Following the terrorist attacks of September 11, 2001, the United States began military operations to combat terrorism both in the United States and overseas. 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, which takes place principally in Afghanistan, and Operation Iraqi Freedom, which takes place in and around Iraq. Figure 1 shows the primary locations where U.S. forces conducted operations in support of the war in fiscal year 2003. To support the war in fiscal year 2003, Congress appropriated $68.7 billion to DOD: $6.1 billion in the Consolidated Appropriations Resolution, 2003, and $62.6 billion in the Emergency Wartime Supplemental Appropriations Act, 2003. While most of these funds were only available for expenditure in fiscal year 2003, some could be expended in subsequent fiscal years. Of the $68.7 billion appropriated for GWOT, almost $16 billion was appropriated in the fiscal year 2003 Wartime Supplemental to a transfer account called the Iraqi Freedom Fund. The Iraqi Freedom Fund is a special account providing funds for additional expenses for ongoing military operations in Iraq, and those operations authorized by P.L. 107-40 (Sept. 13, 2001), Authorization for Use of Military Force, and other operations and related activities in support of the global war on terrorism. Congress has also appropriated funds for the reconstruction of Iraq and Department of State and U.S. Agency for International Development projects. We are reviewing the contracts involved in the reconstruction, as well as the funding for other projects and will be issuing separate reports on these issues. As of September 30, 2003, DOD reported obligating a total of over $61 billion in fiscal year 2003 in support of the war. Among the operations that comprised the war on terrorism, Operation Iraqi Freedom amounted to about $39 billion or 64 percent of the total obligations, as shown in figure 2. The obligations reported for Iraqi Freedom are probably understated and the obligations reported for Operation Enduring Freedom overstated because, according to DOD officials, the initial obligations associated with the build up to Iraqi Freedom were charged to Enduring Freedom. Officials in the Office of the Under Secretary of Defense (Comptroller) reclassified reported obligations to the appropriate operation after Iraqi Freedom began, based on anticipated and projected GWOT operations. Of the overall reported amount obligated within DOD for GWOT during fiscal year 2003, the Army reported the largest amount of obligations, 46 percent of the total, as shown in figure 3. (The Army had the largest number of military personnel engaged in the war.) In addition to the obligations reported by the other military services, about 13 percent of DOD’s GWOT obligations were reported by a total of 15 other DOD organizations, such as the Defense Information Systems Agency and the Defense Logistics Agency. Of these DOD organizations, the Defense Logistics Agency reported the largest amount of obligations—over $3.6 billion. The obligations reported for GWOT fall into three categories—operation and maintenance, military personnel, and investment. Operation and maintenance account funds obligated in support of the war 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 the war 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. Investment funds obligated for the war are used for procurement, military construction, and research, development, test and evaluation. As shown in figure 4, GWOT obligations reported in the operation and maintenance account amount to almost $44 billion or 71 percent of the total. The Consolidated Department of Defense Terrorist Response Cost Report displays obligations in all accounts by specific categories. As previously cited, chapter 23 of the DOD Financial Management Regulations, which governs how all DOD organizations report financial data for contingency operations, defines these categories. Within the operation and maintenance account, the operating support category had the largest amount of reported obligations for fiscal year 2003—over $32 billion or 74 percent of the total. This category, which includes obligations incurred for such things as training, operational support, equipment maintenance, and troop support, had the highest level of obligations, in part reflecting the cost of using civilian contractors to provide housing, food, water, and other services to over 180,000 troops deployed overseas in support of GWOT. A large part of the operating support costs category—48 percent— is in two miscellaneous categories, other supplies and equipment ($7 billion) and other services and miscellaneous contracts ($8.5 billion). Most of the remaining reported GWOT obligations, $15.6 billion or 26 percent, were in the military personnel accounts. Within the military personnel account, the category reserve component called to active duty had the highest level of reported obligations—almost $9.3 billion or 59 percent of the total. This category captures the obligations reported for the salaries paid to reservists mobilized for active duty. According to service officials, more reservists were called to active duty than originally estimated and remained on active duty longer than planned. As with operation and maintenance obligations, there was also a large miscellaneous category, other military personnel, which accounted for about $3.8 billion, or 24 percent, of all military personnel obligations. 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 obligations captured in miscellaneous categories. The Office of the Under Secretary of Defense (Comptroller) is considering how best to provide more specific detail in future cost reports. The adequacy of funding available for fiscal year 2003 GWOT obligations reported in military personnel and operation and maintenance accounts varied by service. The funding available for the war consists of funds directly appropriated to the military services for GWOT, the net transfer of funds from the Iraqi Freedom Fund, and reprogrammed funds originally appropriated to the services for peacetime operations. Within the military personnel accounts, as shown in table 1, in fiscal year 2003 the Army, Navy, and Air Force reported more obligations in support of the war than they received in funding for the war. To cover the shortfall in GWOT funding, these services had to use funds appropriated for their budgeted peacetime operations. Officials from each of these services explained that the shortfall was a relatively small portion of their budgeted peacetime military personnel account. For example, the Army’s reported shortfall of $155.2 million represents less than 1 percent of its total peacetime appropriation. The Marine Corps, which had augmented its GWOT military personnel appropriation with funds from its peacetime military personnel account, ended the fiscal year with slightly less in obligations than it had in available funding—$1.8 million or less than 1 percent of its peacetime appropriation. Within the operation and maintenance accounts, as shown in table 2, in fiscal year 2003 the Army, Air Force, and Navy received funding that exceeded their reported GWOT obligations. At the same time the Marine Corps reported more GWOT obligations than it received in funding. In discussing our