Congress has given the president the authority to issue executive orders designating and terminating areas as combat zones. Since 1950, U.S. presidents have designated combat zones in Korea, Vietnam, the Persian Gulf area, the Kosovo area, and Afghanistan. U.S. presidents terminated combat zone designations for Korea in 1955 and Vietnam in 1996. See appendix II for information on the current combat zones. In addition, Congress has established qualified hazardous duty areas where servicemembers serving in such areas receive the same tax treatment as members serving in presidentially designated combat zones. Congress has specified in this legislation, however, that a servicemember on duty in a qualified hazardous duty area is only entitled to combat zone tax relief benefits if that member would also be entitled to hostile fire or imminent danger pay. Congress has designated seven qualified hazardous duty areas since 1995 (see app. II). DOD is responsible for prescribing regulations for imminent danger pay and for certifying locations where military service is in direct support of combat zone operations. Servicemembers who perform duty in certain foreign areas may be eligible for imminent danger pay as well as income tax relief, in the form of combat zone tax relief benefits, as summarized in table 1. See appendixes I, II, and III for information about the locations designated for imminent danger pay or combat zone tax relief benefits. The Under Secretary of Defense (Comptroller) in coordination with the director of the Defense Finance and Accounting Service is responsible for maintaining and updating the Financial Management Regulation, Volume 7A, that provides financial management policy and procedures for DOD, including imminent danger pay and combat zone tax relief benefits. In DOD’s imminent danger pay guidance, the Under Secretary of Defense (Personnel and Readiness) requires unified combatant commanders to continually appraise the conditions within areas designated for imminent danger pay to ensure that the designation is warranted, and to forward written recommendations, at least annually, to the Chairman, Joint Chiefs of Staff, who evaluates these designations to determine whether conditions in these areas continue to present the threat of physical harm or imminent danger from civil war, civil insurrection, terrorism, or wartime conditions. The Chairman forwards area designations that he recommends for approval to the Under Secretary of Defense (Personnel and Readiness) with support for these recommendations. The Secretary of Defense has delegated the responsibility for designating imminent danger pay areas and certifying military service as in direct support of combat zone operations to the Under Secretary of Defense (Personnel and Readiness) who is responsible for DOD personnel policy, including oversight of military compensation, and as such, serves as the focal point for imminent danger pay. DOD’s imminent danger pay guidance requires the unified combatant commanders to continuously appraise conditions within designated areas to ensure that these areas continue to present the threat of physical harm or imminent danger from civil insurrection, civil war, terrorism, or wartime conditions, and to submit their recommendations to continue or terminate area designations, at least annually, to the Chairman, Joint Chiefs of Staff, for review. At any time, unified combatant commanders may recommend that additional areas be designated for imminent danger pay or that existing area designations be terminated. The Chairman, in turn, evaluates designation recommendations and, if the Chairman recommends them for approval, forwards the unified combatant commander’s recommendations to the Under Secretary of Defense (Personnel and Readiness). In practice, however, officials in the Office of the Under Secretary of Defense (Personnel and Readiness) have assumed responsibility for initiating and directly managing these reviews. DOD’s processes for reviewing existing imminent danger pay areas and combat zones can be improved. While combatant commanders have taken the initiative periodically to make recommendations to designate or terminate imminent danger pay areas, DOD has not conducted annual reviews of existing imminent danger pay areas in accordance with its guidance to ensure that conditions in these areas continue to warrant such designations. Also, DOD has not updated its guidance to reflect that the Office of the Under Secretary of Defense (Personnel and Readiness) has assumed responsibility for initiating and managing annual reviews. In addition, DOD also has not incorporated factors contained in questionnaires completed by combatant commanders that the Office of the Under Secretary of Defense (Personnel and Readiness) uses to evaluate when conditions in foreign areas pose the threat of physical harm or imminent danger to servicemembers performing duty in designated locations. By conducting annual reviews of existing designations in accordance with its guidance, DOD could strengthen its oversight of imminent danger pay designations to ensure that conditions in designated areas continue to pose the threat of physical harm or imminent danger to servicemembers and that these areas should continue to be designated. Furthermore, updating DOD’s guidance to include the current processes and factors used for reviewing and designating imminent danger pay areas would clarify responsibilities and establish standard criteria for use in meeting the program’s objectives. Imminent danger pay was first authorized in October 1983. Between 1992—when DOD revised its guidance to require annual reviews, as opposed to semiannual reviews, of imminent danger pay area designations—and 2006, the number of designated areas increased from 34 to 54 areas. (See appendix I for a list of areas currently designated for imminent danger pay). While DOD guidance requires the combatant commanders to continuously appraise conditions in designated areas and to forward recommendations to the Chairman, Joint Chiefs of Staff, to continue or terminate these designations at least annually, in practice, the Office of the Under Secretary of Defense has assumed responsibility for initiating and managing these reviews. The combatant commanders have not forwarded their recommendations on existing designations to the Chairman, Joint Chiefs of Staff, at least annually, nor has the Under Secretary of Defense (Personnel and Readiness) requested the combatant commanders to do so. Between 1992 and 2006, the Under Secretary of Defense (Personnel and Readiness) requested the unified combatant commanders to conduct six reviews of designated imminent danger pay areas. Reviews were conducted in 1992, 1993, 1995, 1997, and 2002; the 2006 review is ongoing, and officials in the Office of the Under Secretary of Defense (Personnel and Readiness) expect to complete it by October. In the absence of annual reviews, the combatant commanders have taken the initiative to periodically recommend the designation or termination of imminent danger pay areas. According to DOD officials, the Under Secretary of Defense (Personnel and Readiness) deferred several reviews because of anticipated policy revisions and concerns about creating additional work for combatant commanders while they are engaged in ongoing operations. For instance, DOD deferred the 1998 review pending the anticipated revision of its imminent danger pay guidance to incorporate criteria for determining whether conditions in