Potential for Excess Funds in DOD

NSIAD-85-145: Published: Sep 3, 1985. Publicly Released: Sep 3, 1985.

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Pursuant to a congressional request, GAO reviewed the Secretary of Defense's offer to reapply $4 billion from fiscal years (FY) 1984 and 1985 appropriations to the 1986 defense budget to determine whether there were: (1) excess funds in the Department of Defense's (DOD) budget; (2) reprogramming actions and lapsing balances; and (3) possible alternatives to the current inflation compensation system.

GAO found that DOD had requested its budget authority based on estimates of inflation and has been unable to use the appropriated funds at those estimated rates. Since 1982, DOD has budgeted $36.8 billion more than was needed to cover inflation and used a special multiplier for major weapons, which accounted for $9.2 billion of that amount. Three alternatives were considered to the current system for dealing with inflation. GAO believes that budgeting for inflation through a revolving fund would be difficult because of technical, managerial, measurement, and monitoring problems. It would also be difficult to not budget for inflation since defense programs take several years to implement and it is difficult to distinguish the effects of inflation from the effects of program changes. GAO believes that the best alternative would be to improve the present inflation estimating system because DOD could: (1) eliminate the special multiplier for weapons systems; (2) use the gross national product (GNP) deflator for all nonpay and nonfuel purchases; and (3) decide how amounts should be distributed within its budget structure. GAO found that: (1) DOD had underestimated the level of unobligated balances because it was unable to achieve its planned obligation rates; and (2) reprogramming actions provided DOD with the flexibility to reapply funds in excess of program needs. However, GAO could not determine the amount of excess funds still available since DOD did not have an integrated accounting system that could routinely produce relevant financial information.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Items one and three were encompassed in S. Rept. 99-446, which requests the Comptroller General to study the feasibility of budgeting separately for inflation, code 394189; however, there was no provision in the FY 1987 budget for the multiplier, cited in item two. Item four was included in S. Rept. 99-176, which was tracked by AFMD in the FY 1987 work program.

    Recommendation: The Secretary of Defense should take the following actions: (1) continue to use the GNP deflator as the basic index for DOD inflation budgeting for the portion of the DOD purchases other than pay and fuel; (2) eliminate the use of a multiplier in budgeting inflation for the major weapon systems accounts; (3) distribute the funds budgeted for inflation among the various DOD appropriations accounts in consultation with the Office of Management and Budget; and (4) monitor any annual inflation dividends or shortfalls that occur and report the latest information to Congress at the critical stages in the budget process.

    Agency Affected: Department of Defense


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