Changing national security needs and DOD’s recognition that its base structure was larger than required led to a decision to close numerous bases around the country. Consequently, the Congress enacted legislation that instituted base closure rounds in 1988, 1991, 1993, and 1995. The BRAC legislation also established closure accounts to finance the closures of bases identified in the base closure process. DOD annually sends the Congress detailed budget submissions to justify its BRAC funding requests. The budget submissions contain six subaccounts: military construction, family housing, environmental, operations and maintenance (O&M), military permanent change in station, and other. The budget is used by the Congress to make separate appropriations for each BRAC round. BRAC appropriations need not be obligated in the year of appropriation and, except for the environmental subaccount prior to fiscal year 1996, they need not be used in the subaccount for which they were requested. DOD is requesting $2.5 billion for the BRAC accounts in fiscal year 1997. Budgets are an important financial tool for monitoring costs. However, past BRAC budget submissions are not as effective as they can be for monitoring BRAC expenditures because they historically overstate O&M and military construction costs and understate environmental costs. DOD decreased the funds allocated to the BRAC O&M and military construction subaccounts for the 1991 round while it increased funds allocated to the environmental subaccount. Through fiscal year 1995, DOD had requested $4.3 billion for the 1991 closure round costs. As of December 1995, $3.6 billion was allocated for 1991 closure round costs. While the overall amount allocated was $686 million (16 percent) less than requested, the amount allocated for environmental costs was $112 million (12 percent) more than requested. At the same time, DOD allocated $503 million (26 percent) less for military construction and $138 million (13 percent) less for O&M than requested. DOD also reallocated funds among the environmental, O&M, and military construction subaccounts for the 1988 round. It allocated $340 million (22 percent) less for military construction and $126 million (23 percent) less for O&M costs than initially planned. At the same time, it allocated $453 million (86 percent) more for environmental costs than originally planned. DOD continues to transfer BRAC funds from overprogrammed O&M subaccounts to underprogrammed environmental subaccounts. In 1995, $20.8 million in O&M funds, the entire amount DOD requested for O&M for the 1988 round, was transferred to the environmental subaccount. Presently, Army officials indicate they plan to transfer O&M funds requested for the 1991 round in fiscal year 1996 to the environmental subaccounts. They said that the $144 million no longer needed for O&M requirements (see p. 4) will be transferred to environmental subaccounts to fund 1988 round and 1991 round environmental costs. The Senate Committee on Appropriations has expressed concern regarding the slow pace of BRAC obligations and the resultant high unobligated balances. Congressional rescissions and improved DOD financial management have reduced the amount of unobligated funds. Still, our analysis shows that some funds continue to remain unobligated beyond the year for which they were appropriated. In total $342 million, appropriated before fiscal year 1996, was unobligated as of December 1995. Our analysis shows that $148 million of that has remained available, on average, for over 3 years. Congressional actions have helped reduce large unobligated balances in the BRAC accounts. In February 1994, the Congress rescinded $507.7 million in BRAC funds. In April 1995, the Congress rescinded an additional $32 million. DOD has taken actions to reduce unobligated balances in the BRAC accounts. First, it directed the services to use unobligated balances before requesting new appropriations. For example, in fiscal year 1995, the Air Force used $82.7 million in prior year appropriations rather than requesting new funds for the 1991 round. Second, in fiscal year 1995, DOD obligated BRAC funds in a more timely manner. For example, as of March 1994, $1.4 billion, or 31.7 percent, appropriated in prior years remained unobligated, while, as of December 1995, only $342 million, or 3.6 percent, appropriated before fiscal year 1996, remained unobligated. Because DOD guidance indicates the services should only request BRAC funds that they intend to use in the budget year, we analyzed unobligated balances in the BRAC accounts to determine if they had remained unobligated beyond the budget year. We found that as of December 31, 1995, $2.84 billion of the $3.18 billion unobligated balance had been appropriated in fiscal year 1996. Of the remaining $342 million, most was from the prior fiscal year. However, $148 million that was available on or before October 1993 had remained unobligated for an average of 37 months. Based on recent obligation rates, the $148 million will not be fully obligated for another 22 months. DOD accounting data, obtained after our draft report was sent to DOD for comment, indicate that prior year unobligated balances have declined but, overall BRAC account unobligated balances have increased in 1996. For example, from March 31, 1995, to March 31, 1996, unobligated balances increased from $1.98 billion to $2.7 billion. If obligation rates are not increased over the last half of fiscal year 1996, the balances carried forward from prior years will be much higher at the beginning of