DOD reports the incremental costs of its participation in contingency operations. In addition to incremental costs, DOD incurs costs to maintain a standing military force. Table 1.1 provides detail on the reported incremental costs. Objectives, Scope, and Methodology

In response to a request from the Chairmen of the House Committees on International Relations and National Security, we reviewed (1) the accuracy of DOD’s reported incremental costs for contingency operations and (2) the adequacy of DOD guidance and accounting systems to ensure accurate cost reporting. A material weakness raises questions about the reliability of reported costs. We identified about $104 million in overstated costs and about $171 million in understated costs between fiscal years 1994 and 1995. We also found instances where the accuracy of some reported costs could not be determined. Costs Are Overstated Because They Are Not Adjusted to Reflect Offsets

The services do not have financial management systems that capture actual incremental costs. We did not determine the amount of this overstatement. Services Report Estimated Incremental Personnel Costs

Military personnel deployed to contingency operations become eligible for several types of special pays and allowances. Guidance for Reporting Incremental Costs Is Vague and Accounting Systems Are Unreliable

The DOD Comptroller and the service secretaries have not developed sufficiently specific guidance for identifying contingency operation costs and the methodology for calculating them.
Why GAO Did This Study

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.

What GAO Found

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.