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Testimony: 

Before the Subcommittee on National Security, Emerging Threats, and 
International Relations, Committee on Government Reform, House of 
Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 2:00 p.m. EDT: 

Tuesday, July 18, 2006: 

Global War on Terrorism: 

Observations on Funding, Costs, and Future Commitments: 

Statement of David M. Walker Comptroller General of the United States: 

GAO-06-885T: 

GAO Highlights: 

Highlights of GAO-06-885T, a testimony to the Chairman, Subcommittee on 
National Security, Emerging Threats, and International Relations, 
Committee on Government Reform, House of Representatives 

Why GAO Did This Study: 

After the terrorist attacks of September 11, 2001, the President 
announced a Global War on Terrorism (GWOT), requiring the collective 
instruments of the entire federal government to counter the threat of 
terrorism. Ongoing military and diplomatic operations overseas, 
especially in Iraq and Afghanistan, constitute a key part of GWOT. 
These operations involve a wide variety of activities such as combating 
insurgents, civil affairs, capacity building, infrastructure 
reconstruction, and training military forces of other nations. The U.S. 
has reported substantial costs to date for GWOT related activities and 
can expect to incur significant costs for an unspecified time in the 
future, requiring decision makers to consider difficult trade-offs as 
the nation faces increasing long-range fiscal challenges. 

GAO has issued several reports on current and future financial 
commitments required to support GWOT military operations, as well as 
diplomatic efforts to stabilize and rebuild Iraq. This testimony 
discusses (1) the funding Congress has appropriated to the Department 
of Defense (DOD) and other U.S. government agencies for GWOT-related 
military operations and reconstruction activities since 2001; (2) costs 
reported for these operations and activities and the reliability of 
DODís reported costs, and (3) issues with estimating future U.S. 
financial commitments associated with continued involvement in GWOT. 

What GAO Found: 

Since 2001, Congress has appropriated about $430 billion to DOD and 
other government agencies for military and diplomatic efforts in 
support of GWOT. This funding has been provided through regular 
appropriations as well as supplemental appropriations, which are 
provided outside of the normal budget process. Since September 2001, 
DOD has received about $386 billion for GWOT military operations. In 
addition, agencies including the Department of State, DOD, and the 
Agency for International Development have received since 2001 about $44 
billion to fund reconstruction and stabilization programs in Iraq 
($34.5 billion) and Afghanistan ($9 billion) and an additional $400 
million to be used in both Iraq and Afghanistan. 

Since 2001, U.S. government agencies have reported significant costs 
associated with GWOT, but GAO has concerns with the reliability of 
DODís reported cost data. Through April 2006, DOD has reported about 
$273 billion in incremental costs for GWOT-related operations 
overseasócosts that would not otherwise have been incurred. DODís 
reported GWOT costs and appropriated amounts differ generally because 
DODís cost reporting does not capture some items such as intelligence 
and Army modular force transformation. Also, DOD has not yet used 
funding made available for multiple years, such as procurement and 
military construction. GAOís prior work found numerous problems with 
DODís processes for recording and reporting GWOT costs, including long-
standing deficiencies in DODís financial management systems and 
business processes, the use of estimates instead of actual cost data, 
and the lack of adequate supporting documentation. As a result, neither 
DOD nor the Congress reliably know how much the war is costing and how 
appropriated funds are being used or have historical data useful in 
considering future funding needs. GAO made several recommendations to 
improve the reliability and reporting of GWOT costs. In addition to 
reported costs for military operations, U.S. agencies have obligated 
about $23 billion of $30 billion received for Iraqi reconstruction and 
stabilization, as of January 2006. 

U.S commitments to GWOT will likely involve the continued investment of 
significant resources, requiring decision makers to consider difficult 
trade-offs as the nation faces increasing fiscal challenges in the 
years ahead; however, predicting future costs is difficult as they 
depend on several direct and indirect cost variables. For DOD, these 
include the extent and duration of military operations, force 
redeployment plans, and the amount of damaged or destroyed equipment 
needed to be repaired or replaced. Future cost variables for other U.S. 
government agencies include efforts to help form governments and build 
capable and loyal security forces in Afghanistan and Iraq, and meet the 
healthcare needs of veterans, including providing future disability 
payments and medical services. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-885]T. 

To view the full product, including scope and methodology, click on the 
link above. For more information, contact Sharon L. Pickup at (202) 512-
9619 or pickups@gao.gov. 

[End of Section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss our work to date on the 
funding, reported costs,[Footnote 1] and future commitments of the 
Global War on Terrorism (GWOT) overseas. I recently testified on the 
National Strategy for Victory in Iraq, in which I stated that there are 
some positive attributes to the new strategy, including a clear purpose 
and scope.[Footnote 2] The strategy also identifies U.S. involvement in 
Iraq as a "vital national interest and the central front in the war on 
terror." However, among its deficiencies is the absence of current and 
future cost data for Iraq. After the terrorist attacks of September 11, 
2001, the President announced a Global War on Terrorism, requiring the 
collective instruments of the entire federal government to counter the 
threat of terrorism. The United States and its partners are attacking 
terrorists both at home and abroad, denying terrorists sanctuary and 
sponsorship, disrupting the financing of terror, and building and 
maintaining a united global front against terrorism. Ongoing military 
and diplomatic operations overseas constitute a key part of GWOT and 
involve a wide variety of activities such as combating insurgents, 
civil affairs, capacity building, reconstruction operations, and 
training military forces of other nations. These operations are 
currently focused on Iraq and Afghanistan. Clearly, costs to the United 
States in financial terms in no way compare to the loss of human life. 
To date, over 2,800 military personnel have died as a result of GWOT 
operations and many more have been wounded in action. 

