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entitled 'Global War On Terrorism: DOD Needs to More Accurately Capture 
and Report the Costs of Operation Iraqi Freedom and Operation Enduring 
Freedom' which was released on March 17, 2009.

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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

March 2009: 

Global War On Terrorism: 

DOD Needs to More Accurately Capture and Report the Costs of Operation 
Iraqi Freedom and Operation Enduring Freedom: 

GAO-09-302: 

GAO Highlights: 

Highlights of GAO-09-302, a report to congressional committees. 

Why GAO Did This Study: 

Since September 11, 2001, Congress has provided about $808 billion to 
the Department of Defense (DOD) for the Global War on Terrorism (GWOT) 
in addition to funding in DODís base budget. Prior GAO reports have 
found DODís reported GWOT cost data unreliable and found problems with 
transparency over certain costs. In response, DOD has made several 
changes to its cost-reporting procedures. 

Congress has shown interest in increasing the transparency of DODís 
cost reporting and funding requests for GWOT. Under the Comptroller 
Generalís authority to conduct evaluations on his own initiative, GAO 
assessed (1) DODís progress in improving the accuracy and reliability 
of its GWOT cost reporting, and (2) DODís methodology for reporting 
GWOT costs by contingency operation. 

For this engagement, GAO analyzed GWOT cost data and applicable 
guidance, as well as DODís corrective actions. 

What GAO Found: 

While DOD and the military services continue to take steps to improve 
the accuracy and reliability of some aspects of GWOT cost reporting, 
DOD lacks a sound approach for identifying costs of specific 
contingency operations, raising concerns about the reliability of 
reported information, especially on the cost of Operation Iraqi 
Freedom. Specifically, the department has undertaken initiatives such 
as requiring components to sample and validate their GWOT cost 
transactions and launching a new contingency cost-reporting system that 
will automate the collection of GWOT cost data from componentsí 
accounting systems and produce a new report comparing reported 
obligations and disbursements to GWOT appropriations data. Also, the 
military services have taken several steps to correct weaknesses in the 
reliability of their cost data. 

Limitations in DODís approach to identifying the costs of Operation 
Iraqi Freedom and Operation Enduring Freedom may, in some cases, result 
in the overstatement of costs, and could lead to these costs being 
included in DODís GWOT funding requests rather than the base budget. 
DOD guidance emphasizes the importance of accurately reporting the cost 
of contingency operations. However, while the Army and Marine Corps are 
capturing totals for procurement and certain operation and maintenance 
costs, they do not have a methodology for determining what portion of 
these GWOT costs are attributable to Operation Iraqi Freedom versus 
Operation Enduring Freedom and have reported all these costs as 
attributable to Operation Iraqi Freedom. In addition, the military 
services have reported some costs, such as those for Navy forward-
presence missions, as part of Operation Iraqi Freedom or Operation 
Enduring Freedom, even though they are not directly attributable to 
either operation. In September 2005, DOD expanded the definition of 
incremental costs for large-scale contingencies, such as those for 
GWOT, to include expenses beyond direct incremental costs. This 
expanded definition provides no guidance on what costs beyond those 
attributable to the operation can be considered incremental and 
reported. Consequently, the military services have made their own 
interpretations as to whether and how to include costs not directly 
attributable to GWOT contingency operations. Without a methodology for 
determining what portion of GWOT costs is attributable to Operation 
Iraqi Freedom or Operation Enduring Freedom, reported costs for 
Operation Iraqi Freedom may be overstated. Furthermore, unless DOD 
reconsiders whether expenses not directly attributable to specific GWOT 
operations should be included as incremental costs, the military 
services may continue to include these expenses as part of Operation 
Iraqi Freedom and Operation Enduring Freedom, reported costs for both 
operations may be overstated, and DOD may continue to request funding 
for these expenses in GWOT funding requests instead of including them 
as part of the base budget. Expenses beyond those directly attributable 
to either operation may be more reflective of the enduring nature of 
GWOT and its cost implications should be part of the annual budget 
debate. 

What GAO Recommends: 

GAO is recommending that DOD (1) establish a methodology for 
determining what portion of GWOT costs is attributable to Operation 
Iraqi Freedom versus Operation Enduring Freedom and (2) develop a plan 
and timetable for evaluating whether certain expenses are incremental 
and should continue to be funded outside of DODís base budget. DOD 
agreed with the first recommendation and partially agreed with the 
second. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/products/GAO-09-302]. For more 
information, contact Sharon Pickup, (202) 512-9619, pickups@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

DOD and the Military Services Continue to Take Steps to Improve Some 
Aspects of the Accuracy and Reliability of GWOT Cost Reporting: 

DOD's Approach to GWOT Cost Reporting Does Not Reliably Represent the 
Costs of Each Contingency Operation: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Figure: 

Figure 1: DOD's Reported Cumulative GWOT Obligations for Fiscal Years 
2001 through 2008 by Contingency Operation: 

Abbreviations: 

DFAS: Defense Finance and Accounting Service: 

DOD: Department of Defense: 

GWOT: Global War on Terrorism: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 17, 2009: 

Congressional Committees: 

Since the September 11, 2001, terrorist attacks, the Department of 
Defense (DOD) has been engaged in domestic and overseas military 
operations in support of the Global War on Terrorism (GWOT) around the 
world. These operations include Operation Noble Eagle aimed at 
defending the United States homeland against terrorist attacks; 
Operation Enduring Freedom that takes place principally in and around 
Afghanistan, but also covers additional operations in the Horn of 
Africa, the Philippines, and elsewhere; and Operation Iraqi Freedom 
that focuses principally on Iraq. Congress has provided about $808 
billion in supplemental and annual appropriations for GWOT since 2001, 
and DOD has reported total GWOT costs of about $654.7 billion as of 
September 2008. For fiscal year 2009, Congress has provided DOD with 
about $65.9 billion for GWOT as of March 2009, and DOD plans on 
requesting an additional $75.5 billion for GWOT for the remainder of 
the fiscal year. This is in addition to about $512.7 billion already 
provided in DOD's base budget for other functions. Obtaining an 
accurate picture of DOD costs is of critical importance given the need 
to evaluate trade-offs and make more effective use of defense dollars 
in light of the nation's long-term fiscal challenge and the current 
financial crisis. In the past, we have reported on the need for DOD to 
become more disciplined in its approach to developing plans and 
budgets, including building more GWOT costs into the base defense 
budget. 

To meet internal and legislative reporting requirements, DOD compiles 
GWOT cost data and prepares various reports that itemize these costs by 
appropriation account, military service or defense agency, and 
contingency operation.[Footnote 1] DOD uses these cost data, along with 
other information, internally to evaluate cost trends and formulate 
GWOT funding requests, and externally to inform Congress on the costs 
of the war. Congress uses DOD's historical cost data to monitor costs, 
evaluate funding needs, and to make GWOT-related funding decisions. 
Over time, DOD's approach to reporting costs and requesting funds for 
GWOT contingency operations has evolved. Since GWOT contingency 
operations began in 2001, DOD has used existing financial-management 
guidance, designed for small-scale contingency operations, to establish 
policies and procedures for estimating the budget and reporting costs. 
In 2005, DOD amended this guidance to include large-scale contingency 
operations, like those in support of GWOT. In contrast to the guidance 
for small-scale contingency operations, the amended guidance for large- 
scale contingencies allows DOD components to include expenses in their 
cost reporting beyond direct incremental costs, but provides no 
guidance on what costs beyond those attributable to the operation can 
be considered incremental and reported. Incremental costs are defined 
as additional costs to DOD components that would not have been incurred 
had the contingency operation not been supported.[Footnote 2] DOD has 
also revised its guidance for building GWOT funding requests, beginning 
with its fiscal year 2007 supplemental funding request, directing DOD 
components to include funding needs related to what it characterized as 
the "longer war on terror," or costs beyond those directly attributable 
to Operation Enduring Freedom and Operation Iraqi Freedom.[Footnote 3] 
DOD's previous guidance for building GWOT funding requests directed 
components to request funding only for the incremental costs above base-
budget funding needed to support specific forces and capabilities 
required to execute Operation Enduring Freedom and Operation Iraqi 
Freedom during the fiscal year.[Footnote 4] 

Over the years, we have reported on the need to improve the accuracy 
and reliability of DOD's cost reporting and transparency of funding 
requests for GWOT, and have made a series of recommendations to the 
Secretary of Defense. For example, we previously identified 
inaccuracies in reported costs for GWOT, and noted the lack of a 
systematic process and sufficient management oversight to ensure GWOT 
cost data are accurately recorded. DOD has implemented many of our 
recommendations, and continues to focus greater management attention to 
improve GWOT cost reporting. More recently, we reported on the lack of 
transparency of DOD's funding requests for GWOT, raising concerns over 
DOD's expansion of allowable incremental costs to include costs for 
longer-term items. Specifically, in November 2007, we reported that 
changes in DOD's funding guidance resulted in billions of dollars being 
added to DOD's GWOT funding requests for the "longer war against 
terror," making it difficult to distinguish between the incremental 
costs to support specific contingency operations and longer-term costs 
typically associated with DOD's base budget.[Footnote 5] We recommended 
that DOD issue guidance defining what constitutes the "longer war 
against terror," identify what costs are related to that longer war, 
and build these costs into the base defense budget. Although DOD agreed 
with our recommendations to some extent, as of March 2009, it has not 
yet taken specific action. 

