Congress then takes action on the budget request and appropriates  funding for both base and OCO activities into the same appropriation  accounts, such as service-specific O&M accounts. DOD Components We Reviewed Use Coding and Other Control Activities to Separately Account for OCO and Base Amounts during Budget Execution

The DOD components in our review use coding and other internal control  activities to separately account for OCO and base amounts in their O&M  accounts during budget execution. To record and track OCO and base  amounts separately, the DOD components use coding in their financial  systems during the allotment, obligation, and disbursement of funds. For example, Army and Defense Security Cooperation Agency  officials stated that the financial systems they use incorporate system  controls that automatically maintain the categories of funding designated  during allotment through subsequent actions, including obligation, which  ensures an amount in the OCO category maintains its OCO-specific  coding throughout the budget execution process. Four Alternatives to the Current Processes That Congress and DOD Use to Separate Funding for OCO and Base Activities Would Entail Tradeoffs

We identified at least four alternatives to the processes Congress and  DOD use to separate funding for DOD’s OCO and base activities. Alternative #1: DOD Could Request Funding for Enduring Costs through Its Base Budget Rather Than Its OCO Budget

The first alternative to the current process would be for DOD to request all  funding for enduring costs through its base budget rather than its OCO  budget. Alternative #2: Congress Could Add Specific Purpose Language to Annual DOD Appropriations Acts Concerning OCO Amounts

The second alternative would be for Congress to specify in annual DOD  appropriations acts the purposes—programs, projects and activities—for  which OCO amounts may be obligated. Alternative #4: Congress and DOD Could Use a Transfer Account to Fund Contingency Operations

Under the fourth alternative, Congress would appropriate funds into a  non-expiring transfer account for contingency operations. DOD would  use its base appropriations to initially fund OCO activities and later use  funds from the transfer account, as needed, to reimburse its base  appropriation accounts. Each alternative includes tradeoffs that Congress and DOD would have to  consider to strike the desired balance between agency flexibility and  congressional control. Our  summary of the positive and negative aspects of the alternatives reported  by respondents could be a reference for Congress and DOD as they  consider potential changes to processes for separating the funding of  amounts for OCO and base activities. Appendix I: Scope and Methodology

To describe selected Department of Defense (DOD) components’ use of  internal controls to separately account for overseas contingency  operations (OCO) and base amounts, we reviewed documentation of the  internal controls that DOD organizations in our review have designed to  separate these amounts in their operation and maintenance (O&M)  account. We collected information for this objective through interviews  and written requests for information from financial management officials in  the Office of the Secretary of Defense (Comptroller), the offices of the  military services, U.S. Special Operations Command, the Defense  Security Cooperation Agency, and the Defense Finance and Accounting  Service. Specifically, we searched for alternative processes that (1) DOD  could use to separately account for OCO funding or (2) Congress could  use to provide separate OCO funding to DOD because both DOD and  Congress could be involved in implementing alternatives to separate  funding for OCO and base activities.
Why GAO Did This Study

Since 2001, DOD has received more than $1.8 trillion in OCO funds. DOD defines “contingency operations” as small, medium, or large-scale military operations, while “base” activities include operating support for installations, civilian pay, and other costs that would be incurred, regardless of contingency operations. Congress separately appropriates amounts for base and OCO activities into the same appropriation accounts and directs how funds are to be spent by designating amounts in conference reports or explanatory statements accompanying the annual appropriations acts.
The National Defense Authorization Act for Fiscal Year 2018 included a provision for GAO to report on the feasibility of separating OCO expenditures from other DOD expenditures. This report (1) describes internal controls that selected DOD components use to separately account for OCO and base amounts during budget execution and (2) identifies and examines alternatives that Congress or DOD could use to separate funding for OCO and base activities.
GAO reviewed documentation of DOD internal controls for separating OCO and base amounts in the O&M account, interviewed financial management officials, and, among other things, conducted a literature review to identify alternatives that Congress or DOD could use to separate funding for OCO and base activities. Also, GAO administered a questionnaire to DOD and non-DOD officials to identify positive and negative aspects of these alternatives.

What GAO Found

Selected Department of Defense (DOD) components use coding and other internal control activities to separately account for overseas contingency operations (OCO) and base amounts in their operation and maintenance (O&M) accounts during budget execution. To record and track OCO and base amounts separately, the military services, U.S. Special Operations Command, and the Defense Security Cooperation Agency use coding in their financial systems. These DOD components also have instituted some internal control activities to help ensure separation of OCO amounts. For example, Army and Defense Security Cooperation Agency officials stated that the financial systems they use incorporate system controls that automatically maintain the categories of funding, such as OCO, designated during allotment through subsequent actions to ensure the OCO coding remains throughout budget execution.
GAO identified at least four alternatives to the processes used to separate funding for DOD's OCO and base activities:
Move enduring costs to the base budget . DOD could request funding for enduring costs—costs that would continue in the absence of contingency operations—through its base budget rather than its OCO budget.
Use specific purpose language . Congress could use legally binding language in the annual DOD appropriations acts to specify the purposes—programs, projects and activities—for which OCO amounts may be obligated.
Create separate appropriation accounts . Congress could create separate appropriation accounts for OCO and base funding.
Use a transfer account . Congress could appropriate funds for OCO into a non-expiring transfer account. DOD would fund OCO with its base budget and later reimburse its base accounts using funds from a transfer account.
Implementing these alternatives would require Congress and DOD to take action in different phases of the budget process (see figure).
Each alternative includes tradeoffs that Congress and DOD would have to consider to strike the desired balance between agency flexibility and congressional control. The alternatives, and GAO's summary of their positive and negative aspects identified by questionnaire respondents, could be a reference for Congress and DOD as they consider potential changes to processes for separating the funding of amounts for OCO and base activities.