Defense Logistics:

Better Fuel Pricing Practices Will Improve Budget Accuracy

GAO-02-582: Published: Jun 21, 2002. Publicly Released: Jun 21, 2002.

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The Department of Defense (DOD) Defense Working Capital Fund was used to buy $70 billion in commodities in fiscal year 2001. This amount is estimated to grow to $75 billion for fiscal year 2003. The department's financial management regulation states that fund activities will operate in a business-like fashion and incorporate full costs in determining the pricing of their products. The National Defense Authorization Act for Fiscal year 2001 requires that GAO review the working capital fund activities to identify any potential changes in current management processes or policies that would result in a more efficient and economical operation. The act also requires that GAO review the Defense Logistics Agency's (DLA) efficiency, effectiveness, and flexibility of operational practices and identify ways to improve services. One such DLA activity, the Defense Energy Support Center, sold $4.7 billion of various petroleum-related products to the military services in fiscal year 2001. DOD's fuel prices have not reflected the full cost of fuel as envisioned in the working capital fund concept because cash movements to the fund balance and surcharge inaccuracies have affected the stabilized annual fuel prices. Over $4 billion was moved into and out of the working capital fund from fiscal year 1993 to 2002. These adjustments affected the extent to which subsequent years' prices reflected the full cost of fuel. In addition, the surcharges did not accurately account for fuel-related costs as required by DOD's Financial Management Regulation.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD generally concurred, but asserted that information is already being provided that it believes is sufficient to report why cash was moved. However, GAO maintains that there is a need for a formal record of the rationale to fully disclose and account for each cash movement.

    Recommendation: To improve the overall accuracy of DOD's fuel pricing practices, the Secretary of Defense should direct DOD's comptroller to provide a rationale to Congress, consistent with language in the applicable appropriations act, to support the movement of funds from the working capital fund and to identify the effect on future prices.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD concurred with the recommendation, but expressed concern about how long to retain the records and proposed retaining them for 5 years. GAO concluded that DOD's proposal was reasonable.

    Recommendation: To improve the overall accuracy of DOD's fuel pricing practices, the Secretary of Defense should direct DOD's comptroller to require DLA and the Defense Energy Support Center to develop and maintain sound methodologies that fully account for the surcharge costs consistent with DOD's Financial Management Regulation and maintain adequate records to support the basis for all surcharge costs included in the stabilized annual fuel price.

    Agency Affected: Department of Defense

 

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