In the past few years, Congress has shown interest in increasing the 
transparency of DOD's cost reporting and funding requests for GWOT, 
particularly in the amount of detail available on the costs of specific 
contingency operations. In fiscal year 2006, Congress required DOD to 
submit reports of war-related procurement, equipment maintenance, and 
infrastructure costs by contingency operation.[Footnote 6] In fiscal 
year 2007, Congress required the President, for each fiscal year 
thereafter, to submit full-year estimates of all funds required to 
support GWOT along with its annual budget submission.[Footnote 7] More 
recently, in the Duncan Hunter National Defense Authorization Act for 
Fiscal Year 2009, Congress required that in any future annual or 
supplemental budget request, DOD separately display any funding 
requested for military operations in Afghanistan and military 
operations in Iraq, and provide a detailed description of the 
assumptions underlying this funding request for each operation. 
[Footnote 8] 

Ensuring reliability and transparency in DOD's cost reporting will be 
important as the new administration and Congress evaluate DOD's funding 
needs for GWOT in fiscal year 2009 and beyond. To assist Congress in 
its oversight role, we assessed (1) DOD's progress in improving the 
accuracy and reliability of its GWOT cost reporting, and (2) DOD's 
methodology for reporting GWOT costs by contingency operation, 
including the types of costs reported for those operations. We prepared 
this report under the Comptroller General's authority to conduct 
evaluations on his own initiative. 

To assess DOD's progress in improving the accuracy and reliability of 
its GWOT cost reporting, we analyzed information reported in DOD's 
monthly Supplemental and Cost of War Execution Report (cost-of-war 
report)[Footnote 9] and cost data in the military services' individual 
accounting systems. We then obtained and reviewed guidance issued by 
DOD and the military services regarding data analysis and methods for 
reporting costs for GWOT. We also interviewed key officials from the 
Office of the Under Secretary of Defense (Comptroller), the Defense 
Finance and Accounting Service (DFAS), the Army, Navy, Marine Corps, 
and Air Force to obtain information about specific processes and 
procedures DOD and the military services have undertaken to improve the 
accuracy and reliability of reported GWOT cost information. To assess 
DOD's methodology for reporting GWOT costs by contingency operation, 
including the types of costs reported for those operations, we analyzed 
GWOT cost data in DOD's monthly cost-of-war reports, including the 
source data for those reports in the military services' individual 
accounting systems. We then obtained and reviewed guidance issued by 
DOD and the military services for identifying and reporting GWOT costs 
by contingency operation. We also interviewed officials from the Under 
Secretary of Defense (Comptroller), Army, Navy, Marine Corps, and Air 
Force to determine how they interpreted and implemented this guidance. 
As previously reported, we found the data in DOD's cost-of-war reports 
to be of questionable reliability. Consequently, we are unable to 
ensure that DOD's reported costs for GWOT are complete, reliable, and 
accurate, and they should therefore be considered approximations. 
Further details about our scope and methodology can be found in 
appendix I. 

We performed our work from January 2008 through March 2009 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Results in Brief: 

While DOD and the military services continue to take steps to improve 
the accuracy and reliability of some aspects of GWOT cost reporting, 
DOD lacks a sound approach for identifying costs of specific 
contingency operations, raising concerns about the reliability of 
reported information, especially on the cost of Operation Iraqi 
Freedom. The department has undertaken several initiatives to improve 
the accuracy and reliability of its GWOT cost data. For example, in 
February 2008, DOD began requiring its components to statistically 
sample and validate their fiscal year 2008 GWOT cost transactions on a 
quarterly basis, beginning with the first quarter of fiscal year 2008. 
According to DOD officials, the new procedures have enabled components 
to find errors and take corrective action, thereby improving the 
reliability of reported cost data. In addition, in October 2008, DOD 
launched a new contingency cost reporting system called the Contingency 
Operations Reporting and Analysis System, which automates the 
collection of elements of GWOT cost data from components' accounting 
systems and generates a new monthly report comparing reported 
obligations and disbursements to GWOT appropriations data. The military 
services have also taken steps to correct weaknesses in the reliability 
of their GWOT cost data. For instance, during the course of our work, 
we found the Army was misusing internal cost codes to track and report 
costs for GWOT contingency operations. The Army has addressed these 
issues for fiscal year 2009 by revising its cost-code structure and 
eliminating cost codes that commands have misused in the past. Because 
efforts to implement some of these initiatives are still in the early 
stages, their effect on the reliability of GWOT cost reporting is 
uncertain. 

While DOD has reported significant costs for Operation Iraqi Freedom 
and Operation Enduring Freedom, limitations in its approach for 
identifying the costs of these operations may, in some cases, result in 
the overstatement of costs, and could lead to these costs being 
included in DOD's GWOT funding requests rather than the base budget. 
The DOD Financial Management Regulation emphasizes the importance of 
accurately reporting the cost of contingency operations. Furthermore, 
it states that actual costs should be reported, but when actual costs 
are not available, DOD components are required to establish and 
document an auditable methodology for capturing costs. As of September 
2008, DOD had reported costs of about $508.4 billion for Operation 
Iraqi Freedom and about $118.2 billion for Operation Enduring Freedom. 
However, we found that reported costs for Operation Iraqi Freedom may 
be overstated due to weaknesses in DOD's methodology for reporting its 
GWOT costs by contingency operation. While the Army and Marine Corps 
capture totals for procurement and certain operation and maintenance 
costs, they do not have a methodology for determining what portion of 
these GWOT costs are attributable to Operation Iraqi Freedom versus 
Operation Enduring Freedom. Rather, they reported all these costs as 
attributable to Operation Iraqi Freedom. In addition, the military 
services have reported some costs, such as those for Navy forward- 
presence missions, as part of Operation Iraqi Freedom or Operation 
Enduring Freedom even though they are not directly attributable to 
either operation. In September 2005, DOD expanded the definition of 
incremental costs for large-scale contingencies, such as those 
conducted as part of GWOT, to include expenses beyond direct 
incremental costs. As we reported in 2005,[Footnote 10] this expanded 
definition is problematic because it provides no guidance on what costs 
beyond those attributable to the operation can be considered 
incremental and reported. In the absence of additional guidance, the 
military services have made their own interpretations or determinations 
as to whether and how to include costs not directly attributable to 
GWOT contingency operations, and those criteria vary. For example, in 
fiscal year 2008 the Marine Corps reported about $1.4 billion in costs 
for procurement and operation and maintenance for an initiative to 
increase the overall end strength of the Marine Corps as part of 
Operation Iraqi Freedom, while the Air Force included about $464 
million in "long war/reconstitution" operation and maintenance costs as 
part of Operation Iraqi Freedom. Without a methodology for determining 
what portion of total GWOT costs is attributable to Operation Iraqi 
Freedom or Operation Enduring Freedom, reported costs for Operating 
Iraqi Freedom may be overstated. Furthermore, we continue to believe 
that unless DOD reconsiders whether expenses not directly attributable 
to specific GWOT contingency operations should be included as 
incremental costs, the military services may continue to include these 
expenses as part of Operation Iraqi Freedom and Operation Enduring 
Freedom, and reported costs for both operations may be overstated. In 
addition, DOD may continue to request funding for these expenses as 
part of these operations instead of building that funding into the base 
budget. 