As I have highlighted in previous testimony, our nation is not only 
threatened by external security threats, but also from within by 
growing fiscal imbalances due primarily to known demographic trends and 
rising health care costs.[Footnote 3] These trends are compounded by 
the near-term deficits arising from new discretionary and mandatory 
spending as well as lower revenues as a share of the economy. If left 
unchecked, these fiscal imbalances will ultimately impede economic 
growth, have an adverse effect on our future standard of living, and in 
due course affect our ability to address key national and homeland 
security needs. These factors create the need to make choices that will 
only become more difficult and potentially disruptive the longer they 
are postponed. The United States' commitment to GWOT will likely 
involve the continued investment of significant resources, requiring 
decision makers to consider difficult trade-offs as the nation faces 
increasing fiscal challenges, including a growing debt burden and 
interest costs on such debt, in the years ahead. 

My testimony today will focus on the financial commitments required to 
support military operations associated with GWOT in Iraq and 
Afghanistan, as well as diplomatic efforts to stabilize and rebuild 
Iraq. Specifically, I will discuss (1) the funding Congress has 
appropriated to the Department of Defense (DOD) and other U.S. 
government agencies for GWOT-related military operations and 
reconstruction and stabilization activities since 2001, (2) costs 
reportedly incurred for these operations and activities and the 
reliability of DOD's reported costs, and, (3) issues with estimating 
the future financial commitments associated with the United States' 
continued involvement in GWOT. 

In preparing this testimony, we have relied on previously issued GAO 
reports[Footnote 4] and testimonies on the costs and other aspects of 
military operations and reconstruction and stabilization activities, as 
well as a large body of ongoing work on GWOT-related topics. We 
performed our work in accordance with generally accepted government 
auditing standards. 

Summary: 

Since the beginning of GWOT in 2001, Congress has appropriated about 
$430 billion to DOD and other U.S. government agencies for military and 
diplomatic efforts in support of GWOT. This funding has been provided 
through regular appropriations as well as supplemental appropriations, 
which are provided outside of the normal budget process. Since 
September 2001, DOD has received about $386 billion for GWOT military 
operations, including funding for homeland defense through Operation 
Noble Eagle. This $386 billion includes "bridge" funding in fiscal 
years 2005 and 2006 to continue GWOT operations until supplemental 
appropriations could be enacted. In addition, U.S. government agencies, 
including the Department of State (State), DOD, and the United States 
Agency for International Development (USAID), have received about $44 
billion since 2001 to fund reconstruction and stabilization programs in 
Iraq ($34.5 billion) and Afghanistan ($9 billion) with an additional 
$400 million for the Commanders' Emergency Response Program in Iraq and 
Afghanistan. For fiscal year 2007, DOD has requested another $50 
billion in bridge funding for military operations and other U.S. 
government agencies have requested $771 million for reconstruction and 
stabilization activities. 

Since 2001, U.S. government agencies have reported hundreds of billions 
of dollars in costs associated with GWOT; however, we have previously 
reported on our concerns with DOD's data reliability and cost 
reporting.[Footnote 5] DOD has reported incremental costs of about $273 
billion for overseas GWOT-related activities through April 2006. This 
amount includes almost $215 billion for operations in Iraq and almost 
$58 billion for operations in Afghanistan, the Horn of Africa, the 
Philippines, and elsewhere.[Footnote 6] These reported costs do not 
include obligations for intelligence and the Army's modular force 
transformation. The difference between the amount appropriated and 
DOD's reported costs through April 2006 can generally be attributed to 
unreported costs for intelligence and Army modular force 
transformation, as well as funding for procurement, military 
construction, and research, development, test, and evaluation, which 
can be obligated over multiple years, that has not yet been obligated. 
However, our prior work has found numerous problems with DOD's 
processes for recording and reporting costs for GWOT, including long- 
standing deficiencies in DOD's financial management systems and 
business processes, the use of estimates instead of actual costs, and 
the lack of adequate supporting documentation. For example, we found 
inadvertent double counting in a portion of DOD's reported costs 
amounting to almost $1.8 billion from November 2004 through April 2005. 
Furthermore, DOD's reported costs for GWOT operations overseas have 
grown steadily in each fiscal year through fiscal year 2005--from about 
$105 million in fiscal year 2001, to begin preparation for operations 
in Afghanistan, to about $81.5 billion in fiscal year 2005. With this 
steady growth, it is important to ensure that all commands seek to 
control costs to the extent possible. In addition to reported costs for 
military operations, about $23 billion has been obligated for Iraqi 
reconstruction and stabilization, as of January 2006. However, U.S. 
government agencies, other than DOD, do not formally track all GWOT 
costs. This, along with DOD's cost reliability and reporting problems, 
make it difficult for the decision makers to reliably know how much the 
war is costing, to determine how appropriated funds are being spent, 
and to use historical data to predict future trends. 

