Defense Budget: Tracking of Emergency Response Funds for the War
on Terrorism (30-APR-03, GAO-03-346).
As of January 2003, Congress had provided a total of $38 billion
to the Department of Defense (DOD) to cover emergency response
costs related to the war on terrorism. Appropriated in different
ways in fiscal years 2001, 2002, and 2003, these funds are meant
to pay for expenses that DOD would not normally incur, such as
contingency military operations and Pentagon building repairs.
Because our prior work raised questions about DOD's oversight of
contingency fund spending, GAO was asked to review DOD's
management of emergency response funds, specifically: (1) DOD's
adherence to OMB guidance in managing funds and the sufficiency
of DOD's guidance on the use of these funds, and (2) DOD's
ability to track the use of emergency response funds in general.
We limited our review of DOD's guidance to the initial funds
placed in the Defense Emergency Response Fund. We did not verify
the accuracy of the data contained in DOD's obligation reports or
the appropriateness of individual expenditures.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-346
ACCNO: A06926
TITLE: Defense Budget: Tracking of Emergency Response Funds for
the War on Terrorism
DATE: 04/30/2003
SUBJECT: Appropriated funds
Defense appropriations
Financial management
Funds management
Internal controls
Defense contingency planning
Emergency preparedness
Federal funds
Counterterrorism
Accounting
Defense Emergency Response Fund
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-03-346
Report to the Subcommittee on Defense, Committee on Appropriations, U. S.
Senate
United States General Accounting Office
GAO
April 2003 DEFENSE BUDGET Tracking of Emergency Response Funds for the War
on Terrorism
GAO- 03- 346
While DOD followed the Office of Management and Budget*s (OMB) guidance in
managing the initial $15 billion in war on terrorism funds that were
placed in the Defense Emergency Response Fund in fiscal years 2001 and
2002, DOD provided its components with limited guidance on how to use
these funds. DOD allocated the funds according to OMB*s 10 funding
categories. However, DOD*s designations of allowable line items for each
category were broad and, thus, could be interpreted in different ways.
Also, while OMB directed that the funds were to be used for urgent and
known needs, DOD did not define those needs further. Finally, DOD directed
the components to use an internal financial management regulation for
contingency funding to determine if costs were incremental or not;
however, as we have reported previously, these regulations are
insufficient for this purpose. In the absence of detailed guidance
military officials sometimes had to use their best judgment in obligating
emergency response funds.
DOD*s ability to track the use of emergency response funds has varying
limitations depending on the appropriation. For the fiscal years 2001 and
2002 emergency response funds managed separately in the Defense Emergency
Response Fund ($ 15 billion), DOD can report a breakdown of obligations by
its 10 funding categories, but cannot correlate this information with its
appropriation account structure. For emergency response funds provided in
fiscal years 2002 and 2003 ($ 20.5 billion) that were transferred into or
placed directly into DOD*s regular appropriations accounts, DOD cannot use
its accounting system to track the use of these funds because they are
commingled with those appropriated for other purposes. While DOD has an
alternative process intended to track obligations for contingency
operations related to the war on terrorism, it cannot identify the portion
of obligations that are funded with emergency response funds. DOD
acknowledged these limitations and, in December 2002, began requiring
additional reporting on the use of these funds.
DOD partially concurred with this report, noting it clearly told
components to use DOD*s financial regulation for guidance and also held
meetings for clarification. DOD agreed funds were commingled, but noted it
had a process to track incremental costs for the war on terrorism.
DOD Emergency Response Funds (fiscal years 2001 through 2003)
Dollars in billions Fiscal year Total Appropriation type
2001/ 2002 $17.5 Emergency supplementals ($ 15 billion Defense Emergency
Response Fund, $2.3 billion other accounts, and $0. 2 billion rescinded)
2002 13.4 Supplemental 2003 7.1 Annual appropriation
Total $38.0 Source: DOD.
As of January 2003, Congress had provided a total of $38 billion to the
Department of Defense (DOD) to cover emergency response costs
related to the war on terrorism. Appropriated in different ways in fiscal
years 2001, 2002, and 2003, these funds are meant to pay for expenses that
DOD would not normally incur, such as contingency military operations and
Pentagon building repairs.
Because our prior work raised questions about DOD*s oversight of
contingency fund spending, GAO
was asked to review DOD*s management of emergency response funds,
specifically: DOD*s adherence to OMB
guidance in managing funds and the sufficiency of DOD*s guidance on the
use of these funds, and DOD*s ability to track the use
of emergency response funds in general.
We limited our review of DOD*s guidance to the initial funds placed in the
Defense Emergency
Response Fund. We did not verify the accuracy of the data contained in
DOD*s obligation reports or the appropriateness of individual
expenditures.
Because DOD is revising its guidance and compiling more data based on our
prior work, we are not making a new recommendation.
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 346. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Sharon Pickup at (202) 512- 9619 or pickups@ gao.
gov. Highlights of GAO- 03- 346, a report to the
Chairman and Ranking Minority Member, Subcommittee on Defense, Committee
on Appropriations, U. S. Senate
April 2003
DEFENSE BUDGET
Tracking of Emergency Response Funds for the War on Terrorism
Page i GAO- 03- 346 Defense Budget Letter 1 Results in Brief 3 Background
5 DOD Provided Limited Internal Guidance on Use of Initial
Emergency Response Funds 7 DOD*s Ability to Track the Use of Emergency
Response Funds Has Varying Limitations 10 Agency Comments and Our
Evaluation 13 Appendix I Scope and Methodology 16
Appendix II Appropriation of Emergency Response Funds to DOD for Fiscal
Years 2001, 2002, and 2003 18
Appendix III OMB Guidelines and Criteria for Emergency Funding Requests
Related to the Terrorist Attacks of September 11, 2001 21
Appendix IV Comments from the Department of Defense 23
Appendix V GAO Contacts and Staff Acknowledgments 25
Tables
Table 1: Status of Funds in the Defense Emergency Response Fund as of
December 2002 8 Table 2: Transfer of Emergency Response Funds to DOD
(fiscal years 2001 through 2003) 18 Figures
Figure 1: Emergency Response Funding Categories and Sample Line Items 6
Contents
Page ii GAO- 03- 346 Defense Budget
Figure 2: Comparison Between Defense Emergency Response Funding Categories
and DOD Appropriation Accounts 19 Figure 3: Congressional Designation of
Fiscal Year 2002
Emergency Response Funds for the Air Force 19 Figure 4: Congressional
Designation of Fiscal Year 2003 Emergency Response Funds for the Air Force
20 Abbreviations
DOD Department of Defense OMB Office of Management and Budget
This is a work of the U. S. Government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. It may contain
copyrighted graphics, images or other materials. Permission from the
copyright holder may be necessary should you wish to reproduce copyrighted
materials separately from GAO*s product.