designated areas continue to pose the threat of physical harm or imminent danger from civil war, civil insurrection, terrorism, or wartime conditions to servicemembers. However, this revision did not occur. The department initiated the ongoing 2006 review shortly after we began our review. According to officials from the Office of the Under Secretary of Defense (Personnel and Readiness), the department deferred reviews between 2002 and 2006 because it did not want to create additional work for combatant commanders during ongoing operations, and department officials also believe that conditions in most designated areas had not changed sufficiently since the terrorist attacks of September 11, 2001, and the start of the Global War on Terrorism to result in termination of designated areas. Although DOD guidance calls for the combatant commanders to forward recommendations to continue or to terminate imminent danger pay areas at least annually, this has occurred at longer intervals ranging from 2 to 5 years. As a result of combatant commander’s recommendations as well as annual reviews of imminent danger pay areas conducted by the combatant commanders at the request of the Under Secretary of Defense (Personnel and Readiness), the department has terminated area designations where conditions no longer pose the threat of physical harm or imminent danger from civil war, civil insurrection, terrorism, or wartime conditions. For instance, as a result of the 1993 review, DOD terminated imminent danger pay designation for areas including Oman, the United Arab Emirates, Bahrain, Qatar, and the Gulfs of Oman and Aden as well as the Arabian Sea because the department determined that conditions no longer posed the threat of physical harm or imminent danger toward servicemembers. The department has also denied requests from unified combatant commanders to designate new areas for imminent danger pay when there is not sufficient information to demonstrate that conditions pose a threat of physical harm or imminent danger to servicemembers on duty in the location, based on criteria used in a questionnaire and accompanying threat assessments. By conducting annual reviews of existing designations in accordance with its guidance, DOD could strengthen its oversight of imminent danger pay designations to ensure that conditions in designated areas continue to pose the threat of physical harm or imminent danger to servicemembers and that these areas should continue to be designated. DOD has not updated its imminent danger pay guidance to (1) reflect the responsibility of the Office of the Under Secretary of Defense (Personnel and Readiness) for initiating and managing annual reviews of imminent danger pay areas or (2) to incorporate factors that DOD uses to evaluate and define when servicemembers face imminent danger. Updating guidance to include the current processes and factors used for reviewing and designating imminent danger pay areas would clarify responsibilities and establish standard criteria for use in meeting the objectives of the imminent danger pay program. First, while DOD’s imminent danger pay area guidance requires the unified combatant commanders and Joint Chiefs of Staff to conduct reviews of areas designated for imminent danger pay at least annually, in practice, the Under Secretary of Defense (Personnel and Readiness) has directly managed these reviews since the mid-1990s. However, as previously discussed, the combatant commanders have not forwarded recommendations on existing designations to the Chairman, Joint Chiefs of Staff, on an annual basis in accordance with DOD’s guidance and the Under Secretary of Defense (Personnel and Readiness) has not requested them to do so on an annual basis. In addition, DOD has not updated its imminent danger pay guidance to show that the Under Secretary of Defense (Personnel and Readiness) has been assigned the functions, relationships, and authorities previously assigned to the position of the Assistant Secretary of Defense (Force Management and Personnel). Second, the Federal Managers’ Financial Integrity Act of 1982 states that agencies must establish internal administrative controls in accordance with the standards prescribed by the Comptroller General. The Comptroller General published these standards in Standards for Internal Control in the Federal Government, which sets out management control standards for all aspects of an agency’s operations. These standards are intended to provide reasonable assurance of meeting agency objectives. Two of the standards of internal control—risk assessment and control activities—state that an agency should establish clear objectives as well as appropriate policies, procedures, and plans with respect to its activities to ensure effective and efficient use of resources to meet organizational objectives. Neither the statute that authorizes imminent danger pay nor DOD guidance define what constitutes the threat of physical harm or imminent danger or contain criteria to determine this. However, in 1997, DOD developed a questionnaire that contains specific factors that it continues to use to evaluate requests from combatant commands to designate new imminent danger pay areas as well as to review existing imminent danger pay designations. These factors help DOD to gather consistent information that supports its goal to limit imminent danger pay to those members placed in direct or imminent danger. The factors consider acts of violence against U.S. personnel, such as assassinations, homicides, sabotage, kidnapping, aggravated battery, property damage, terrorizing, extortion, rioting, and commandeering vessels or hijacking aircraft; insurrection, war, or wartime conditions, including fighting that occurs sufficiently close to servicemembers that creates a substantial probability of death or bodily injury to servicemembers, causes servicemembers to fear for their safety, or creates danger to human life or property; terrorism conditions, including the existence of terrorist organizations that have the intent or ability to harm servicemembers or terrorist threat levels indicative of an imminent threat; security environment, that places U.S. forces at risk. DOD also considers existing security measures including threat condition levels and operating tempo levels, as well as restrictions on leave and off-duty travel and measures taken by the host government to protect servicemembers; travel restrictions, including restriction of servicemembers to duty stations, installations, or defined sections of the area; and presence of dependents in the area, including school-age dependents, whether dependents are targets, and the security measures in place to protect them. We reviewed 54 completed questionnaires for imminent danger pay—some for the same countries over a period of time—that were submitted by combatant commands to the Office of the Under Secretary of Defense (Personnel and Readiness) between 1998 and 2005. We found that DOD is using information supplied on these questionnaires, in conjunction with threat assessments, to inform decisions to designate new imminent danger pay areas and to review existing designations to ensure that they continue to be appropriately designated. For instance, DOD denied requests from the U.S. Central Command to designate Turkmenistan and Kazakhstan for imminent danger pay in 2001 because the support provided in the questionnaires did not demonstrate an imminent threat of physical harm or danger to servicemembers based on civil war, civil