Global War on Terrorism:

DOD Needs to Improve the Reliability of Cost Data and Provide Additional Guidance to Control Costs

GAO-05-882: Published: Sep 21, 2005. Publicly Released: Sep 21, 2005.

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Since the attacks of September 11, 2001, the Department of Defense (DOD) has reported spending $191 billion through May 2005 to conduct the Global War on Terrorism (GWOT). On an ongoing basis, DOD compiles and reports information on the incremental costs of the war, and uses these data in preparing future funding requests. To assist Congress in its oversight of war spending, GAO assessed (1) whether DOD's reported war costs are based on reliable data, (2) the extent to which DOD's existing financial management policy is applicable to war spending, and (3) whether DOD has implemented cost controls as operations mature. GAO focused primarily, but not exclusively, on fiscal year 2004 reported costs--the latest full year of data available at the time of GAO's review.

GAO found numerous problems in DOD's processes for recording and reporting costs for GWOT, raising significant concerns about the overall reliability of DOD's reported cost data. As a result, neither DOD nor Congress can reliably know how much the war is costing and details on how appropriated funds are being spent, or have historical data useful in considering future funding needs. On the basis of GAO's work, DOD is taking steps to improve its cost reporting. Factors affecting the reliability of DOD's reported costs include long-standing deficiencies in DOD's financial systems, the lack of a systematic process to ensure that data are correctly entered into those systems, inaccurately reported costs, and difficulties in properly categorizing costs. In at least one case, reported costs may be materially overstated. Specifically, DOD's reported obligations for mobilized Army reservists in fiscal year 2004 were based primarily on estimates rather than actual information and differed from related payroll information by as much as $2.1 billion, or 30 percent of the amount DOD reported in its cost report. In addition, GAO found inadvertent double counting in the Navy's and Marine Corps' portion of DOD's reported costs amounting to almost $1.8 billion from November 2004 through April 2005. Because it was not feasible to examine all reported costs and significant data reliability problems existed, GAO was not able to determine the extent that total costs were misstated. Further complicating the data reliability issue is the fact that DOD has not updated its policy to address GWOT spending. Instead, DOD is using its existing financial management regulation for funding contingency operations, although it was developed and structured to manage the costs of small-scale contingency operations. GAO has noted that specific provisions of the existing policy conflict with the needs of GWOT. One conflict concerns the use of supplemental funds for base support activities at home stations. DOD's financial management regulation administratively precludes such use, but military service officials have spent billions of dollars in supplemental funds on these activities. Some of this spending appears to directly support the war, but some does not. DOD is currently updating its regulation on the basis of GAO's work. While individual commands have taken steps to control costs and DOD policy generally advises its officials of their financial management responsibilities to ensure the prudent use of contingency funding, DOD has not established guidelines that would require all commands involved in GWOT to take steps to control costs and to keep DOD informed of those steps and their success. For example, the commander of coalition forces in Iraq has unilaterally set a 10 percent cost reduction target for fiscal year 2005 but the details are not widely known outside the command. With the growth in GWOT costs, there is a need to ensure that all commands seek to control costs, including the need to review and rationalize related requirements. Until the department establishes guidelines on cost controls and is routinely informed about the types of controls and their impact on costs, it cannot be sure that all that can be done to control costs is being done.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To ensure that Congress and the Department of Defense can reliably know how much the war is costing, the Secretary of Defense should direct the Secretaries of the military services to undertake a series of steps to ensure that reported GWOT costs are accurate and reliable, to include: (1) developing a systematic process to review reported obligations; (2) developing and monitoring procedures to ensure that obligations are categorized correctly; (3) using actual data whenever possible and, when not possible, to take steps to allow the development of actual data; and (4) ensuring that actions previously agreed to in response to audits have been implemented effectively.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: DOD has completed implementation of this recommendation through the execution of new guidance and procedures for collecting and reporting cost of war information. The Deputy Chief Financial Officer, in the Office of the Under Secretary of Defense-Comptroller issued new guidance, entitled "Analysis of Contingency Operations Costs" designed to (1) improve the reliability of reported costs; (2) further define criteria for analysis of contingency operation costs; and (3) establish the requirement for each DOD Component to identify all alternate data sources for reporting costs not originating in the accounting systems.

    Recommendation: To ensure that Congress and the Department of Defense can reliably know how much the war is costing, the Secretary of Defense should direct the Office of the Under Secretary of Defense (Comptroller) to oversee the above service efforts as well as to develop a systematic process to review and test the reliability of the overall GWOT cost reports.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: DOD has completed implementation of this recommendation through the execution of new guidance and procedures for collecting and reporting cost of war information and the Office of the Under Secretary of Defense-Comptroller is actively overseeing the preparation of GWOT cost reports. The guidance, entitled "Analysis of Contingency Operations Costs" is designed to(1) improve the reliability of reported costs; (2) further define criteria for analysis of contingency operation costs; and (3) establish the requirement for each DOD Component to identify all alternate data sources for reporting costs not originating in the accounting systems. It includes procedures for each DOD Component to perform monthly variance analysis of contingency costs, based on the criteria established in the guidance, and provide an explanation when the costs exceed parameters established in the guidance.

    Recommendation: To ensure that Congress and the Department of Defense can reliably know how much the war is costing, the Secretary of Defense should direct the Secretary of the Army to take the following steps: (1) develop and implement formal procedures to guide the monthly reporting of GWOT military personnel costs; (2) formalize the Army's management review of military personnel cost information submitted for the GWOT cost report; (3) use information from the DOD payroll system, where applicable, to identify and report GWOT military personnel cost information; and (4) review and simplify the numbers of elements of resource currently used to identify, categorize, and record contingency costs.

    Agency Affected: Department of Defense

    Status: Open

    Comments: DOD has implemented parts of this recommendation, but not all aspects. We are unable to close this recommendation until all parts are completed.

    Recommendation: To ensure that the military services and other DOD agencies make informed judgments on the appropriate use of GWOT funding authorities that are consistent with DOD guidance and meet the needs of GWOT, the Secretary of Defense should expand DOD's financial management regulation for contingency operations to include contingencies as large as the current GWOT. At a minimum, the updated policy should address the budgeting, cost reporting, and spending associated with investment and base operation and support costs at the home stations of units that support GWOT.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In September 2005, DOD published revised guidance to its DOD Financial Management Regulation, Volume 12, Chapter 23 "Contingency Operations" to address large scale contingencies. It also updated its policy to clarify budgeting, cost reporting, and spending associated with investment and base operation support costs.

    Recommendation: To ensure that GWOT mission needs are being met while applying appropriate cost controls the Secretary of Defense should direct the Office of the Under Secretary of Defense (Comptroller) to establish guidelines on cost controls, including identifying what types of cost controls are available to the services.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: DOD did not agree with our recommendation to have the Office of the Under Secretary of Defense (Comptroller) establish guidelines on cost controls. DOD stated that field commanders are the correct echelon to adopt and emphasize cost controls during a contingency; that it relies on the judgment of the combatant commander in the theater of operations to manage resources at their disposal to effectively safeguard personnel and perform the mission; and that implementing administrative funding controls could have a detrimental effect on the commanders' ability to make critical decisions in the theater.

    Recommendation: To ensure that GWOT mission needs are being met while applying appropriate cost controls the Secretary of Defense should direct the Office of the Under Secretary of Defense (Comptroller) to require that the services routinely keep the Comptroller's office informed about the types of controls and their impact on costs, and share information on cost control efforts.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: Similarly, DOD did not agree with our recommendation, believing that field commanders are the appropriate echelon to adopt and emphasize cost controls during a contingency.

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