The United States' commitments to GWOT will likely involve the 
continued investment of significant resources, requiring decision 
makers to consider difficult trade-offs as the nation faces increasing 
fiscal challenges in the years ahead. Predicting future costs will be 
difficult because they are dependent on several direct and indirect 
cost variables; however, they are likely to be in the hundreds of 
billions of dollars. Future cost variables for DOD include the extent 
and duration of military operations, the facilities that will be needed 
to support servicemembers overseas, force redeployment plans and the 
costs to repair and replace damaged or destroyed equipment used during 
operations. Future cost variables for other U.S. government agencies 
include the efforts to help form national and provincial governments 
and build management capacity as well as capable and loyal security 
forces in both Afghanistan and Iraq. There will also be further need 
for funding reconstruction activities to restore, sustain, and protect 
critical infrastructure. Another long-term cost associated with GWOT 
will be caring for veterans. The Department of Veterans' Affairs (VA) 
estimated that more than 100,000 GWOT veterans are currently using VA 
facilities, and future healthcare costs will likely increase as more 
servicemembers require treatment from injuries and mental health 
conditions such as post-traumatic stress disorder. There will also be 
future commitments associated with payments to those veterans with long-
term disabilities. With GWOT costs likely continuing for the 
foreseeable future, decision makers will have to carefully weigh 
priorities and make difficult financial decisions. In assessing trade- 
offs, we would encourage DOD to consider moving other GWOT costs into 
the baseline budget, as it has done with Operation Noble Eagle. This is 
consistent with our prior suggestion that, once an operation reaches a 
known level of effort and costs are more predictable, more funding 
should be built into the baseline budget. 

Background: 

The United States is engaged in a comprehensive effort to protect and 
defend the homeland and defeat terrorism. Using all instruments of 
national power, the United States and its partners are attacking 
terrorists both at home and abroad, denying terrorists sanctuary and 
sponsorship, disrupting the financing of terror, and building and 
maintaining a united global front against terrorism. After the 
terrorist attacks of September 11, 2001, military operations began with 
Operation Noble Eagle, which is aimed at defending the U.S. homeland 
from terrorist attacks, and Operation Enduring Freedom, which takes 
place principally in and around Afghanistan, but also covers additional 
operations in the Horn of Africa, the Philippines, and elsewhere. In 
2003, DOD began Operation Iraqi Freedom, which takes place in and 
around Iraq. DOD and the military services are responsible for carrying 
out these operations. Recently, DOD reported about 132,000 U.S. 
military personnel are deployed to Iraq and about 15,000 are deployed 
to Afghanistan. 

Diplomatic efforts are also underway to rebuild areas in and around 
Iraq and Afghanistan, as well as to assist these countries in 
rebuilding their governments and creating secure nations. State is 
responsible for all U.S. activities in Iraq except security and 
military operations. Other U.S. government agencies also play 
significant roles in this reconstruction effort, including the USAID 
and the U.S. Army Corps of Engineers. The Multi-National Security 
Transition Command-Iraq, which operates under the Multi-National Force- 
Iraq, leads coalition efforts to train, equip, and organize Iraqi 
security forces. In Afghanistan, USAID manages the majority of 
reconstruction programs and operations. Other U.S. agencies provide 
additional assistance, including DOD. Members of the North Atlantic 
Treaty Organization also play a key role in training and equipping 
Afghan forces. 

Since 2001, DOD has prepared reports on the costs of its involvement in 
GWOT. The costs of military contingency operations are referred to as 
"incremental costs," which are costs that are directly attributable to 
the operation and would not otherwise have been incurred, were it not 
for the operation. Specifically, the costs are above and beyond 
baseline training, operations, and personnel costs. Incremental costs 
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 for those personnel serving in Operation Iraqi Freedom 
and Operation Enduring Freedom; the cost of transporting personnel and 
materiel to the theater of operation and supporting them upon arrival; 
and the operating 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. 

DOD tracks the obligations incurred to support GWOT and produces a 
monthly cost report, which is distributed throughout the department and 
used by senior DOD leadership, along with other information, in 
discussing the cost of the war. It is also used in formulating future 
budget requests to fund GWOT. The report identifies the monthly and 
cumulative incremental GWOT obligations. DOD reports the costs by 
service, defense agency, contingency operation, and appropriation. On 
October 1, 1998, DOD implemented a standard contingency cost breakdown 
structure consisting of 55 cost categories to improve contingency cost 
reporting consistency between its multiple services and agencies. 
Examples of cost categories include facilities/base support and 
airlift. Furthermore, this cost breakdown structure was also to 
facilitate future efforts to understand and interpret differences 
between estimated and actual costs. DOD Financial Management Regulation 
7000.14-R, volume 12, chapter 23, generally establishes financial 
policy and procedures related to DOD contingency operations. The 
regulation incorporates the common cost categories and multiple 
subcategories, which were established in 1998 and updated in September 
2005, that are used to report DOD's monthly GWOT costs. 

Obligations are the foundation of all GWOT cost reporting. For example, 
operation and maintenance obligations in support of GWOT represent tens 
of thousands, if not hundreds of thousands, of individual transactions 
ranging in value from one penny to millions of dollars. When 
obligations are incurred, the military services enter them into their 
accounting systems using accounting codes. Using the Army as an 
example, an Army budget activity, such as an installation or unit, 
initially obligates funds for acquired goods and services by using the 
Standard Army Accounting Classification Code. An obligation entry 
includes information on the funding source; the operational mission, 
such as Operation Iraqi Freedom; and the category of cost. The cost 
categories are established by the services. 

Funding for the Global War on Terrorism: 

Since 2001, Congress has appropriated about $430 billion to DOD and 
other U.S. government agencies for military operations and 
reconstruction and stabilization activities supporting GWOT. Much of 
the funding has come in the form of supplemental appropriations. Some 
funding has also come through the normal baseline budget appropriated 
to the departments. For example, in fiscal years 2005 and 2006, DOD was 
provided so-called "bridge" funding--$25 billion and $50 billion, 
respectively--through its regular appropriation, which was intended to 
fund operations from the beginning of the fiscal year until a 
supplemental appropriation could be enacted. Also, funds are 
appropriated to the various appropriations accounts for each department 
and are not specifically designated for operations in Iraq or 
Afghanistan. Since September 2001, DOD has received about $386 billion 
to fund military operations supporting GWOT. In addition, about $44 
billion has been made available to U.S. agencies--including DOD, USAID, 
and State--for reconstruction and stabilization efforts in Iraq ($34.5 
billion) and Afghanistan ($9 billion) with an additional $400 million 
for use in Iraq and Afghanistan through the Commander's Emergency 
Response Program. These efforts include training and equipping of 
security forces and repairing critical infrastructure. (See table 1.) 
For fiscal year 2007, DOD has requested another $50 billion in bridge 
funding for military operations and other U.S. government agencies have 
requested $771 million for reconstruction and stabilization activities. 

