As part of DOD’s annual Planning, Programming, Budgeting, and Execution process, the military services and defense agencies submit a budget request—known as the Budget Estimate Submission—that addresses their estimated annual funding requirements for both base and OCO activities. In building their budget requests the military services and defense agencies use guidance issued by the Office of the Under Secretary of Defense (Comptroller) as well as guidance issued within their own organizations, including criteria for determining whether requirements belong in the base or in the OCO budget requests. Specifically, the military services and defense agencies use guidance in the September 2007 Financial Management Regulation, DOD 7000.14-R, volume 12, chapter 23, and OMB’s September 2010 Criteria for War/Overseas Contingency Operations Funding Requests for determining whether requests for funding should be included in the base or in the OCO funding requests. The Under Secretary of Defense (Comptroller) is responsible for conducting and coordinating DOD’s budget review activities, which include preparation of annual budget request submissions. Upon receipt of the budget request from the military services and defense agencies, budget analysts in the Office of the Under Secretary of Defense (Comptroller) review the requests, focusing on issues such as whether the requested funds can be executed in the budget year. Per agreement between the Office of the Under Secretary of Defense (Comptroller) and the OMB, senior budget examiners from the OMB also participate in the budget review process at this point to preclude the necessity for a separate review by the OMB. Officials from both offices work together to review the military services’ budget submissions to ensure that requested funding aligns with current policy and is sufficiently justified to Congress. Once approved, the Budget Estimate Submission is included in the annual President’s Budget. The Budget Control Act of 2011, as amended, imposes government-wide discretionary spending limits for fiscal years 2012 through 2021 to reduce projected spending by about $1 trillion over a 10-year period. All amounts appropriated to DOD are subject to specific limits on defense spending. Appropriated amounts designated for OCO that would otherwise exceed the annual limits established for defense spending will instead result in an adjustment to the overall defense spending limit established for a particular fiscal year, and will not trigger a sequestration, which is an automatic cancellation of budgetary resources provided by discretionary appropriations or direct spending laws. The Bipartisan Budget Act of 2015 provided for a base funding level in fiscal year 2017 of $551 billion for defense and provided for a specified amount of $58.8 billion in adjustments to the defense cap for OCO funding for fiscal year 2017. Consistent with the expected amount set by the Bipartisan Budget Act of 2015, DOD’s initial fiscal year 2017 budget request for OCO was $58.8 billion. In November 2016, DOD submitted to Congress an amendment to its initial request for an additional $5.8 billion in OCO funding to support requirements that were unforeseen at the time of the original budget submission. In 2010, in collaboration with DOD, the OMB developed updated criteria for deciding whether items properly belong in the base or in the OCO funding request, but these criteria do not address the full scope of activities included in DOD’s fiscal year 2017 OCO budget request. DOD uses the OMB’s guidance in determining what costs are eligible to be included in its OCO budget requests. However, the criteria were issued in 2010, when military operations in Iraq and Afghanistan were the principal contingency operations supported by DOD, and these criteria do not address geographic areas, such as Syria and Libya, where DOD has begun combat operations since the criteria were first developed. Further, according to officials, the criteria were not applied to the department’s deterrence and counterterrorism initiatives, such as the $3.4 billion requested in fiscal year 2017 for the European Reassurance Initiative, or to the $5.2 billion of its OCO request intended to fund base budget requirements, such as readiness and readiness support requirements. Criteria developed in collaboration with DOD and issued by the OMB in September 2010 provide guidance for determining whether funding properly belongs in the base or in the OCO funding request. DOD officials stated that the OMB’s criteria are the principal guidance used to make determinations regarding what should be included in their OCO funding requests. The criteria identify items and activities eligible for OCO funding so long as they are associated with specified geographic areas, such as Afghanistan, Iraq, and Pakistan, in which combat or direct combat support operations are occurring. Other geographic areas not specifically identified in the criteria may be included on a case-by-case basis. Eligible OCO items and activities include, among others, the replacement or repair of major equipment lost in operations, the replacement of ground equipment, equipment modifications, aircraft replacement, the