Contingency Operations:

DOD's Reported Costs Contain Significant Inaccuracies

NSIAD-96-115, May 17, 1996

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Pursuant to a congressional request, GAO reviewed the reliability of the Department of Defense's (DOD) reported costs for contingency operations, focusing on the: (1) accuracy of reported incremental costs; and (2) adequacy of DOD guidance and accounting systems to ensure accurate cost reporting.

GAO found that: (1) DOD overstated about $104 million in incremental costs and understated or failed to report about $171 million in incremental costs; (2) DOD overstated costs primarily because the services failed to adjust reported incremental costs for normal costs they did not incur; (3) DOD understated costs primarily because the services failed to report certain incremental personnel and munitions costs; (4) it could not determine the accuracy of some reported costs because the services could not readily identify special pay and allowances related to contingency operations; (5) DOD revised its guidance for developing and reporting incremental costs, but the guidance generally remains vague and incomplete; (6) the financial management systems DOD uses to develop incremental cost data are deficient, unreliable, and a high-risk area; and (7) the problems in DOD reporting of incremental cost are indicative of a material weakness in DOD accounting systems.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve the accuracy of cost reporting, the Secretary of Defense should direct the DOD Comptroller to clarify existing guidance to specify what costs to include in contingency operations cost reporting. At a minimum the guidance should specify the methodology to: (1) calculate these costs; and (2) adjust costs to reflect offsets.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: On July 21, 1998, the Department directed implementation of a standard contingency cost operations cost breakdown structure to improve contingency operations cost estimating and reporting. This structure, to be implemented on October 1, 1998, contained guidance on what to include in contingency costs and what to exclude. In March 1999, the Department modified volume 12, chapter 23 of its financial management regulations regarding cost reporting, including guidelines for determining baseline and incremental costs for contingency operations.

    Recommendation: To improve the accuracy of cost reporting, the Secretary of Defense should direct the service secretaries to develop comprehensive implementing instructions from the DOD Comptroller's guidance. This guidance should specify how the services would like reporting units to apply internal controls standards so that incremental costs are adequately supported, recorded, and reviewed.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: On July 21, 1998, the Department directed implementation of a standard contingency cost operations cost breakdown structure to improve contingency operations cost estimating and reporting. This structure, to be implemented on October 1, 1998, contained guidance on what to include in contingency costs and what to exclude. In March 1999 the Department modified volume 12, chapter 23 of its financial management regulations regarding cost reporting, including guidelines for determining baseline and incremental costs for contingency operations.