Input:
	Background

The appropriation and execution of DOD’s base and OCO amounts is  part of the broader federal budget process. In this process, Congress, the  President, and federal agencies take a number of steps to formulate a  budget, enact appropriation acts, and execute the federal budget for each  fiscal year. A summary of the budget process is depicted in figure 1  below.
In DOD’s budget process, the military services and defense agencies  submit a budget request—known as the Budget Estimate Submission— that addresses their estimated annual funding requirements for both base  and OCO activities. In building their OCO budget requests, the military  services and defense agencies use criteria that OMB developed in  collaboration with DOD, for deciding whether items belong in the base  budget or in OCO funding requests. The services also use guidance  issued within their own organizations, as well as utilize OCO-specific  budget guidance included in DOD’s Financial Management Regulation.
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. Explanatory  statements or conference committee reports accompanying annual  appropriations acts provide congressional direction on how OCO and  base funding amounts should be obligated. However, the congressional  direction for funding is generally not legally binding. Congress also has  the discretion to make available amounts for base activities or enduring  costs through OCO appropriations, even if DOD considers such costs to  be part of the base budget. The Budget Control Act of 2011, amending  the Balanced Budget and Emergency Deficit Control Act of 1985,  imposes government-wide discretionary spending limits for fiscal years  2012 through 2021 to reduce projected spending by about $1 trillion. All  amounts appropriated to DOD are subject to limitations on discretionary  spending. Appropriated amounts designated by Congress for OCO that  would otherwise exceed the annual limits established for discretionary  spending will instead result in an adjustment to the overall spending limit  established for a particular fiscal year, and will not trigger a sequestration,  which is an automatic cancellation of budgetary resources provided by  discretionary appropriations or direct spending laws.
Upon enactment of an appropriation, the Secretary of the Treasury issues  a warrant to federal agencies, which is an official document that  establishes the amount of moneys authorized to be withdrawn from the  central accounts that the Department of Treasury maintains. The  Treasury does not employ a process to separate OCO funding from base  funding in its role in warranting funds to federal agencies, including DOD.  After receiving budget authority, agencies make allotments, delegating  budget authority to various agency officials allowing them to incur  obligations. Agencies then disburse amounts by cash or cash equivalents  to liquidate obligations.

	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, during the allotment phase, the Army and the Defense Security  Cooperation Agency use codes in their financial systems to divide,  distribute, and track their appropriated funds into separate categories— including one for OCO and one for base. Army and Defense Security  Cooperation Agency officials stated that the separate categories are  maintained through the obligation phase. The Air Force, the Marine  Corps, and the Navy use specific codes to track OCO transactions within  multiple systems they use to allot and obligate OCO and base amounts.  For example, the Air Force uses an Emergency and Special Program  code to track and record allotments and obligations of OCO amounts within its budgeting and accounting systems. The Marine Corps uses  three-digit, alphanumeric codes called Special Interest Codes to track and  record costs associated with high-interest activities, such as OCO, during  obligation. Figure 2 describes the steps that DOD takes to separate OCO  and base amounts.
We identified some internal control activities that the DOD components in  our review have put into place to ensure separate accounting of OCO and  base amounts, such as controls over information processing. A variety  of control activities can be used in information processing, including  controls incorporated directly into computer applications to ensure  accuracy, as well as policies and procedures that apply to information  systems. 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. Also, the Army restricts  the number of personnel who are able to reassign the coding of funding  from one category to another. Navy officials explained that two of three  financial accounting systems used by the Navy receive OCO allotments  automatically from the Navy’s budgeting information system, which  eliminates the need for manual entry of allotment amounts. Also, Marine  Corps guidance requires entry of an identifying OCO code in the Marine  Corps’ financial system when recording an OCO-related transaction,  which can prevent data reporting errors.
In addition to controls over information processing, each DOD component  in our review incorporates reviews of their OCO execution as one of their  internal control activities. Internal control activities also include reviews,  such as reviews of data or expected results, by management throughout  an organization. The financial management offices of these components  periodically review the OCO-related allotments they make within their  components to confirm the amounts are properly recorded. For example,  the Air Force, the Army, the Marine Corps, the Navy, the Defense  Security Cooperation Agency, and U.S. Special Operations Command  review OCO-related execution amounts at least monthly to determine if  amounts are within their established spending plans and that OCO coding  is recorded correctly, among other things. In addition, officials from each  service and the Defense Security Cooperation Agency stated that officials  review OCO-related obligations and verify they are legitimate OCO  expenses.
The DOD Inspector General and the services’ audit agencies have found  weaknesses in the services’ processes of accounting for OCO costs or in  other related internal control activities. For example, in March 2018, the  US Army Audit Agency found that while the Army had a strategy and  processes to capture and report its financial data for Operation Inherent  Resolve for fiscal year 2016, processes to account for some obligation  data needed improvement. Moreover, an official from the Office of the  Secretary of Defense (Comptroller) stated that, while the DOD  components included in our review have processes to separate OCO and  base amounts, other DOD components may not have similar processes,  and not all components have auditable financial systems.