Table 1: Total GWOT Military Operations and Reconstruction and 
Stabilization Funding for Fiscal Years 2001 through 2006: 

Budget authority in millions. 

Military operations[A]; 
FY 2001: 16,623; 
FY 2002: 17,749; 
FY 2003: 73,546; 
FY 2004: 61,400; 
FY 2005: 100,888[B]; 
FY 2006: 116,022; 
Total: 386,228. 

Reconstruction and stabilization[C]; 
FY 2001: [Empty]; 
FY 2002: 500; 
FY 2003: 4,800; 
FY 2004: 21,800; 
FY 2005: 9,100; 
FY 2006: 7,730; 
Total: 43,930. 

Total; 
FY 2001: 16,623; 
FY 2002: 18,249; 
FY 2003: 78,346; 
FY 2004: 83,200; 
FY 2005: 109,988; 
FY 2006: 123,722; 
Total: 430,128. 

Source: GAO. 

[A] GAO analysis based on congressional appropriations acts. 

[B] Of this total, $25 billion was available to DOD in FY 2004 for 
military operations. 

[C] GAO analysis for Iraq and Congressional Research Service reports 
for Afghanistan. Reconstruction and Stabilization funds are for Iraq 
and Afghanistan only. 

[End of table] 

The $386 billion DOD has received to fund military operations 
supporting GWOT also includes funding for homeland defense under 
Operation Noble Eagle. This operation was funded through supplemental 
appropriations for DOD until fiscal year 2005, when it was moved into 
DOD's baseline budget. This movement is consistent with our prior 
suggestion that, once an operation reaches a known level of effort and 
costs are more predictable, more funding should be built into the 
baseline budget. This $386 billion also includes funding for DOD's 
intelligence programs, as well as other DOD initiatives, such as the 
Army's efforts to transform its traditional division-based force into a 
more rapidly deployable modular force that is better able to conduct 
joint and expeditionary operations. Beginning in fiscal year 2007, the 
Army's modular transformation will be included in DOD's regular 
baseline appropriation. Prior to passage of the most recent 
supplemental appropriation, military service officials told us that 
they had already spent the $50 billion bridge that was included in the 
fiscal year 2006 defense appropriations act and had started to use 
baseline appropriations for GWOT activities, as well as undertake cost- 
cutting measures until the supplemental was enacted.[Footnote 7] DOD 
has requested another $50 billion in bridge funding as part of its 
fiscal year 2007 budget. 

In addition to the funding provided to support military operations, 
Congress has appropriated about $44 billion to DOD and other U.S. 
government agencies to support important reconstruction and 
stabilization activities in Iraq and Afghanistan since 2001. These 
activities support GWOT objectives because they help train and equip 
local security forces, and help establish the foundations of a sound 
economy with the capacity to deliver essential services, such as clean 
water and reliable electricity. A growing economy also provides 
employment opportunities as an alternative to recruitment efforts made 
by insurgents. Since 2003, about $34.5 billion[Footnote 8] has been 
provided to support these types of activities in Iraq and, since 
September 2001, about $9 billion to support these activities in 
Afghanistan. The recent supplemental appropriation also provided an 
additional $400 million for the Commander's Emergency Response Program 
for use in Iraq and Afghanistan. This would bring total reconstruction 
and stabilization funding to over $44 billion. 

Funding for reconstruction and stabilization efforts has supported the 
following activities, among others: 

* Training and equipping of Iraqi security forces. Since fiscal year 
2003, about $11.7 billion has been made available for U.S. security and 
justice programs in Iraq, including funds to train and equip the Iraqi 
security forces. Over the past several months, the Secretaries of State 
and Defense have cited progress in developing Iraqi security forces, 
and reported that the numbers of operational army personnel and trained 
and equipped police have increased from about 142,000 in March 2005 to 
about 266,000 in June 2006. However, as we have previously reported, 
the number of trained and equipped forces does not provide reliable 
information on their capabilities.[Footnote 9] In addition, the 
administration received $3.0 billion in the recent fiscal year 2006 
supplemental appropriation to continue moving the Iraqi security forces 
toward stand-alone operational capacity. 

* Restoring Iraq's essential services. Since fiscal year 2003, about 
$10.5 billion has been made available for restoring essential services 
in Iraq, specifically activities in the oil, water, health, and 
electricity sectors. U.S. reconstruction efforts have helped increase 
electricity generation capacity, restart crude oil production, and 
restore some water treatment plants. However, key reconstruction goals 
in the oil, electricity, and water sector have yet to be achieved due 
to security, management, and sustainment challenges in U.S.-funded 
projects. The administration received an additional $1.5 billion in the 
recent supplemental appropriation for reconstruction assistance to 
Iraq, including $50 million to USAID's Iraq Community Action Program 
and $50 million for democracy, rule of law, and reconciliation 
programs. 

* Training and equipping the Afghan national army. The United States 
led the international effort to train and equip the Afghan national 
army, which is crucial to both long-term security and U.S. counter- 
terror efforts. About 26,500 troops have been trained and equipped and 
the defense force is projected to reach up to 70,000 military and 
civilian personnel, according to State reporting. The administration 
has received $1.9 billion in the fiscal year 2006 supplemental 
appropriation to further prepare Afghan security forces to operate 
without U.S. support. 