insurrection, terrorism, or wartime conditions in those areas. DOD also denied a request from the U.S. European Command in 2003 to designate a number of areas, including Bulgaria, Romania, Hungary, and Cyprus, for imminent danger pay based on the probability of increased danger to military personnel due to their involvement in combat operations related to Iraq as well as general terrorist threats to DOD personnel. The Office of the Under Secretary of Defense (Personnel and Readiness) determined that there was not sufficient support of an imminent threat of personal harm to servicemembers on official duty in these areas. In contrast, DOD has designated areas, such as Ethiopia, for imminent danger pay based on facts and circumstances that indicate the likelihood that U.S. personnel might be harmed as a result of civil unrest. Beginning in 2006, Congress authorized the Secretary of Defense to retroactively designate an area for imminent danger pay, subject to the availability of appropriated funds. Despite the demonstrated usefulness of these questionnaires to decision makers, DOD has not incorporated factors contained in the questionnaire into its imminent danger pay guidance. For example, DOD does not include minimum terrorist threat levels, one such potential factor identified in the questionnaire, in its imminent danger pay guidance. While terrorist threat levels for a country may change over time and are raised and lowered on the basis of new information and analysis, in the past DOD officials responsible for overseeing imminent danger pay have considered establishing minimum terrorist threat levels of “high” or “significant” to help assess the imminence of threats and dangers from terrorism. Although DOD has yet to do so, we believe that establishing a minimum terrorist threat level threshold needed for an area to be designated for imminent danger pay could help to limit imminent danger pay to those servicemembers who truly face an imminent threat or danger to their lives and would likely reduce the number of imminent danger pay area designations. Currently, DOD identifies terrorist threat levels using the Defense Intelligence Agency’s four step scale (see fig. 1) that describes the severity of a threat. For example, using Defense Intelligence Agency terrorism threat levels, if current threat levels for designated areas remain constant and DOD was to establish a minimum terrorist threat level of “significant” for areas to be designated for imminent danger pay, then designations for 19 currently designated areas with threat levels below “significant” would be terminated. These areas include Angola, Burundi, Croatia, and Haiti. However, 29 areas with “high” or “significant” terrorist threat levels, such as Indonesia, the Philippines, Columbia, Iraq, Kuwait, Malaysia, Qatar, and Syria, would continue to qualify for imminent danger pay. Due to changing world circumstances since July 2006, the terrorist threat levels may have changed. Internal controls over servicemembers’ temporary duty travel to areas designated for imminent danger pay or combat zone tax relief benefits need to be strengthened. While two DOD components have instituted policies to regulate and monitor cross-month travel to these areas, there is no similar departmentwide policy to ensure that travel to areas designated for imminent danger pay or combat zone tax relief benefits needs to cross calendar months. Data limitations prevented us from determining the full extent of temporary duty travel to areas designated for imminent danger pay and combat zone tax relief benefits, as well as how much of this travel crossed calendar months. However, the U.S. Central Command and U.S. Army, Europe—which collectively account for 62 percent of imminent danger pay areas and 86 percent of areas designated for combat zone tax relief benefits—have developed policies and controls to monitor and regulate cross-month travel to areas designated for imminent danger pay and combat zone tax relief benefits to preclude, in their view, the appearance of abuse of these benefits. Our review of data from DOD’s Defense Travel System as well as data for ship port visits to the U.S. European Command’s area of responsibility show that cross-month travel does occur. By establishing internal controls such as a departmentwide policy and periodic audits to monitor cross-month travel, DOD could ensure that all areas are covered and further strengthen its management of imminent danger pay and combat zone tax relief benefits. Internal controls over servicemembers’ temporary duty travel to areas designated for imminent danger pay or combat zone tax relief benefits need to be strengthened. It is DOD’s policy to minimize the number of visits and visitors to overseas areas as well as demands on equipment, facilities, time, installation services, and personnel. In addition, DOD’s temporary duty travel policy and its Foreign Clearance Guide, which implements this policy, provide mechanisms for the unified combatant commands to regulate travel to foreign locations. Before any servicemember makes an official visit to a foreign country, including areas where servicemembers qualify for imminent danger pay or combat zone tax relief benefits, the visit must be reviewed and approved by both the U.S. embassy in the host country (country clearance) as well as by the sponsoring unified commander (theater clearance). DOD’s Foreign Clearance Guide permits the unified combatant command to grant theater clearance or to delegate this authority to component commands, subordinate commands, special agencies, or units to be visited. The Standards for Internal Control in the Federal Government recommend that agencies establish internal controls to monitor and review operations and programs to provide reasonable assurance that these meet their goals. Moreover, we consider establishing such controls, including policies and oversight mechanisms, a best practice that can ensure that cross-month travel needs to cross calendar months, especially to areas designated for imminent danger pay or combat zone tax relief benefits. With the exception of U.S. Army, Europe, DOD does not conduct periodic audits of cross-month travel. Although there is no requirement to do so, the U.S. Central Command and U.S. Army, Europe—which collectively account for 62 percent of imminent danger pay areas and 86 percent of areas designated for combat zone tax relief designation—have developed policies and internal controls to monitor and regulate cross-month travel to areas for which they provide theater clearance. According to U.S. Central Command officials, they instituted this policy to preclude, in their view, the appearance of abuse of imminent danger pay and combat zone tax relief benefits. Specifically, the U.S. Central Command—which consists of 29 (approximately 55 percent) of the areas currently designated for imminent danger pay and 20 (approximately 71 percent) of the areas currently designated for combat zone tax relief benefits—precludes travel that crosses months to its area of responsibility. According to U.S. Central Command officials, the command instituted this policy in 2003 as a result of the high pace of operations and to preclude, in their view, the abuse of imminent danger pay and combat zone tax relief benefits. All five sea areas and all but 3 of the 27 countries in the U.S. Central Command’s area of responsibility are designated for imminent danger pay, and 16 of these countries as well as all sea areas are designated