To improve the transparency and reliability of DOD's reported 
obligations for GWOT by contingency operation, we recommend that the 
Secretary of Defense direct the Under Secretary of Defense 
(Comptroller) to (1) ensure DOD components establish an auditable and 
documented methodology for determining what portion of GWOT costs is 
attributable to Operation Iraqi Freedom versus Operation Enduring 
Freedom when actual costs are not available, and (2) develop a plan and 
timetable for evaluating whether expenses not directly attributable to 
specific GWOT contingency operations are incremental costs and should 
continue to be funded outside of DOD's base budget. DOD agreed with the 
first recommendation and partially agreed with the second. 

Background: 

DOD contingency operations, such as those in support of GWOT, can 
involve a wide variety of activities such as combating insurgents, 
training the military forces of other nations, and conducting small- 
scale reconstruction and humanitarian relief projects. Volume 12, 
chapter 23 of the DOD Financial Management Regulation, 7000.14-R 
establishes financial policies and procedures for contingency 
operations and generally guides the DOD components' spending by 
defining what constitutes incremental costs and by providing examples 
of eligible incremental costs.[Footnote 11] The costs incurred for 
contingency operations include the pay of mobilized reservists, as well 
as the special pays and allowances for deployed personnel,[Footnote 12] 
such as imminent danger pay and foreign duty pay; the cost of 
transporting personnel and materiel to the theater of operation and 
supporting them upon arrival; and the operational 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 and therefore are funded in DOD's base budget. 

DOD reports its GWOT-related costs in terms of obligations, which are 
incurred through actions such as orders placed, contracts awarded, 
services received, or similar transactions. When obligations are 
incurred, the DOD components enter them into their individual 
accounting systems. An obligation entry may include a number of 
different identifiers, including information such as funding source and 
the contingency operation, and the category of cost as determined by 
the individual component. Volume 12, chapter 23 of the DOD Financial 
Management Regulation directs components to capture contingency costs 
within their existing accounting systems and at the lowest possible 
level of organization.[Footnote 13] Individual obligation data that are 
coded as being in support of GWOT are recorded and sent through the 
component's chain of command where they are aggregated at successively 
higher command levels. 

In a series of reports,[Footnote 14] we have identified numerous 
problems in DOD's processes for recording and reporting obligations, 
raising significant concerns about the overall reliability of DOD's 
reported obligations. In addition, DOD's financial management has been 
on GAO's list of high-risk areas requiring urgent attention and 
transformation since 1995. Factors affecting the reliability of DOD's 
reported obligations include long-standing deficiencies in hundreds of 
nonintegrated financial management systems requiring manual entry of 
some data in multiple systems, and the lack of a systematic process to 
ensure that data are correctly entered into those systems. On its own 
initiative and in response to our recommendations, DOD has placed 
greater management focus on weaknesses in GWOT cost reporting, such as 
establishing additional procedures for analyzing variances in reported 
obligations and disclosing underlying reasons for significant changes. 
In addition, DOD established a Senior Steering Group in February 2007, 
including representatives from DOD, DFAS, and the military services, in 
an effort to standardize and improve the GWOT cost-reporting process 
and to increase management attention to the process.[Footnote 15] In 
conjunction with the Senior Steering Group, a GWOT Cost-of-War Project 
Management Office was established to monitor work performed by auditing 
agencies and to report possible solutions and improvements to the 
Senior Steering Group. It is tasked with leading initiatives in 
improving the credibility, transparency, and timeliness of GWOT cost 
reporting. DOD's efforts are ongoing and we have continued to monitor 
its progress as GWOT cost reporting has evolved. 

DOD and the Military Services Continue to Take Steps to Improve Some 
Aspects of the Accuracy and Reliability of GWOT Cost Reporting: 

DOD and the military services continue to take steps to improve some 
aspects of the accuracy and reliability of GWOT cost reporting. Some 
examples are discussed below. Because efforts to implement some of 
these initiatives are still in the early stages, their effect on the 
reliability of GWOT cost reporting is uncertain. 

DOD Has Several Ongoing Initiatives to Improve Accuracy and Reliability 
of GWOT Cost Data: 

DOD has undertaken several initiatives to improve the accuracy and 
reliability of its GWOT cost data. First, to promote the goal of 
continually improving its cost-of-war processes and reports, in 
February 2008, DOD required its components to statistically sample and 
validate their fiscal year 2008 GWOT obligation transactions on a 
quarterly basis beginning with the first quarter of fiscal year 2008. 
[Footnote 16] DOD also required its components to review randomly 
sampled non-GWOT obligations to determine whether the transactions were 
properly classified as non-GWOT versus GWOT. According to DFAS 
officials, the new requirement has improved the reliability of reported 
GWOT obligations because DOD components are taking actions to improve 
their GWOT cost reporting procedures and are making corrections when 
errors such as missing or illegible supporting documentation, missing 
codes, and miscoded transactions are found. DFAS plans to include a 
requirement to review and validate GWOT obligation data in an update to 
volume 3, chapter 8 of the DOD Financial Management Regulation. 
[Footnote 17] 

Second, DOD is initiating a new contingency cost-reporting system in 
fiscal year 2009 called the Contingency Operations Reporting and 
Analysis System. DOD's goals are to automate the collection of GWOT 
cost data from DOD components and improve the timeliness of cost-of-war 
reporting. This system pulls elements of GWOT transaction data directly 
from DOD components' accounting systems into its data store.[Footnote 
18] Limited features of the system became available for use in October 
2008 and it should be fully operational by September 2009. Upon 
completion of the project, this system should allow DOD and external 
users to have a consolidated location to view and analyze data for the 
cost of war, disaster relief, and all other contingencies. Users will 
have access through a Web browser and should be able to filter data and 
perform various analyses. Previously, the DOD components individually 
gathered and manually entered their GWOT cost data monthly into a 
template provided by DFAS for cost-of-war reporting. According to DFAS 
officials, the new system is designed to ensure better reliability and 
eliminate the possibility of manual errors. 

Third, DFAS is issuing a redesigned monthly cost-of-war report through 
the Contingency Operations Reporting and Analysis System, starting in 
fiscal year 2009, to replace DOD's monthly Supplemental and Cost of War 
Execution Report, which was provided to external customers, including 
Congress, the Office of Management and Budget, and GAO.[Footnote 19] 
The first new cost-of-war report, commonly referred to as the 
Contingency Operations Status of Funds Report, was issued in December 
2008 and covered costs for October 2008. According to DOD, this 
redesigned report should improve transparency over GWOT costs by 
comparing appropriated GWOT supplemental and annual funding to reported 
obligations and disbursements. The previous cost-of-war report 
displayed obligations (both monthly and cumulative by fiscal year) by 
appropriation, contingency operation, and DOD component, but did not 
compare obligations to appropriated funding. 

Military Services Have Taken Actions to Correct Weaknesses in the 
Reliability of GWOT Cost Data: 

The military services have also taken actions to correct weaknesses in 
the reliability of their GWOT cost data. Examples for each of the 
services are discussed below. Since these actions have only recently 
been implemented, their effect on the reliability of GWOT cost 
reporting is uncertain. 

Marine Corps: 

We found that the Marine Corps was not reporting obligations in 
descriptive cost categories in the DOD Supplemental and Cost of War 
Execution Report as required in volume 12, chapter 23 of the DOD 
Financial Management Regulation,[Footnote 20] which DOD established to 
provide better transparency over reported costs. Specifically, the 
Marine Corps was reporting obligations in the miscellaneous category of 
"other supplies and equipment" rather than the more descriptive cost 
categories. We brought this issue to the attention of both DFAS and the 
Marine Corps office responsible for submitting monthly cost data to 
DFAS. Marine Corps officials acknowledged the absence of the data and 
indicated that they would attempt to provide further breakdown of the 
Marine Corps' reported obligations in future reports. In June 2008, the 
Marine Corps revised its cost-reporting procedures to provide further 
breakdown of reported obligations for "other supplies and equipment" in 
DOD's cost-of-war reports. In addition, Marine Corps officials told us 
that in May 2008 they streamlined their cost-of-war reporting by 
centralizing their GWOT cost data-gathering and reporting procedures. 
Prior to this time, commands would individually submit their monthly 
GWOT cost data to Marine Corps headquarters. According to Marine Corps 
officials, the new procedures have improved the visibility and 
reliability of reported costs across the service, especially at the 
command level. 

