According to Defense, CSF is critical to ensure Pakistan’s continued  support of U.S. efforts to combat terrorism. The United States  eventually reimbursed Pakistan $300 million. Defense Did Not Consistently Apply Its Existing Guidance, and Additional Procedures Are Needed to Ensure Accountability over CSF to Pakistan

We found that Defense did not consistently apply existing CSF guidance  and that certain deficiencies existed in their oversight procedures. For example,  the Comptroller generally performed a comparison of total claimed costs  to the estimated U.S. cost to provide the same services; however, there  was not enough information in the Pakistani claims to determine that the  claimed amount and the estimated U.S. cost included the same expenses  or that the claimed costs were valid. Defense guidance developed by the  Comptroller calls for obtaining sufficient information to validate Pakistani  claims to determine that costs were incurred, reasonable, and appropriate. For example,  Defense reimbursed Pakistan over $2 billion for claims from January 2004  through June 2007 without obtaining detailed documentation that would  allow a third party to recalculate the costs. As a result, Defense may have paid costs that were (1) not  incremental, (2) not based on actual activity, or (3) potentially duplicative. We also found that additional oversight controls were needed. Currency Conversions Were Not Verified

CSF guidance does not require Defense to identify or evaluate the  exchange rates used for claims presented in U.S. dollars. ODRP Began Playing a Larger Role in the CSF Oversight Process in Late 2006; However, ODRP’s Continued Oversight Is Not Assured

Defense’s 2003 guidance did not specifically task ODRP with attempting to  verify Pakistani military support and expenses, despite recognition by  Defense officials that such verification is best performed by U.S. officials  in Pakistan, who have direct access to Pakistani officials and information. As such, ODRP did not try to verify Pakistani CSF claims until September  2006, when, without any formal guidance or directive to do so, ODRP  began an effort to validate Pakistani military support and expenses. This  increased verification effort contributed to an increase in the amount of  disallowals and deferrals of the Pakistani government’s CSF claims from  an average of a little over 2 percent from January 2004 through August  2006, an average of 6 percent from September 2006 through February 2007,  and 22 percent for the most recent claims (March 2007 through June 2007)  processed in February 2008. ODRP Initiated Verification of Pakistani Support and Costs; Contributed to Increases in the Amount of Claims Deferred or Disallowed

In late 2006, without any formal guidance or directive to do so from  CENTCOM or the Comptroller, ODRP began an effort to verify that  Pakistani military support was provided and costs were actually incurred  as claimed in the military’s requests for reimbursement. The amount disallowed or deferred for March through June 2007  represents a significant increase in CSF oversight by Defense. However, as of May 2008,  Defense had not formalized any new guidance on ODRP’s verification  responsibilities. While we recognize that CSF is used to support 27  countries in fighting terrorism, the fact that Pakistan receives 81 percent  of these funds indicates that Defense should provide oversight procedures  that reflect the role Pakistan plays as both the major recipient of CSF and  its role in supporting U.S. national security objectives in Pakistan and  Afghanistan. Additionally, we recognize that Defense may not be able to  fully verify all Pakistani claims without having the ability to access the  Pakistani government’s records and make site visits or conduct spot  checks. Our review therefore focused on the extent to which Defense  has applied its own guidance to validate reimbursements and on Office of  the Defense Representative to Pakistan’s (ODRP) role in this process. Because this  report led to new CSF oversight guidance in December 2003, our  assessment of Defense’s oversight controls focused on 42 monthly  reimbursement claims submitted by the Pakistani government from  January 2004 to June 2007.
Why GAO Did This Study

The United States has reimbursed Pakistan, a key ally in the global war on terror, about $5.56 billion in Coalition Support Funds (CSF) for its efforts to combat terrorism along its border with Afghanistan. The Department of Defense (Defense) provides CSF to 27 coalition partners for costs incurred in direct support of U.S. military operations. Pakistan is the largest recipient of CSF, receiving 81 percent of CSF reimbursements as of May 2008. This report focuses on (1) the extent to which Defense has consistently applied its guidance to validate the reimbursements claimed by Pakistan and (2) how the Office of the Defense Representative to Pakistan's (ODRP) role has changed over time. To address these objectives, GAO reviewed CSF oversight procedures, examined CSF documents, and interviewed Defense officials in Washington, D.C., U.S. Central Command in Florida, and Pakistan.

What GAO Found

Defense Comptroller issued new guidance in 2003 to enhance CSF oversight. The guidance calls for, among other things, CSF reimbursement claims to contain quantifiable information that indicates the incremental nature of support (i.e., above and beyond normal operations), validation that the support or service was provided, and copies of invoices or documentation supporting how the costs were calculated. While Defense generally conducted macro-level analytical reviews called for in its guidance, such as determining whether the cost is less than that which would be incurred by the United States for the same service, for a large number of reimbursement claims Defense did not obtain detailed documentation to verify that claimed costs were valid, actually incurred, or correctly calculated. GAO found that Defense did not consistently apply its existing CSF oversight guidance. For example, as of May 2008, Defense paid over $2 billion in Pakistani reimbursement claims for military activities covering January 2004 through June 2007 without obtaining sufficient information that would enable a third party to recalculate these costs. Furthermore, Defense may have reimbursed costs that (1) were not incremental, (2) were not based on actual activity, or (3) were potentially duplicative. GAO also found that additional oversight controls were needed. For example, there is no guidance for Defense to verify currency conversion rates used by Pakistan, which if performed would enhance Defense's ability to monitor for potential overbillings. Defense's guidance does not specifically task ODRP with attempting to verify Pakistani military support and expenses, despite recognition by Defense officials that such verification is best performed by U.S. officials in Pakistan, who have access to Pakistani officials and information. As such, ODRP did not try to verify Pakistan CSF claims from January 2004 through August 2006. Beginning in September 2006, without any formal guidance or directive to do so from U.S. Central Command or the Defense Comptroller, ODRP began an effort to validate Pakistani military support and expenses. This increased verification effort on the part of ODRP contributed to an increase in the amount of Pakistani government CSF claims disallowed and deferred. Prior to ODRP's increased verification efforts, the average percentage of Pakistani claims disallowed or deferred for January 2004 through August 2006 was a little over 2 percent. In comparison, the average percentage of Pakistani claims disallowed or deferred for September 2006 through February 2007 was 6 percent and for the most recent claims (March 2007 through June 2007) processed in February 2008, was approximately 22 percent. However, ODRP's continued oversight activity is not assured, as Defense had not developed formal guidance delineating how and to what degree ODRP should attempt to verify Pakistani claims for reimbursement. GAO recognizes that Defense may not be able to fully verify every Pakistani claim without the ability to access Pakistani records or do onsite monitoring. However, such ability would enhance CSF oversight.