The U.S. government also funds a variety of other programs that 
indirectly support GWOT. For example, Congress provides funding for 
security assistance on a worldwide basis to help train or equip foreign 
security forces (military and police). In fiscal year 2006, Congress 
provided an estimated $4.5 billion for two security assistance 
programs, the International Military Education and Training program and 
Foreign Military Financing program. In addition, the U.S. government 
reported costs of $1.2 billion on worldwide public diplomacy programs 
in fiscal year 2005. 

The U.S. Has Reported Hundreds of Billions in Costs of Ongoing Military 
and Reconstruction and Stabilization Operations, but Data Weaknesses 
Make It Difficult to Reliably Know Cost of Military Operations: 

Since GWOT began in 2001, U.S. government agencies have reported 
hundreds of billions of dollars in costs for overseas military and 
reconstruction operations; however, as we have previously reported, 
data reliability and reporting concerns make it difficult to know DOD's 
total GWOT costs. Since 2001, DOD has reported costs of about $273 
billion on overseas GWOT military operations through the end of April 
2006. The department's reported costs have grown steadily from a 
reported about $105 million in fiscal year 2001, to begin preparations 
for operations in Afghanistan, to over $81.5 billion in fiscal year 
2005. U.S government agencies have reported costs of about $23 billion 
for Iraqi reconstruction and stabilization. However, U.S. government 
agencies, other than DOD, do not formally track all GWOT costs. This, 
along with DOD's cost reliability and reporting problems, make it 
difficult for the decision makers to reliably know how much the war is 
costing, to determine how appropriated funds are being spent, and to 
use historical data to predict future trends. 

DOD's Reported Costs for Military Operations: 

Since the attacks of September 11, 2001, DOD has reported cumulative 
incremental costs of about $273 billion, through the end of April 2006, 
on military operations overseas in support of GWOT. This amount 
includes almost $215 billion for operations in Iraq and almost $58 
billion on operations in Afghanistan, the Horn of Africa, the 
Philippines, and elsewhere. This does not include obligations for 
intelligence activities and the Army's modular force transformation. 
The difference between the amount appropriated and DOD's reported costs 
through April 2006 can generally be attributed to these unreported 
obligations for intelligence and Army modular force transformation, as 
well as funding for procurement, military construction, and research, 
development, test, and evaluation, which can be obligated over multiple 
years, that has not yet been obligated. In addition to the costs for 
overseas operations, DOD has also reported obligations of $27.7 billion 
through April 2006 for operations in defense of the homeland U.S., 
under Operation Noble Eagle. 

To date, the largest reported costs for the overseas GWOT operations 
have typically been associated with two of DOD's appropriations 
accounts--operation and maintenance and military personnel. Operation 
and maintenance expenses cover a number of things, such as operational 
support for housing, food, and services; transportation to move people 
and supplies and equipment into the theaters; and the repair of 
equipment. Military personnel expenses include military pay and 
allowances for mobilized reservists, as well as the special payments or 
allowances, such as imminent danger pay and the family separation 
allowance that all qualifying military personnel receive. While 
expenses for operation and maintenance, and military personnel have 
tended to be among the highest, DOD has also reported incurring costs 
for procurement of equipment and other items. 

As we have reported in the past, we have 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. As we 
reported in September 2005, we found numerous problems with DOD's 
processes for recording and reporting costs for GWOT[Footnote 10]. 
Factors affecting the reliability of DOD's reported costs include long- 
standing deficiencies in DOD's financial management systems and 
business processes, the use of estimates instead of actual costs, and 
the lack of supporting documentation. In at least one case, our work 
showed that some reported costs may have been materially overstated. 
Specifically, reported obligations for mobilized Army reservists in 
fiscal year 2004 were based primarily on estimated 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, we found inadvertent double counting in a portion 
of DOD's reported costs amounting to almost $1.8 billion from November 
2004 through April 2005. 

In our September 2005 report, we made several recommendations to the 
Secretary of Defense to (1) undertake a series of steps to ensure that 
the services' reported GWOT costs are accurate and reliable; (2) direct 
the Office of the Under Secretary of Defense (Comptroller) to oversee 
the services' efforts and to develop a systematic process to review and 
test the reliability of the overall GWOT reports; (3) expand the 
department's financial management regulation for contingency operations 
to include contingencies as large as GWOT; and (4) establish guidelines 
to control costs and require the services to keep the Comptroller's 
office informed of their efforts in this area. 

Since the time of our report, we know that DOD has taken some measures 
in response to our recommendations intended to improve the reliability 
and accuracy of its cost reports, such as requiring the military 
services to identify variances in reported costs from month to month, 
and determine the causes. However, our initial review suggests that DOD 
and the services have yet to take sufficient action to fully implement 
these measures and that certain weaknesses in cost reporting continue 
to exist. Without aggressive action on the part of DOD and the 
services, the reliability of cost reports will remain in question. 
Also, there has been an ongoing issue with the timeliness of DOD's cost 
reporting. For example, the cost reports for October through December 
2005 were not issued until March 2006. To address this long-standing 
problem, Congress, in the National Defense Authorization Act for Fiscal 
Year 2006, directed that DOD provide the cost reports to GAO no later 
than 45 days after the end of the month being reported.[Footnote 11] 
DOD has now provided GAO with the March and April cost reports on 
schedule. 