fiscal year 1997 than fiscal year 1996. Reducing the fiscal year 1997 budget by $148 million (the amount of long-term unobligated BRAC balances as of December 31, 1995) would help control the amount of unobligated funds in the BRAC account. While DOD has obligated a portion of the $148 million, overall, unobligated funds in the BRAC account have increased due to slow fiscal year 1996 obligations. If the fiscal year 1997 appropriation is reduced, prior year unobligated balances are more likely to be used. Our analysis of BRAC O&M requirements shows that approximately $144 million in O&M funds allocated in fiscal year 1996 for Army bases selected for closure in the 1991 round was not supported by valid requirements. According to the fiscal year 1996 budget, $234.6 million was required. As of March 1996, $212 million had been allocated. According to an Army official responsible for the BRAC program, only $68 million is now needed. For example, the fiscal year 1996 budget submission included $44.3 million in O&M funds for the Sacramento Army Depot, which was to be closed in March 1995, a month after the submission and 6 months before the fiscal year was to begin. According to an Army official, Army records indicated remaining O&M requirements at the Sacramento Army Depot, as of August 1994, were less than $5 million. As of the March closure date, $7.9 million, which had been appropriated in fiscal year 1995, remained available to fund O&M costs. An Army official responsible for BRAC funds indicated the Army was aware there was not a need for O&M funds at the Sacramento Army Depot. Fiscal year 1995 funds of $7.9 million were transferred to other bases, but fiscal year 1996 funds are still held in the O&M subaccount. In DOD’s response to a draft of this report, it indicated the $144 million was no longer needed for O&M and would be used to cover previously unfunded environmental cleanup requirements. On May 17, 1996, DOD notified the Congress of its intention to increase the fiscal year 1996 ceiling on the environmental subaccount so that the savings could be applied to environmental requirements. Because the notification was sent after our draft report was distributed for comment, we did not have an opportunity to validate the environmental requirements. The DOD IG evaluates BRAC construction costs for each budget year and submits a report on the results of its work to the Congress. Recently completed IG audits indicate that some of the construction projects submitted as justification for the fiscal year 1995 and 1996 budgets should be canceled. The design of regular military construction projects is required to be 35-percent complete prior to submission to the Congress for funding, but this requirement does not apply to BRAC construction. Because BRAC construction is time critical, funding is requested before the 35-percent design point is reached. Thus, construction cost estimates that are a basis for BRAC budget requests are not as accurate as cost estimates for regular military construction. IG auditors reviewed 219 proposed construction projects valued at $1.6 billion for fiscal years 1995 and 1996. The auditors reported that 49 projects totaling over $315 million were not valid. The services have agreed to cancel 29 projects totaling over $124 million—$97 million and $27 million, respectively, for fiscal years 1995 and 1996. One Air Force project included in the 1995 figure was not canceled but rather reduced by over $33 million. In addition, 14 projects totaling over $136 million are still in dispute. This includes 3 1995 projects totaling over $16 million and 11 1996 projects totaling almost $120 million. The IG’s review planned for the fiscal year 1997 BRAC military construction budget includes 113 projects valued at $778 million. Based on the results of the 1995 and 1996 IG reviews, it is likely that the IG will identify invalid BRAC construction projects in the fiscal year 1997 budget. If the IG audit identifies the same amount of unneeded construction in the fiscal year 1997 budget as in past years, the amount would be about $60 million. The scope of the 1997 audit in terms of construction expenditures is about the same as the average scope of the 1995 and 1996 audits. The Congress may wish to consider appropriating up to $148 million less than DOD is requesting in its fiscal year 1997 BRAC budget because funds are available from prior years. Because BRAC construction projects may be canceled as a result of ongoing IG audits, additional reductions in the BRAC budget are possible. DOD did not concur with the draft report, nor did it agree with the report’s conclusion that the fiscal year 1997 BRAC budget request could be reduced by $300 million to $400 million. Specifically, DOD stated that (1) very little of the $148 million in unobligated funds will remain unobligated at the end of the fiscal year, (2) the approximately $144 million in O&M funds that we identified as unsupported by valid requirements will be used for environmental requirements, and (3) the IG audit data we used was not accurate and IG findings from the past cannot be projected to the 1997 budget. We continue to believe the Congress can reduce the fiscal year 1997 BRAC budget, but we have reduced our estimate to $148 million to reflect information DOD provided. Accounting data that we were provided after our draft report was sent to DOD for comment indicate that unobligated balances are increasing from 1995. We continue to believe that reducing the BRAC 1997 budget would better align available funds with closure