Air Force: 

We found that the Air Force was reporting some operation and 
maintenance obligations in the miscellaneous cost categories for "other 
supplies and equipment" and "other services and miscellaneous 
contracts" rather than reporting these obligations in the more 
descriptive cost categories that DOD had established. We brought this 
issue to the attention of both DFAS and the Air Force office 
responsible for submitting monthly cost-of-war data to DFAS. In 
response, the Air Force and DFAS revised the Air Force's cost-reporting 
procedures so that costs could only be reported in the more descriptive 
cost categories. 

Army: 

Our analysis of the fiscal year 2008 Army obligation data showed that 
the Army was misusing certain accounting codes to capture costs for 
GWOT contingency operations. Army officials told us that commands were 
incorrectly using these codes to record costs for activities that were 
not adequately funded in the base budget such as contracts for security 
guards and other anti-terrorism force-protection measures for 
facilities and installations located outside of the continental United 
States.[Footnote 21] Consequently, almost $2 billion in obligations for 
operation and maintenance was included in DOD's cost-of-war report for 
costs that may not be directly attributable to GWOT contingency 
operations. In addition, the Army reported about $220 million in GWOT 
obligations for operation and maintenance costs associated with its 
modular restructuring initiative.[Footnote 22] Army officials told us 
that the Army modular restructuring initiative is not an incremental 
cost and therefore should not have been included in the cost-of-war 
report. The Army has addressed these issues for fiscal year 2009 by 
revising its cost code structure and eliminating cost codes that 
commands have misused in the past. [Footnote 23] 

Navy: 

During the course of our work, we found that the Navy lacked a 
centralized and documented process for its GWOT cost reporting. For 
example, Navy headquarters had little visibility over how lower-level 
commands record and report their GWOT costs. Moreover, the Navy's cost- 
reporting process relied on the use of several computer-operated 
spreadsheets that required manual data input. The Navy also did not 
have formal guidance for GWOT cost reporting. In addition, our prior 
work had revealed that the Navy's Atlantic Fleet and Pacific Fleet used 
different approaches for allocating a ship's normal operating costs and 
GWOT costs.[Footnote 24] In September 2008, the Navy issued formal 
guidance for GWOT cost reporting in response to weaknesses in internal 
controls for contingency cost reporting that were identified as a 
result of its quarterly validations of GWOT obligation transactions. 
According to the Navy, the new guidance will increase the visibility of 
its costs, standardize its cost-reporting process for contingency 
operations, and increase the ability to audit its financial systems. 
Further, beginning in fiscal year 2008, the Atlantic Fleet and Pacific 
Fleet began using the same cost model for calculating how much of a 
ship's total operating costs should be allocated to GWOT. This cost 
model estimates a ship's GWOT operating costs by the number of days 
that it is deployed in support of a military operation. According to 
the Navy, this cost model is part of a broader initiative to improve 
and coordinate financial management processes at both the Atlantic 
Fleet and Pacific Fleet. 

DOD's Approach to GWOT Cost Reporting Does Not Reliably Represent the 
Costs of Each Contingency Operation: 

Although DOD has taken steps to improve certain aspects of its GWOT 
cost reporting, its approach to identifying the costs of specific 
operations has, in some cases, resulted in the overstatement of costs, 
particularly for Operation Iraqi Freedom, and in other cases, for both 
contingencies. Since 2001, DOD has reported significant costs in 
support of Operation Iraqi Freedom and Operation Enduring Freedom. 
However, we found that reported costs for Operation Iraqi Freedom may 
be overstated due to weaknesses in DOD's methodology for reporting its 
GWOT costs by contingency operation. Furthermore, the military services 
have reported some costs that are not directly attributable to the 
support of either Operation Iraqi Freedom or Operation Enduring 
Freedom. 

DOD Has Reported Significant Costs for Operation Iraqi Freedom and 
Operation Enduring Freedom: 

As of September 2008, DOD had reported total obligations of about 
$654.7 billion for GWOT, including about $508.4 billion, or 78 percent, 
for Operation Iraqi Freedom, about $118.2 billion, or 18 percent, for 
Operation Enduring Freedom, and about $28.1 billion, or 4 percent, for 
Operation Noble Eagle.[Footnote 25] As figure 1 shows, since fiscal 
year 2001, Operation Iraqi Freedom has accounted for the largest amount 
of total reported obligations among these three operations. However, 
DOD's reporting of costs for GWOT does not reliably represent the costs 
of contingency operations, for reasons discussed below. 

Figure 1: DOD's Reported Cumulative GWOT Obligations for Fiscal Years 
2001 through 2008 by Contingency Operation: 

[Refer to PDF for image: stacked multiple line graph] 

Reported GWOT obligations per fiscal year: 

Fiscal year: 2001; 
Total obligation: $0.2 billion; 
Operation Noble Eagle: $0.1 billion; 
Operation Enduring Freedom: $0.1 billion; 
Operation Iraqi Freedom: 0. 

Fiscal year: 2002; 
Total obligation: $29.1 billion; 
Operation Noble Eagle: $14.2 billion; 
Operation Enduring Freedom: $15 billion; 
Operation Iraqi Freedom: $0. 

Fiscal year: 2003; 
Total obligation: $68.6 billion; 
Operation Noble Eagle: $6.3 billion; 
Operation Enduring Freedom: $15.9 billion; 
Operation Iraqi Freedom: $46.4 billion. 

Fiscal year: 2004; 
Total obligation: $71.3 billion; 
Operation Noble Eagle: $3.8 billion; 
Operation Enduring Freedom: $10.3 billion; 
Operation Iraqi Freedom: $57.2 billion. 

Fiscal year: 2005; 
Total obligation: $84.8 billion; 
Operation Noble Eagle: $2.1 billion; 
Operation Enduring Freedom: $10.7 billion; 
Operation Iraqi Freedom: $72 billion. 

Fiscal year: 2006; 
Total obligation: $98.4 billion; 
Operation Noble Eagle: $0.8 billion; 
Operation Enduring Freedom: $14.2 billion; 
Operation Iraqi Freedom: $83.4 billion. 

Fiscal year: 2007; 
Total obligation: $139.8 billion; 
Operation Noble Eagle: $0.5 billion; 
Operation Enduring Freedom: $20.1 billion; 
Operation Iraqi Freedom: $119.1 billion. 

Fiscal year: 2008; 
Total obligation: $162.4 billion; 
Operation Noble Eagle: $1.5 billion; 
Operation Enduring Freedom: $32 billion; 
Operation Iraqi Freedom: $130.3 billion. 

Source: GAO analysis of DOD data. 

Notes: Operation Iraqi Freedom began in fiscal year 2003; therefore, no 
obligations were reported in fiscal years 2001 and 2002 for this 
operation. Reported GWOT obligations generally reflect costs reported 
in DOD's cost-of-war reports. However, the fiscal year 2002 and 2003 
figures include about $20.1 billion that, according to DOD officials, 
was war-related but not reported in DOD's cost-of-war reports. GAO has 
assessed the reliability of DOD's obligation data and found significant 
problems, such that these data may not accurately reflect the true 
dollar value of GWOT obligations. Obligation figures may not add due to 
rounding. 