	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. Each  alternative would require action at different phases of DOD’s budget  process and entail tradeoffs. Appendix II provides additional information  on requirements and costs to implement the alternatives reported by  respondents that we summarize, as well as other alternatives to provide  funding to DOD that respondents independently identified. In addition,  appendix II provides summary information on the positive and negative  aspects of Congress’ current process for providing funding for OCO and  base activities, as described by respondents.

		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. DOD is considering a plan to move enduring costs associated  with OCO activities from its OCO budget request into its base budget  request for fiscal year 2020. In its budget justification materials for fiscal  year 2019, DOD estimated that it would shift between $45.8 billion and  $53.0 billion from its OCO request to its base budget request from fiscal  years 2020 through 2023. However, moving DOD’s enduring costs to its  base budget request may require increased base O&M appropriations  provided in annual DOD appropriations acts. Appropriations that are not  designated as OCO, such as base O&M amounts, and that exceed  annual discretionary spending limits established by the Budget Control  Act of 2011, as amended, would trigger a sequestration. Respondents  to our questionnaire identified several positive and negative aspects of  this alternative, which we summarize in table 1.

		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. As we noted above, DOD  currently determines what constitutes OCO activities based on criteria  developed in 2010 in coordination with OMB and DOD 7000.14-R,  Financial Management Regulation. Explanatory statements and  conference committee reports accompanying annual appropriations acts  include direction on how OCO amounts should be allocated for specific  activities; however, explanatory statements and committee reports are not  legally binding unless incorporated by reference into the appropriations  act. Either specific purpose language or language incorporating  explanatory statement or committee report language could be included in  DOD’s annual appropriations. Respondents to our questionnaire identified  several positive and negative aspects of this alternative, which we  summarize in table 2.

		Alternative #3: Congress Could Create Separate Appropriation Accounts for OCO and Base Funding

The third alternative entails Congress creating separate appropriation  accounts for OCO and base funding. Under the current approach, both  OCO and base amounts are appropriated into and executed out of the  same appropriation accounts. By contrast, under this alternative,  Congress would create separate Treasury-level appropriation accounts  for funding for OCO and base activities. For example, there could be an  O&M appropriation account for the Army’s base activities and an O&M  appropriation account for the Army’s OCO activities. Funding for OCO  and base activities would no longer be comingled, but could be  transferred between accounts with statutory authority. Respondents to  our questionnaire identified several positive and negative aspects of this  alternative, which we summarize in table 3.

		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. These funds  would be available for DOD’s use during multiple fiscal years. 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. One example is the Overseas Contingency  Operations Transfer Fund, which was originally established by Congress  in fiscal year 1997 to meet small-scale, recurring operational demands of  the department by transferring amounts to the military services and  agencies based on execution needs as the year progresses.  Respondents to our questionnaire identified several positive and negative  aspects of this alternative, which we summarize in table 4.

