Military Operations: Fiscal Year 2004 Costs for the Global War on Terrorism Will Exceed Supplemental, Requiring DOD to Shift Funds from Other Uses
Published: 2004-07-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To support the Global War on Terrorism in fiscal year 2004, the Congress appropriated $65 billion to the Department of Defense (DOD) in an emergency supplemental appropriations act. To assist the Congress in its oversight role, GAO reviewed (1) the adequacy of current funding for fiscal year 2004 war-related activities and (2) actions DOD is undertaking to cover anticipated shortfalls, if any. Based on the body of work GAO has done on the cost of contingency operations, GAO is also making observations on efforts to require greater accountability to the Congress on the use of funds appropriated to DOD for contingency operations.
section_title: What GAO Found
paragraphs: GAO's analysis of reported obligations for the first seven months of fiscal year 2004 through April 2004 and the military services' forecasts as of June 2004 of their likely costs for the Global War on Terrorism for operation and maintenance and military personnel through the end of fiscal year 2004 suggests that anticipated costs will exceed the supplemental funding provided for the war by about $12.3 billion for the current fiscal year. DOD and the services are taking a variety of actions to cover anticipated shortfalls in their war-related funding. These actions include taking steps to reduce costs, transferring funds among appropriations accounts, and deferring some planned activities to use those funds to support the war. Also, DOD plans to ask the Congress for additional transfer authority, which would give it sufficient authority to move funds from one service to another and get funds to the operation and maintenance accounts that have the greatest shortfalls. The deferral of activities planned for fiscal year 2004 adds to the requirements that will need to be funded in fiscal year 2005 and potentially later years and could result in a "bow wave" effect in future fiscal years. GAO's past work has shown that current cost reporting includes large amounts of funds that have been reported as obligated in miscellaneous categories and thus provide little insight on how those funds have been spent. This is likely to result in reduced transparency and accountability to the Congress and the American people. Recent congressional actions have signaled the Congress' intent to require greater accountability regarding the use of GWOT funds. For example, in action on the President's $25 billion request for an Iraqi Freedom Fund Contingent Emergency Reserve in fiscal year 2005, the House Committee on Appropriations included provisions in its bill for cost reporting related to the use of these funds. But additional actions are necessary.

section_title: Letter
paragraphs: Following the terrorist attacks of September 11, 2001, the United States  began military operations to combat terrorism both in the United States  and overseas. Military operations to defend the United States from  terrorist attacks are known as Operation Noble Eagle. Overseas operations  to combat terrorism are known as Operation Enduring Freedom and have  taken place principally in Afghanistan. In March 2003, the United States  began Operation Iraqi Freedom to change the government in Iraq.  Together, these three operations are known as the Global War on  Terrorism (GWOT). To support GWOT operations in fiscal year 2004, the  Congress appropriated $65 billion to the Department of Defense (DOD) in  an emergency supplemental appropriation. The administration had  requested that amount to cover about $51 billion for ongoing military  operations in Iraq, over $10 billion for U.S. forces in Afghanistan, and  about $3.6 billion for homeland defense and support to allies.
To assist the Congress in its oversight role, we reviewed (1) the adequacy  of current funding for fiscal year 2004 GWOT-related activities and  (2) actions DOD is undertaking to cover any anticipated shortfalls. Based  on the body of work we have done on the cost of contingency operations,  we are also making observations on efforts to require greater  accountability to the Congress on the use of supplemental funds  appropriated to DOD for contingency operations. We provided a draft of  this report to your offices for deliberations on fiscal year 2005 defense  bills.
To accomplish this review, we obtained the most recently available DOD  data on the services’ reported obligations of funds in fiscal year 2004 in  support of GWOT and compared the data to available funding detailed in  appropriations legislation. Obligations are incurred through actions such  as orders placed, contracts awarded, services received, or similar  transactions made by federal agencies during a given period that will  require payments during the same or a future period. DOD’s financial  systems capture the obligation of funds. To identify DOD’s fiscal year 2004  GWOT-reported obligations, we used DOD’s Consolidated Department of  Defense Terrorist Response Cost Reports, which report the monthly and  cumulative GWOT obligations, and analyzed the data. Although we did not  validate the financial systems or data that the Defense Finance and  Accounting Service uses to produce these consolidated cost reports, we  did discuss the data presented in these reports with DOD and service  representatives and agreed that for the limited scope of this review, the  consolidated reports provided the best available data. We also did not  verify whether reported obligations were actually in support of GWOT.  However, we are beginning a separate review of the obligations  accumulated through the various sources of information used by the  services, including the method by which the Defense Finance and  Accounting Service acquires and consolidates the data into the cost report  and whether the reported obligations support the war.
