DOD contingency operations, such as those in support of GWOT, can involve a wide variety of activities such as combating insurgents, training the military forces of other nations, and conducting small-scale reconstruction and humanitarian relief projects. Volume 12, chapter 23 of the DOD Financial Management Regulation, 7000.14-R establishes financial policies and procedures for contingency operations and generally guides the DOD components’ spending by defining what constitutes incremental costs and by providing examples of eligible incremental costs. The costs incurred for contingency operations include the pay of mobilized reservists, as well as the special pays and allowances for deployed personnel, such as imminent danger pay and foreign duty pay; the cost of transporting personnel and materiel to the theater of operation and supporting them upon arrival; and the operational cost of equipment such as vehicles and aircraft, among many other costs. Costs that are incurred regardless of whether there is a contingency operation, such as the base pay of active duty military personnel, are not considered incremental and therefore are funded in DOD’s base budget. DOD reports its GWOT-related costs in terms of obligations, which are incurred through actions such as orders placed, contracts awarded, services received, or similar transactions. When obligations are incurred, the DOD components enter them into their individual accounting systems. An obligation entry may include a number of different identifiers, including information such as funding source and the contingency operation, and the category of cost as determined by the individual component. Volume 12, chapter 23 of the DOD Financial Management Regulation directs components to capture contingency costs within their existing accounting systems and at the lowest possible level of organization. Individual obligation data that are coded as being in support of GWOT are recorded and sent through the component’s chain of command where they are aggregated at successively higher command levels. In a series of reports, we have identified numerous problems in DOD’s processes for recording and reporting obligations, raising significant concerns about the overall reliability of DOD’s reported obligations. In addition, DOD’s financial management has been on GAO’s list of high-risk areas requiring urgent attention and transformation since 1995. Factors affecting the reliability of DOD’s reported obligations include long- standing deficiencies in hundreds of nonintegrated financial management systems requiring manual entry of some data in multiple systems, and the lack of a systematic process to ensure that data are correctly entered into those systems. On its own initiative and in response to our recommendations, DOD has placed greater management focus on weaknesses in GWOT cost reporting, such as establishing additional procedures for analyzing variances in reported obligations and disclosing underlying reasons for significant changes. In addition, DOD established a Senior Steering Group in February 2007, including representatives from DOD, DFAS, and the military services, in an effort to standardize and improve the GWOT cost-reporting process and to increase management attention to the process. In conjunction with the Senior Steering Group, a GWOT Cost-of-War Project Management Office was established to monitor work performed by auditing agencies and to report possible solutions and improvements to the Senior Steering Group. It is tasked with leading initiatives in improving the credibility, transparency, and timeliness of GWOT cost reporting. DOD’s efforts are ongoing and we have continued to monitor its progress as GWOT cost reporting has evolved. DOD and the military services continue to take steps to improve some aspects of the accuracy and reliability of GWOT cost reporting. Some examples are discussed below. Because efforts to implement some of these initiatives are still in the early stages, their effect on the reliability of GWOT cost reporting is uncertain. DOD has undertaken several initiatives to improve the accuracy and reliability of its GWOT cost data. First, to promote the goal of continually improving its cost-of-war processes and reports, in February 2008, DOD required its components to statistically sample and validate their fiscal year 2008 GWOT obligation transactions on a quarterly basis beginning with the first quarter of fiscal year 2008. DOD also required its components to review randomly sampled non-GWOT obligations to determine whether the transactions were properly classified as non-GWOT versus GWOT. According to DFAS officials, the new requirement has improved the reliability of reported GWOT obligations because DOD components are taking actions to improve their GWOT cost reporting procedures and are making corrections when errors such as missing or illegible supporting documentation, missing codes, and miscoded transactions are found. DFAS plans to include a requirement to review and validate GWOT obligation data in an update to volume 3, chapter 8 of the DOD Financial Management Regulation. Second, DOD is initiating a new contingency cost-reporting system in fiscal year 2009 called the Contingency Operations Reporting and Analysis System. DOD’s goals are to automate the collection of GWOT cost data from DOD components and improve the timeliness of cost-of-war reporting. This system pulls elements of GWOT transaction data