		Each Alternative Would Require Action at Different Phases in the Budget Process and Entail Tradeoffs

The four alternatives we identified would require Congress and DOD to  take action at different phases within DOD’s budget process. In the first  alternative, DOD would move enduring costs to the base budget request  during the budget formulation phase. In the second alternative, Congress  would specify the activities to be funded by OCO amounts in the annual  appropriations acts during the congressional appropriation phase.  Similarly, in the third alternative, Congress would create separate  appropriation accounts for OCO and base activities during the  congressional appropriation phase. In the fourth alternative, using transfer  accounts would require actions during two phases—the congressional  appropriations phase and the budget execution phase. Congress would  appropriate funds into a transfer account during the congressional  appropriation phase, and DOD would later use funds from the transfer  account, as needed, to reimburse its base appropriation accounts during  budget execution. In figure 3, we depict the phase of the budget process  in which these alternatives would take place.
Each alternative includes tradeoffs that Congress and DOD would have to  consider to strike the desired balance between agency flexibility and  congressional control. For example, adding specific purpose language  would better align obligation of OCO amounts with congressional intent;  however, doing so could also reduce DOD’s financial flexibility and  responsiveness to changes in operations. Understanding the implications  of each alternative is important to avoid unintended consequences. 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.

	Agency Comments and Our Evaluation

We requested comments from DOD, the Department of the Treasury, and  provided an informational copy of the draft report to OMB. DOD provided  technical comments on the draft report, which we incorporated as  appropriate.
We are sending copies of this report to the appropriate congressional  committees; the Secretary of Defense; the Secretary of the Treasury, the  Director of OMB; the Under Secretary of Defense for the Comptroller; the  Secretaries of the Air Force, the Army, and the Navy; the Commandant of  the Marine Corps; the Commanding General of U.S. Special Operations  Command, and the Director of the Defense Security Cooperation Agency.  In addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-2775 or fielde1@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff members who made key contributions to  this report are listed in appendix IV.