We interviewed DOD and service representatives responsible for preparing  budgets and estimating costs to obtain their forecasts of fiscal year 2004  funding needs as contained in their midyear budget reviews that they  presented to the Office of the Under Secretary of Defense (Comptroller)  and subsequent updates as of June 2004. We also interviewed resource  management representatives from some of the major commands involved  in Operation Iraqi Freedom. We focused our work on the obligation of  funds appropriated for operation and maintenance and military personnel,  for both active and reserve forces, because they represented the large  majority of funds obligated in fiscal year 2004 through April 2004. In  developing observations on how to improve accountability over  contingency funds, we drew upon the body of work we have done over the  past decade on the cost of contingency operations. The Congress was in  the final stages of completing action on the fiscal year 2005 defense  appropriations bill as we were finalizing our report. A detailed discussion  of our scope and methodology is contained in appendix I.
We performed our work from January through June 2004 in accordance  with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: Since the terrorist attacks of September 11, 2001, the United States has  undertaken military operations worldwide to fight terrorism as part of  GWOT. To pay for the incremental costs of GWOT, the Congress has  provided over $165 billion in appropriations for military operations  through fiscal year 2004. This amount includes funds for operations in  Afghanistan and more recently Iraq, homeland security, and other global  counterterrorism military and intelligence operations. Figure 1 shows the  location of DOD’s major operations in support of GWOT during fiscal  year 2004.
Most of the costs associated with GWOT fall into two accounts—operation  and maintenance and military personnel. Operation and maintenance  account funds obligated in support of GWOT are used for a variety of  purposes, including transportation of personnel, goods, and equipment;  unit operating support costs; and intelligence, communications, and  logistics support. Military personnel funds obligated in support of GWOT  cover the pay and allowances of mobilized reservists as well as special  payments or allowances for all qualifying military personnel, both active  and reserve, such as Imminent Danger Pay and Family Separation  Allowance.
section_title: Fiscal Year 2004 GWOT Costs Are Exceeding Supplemental Funding
paragraphs: Our analysis of the military services’ reported obligations for the first  seven months of fiscal year 2004 and the services’ forecasts as of June  2004 of full fiscal year costs suggests the services’ combined operation and  maintenance costs could exceed supplemental GWOT funding by about  $13 billion. At the same time, the services’ forecasts suggest the Army and  the Air Force will have some surplus military personnel funds while the  Navy and the Marine Corps will have a small shortfall. Using the surplus  military personnel funds to offset some of the operation and maintenance  shortfalls could result in a net shortfall of about $12.3 billion. Table 1  shows the services’ forecasts.
Our analysis suggests that the services will require additional funding to  satisfy operation and maintenance expenses and in some cases military  personnel expenses. The services, in concert with the Office of the Under  Secretary of Defense (Comptroller), plan to take a variety of actions to  cover forecasted shortfalls.
subsections: section_title: Fiscal Year 2004 Funds Appropriated for the Global War on Terrorism
paragraphs: To support GWOT in fiscal year 2004, the Congress appropriated  $65 billion to DOD in an emergency supplemental appropriation. Of this  $65 billion, about $63 billion was appropriated directly to the services’  and other defense agencies’ appropriations accounts and about $2 billion  to a transfer fund called the Iraqi Freedom Fund. Of the $63 billion,  $5.3 billion was designated for classified programs, which we did not  review, $3.07 billion was for procurement, $500 million was for military  construction, $624 million was for the working capital funds, and  $672 million was for other appropriations. Table 2 shows the operation  and maintenance and the military personnel appropriations provided to  the services and DOD-wide agencies for GWOT, exclusive of the amounts  designated for classified programs.