actions and reduce unobligated balances in the BRAC account. We also reduced the amount of the reduction because of the steps DOD took to reprogram unneeded O&M funds to the environmental subaccount for what it describes as unfunded requirements. Because these steps were taken after our draft report was provided to DOD for comment, we did not have the opportunity to validate the environmental requirements. DOD was correct in stating the data we used in summarizing the results of the IG audit were not accurate and technically correct in stating that past IG results could not be projected to the fiscal year 1997 budget. Subsequent to providing our draft report to DOD for comment, the services gave us updated information regarding the number of BRAC military construction projects canceled as a result of the IG audit and we adjusted the figures in our report. While we agree it is not possible to project past IG audit results to the fiscal year 1997 budget, and are not including such projections in this report, it makes good fiscal sense to plan that some projects in the 1997 budget will be canceled and to adjust the budget accordingly. We believe that the practice of requesting full funding for all construction projects in the budget, when historically the IG audits have found some are not needed, contributes to the BRAC account having more funds than are needed to meet current requirements. However, we reduced our estimate and revised the report to reflect that there is a potential for reduction based on past trends. See appendix I for DOD’s comments and our response to them. Our review of the validity of the fiscal year 1997 BRAC budget focused on identifying prior year funds available to offset fiscal year 1997 budget requests. We also reviewed the quality of past BRAC budget estimates, particularly for environmental costs. In addition, we reviewed DOD IG work to determine the extent that it could identify potential BRAC cost reductions. We reviewed DOD reports and documents and analyzed DOD accounting reports for the BRAC accounts. We obtained data on requirements supporting budget requests for selected bases and subaccounts. We also reviewed IG reports and audit plans as part of this review. In conducting our review, we used the same accounting systems, reports, and statistics the services use to monitor their programs. We did not independently determine the reliability of this information. We conducted our work from October 1995 to May 1996. We conducted our review in accordance with generally accepted government auditing standards. We are sending copies of this report to the Chairmen and Ranking Minority Members, Senate Committees on Armed Services, on Governmental Affairs, and on Appropriations, Subcommittee on Defense; the Chairmen and Ranking Minority Members, House Committee on National Security and on Government Reform and Oversight, and Subcommittees on Military Construction and on National Security, House Committee on Appropriations; the Secretaries of Defense, the Army, the Navy, and the Air Force; the Director, Office of Management and Budget; and other interested parties. We will also make copies available to others upon request. Should you or your staffs have any questions about this report, please contact me at (202) 512-8412. The major contributors to this report were John Klotz, Tom Monahan, Stephen DeSart, and Randy Jones. The following are GAO’s comments on the Department of Defense’s (DOD) letter dated June 5, 1996. 1. Recognizing DOD’s past successes in reducing unobligated balances and pointing out that reductions in future budgets are needed is not contradictory. DOD has made significant progress in reducing unobligated balances but, more reductions can be made. 2. We did not find that Commission changes caused the project cancellations discussed in the report. The projects were, for the most part, canceled because of Inspector General (IG) findings. The degree to which the $507 million congressional rescission was disproportionately taken from the operations and maintenance (O&M) and military construction subaccounts supports our conclusion that the subaccounts were overfunded. 3. We agree that DOD considered unobligated balances in developing its fiscal year 1997 budget submission. However, in the past, DOD actions, along with congressional budget reductions and rescissions, were needed subsequent to the appropriation of Base Realignment and Closure (BRAC) funds to control unobligated balances. Given the slower rate of obligations in fiscal year 1996 (see comment 4), the continuing levels of unobligated funds in the BRAC account, and the potential reductions in fiscal year 1997 construction that could be expected to result from IG audits, we continue to believe congressional reductions to the fiscal year 1997 BRAC budget would more closely align funds in the BRAC account with expected expenditures from now to the end of fiscal year 1997. 4. We believe the fact that an average of $148 million had remained unobligated for 3 years demonstrates that the BRAC account has more funds than needed to meet current BRAC requirements and that the account can be reduced. Recently released DOD BRAC accounting data indicate that older unobligated balances are being reduced. Overall, however, unobligated balances in the BRAC account are increasing because fiscal year 1996 obligation rates have slowed. As of March 1995, unobligated balances were $1.98 billion. As of March 31, 1996, unobligated balances were $2.7 billion. As of October 1, 1995, the unobligated balance from prior years was $374 million, or about 9.5 percent of the fiscal year 1996 budget. If DOD obligates funds at the same rate in the last half of fiscal year 1996 as it did during the first half, it will end the year with a prior year unobligated balance of $1.2 billion, or 46.6 percent of the fiscal year 1997 budget. 