Congress provides the military services with O&M funds for certain expenses, such as pay and benefits for most of DOD’s civilians; operations at military bases; training, education, and medical care for individual service members; and fuel and spare parts for DOD equipment, among other expenses. When developing annual O&M funding requests, the military services report that estimates of their fuel consumption are based on planned activity levels, which can vary by service. For example, the Air Force, Navy, and Marine Corps estimate their fuel consumption based on planned operational and training flying hours. According to Navy and Marine Corps officials, the Navy estimates its fuel consumption based on a planned number of steaming days for ship operations (i.e., the number of days a ship is not in port), and the Marine Corps estimates its fuel consumption for its ground units based on the number of days for planned training exercises. The Army estimates its fuel consumption based on historical fuel usage rates for vehicle miles during training events and operational fuel requirements as determined by Army major commands and Army operations and plans. In general, the military services follow a similar process for estimating fuel consumption requirements, with some differences in the extent to which they use actual fuel consumption data to estimate future fuel consumption. For example, officials from both the Air Force and Navy reported using historical averages to calculate fuel consumption estimates for their flying hour program and ship operations. However, the Air Force uses five years of data while the Navy uses three years of data to estimate fuel consumption for ship operations and data from the previous year to calculate fuel consumption estimates for its air operations. Officials with two military services—the Army and the Marine Corps—stated that they used other data points to approximate actual fuel consumption in order to calculate a fuel consumption estimate. For example, according to Army officials, the Army uses three to five years of sample test data from ground vehicles and equipment, fuel efficiency rates in technical manuals, and manufacturer’s data for equipment to approximate fuel efficiency for each type of equipment item. Taken together, the Army uses these data points to approximate its actual fuel consumption. According to Marine Corps officials, the Marine Corps bases its fuel consumption requirements on the previous year’s sales data from DLA and adjusts its fuel consumption estimate to reflect changes in operational and training requirements for the budget request year. The military services and other fuel customers use O&M funding to reimburse DOD for the costs of purchasing bulk fuel on the world market to support their operations. The military services calculate their total O&M funding needs for fuel in a given fiscal year by using their planned volume of fuel consumption expressed in millions of barrels of fuel and the standard price per barrel that DOD will charge its fuel customers for fuel. The OUSD Comptroller, in coordination with DLA, estimates and sets a standard price for its fuel and other fuel-related commodities for each budget request. For its fiscal years 2016 and 2017 budget estimates, DOD established the standard price based on two components: the projected cost of refined fuel and operating costs, which cover various overhead and transportation costs. According to DOD officials, in setting the standard price, DOD endeavors to closely approximate the actual per barrel price that will be paid during budget execution, which occurs almost a year later. If the actual market price of fuel is higher than the price DOD is charging its customers, DOD will have to pay more for fuel than it is being reimbursed from its customers. If the actual price is lower than the standard price, DOD will be reimbursed with more cash than it anticipated. DOD and military service financial management officials prepare budget justification materials for their O&M funding requests on an annual basis. Beginning in fiscal year 2010, the military services have prepared separate budget justification materials for O&M base and O&M OCO funding requests. O&M base funding is used to pay for enduring day-to- day programs and activities—including fuel for training activities. O&M OCO funding is used to support activities associated with overseas contingency operations. DOD’s Financial Management Regulation governs how the military services formulate these budget requests and communicate them to Congress. Specifically, the Regulation directs statutory and regulatory financial management requirements, systems, and functions for all appropriated and non-appropriated, working capital, revolving and trust fund activities. For fuel consumption estimates, the military services prepare two principal budget exhibits: Petroleum, Oil, and Lubricants Consumption and Costs budget exhibit (the “OP-26”): Contains information on direct consumption by type of petroleum product. The military services prepare and submit to the OUSD Comptroller three separate exhibits for each budget submission: (1) OP-26A for flying hours; (2) OP-26B for unit fuel costs; and (3) OP-26C for sources of purchases for petroleum, oil, and lubricants consumption. According to DOD’s Financial Management Regulation, the OP-26 is not provided to Congress with the budget justification