directly from DOD components’ accounting systems into its data store. Limited features of the system became available for use in October 2008 and it should be fully operational by September 2009. Upon completion of the project, this system should allow DOD and external users to have a consolidated location to view and analyze data for the cost of war, disaster relief, and all other contingencies. Users will have access through a Web browser and should be able to filter data and perform various analyses. Previously, the DOD components individually gathered and manually entered their GWOT cost data monthly into a template provided by DFAS for cost-of-war reporting. According to DFAS officials, the new system is designed to ensure better reliability and eliminate the possibility of manual errors. Third, DFAS is issuing a redesigned monthly cost-of-war report through the Contingency Operations Reporting and Analysis System, starting in fiscal year 2009, to replace DOD’s monthly Supplemental and Cost of War Execution Report, which was provided to external customers, including Congress, the Office of Management and Budget, and GAO. The first new cost-of-war report, commonly referred to as the Contingency Operations Status of Funds Report, was issued in December 2008 and covered costs for October 2008. According to DOD, this redesigned report should improve transparency over GWOT costs by comparing appropriated GWOT supplemental and annual funding to reported obligations and disbursements. The previous cost-of-war report displayed obligations (both monthly and cumulative by fiscal year) by appropriation, contingency operation, and DOD component, but did not compare obligations to appropriated funding. The military services have also taken actions to correct weaknesses in the reliability of their GWOT cost data. Examples for each of the services are discussed below. Since these actions have only recently been implemented, their effect on the reliability of GWOT cost reporting is uncertain. We found that the Marine Corps was not reporting obligations in descriptive cost categories in the DOD Supplemental and Cost of War Execution Report as required in volume 12, chapter 23 of the DOD Financial Management Regulation, which DOD established to provide better transparency over reported costs. Specifically, the Marine Corps was reporting obligations in the miscellaneous category of “other supplies and equipment” rather than the more descriptive cost categories. We brought this issue to the attention of both DFAS and the Marine Corps office responsible for submitting monthly cost data to DFAS. Marine Corps officials acknowledged the absence of the data and indicated that they would attempt to provide further breakdown of the Marine Corps’ reported obligations in future reports. In June 2008, the Marine Corps revised its cost-reporting procedures to provide further breakdown of reported obligations for “other supplies and equipment” in DOD’s cost-of- war reports. In addition, Marine Corps officials told us that in May 2008 they streamlined their cost-of-war reporting by centralizing their GWOT cost data-gathering and reporting procedures. Prior to this time, commands would individually submit their monthly GWOT cost data to Marine Corps headquarters. According to Marine Corps officials, the new procedures have improved the visibility and reliability of reported costs across the service, especially at the command level. We found that the Air Force was reporting some operation and maintenance obligations in the miscellaneous cost categories for “other supplies and equipment” and “other services and miscellaneous contracts” rather than reporting these obligations in the more descriptive cost categories that DOD had established. We brought this issue to the attention of both DFAS and the Air Force office responsible for submitting monthly cost-of-war data to DFAS. In response, the Air Force and DFAS revised the Air Force’s cost-reporting procedures so that costs could only be reported in the more descriptive cost categories. Our analysis of the fiscal year 2008 Army obligation data showed that the Army was misusing certain accounting codes to capture costs for GWOT contingency operations. Army officials told us that commands were incorrectly using these codes to record costs for activities that were not adequately funded in the base budget such as contracts for security guards and other anti-terrorism force-protection measures for facilities and installations located outside of the continental United States. Consequently, almost $2 billion in obligations for operation and maintenance was included in DOD’s cost-of-war report for costs that may not be directly attributable to GWOT contingency operations. In addition, the Army reported about $220 million in GWOT obligations for operation and maintenance costs associated with its modular restructuring initiative. Army officials told us that the Army modular restructuring initiative is not an incremental cost and therefore should not have been included in the cost-of-war report. The Army has addressed these issues for fiscal year 2009 by revising its cost code structure and eliminating cost codes that commands have misused in the past. During the course of our work, we found that the Navy lacked a centralized and documented process for its GWOT cost reporting. For example, Navy headquarters had little visibility over how lower-level commands record and report their GWOT costs.