[End of figure] 

Weaknesses Exist in DOD's Methodology for Reporting GWOT Costs by 
Contingency Operation: 

We found that reported costs for Operation Iraqi Freedom may be 
overstated due to weaknesses in DOD's methodology for reporting its 
GWOT costs by contingency operation. Volume 12, chapter 23 of the DOD 
Financial Management Regulation emphasizes the importance of cost 
reporting and requires DOD components to make every effort possible to 
capture and accurately report the cost of contingency operations. 
[Footnote 26] Furthermore, this regulation states that actual costs 
should be reported, but when actual costs are not available, DOD 
components are required to establish and document an auditable 
methodology for capturing costs.[Footnote 27] While the Army and Marine 
Corps are capturing totals for procurement and certain operation and 
maintenance costs, they do not have a methodology for determining what 
portion of these GWOT costs is attributable to Operation Iraqi Freedom 
versus Operation Enduring Freedom. For example, both military services 
reported their GWOT costs for procurement and certain operation and 
maintenance activities as costs exclusively attributable to Operation 
Iraqi Freedom, although a portion of these costs are attributable to 
Operation Enduring Freedom. In fiscal year 2008: 

* The Army reported about $30.2 billion in GWOT procurement obligations 
as costs tied to Operation Iraqi Freedom and none as part of Operation 
Enduring Freedom, even though, according to Army officials, some of 
these costs were incurred in support of Operation Enduring Freedom. 
These reported obligations include both non-reset-related and reset- 
related procurement for items such as aircraft, munitions, vehicles, 
communication and electronic equipment, combat support, up-armored High 
Mobility Multipurpose Wheeled Vehicles, and countermeasures for 
improvised explosive devices.[Footnote 28] 

* The Army reported obligations of about $8 billion for operation and 
maintenance associated with reset for Army prepositioned stocks, depot 
maintenance, recapitalization, aviation special technical inspection 
and repair, and field maintenance as part of Operation Iraqi Freedom 
but none for Operation Enduring Freedom, even though, according to Army 
officials, some of these costs were incurred in support of Operation 
Enduring Freedom. 

* The Marine Corps reported $3.9 billion in procurement obligations as 
costs tied to Operation Iraqi Freedom but none as part of Operation 
Enduring Freedom, even though, according to Marine Corps officials, 
some of these costs were incurred in support of Operation Enduring 
Freedom. As in the case of the Army, these reported obligations include 
non-reset-related and reset-related procurement for various items. 

* The Marine Corps reported obligations of about $1.1 billion for 
operation and maintenance for "reconstitution/resetting the force" as 
part of Operation Iraqi Freedom but none for Operation Enduring 
Freedom, even though, according to Marine Corps officials, some of 
these costs were incurred in support of Operation Enduring Freedom. 

The reason military service officials gave for not separating equipment-
related costs between the two operations was that it was difficult to 
do so. Army officials told us that when actual costs cannot be clearly 
attributed to Operation Iraqi Freedom or Operation Enduring Freedom, 
they report all of these costs as part of Operation Iraqi Freedom since 
it is viewed as the larger of the two operations in terms of costs and 
funding. Marine Corps officials stated that they did not always know 
where GWOT equipment purchased with procurement appropriations 
ultimately went. These officials told us that they believed that the 
vast majority of the equipment was delivered to Iraq since, prior to 
April 2008, the bulk of Marine Corps forces had been deployed to Iraq 
in support of Operation Iraqi Freedom. While this assumption could be 
generally correct, without data on where equipment was delivered it is 
unclear what costs were incurred to support each operation. We observed 
that the command responsible for the acquisition and sustainment of war-
fighting equipment for the Marine Corps did not have a cost code for 
Operation Enduring Freedom. As a result, all of the Marine Corps' 
reported obligations for procurement and equipment-related operation 
and maintenance expenses were being coded in support of Operation Iraqi 
Freedom. Without a methodology for determining what portion of total 
GWOT obligations is attributable to Operation Iraqi Freedom or 
Operation Enduring Freedom, reported costs for Operating Iraqi Freedom 
may be overstated and cost information for both operations will remain 
unreliable. 

Military Services Have Reported Some Costs That Are Not Directly 
Attributable to Operation Iraqi Freedom or Operation Enduring Freedom: 

The military services have included some costs that are not directly 
attributable to the support of Operation Iraqi Freedom or Operation 
Enduring Freedom in their reported GWOT obligations. According to the 
DOD Financial Management Regulation, costs incurred beyond what was 
reasonably necessary to support a contingency operation cannot be 
deemed incremental expenses, since such costs are not directly 
attributable to support of the operation.[Footnote 29] However, in 
September 2005, DOD expanded the definition of incremental costs for 
large-scale contingencies, such as those conducted as part of GWOT, to 
include expenses beyond direct incremental costs. We believe that this 
expanded definition is problematic because it provides no guidance on 
what expenses beyond those attributable to a specific operation can be 
considered incremental costs and reported or what expenses are due to 
the changed security environment since 9/11 and should be funded and 
accounted for as part of the base budget. In the absence of additional 
guidance, the military services have made their own interpretations or 
determinations as to whether and how to include expenses not directly 
attributable to GWOT contingency operations, and those criteria vary. 
As a result, we found several examples of costs that the military 
services have reported that are not directly attributable to the 
support of either Operation Iraqi Freedom or Operation Enduring 
Freedom. It is unclear whether these expenses continue to meet the 
definition of incremental costs of contingency operations or should be 
funded and accounted for as part of DOD's base budget. Some examples 
follow: 

Marine Corps: 

The Marine Corps reported about $1.4 billion in obligations for 
procurement and operation and maintenance in fiscal year 2008 in 
support of Grow the Force--a long-term force-structure initiative--as 
part of Operation Iraqi Freedom. Grow the Force is an initiative that 
was announced by the President in January 2007 to increase the active 
duty end-strength of the Army and Marine Corps. According to Marine 
Corps strategic guidance, this increase in force structure will provide 
the Marine Corps with additional resources needed to fight what the 
Marine Corps refers to as the "long war." The guidance outlines the 
Marine Corps' strategic plan for force employment to meet the need for 
counterinsurgency and building partnership capacity in support of the 
National Defense Strategy and multinational efforts in the "Global War 
on Terrorism/Long War." The Marine Corps established a cost code for 
capturing Grow the Force costs. A Marine Corps official told us that 
they reported all obligations in support of Grow the Force as part of 
Operation Iraqi Freedom because, prior to April 2008, the majority of 
Marines deployed overseas were stationed in Iraq. Marine Corps 
officials at commands we visited told us that examples of their 
commands' reported obligations for operation and maintenance in support 
of Grow the Force included civilian labor and infrastructure costs for 
bases and facilities located inside the United States. These officials 
further stated that these costs were necessary to accommodate the 
increased size of the force. Similarly, at one Marine Corps command, we 
found reported GWOT costs for the repair and renovation of sites and 
facilities located within the United States for the purpose of 
improving security against terrorism. Marine Corps officials at this 
command said that these security initiatives included costs for such 
items as barbed wired fences, automatic vehicle gates, automobile 
barricades, and security cameras. These officials further stated that 
Marine Corps headquarters instructed them to code these costs as part 
of Operation Iraqi Freedom. The Marine Corps reported about $42.4 
million in obligations for operation and maintenance for these security 
costs in fiscal year 2008. 

Air Force: 

The Air Force established a code for capturing "long war/ 
reconstitution" operation and maintenance costs based on changes in 
DOD's funding guidance for GWOT requests in fiscal year 2007.[Footnote 
30] Air Force guidance defines "long war" costs as all incremental 
costs related to the war on terror beyond costs strictly limited to 
Operation Iraqi Freedom and Operation Enduring Freedom. These costs 
include reconstitution/reset costs for combat losses, accelerated wear 
and necessary repairs to damaged equipment or replacement to newer 
models when existing equipment is no longer available or economically 
feasible, and costs to accelerate specific force capabilities to carry 
out GWOT. Among the costs included in this code are forward-presence 
deployments or what the Air Force calls Theater Security Packages, 
which is a forward-basing concept involving both bombers and select 
fighter aircraft that is conducted in the Pacific Command area of 
responsibility. Air Force officials told us that because there is no 
category to report recurring or longer-term costs separately from 
established GWOT contingency operations, they report long war costs, 
including costs related to Theater Security Packages, as part of 
Operation Iraqi Freedom since it is the largest operation. The Air 
Force reported about $464 million in long-war costs for fiscal year 
2008. 