analysis of the difference between GWOT obligations and funding with the Army, Air Force, and Navy, we were told the following. The Army reported slightly more funding than obligations for the war. At the end of fiscal year 2003, the Army reported obligations that initially appeared to be more than $500 million less than the available funding. However, as of January 2004, the Army has subsequently updated its fiscal year 2003 reporting to reflect about $470 million in additional reported obligations. According to Army officials, the Army had not included in the September 30, 2003, consolidated cost report $494 million in obligations reported to support the Coalition Provisional Authority in Iraq. The Army received GWOT funding in fiscal year 2003 to support this organization, but the obligations were not captured in the Army’s accounting system used to record most other Army obligations. The Army also cancelled some obligations made before the end of the fiscal year, resulting in a total adjustment to the fiscal year 2003 cost report of $470 million. Thus the Army ended the year with about $30 million more in funding than reported obligations. Air Force officials told us that the $176.6 million, which appeared to be unobligated GWOT funding, was actually obligated late in the fiscal year. According to the officials, that amount was obligated for flying operations requirements that the Air Force decided were related to the war, but were not reported as such. Navy officials told us that the apparent unobligated GWOT funds ($299 million) were in fact obligated in support of the war but were originally, and incorrectly, reported as obligations in support of budgeted peacetime operations. These officials said that they would be updating their reporting for obligations incurred in fiscal year 2003 to reflect an additional $299 million in operation and maintenance obligations for the war. At the same time, the Navy returned $198 million to the Iraqi Freedom Fund that it believed was in excess of its operation and maintenance requirements for the war. The available funding in table 2 was adjusted to reflect the return of the $198 million. Returning these funds is in keeping with recommendations we made in our September 2003 report discussed above to monitor the obligation of funds in the services’ operation and maintenance accounts and ensure that all funds transferred to the services that are not likely to be obligated by the end of the fiscal year are transferred back to the Iraqi Freedom Fund. In subsequent work we plan to review GWOT obligations to detail the specific purposes for which funds were used and to determine whether the service requirements for which funding was obligated were war-related. The additional Air Force flying operations’ requirements and the funds the Navy recharacterized as being in support of the war will be included in that review. While the Marine Corps obligated $72.5 million more for GWOT than it had in funds at the end of fiscal year 2003, it, like the Navy, returned money to the Iraqi Freedom Fund. At the end of fiscal year 2003, Marine Corps officials believed that they could not obligate $152.2 million that had been transferred to the Marine Corps’ operation and maintenance account from the Iraqi Freedom Fund before the end of the fiscal year and so transferred it back to the fund. In retrospect, however, the Marines obligated more than expected. According to Marine Corps officials, this shortfall was covered by using normal peacetime operation and maintenance appropriations that units deployed in support of GWOT were not going to use. As noted with the Army and Navy analyses, the services have reported obligation updates to the Office of the Under Secretary of Defense (Comptroller) for inclusion in the Defense Finance and Accounting Service’s Consolidated DOD Terrorist Response Cost report for fiscal year 2003. The Defense Finance and Accounting Service is issuing monthly fiscal year 2003 update reports as the obligation data is updated, which must be added to the report as of September 30, 2003, to determine the total fiscal year 2003 obligations reported in support of GWOT. In official oral comments on a draft of this report, officials from DOD’s Office of the Under Secretary of Defense (Comptroller) stated that the department had no objections to the report. DOD also provided technical comments and we have incorporated them as appropriate. We are sending copies of this report to the Chairmen and Ranking Minority Members of the House and Senate Budget Committees, the Secretary of Defense, the Secretaries of the military services, and the Director, Office of Management and Budget. We will also make copies available to others on request. In addition, the report will available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff has any questions, please contact me on (757) 552-8100 or by e-mail at curtinn@gao.gov. Major contributors to this report were Steve Sternlieb, Ann Borseth, Madelon Savaides, Leo Sullivan, and John Buehler.

Summary: The Global War on Terrorism--principally involving operations in Afghanistan and Iraq--was funded in fiscal year 2003 by Congress's appropriation of almost $69 billion. To assist Congress in its oversight of spending, GAO is undertaking a series of reviews relating to contingency operations in support of the Global War on Terrorism. In September 2003, GAO issued a report that discussed fiscal year 2003 obligations and funding for the war through June 2003. This report continues the review of fiscal year 2003 by analyzing obligations reported in support of the Global War on Terrorism and reviews whether the amount of funding received by the military services was adequate to cover DOD's obligations for the war from October 1, 2002, through September 30, 2003. GAO will also review the war's reported obligations and funding for fiscal year 2004. In fiscal year 2003, DOD reported obligations of over $61 billion in support of the Global War on Terrorism. GAO's analysis of the obligation data showed that 64 percent of fiscal year 2003 obligations reported for the war on terrorism went for Operation Iraqi Freedom; among the DOD components, the Army had the most obligations (46 percent); and among appropriation accounts the operation and maintenance account had the highest level of reported obligations (71 percent). The adequacy of funding available for the Global War on Terrorism for fiscal year 2003 military personnel and operation and maintenance accounts varied by service. For military personnel, the Army, Navy, and Air Force ended the fiscal year with more reported obligations for the war than funding and had to cover the shortfalls with money appropriated for their budgeted peacetime personnel costs. For operation and maintenance accounts, the Army, Navy, and Air Force appeared to have more funding than reported obligations for the war. However, the Navy and Air Force have stated that the seeming excess funding ($299 million and $176.6 million respectively) were in support of the war on terrorism, but had not been recorded as such. Therefore, Navy and Air Force obligations exactly match funding. The Marine Corps used funds appropriated for its budgeted peacetime operation and maintenance activities to cover shortfalls in funding for the war.