Page 1 GAO- 03- 346 Defense Budget
April 30, 2003 The Honorable Ted Stevens Chairman The Honorable Daniel K.
Inouye Ranking Minority Member Subcommittee on Defense Committee on
Appropriations United States Senate
As of January 2003, Congress had provided a total of about $38 billion to
fund the Department of Defense*s (DOD) efforts to recover from and respond
to the September 11, 2001, terrorist attacks. 1 Following the attacks,
Congress initially provided, and the President approved, about $17.5
billion in emergency response funds to DOD through two emergency
supplemental appropriations in fiscal years 2001 and 2002. Because of the
urgent circumstances, Congress sought an expeditious means to provide
funds to DOD and, with the Office of Management and Budget (OMB), agreed
that DOD could manage these initial funds in the Defense Emergency
Response Fund* an existing account that is separate from DOD*s regular
appropriations accounts. 2 Of the initial $17.5 billion, DOD received
about $15 billion in the Defense Emergency Response Fund, $2.3 billion was
provided to other accounts, and $0.2 billion was rescinded. Concerned
about dual accounting, Congress provided the remaining $20.5 billion in
two subsequent appropriations in fiscal year 2002 and fiscal year 2003 to
DOD*s regular appropriation accounts either through transfers from the
Defense Emergency Response Fund or directly. 3 Among other things, DOD is
using emergency response funds to cover the cost of repairs to the
Pentagon and contingency operations related to the global
1 For purposes of this report, we refer to these funds as *emergency
response* funds. 2 This fund was established in 1989 to fund DOD*s
expenses for supplies and services provided in response to natural or
manmade disasters or emergencies. DOD*s regular appropriations accounts
include operation and maintenance; procurement; research, development,
test and evaluation; and military personnel. 3 For the emergency
supplementals of fiscal years 2001 and 2002, Congress specifically
designated in statutes the use of appropriated funds for responses to the
September 11, 2001, attacks. For the two subsequent appropriations in
fiscal years 2002 and 2003, Congress designated funds for responses to the
attacks in conference report language rather than in the pertinent
statutes.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 03- 346 Defense Budget
war on terrorism. In general, applicable OMB and DOD guidance requires
funds provided for the war on terrorism to be used for expenses that are
emergency and incremental in nature* expenses that DOD would have
otherwise not incurred. For the past several years, we have been reviewing
cost and funding issues
associated with overseas contingency operations. Among other things, we
have reported about the need to strengthen DOD*s oversight of funds
appropriated for contingency operations, including improving guidance to
clarify incremental costs. 4 In March 2002, you requested that we continue
this effort by examining DOD*s oversight of the Defense Emergency
Response Fund and the cost of contingency operations in the Balkans and
Southwest Asia. In June 2002, we briefed your staff on the preliminary
results of this work. In September 2002, we reported on the costs
associated with operations in the Balkans and Southwest Asia. 5 This
report summarizes our observations on (1) the extent to which DOD had
adhered to OMB*s guidance for managing funds provided separately for the
Defense Emergency Response Fund (appropriated in the first two emergency
supplemental appropriations), (2) the sufficiency of DOD*s guidance to its
components on the use of these funds, and (3) its ability in general to
track the use of emergency response funds. We are also
providing information on DOD*s plans to expand its reporting on the use of
emergency response funds.
More recently, in February and April of 2003 appropriations, DOD received
about $73 billion in additional funding for war on terrorism- related
expenses. However, this review is limited to the $38 billion in funds
provided under four previous appropriations. In performing our work, we
did not verify the accuracy of the data contained in DOD obligation
4 For example, see U. S. General Accounting Office, Defense Budget: Need
to Strengthen Guidance and Oversight of Contingency Operations Costs, GAO-
02- 450 (Washington, D. C.: May 2002).
5 U. S. General Accounting Office, Defense Budget: Contingency Operations
in the Balkans May Need Less Funding in Fiscal Year 2003, GAO- 02- 1073
(Washington, D. C.: Sept. 2002).
Page 3 GAO- 03- 346 Defense Budget
reports or the appropriateness of individual expenditures. 6 For details
on our scope and methodology, see appendix I.
DOD adhered to OMB guidance in managing the allocation of the $15 billion
in emergency response funds provided to the Defense Emergency Response
Fund under fiscal years 2001 and 2002 emergency supplemental
appropriations, but provided limited guidance to military components on
the use of these funds. In accordance with OMB guidance, DOD allocated
funds to its components in 10 funding categories and did not transfer
these funds to its regular accounts. These funds were to be used for
emergency and incremental needs. While DOD designated allowable line items
for each funding category, these designations were broad and subject to
interpretation. For example, DOD designated *mobilization of guard and
reserves* as an allowable line item. Mobilization involves many factors
such as special pay, transportation, and equipment; however, DOD did not
specify which could be funded. Furthermore, OMB, among other things,
directed that any requirement to be funded must reflect an urgent and
known need. However, DOD did not establish any specific parameters to
define the meaning of urgent and known. To determine incremental needs,
components were to rely on
DOD*s internal financial management regulation. 7 As we reported in May
2002, this regulation does not provide sufficient guidance on the types of
costs defined to be incremental. In the absence of detailed guidance,
command officials were sometimes uncertain on whether expenses were
allowable and often had to use their best judgment in obligating emergency
response funds. Because DOD is in the process of improving its guidance
based on recommendations from our prior work, we are not making a
recommendation in this report.