Navy: 

The Navy reported costs for forward-presence missions as part of GWOT 
contingency operations even though the Navy routinely deploys its 
forces around the globe in peacetime as well as wartime. As these GWOT 
contingency operations have evolved over time, it has become 
increasingly difficult to determine what costs can be deemed as 
incremental expenses in support of these operations from costs that 
would have been incurred whether or not these contingency operations 
took place, such as ship operating costs for the Navy. For example, the 
Atlantic and Pacific surface commands, which are responsible for 
managing the Navy's surface ships, reported obligations for costs 
associated with ship operations and port visits for ships deployed on 
forward-presence missions in the Western Pacific. Navy officials told 
us that some of these ships are stationed out of Hawaii, Japan, and 
Guam and operate near Malaysia, the Philippines, and Thailand. 
According to Navy officials, these ships are spending more time at sea 
and visiting more foreign ports in an effort to provide additional 
presence in support of GWOT. In 2008, Navy officials stated that Navy 
guidance expanded the definition of incremental costs in support of 
Operation Enduring Freedom to include those costs associated with 
forces operating in the Southern Command area of responsibility. We 
found that the Atlantic and Pacific surface commands reported 
obligations for ship operating costs and port visit costs for ships 
deployed on humanitarian missions in Central and South America. Navy 
officials said that ships deployed on humanitarian missions have 
visited countries such as El Salvador and Peru. These officials told us 
that the Navy considers the humanitarian missions to be GWOT-related 
because they benefit the security of the United States by spreading 
goodwill and reducing the expansion of terrorism in foreign nations. 
Costs for these missions are included within the Atlantic and Pacific 
surface commands' ship operating costs for GWOT, which according to our 
analysis represented about 21 percent (about $875 million) of the 
Atlantic Fleet and Pacific Fleet's total GWOT reported obligations for 
operation and maintenance (about $4.2 billion) in fiscal year 2008. 
[Footnote 31] 

Until DOD reconsiders whether expenses not directly attributable to 
specific GWOT contingency operations are incremental costs, the 
military services may continue to include these expenses as part of 
Operation Iraqi Freedom and Operation Enduring Freedom. Furthermore, 
reported costs for both operations may be overstated and costs not 
directly attributable to either operation may continue to be included 
in DOD's GWOT funding requests rather than the base budget. 

Conclusions: 

In light of the nation's long-term fiscal challenge and the current 
financial crisis, DOD will need a more disciplined approach to 
budgeting and evaluating trade-offs as it continues to support ongoing 
operations and prepares for future threats. As the department prepares 
additional GWOT funding requests for military operations in support of 
Operation Iraqi Freedom and Operation Enduring Freedom, reliable and 
transparent cost information will be of critical importance in 
determining the future funding needs for each operation. However, DOD's 
approach to cost reporting does not reliably represent the costs of 
these contingency operations. Although DOD has reported significant 
costs for Operation Iraqi Freedom and Operation Enduring Freedom, the 
cost for Operation Iraqi Freedom may be overstated, since DOD does not 
have a methodology to determine what portion of its total reported GWOT 
obligations for procurement and certain operation and maintenance costs 
is attributable to each operation. Furthermore, it is difficult to 
determine whether some expenses not directly attributable to Operation 
Iraqi Freedom and Operation Enduring Freedom are actually incremental 
costs and incurred to support those operations. Expenses beyond those 
directly attributable to either operation may be more reflective of the 
enduring nature of GWOT and the United States' changed security 
environment since 9/11 and thus should be part of what DOD would 
request and account for as part of its base budget. Due to the enduring 
nature of GWOT, its cost implications should be part of the annual base 
budget debate, especially in light of the competing priorities for an 
increasingly strained federal budget. 

Recommendations for Executive Action: 

In order to improve the transparency and reliability of DOD's reported 
obligations for GWOT by contingency operation, we recommend that the 
Secretary of Defense direct the Under Secretary of Defense 
(Comptroller) to (1) ensure DOD components establish an auditable and 
documented methodology for determining what portion of GWOT costs is 
attributable to Operation Iraqi Freedom versus Operation Enduring 
Freedom when actual costs are not available, and (2) develop a plan and 
timetable for evaluating whether expenses not directly attributable to 
specific GWOT contingency operations are incremental costs and should 
continue to be funded outside of DOD's base budget. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report, DOD agreed with our 
first recommendation and partially agreed with our second 
recommendation. The department's comments are discussed below and are 
reprinted in appendix II. 

DOD agreed with our recommendation that it ensure its components 
establish an auditable and documented methodology for determining what 
portion of GWOT costs is attributable to Operation Iraqi Freedom versus 
Operation Enduring Freedom when actual costs are not available. In its 
comments, DOD noted that it believes its components, for the most part, 
have established formal guidance to strengthen internal controls and 
capture all costs associated with Operation Iraqi Freedom and Operation 
Enduring Freedom from within their accounting systems. However, DOD 
noted that the DOD Financial Management Regulation does include 
guidance for DOD components to develop auditable methodologies, and 
when actual cost by operation is not available, its components are 
required to internally document the methodology used to develop a 
derived estimate of the cost.[Footnote 32] DOD stated that it intends 
to strengthen the guidance in its Financial Management Regulation to 
require an annual review of the methodologies used to allocate these 
costs. DOD believes this action will help promote reasonable cost 
allocations and consistent cost-of-war reporting throughout the 
department. 

DOD partially agreed with our second recommendation that it develop a 
plan and timetable for evaluating whether expenses not directly 
attributable to specific GWOT contingency operations are incremental 
costs and should continue to be funded outside of DOD's base budget. 
DOD noted that it has been reporting contingency costs for several 
years and its objective is to include all incremental costs 
attributable to the war effort. DOD also stated that, as part of its 
continuing efforts to improve both budgeting and reporting of war 
costs, it collaborated with the Office of Management and Budget to 
refine the criteria used for determining where costs will be budgeted, 
either in the base or contingency budgets, and ultimately reported. DOD 
noted that it will use the refined criteria to inform the development 
of portions of the fiscal year 2009 Overseas Contingency Operations 
Supplemental Request and the full fiscal year 2010 Overseas Contingency 
Operations Request, which has not yet been submitted to Congress. As a 
result, we have not yet been able to evaluate DOD's actions to assess 
whether they meet the intent of our recommendation, but will review 
these actions when the budget requests are finalized and submitted to 
Congress. 

We are sending copies of this report to interested congressional 
committees; the Secretary of Defense; the Under Secretary of Defense 
(Comptroller); and the Director, Office of Management and Budget. In 
addition, the report is also available at no charge on the GAO Web site 
at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions regarding this report, please 
contact me at (202) 512-9619 or pickups@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix III. 

Signed by: 

Sharon Pickup: 
Director: 
Defense Capabilities and Management: 

List of Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Kent Conrad: 
Chairman: 
The Honorable Judd Gregg: 
Ranking Member: 
Committee on the Budget: 
United States Senate: 

The Honorable Daniel K. Inouye: 
Chairman: 
The Honorable Thad Cochran: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate: 

The Honorable Ike Skelton: 
Chairman: 
The Honorable John M. McHugh: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable John M. Spratt, Jr. 
Chairman: 
The Honorable Paul Ryan: 
Ranking Member: 
Committee on the Budget: 
House of Representatives: 

The Honorable John P. Murtha: 
Chairman: 
The Honorable C. W. Bill Young: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives: 

[End of section] 

Appendix I: Scope and Methodology: 

To accomplish this review, we obtained and reviewed copies of the 
October 2007 through September 2008 monthly Department of Defense (DOD) 
Supplemental and Cost of War Execution Reports from the Office of the 
Undersecretary of Defense (Comptroller) to identify reported Global War 
on Terrorism (GWOT) obligations by contingency operation and 
appropriation account for the military services. We focused our review 
on the obligations reported for military personnel, operation and 
maintenance, and procurement, for the Army, Navy, Marine Corps and Air 
Force, both active and reserve forces, as these data represent the 
largest amount of GWOT costs. 

As we have previously reported, we have found the data in DOD's 
Supplemental and Cost of War Execution Reports to be of questionable 
reliability. Consequently, we are unable to ensure that DOD's reported 
obligations for GWOT are complete, reliable, and accurate, and they 
should therefore be considered approximations. In addition, DOD has 
acknowledged that systemic weaknesses with its financial management 
systems and business operations continue to impair its financial 
information. Despite the uncertainty about DOD's obligation data, we 
are using this information because it is the only way to approach an 
estimate of the costs of the war. Also, despite the uncertainty 
surrounding the true dollar figure for obligations, these data are used 
to advise Congress on the cost of the war. 