We recognize that estimating the costs of ongoing military operations is  difficult because operational requirements can differ substantially from  what was assumed in developing budget estimates. For example,  according to Office of the Under Secretary of Defense (Comptroller)  representatives, in developing the President’s fiscal year 2004 GWOT  budget request, DOD assumed, among other things, that the number of  military personnel would decline from a wartime high of 130,000 to 99,000  by the end of fiscal year 2004, that it would be able to make greater use of  sealift as opposed to more expensive airlift, and that military units  replacing those involved in the invasion of Iraq would have fewer armored  vehicles than the units they replaced. Conditions in Iraq have prevented  much of this from happening, and costs have not decreased as anticipated.  This includes having higher numbers of troops in Iraq, with DOD stating  that it plans to keep troop levels at 138,000 for the foreseeable future.
section_title: Funding for GWOT Operation and Maintenance in Fiscal Year 2004 Is Not Likely to Be Sufficient
paragraphs: Our analysis of reported obligations for the first seven months of fiscal  year 2004 and the military services’ forecasts as of June 2004 of their likely  costs for GWOT through the end of fiscal year 2004 suggest that  anticipated costs will exceed the supplemental funding provided for  GWOT. Our comparison of the percentage of fiscal year 2004 GWOT  operation and maintenance funds obligated by the military services for the  first seven months of the fiscal year (i.e., October 1, 2003, through April  2004, the latest month for which obligation data are available for all the  services) showed that all of the military services had obligated more than  60 percent of their available appropriations, including any funds  transferred from the Iraqi Freedom Fund. As shown in figure 2,  the percentage of available operation and maintenance funds that were  obligated as of April 30, 2004, ranged from a low of nearly 61 percent for  the Air Force to a high of over 77 percent for the Marine Corps. Therefore,  we believe that if funds continue to be obligated at the current rate or  higher, operation and maintenance reported obligations made in fiscal  year 2004 will be higher than the funds available for obligation in fiscal  year 2004.
Each of the military services completed a midyear budget review in  May-June 2004 for the Office of the Secretary of Defense, including a  forecast of their requirements for GWOT and, in some cases, has updated  those forecasts. Each service concluded it did not have sufficient  GWOT funding for GWOT operation and maintenance, while two of the  services—the Navy and the Marine Corps—forecasted a shortfall in GWOT  military personnel funds (see next section). A summary of each service’s  review follows.
The Army forecasts a funding shortfall of about $10.2 billion. The shortfall  includes $5.3 billion for support to deployed Army forces; $3.4 billion for a  variety of activities, including $2 billion for refurbishing equipment used in  Operation Iraqi Freedom and $753 million in contractor logistics support;  $800 million for equipment maintenance; and $650 million for contract  guards and garrison support units in the United States. The two largest  components of the shortfall in support for deployed forces are the  Logistics Civil Augmentation Program (LOGCAP) contract that provides a  wide array of support services such as feeding and housing soldiers and  the costs, such as those for spare parts, associated with the higher  operating tempo of U.S. forces. LOGCAP costs have grown significantly as  contractors replaced soldiers providing complex support functions. Higher  than initially planned troop levels in Iraq as of spring 2004 (130,000 instead  of 99,000) and an increase in troop levels in Afghanistan (from about  14,000 to about 21,000) have increased all aspects of troop support.  Additional factors driving costs are the decision to change the force mix of  units serving in Iraq from one-third armor, two-thirds wheeled vehicles to  one-half armor, one-half wheeled vehicles, which will lead to higher  operational tempo and maintenance costs because armor vehicles are  more expensive to operate and an increased use of airlift to move critical  equipment to Iraq this past spring.
The Air Force forecasts a shortfall of about $1.5 billion, which includes the  costs for increased operating tempo, such as more flying hours than  anticipated, higher transportation costs to move Air Force units and  equipment, body armor for airmen in combat areas, night vision gear, and  operation of surveillance equipment. In addition, the Office of the Under  Secretary of Defense (Comptroller) directed the Air Force to fund  $116 million for its own support provided under the LOGCAP contract,  which would otherwise have been paid by the Army.