DOD*s ability to track the use of funds appropriated for the war on
terrorism has varying limitations depending on the appropriation. For
6 We note GAO has designated DOD*s financial management area as high risk
due to long- standing deficiencies in DOD*s systems, processes, and
internal controls. Among other things, these deficiencies affect DOD*s
ability to ensure basic accountability and maintain control of funds. For
example, DOD does not have the systems and processes in place to capture
the required cost information from the hundreds of millions of
transactions it processes each year. (See U. S. General Accounting Office,
Major Management Challenges and Program Risks: Department of Defense, GAO-
03- 98 (Washington, D. C.: Jan. 2003.) 7 Department of Defense Financial
Management Regulation, DOD 7000. 14- R, vol. 12, chapter 23 on Contingency
Operations, February 2001. Results in Brief
Page 4 GAO- 03- 346 Defense Budget
funds provided under the fiscal years 2001 and 2002 emergency supplemental
appropriations that were managed separately in the Defense Emergency
Response Fund ($ 15 billion), DOD is able to provide a breakdown of
obligations for the 10 funding categories, but reporting proved to be
cumbersome because the categories do not correlate with DOD*s regular
appropriations accounting structure. For funds provided under the two
subsequent DOD appropriations in fiscal years 2002 and 2003 ($ 20.5
billion), DOD is not able to separately track the use of emergency
response funds. As generally occurs with funds in any appropriation, these
funds are commingled in DOD*s regular appropriations accounts with funds
appropriated for other purposes. Because DOD*s accounting system only
captures data on total obligations and does not distinguish sources of
funds, DOD is not able to identify
those obligations that are funded from emergency response funds. While DOD
has an alternative process intended to track incremental costs
(obligations) of contingency operations, including operations related to
the war on terrorism, these operations are funded from multiple sources.
Because of the aforementioned characteristics of its accounting system,
DOD cannot identify the portion of contingency operations- related
obligations funded with emergency response funds.
During our review, DOD officials acknowledged the limitations in their
ability to specifically track the use of emergency response funds and, in
November 2002, established additional reporting requirements related to
the use of emergency response funds. In general, components will continue
to report obligations for funds provided under the first two emergency
supplementals that were managed separately in the Defense Emergency
Response Fund. DOD will also compile additional data on emergency response
funds provided under the two subsequent appropriations, including a more
detailed breakdown of incremental costs for contingency operations,
obligations from supplemental funds, and obligations from funds borrowed
from baseline programs to pay for expenses related to the war on
terrorism. According to DOD officials, components will rely on parallel
tracking systems at the command and unit level to compile this data. At
this point, these officials believe it would be too costly and time-
consuming to modify DOD*s accounting system to generate more detailed
funding and obligation data. Rather, they emphasized the expanded
reporting requirements will provide the management information that DOD
needs to oversee the obligation of emergency response funds, justify needs
for any additional funding, and provide transparency to Congress, OMB, and
others. Because the
components are still compiling data, we are not making a recommendation
Page 5 GAO- 03- 346 Defense Budget
in this report but will monitor DOD*s progress in compiling the additional
data during our ongoing review of contingency operation costs.
As of January 2003, Congress had provided about $38 billion, through a
total of four appropriations, for DOD*s emergency response needs related
to the war on terrorism. In September 2001 and December 2001, Congress
enacted two emergency supplemental appropriations to quickly provide
initial funds to meet the emergency needs of DOD and other federal
agencies to recover from and respond to the September 11 terrorist
attacks. 8 These supplementals, enacted in two separate fiscal years,
fiscal year 2001 and fiscal year 2002, provided about $17.5 billion to
DOD. Given the urgent circumstances, Congress sought an expeditious
mechanism to transfer funds and, therefore, provided funds to DOD through
the Defense Emergency Response Fund. This fund is a distinct account and
DOD manages it separately from its regular appropriations accounts. Of the
initial $17.5 billion, DOD received about $15 billion in the Defense
Emergency Response Fund, $2.3 billion was provided to other accounts, and
$0.2 billion was rescinded.
Shortly after the September 11, 2001, attacks, OMB and DOD agreed on
certain parameters for managing funds placed in the Defense Emergency
Response Fund, including that funds would be obligated in 10 funding
categories. OMB stipulated that DOD was to manage the allocation of funds
within the 10 categories and could not transfer these funds to its regular
appropriations accounts. Moreover, OMB used these categories in its
reports to Congress on the expenditure of the funds.
Based on DOD*s limited estimates regarding requirements for each category,
OMB apportioned funds to the Defense Emergency Response Fund. 9 According
to DOD officials, these estimates had to be prepared quickly, within days
of the attacks, and reflected the best judgment of DOD*s needs at the time
without knowing the exact nature of the U. S. response to the attacks. For
each category, DOD also identified multiple
8 2001 Emergency Supplemental Appropriations Act for Recovery from and
Response to Terrorist Attacks on the United States, Pub. L. No. 107- 38
(2001) and Department of Defense and Emergency Supplemental Appropriations
for Recovery from and Response to Terrorist Attacks on the United States
Act, 2002, Pub. L. No. 107- 117 (2002). 9 Funds under the two initial
supplemental appropriations were appropriated to a governmentwide
emergency response fund and subsequently apportioned to DOD and other
federal agencies. Background
Page 6 GAO- 03- 346 Defense Budget
line items for which expenses could be incurred. Figure 1 identifies the
10 categories and identifies some of the line items that DOD established
for one of the categories. Figure 1: Emergency Response Funding Categories
and Sample Line Items
The 10 categories do not correlate with DOD*s existing appropriation
accounts (see app. II). However, the expenses related to a category would
be similar to the types of expenses funded under several appropriation
accounts. For example, DOD may incur operation and maintenance, and
procurement expenses under the categories of improved command and control
and enhanced force protection. Because the 10 funding categories
established by OMB and DOD did not correlate with DOD*s existing
appropriation account structure, a dual system of accounting emerged,
which some believed to be cumbersome for tracking purposes. Therefore, for
subsequent appropriations* a second supplemental appropriation in fiscal
years 2002 and DOD*s regular appropriation in fiscal year 2003 10
*Congress changed its method of providing funds. Specifically, in these
appropriations, DOD received about $20.5 billion in funds either through
the Defense Emergency Response Fund (fiscal year 2002) to its regular
appropriation accounts or directly to
10 2002 Supplemental Appropriations Act for Further Recovery From and
Response to Terrorist Attacks on the United States, Pub. L. No. 107- 206
(2002) and Department of Defense Appropriations Act, 2003, Pub. L. No.