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 focused on the O&M account because Congress provides  most of the OCO amounts for DOD in O&M. In addition, we focused on  the military services that receive service-specific OCO appropriations,  and the two non-service DOD components (U.S. Special Operations  Command and the Defense Security Cooperation Agency) that are  allotted the most OCO funding appropriated to the O&M Defense-wide  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. Our review focused on the design of the internal control systems  and did not assess the effectiveness of these internal controls.
To identify alternatives to separate funding for DOD’s OCO and base  activities, we searched for relevant literature from 2001 through July  2018. 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. We started with 2001, because this  was the first year that funds were appropriated for the Global War on  Terror (GWOT), now known as OCO. We conducted searches of various  databases and websites, such as ProQuest and the National Academy of  Sciences website. Our literature search identified 235 sources, which  primarily consisted of journal articles, reports, and news articles. Two  analysts independently reviewed the full text of the literature sources to  determine which were relevant. When they disagreed, a third analyst  independently reviewed the full text of a source to make the final  determination. We determined that 22 sources were relevant. We did not  identify any sources that described alternative processes for DOD to  separately account for OCO funding; therefore, we do not address this in  our report. We did identify three alternatives related to how Congress  provides OCO funding to DOD and how DOD requests OCO funding from  Congress. We summarized these alternatives and obtained feedback  from our internal subject matter experts familiar with Congress’ process  for providing funding for OCO and DOD’s process for separating OCO  and base funds. We revised the wording of the alternatives based on their  feedback to ensure that we described them accurately. Our internal  subject matter experts suggested a fourth congressional alternative. We  summarized all four alternatives in our report.
In collaboration with a survey specialist, we developed a questionnaire to  solicit opinions from knowledgeable individuals (“respondents”) regarding  Congress’ and DOD’s current processes and the four alternatives. Our  internal subject matter experts also provided feedback on the draft  questionnaire. We included the summaries of all processes and asked  respondents to identify the positive and negative aspects, as well as the  costs and requirements, associated with each. We also asked  respondents to describe any additional alternatives apart from the four we  described in the questionnaire.
We identified questionnaire respondents within and outside DOD who  were sufficiently knowledgeable about Congress’ and DOD’s current  processes in several ways. We identified respondents within DOD by  emailing the engagement points of contact, who were budget and  financial management officials in the headquarters for the military  services and other DOD components included in our review. To identify  respondents outside of DOD, we contacted individuals identified by an  internal subject matter expert and contacted additional individuals  identified in our literature review. We provided respondents with a brief  summary of the questionnaire and asked them if they would be able and  willing to respond to questions on these topics. We also asked  respondents to recommend additional knowledgeable individuals at the  end of the questionnaire. Respondents identified were current officials in  DOD financial management offices, former DOD officials, and defense  budget analysts from think tanks. In addition, we contacted officials from  the Congressional Research Service and the Congressional Budget  Office, whom we identified as assigned to analyze defense budget issues  related to OCO. We included questions at the start of the questionnaire to  determine if respondents were sufficiently knowledgeable about either the  current congressional process, the current DOD process—or both—to  offer perspectives on the alternatives presented.
We sent the questionnaire as a Microsoft Word form via email to 23  respondents, including 10 within DOD and 13 outside DOD. We began  sending the questionnaires on August 1, 2018, and continued as we  identified more respondents. We sent up to two reminder emails with a  copy of the questionnaire to anyone who had not yet responded. We  received the last questionnaire on September 10, 2018. We received a  total of 19 questionnaires back from respondents. We excluded two  completed questionnaires from our analysis based on our screening  criteria for determining if respondents were sufficiently knowledgeable  about Congress’ and DOD’s current processes. Therefore, we included  17 questionnaires in our analysis—10 from DOD officials and 7 from  respondents outside DOD—for a response rate of 81 percent. We  calculated the response rate using a total possible number of 21  questionnaires instead of 23 to account for the two questionnaires we  excluded from the analysis. Fifteen of the 17 respondents to our  questionnaire were current or former DOD officials. Results of this  questionnaire are not generalizable beyond our respondents.
To enable us to provide the information to Congress within the time  frames required by the mandate, we did not pretest the questionnaire.  However, we believe that the questionnaire was a sufficiently valid data  collection tool for reporting positive and negative aspects identified by  respondents. We developed the questionnaire with assistance from a  survey specialist, and we revised the questionnaire content based on  feedback from our internal subject matter experts. Most respondents  provided answers that indicated they correctly interpreted the questions  as stated in the questionnaire. In addition, we took steps to provide  clarification to the few respondents who misunderstood questions and  excluded responses we could not reasonably assure were understood.  Four of the 23 original recipients of the questionnaire requested  clarification or misunderstood two questions in our questionnaire. We  provided clarification to those respondents via email and requested that  they update their questionnaire responses based on this new information.  Two did so. The other two respondents did not reply to our clarification  email, and we excluded their responses to the misunderstood questions.  Not all respondents provided answers to all questions in our  questionnaire. We extracted the data from the Word questionnaires and  imported them into Excel for qualitative analyses. We inspected the Excel  files to ensure that data were not missing or were not imported incorrectly  and made iterative corrections to the process to ensure accurate data  were analyzed. Because we did not pretest the questionnaire, we do not  report the number of respondents who provided any answers but rather  we present qualitative positive and negative aspects based on the  responses.
We conducted a content analysis in which two analysts independently  categorized each response from each questionnaire to identify  similarities. For our purposes, similarities existed when two or more  respondents gave the same or very similar answers to a particular  question. The summaries of the responses we developed were based on  comments from two to nine respondents. The analysts discussed any  discrepancies in their categorizations until they reached agreement.  Subsequently, an internal subject matter expert provided feedback on the  summary. Using that feedback, the analysts consolidated summaries that  were related and clarified the wording of all the summarized responses.  We identified positive and negative aspects for questions regarding the  current processes and the four alternatives presented in the  questionnaire. We did not summarize positive and negative aspects for  questions regarding the additional alternatives described by respondents.  We did not include this information because although two respondents  described similar alternatives, they did not identify similar positive and  negative aspects about this alternative. In addition, none of the remaining  questionnaires included similar responses. We list any additional  alternatives identified by respondents in appendix II. The verbatim  wording from key sections of the questionnaire we administered is  presented in appendix III.
In addition, section 1523 of the National Defense Authorization Act for  Fiscal Year 2018 contained additional provisions for us to review other  processes related to the execution of OCO funds. In particular, section  1523 contained a provision for us to review the processes the Department  of the Treasury employs to separate expenditures of amounts  appropriated for OCO from expenditures of all other amounts  appropriated for DOD. We assessed the steps that the Department of the  Treasury takes in the execution of the federal budget after funds have  been appropriated and determined that the Department of the Treasury  does not employ a process to separate OCO funding from base funding in  its role in making appropriations available to DOD. In addition, section  1523 of the act included another provision for us to compare the  processes DOD and the Department of Treasury use to separate  expenditures of OCO amounts to the generally accepted accounting  principles. The Federal Accounting Standards Advisory Board issues  federal financial accounting standards and provides guidance on federal  generally accepted accounting principles. The Federal Accounting  Standards Advisory Board’s Handbook of Federal Accounting Standards  and Other Pronouncements, as Amended (Current Handbook) is the most  up-to-date, authoritative source of generally accepted accounting  principles developed for federal entities. However, the Current Handbook  does not address the separation of OCO from non-OCO appropriations,  obligations, and disbursements. Therefore, it is not possible to compare  the processes DOD and the Department of the Treasury use to the  generally accepted accounting principles based on existing standards and  guidance.
We conducted this performance audit from March 2018 to January 2019  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: Additional Information on the Current Process and Alternatives to Provide OCO Funding

