National Defense:

Opportunities to Improve Controls over Department of Defense's Overseas Contingency Operations Cost Reporting

GAO-10-562R: Published: May 27, 2010. Publicly Released: May 27, 2010.

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From September 2001 through January 2010, Congress provided about $1.023 trillion in supplemental and annual appropriations in response to Department of Defense (DOD) requests for funding to support overseas contingency operations (OCO). In March 2010, DOD reported obligations of about $825 billion attributed to OCO for the period September 2001 through January 2010. DOD uses available cost-related information, along with other financial information, to evaluate OCO trends, formulate OCO funding requests, and monitor the costs of overseas operations. In addition, Congress considers this information in its deliberations on DOD requests for additional OCO funding. Our prior reviews have found the financial information in DOD's monthly OCO reports to be of questionable reliability. For example, we identified problems in DOD's processes for recording and reporting obligations, such as not including all OCO costs and the lack of a systematic process for ensuring that data are correctly entered into those systems. Consequently, we concluded DOD's reported OCO costs should be considered approximations. Based on our prior work, we made a number of recommendations to improve the reliability of OCO reported costs, with which DOD generally concurred. Consistent with our recommendations, DOD has taken steps intended to improve OCO cost reliability, such as clarifying cost category definitions and requiring military services (Army, Navy, Air Force, and Marine Corps) and other DOD components to analyze variances in reported OCO costs. Further, in fiscal year 2009, DOD initiated the Contingency Operations Reporting and Analysis Service (CORAS), an automated system and database through which DOD intended to provide more transparent, accurate, and timely reporting on costs attributed to OCO. Prior to the CORAS initiative, DOD had relied on manual procedures for accumulating data and reporting on costs attributed to OCO from the military services. With CORAS, the intent was to (1) eliminate such manual practices where feasible and instead use automated processes to retrieve and accumulate key financial OCO data from the military services' financial systems using a DOD-wide database and (2) add the capability to report on OCO-related funding (appropriations) and disbursements, as well as obligations. To determine whether DOD had designed adequate internal controls over reporting of OCO cost-related data, we reviewed internal control criteria related to reliably reporting financial data. We reviewed DOD and military service standard operating procedures and practices in comparison with federal and department standards and guidance to determine whether they contained key controls.

While DOD's new cost reporting system and database, CORAS, was intended to provide more transparent, accurate, and timely reporting on costs that DOD attributes to OCO, we found that the design of internal control for reviewing and reporting OCO data did not contain key internal control activities. Specifically, we found the following: (1) In fiscal year 2009, the military services did not have clear, detailed written procedures for reviewing the reliability of OCO reported costs including steps for conducting and documenting validation activities such as reconciliations between CORAS data and OCO data in the services' official accounting systems; (2) DOD's financial management regulation on accounting for contingency operations9 did not clearly define validation activities--such as reconciliations--require documentation of internal control activities, or require the DOD Comptroller to monitor the accuracy of OCO reported data; and (3) DOD's implementation guidance for OCO reporting obscures the accuracy of current and prior-period OCO cost reporting by directing the military services to include, in the monthly data for the current period, adjustments for omissions and errors that occurred in prior periods.

Status Legend:

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  • 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: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), in coordination with the military service secretaries (as appropriate), to revise DOD requirements in FMR 7000.14-R, Volume 12, Chapter 23, Contingency Operations, to provide clear, detailed guidance on (1) conducting reconciliations and other validations and (2) documenting military service-level reviews and DOD Comptroller-level reviews.

    Agency Affected: Department of Defense

    Status: Open

    Comments: In commenting on the draft report, DOD stated it is in process of revising the FMR 7000.14-R Vol 12, Chap. 23, Contingency Operations to require components to document reconciliations and reviews fro monthly Cost of War reporting. According to the DODIG, revision is expected to be completed by October 2011.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), in coordination with the military service secretaries (as appropriate), to establish Navy procedures to include specific steps required to validate data in the OCO report including variance analysis and reconciliations, and retain documentation of the activities performed and related results.

    Agency Affected: Department of Defense

    Status: Open

    Comments: In commenting on the draft report, DOD concurred with the recommendation and cited action in process to revise its Financial Management Regulation accordingly. However, it is not clear whether this action will provide sufficient Navy-specific procedural requirements.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), in coordination with the military service secretaries (as appropriate), to revise the Marine Corps and Air Force procedures to include specific steps required to validate data in the OCO report including reconciliations and retain documentation of the activities performed and related results.

    Agency Affected: Department of Defense

    Status: Open

    Comments: In commenting on the draft report, DOD concurred with the recommendation and cited action in process to revise its Financial Management Regulation accordingly. However, it is not clear whether this action will provide sufficient Marine Corps and Air Force-specific procedural requirements.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), in coordination with the military service secretaries (as appropriate), to revise the Army procedures to include specific steps required to retain documentation of the activities performed and related results.

    Agency Affected: Department of Defense

    Status: Open

    Comments: In commenting on the draft report, DOD concurred with the recommendation and cited action in process to revise its Financial Management Regulation accordingly. However, it is not clear whether this action will provide sufficient Army-specific procedural requirements.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller), in coordination with the military service secretaries (as appropriate), to revise DOD Comptroller guidance to provide clear, detailed steps for identifying and separately disclosing adjustments related to prior-period omissions or errors in current month reporting.

    Agency Affected: Department of Defense

    Status: Open

    Comments: In its comments on the draft report, DOD stated it would explore the possibility of separating current month obligations from prior-period omissions or errors in the monthly Cost of War reports.

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