To assess DOD's progress in improving the accuracy and reliability of 
its GWOT cost reporting, we analyzed GWOT obligation data in DOD's 
monthly Supplemental and Cost of War Execution Reports as well as the 
military services' individual accounting systems. These systems 
included the Army's Standard Financial System, the Navy's Standard 
Accounting and Reporting System, the Marine Corps' Standard Accounting, 
Budgeting and Reporting System, and the Air Force's Commanders Resource 
Information System. We analyzed GWOT obligation data from these 
accounting systems to better understand the military services' GWOT 
cost-reporting procedures and how they used these data to report costs 
in DOD's monthly Supplemental and Cost of War Execution Reports. We 
then obtained and reviewed guidance issued by DOD and the military 
services regarding data analysis and methods for reporting obligations 
for GWOT. We also interviewed key officials from the Office of the 
Under Secretary of Defense (Comptroller), the Defense Finance and 
Accounting Service, the Army, Navy, Marine Corps, and Air Force to 
obtain information about specific processes and procedures DOD and the 
military services have undertaken to improve the accuracy and 
reliability of reported GWOT cost information. 

To assess DOD's methodology for reporting GWOT costs by contingency 
operation, including the types of costs reported for those operations, 
we analyzed GWOT obligation data in DOD's monthly Supplemental and Cost 
of War Execution Reports, including the source data for those reports 
in the military services' individual accounting systems. As previously 
discussed, these systems included the Army's Standard Financial System, 
the Navy's Standard Accounting and Reporting System, the Marine Corps' 
Standard Accounting, Budgeting and Reporting System, and the Air 
Force's Commanders Resource Information System. We analyzed GWOT 
obligation data from these accounting systems to determine how the 
military services captured costs for specific contingency operations, 
including the types of costs they included as part of these contingency 
operations. We then obtained and reviewed guidance issued by DOD and 
the military services for identifying and reporting GWOT obligations by 
contingency operation. We also interviewed key officials from the 
Office of the Under Secretary of Defense (Comptroller), the Army, Navy, 
Marine Corps, and Air Force to determine how they interpreted and 
implemented this guidance. 

We interviewed DOD representatives regarding GWOT obligations, policy, 
guidance, and funding for fiscal year 2008 and the reliability of cost 
reporting in the following locations: 

Army: 

* Headquarters, Department of the Army, Washington, D.C. 

* U.S. Army Installation Management Command Headquarters, Arlington, 
Virginia: 

* Army Materiel Command, Ft. Belvoir, Virginia: 

* Headquarters, U.S. Army Forces Command, Ft. McPherson, Georgia: 

* U.S. Army Central Command, Ft. McPherson, Georgia: 

* U.S. Army Installation Management Command, Southeast Region, Ft. 
McPherson, Georgia: 

* Headquarters, First Army, Ft. Gillem, Georgia: 

* Headquarters, U.S. Army Pacific, Ft. Shafter, Hawaii: 

Navy: 

* Department of the Navy, Headquarters, Washington, D.C. 

* Commander, Navy Installations Command Headquarters, Washington, D.C. 

* Commander, U.S. Fleet Forces Command, Norfolk, Virginia: 

* Commander, Naval Air Forces, U.S. Fleet Forces Command, Norfolk, 
Virginia: 

* Commander, Naval Surface Forces, U.S. Fleet Forces Command, Norfolk, 
Virginia: 

* Commander, Submarine Forces, U.S. Fleet Forces Command, Norfolk, 
Virginia: 

* Commander, Navy Expeditionary Combat Command, Norfolk, Virginia: 

* Commander, U.S. Pacific Fleet, Pearl Harbor, Hawaii: 

* Commander, Submarine Forces, U.S. Pacific Fleet, Pearl Harbor, 
Hawaii: 

* Commander, Naval Air Forces, U.S. Pacific Fleet, San Diego, 
California: 

* Commander, Naval Surface Forces, U.S. Pacific Fleet, San Diego, 
California: 

* Commander, Navy Reserve Forces Command, New Orleans, Louisiana: 

Marine Corps: 

* Headquarters Marine Corps, Washington, D.C. 

* U.S. Marine Corps Forces Command, Norfolk, Virginia: 

* Marine Corps Systems Command, Quantico, Virginia: 

* U.S. Marine Corps Forces Central Command, MacDill Air Force Base, 
Florida: 

* U.S. Marine Corps Forces, Pacific, Camp H.M. Smith, Hawaii: 

* 1st Marine Expeditionary Force, Camp Pendleton, California: 

* Marine Corps Base Camp Pendleton, Camp Pendleton, California: 

* Marine Corps Installations West, Camp Pendleton, California: 

* Marine Forces Reserve, New Orleans, Louisiana: 

Air Force: 

* Department of the Air Force, Headquarters, Washington, D.C. 

* Air Force Air Combat Command, Langley Air Force Base, Virginia: 

* 1st Fighter Wing, Langley Air Force Base, Virginia: 

* Headquarters, Air National Guard, Arlington, Virginia: 

* Pacific Air Forces, Hickam Air Force Base, Hawaii: 

* Air Force Materiel Command, Wright-Patterson Air Force Base, Ohio: 

Office of the Secretary of Defense: 

* Office of the Under Secretary of Defense (Comptroller) Washington, 
D.C. 

Defense Finance and Accounting Service: 

* Defense Finance and Accounting Service, Indianapolis, Indiana: 

Unified Commands: 

* U.S. Pacific Command, Camp H.M. Smith, Hawaii: 

* U.S. Central Command, MacDill Air Force Base, Florida: 

* U.S. Special Operations Command, MacDill Air Force Base, Florida: 

Office of Management and Budget: 

* Office of Management and Budget, Washington, D.C. 

We performed our work from January 2008 through March 2009 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Under Secretary Of Defense: 
Comptroller: 
1100 Defense Pentagon: 
Washington, DC 20301-1100: 

March 13, 2009: 

Ms. Sharon Pickup: 
Director, Defense Capabilities and Management: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Ms. Pickup: 

This is the Department of Defense (DoD) response to the Government 
Accountability Office (GAO) Draft Report GAO-09-302, "GLOBAL WAR ON 
TERRORISM: DoD Needs to More Accurately Capture and Report the Costs of 
Operation Iraqi Freedom and Operation Enduring Freedom," dated February 
9, 2009 (GAO Code 351155). 

the Department appreciates the opportunity to comment on the draft 
report, and we were pleased to see the many instances where GAO 
includes comment on the progress made by the Department to improve the 
accuracy and reliability of cost of war reporting. We consider the 
newly revised cost of war report, commonly referred to as the Status of 
Funds report, to be a primary example where the Department has taken 
steps to improve the reliability and usefulness of cost of war 
reporting. 

In recent months, the Department has focused on validating the 
reliability of the current reporting process and making improvements. 
The underlying controls in capturing the contingency-related 
incremental cost data at the various sources and in reporting the 
consolidated balances in the monthly Status of Funds reports are key to 
producing reliable and credible information. Preliminary results of the 
ongoing transaction sampling, allocation methodology reviews, and 
improvement actions demonstrate the balances and reporting process are 
generally reliable. 

The Department concurs with the recommendation that DoD should 
establish an auditable and documented methodology for determining what 
portion of contingency cost is attributable to Operation Iraqi Freedom 
(OIF) or Operation Enduring Freedom (OFF) when actual costs are not 
available. As the report notes, Volume 12, Chapter 23 of the DoD 
Financial Management Regulation (DoD FMR) 7000.14-R does include 
guidance for the DoD Components to develop auditable methodologies. The 
Components, for the most part, have established formal guidance to 
strengthen internal controls and to capture all costs associated with 
OIF/OEF from within their accounting systems. In instances where the 
support was provided at the theater level, i.e., acquisition of 
bandwidth or "Navy steaming days," and actual cost by operation is not 
available, the Components are required to internally document the 
methodology used to develop the derived estimate of cost. We intend to 
strengthen the guidance in the DoD FMR to require an annual review of 
the methodologies used to allocate these costs. We believe this action 
will help to promote reasonable cost allocations and consistent cost of 
war reporting throughout the Department. 