for combat zone tax relief benefits (see app. I). To enforce its policy, the U.S. Central Command has established an electronic database with internal controls that automatically alert officials to any proposed temporary duty travel that crosses calendar months. Officials in the U.S. Central Command’s Travel Clearance Office, which is responsible for granting theater clearance, review all requests from servicemembers not assigned to the U.S. Central Command to travel to countries in the command’s area of responsibility. If the proposed travel dates cross calendar months, the Travel Clearance Office requests that the traveler changes the dates of the trip or provide justification for why the trip needs to occur at that time. According to a command official, appropriate justification may include mission requirements or the limited availability of flights. However, according to an official, most travelers choose to change the dates of travel to avoid crossing months. In 2005, U.S. Army, Europe, which was delegated authority by the U.S. European Command to approve travel to locations in the former Federal Republic of Yugoslavia, instituted a policy precluding cross-month travel— although this was minimal—to Bosnia-Herzegovina; Croatia; Serbia and Montenegro, including Kosovo; Macedonia; and Slovenia in order to prevent, in their view, the perceived abuse of combat zone tax relief benefits. These areas, excluding Slovenia, are designated for imminent danger pay and combat zone tax relief benefits and constitute approximately 8 percent of the areas currently designated for imminent danger pay and approximately 14 percent of the areas currently designated for combat zone tax relief benefits. In addition, U.S. Army, Europe, requires that a colonel or general officer approve all cross-month travel, and its Internal Review and Audit Compliance Office periodically reviews travel to specific areas to monitor whether cross-month travel occurs. According to an official in the U.S. Army, Europe, Internal Review and Audit Compliance Office, cross-month travel accounted for 1.6 percent of all travel to countries for which U.S. Army, Europe, approves theater clearance requests. Although no similar policy precludes cross-month travel to Georgia, a country for which the U.S. Marine Corps Forces, Europe, has been delegated authority by the U.S. European Command to approve travel, an official who is responsible for approving travel to this location told us that since January 2005 the U.S. Marine Corps Forces, Europe, has monitored travel requests for potential cross-month travel. Neither U.S. Naval Forces, Europe, nor U.S. Air Forces in Europe has policies to monitor temporary duty travel that crosses calendar months. We did not determine the amount of cross-month travel conducted by servicemembers under these commands. In contrast, neither U.S. European Command (excluding U.S. Army, Europe), U.S. Pacific Command, or U.S. Southern Command—which collectively account for 20 (about 38 percent) imminent danger pay areas and 4 (about 14 percent) combat zone tax relief benefits—have policies that address temporary duty travel that crosses calendar months. Although two commands have instituted policies and internal controls to preclude the perceived abuse of imminent danger pay and combat zone tax relief by regulating and monitoring cross-month travel, no requirement exists for DOD to monitor cross-month travel to 38 percent of areas currently designated for imminent danger pay and 14 percent of areas currently designated for combat zone tax relief benefits. By establishing internal controls, such as a departmentwide policy and periodic audits to monitor cross-month travel, DOD could ensure that all areas are covered and further strengthen its management of imminent danger pay or combat zone tax relief benefits. Our analysis of data from the Defense Travel System indicates that cross- month travel does occur during temporary duty travel. We reviewed 28,404 vouchers for temporary duty travel that were processed using the Defense Travel System for travel that occurred between fiscal years 2003 and 2005. During about 18 percent (5,152) of these trips, a servicemember traveled to an area that is designated for imminent danger pay or combat zone tax relief benefits at some point during the trip regardless of whether the trip crossed months. About 93 percent (1,469) of the 1,576 trips that crossed calendar months were to countries within the Central Command’s and European Command’s areas of responsibility. We found that 1,576 (about 6 percent) of the 28,404 trips processed using the Defense Travel System from fiscal year 2003 through fiscal year 2005 involved cross-month travel to an area designated for imminent danger pay or combat zone tax relief benefits, including trips during which servicemembers were eligible for imminent danger pay or combat zone tax relief benefits during 1 or 2 months. For instance, servicemembers traveling in areas designated for imminent danger pay or combat zone tax relief benefits qualified for 2 full months of imminent danger pay and combat zone tax relief benefits for 745 (about 3 percent) of the 28,404 trips. Also, during 831 (about 3 percent) of the 28,404 trips, individual servicemembers traveled to areas designated for imminent danger pay or combat zone tax relief benefits at some point during a single month, although their travel crossed calendar months. As a result, these servicemembers qualified for 1 month of imminent danger pay or combat zone tax relief benefits. As depicted in table 2, we also found that the 1,576 cross-month trips ranged in duration from 2 days to more than 15 days. The six trips that involved cross-month travel lasting 2 days or less were to Afghanistan, Haiti, Iraq, and the Philippines for training, meetings, special missions, and site visits. Most of these 1,576 cross-month trips were to the U.S. Central Command’s area of responsibility and the majority was longer than 7 days in duration, as shown in table 3. The Air Force and the Army account for the majority of cross-month travel. In addition, we found that officers at the O-3 and O-4 pay grades accounted for the greatest number of cross-month trips by active duty officers to areas designated for imminent danger pay and combat zone tax relief benefits during fiscal years 2003 through 2005. In contrast, officers at the O-7, O-8, O-9, and O-10 pay grades made the least number of cross- month trips to areas designated for imminent danger pay or combat zone tax relief benefits. Enlisted servicemembers at the E-3, E-5, and E-6 pay grades made the majority of cross-month trips by active duty enlisted servicemembers to areas designated for this special pay or benefit during fiscal years 2003 through 2005. In comparison, we found that 23,083 (about 81 percent) of the 28,404 trips processed using the Defense Travel System from fiscal year 2003 through fiscal year 2005 involved travel to areas that were not designated for either imminent danger pay or combat zone tax relief during fiscal years 2003 to 2005. Further, we found that 4,414 trips (about 16 percent) of the 28,404 trips crossed calendar months, but did not include travel to areas designated for imminent danger pay or combat zone tax relief benefits. Of these 4,414 trips, 3,058 (about 69 percent) were 7 or more days in duration and 1,356 (about 31 percent) were less than a week in duration, as shown in table 4. However, due to data limitations, we were unable to determine whether this travel