DOD Provided Limited Internal Guidance on Use of Initial Emergency Response Funds

DOD adhered to OMB guidance in managing the allocation of $15 billion in  initial emergency response funds placed in the Defense Emergency  Response Fund after the September 11th attacks. DOD Adhered to OMB Guidance Managing Emergency Response Funds

In accordance with OMB guidance, DOD reported on its allocation of  funds to its components in 10 funding categories and did not transfer these  funds into its regular appropriation accounts. We did not verify the  accuracy or completeness of this data. However, these line items were broad in nature and DOD did not identify  the specific types of expenses that could be funded within each line item. In addition, OMB, among other things, directed that any requirement to be  funded must reflect an urgent and known need. In the absence of detailed guidance, command officials often had to  use their best judgment in deciding how to spend the defense emergency  response funds, and we found the same type of uncertainty among  commands as we reported in May 2002. DOD’s Ability to Track the Use of Emergency Response Funds Has Varying Limitations

DOD’s ability to track funds appropriated for the war on terrorism has  varying limitations depending on the appropriation. For funds provided  under the two emergency supplemental appropriations of fiscal years 2001  and 2002 and managed out of the Defense Emergency Response Fund,  DOD is able to report a breakdown of obligations by the 10 categories,  but found that tracking these obligations was cumbersome because the  categories do not correlate with its regular appropriations account  structure. For the two subsequent appropriations in fiscal year 2002 and  2003, DOD cannot separately identify obligations funded with emergency  response funds because these funds are commingled with funds  appropriated for other purposes, and DOD’s accounting system does not  distinguish among obligations. All of these funds were  commingled in the Air Force’s operation and maintenance account. DOD officials agreed that DOD’s accounting system does not separately  track obligations funded with emergency response funds, but they  emphasized that DOD has established procedures intended to track  obligations for contingency operations, including operations associated  with the war on terrorism such as in Afghanistan. Under DOD’s financial  management regulation, DOD components are required to track and report  the incremental costs (obligations) for each contingency operation. DOD noted that it had implemented a process to track incremental costs  related to the war on terrorism and, in particular, the Defense Finance  Accounting Service collects cost information on contingencies from  components. Major contributors to this report are  acknowledged in appendix V.

Appendix I: Scope and Methodology

To determine the extent that the Department of Defense (DOD) adhered  to the Office of Management and Budgets (OMB) guidance for managing  funds provided separately for the Defense Emergency Response Fund  (appropriated in the first two emergency supplemental appropriations)  and the sufficiency of DOD’s guidance to its components on the use of  these funds, we reviewed the guidance provided by OMB to federal  government departments and agencies and the guidance provided by  DOD to its defense components for justifying their obligations funded  through the emergency supplementals of fiscal years 2001 and 2002. We also relied on prior GAO work regarding DOD’s  guidance and reporting for contingency operations. Appendix II: Appropriation of Emergency Response Funds to DOD for Fiscal Years 2001, 2002, and 2003

As of January 2003, Congress appropriated a total of about $38 billion in  fiscal years 2001, 2002, and 2003 to fund DOD’s expenses related to the  war on terrorism.
Why GAO Did This Study

As of January 2003, Congress had provided a total of $38 billion to the Department of Defense (DOD) to cover emergency response costs related to the war on terrorism. Appropriated in different ways in fiscal years 2001, 2002, and 2003, these funds are meant to pay for expenses that DOD would not normally incur, such as contingency military operations and Pentagon building repairs. Because our prior work raised questions about DOD's oversight of contingency fund spending, GAO was asked to review DOD's management of emergency response funds, specifically: (1) DOD's adherence to OMB guidance in managing funds and the sufficiency of DOD's guidance on the use of these funds, and (2) DOD's ability to track the use of emergency response funds in general. We limited our review of DOD's guidance to the initial funds placed in the Defense Emergency Response Fund. We did not verify the accuracy of the data contained in DOD's obligation reports or the appropriateness of individual expenditures.

What GAO Found

While DOD followed the Office of Management and Budget's (OMB) guidance in managing the initial $15 billion in war on terrorism funds that were placed in the Defense Emergency Response Fund in fiscal years 2001 and 2002, DOD provided its components with limited guidance on how to use these funds. DOD allocated the funds according to OMB's 10 funding categories. However, DOD's designations of allowable line items for each category were broad and, thus, could be interpreted in different ways. Also, while OMB directed that the funds were to be used for urgent and known needs, DOD did not define those needs further. Finally, DOD directed the components to use an internal financial management regulation for contingency funding to determine if costs were incremental or not; however, as we have reported previously, these regulations are insufficient for this purpose. In the absence of detailed guidance military officials sometimes had to use their best judgment in obligating emergency response funds. DOD's ability to track the use of emergency response funds has varying limitations depending on the appropriation. For the fiscal years 2001 and 2002 emergency response funds managed separately in the Defense Emergency Response Fund ($15 billion), DOD can report a breakdown of obligations by its 10 funding categories, but cannot correlate this information with its appropriation account structure. For emergency response funds provided in fiscal years 2002 and 2003 ($20.5 billion) that were transferred into or placed directly into DOD's regular appropriations accounts, DOD cannot use its accounting system to track the use of these funds because they are commingled with those appropriated for other purposes. While DOD has an alternative process intended to track obligations for contingency operations related to the war on terrorism, it cannot identify the portion of obligations that are funded with emergency response funds. DOD acknowledged these limitations and, in December 2002, began requiring additional reporting on the use of these funds. DOD partially concurred with this report, noting it clearly told components to use DOD's financial regulation for guidance and also held meetings for clarification. DOD agreed funds were commingled, but noted it had a process to track incremental costs for the war on terrorism.