The Navy forecasts a shortfall of $931 million, which includes the costs for  higher steaming and flying hours. For example, Navy representatives told  us that they had planned for 11 additional steaming days per quarter but  are actually at 18 additional days per quarter, which totals $231 million of  the shortfall. In addition, there are 4,000 Navy personnel in Iraq and  Kuwait that were not planned to deploy, which increases the operational  costs, and the transportation costs to move additional Navy and Marine  Corps personnel (which were also not expected to deploy) to GWOT  operations.
The Marine Corps forecasts a shortfall of $446 million. This shortfall  reflects the cost of having 26,500 Marines in Iraq and the additional  deployment of two Marine Expeditionary Units in support of GWOT  operations when initially Marine Corps forces were expected to decrease  their presence in fiscal year 2004. It also includes the cost of refurbishing  equipment that had been in Iraq in fiscal year 2003. Furthermore, the  equipment and maintenance costs associated with adding extra armor on  vehicles are much higher than anticipated because of the extra wear-and- tear the vehicles are experiencing due to the extra weight. The shortfall  does not include an additional $140 million needed for aircraft force  protection that is being funded by the Navy.
In addition to the military services, the Congress also provided  GWOT operation and maintenance appropriations for the defense  agencies, including the Special Operations Command and the  Defense Logistics Agency. These agencies are also reflected in the midyear  budget review. Our analysis of their collective reported obligations  through April 2004, which represents almost 58 percent of the fiscal year,  indicates that the defense agencies are also obligating their funds rapidly,  with about 66 percent of their appropriated operation and maintenance  funds obligated through April 2004.
section_title: Funding for GWOT Military Personnel Is Reasonably Close to Forecasts
paragraphs: The military services have been obligating their funds for military  personnel at a rate that nearly mirrors the percentage of the fiscal year  that has passed. As figure 3 shows, with seven months of the fiscal year  gone, the Army, the Navy, and the Air Force have obligated over one-half  of their appropriations and the Marine Corps has obligated almost half,  including any funds transferred from the Iraqi Freedom Fund. For  example, the Army and the Navy have obligated almost 60 and 59 percent,  respectively, of their GWOT appropriation.
While three of the four services’ reported obligations for military  personnel are about at the expected level for this point in the fiscal year,  the military services’ forecasts as of June 2004 predict a surplus in the  Army and Air Force accounts and a shortage in the Navy and Marine Corps  accounts. Details are as follows.
The Army forecasts a surplus of $800 million due to less than expected use  of reservists in support of Operation Noble Eagle and savings on costs to  move soldiers from one home station to another.
The Air Force forecasts a surplus of $112 million due to the deactivation of  reservists.
The Navy forecasts a shortfall of $61 million resulting from factors  including the increase in Family Separation Allowances for personnel in  Iraq and Kuwait. The Navy has also activated 1,300 reservists.
The Marine Corps forecasts a shortfall of $107 million. There are  26,500 Marines in Iraq, including 4,000-5,000 reservists, plus the  deployment of two Marine Expeditionary Units in support of GWOT that  were not anticipated when the Marines’ budget estimate was developed.
section_title: DOD Plans a Variety of Actions to Cover the Military Services’ Shortfalls of GWOT Funds
paragraphs: To fund forecasted GWOT shortfalls, the Office of the Under Secretary of  Defense (Comptroller) and the military services are planning to take a  number of actions. These actions include taking steps to reduce costs,  transferring funds from the Iraqi Freedom Fund, transferring funds  between appropriations accounts, and deferring planned peacetime  activities to use those funds to support GWOT.