5. We revised the amount the fiscal year 1997 budget should be reduced because of DOD’s plans to use the money for environmental cleanup. Because DOD notified the Congress of its plans subsequent to the release of our draft report for comment, we did not have the opportunity to validate the environmental requirements. The data we gathered during this review do not support DOD’s statement that valid O&M requirements existed at the time DOD made its 1996 budget request. We found that at the time of the fiscal year 1996 budget submission, $44 million in O&M funds requested for one base, Sacramento Army Depot, were not based on valid requirements. Moreover, the fiscal year 1997 budget submission continued to indicate that $144 million would be used for O&M costs, including the $44 million for this depot. According to DOD, services should only request funding for actions they can execute in the fiscal year of the budget submission. We believe that the $144 million allocated for O&M costs is an example of funds being requested in excess of what could be executed in the fiscal year of the budget submission. In May, 7 months after appropriation, DOD reprogrammed the funds to the environmental subaccount. In informing the Congress of the reprogramming, DOD indicated the funds would not be completely obligated for 18 months. Thus, it will take over 2 years to execute the funds. Clearly, during fiscal year 1996, there was not a need for all of these funds. 6. DOD was correct in stating the data we obtained from the IG were not accurate. Subsequent to providing our draft report to DOD for comment, the services gave us updated information regarding the number of BRAC military construction projects canceled as a result of the DOD IG audit. The new data have been incorporated in this report. The new data show that 29 projects valued at over $124 million were canceled as of May 31, 1996. In addition, the services identified 14 projects valued at over $136 million that are in dispute and eventually could be canceled. We agree it is not possible to project the above results to the 1997 budget. However, based on past results, it makes fiscal sense to plan that some projects in the 1997 budget will be canceled and to adjust the budget accordingly. We believe that the practice of requesting full funding for all construction projects in the budget when historically the IG audits have found some are not needed contributes to the BRAC account having more funds than are needed to meet current requirements. We recognize that the Army and the Navy will audit the 1997 construction projects before they are included in the budget submissions. However, audits were conducted on the fiscal years 1995-96 construction projects before they were included in budget submissions for those years. DOD’s comments suggest that we are proposing that reductions be made to the fiscal year 1997 budget for construction requirements that are valid. This is not the case. What we are saying is that some of the projects in the 1997 budget will be canceled or in dispute at the end of the fiscal year. If funds are appropriated to cover the costs of all construction projects, there will be excess funding in the BRAC account. 7. We recognize that the Congress gave DOD flexibility in its use of BRAC funds. However, appropriation committee reports and the 1994 congressional rescission indicates the Congress also was concerned about sound financial management. We are not recommending that DOD’s flexibility in its use of BRAC funds be reduced, rather that it be better managed to facilitate DOD and congressional oversight. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 Room 1100 700 4th St. NW (corner of 4th and G Sts. 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Summary: Pursuant to a legislative requirement, GAO reviewed the Department of Defense's (DOD) Base Realignment and Closure (BRAC) accounts, focusing on: (1) the accuracy of BRAC budget estimates; and (2) opportunities to reduce the fiscal year 1997 BRAC budget. GAO found that: (1) because BRAC expenditures vary substantially from budget submissions, Congress cannot be assured that appropriated BRAC funds will be used as requested; (2) past DOD budget requests have understated environmental costs and overstated other BRAC costs for military construction and operation and maintenance; (3) DOD had $342 million in unobligated budget balances as of December 1995; (4) although Congress has rescinded some of these high unobligated balances, DOD continues to request funds in advance of its needs; (5) the DOD fiscal year 1997 budget request can be reduced by about $148 million, since funds from prior year appropriations will be available to fund future expenditures; (6) reducing the fiscal year 1997 budget would help control the amount of unobligated funds in the BRAC account; (7) about $144 million in 1996 O&M funds are not supported by valid Army requirements; (8) the DOD Inspector General (IG) identified additional reductions that are possible by eliminating or reducing certain BRAC construction projects; and (9) if the DOD IG identifies reductions in FY 1997 construction projects similar to the reductions identified in 1996 and 1995, the amount of unneeded funds would total $60 million.