107- 248 (2002).
Page 7 GAO- 03- 346 Defense Budget
its appropriation accounts (fiscal year 2003). 11 Appendix II provides
additional details on these two appropriations.
On September 14, 2001, OMB issued specific guidelines and criteria for
federal departments and agencies to apply in identifying and evaluating
requirements to be funded under the initial emergency supplemental
appropriations. This guidance covered two areas* response and recovery,
and preparedness and mitigation* and outlined 15 conditions to be met.
Among other things, these conditions stipulated that requirements must be
known, not speculative; urgent, not reasonably handled at a later time;
and unable to be reasonably met through the use of existing agency funds.
Appendix III lists OMB*s guidelines and criteria.
Because expenses related to contingency operations could be funded with
emergency response funds, DOD also relied on its existing financial
management regulation for guidance. Specifically, volume 12, chapter 23 of
this regulation requires that costs incurred in support of contingency
operations be limited to the incremental costs of the operation* costs
that are above and beyond the baseline costs for training, operations, and
personnel. The regulation further states that incremental costs are
additional costs that would not have been incurred had the contingency
operation not been supported.
DOD adhered to OMB guidance in managing the allocation of $15 billion in
initial emergency response funds placed in the Defense Emergency Response
Fund after the September 11th attacks. While DOD instructed its components
to follow OMB guidelines and internal DOD guidelines and financial
regulations in obligating emergency response funds, it did not provide
specific internal guidance to assist the components in determining
allowable expenses. As a result, command officials were sometimes
uncertain on the appropriateness of expenses and often had to rely on
their best judgment in obligating these funds.
11 Of the $20. 5 billion, $11. 3 billion was provided to the Defense
Emergency Response Fund and subsequently most has been transferred as
needed to DOD*s regular appropriation accounts. The remainder was
appropriated directly to appropriation accounts. The fiscal year 2003
Appropriations Act provided DOD*s regular appropriation and did not
specifically identify emergency response funds. Rather, the related
conference report, H. R. 107- 732, shows how Congress designated funds to
be used for emergency response including dollar amounts and specific
purposes within DOD*s regular appropriation account. DOD Provided
Limited Internal Guidance on Use of Initial Emergency Response Funds
Page 8 GAO- 03- 346 Defense Budget
In accordance with OMB guidance, DOD reported on its allocation of funds
to its components in 10 funding categories and did not transfer these
funds into its regular appropriation accounts. As of December 2002, DOD
reported it had obligated about $14 billion of the $15 billion provided in
the emergency supplementals of fiscal years 2001 and 2002 (see table 1).
Table 1: Status of Funds in the Defense Emergency Response Fund as of
December 2002 Dollars in billions Funding category Allocation Obligated
Unobligated
Increased Situational Awareness $3.531 $3.301 $0.230 Enhanced Force
Protection 1.349 1.310 0.039 Improved Command and Control 1.391 1.351
0.040 Increased Worldwide Posture 4.894 4.836 0.058 Offensive
Counterterrorism 1.821 1.741 0.080 Procurement a 0 0 0 Initial Crisis
Response 0.489 0.460 0.029 Pentagon Repairs/ Upgrades 0.563 0.563 0 Other
Requirements 0.216 0.191 0.025 Airport Security 0.225 0.217 0.007
Unallocated 0.526 0 0. 526
Total b $15.006 $13.970 $1.036
Source: DOD reported data as of December 31, 2002. a Although funding was
not allocated to the Procurement category, procurements were funded under
other categories. b Figures may not add due to rounding.
The data shown in table 1 are based on monthly obligation reports from
DOD*s defense financial accounting system database. These funds do not
expire and, therefore, are available until used. We did not verify the
accuracy or completeness of this data.
As table 1 shows, as of December 31, 2002, DOD reported data shows over $1
billion of the funds in the Defense Emergency Response Fund remains
unobligated. Over half of that amount, $526 million, had not been
allocated to the 10 funding categories. According to DOD officials, in
March 2003, DOD plans to review the status of the unobligated funds and
validate whether requirements for the funds continue to exist. DOD Adhered
to
OMB Guidance Managing Emergency Response Funds
Page 9 GAO- 03- 346 Defense Budget
For each of the 10 funding categories established by OMB and DOD, DOD
identified line items that could be funded under the 10 categories.
However, these line items were broad in nature and DOD did not identify
the specific types of expenses that could be funded within each line item.
In addition, OMB, among other things, directed that any requirement to be
funded must reflect an urgent and known need. However, DOD did not
establish any specific parameters to define the meaning of urgent and
known. Also, in the event that funds in the Defense Emergency Response
Fund would be needed to meet the requirements of contingency operations,
DOD stipulated that funds would be used to cover the incremental costs of
contingency operations. DOD directed components to use its existing
financial management regulation in reporting incremental costs, but it did
not offer any further guidance as to how commands were to distinguish
incremental from baseline costs. In May 2002, we reported that DOD*s
financial management regulation did not provide sufficient information on
what types of costs met DOD*s definition of incremental costs, which
resulted in various interpretations among the services* and even among
units within a service* as to appropriate and proper expenditures. 12 As a
result, we recommended that DOD expand its financial management regulation
to include more comprehensive guidance governing the use of contingency
funds. DOD agreed with our recommendation and, as of April 2003, is still
working on revisions to its guidance. Because DOD is in the process of
improving its guidance based on recommendations from our prior work, we
are not making a new
recommendation in this report. In the absence of detailed guidance,
command officials often had to use their best judgment in deciding how to
spend the defense emergency response funds, and we found the same type of
uncertainty among commands as we reported in May 2002. For example,
command officials told us that determining what could be purchased from
each category and line item was often difficult because the categories and
line items
were broad and generally differed from DOD*s regular appropriation
accounts. For example, DOD designated mobilization of guard and reserves
as an allowable line item for the category of increased worldwide posture.