DOD's Reported Costs Have Steadily Grown: 

DOD's reported costs for GWOT operations have grown steadily in each 
fiscal year through fiscal year 2005--from about $105 million in fiscal 
year 2001 to about $81.5 billion in fiscal year 2005. For fiscal year 
2006, as of April 2006, DOD has reported obligations of about $49 
billion; about $41.9 billion for Iraq and about $7.5 billion for 
Afghanistan. These amounts include about: 

* $22.5 billion in operating support, which pays for transportation, 
fuel, maintenance, housing, food, services, and other items; 

* $5.3 billion for procurement of equipment and other items; 

* $9.9 billion in military personnel costs, including special pays and 
allowances for deployed military personnel; 

* $2.9 billion for personnel support, including clothing and medical 
support; 

* $4.0 billion for transportation, including airlift and sealift; 

* $2.6 billion in support for the Iraq Security Forces; 

* $813 million for the Afghanistan Security Forces; and, 

* $474 million in support of coalition forces. 

Costs for the remainder of fiscal year 2006 are expected to be higher 
than DOD anticipated, in part because the Army has been unable to 
follow through with plans to close a number of forward operating bases 
and consolidate troops at some of the larger locations. Also, savings 
resulting from a United States and coalition hand-off of operations in 
Afghanistan to troops from nations representing the North Atlantic 
Treaty Organization is not expected to be realized until after fiscal 
year 2007. Furthermore, the rising cost of fuel is likely to push costs 
even higher than envisioned at the start of the fiscal year. 

In examining the historical growth of reported overseas GWOT costs, the 
largest increase has been in operations and maintenance expenses. For 
example, between fiscal year 2002 and fiscal year 2005, DOD has 
reported increases in these expenses from about $7.6 billion to about 
$48.7 billion. According to DOD, some of this increase is attributable 
to higher fuel costs and increased operational support costs for 
contracts to provide housing, food, and services for the military 
locations in Iraq and Afghanistan. For the same time frames, reported 
obligations for military personnel have increased from about $3.4 
billion to about $14.9 billion, and reported procurement obligations 
have increased from $0 to about $16.5 billion. 

With the steady growth in reported GWOT costs, we believe there is a 
need to ensure that all commands seek to control costs to the extent 
possible. As we reported in September 2005, 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.[Footnote 12] However, DOD has not 
established guidelines that would require commands to take steps to 
control costs and keep DOD informed of these steps as we recommended in 
our prior report. In the absence of such guidelines and reports, DOD 
cannot be sure that enough is being done to control costs. 

U.S. Government Agencies Have Reported Obligating Most of Their 
Reconstruction and Stabilization Program Funding: 

U. S. government agencies have reported obligating $23 billion for 
Iraqi reconstruction and stabilization, as of January 2006. However, 
U.S. government agencies, other than DOD, do not formally track all 
GWOT costs. Among other uses, these funds have been used for 
infrastructure repair of the electricity, oil, water, and health 
sectors; training and equipping of Iraqi security forces (military and 
police); and administrative expenses. 

State reports that the remaining funds will not be used for large 
reconstruction projects, but to sustain the projects that have already 
been built and to build greater capacity at the national, provincial, 
and municipal levels for better and more responsive governments. 

Global War on Terrorism Costs Will Likely Continue for the Foreseeable 
Future: 

It appears the United State's military and diplomatic commitments in 
Iraq and Afghanistan will continue for the foreseeable future and are 
likely to be in the hundreds of billions of dollars. However, costs are 
difficult to predict because they depend on several direct and indirect 
cost variables. DOD's future costs will likely be affected by the pace 
and duration of military operations, the types of facilities needed to 
support troops overseas, force redeployment plans, and the amount of 
damaged or destroyed equipment that will need to be repaired or 
replaced. Other future costs to the U.S. government include nation- 
building and reconstruction efforts and treating injured GWOT veterans. 
These costs will require administration decision makers and Congress to 
consider difficult trade-offs as the nation faces increasing fiscal 
challenges in the years ahead. 

Future DOD Costs: 

The future costs associated with DOD's commitments to GWOT depend on 
several variables, including (1) the extent and duration of operations, 
(2) the types of facilities that will be required to support troops 
overseas, and (3) the amount of equipment that will need to be restored 
or replaced. As DOD has done with Operation Noble Eagle, we would 
encourage the department to consider moving other GWOT costs into the 
baseline budget. This is consistent with our prior suggestion that, 
once an operation reaches a known level of effort and costs are more 
predictable, more funding should be built into the baseline 
budget.[Footnote 13] Doing so will assist decision makers in 
determining investment priorities and making trade-offs among funding 
needs. 

Extent and Duration of Military Operations: 

It is uncertain how long DOD will be engaged in a high pace of military 
operations associated with GWOT, making it difficult to predict costs 
associated with future troop levels and mission requirements. There has 
also been some discussion of reducing the number of troops in Iraq and 
Afghanistan. However, DOD officials have not announced information 
about the level or timing of any troop reduction or redeployment plans. 
While it would appear that reducing the number of troops in theater 
could lower costs for these operations, we have seen from previous 
operations in Bosnia and Kosovo that costs may rise due to the 
increased use of contractors to replace the military personnel. Bases 
still have to be maintained, even with fewer military members in them. 
Also, if the pace of operations remains high because of security 
concerns or hostilities, costs for force protection, fuel, and other 
items could remain high. 

Facilities to Support Overseas Troops: 

The United States does not currently have any basing agreements with 
Iraq. DOD has constructed facilities in Iraq and neighboring countries 
supporting missions in both Iraq and Afghanistan. Examples of 
facilities funded by military construction funds and other 
appropriations funding include force protection, airfield and road 
improvements, fuel handling, power and water distribution, and support 
facilities. The Secretary of Defense recently testified that already 
some 30 U.S. military bases have been returned to Iraqi control or 
closed altogether.[Footnote 14] If the United States decides to enter 
into agreements with the new governments in Iraq and Afghanistan to 
have an enduring presence in these countries, costs to make our 
temporary bases into more permanent facilities could be significant. 