was representative of temporary duty travel departmentwide. Data provided by U.S. Naval Forces, Europe, indicate that some ships make port visits to areas designated for imminent danger pay or combat zone tax relief benefits, and that some of these port visits cross calendar months thus qualifying servicemembers for 2 months of imminent danger pay, and more significantly, combat zone tax relief benefits. Although ship commanders determine ship movements within an operating area, U.S. Naval Forces, Europe, determines the location of port visits based on security concerns and joint exercises and operations, among other considerations. The U.S. Naval Forces, Europe, provided data on port visits made by Navy ships for fiscal years 2003 through 2005 to areas designated for imminent danger pay or combat zone tax relief benefits within the U.S. European Command’s area of responsibility. According to these data, for which we did not validate the accuracy, 56 ships made port visits to areas designated for imminent danger pay or combat zone tax relief benefits within the U.S. European Command’s area of responsibility during this time. Seven of these ships made port calls to areas designated for imminent danger pay or combat zone tax relief that crossed calendar months (see table 5). According to U.S. Naval Forces, Europe, the purpose of these port visits was generally for quality of life reasons or part of training or exercises. DOD paid approximately $7.5 million to the 26,849 servicemembers who qualified for imminent danger pay for 1 month and the 3,284 servicemembers who qualified for 2 months of imminent danger pay because the port visit crossed calendar months. We did not determine how much compensation servicemembers qualified to exclude from federal taxes as a result of these port visits. We focused on port visits made by ships and did not obtain individual ships’ logs to determine whether ships crossed into sea areas designated for imminent danger pay or combat zone tax relief benefits while en route to other destinations or while performing operations. We also did not obtain similar data for the U.S. Central Command because most ports and all sea areas in its area of responsibility are designated for imminent danger pay or combat zone tax relief benefits. We also did not obtain this information from the U.S. Southern Command or U.S Pacific Command because few countries and no sea areas in their areas of responsibility are designated for imminent danger pay or combat zone tax relief benefits. DOD tracks the cost of imminent danger pay and servicemembers’ compensation that qualify for combat zone tax relief benefits. While DOD tracks and reports the cost of imminent danger pay to Congress as part of its budget request, the department does not report the amount of servicemembers’ compensation that qualifies for combat zone tax relief benefits. Combat zone tax relief benefits could allow servicemembers to exclude a significant portion of their compensation from federal taxes. For example, enlisted personnel and warrant officers may exclude all military compensation earned during one month. For commissioned officers, compensation is free of federal income tax up to the maximum amount of enlisted pay plus any imminent danger or hostile fire pay received. In 2006, the maximum amount of compensation for commissioned officers that is eligible for combat tax zone relief is $6,499.50 plus $225 imminent danger pay, or $6,724.50 per month. The Defense Finance and Accounting Service reports servicemembers’ compensation that qualifies for combat zone tax relief benefits to the services’ financial management offices. However, there is no requirement for DOD to report this information to Congress. The reporting of combat zone tax relief benefit data to Congress could provide information on the extent of this benefit and aid Congress in its oversight role. With concerns about the long-term sustainability of rising costs associated with military compensation, it is important that DOD effectively manage its imminent danger pay program to ensure that only those servicemembers who are subject to the threat of physical harm or imminent danger on the basis of civil war, civil insurrection, terrorism, or wartime conditions while on duty in a designated foreign area receive imminent danger pay. While DOD has significantly increased the number of areas designated for imminent danger pay over the past 14 years, it has conducted reviews of these areas only six times between 1992 and 2006, and the current review is ongoing. In addition, we believe that updating guidance to reflect the responsibility of the Office of the Under Secretary of Defense (Personnel and Readiness) for reviewing area designations and incorporating factors into its guidance to determine what specifically constitutes imminent danger, would clarify responsibilities and establish standard criteria for use in meeting the objectives of the imminent danger pay program. Clearly, it is important that servicemembers are appropriately compensated for the duties they perform, particularly when there are risks associated with those duties. It is also important that DOD ensure the need for cross-month travel as both the U.S. Central Command and U.S. Army, Europe, are doing. Although these two commands have instituted policies and internal controls to preclude the perceived abuse of imminent danger pay and combat zone tax relief by regulating and monitoring cross-month travel, no requirement exists for DOD to monitor cross-month travel to 38 percent of areas currently designated for imminent danger pay and 14 percent of areas currently designated for combat zone tax relief benefits. Managing these programs effectively is important, as the nation’s growing fiscal concerns will require DOD and the federal government to consider difficult trade-offs in the years ahead. In addition, internal controls to monitor cross-month travel could ensure all designated areas are covered and further strengthen DOD’s management of imminent danger pay and combat zone tax relief benefits. Finally, combat zone tax relief benefits can be substantial. Congress may benefit from obtaining information on servicemembers’ total compensation that qualifies for combat zone tax relief benefits as a means to assist in providing oversight of this benefit. To strengthen DOD’s internal controls and management of imminent danger pay and to monitor cross-month travel, we recommend that the Secretary of Defense direct the Under Secretary of Defense (Personnel and Readiness) to take the following three actions: Update DOD’s imminent danger pay guidance to (1) reflect the office responsible for reviewing and designating imminent danger pay areas and (2) incorporate factors that clearly define what constitutes the presence of imminent threat or dangers to servicemembers on duty in foreign areas. Request the designated organizations to conduct reviews of areas designated for imminent danger pay in accordance with DOD’s guidance, and, if necessary, update its guidance to reflect the appropriate time period for conducting these reviews. Establish departmentwide policies and internal controls that include periodic audits to monitor cross-month travel to ensure that the travel needs to cross calendar months. In light of the substantial tax benefits that servicemembers receive when performing duty in combat zones, Congress should consider the following action: Require DOD to periodically report the amount of servicemembers’ total