Since September 11, 2001, DOD reports that it obligated $191 billion  through May 2005 to conduct GWOT. Reliability of DOD’s Reported Costs Is Unknown

We found numerous problems in DOD’s processes for recording and  reporting costs for the Global War on Terrorism, raising significant  concerns about the overall reliability of DOD’s reported cost data. As a  result, neither DOD nor Congress (1) can reliably know how much the war  is costing and details on how appropriated funds are being spent or (2)  have historical data useful in considering future funding needs. On the  basis of our work, DOD is taking steps to improve its cost reporting. However, as was the case in our 1996 report, because it was not feasible to  examine all reported costs and significant data reliability problems existed,  we were not able to determine the extent that total costs were misstated. The commander of coalition forces in Iraq has set a 10 percent  cost reduction target in Iraq. DOD is generally using its existing contingency operations financial  management regulation to guide GWOT budgeting, cost reporting, and  spending, although this regulation was developed and structured to  manage the costs of small-scale contingency operations. Specific  provisions of the regulation conflict with the needs of GWOT. One such  conflict concerns administrative limitations on the use of supplemental  funds for base support activities at home stations. In  response to our work, DOD revised its Financial Management Regulation. While certain individual commands have taken steps to control costs and  DOD policy generally advises its officials of their financial management  responsibilities with regard to the prudent use of contingency funding, the  Office of the Under Secretary of Defense (Comptroller) has not  systematically called for all commands involved in GWOT to take steps to  control costs and to keep the office informed of those steps and their  success. With the growth in GWOT costs, there is a need to ensure that all  commands seek to control costs. Until the department establishes  guidelines on cost controls and is routinely informed about the types of  controls and their impact on costs, it cannot be sure that all that can be  done to control costs is being done. 3. Regarding our recommendations on improving the accuracy and reliability  of reported costs of the Global War on Terrorism and to have the Office of  the Under Secretary of Defense (Comptroller) play a role in overseeing the  efforts as well as to develop a systematic process to review and test the  reliability of the overall GWOT cost reports, DOD stated that it has  completed implementation of this recommendation through the execution  of new guidance and procedures for collecting and reporting cost of war  information and is actively overseeing the preparation of GWOT cost  reports. In commenting on the report’s content, DOD disagreed with GAO’s position  on the overstatement of the reported costs for mobilized Army reservists in  fiscal year 2004. Finally, we believe that DOD’s reference in its  comment letter to the $2.1 billion difference as an anomaly is a  mischaracterization--particularly when viewed in the context of its  explanation that “the Department’s use of estimates led to a difference.”    As clearly stated in this report, we found that the reported cost data are not  reliable, in part because of long-standing deficiencies in DOD’s financial  and accounting systems, a lack of systematic processes to ensure that data  are properly entered into those accounting systems, and the use of  estimates rather than actual information. We focused our analysis  primarily, but not exclusively, on reported costs for fiscal year 2004—the  latest full year of data available at the time of our review—and specifically  the military personnel and operation and maintenance accounts as they  represent the largest amount of spending. To assess the extent to which DOD’s existing financial management policy  is applicable to war spending, we focused our efforts on analyzing guidance  provided by the fiscal year 2004 Defense Appropriation Act and DOD’s and  the military services’ specific policy and procedures.
Why GAO Did This Study

Since the attacks of September 11, 2001, the Department of Defense (DOD) has reported spending $191 billion through May 2005 to conduct the Global War on Terrorism (GWOT). On an ongoing basis, DOD compiles and reports information on the incremental costs of the war, and uses these data in preparing future funding requests. To assist Congress in its oversight of war spending, GAO assessed (1) whether DOD's reported war costs are based on reliable data, (2) the extent to which DOD's existing financial management policy is applicable to war spending, and (3) whether DOD has implemented cost controls as operations mature. GAO focused primarily, but not exclusively, on fiscal year 2004 reported costs--the latest full year of data available at the time of GAO's review.

What GAO Found

GAO found numerous problems in DOD's processes for recording and reporting costs for GWOT, raising significant concerns about the overall reliability of DOD's reported cost data. As a result, neither DOD nor Congress can reliably know how much the war is costing and details on how appropriated funds are being spent, or have historical data useful in considering future funding needs. On the basis of GAO's work, DOD is taking steps to improve its cost reporting. Factors affecting the reliability of DOD's reported costs include long-standing deficiencies in DOD's financial systems, the lack of a systematic process to ensure that data are correctly entered into those systems, inaccurately reported costs, and difficulties in properly categorizing costs. In at least one case, reported costs may be materially overstated. Specifically, DOD's reported obligations for mobilized Army reservists in fiscal year 2004 were based primarily on estimates rather than actual information and differed from related payroll information by as much as $2.1 billion, or 30 percent of the amount DOD reported in its cost report. In addition, GAO found inadvertent double counting in the Navy's and Marine Corps' portion of DOD's reported costs amounting to almost $1.8 billion from November 2004 through April 2005. Because it was not feasible to examine all reported costs and significant data reliability problems existed, GAO was not able to determine the extent that total costs were misstated. Further complicating the data reliability issue is the fact that DOD has not updated its policy to address GWOT spending. Instead, DOD is using its existing financial management regulation for funding contingency operations, although it was developed and structured to manage the costs of small-scale contingency operations. GAO has noted that specific provisions of the existing policy conflict with the needs of GWOT. One conflict concerns the use of supplemental funds for base support activities at home stations. DOD's financial management regulation administratively precludes such use, but military service officials have spent billions of dollars in supplemental funds on these activities. Some of this spending appears to directly support the war, but some does not. DOD is currently updating its regulation on the basis of GAO's work. While individual commands have taken steps to control costs and DOD policy generally advises its officials of their financial management responsibilities to ensure the prudent use of contingency funding, DOD has not established guidelines that would require all commands involved in GWOT to take steps to control costs and to keep DOD informed of those steps and their success. For example, the commander of coalition forces in Iraq has unilaterally set a 10 percent cost reduction target for fiscal year 2005 but the details are not widely known outside the command. With the growth in GWOT costs, there is a need to ensure that all commands seek to control costs, including the need to review and rationalize related requirements. Until the department establishes guidelines on cost controls and is routinely informed about the types of controls and their impact on costs, it cannot be sure that all that can be done to control costs is being done.