standards on how information  should be recorded and communicated to management and others.
To determine the extent to which DOD’s approach for determining the  fiscal year 2017 price charged to fuel customers is consistent with federal  budget guidance and leading practices for a credible and well- documented cost estimate, we reviewed documentation on DOD’s  analysis of various methodologies it examined, as well as its justification  for the one it ultimately chose to apply for fiscal year 2017. We did not  evaluate the relative costs or benefits of the methodologies that DOD  considered—such as the limitations or uncertainties that may be inherent  in selecting one methodology over another. Specifically, we determined  how DOD evaluated methodologies for setting the standard fuel price for  fiscal year 2017. To better understand the steps DOD took, we  determined how it applied OMB’s Gas and Oil price index when  evaluating methodologies for setting the standard fuel price, compared to  what it did in prior years. We also interviewed an official from the OUSD  Comptroller, who is responsible for managing the bulk fuel program,  about DOD’s methodology for developing its standard price in fiscal year  2017 and its plans for determining the methodology in the future. We  compared DOD’s methodology for establishing the fiscal year 2017  standard price for budgeting purposes with OMB’s Circular A-11, which  governs federal agencies’ budget development, and with our Cost  Estimating and Assessment Guide, which is a compilation of best  practices, including the characteristics of a credible and well-documented  cost estimate, which federal cost-estimating organizations and industry  use to develop and maintain reliable cost estimates.
We interviewed official, and, where appropriate, obtained documentation,  from the following organizations:
Office of the Under Secretary of Defense (Comptroller)
Defense Logistics Agency – Energy
Defense Logistics Agency – Finance
Air Force Petroleum Agency
Naval Supply Systems Command
Office of the Assistant Secretary of the Air Force, Financial
Office of the Assistant Secretary of the Army, Financial Management
Office of the Assistant Secretary of the Navy, Financial Management  We conducted this performance audit from July 2015 to September 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 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, Matthew Ullengren (Assistant  Director), Robert Brown, Amy Bush, Adam Hatton, Amie Steele Lesser,  Felicia M. Lopez, and Pedro Almoguera made key contributions to this  report.