materials accompanying the President’s annual budget request. Summary of Price and Program Changes budget exhibit (the “OP- 32”): Contains information by specific line items detailing, among other items, Defense-wide Working Capital Fund supplies and materials purchases related to fuel consumption, such as fuel purchases from the DLA’s Defense Fuel Supply Center and locally- purchased fuel. According to DOD’s Financial Management Regulation, the OP-32 is provided to Congress with the budget justification materials accompanying the President’s annual budget request. DLA, as the department-wide executive agent for bulk petroleum, is tasked with executing supply chain management for all bulk fuel owned by DOD. DLA utilizes the Defense-wide Working Capital Fund to purchase bulk fuel for customers. DOD prepares Defense-wide Working Capital Fund operating and capital budget materials. These budget materials describe DLA’s budget requests, provide justifications for any changes in the budget request from previous years, and report changes in the standard price of fuel across fiscal years. Generally, DOD’s O&M budget justification materials for fuel consumption present data for three years, including actual total obligations for fuel consumption spending for the previous fiscal year, estimated obligations for fuel consumption spending for the current fiscal year, and estimated obligations for fuel consumption spending for the budget request fiscal year. The Defense-wide Working Capital Fund covers DLA’s costs for purchasing bulk fuel and is reimbursed through its sale of fuel to the military services and other customers at a standard price. The standard price is intended to remain unchanged until the next budget year. This helps to shield the military services from market price volatility by allowing the cash balance in the fund to absorb minor fuel price fluctuations. For example, from fiscal years 2010 through 2015, the military services purchased an average of approximately 102 million barrels per year from DOD. Therefore, a standard price increase of even $1 per barrel would result in a $102 million difference from the military services’ budget requests. According to DOD’s Financial Management Regulation, working capital funds were established to satisfy recurring DOD requirements using a businesslike buyer-and-seller approach, and the goal for the Defense-wide Working Capital Fund is to remain revenue neutral, allowing the fund to break even over time—that is, to neither make a gain nor incur a loss. During the year the budget is executed, the actual price for a barrel of fuel on the world market may be higher or lower than DOD’s standard price. If the actual price is higher, the cash balance in the Defense-wide Working Capital Fund will go down. If the actual price is lower, the cash balance in the fund will go up. To correct for these fluctuations, DOD may adjust the standard price for the following year. For example, DOD may increase the standard price to make up for losses in the previous year and bolster the cash balance in the fund. Alternatively, DOD may decrease the standard price to reimburse the military services, which had paid a higher price the previous year. DOD can also cover fund losses during the execution year by obtaining an appropriation from Congress, transferring funds from another DOD account into the fund, or adjusting the standard price out of cycle. Figure 1 illustrates the process and the main organizations involved in budgeting for fuel. During fiscal years 2012 through 2015, the military services reported a decrease in total obligations for fuel consumption spending but reported actual obligations differed from budget estimates during these years, which officials attributed to changes in operations and training that affected the level of fuel consumption. Specifically, each of the military services either over- or underestimated actual obligations for fuel consumption spending when compared to their budget estimates. DOD officials identified changes in operations and training levels during these years as the primary reasons for the differences between actual and estimated spending on fuel consumption, although other factors, such as changes in the standard price DOD charges its fuel customers, have contributed to differences in prior years. In fiscal years 2012 through 2015, the military services’ reported a decrease in total obligations for fuel consumption spending from a high of about $13 billion in fiscal year 2012 to a low of about $10.1 billion in fiscal year 2015. The Army reported the greatest overall decrease in total obligations for fuel consumption spending during these years, from a high of about $3.4 billion in fiscal year 2012 to a low of about $1.3 billion in fiscal year 2015. Decreases reported in total obligations for fuel consumption spending for these fiscal years varied by military service, as shown in figure 2. Our analysis of DOD’s budget justification materials comparing the military services’ reported actual obligations for fuel consumption spending against their budget estimates found that each of the military services over- or underestimated fuel consumption spending in each fiscal year from 2012 through 2015. For example, the Army underestimated its fuel consumption spending by about $840 million in fiscal year 2012, while the Navy overestimated its spending by about $2.4 billion in fiscal year 2014.