Budgeting Issues:

Budgeting for Inflation in DOD Purchases of Petroleum Products

NSIAD-86-125: Published: May 1, 1986. Publicly Released: May 1, 1986.

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Pursuant to a congressional request, GAO reviewed how the Department of Defense (DOD): (1) estimates funding for its fuel purchases; and (2) realizes inflation dividends in its budget.

GAO found that: (1) the inflation dividend for fuel purchases will total $5 billion between fiscal year (FY) 1982 and FY 1986; (2) DOD uses forecasts of crude oil prices to predict the prices it will pay for refined petroleum products; (3) because crude and refined oil prices showed similar trends between 1982 and 1986, DOD forecasting did not lead to any substantial errors in price projections; (4) the defense fuel budget for FY 1985 was developed assuming a slight increase in fuel prices, but when prices actually fell 4.3 percent, there was a 4.8 percent excess in fuel funds; and (5) the difference between the FY 1986 estimate and the FY 1985 estimate resulted from changes in the years' dividends. GAO also found that: (1) the amount of fuel inflation dividends remaining available to DOD for obligation could not be determined because all of the dividends occurred in the Stock Fund or Operations and Maintenance accounts; (2) as DOD became aware that excess balances in fuel funds were accumulating in the Stock Fund, it reduced its fuel budgets to compensate for the excess balances; and (3) congressional cuts for FY 1985 and FY 1986 offset most, but not all, of the dividends realized for those years.

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