Additional information from our questionnaire is provided below, including  information about (1) the positive and negative aspects of Congress’  current process for providing funding for the Department of Defense’s  (DOD) overseas contingency operation (OCO) and base activities, (2) the  requirements and costs to implement the four alternatives we discussed  earlier, and (3) other alternatives for providing funding to DOD.

	Positive and Negative Aspects of Congress’ Current Process to Provide Funding for OCO and Base Activities

We asked respondents to report on the positive and negative aspects of  Congress’ current process for providing funding for DOD’s OCO and base  activities. We summarize those aspects in table 5.

	Requirements and Costs to Implement the Four Alternatives

Respondents reported on the requirements and costs to implement the  four alternatives in our questionnaire. The requirements respondents  identified to implement the four alternatives are summarized in table 6.
Regarding the costs, respondents reported that two alternatives would  require minimal or no additional costs, while the other two alternatives  would involve higher costs to DOD. The costs respondents identified to  implement the four alternatives are summarized in table 7.

	Alternatives for Providing Funding to DOD that Respondents Independently Identified

We also asked respondents to describe any other alternatives for  separating funding for DOD’s OCO and base activities, apart from the  four alternatives described above. Respondents identified several  alternatives for providing funding to DOD, including alternatives that  would not provide separation of OCO and base funding. The other  alternatives that respondents described are shown in table 8.

Appendix III: Key Questions from GAO’s Questionnaire on Separation of OCO and Base Amounts