Equipment Restoration and Replacement: 

Sustained GWOT operations have and will continue to take a toll on the 
condition and readiness of military equipment. The United States faces 
short-and long-term costs to maintain and restore equipment in theater, 
as well as reequip units as these missions end and the units return to 
their home stations. The uncertainties of how long ongoing operations 
will continue make it difficult to estimate future costs of maintaining 
and replacing this large amount of equipment. 

The Army and Marine Corps will have the largest reset costs of the 
services. DOD has reported Army equipment usage rates have averaged two 
to eight times those of peacetime rates, while senior Marine Corps 
officials testified that the ground equipment used by the Corps in 
ongoing operations has experienced usage rates four to nine times that 
of peacetime rates. We recently testified that the services are 
currently funding their reset programs through the use of supplemental 
appropriations and plan to rely on supplemental appropriations for 
reset funding through at least fiscal year 2007.[Footnote 15] According 
to recent testimony, the Army requirement for reset in fiscal year 2007 
is $17.1 billion. The Army expects the requirement beyond fiscal year 
2007 to be $12 billion to $13 billion per year through the end of the 
conflict and for a minimum of two to three years thereafter. In recent 
testimony, the Marine Corps stated that $11.9 billion is needed to 
manage the equipment in Operation Iraqi Freedom and Operation Enduring 
Freedom for fiscal year 2007 and an estimated additional requirement of 
$5.3 billion for each year that the conflict continues. The 
uncertainties of pace and duration of ongoing operations as well as the 
overall condition of major equipment items make it difficult to 
estimate future equipment reset costs. Equipment used in operations in 
Iraq will eventually require more intensive repair and overhaul than 
what is typically expected in peacetime. While the services are working 
to refine overall requirements, the total requirements and costs are 
unclear. 

In addition to resetting a large number of major equipment items, the 
Army and Marine Corps must also plan to replace active, National Guard, 
and Reserve equipment left in theater to support ongoing operations. As 
we previously testified, in late 2003 the Army began to direct 
redeploying National Guard and Reserve units to leave their equipment 
in theater for use by deploying forces.[Footnote 16] DOD policy 
requires the Army to replace equipment transferred to it from the 
Reserve Component including temporary withdrawals or loans in excess of 
90 days,[Footnote 17] yet at the time of our report in October 2005, 
the Army had neither created a mechanism in the early phases of the war 
to track Guard equipment left in theater nor prepared replacement plans 
for this equipment, because the practice of leaving equipment behind 
was intended to be a short-term measure. As of June 2006, only 3 
replacement plans have been endorsed by the Secretary of Defense, all 
to replace National Guard equipment, while 22 plans are in various 
stages of approval. While the exact dollar estimate for these 
replacements will not be known until operations in Iraq cease, it will 
likely cost billions of dollars. 

Future Nation-Building Costs: 

Future cost variables for other U.S. government agencies include the 
efforts to help form national and provincial governments and build 
management capacity in both Afghanistan and Iraq and build capable and 
loyal Iraqi and Afghani security forces. Also, there will be further 
need for funding to restore, sustain, and protect infrastructure. The 
new Iraqi government will need significant help in building the 
procurement, financial management, and accountability systems needed to 
govern and provide basic services to millions of its citizens. In 
addition, the 18 provincial governments will also require assistance in 
building management capacity and delivering results to the Iraqi people 
that make a difference in their daily lives. The costs of sustaining an 
Iraqi force of 266,000 personnel may require the Iraqi government to 
spend more money on personnel, maintenance, and equipment than 
originally anticipated. In addition, the new Iraqi security forces will 
have recurring training needs, and will need additional assistance in 
replacing lost or stolen equipment, and in developing improved 
logistical and sustainment capabilities. 

While most of the reconstruction money for Iraq has been obligated, 
additional funds will be needed to finance remaining reconstruction 
needs, and to restore, sustain, and protect the infrastructure that has 
been built to date. For example, 

* Iraqi needs are greater than originally anticipated. In the next 
several years, Iraq will need an estimated $30 billion to reach and 
sustain oil capacity of 5 million barrels per day, according to 
industry experts and U.S. officials. For electricity, they will need 
$20 billion through 2010, according to the Department of Energy's 
Energy Information Administration. Iraqi budget constraints and limited 
government managerial capacity limit its ability to contribute to 
future rebuilding efforts. 

* There is widespread corruption in Iraq. Reconstruction efforts have 
not taken the risk of corruption into account when assessing the costs 
of achieving U.S. objectives in Iraq. The International Monetary Fund, 
the World Bank, Japan, and the European Union officials cite corruption 
in the oil sector as a special problem. In addition, according to State 
officials and reporting documents, about 10 percent of refined fuels 
are diverted to the black market, and about 30 percent of imported 
fuels are smuggled out of Iraq and sold for a profit. 

* Future international contributions for Iraq may be limited. Most of 
the U.S. funds have been obligated and about 70 percent of the $13.6 
billion in international pledges are in the form of loans. 

* The new U.S. embassy will be costly. The embassy is projected to cost 
about $592 million, but the full cost of establishing a diplomatic 
presence across Iraq is still unknown. 

* Additional funds are needed to train and equip Afghan security 
forces. The United States, other donors, and the new Afghan government 
face significant challenges to establishing viable Afghan army and 
police forces.[Footnote 18] Although DOD and State have not yet 
prepared official cost estimates, the army and police programs could 
cost up to $7.2 billion to complete and about $600 million annually to 
sustain. Moreover, slow progress in resolving other Afghan security 
problems--the lack of an effective judiciary, the substantial illicit 
narcotics industry, and the continued presence of armed militias-- 
threaten to undermine overall progress made toward providing nationwide 
security and ensuring the stability of the Afghan government. 