compensation that qualifies for combat zone tax relief benefits to Congress. In written comments on a draft of this report, DOD generally concurred with two of our three recommendations, but did not concur with our recommendation to establish a departmentwide policy and internal controls to monitor cross-month travel to ensure that the travel needs to cross calendar months. DOD also provided separate technical comments which we have incorporated in the report, as appropriate. DOD concurred with our recommendation to update DOD’s imminent danger pay guidance. DOD acknowledged that there are informal processes and additional guidance and concurs that its informal policy should be updated to reflect the office currently responsible for the review and to provide additional clarification and guidance as to what factors are considered in determining whether imminent danger pay is warranted. DOD partially concurred with our recommendation to conduct comprehensive reviews of imminent danger pay area designations, noting it had conducted reviews six times since 1992 and expects to complete its ongoing review by October 31, 2006. DOD stated that the department believes that comprehensive reviews of imminent danger pay should be conducted at least biennially. DOD’s current imminent danger pay guidance requires at least annual reviews of areas designated for imminent danger pay. We continue to believe that DOD should conduct reviews of areas designated for imminent danger pay in accordance with its guidance, which is reflected in our recommendation. If DOD believes that the appropriate time period for conducting these reviews is biennially, as reflected in its comments, then DOD should update its imminent danger pay guidance accordingly. DOD did not concur with our recommendation to establish departmentwide policies and internal controls that include periodic audits to monitor cross-month travel to ensure that the travel needs to cross calendar months. DOD stated in written comments that doing so would add unnecessary bureaucracy and cost to its travel system and believes that our recommended action is already implemented in existing travel procedures that require thorough review and management of the necessity and cost-effectiveness of travel by DOD personnel. Further, DOD commented that our review found no apparent abuse of cross-month travel and the two commands that collectively account for the majority of imminent danger pay and combat zone tax relief benefits have developed theater-specific policies and controls to monitor and regulate cross-month travel. As stated in our scope and methodology and the report, data limitations prevented us from determining the full extent of temporary duty travel to areas designated for imminent danger pay and combat zone tax relief benefits, as well as how much of this travel crossed calendar months. Further, we reviewed only temporary duty travel vouchers processed using DOD’s Defense Travel System. We did not review travel that was processed in DOD’s numerous legacy travel systems, and therefore did not reach any conclusions as to whether servicemembers have scheduled travel in a fiscally responsible manner or have attempted to maximize this pay and benefit by scheduling cross-month travel. We recognize DOD has procedures in place to review and authorize travel. Our recommendation addresses the need to have greater monitoring of travel trends. Moreover, although two commands have instituted policies and internal controls to preclude the perceived abuse of imminent danger pay and combat zone tax relief by regulating and monitoring cross-month travel, no requirement exists for DOD to monitor cross-month travel to the 38 percent of areas currently designated for imminent danger pay and the 14 percent of areas currently designated for combat zone tax relief benefits not covered by these two commands. Also, while we recognize that these commands currently reflect the majority of areas designated for imminent danger pay and combat zone tax relief benefits, security conditions are subject to change over time. Therefore, we continue to believe our recommendation has merit and that internal controls to monitor cross-month travel departmentwide are needed to ensure all designated areas are covered and further strengthen DOD’s management of imminent danger pay and combat zone tax relief benefits. In response to the other written comments provided by DOD, we modified the report to acknowledge that the global security environment has played a role in the increased number of areas designated for imminent danger pay since 1992. In addition, we modified the report to reflect that danger pay was first authorized on October 1, 1983, by Public Law 98-94, section 905. We are sending copies of this report to congressional committees, the Secretary of Defense, the secretaries of the Army, the Navy, the Air Force; and the Commandant of the Marine Corps. We will also make copies available to other interested parties upon request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please call me at (202) 512-9619 or pickups@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. The GAO contact and key contributors are listed in appendix VI. Table 6 identifies the areas designated for imminent danger pay or combat zone tax relief benefits as of July 2006. A combat zone is any area that the president designates by executive order as an area in which U.S. Armed Forces are or have engaged in combat after June 24, 1950. An area ceases to be a combat zone on the dates the president designates by executive order. Since 1950, U.S. presidents have designated combat zones in Korea, Vietnam, the Persian Gulf, the Kosovo area, and Afghanistan. U.S. presidents terminated combat zone designations for Korea in 1955 and Vietnam in 1996. Enlisted personnel and warrant officers may exclude from taxes all military compensation earned during the month that they serve in a combat zone. For commissioned officers, compensation is free of federal income tax up to the maximum amount of enlisted pay plus any imminent danger or hostile fire pay received. In 2006, the maximum amount of compensation for commissioned officers that is eligible for combat tax zone relief is $6,499.50 plus $225 imminent danger pay, or $6,724.50 per month. Table 7 depicts the current combat zones. Servicemembers on duty in qualified hazardous duty areas designated by Congress are entitled to the same benefits afforded those who serve in a presidentially designated combat zone if the Secretary of Defense also designates that qualified hazardous duty area for imminent danger pay. If Congress designates a qualified hazardous duty area, but the Secretary of Defense has not designated the area for imminent danger pay, servicemembers deployed to the area are not eligible to receive combat zone tax relief unless the qualified hazardous duty area becomes eligible for imminent danger pay. If the Secretary of Defense terminates imminent danger pay for a qualified hazardous duty area, members no longer receive combat zone tax relief benefits. Table 8 depicts the current qualified hazardous duty areas. DOD has certified military service as in direct support of military operations in combat zones, thus qualifying servicemembers for combat zone tax relief benefits (see table 9). Unlike the other areas identified in the table, Jordan is the only area where DOD has certified military service as in direct support of combat zone operations as part of both Operation Enduring Freedom