Mobilization involves many factors, such as special pay,
transportation, and equipment, but DOD did not specify which could be
appropriately funded.
12 GAO- 02- 450. DOD Provided Limited
Internal Guidance for Specific Use of Funds
Page 10 GAO- 03- 346 Defense Budget
We also found differing interpretations existed as to whether requirements
were urgent or known. Some commands used emergency response funds on items
that could not be delivered in a reasonable time frame to be considered
urgent. For example, one command purchased a RC- 135 Rivet Joint aircraft
for intelligence, communications, and reconnaissance. Typically, this
aircraft would not be fielded for 8 years because it needed multiple
contractors to install and test its integrated electronics suite.
In another example, one command, before it knew its specific role in
supporting the war on terrorism, obligated $52 million for spare parts
based on an analysis of prior usage. By contrast, another command was
reluctant to obligate funds until its specific role had been determined.
Moreover, in some cases, command officials were unclear about how to
determine the incremental costs to their regular appropriations. For
example, commands used emergency response funds to pay for accelerated
ship maintenance that was already planned for future budgets and to
purchase computer and communication upgrades that were previously unfunded
from the regular appropriation.
DOD officials told us that they had to quickly develop funding
requirements after the terrorists attacks and used OMB guidance and
available DOD instructions to instruct their components on how the funds
could be used. The officials said that obligating funds in 10 categories
and related line items that were not directly related to their
appropriation accounts was confusing. In recognizing the lack of detailed
guidance, DOD officials also told us that they maintained constant
communication among all levels of DOD, especially at the command and unit
levels, in order to
review and clarify the use of emergency response funds. Furthermore, the
officials said that they believe most of the funds were obligated for
appropriate purposes.
DOD*s ability to track funds appropriated for the war on terrorism has
varying limitations depending on the appropriation. For funds provided
under the two emergency supplemental appropriations of fiscal years 2001
and 2002 and managed out of the Defense Emergency Response Fund, DOD is
able to report a breakdown of obligations by the 10 categories, but found
that tracking these obligations was cumbersome because the categories do
not correlate with its regular appropriations account structure. For the
two subsequent appropriations in fiscal year 2002 and 2003, DOD cannot
separately identify obligations funded with emergency response funds
because these funds are commingled with funds appropriated for other
purposes, and DOD*s accounting system does not distinguish among
obligations. For example, in its fiscal year 2003 DOD*s Ability to Track
the Use of Emergency Response Funds Has Varying Limitations
Page 11 GAO- 03- 346 Defense Budget
appropriation, Congress appropriated about $3.7 billion for the Air
Force*s operation and maintenance subactivity group related to primary
combat forces, including about $389 million in emergency response funds
for expenses related to the war on terrorism, and about $3.3 billion for
expenses not related to the war on terrorism. All of these funds were
commingled in the Air Force*s operation and maintenance account. Within
DOD*s accounting system, DOD records obligations, but does not identify
the source of funds. Therefore, at any given time, DOD is only able to
track and report total obligations for operation and maintenance purposes
and cannot separately identify obligations funded from emergency response
funds.
DOD officials agreed that DOD*s accounting system does not separately
track obligations funded with emergency response funds, but they
emphasized that DOD has established procedures intended to track
obligations for contingency operations, including operations associated
with the war on terrorism such as in Afghanistan. Under DOD*s financial
management regulation, DOD components are required to track and report the
incremental costs (obligations) for each contingency operation. DOD
established a special code for each operation, and components track
obligations in a management tracking system separate from DOD*s accounting
system. The components report the total obligations for each contingency
operation according to four specific cost categories: personnel, personnel
support, operating support, and transportation* and by appropriation
account. This information is reported monthly and is provided to Congress.
However, the contingency cost categories do not correlate with DOD*s
appropriation accounting structure. Also, funding for contingency
operations comes from both special funding sources such as emergency
response funds, as well as, the regular peacetime appropriations given to
components. Because DOD*s accounting system does not separately track
obligations by funding source, DOD*s reporting does not identify the
portion of contingency operations- related obligations funded with
emergency response funds.
During our review, DOD acknowledged the limitations of its ability to
track the war on terrorism obligations and acknowledged the continued
interest of Congress, OMB, GAO, and other organizations regarding the use
of the funds. Starting in December 2002, DOD expanded its reporting on
obligations associated with the war on terrorism and contingency
operations. Specifically, in addition to continuing the separate tracking
of fiscal year 2001 and fiscal year 2002 emergency supplemental funds
contained in the Defense Emergency Response Fund, components are DOD Sets
Up
Additional Reporting Requirements Intended to Improve Tracking
Page 12 GAO- 03- 346 Defense Budget
now required to report more detailed data on obligations associated with
the two subsequent appropriations in fiscal year 2002 and 2003. The
additional reporting requirements are as follows:
For the fiscal year 2002 supplemental, components are, on a monthly
basis, to describe the purpose of the obligation, provide the amount, and
identify the appropriation account. For the fiscal year 2003
appropriation, components are, on a monthly
basis, to identify which funds they are obligating from their peacetime
budget to directly support the global war on terrorism, i. e., components
are using their baseline budget for the war on terrorism obligations. The
report is to describe the purpose of the obligation and the amount and
identify what activities were not being accomplished and the appropriation
account affected. This is referred to as *cash flowing.*
Furthermore, components are to start compiling and reporting on four
additional cost categories for contingency operations: reconstitution of
forces and capability, recapitalization, classified programs, and working
capital fund. DOD officials stated the data are compiled from individual
command and unit management tracking systems, which are not linked with
DOD*s accounting system, referred to as parallel tracking.