Future Costs for Veterans: 

Lastly, one of the variables that can influence how much these efforts 
will cost the United States is the long-term cost of caring for our 
veterans. Both improvements in medical care in the field and in body 
armor have increased the survival rate of those who are seriously 
injured in combat. However, seriously injured survivors will likely 
require substantial long-term medical care from the VA, and may require 
extensive inpatient and home and community-based support services to 
assist those with traumatic brain injury, spinal cord injury, and other 
severely disabling conditions. We also know that many servicemembers 
have been exposed to intense and prolonged combat, which research has 
shown to be strongly associated with the risk of developing post- 
traumatic stress disorder. This disorder can occur after experiencing 
or witnessing a life-threatening event and is the most prevalent mental 
health disorder resulting from combat. Mental health experts predict 
that 15 percent or more of the servicemembers returning from operations 
in Iraq and Afghanistan will develop post-traumatic stress 
disorder.[Footnote 19] In addition to an influx of more severely 
injured patients, the VA health care system will be required to serve 
large numbers of returning veterans with shorter term, more routine, 
health care needs. 

VA has estimated that a little more than 100,000 veterans from 
operations in Iraq and Afghanistan are currently using VA health care 
services. VA originally underestimated by 77,000 the number of 
returning veterans who would use its health care, which in part 
required the VA to request additional appropriations in both fiscal 
years 2005 and 2006. Long-term estimates of how many returning veterans 
will use VA health care and the costs of that care are imprecise for a 
variety of reasons, including uncertainty about the duration of 
operations in the theaters as discussed above. But, current levels of 
usage by returning servicemembers indicate a growing VA health care 
workload and costs. Furthermore, while we have no clear idea of the 
magnitude, there will undoubtedly be long-term financial commitments 
associated with payments to veterans with long-term disabilities. 

Mr. Chairman, this concludes my prepared statement. I would be happy to 
answer any questions you and the subcommittee members may have. 

FOOTNOTES 

[1] For purposes of this testimony, the term "costs" refers to the 
obligations that have been incurred by U.S. agencies in support of 
GWOT. Obligations are incurred through actions such as orders placed, 
contracts awarded, services received, or similar transactions made 
during a given period that will require payments during the same or a 
future period. 

[2] GAO, Rebuilding Iraq: More Comprehensive National Strategy Needed 
to Help Achieve U.S. Goals and Overcome Challenges, GAO-06-953T 
(Washington, D.C.: July 11, 2006). 

[3] GAO, Defense Management: Key Elements Needed to Successfully 
Transform DOD Business Operations, GAO-05-629T (Washington, D.C.: Apr. 
28, 2005). 

[4] For example, see GAO, Global War on Terrorism: DOD Needs to Improve 
the Reliability of Cost Data and Provide Additional Guidance to Control 
Costs, GAO-05-882 (Washington, D.C.: Sept. 21, 2005) and GAO, 
Rebuilding Iraq: Governance, Security, Reconstruction, and Financing 
Challenges, GAO-06-697T (Washington, D.C.: Apr. 25, 2006). 

[5] GAO-05-882. 

[6] In addition to the costs for overseas operations, DOD has also 
reported obligations of $27.7 billion through April 2006 for operations 
in defense of the homeland U.S., under Operation Noble Eagle. 

[7] Emergency Supplemental Appropriations Act for Defense, the Global 
War on Terror, and Hurricane Recovery, 2006, Pub. L. No. 109-234 
(2006). 

[8] The $34.5 billion includes funding for the following activities and 
programs: security and justice; restoring essential services such as 
oil, electricity, and water; other sectors; and administrative costs. 

[9] GAO, Rebuilding Iraq: Preliminary Observations on Challenges in 
Transferring Security Responsibilities to Iraqi Military and Police, 
GAO-05-431T, (Washington, D.C., Mar. 14, 2005). 

[10] GAO-05-882. 

[11] Pub. L. No. 109-163, ß1221(c) (2006). 

[12] GAO-05-882. 

[13] GAO, Bosnia: Costs Are Exceeding DOD's Estimate, GAO/ NSIAD-96-
024BR (Washington, D.C.: July 25, 1996). 

[14] "Senate Armed Services Committee Holds Hearing on Defense 
Authorization", a speech presented by Secretary of Defense, Donald 
Rumsfeld at the Senate Armed Services Committee, Feb. 7, 2006. 

[15] GAO, Defense Logistics: Preliminary Observations on Equipment 
Reset Challenges and Issues for the Army and Marine Corps, GAO-06-604T 
(Washington, D.C.: Mar. 30, 2006). 

[16] GAO, Reserve Forces: Army National Guard's Role, Organization, and 
Equipment Need to be Reexamined, GAO-06-170T (Washington, D.C.: Oct. 
20, 2005). 

[17] Department of Defense Directive 1225.6, Equipping the Reserve 
Forces (Apr. 7, 2005). 

[18] GAO, Afghanistan Security: Efforts to Establish Army and Policy 
Have Made Progress, but Future Plans Need to be Better Defined, GAO-05-
575 (Washington, D.C.: June 30, 2005). The estimates in this report 
have not been updated. 

[19] GAO, Post-Traumatic Stress Disorder: DOD Needs to Identify the 
Factors Its Providers Use to Make Mental Health Evaluation Referrals 
for Servicemembers, GAO-06-397 (Washington, D.C.: May 11, 2006). 

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