Overseas Contingency Operations:

OMB and DOD Should Revise the Criteria for Determining Eligible Costs and Identify the Costs Likely to Endure Long Term

GAO-17-68: Published: Jan 18, 2017. Publicly Released: Jan 18, 2017.

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What GAO Found

In 2010 the Office of Management and Budget (OMB), in collaboration with the Department of Defense (DOD), issued criteria for deciding whether items properly belong in the base budget or in the overseas contingency operations (OCO) funding request, but the criteria are outdated and do not address the full scope of activities included in DOD's fiscal year 2017 OCO budget request. For example, they do not address geographic areas such as Syria and Libya, where DOD has begun military operations; DOD's deterrence and counterterrorism initiatives; or requests for OCO funding to support requirements not related to ongoing contingency operations. Further, the amount of OCO appropriations DOD considers as non-war increased from about 4 percent in fiscal year 2010 to 12 percent in fiscal year 2015. DOD officials agree that updated guidance is needed but note that the Office of Management and Budget has deferred the decision to update the criteria until a new administration is in place in 2017. Without reevaluating and revising the criteria, decision makers may be hindered in their ability to set priorities and make funding trade-offs.

Fiscal Year 2017 Overseas Contingency Operations Funding Request, by Activitya

Fiscal Year 2017 Overseas Contingency Operations Funding Request, by Activitya

a Includes $5.8 billion in additional OCO funds requested in a November 2016 amendment to DOD's OCO request.  The amendment included $20 million in OCO funding for Operation Odyssey Lightning not shown above. 

DOD officials told GAO that the department had developed an initial estimate of costs being funded with OCO appropriations that are likely to endure beyond current operations, but has not finalized or reported its estimate outside of the department. In May and July 2016, OMB and DOD officials said the estimate of enduring costs was between $20 billion and $30 billion—as much as 46 percent of DOD's total OCO budget request for fiscal year 2017—and indicated that DOD continues to evaluate and revise this estimate, which might be closer to the higher end of that range. GAO recommended in 2014 that DOD develop guidance for transitioning enduring costs funded by OCO appropriations to DOD's base budget. According to DOD officials, DOD has not finalized and reported its estimate of enduring costs because current statutory spending caps limit its ability to increase base budget funding. Without a reliable estimate of DOD's enduring OCO costs, decision makers will not have a complete picture of the department's future funding needs or be able to make informed choices and trade-offs in budget formulation and decision making.

Why GAO Did This Study

Since 2001 Congress has provided over $1.6 trillion in appropriations to fund OCO. For fiscal year 2017, DOD requested $64.6 billion in funding for OCO. While DOD's OCO budget request has included amounts for contingency operations primarily in Iraq and Afghanistan, more recently the request has also included other activities, such as efforts to deter Russia and reassure U.S. allies and partners. DOD acknowledges that many OCO costs are likely to endure after contingency operations cease.

GAO was asked to review DOD's use of OCO funds. This review assesses (1) the extent to which OMB's 2010 criteria address the activities included in DOD's OCO budget request; and (2) whether DOD has developed and reported an estimate of the costs being funded with OCO appropriations that are likely to endure beyond current contingency operations. GAO analyzed OMB's criteria for determining whether costs belonged in the OCO budget and reviewed DOD-provided information on its enduring OCO costs.

What GAO Recommends

GAO recommends that DOD, in collaboration with OMB, reevaluate and revise the criteria for determining what can be included in DOD's OCO budget requests; and that DOD develop a complete and reliable estimate of enduring OCO costs to report in future budget requests. DOD concurred with our first recommendation and plans to propose revised OCO criteria to OMB. DOD partially concurred with our second recommendation but identified no steps planned to develop and report its enduring OCO costs.

For more information, contact John Pendleton at (404) 679-1816 or pendletonj@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: In DOD's response to a draft of our report, DOD concurred with our recommendation and stated it planned to propose updated criteria to OMB to reflect current and evolving threats and reflect any changes in overseas contingency operations policy under the new Administration. In October 2017, a DOD official stated that the department has discussed possible modifications to the criteria with the military departments and combatant commands, but has not made any formal recommendations to the OMB to revise the criteria. The National Defense Authorization Act for Fiscal Year 2018 included a provision requiring DOD and OMB to update their OCO criteria by September 2018. However, as of August 2018, neither OMB nor DOD has publically released updated criteria, and DOD had not made any updates to Volume 12, Chapter 23 of its Financial Management Regulation that governs contingency operations to reflect updated criteria.

    Recommendation: To provide additional information for congressional decision makers regarding DOD's budget, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller), in consultation with the OMB, to reevaluate and revise the criteria for determining what can be included in DOD's OCO budget requests to reflect current OCO-related activities and relevant budget policy directing in which budget requests OCO funds may be included.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: In its response to our draft report, DOD partially concurred with our recommendation and commented that developing reliable estimates is an important first step in any future effort to transition these costs to the base budget. However, DOD stated that until there is relief from the budgetary caps established by the Budget Control Act of 2011, DOD would need overseas contingency operations funds to finance counterterrorism operations, such as Operation Freedom's Sentinel and Operation Inherent Resolve.. In May 2018, DOD provided information indicating it was taking steps to implement this recommendation. For example, the department told us it had received direction from the Office of Management and Budget (OMB) to develop a plan for the fiscal year 2020 President's Budget to shift the enduring costs in the OCO budget to the base budget on a one-for-one basis, reducing the size of OCO while staying within the same DOD topline. According to DOD, the remaining OCO budget will fund only those costs directly associated with combat operations. In its budget justification materials for fiscal year 2019, DOD estimated the funds that would be shifted from the overseas contingency operations to the base budget request ranged from $53.0 billion to $45.8 billion from fiscal years 2020 through 2023.

    Recommendation: To assist decision makers in formulating DOD's future budgets, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to develop a complete and reliable estimate of DOD's enduring OCO costs and to report these costs in concert with the department's future budget requests, and to use the estimate as a foundation for any future efforts to transition enduring costs to DOD's base budget.

    Agency Affected: Department of Defense

 

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