These potential shortfalls could require DOD to move funds between or  within appropriation accounts. DOD uses “transfer authority” to shift  funds between appropriation accounts, for example, between military  personnel and operation and maintenance. Transfer authority is granted  by the Congress to DOD usually pursuant to specific provisions in  authorization or appropriation acts. In the fiscal year 2004 National  Defense Appropriation Act, DOD was given general transfer authority to  shift $2.1 billion between appropriations accounts, as well as other  transfer authorities that are more specific in nature. DOD was also given  transfer authority in the fiscal year 2004 Emergency Supplemental  Appropriation Act to shift $3 billion of the funds appropriated in that act.  In both cases, the Secretary of Defense must determine that this transfer is  necessary in the national interest and that it would fund unforeseen and  higher priority items than those originally funded, and he must notify the  Congress promptly of the transfer. The ability to shift funds within a  specific appropriation account, like operation and maintenance, is  referred to as “reprogramming.” In general, DOD does not need statutory  authority to reprogram funds within an account as long as the funds to be  spent would be used for the same general purpose of the appropriation  and the reprogramming does not violate any other specific statutory  requirements or limitations. For example, DOD could reprogram operation  and maintenance funds originally appropriated for training to cover  increased fuel costs because both uses meet the general purpose of the  operation and maintenance account, as long as the shift does not violate  any other specific congressional prohibition or limitation.
According to a representative in the Office of the Under Secretary of  Defense (Comptroller), DOD has sufficient funds within its overall  appropriation to cover forecasted GWOT shortfalls. Therefore, DOD does  not plan to ask the Congress for additional funding, but instead will cover  the shortfall in its fiscal year 2004 GWOT funding by both transferring and  reprogramming normal annual appropriation and GWOT funds. However,  as explained earlier, there are statutory dollar limits on the amount of  funds DOD can transfer and, according to a DOD representative, as of  June 18, 2004, DOD had exhausted most of its transfer authority.  According to this representative, DOD plans to ask the Congress for an  additional $1.1 billion in transfer authority, which would give the  department sufficient authority to move funds from one service to another  and get funds to the operation and maintenance accounts that have the  greatest shortfalls. Also, according to most service representatives, they  plan to reprogram funds within their appropriations to the extent allowed  by law. Finally, DOD plans to transfer the remaining amount in the Iraqi  Freedom Fund, which has its own transfer authority, to the Army and  Marine Corps operation and maintenance accounts.
subsections: section_title: Military Services Plan to Cover GWOT Shortfalls
paragraphs: To cover their forecasted GWOT shortfalls, each of the military services  has identified a number of steps it plans to take. Some of these steps  involve actions they can take internally, such as seeking to reduce costs  and revising spending priorities, or reprogramming, within the same  appropriation account, while others involve transferring funds between  accounts.
The Army, the service with the largest forecasted shortfall in operation  and maintenance, is taking a variety of actions to address its forecasted  shortfall. Actions include emphasizing the need to control costs,  reprogramming funds within and transferring funds across accounts,  seeking help from the other military services for bills now being paid by  the Army, and deferring what amounts to a total of about $3.4 billion in  activities until fiscal year 2005 or beyond, including deferring  refurbishment of equipment used in Operation Iraqi Freedom. In a  December 2003 message, the Vice Chief of Staff of the Army asked units to  control costs and look for alternatives to the LOGCAP contract with the  realization that costs were growing rapidly. Army representatives told us  that to control costs they have implemented a number of measures,  including    higher level review of LOGCAP tasks over $10 million as well as over other  contract actions and equipment and supply purchases,    strengthened management controls on new work performed under the  LOGCAP contract, and  the review of supply requisitions to identify and cancel duplicate or  inactive requisitions after 30 days as well as a management review of  requisitions that have a high-dollar value, involve large quantities, or  involve pilferable items.
The Army will also seek to transfer the previously discussed anticipated  $800 million surplus that is attributable to GWOT in its military personnel  appropriation account and reprogram funds within its military personnel  Army and National Guard appropriations to cover the forecasted  $650 million shortage for contract guards and garrison support units, and  it is waiting for the Congress’ approval of the Office of the Secretary of  Defense’s request to transfer funds from other service and defense agency  accounts, as well as the previously discussed transfer of remaining funds  in the Iraqi Freedom Fund. The Army has already received almost  $1 billion in transfers from the transportation working capital fund that  reflect surpluses in that account and anticipates a reduction in  transportation rates and usage changes that would produce a $265 million  savings. Finally, the Army is seeking to have the other military services pay  some bills it is currently paying. These bills include having the Marine  Corps pay almost $313 million and the Air Force pay almost $116 million in  LOGCAP costs, which is the Army’s estimate of the cost of LOGCAP  services being provided to those services. In total, the Army has identified  $6.8 billion in funding sources for its operation and maintenance shortfall  and will defer activities for the remaining $3.4 billion to fiscal year 2005  and beyond.