According to DOD officials, the additional reporting is expected to
provide the management information that DOD needs to better manage and
oversee the war on terrorism obligations and that Congress and others need
to exercise oversight responsibilities. Officials believe that requiring
components to provide additional data on obligations is preferable to
modifying the accounting system to distinguish war on terrorism- related
obligations from other obligations. Officials told us that modifying the
accounting system would be too costly, time consuming, and the effort
would not justify the value added at this time. Also, officials point out
that the additional work involved and learning curve associated with a
modified accounting system would pose problems because of the complexity
involved with additional reporting, the time involved with obtaining staff
competency, and the need to retrain staff due to assignment rotations. As
of February 2003, components were still compiling data; therefore, we are
not making a recommendation in this report, but will continue to review
DOD*s expanded reporting efforts in our ongoing review of contingency
operations costs.
Page 13 GAO- 03- 346 Defense Budget
In written comments on a draft of this report, DOD partially concurred
with the report (see app. IV). Specifically, DOD disagreed that guidance
provided to components on how to use emergency response funds was not
sufficient. DOD stated that components were clearly instructed to treat
expenses as incremental costs as defined in DOD*s financial management
regulation and that subsequent meetings were held to clarify this
guidance. DOD also noted that, because the category structure used
for emergency response funds was unique, some confusion existed among the
components. DOD stated that the confusion dissipated as the components
became more familiar with the structure.
In our report, we recognized that DOD directed components to rely on the
financial regulation, as well as other guidelines, and acknowledged DOD*s
view that it maintained constant communication to review and clarify the
use of emergency response funds. However, in our May 2002 report, we noted
that the financial regulation does not provide sufficient guidance on the
types of costs that are defined as incremental, which resulted in
various interpretations among the services. DOD agreed with the
recommendation made in that report that the regulation be expanded to
include more comprehensive guidance. During our work conducted for this
report, we found that command officials were sometimes uncertain about
whether certain expenses were allowable, including how to determine
incremental costs, and sometimes had to use their best judgment in
obligating emergency response funds. We continue to believe that more
comprehensive guidance is warranted. Because DOD is still revising the
guidance based on prior GAO work, we are not making a new recommendation
in this report.
While DOD stated our report correctly said that DOD cannot correlate the
funding categories for emergency response funds with its appropriation
accounts, it believed we were only partially accurate in stating that DOD
is unable to track all emergency response funds in its accounting system.
DOD noted that it had implemented a process to track incremental costs
related to the war on terrorism and, in particular, the Defense Finance
Accounting Service collects cost information on contingencies from
components. DOD also noted that it is implementing procedures to capture
the incremental costs of Operation Iraqi Freedom. Our report specifically
recognizes DOD has established procedures intended to track incremental
costs for contingency operations including operations associated with the
war on terrorism, and that the components report this type of information.
However, we note that this information is compiled in a management
tracking system separate from DOD*s accounting system. Furthermore,
funding for contingency operations comes from both special Agency Comments
and Our Evaluation
Page 14 GAO- 03- 346 Defense Budget
funding sources such as emergency response funds, as well as regular
peacetime appropriations. Because DOD*s accounting system does not
separately track obligations by funding source, DOD*s reporting does not
identify the portion of contingency- operations related obligations funded
with emergency response funds.
Further, DOD partially agreed that its accounting system cannot report on
the $20.5 billion in emergency response funds provided for the war on
terrorism in fiscal years 2002 and 2003. DOD noted that it received only
$13.5 billion and that, except for $305 million appropriated for Pentagon
repairs, these funds went directly to component accounts and their
execution is captured in accounting reports. DOD noted that components
report separately on obligations of these funds. In subsequent
discussions, a DOD comptroller official confirmed the accuracy of our
calculation that DOD had received a total of $20.5 billion. As discussed
previously, our report recognizes that components report separately on
obligations related contingency operations, but that these reports do not
distinguish the portion of contingency operations- related operations
funded with emergency response funds.
Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from the date of this letter. At
that time, we will send copies of this report to interested congressional
committees with jurisdiction over DOD*s budget. Also at that time, we will
send copies of this report to the Secretary of Defense; the DOD
Comptroller; the Secretaries of the Army, the Navy, and the Air Force; the
Director of the Defense Finance and Accounting Service; the Director of
the OMB, and others upon request. In addition, the report will be
available at no charge on the GAO Web site at http:// www. gao. gov/.
Page 15 GAO- 03- 346 Defense Budget
If you have any questions regarding this report, please contact me at
(202) 512- 9619 or pickups@ gao. gov, or Gary Billen, Assistant Director,
at (214) 777- 5703 or billeng@ gao. gov. Major contributors to this report
are acknowledged in appendix V.
Sharon L. Pickup Director, Defense Capabilities and Management
Appendix I: Scope and Methodology Page 16 GAO- 03- 346 Defense Budget
To determine the extent that the Department of Defense (DOD) adhered to
the Office of Management and Budgets (OMB) guidance for managing funds
provided separately for the Defense Emergency Response Fund (appropriated
in the first two emergency supplemental appropriations) and the
sufficiency of DOD*s guidance to its components on the use of these funds,
we reviewed the guidance provided by OMB to federal government departments
and agencies and the guidance provided by DOD to its defense components
for justifying their obligations funded through the emergency
supplementals of fiscal years 2001 and 2002. We interviewed knowledgeable
DOD officials responsible for implementing this guidance, obtained DOD
reports of emergency response fund allocations to DOD component commands,
and used these reports to select sites for our subsequent visits. At DOD*s
component commands, we interviewed officials and obtained reports or
examples of obligations (purchases). We compared selected examples of
obligations to OMB and
DOD guidance. We also relied on prior GAO work regarding DOD*s guidance
and reporting for contingency operations.