cost of direct combat operations, short-term health care related to combat, and special pay for deployed service members. The criteria also specifically exclude certain activities from OCO funding requests. Some exclusions are expenses related to equipment service-life extension programs, base realignment and closure projects, family support initiatives, personnel costs relating to recruiting and retention, and maintenance of industrial base capacity. The complete list of OCO criteria can be found in appendix I. We recommended in November 2007 that DOD shift certain contingency costs into the annual base budget to allow for prioritization and trade-offs among DOD’s needs and to enhance visibility in defense spending. The department concurred with this recommendation and in February 2009 the OMB, in collaboration with DOD, issued criteria to assist in determining whether funding properly belonged in DOD’s base budget or in its budget for OCO. The criteria were subsequently updated in September 2010 to build on prior experience by clarifying language, eliminating areas of confusion, and providing guidance for activities previously unanticipated. OMB’s criteria were issued when military operations in Iraq and Afghanistan were the principal contingency operations supported by DOD. Since 2010 the scope of activities funded through the OCO has evolved and, as a result, the criteria do not specifically address activities included in DOD’s fiscal year 2017 OCO budget request. Specifically, the criteria do not address operations in new geographic areas such as Syria and Libya, the department’s deterrence and counterterrorism initiatives, or requests for OCO amounts to fund base budget requirements, such as readiness. Operations in New Geographic Areas Since the criteria were issued in 2010, DOD has begun military operations in several countries, such as Syria and Libya, to fight the spread of the Islamic State of Iraq and Syria (ISIS). Neither Syria nor Libya is specifically included in the 2010 criteria as designated geographic areas covered for purposes of OCO funding, although the criteria allow for the addition of other areas on a case-by-case basis. In October 2014, DOD designated military operations against ISIS as Operation Inherent Resolve. As part of the operation, DOD has conducted airstrikes against ISIS forces and provided training, equipment, advice, and assistance to forces on the ground that are partnered with the United States. For fiscal year 2017, DOD requested $9.9 billion in OCO funds for Operation Inherent Resolve and other related missions against ISIS. In August 2016, DOD began Operation Odyssey Lightning, which includes precision airstrikes against ISIS in Libya. For fiscal year 2017, DOD requested $20 million for Operation Odyssey Lightning. According to officials from the Office of the Under Secretary of Defense (Comptroller), OMB annually reviews exceptions to the criteria submitted in DOD’s budget requests and has granted DOD waivers to allow exceptions, such as for operations in countries not included in the criteria to be included in its OCO funding request as a short-term fix until the criteria can be updated. Deterrence and Counterterrorism Initiatives According to officials from the Office of the Under Secretary of Defense (Comptroller), the OMB’s 2010 criteria were not applied to the department’s deterrence and counterterrorism initiatives included in its OCO budget request for fiscal year 2017. For example, DOD’s fiscal year 2017 OCO budget request seeks $3.4 billion for the European Reassurance Initiative, intended to deter Russia and reassure U.S. allies and partners, particularly within Central and Eastern Europe. Specifically, the requested amount would enhance training and exercises, support improvements to key infrastructure, and fund three continuous brigade-sized rotations to train with allies. In addition, DOD’s fiscal year 2017 OCO budget request includes $1 billion for the Counterterrorism Partnership Fund, intended to provide direct counterterrorism support to partner nations and augment U.S. capability to support partners in counterterrorism operations. As described in appendix II to this report, the obligation of appropriations for these initiatives was not included in required monthly reporting on the costs of war. In appendix II, we describe in more detail how DOD reports on the obligation of OCO appropriations, including appropriations for the European Reassurance Initiative and Counterterrorism Partnership Fund. OCO Funding in Support of Base Requirements DOD’s fiscal year 2017 OCO budget request also includes about $5.2 billion in what DOD identifies as Bipartisan Budget Act (BBA) of 2015 Compliance. According to DOD officials, these are base amounts included in DOD’s OCO budget request in order to reach the fiscal year 2017 OCO appropriations level of $58.8 billion, which was specified by the Bipartisan Budget Act of 2015. DOD identified activities supported by the $5.2 billion as including readiness, readiness support requirements, increased counterterrorism activities in Africa, and preferred munitions. These activities are not specifically included in the OMB’s 2010 OCO criteria.