The Air Force is taking a variety of actions to reduce or defer spending in  its active component operation and maintenance account in order to  absorb its forecasted GWOT shortfall. Actions include decreasing  peacetime flying hours in the fourth quarter of this fiscal year, reducing  depot maintenance, deferring facility sustainment and restoration  modernization projects, eliminating training events, decreasing contractor  logistics support, slowing civilian hiring, and curtailing lower priority  requirements such as travel, supplies, and equipment.
The Navy is also taking a variety of actions to cover its forecasted GWOT  shortfall. To cover its forecasted operation and maintenance shortfall of  $931 million, the Navy, like the Air Force and the Army, plans to reduce or  defer spending in its operation and maintenance account, by reducing  activities involving facility sustainment and restoration modernization  projects by $300 million and non-GWOT flying and steaming hours by  $226 million. According to Navy representatives, if the fleet does not want  to reduce flying and steaming hours, it can defer its depot maintenance.  The Navy received $121 million in transfers from the Office of the  Secretary of Defense. The Navy will cover the remaining $284 million  shortfall in operation and maintenance and the $61 million shortfall in  military personnel through the transfer and reprogramming of funds from  investment accounts.
The Marine Corps plans to fund both $334 million of its forecasted  $446 million operation and maintenance shortfall and its $107 million  military personnel shortfall with funds transferred from the Iraqi Freedom  Fund and Department of the Navy investment accounts. According to  Marine Corps representatives, they also plan to reduce or defer spending  in noncritical areas such as facilities improvements or sustainment  projects.
section_title: Deferring and Reducing Spending Could Increase Fiscal Year 2005 Spending Needs
paragraphs: As discussed earlier, each of the military services expects to take steps  to make funds available for GWOT by reducing and deferring planned  activities. Actions such as reducing training can have both short- and  long-term impacts. In the short term, units train less if flying and steaming  hours are reduced. In the long term, for example, Air Force  representatives told us that part of the reduction in peacetime flying hours  would affect the Air Education and Training Command’s training of new  pilots, which would slow new pilot production. While some actions, such  as reduced training or travel, cannot be restored, actions that involve  deferring planned activities can be restored in future fiscal years to the  extent funding is available. As discussed earlier, the Army both plans to  defer $3.4 billion in activities until 2005 and beyond and expects to receive  transfers of funds from other services and defense agency accounts, which  would affect the other services’ spending plans; the Air Force plans to  reduce depot maintenance; the Navy plans to reduce facility repair  activities; and the Marine Corps plans to seek the transfer of funds from  investment accounts. We believe that the deferral of these activities will  add to the requirements that will need to be funded in fiscal year 2005 and  potentially later years and so could result in a “bow wave” effect in future  fiscal years. Activities that are deferred also run the risk of costing more in  future years.
section_title: Congressional Efforts to Improve Accountability of GWOT Funds
paragraphs: Recent congressional committee actions have signaled the Congress’  intent to require greater accountability regarding the use of GWOT funds.  On May 12, 2004, the President submitted a budget amendment for DOD  requesting $25 billion for the Iraqi Freedom Fund Contingent Emergency  Reserve in fiscal year 2005. The House Committee on Appropriations  included provisions in its bill for accountability related to the use of these  funds. The committee bill includes numerous reporting requirements,  including a new requirement for a comprehensive biannual report to the  Congress that provides a detailed and specific accounting of the  expenditure of taxpayer funds in Iraq and Afghanistan. In its committee  report on the defense appropriations bill, the Senate Committee on  Appropriations expressed its disappointment in the responsiveness of  DOD in providing reports already required by various laws. The report  does not require new reports be provided, but directs DOD to provide  meaningful detail to describe the purposes and specific use of funding in  all reports submitted to the committee.