To assess DOD*s ability to track the use of emergency funds provided to
DOD in the emergency supplementals of fiscal years 2001 and 2002, the
supplemental for fiscal year 2002, and the DOD appropriation for fiscal
year 2003, we analyzed relevant DOD financial documents, including the
Office of the Secretary of Defense monthly reports allocating the funds to
services and commands and the Defense Finance and Accounting Service
monthly obligation reports and accounting manuals. We did not verify the
accuracy and completeness of this data. We also reviewed budget and
accounting procedures and documents and interviewed knowledgeable
DOD officials. We performed our work at the Office of the Secretary of
Defense; the Office of the Comptroller; the headquarters of the Army, the
Army Reserve, the Army National Guard, the National Guard, the Navy, and
the Air Force; and the following commands and centers:
Transportation Command, Scott Air Force Base, Ill. Army Forces
Command, Fort McPherson, Ga. Army Central Forces Command, Fort
McPherson, Ga. Air Force Aeronautical Services Center, Wright- Patterson
Air Force Base, Ohio Air Force Air Armament Center, Eglin Air Force
Base, Fla. Air Force Air Combat Command, Langley Air Force Base, Va.
Navy Atlantic Fleet Command, Norfolk Naval Base, Va.
Army Tank- Automotive and Armaments Command, Warren, Mich. Appendix I:
Scope and Methodology
Appendix I: Scope and Methodology Page 17 GAO- 03- 346 Defense Budget
Army Materiel Command, Alexandria, Va. Air Force Materiel Command,
Wright- Patterson Air Force Base, Ohio Air Mobility Command, Scott Air
Force Base, Ill. Special Operations Command, MacDill Air Force Base,
Tampa, Fla.
Pacific Command, Pearl Harbor, Hawaii Air Force Special Operations
Command, Hurlburt Field, Fla. Army Special Operations Command, Fort
Bragg, N. C.
We performed our review between March 2002 and February 2003 in accordance
with generally accepted government auditing standards.
Appendix II: Appropriation of Emergency Response Funds to DOD for Fiscal
Years 2001, 2002, and 2003 Page 18 GAO- 03- 346 Defense Budget
As of January 2003, Congress appropriated a total of about $38 billion in
fiscal years 2001, 2002, and 2003 to fund DOD*s expenses related to the
war on terrorism. As table 2 shows, Congress provided these emergency
response funds in four appropriations* two emergency supplementals (fiscal
years 2001 and 2002), a fiscal year 2002 supplemental, and the fiscal year
2003 Defense appropriation* and used different methods to transfer
funds to DOD.
Table 2: Transfer of Emergency Response Funds to DOD (fiscal years 2001
through 2003)
Dollars in billions
Fiscal year Amount Appropriation type Method of funds transfer
2001/ 2002 $17.5 Emergency supplementals a Funds appropriated to a
governmentwide emergency response fund and then apportioned by OMB. DOD*s
funds were primarily apportioned to the Defense Emergency Response Fund. b
2002 13.4 Supplemental c Funds primarily appropriated to the Defense
Emergency Response Fund
and subsequently transferred, as needed, to DOD*s regular appropriation
accounts. d 2003 $7.1 Regular appropriation e Funds appropriated directly
to DOD*s regular appropriation accounts. Source: DOD.
a 2001 Emergency Supplemental Appropriations Act for Recovery From and
Response to Terrorist Attacks on the United States, Pub. L. No. 107- 38
(2001), and Department of Defense and Emergency Supplemental
Appropriations for Recovery from and Response to Terrorist Attacks on the
United States Act, 2002, Pub. L. No. 107- 117 (2002). b Of this amount,
DOD was apportioned $15 billion that was placed into the Defense Emergency
Response Fund. The remainder was transferred to other DOD appropriations
accounts or rescinded.
c 2002 Supplemental Appropriations Act for Further Recovery From and
Response to Terrorist Attacks on the United States, Pub. L. No. 107- 206
(2002). d Of the $13.4 billion, DOD received $11.9 billion for the Defense
Emergency Response Fund but only $11.3 billion was placed into the fund.
The remainder of $2.1 billion was appropriated to other DOD appropriation
accounts.
e Department of Defense Appropriation Act, 2003, Pub. L. No. 107- 248
(2002).
Congress appropriated about $17.5 billion to fund DOD*s emergency needs in
the aftermath of the September 2001 terrorist attacks during fiscal years
2001 and 2002. Of this amount, about $15 billion was eventually
transferred to DOD*s Defense Emergency Response Fund. OMB, in conjunction
with DOD, identified 10 broad funding categories to govern the use of
these funds. While funds in the Defense Emergency Response Fund were
obligated for similar types of requirements funded under several of DOD*s
regular appropriations account, such as for operation and maintenance and
military personnel expenses, the 10 categories do not directly correlate
with DOD*s existing appropriation account structure. Figure 2 lists the
Defense Emergency Response funding Appendix II: Appropriation of Emergency
Response Funds to DOD for Fiscal Years 2001, 2002, and 2003
Fiscal Years 2001 and 2002
Appendix II: Appropriation of Emergency Response Funds to DOD for Fiscal
Years 2001, 2002, and 2003 Page 19 GAO- 03- 346 Defense Budget
categories and provides examples of DOD*s regular appropriation accounts.
Figure 2: Comparison Between Defense Emergency Response Funding Categories
and DOD Appropriation Accounts
In an emergency supplemental appropriation for fiscal year 2002, Congress
appropriated $13.4 billion in emergency response funds, of which $11.3
billion was placed in the Defense Emergency Response Fund for subsequent
transfer to DOD*s regular appropriation accounts. Furthermore, Congress
designated the distribution of these funds by DOD component, appropriation
account, and purpose. Figure 3 provides an example of how Congress
designated the use of fiscal year 2002 emergency response funds for the
Air Force.
