In December  2001, Congress passed the Defense Appropriations Act for fiscal year 2002,  stipulating that the “Defense Emergency Response Fund” could be used by  the Secretary of Defense to reimburse coalition partners like Pakistan for  their logistical and military support of U.S. military operations. This  funding became known as Coalition Support Funds. 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. Comptroller generally performed four broad analytical reviews as called  for in its guidance. Defense guidance developed by the Comptroller also 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. Defense reimbursed Pakistan  more than $2.2 billion, or 76 percent, of Pakistani army claims from  January 2004 through June 2007, without obtaining sufficient information  to support how the costs were calculated. Defense Paid Costs That May Not Have Been Incremental

Comptroller guidance states that reimbursement claims must clearly  indicate the incremental nature of the logistical and military support  provided—i.e., that claimed costs are above and beyond the partner  country’s normal operating costs. 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. Because of this, 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 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. For  example, from January 2004 through August 2006, Defense disallowed or  deferred an average of a little more than 2 percent of each monthly  Pakistani reimbursement claim, for a total of $59.4 million over a 32-month  period. In comparison, the average percentage of Pakistani claims  disallowed or deferred for September 2006 through February 2007 was 6  percent or $33.3 million over a 6-month period and for the most recent  claims (March 2007 through June 2007) processed in February 2008, was  approximately 22 percent, or $81.2 million in a four month period. No Guidance to Ensure Continued Oversight by ODRP

Despite ODRP’s increased oversight activity, the continuity of this  oversight is not assured. Defense has never provided ODRP with  guidance on how, and to what extent, it should verify that Pakistan  actually provided military support and that expenses were actually  incurred. Our assessment found that while CSF played a key role in Pakistan’s  support for the war on terror, Defense has not followed its existing  guidance and has provided little oversight of the effort at the embassy in  Pakistan. Prior to 2004, it appears there was even less  evidence to support Pakistan’s claims. 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. This is a work of the U.S. government and is not subject to copyright protection in the  United States.
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 for costs incurred in direct support of U.S. military operations. Pakistan is the largest recipient of CSF, receiving 81 percent of CSF reimbursements. This testimony 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. This statement is based on a concurrently issued GAO report titled Combating Terrorism: Increased Oversight and Accountability Needed over Pakistan Reimbursement Claims for Coalition Support Funds, GAO-08-806 (Washington, D.C.: June 24, 2008).

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.