and Operation Iraqi Freedom. To evaluate DOD’s processes for reviewing imminent danger pay areas and to understand how servicemembers become eligible for combat zone tax relief, we analyzed legislation and DOD regulations and guidance. We compared these to the objectives and fundamental concepts of internal control defined in Standards for Internal Control in the Federal Government and Internal Control Management and Evaluation Tool. We also held discussions with knowledgeable officials from the following offices, geographic commands, and services: Commander, Navy Installations, Personnel Support Activity, Washington, D.C. Defense Finance and Accounting Service, Indianapolis, Indiana Defense Manpower and Data Center, Monterey, California and Defense Travel System Office, Arlington, Virginia Department of Defense Inspector General, Inspector General/Hotline Cases and Senior Officials Investigation Offices, Arlington, Virginia Joint Chiefs of Staff, Personnel and Policy, Arlington, Virginia Office of Management and Budget, Washington, D.C. Under Secretary of Defense (Personnel and Readiness), Arlington, United States Air Forces in Europe, Ramstein Air Force Base, Germany United States Army, Europe, Heidelberg, Germany United States Central Command, MacDill Air Force Base, Tampa, United States Department of State, Office of Allowances, Washington, D.C. United States European Command, Patch Barracks, Stuttgart, Germany United States Marine Corps Forces, Europe, Boeblingen, Germany United States Naval Forces, Europe, Commander, U.S. Sixth Fleet, United States Pacific Command, Camp H.M. Smith, Honolulu, Hawaii United States Southern Command, Miami, Florida To gain an understanding of DOD’s rationale for designating certain areas and to determine whether DOD followed its policy for designating and reviewing imminent danger pay areas and areas certified as in direct support of combat zones, we reviewed 54 imminent danger pay area questionnaires completed by combatant commanders and used by DOD to evaluate area designations and the threat of imminent danger. This nonprobability sample of areas was selected to ensure that each geographic combatant command was represented. In addition, we sought to include imminent danger pay areas where designation was limited to either land, or airspace, or water areas, or the designation was for the entire area including land, air, or water areas. For purposes of our analysis, we considered an area to be designated for imminent danger pay if DOD had designated any portion of the area (land, airspace, or water) for imminent danger pay. We also reviewed other relevant DOD documents related to DOD’s review of imminent danger pay and combat zone tax relief benefits from 1992 through 2006. We compared these against the standards for oversight envisioned in Standards for Internal Control in the Federal Government and the Internal Control Management and Evaluation Tool. To understand how DOD regulates and monitors temporary duty travel, and cross-month travel in particular, we reviewed DOD’s temporary duty travel policy and its Foreign Clearance Guide that establishes DOD policy for military personnel traveling overseas. We also reviewed travel policies from the U.S Central Command and U.S. Army, Europe. We discussed these policies with officials responsible for approving travel in accordance with the Foreign Clearance Guide, and compared these with the standards for internal control activities contained in the Standards for Internal Control in the Federal Government. In addition, we interviewed personnel in the U.S. Pacific Command and U.S. Southern Command who are knowledgeable about these command’s travel policies and requirements. Because the U.S. European Command does not have a travel clearance office, we spoke with service officials at the U.S. European Command who are responsible for authorizing travel to certain locations. To determine the extent to which servicemembers were making cross- month trips to areas that would make them eligible to receive imminent danger pay and combat zone tax relief benefits, we also analyzed 28,404 travel vouchers obtained from the Defense Travel System for servicemembers traveling on temporary duty between October 1, 2002, and September 31, 2005. In addition, we obtained data from the U.S. Naval Forces, Europe, on ship port visits to areas within the U.S. European Command’s area of responsibility that are designated for imminent danger pay or for combat zone tax relief benefits. We did not obtain similar data for the U.S. Central Command because most ports and all sea areas in its area of responsibility are designated for imminent danger pay or combat zone tax relief benefits. We also did not obtain this information from the U.S. Southern Command or U.S. Pacific Command because few countries and no sea areas in their areas of responsibility are designated for imminent danger pay or combat zone tax relief benefits. Under DOD’s Financial Management Regulations, authorizing officials are responsible for determining the necessity of trips and funds availability for temporary duty travel. Further, DOD guidance states that DOD airlift authorizing officials shall ensure that an official purpose is served by air travel. Therefore, we did not evaluate whether the purposes of the trips were valid. We analyzed travel vouchers from the Defense Travel System because it is the only system that captures temporary duty travel from all four services. We also reviewed data from the Defense Finance and Accounting Service’s Operational Data System that captures the balance of travel data for the Army that is not processed using the Defense Travel System. Data from the Operational Data System frequently were missing information about trip destinations. As a result, we were unable to use these data to analyze cross-month travel to areas designated for imminent danger pay or combat zone tax relief benefits. We also did not review data processed in the 43 legacy systems used by the services to process travel vouchers because of data reliability concerns. Due to the large number of countries and sea areas within the U.S. Central Command’s area of responsibility that are designated for imminent danger pay or combat zone tax relief and because most travel vouchers for servicemembers assigned to the U.S. Central Command’s headquarters during the time period of our review were not processed using the Defense Travel System, we sought to obtain travel data directly from several combatant commands. We tested this approach with the U.S. Central Command. First, we attempted to obtain data from the U.S. Central Command’s finance office that processes travel vouchers. Due to data limitations and concerns about the accuracy of data in the automated business service system, a document processing system used to approve travel orders, we were unable to use this approach. Second, we sought to use theater clearance requests and approvals to determine the extent of cross-month travel to the U.S. Central Command’s area of responsibility. However, database limitations prevented us from using this approach. For instance, if more than one servicemember was listed on a travel clearance request submitted to the U.S. Central Command’s travel clearance office, only the name of the most senior official was listed in the database and information on the pay grades of junior servicemembers would not be available for analysis. In addition, we could not determine the accuracy of travel dates contained in the Travel