We have been reporting on the cost of ongoing military operations for  more than a decade. In that reporting, we have analyzed DOD’s monthly  cost reports detailing the reported obligations of funds in support of the  operations. DOD currently prepares a monthly Consolidated DOD  Terrorist Response Cost Report that contains reported obligations by  operation and within each operation and by appropriation account for the  military services and defense agencies. Within these accounts, the report  provides obligation data in about 50 categories that are defined in chapter  23 of the DOD Financial Management Regulations.
However, we have reported for several years and as recently as May 2004  that large amounts of reported obligations for GWOT are in miscellaneous  categories in both the operation and maintenance and the military  personnel accounts. For example, in fiscal year 2003, the $43.7 billion in  operation and maintenance reported obligations were reported in four  major categories: civilian personnel, personnel support, operating support,  and transportation. As shown in figure 4, the operating support category,  which details obligations for such operation-related activities as facilities  support, fuel, and spare parts and totaled about $32.1 billion, showed  about $15.5 billion in miscellaneous categories. This amount was  comprised of about $7 billion for other supplies and equipment and about  $8.4 billion for other services and miscellaneous contracts, which totaled  about 35 percent of the total reported operation and maintenance  obligations.
Similarly, we reported that within the military personnel account, of  $15.6 billion in reported obligations, $3.8 billion, or 24 percent, was in the  miscellaneous category of other military personnel. We reported that in  discussing the results of our analysis with the Office of the Under  Secretary of Defense (Comptroller) and the military services, there was  recognition of the large amount of reported obligations captured in  miscellaneous categories and that the Comptroller’s office is considering  how best to provide more specific detail in future cost reports.
Chapter 23 of the Financial Management Regulations is DOD’s guidance on  contingency operations cost definition and reporting. In our opinion, the  categories defined in the guidance provide a uniform framework for  capturing obligations, but the miscellaneous categories do not provide the  specificity or transparency needed for the Congress and others to  understand clearly how funds appropriated for contingency operations are  being used, particularly since these categories involve billions of dollars in  reported obligations.
In our annual reporting on the cost and funding of ongoing military  operations, we have recognized that estimating the costs of ongoing  military operations is difficult because operational requirements can differ  substantially from what was assumed in developing budget estimates. As a  result, the actual funding requirement is often more or less than what was  initially estimated, and the military services have sometimes used  surpluses to fund activities that were not part of the contingency  operation. We have found that in some years funding was insufficient for  some services while it was sufficient for others and that within a service it  was sufficient for one appropriation account but not for another. For  example, in June 1996 we reported that the Army and the Navy reported  obligations for operation and maintenance that were in excess of their  supplemental funding, while the Air Force and the Marine Corps reported  obligations that were less than their supplemental funding. In that year,  both the Air Force and the Marine Corps used the excess funding for a  variety of otherwise unfunded operational needs. In other years, the  Congress rescinded excess funding or reduced subsequent year funding  based on an expected carryover of funds.
section_title: Conclusions
paragraphs: Largely because of the security situation in Iraq, the military services are  forecasting costs as of June 2004 in excess of their supplemental GWOT  funding. DOD is taking a variety of actions to cover these shortfalls. It has  also asked the Congress to provide a $25 billion contingent reserve for  GWOT in fiscal year 2005. To ensure accountability for the use of those  funds, the Congress is contemplating requiring periodic reports on the use  of such funds. Our past work has shown that current cost reporting  includes large amounts of funds that have been reported as obligated in  miscellaneous categories and so provides little insight on how those funds  have been spent. This may result in reduced transparency and  accountability to the Congress and the American people. Our work has  also discussed the difficulty of accurately budgeting for annual funding  needs and the resulting existence of both funding shortfalls and surpluses,  which at times have been spent on noncontingency-related activities. This  in turn helps highlight the importance of providing useful information to  the Congress for its oversight role.
section_title: Recommendation for Executive Action
paragraphs: In light of the fact that we have reported for years on the large amounts of  reported obligations in the miscellaneous categories of the Consolidated  DOD Terrorist Response Cost Reports, we recommend that the Secretary  of Defense take the following three actions: (1) review recent  Consolidated DOD Terrorist Response Cost Reports to identify the larger  groupings of reported obligations within the “other supplies and  equipment,” “other services and miscellaneous contracts,” and “other  military personnel” cost categories; (2) revise Chapter 23 of the Financial  Management Regulations to include these groupings as reporting  categories so that the amounts classified in the “other” categories are  minimized; and (3) direct the military services to begin reporting  obligations using these new cost categories as soon as they are identified.