The Department partially concurs with the recommendation that DoD 
should develop a plan and timetable for evaluating whether expenses not 
directly attributable to specific contingency operations are 
incremental costs and should continue to be funded outside of DoD's 
base budget. The Department has been reporting contingency costs for 
several years, and its objective is to include all incremental costs 
attributable to the war effort. An example of the Department's 
continuing efforts to improve both budgeting and reporting for the war 
effort is a recent collaboration with the Office of Management and 
Budget to refine the criteria used for determining where costs will be 
budgeted, either in the base or overseas contingency operations 
budgets, and ultimately reported. The Department will use the refined 
criteria to inform the development of the
FY 2009 Overseas Contingency Operations Supplemental Request and the FY 
2010 Overseas Contingency Operations Request. 

Sincerely, 

Signed by: 

Robert F. Hale: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Sharon Pickup, (202) 512-9619 or pickups@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Ann Borseth, Assistant 
Director; Richard Geiger; Susan Ditto; Linda Keefer; Ron La Due Lake; 
Deanna Laufer; Lonnie McAllister; Eric Petersen; and Joseph Rutecki 
made key contributions to this report. 

[End of section] 

Footnotes: 

[1] The DOD Financial Management Regulation, 7000.14-R, vol. 12, ch. 
23, sec. 230101 (September 2007) defines contingency operations as 
small-, medium-, and large-scale campaign-level military operations, 
including support for peacekeeping operations, major humanitarian 
assistance efforts, noncombatant evacuation operations, and 
international disaster relief efforts. 

[2] DOD, Financial Management Regulation, 7000.14-R, vol. 12, ch. 23, 
secs. 230406, 230902, and 231403A (September 2007) provide additional 
information on incremental costs. 

[3] Deputy Secretary of Defense Memorandum, Ground Rules and Process 
for the FY '07 Spring Supplemental (Oct. 25, 2006). Although DOD did 
not define the "longer war against terror," it stated that these costs 
could include reconstitution or reset costs for combat losses, 
accelerated wear and necessary repairs to damaged equipment or 
replacement with newer models, and costs to accelerate specific force 
capability. 

[4] In fiscal year 2005, DOD began requesting funding for Operation 
Noble Eagle in its base budget request. 

[5] GAO, Global War on Terrorism: DOD Needs to Take Action to Encourage 
Fiscal Discipline and Optimize the Use of Tools Intended to Improve 
GWOT Cost Reporting, [hyperlink, http://www.gao.gov/products/GAO-08-68] 
(Washington, D.C.: Nov. 6, 2007). 

[6] Pub. L. No. 109-163, ß 1221 (2006). 

[7] Pub. L. No. 109-364, ß 1008 (2006). 

[8] Pub. L. No. 110-417, ß 1502 (2008). 

[9] This report identifies monthly and cumulative incremental GWOT 
costs for the current fiscal year by appropriation, contingency 
operation, and military service or defense agency. 

[10] GAO, Global War on Terrorism: DOD Needs to Improve the Reliability 
of Cost Data and Provide Additional Guidance to Control Costs, 
[hyperlink, http://www.gao.gov/products/GAO-05-882] (Washington, D.C.: 
Sept. 21, 2005). 

[11] DOD refers to the military operations in support of GWOT as 
contingency operations, although vol. 12, ch. 23 of the DOD Financial 
Management Regulation, 7000.14-R specifically states that the 
regulation does not address wartime activities. Nonetheless, DOD and 
military service officials use this regulation to guide GWOT budgeting, 
cost reporting, and spending. 

[12] Servicemembers who are assigned, deployed, or traveling on 
temporary duty to certain foreign areas are eligible for certain 
special pays and benefits, such as imminent danger pay. 37 U.S.C. ß 310 
(a) (2) (D). 

[13] DOD, Financial Management Regulation, 7000.14-R, vol. 12, ch. 23, 
sec. 230702 (September 2007). 

[14] [hyperlink, http://www.gao.gov/products/GAO-05-882]; GAO, Global 
War on Terrorism: Fiscal Year 2006 Obligation Rates Are Within Funding 
Levels and Significant Multiyear Procurement Funds Will Likely Remain 
Available for Use in Fiscal Year 2007, [hyperlink, 
http://www.gao.gov/products/GAO-07-76] (Washington, D.C.: Nov. 13, 
2006); and [hyperlink, http://www.gao.gov/products/GAO-08-68]. 

[15] Deputy Secretary of Defense Memorandum, Improvement of Global War 
on Terror (GWOT) Cost of War Reporting (Feb. 26, 2007). 

[16] Office of the Under Secretary of Defense (Comptroller) Memorandum, 
Continued Improvement to Contingency Operations Reporting (Feb. 15, 
2008). 

[17] DOD, Financial Management Regulation, 7000.14-R, vol. 3, ch. 8, 
sec. 080401 (June 2005) requires that funds holders conduct a triannual 
review of commitments and obligations. During these reviews, officials 
are to review commitment and obligation transactions for timeliness, 
accuracy, and completeness. 

[18] As of January 2009, the Contingency Operations Reporting and 
Analysis System can automatically pull operation and maintenance 
obligation data for the Army, Air Force, Marine Corps, and U.S. Special 
Operations Command. In addition, the system can automatically pull 
military personnel obligation data for the Army Reserve and Army 
National Guard, and procurement nonammunition obligation data for the 
Marine Corps. 

[19] The Supplemental Cost of War and Execution Report replaced the 
Consolidated DOD Terrorist Cost Response Report issued from September 
2001 through December 2004. DOD has prepared reports on the obligations 
incurred for its involvement in GWOT since fiscal year 2001. 

[20] DOD, Financial Management Regulation, 7000.14-R, vol. 12, ch. 23, 
sec. 230406 (September 2007). 

[21] The Army gathers GWOT obligation data by codes called Functional 
Cost Accounts. Functional Cost Accounts are used for capturing 
obligations for particular operations, natural disasters, or high- 
visibility programs. DFAS uses these codes to pull Army obligation data 
for the Contingency Operations Reporting and Analysis System. 

[22] The Army's modular restructuring initiative began in 2004 as part 
of the overall Army transformation initiative. See GAO, Force 
Structure: Better Management Controls Are Needed to Oversee the Army's 
Modular Force and Expansion Initiatives and Improve Accountability for 
Results, [hyperlink, http://www.gao.gov/products/GAO-08-145] 
(Washington, D.C.: Dec. 14, 2007). 

[23] The revised Army cost codes are included within DFAS-IN Manual 37- 
100-09 (reference 2.b.), the standard Army accounting-classification 
manual. 

[24] [hyperlink, http://www.gao.gov/products/GAO-05-882]. 

[25] We are unable to ensure that DOD's reported obligations for GWOT 
are complete, reliable, and accurate, and they should therefore be 
considered approximations. 

[26] DOD, Financial Management Regulation, 7000.14-R, vol. 12, ch. 23, 
sec. 230904B (September 2007). 

[27] DOD, Financial Management Regulation, 7000.14-R, vol. 12, ch. 23, 
sec. 230904C1 and 230904C2 (September 2007). 

[28] DOD defines reset as actions to restore units to a desired level 
of combat capability, including maintenance and supply activities that 
restore and enhance equipment that was destroyed, damaged, stressed, or 
worn out beyond economic repair due to combat operations by repairing, 
rebuilding, or procuring replacement equipment. 

[29] DOD, Financial Management Regulation, 7000.14-R, vol. 12, ch. 23, 
sec. 230902 and sec. 231403A (September 2007). 

[30] The Air Force developed its "long war" code based upon the Deputy 
Secretary of Defense Memorandum, Ground Rules and Process for the FY 
'07 Spring Supplemental (Oct. 25, 2006) that expanded the ground rules 
for DOD's GWOT requests to include costs related to the "longer war 
against terror." 

[31] As previously discussed, because the Navy uses a cost model to 
estimate how much of a ship's total operating costs should be allocated 
to GWOT, we are unable to identify the specific costs tied to these 
forward-presence missions. 

[32] DOD, Financial Management Regulation, 7000.14-R, vol. 12, ch. 23, 
sec. 230904C1 and 230904C2 (September 2007). 

[End of section] 

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