Figure 3: Congressional Designation of Fiscal Year 2002 Emergency Response
Funds for the Air Force
Fiscal Year 2002
Appendix II: Appropriation of Emergency Response Funds to DOD for Fiscal
Years 2001, 2002, and 2003 Page 20 GAO- 03- 346 Defense Budget
In fiscal year 2003, Congress appropriated $7. 1 billion in emergency
response funds to DOD as part of DOD*s regular appropriation, and these
funds were appropriated directly to DOD*s regular appropriation accounts.
In contrast to the fiscal year 2002 emergency supplemental, Congress
provided more detail in designating the distribution of fiscal year 2003
emergency response funds. In the conference report accompanying the fiscal
year 2003 appropriation act, Congress designated specific funding levels
by appropriation account, DOD component, budget activity, and subactivity
group. Figure 4 provides an example of how Congress designated funding for
the Air Force.
Figure 4: Congressional Designation of Fiscal Year 2003 Emergency Response
Funds for the Air Force
a DERF refers to the Defense Emergency Response Fund.
Fiscal Year 2003
Appendix III: OMB Guidelines and Criteria for Emergency Funding Requests
Related to the Terrorist Attacks of September 11, 2001 Page 21 GAO- 03-
346 Defense Budget
In a September 14, 2001, memorandum, OMB provided the heads of federal
departments and agencies with the following guidelines and criteria for
requesting emergency funding related to the terrorist attacks of September
11, 2001.
(1) The damage to be repaired must have been directly caused by the
terrorist acts.
(2) The absence of funding, and consequently a delay in damage repair,
protection or other activities, would result in significant economic loss/
hardship, attack risk or human endangerment/ suffering, including the cost
of enhanced security and relocation of employees to secure sites.
(3) Any action ordered by the President to respond to the national
security consequences of the events of September 11, 2001. (4) The
requirement is known, i. e., not a speculative need. (5) The requirement
is urgent, i. e., could not reasonably be handled at a
later time. (6) The activity to be performed is an appropriate federal
role and
reflects an appropriate sharing of responsibility among state, local,
private, and federal entities.
(7) The level of funding is limited to the amount necessary to restore the
entity/ facility to current standards and requirements (e. g., damage to a
1950s building would be repaired using current building codes and
standards and guidelines for counter- terrorism defense).
(8) The requirement is not competitive with or duplicative of activities
of other agencies with statutorily mandated disaster assistance programs
such as Small Business Administration and Federal Emergency Management
Agency.
(9) The requirement cannot reasonably be met through the use of existing
agency funds, e. g., through reprogramming actions or the use of other
emergency funds. Appendix III: OMB Guidelines and Criteria
for Emergency Funding Requests Related to the Terrorist Attacks of
September 11, 2001
Response and Recovery
Appendix III: OMB Guidelines and Criteria for Emergency Funding Requests
Related to the Terrorist Attacks of September 11, 2001 Page 22 GAO- 03-
346 Defense Budget
(10) Funds should address specific deficiencies, encountered or identified
to prevent events such as those that occurred on September 11, 2001, and
may include expenditures for: law enforcement and investigative
activities; general preparation and response (planning, training,
equipment, and personnel); physical protection of government facilities
and employees; physical protection of the national populace and
infrastructure; and governmental awareness of potential threats.
(11) Funds can be used to enhance U. S. abilities to interdict terrorist
threats.
(12) The activity to be performed is an appropriate federal role and
reflects an appropriate sharing of responsibility among state, local,
private, and federal entities.
(13) The requirement is urgent, i. e., could not reasonably be handled at
a later time.
(14) Activities are not competitive with or duplicative of activities of
other agencies with statutorily mandated preparation programs such as DOD
and Federal Emergency Management Agency.
(15) The requirement cannot reasonably be met through the use of existing
agency funds, e. g., through reprogramming actions or the use of other
emergency funds. Preparedness and
Mitigation
Appendix IV: Comments from the Department of Defense
Page 23 GAO- 03- 346 Defense Budget
Appendix IV: Comments from the Department of Defense
Appendix IV: Comments from the Department of Defense
Page 24 GAO- 03- 346 Defense Budget
Appendix V: GAO Contacts and Staff Acknowledgments Page 25 GAO- 03- 346
Defense Budget
Sharon Pickup (202) 512- 9619 Gary Billen (214) 777- 5703
In addition to the names above, the following individuals made significant
contributions to this report: Nancy Benco; Bruce Brown; George Duncan;
Harry Jobes; Tom Mahalek; Charles Patton, Jr.; Kenneth Patton; and James
Reid. Appendix V: GAO Contacts and Staff
Acknowledgments GAO Contacts Staff Acknowledgments
(350254)
The General Accounting Office, the audit, evaluation and investigative arm
of Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of
the federal government for the American people. GAO examines the use of
public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO*s commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO*s Web site (www. gao. gov) contains abstracts
and fulltext files of current reports and testimony and an expanding
archive of older products. The Web site features a search engine to help
you locate documents using key words and phrases. You can print these
documents in their entirety, including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as *Today*s Reports,* on its
Web site daily. The list contains links to the full- text document files.
To have GAO e- mail
this list to you every afternoon, go to www. gao. gov and select
*Subscribe to daily E- mail alert for newly released products* under the
GAO Reports heading.
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to: U. S. General Accounting Office 441 G Street NW, Room LM
Washington, D. C. 20548 To order by Phone: Voice: (202) 512- 6000
TDD: (202) 512- 2537 Fax: (202) 512- 6061
Contact: Web site: www. gao. gov/ fraudnet/ fraudnet. htm E- mail:
fraudnet@ gao. gov Automated answering system: (800) 424- 5454 or (202)
512- 7470 Jeff Nelligan, managing director, NelliganJ@ gao. gov (202) 512-
4800
U. S. General Accounting Office, 441 G Street NW, Room 7149 Washington, D.
C. 20548 GAO*s Mission Obtaining Copies of
GAO Reports and Testimony
Order by Mail or Phone To Report Fraud, Waste, and Abuse in Federal
Programs Public Affairs
*** End of document. ***