section_title: Matter for Congressional Consideration
paragraphs: To better assess the adequacy of previously provided funding, the  Congress may wish to expand its reporting requirements for DOD on the  use of GWOT funds to include reports at the half year and the end of the  third quarter of each fiscal year that include an assessment of the  adequacy of funding for GWOT in that fiscal year, including (a) if funding  appears to be insufficient, the Secretary of Defense’s plan for covering any  shortfall and (b) if funding appears to exceed forecasted costs, the  procedures that will be followed to ensure that any excess funds are not  used for non-GWOT purposes.
section_title: Agency Comments
paragraphs: DOD did not provide us comments by the date we requested. However, we  discussed our analysis with a representative from DOD’s Office of the  Under Secretary of Defense (Comptroller) and representatives from each  military service’s budget office. We also discussed our proposed  recommendation and matter for congressional consideration. The Office  of the Under Secretary of Defense representative stated that he agreed  with our proposed recommendation and that the department had been  discussing ways to provide more detail in the cost report’s miscellaneous  categories. This representative and the service representatives also stated  that they had no objections to the matter for congressional consideration  and, in fact, provide information to the Congress whenever it is requested.  DOD also provided technical comments and we have incorporated them  as appropriate. In particular, the Army clarified that they were not  deferring the purchase of ceramic body armor and we agreed to delete  references to that issue in the final report. We have also updated the  reported obligations to reflect April data.
We are sending copies of this report to other interested congressional  committees; the Secretary of Defense; the Under Secretary of Defense  (Comptroller); and the Director, Office of Management and Budget. Copies  of this report will also be made available to others upon request. In  addition, this report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you have any questions regarding this report, please call me on  (757) 552-8100. Principal contributors to this report were Steve Sternlieb,  Ann Borseth, John Buehler, and David Mayfield.
section_title: Appendix I: Scope and Methodology
paragraphs: To assess the adequacy of funding for the Global War on Terrorism  (GWOT), we reviewed (1) the President’s fiscal year 2004 budget request  for supplemental appropriations, (2) applicable laws appropriating funds  for GWOT, and (3) Department of Defense (DOD) reports on the  obligation of GWOT funds. We obtained budget forecasts from the military  services based on their midyear budget review and subsequent updates  through June 2004, including key cost factors of GWOT operations. We  also discussed these forecasts with service representatives. We compared  the latest available obligation reports against total available appropriated  funds. We focused our work on the obligation of funds appropriated for  operation and maintenance and military personnel because they  represented the large majority of funds obligated in fiscal year 2004  through April 2004.
To assess actions planned to address forecasted GWOT funding shortfalls,  we reviewed service documents related to the midyear budget review and  subsequent updates through June 2004 and discussed with DOD and the  military services the actions the services planned to take and their likely  impact on current programs. We also reviewed applicable legislation on  DOD’s authority to transfer funds.
To provide observations on congressional efforts to improve  accountability of GWOT funds, we reviewed available material in DOD  appropriations and authorization bills for fiscal year 2005, committee press  releases, and statements of key leaders to identify proposed actions to  improve accountability. We also reviewed our reports related to the cost  and funding of ongoing military operations dating back to fiscal year 1994.
We visited the following locations during our review:    Office of the Under Secretary of Defense (Comptroller), Washington, D.C.    Department of the Army, Headquarters, Washington, D.C.    U.S. Army Forces Command and Headquarters, Third Army, Fort  McPherson, Georgia.
Department of the Air Force, Headquarters, Washington, D.C.    Air Force Central Command, Shaw Air Force Base, South Carolina.    Department of the Navy, Headquarters, Washington, D.C.    United States Marine Corps, Headquarters, Washington, D.C.    First Marine Expeditionary Forces, Headquarters, Camp Pendleton,  California.
We performed our work from January through June 2004 in accordance  with generally accepted government auditing standards.
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