Clearance Office’s database because itinerary changes are not always captured in the database. The scope of this review excluded servicemembers deployed or assigned to foreign areas. The scope also excluded servicemembers who served as part of crews on aircraft and, with the exception of data provide by the U.S. Naval Forces, Europe, ships because aircraft and ship movements are dictated by operational needs and mission requirements, and generally, do not have the same degree of flexibility associated with scheduling temporary duty travel. To assess the reliability of data obtained from the Defense Travel System, we (1) reviewed existing documentation related to the data sources, (2) electronically tested the data to identify problems with completeness or accuracy, and (3) interviewed knowledgeable officials about the data. We found these data to be sufficiently reliable for the purposes of this report. For purposes of our analysis, we defined cross-month travel as any temporary duty travel of 30 days or fewer that begins during one month and concludes during the following month. This cross-month travel may encompass travel to a single location or multiple locations during a 30-day period. During this time, a servicemember may travel to areas designated for imminent danger pay or combat zone tax relief, areas not designated for these special pays and benefits, or to both areas designated and not designated for such benefits. However, we do not know the portion of overall travel that these trips represent because some DOD locations were not using the Defense Travel System to process travel vouchers during the time of our review. As a result, we cannot extrapolate travel patterns based on the data we obtained and analyzed from the Defense Travel System. We also requested and received information on GAO’s FraudNet hotline as well as the DOD Inspector General hotline on inquiries related to servicemembers scheduling cross-month travel to potentially maximize combat zone tax relief benefits. GAO’s FraudNet did not receive any calls concerning servicemembers scheduling travel to maximize imminent danger pay or combat zone tax relief benefits. Two calls received by the DOD Inspector General’s hotline were not substantiated. Additionally, we obtained data from the Defense Finance and Accounting Service to determine the compensation excluded from federal taxable wages for servicemembers for calendar years 2003 through 2005 as a result of performing military service that the Office of the Under Secretary of Defense (Personnel and Readiness) certified as in direct support of combat zone operations and for combat zone tax exclusion overall. We also obtained data from the Defense Manpower and Data Center to estimate the total dollar amount of imminent danger pay for service members for fiscal years 2003 through 2005. However, we did not use these data because sufficient information was not available from the Defense Manpower and Data Center to validate the accuracy of these data for this report. As stated earlier in this report, we previously reported on the lack of reliability on DOD’s reported costs related to the Global War on Terrorism, including military pay. We conducted our review from October 2005 through July 2006 in accordance with generally accepted government auditing standards. In addition to the person named above, Ann Borseth, Assistant Director; Krislin Bolling; Alissa Czyz; James Driggins; Ron La Due Lake; Katherine Lenane; Grant Mallie; Oscar Mardis; David Mayfield; Ken Patton; Vanessa Taylor; and John Van Schaik also made major contributions to this report.

Summary: Servicemembers who are assigned, deployed, or travel on temporary duty to certain foreign areas are eligible for special pays and benefits including (1) imminent danger pay (IDP) when the Department of Defense (DOD) determines that members are subject to the threat of physical harm or imminent danger and (2) combat zone tax relief (CZTR) benefits, which allow members to exclude earned income from federal taxes. If travel to IDP- or CZTR-designated areas begins during one month and concludes during another (known as cross-month travel), members could receive 2 full months of benefits. GAO conducted this review under the Comptroller General's authority to initiate such reviews. GAO evaluated DOD's (1) process for reviewing IDP areas and (2) internal controls over servicemembers' temporary duty travel to areas designated for IDP and CZTR benefits. GAO is also providing information on the reporting of IDP and CZTR data. GAO analyzed legislation, guidance, travel vouchers, and internal control standards and interviewed appropriate officials. DOD's processes for reviewing existing IDP areas could be improved. While combatant commanders have taken the initiative periodically to make recommendations to designate or terminate IDP areas, DOD has not conducted annual reviews of existing IDP designations in accordance with its guidance to ensure that conditions in these areas continue to warrant such designation. Also, DOD has not updated its guidance to reflect current responsibilities for initiating annual reviews or to include factors used to determine when conditions in foreign areas pose the threat of physical harm or imminent danger to servicemembers on duty in these locations. DOD conducted 6 annual reviews between 1992 and 2006. When conducting reviews, DOD has queried combatant commanders using a set of factors to determine the nature of threats to servicemembers. However, DOD has not incorporated these factors into its guidance. By conducting annual reviews in accordance with its guidance, DOD could strengthen its oversight of IDP designations to ensure that conditions in designated areas continue to pose the threat of physical harm or imminent danger to servicemembers and that these areas should continue to be designated. Internal controls over servicemembers' temporary duty travel to areas designated for IDP or CZTR benefits need to be strengthened. While two DOD components have instituted policies to regulate and monitor cross-month travel to these areas, there is no similar departmentwide policy to ensure that travel to areas designated for IDP or CZTR benefits needs to cross calendar months. Data limitations prevented GAO from determining the full extent of temporary duty travel to areas designated for IDP and CZTR benefits, as well as how much of this travel crosses calendar months. The U.S. Central Command and U.S. Army, Europe--which collectively account for 62 percent of IDP areas and 86 percent of CZTR benefit areas--have developed policies and controls to monitor and regulate cross-month travel to areas designated for IDP and CZTR benefits to preclude, in their view, the appearance of abuse of these benefits. By establishing internal controls such as a departmentwide policy and periodic audits to monitor cross-month travel, DOD could ensure all areas are covered and further strengthen its management of IDP and CZTR benefits. DOD tracks IDP costs and servicemembers' compensation that qualifies for CZTR benefits. While DOD reports the cost of IDP to Congress as part of its budget request, the department does not report servicemembers' compensation that qualifies for CZTR benefits. Combat zone tax relief benefits could allow servicemembers to exclude a significant portion of their income from federal taxes. Reporting data on CZTR benefits to Congress could provide information on the extent of this benefit and aid Congress in its oversight role.