Below we show the verbatim wording of the descriptions of the  alternatives to separate amounts for DOD’s OCO and base activities as  summarized in the questionnaire. Each description was presented  separately in the questionnaire followed by a standard set of questions  that are all presented below these descriptions. We also show the  verbatim wording of any clarification text sent via email to respondents  who misunderstood the description of the alternative.
DOD could move requests for funding of enduring activities from its  OCO budget to its base budget request. Enduring activities are those  that began in response to contingency operations but have continued  after these operations ended. An example of an enduring cost would be  maintaining residual headquarters staff at U.S. Central Command in  Qatar to train, advise, and assist as missions have evolved from  contingency to ongoing activities. We understand that in the in FY 2020,  the Department plans to move funding for enduring activities from its  OCO budget to its base budget request. DOD’s OCO funding request  would then reflect only the incremental costs of existing contingency  operations.
The Congress could specify activities for which DOD should use  OCO amounts within the annual appropriations acts. Currently, DOD  determines what activities constitute OCO activities based on criteria  developed in 2010 in coordination with OMB. Under this alternative,  explicit purpose language designating specific funds for specific activities  would be added directly into the appropriations acts or the explanatory  statement, then incorporated into the appropriations act by reference. “Under the current approach, funds are designated for specific sub-activities in the  explanatory statement. However, these designations are generally not legally binding  unless incorporated by reference into the appropriations act itself. Under this alternative  approach , specific purpose language or language of incorporation would  be included in the appropriations act. The distinction between the current approach and  the alternative presented here is that legally binding language concerning specific  amounts for specific OCO activities would appear in the appropriation act.”
The Congress could create separate appropriation accounts for  amounts designated for OCO and amounts designated for base  activities. “In the current approach, amounts are designated for OCO and base activities within a  single appropriation account. In the alternative proposed in Question 5, the Congress  would create two separate appropriation accounts for OCO and base activities amounts.  For example, there would be one appropriation account for OCO amounts for O&M, and  another appropriation account for base activity amounts for O&M.”
DOD could use a transfer account (such as the Overseas  Contingency Operations Transfer Fund, or OCOTF) through which  the Department could meet operational demands by transferring  funds to the military services and agencies based on execution  needs as the year progresses. The Congress would appropriate funds  into a transfer account. These funds would not expire and be available for  DOD’s use during multiple fiscal years. DOD would use its base activities  appropriations to fund OCO activities and later draw from the transfer  account as needed to reimburse its base appropriation accounts.
Below we show the verbatim wording from key sections of the  questionnaire we administered. We used Questions 2 and 3 as screening  questions to help determine if respondents were sufficiently  knowledgeable about the current congressional or DOD processes.  Question 4 and its sub-questions below were repeated for each  alternative presented above (i.e., as Questions 4 through 7 in the  questionnaire). We also asked sub-questions “b” through “e” in Question  4 for the current approaches Congress and DOD use (presented in  Questions 2 and 3). Finally, we asked respondents to identify up to five  additional alternatives in Questions 8 through 12.  2.  Are you familiar with any of the current approaches that the  military services or DOD organizations use to separate operation  and maintenance (O&M) amounts designated for Overseas  Contingency Operations (OCO) from amounts designated for  base activities during the allotment, obligation, and/or  disbursement phases? Please check one box.   Please continue to “a” through “e”   Please skip to Question 3   Please skip to Question 3  3.  Are you familiar with the current approach that Congress uses to  designate amounts for OCO in the appropriations process for  DOD? Please check one box.   Please continue to “a” through “e”   Please skip to Question 4   Please skip to Question 4  4.  GAO has identified the following as a possible alternative to the  current approach for separating amounts designated for OCO  from amounts designated for base activities in the  appropriations process:  a.   Were you aware of this alternative before completing this   questionnaire? Please check one box.
Please continue to “b” through “e”  b.  What are the positive aspects associated with this alternative,  if any? Please consider factors impacting both taxpayers and  the DOD. The box will expand as you type.   c.  What are the negative aspects associated with this  alternative, if  any? Please consider factors impacting both  taxpayers and the DOD. The box will expand as you type.   d.  What are the costs associated with this alternative, if any? Please  consider costs impacting both taxpayers and the DOD. The box  will expand as you type.   e.  What are the requirements associated with implementing this  alternative? Consider factors such as: changes to existing  systems, policies, or processes; new systems, policies, or  processes; new budget estimations; required training; etc.  These could be requirements for DOD or the Congress. The  box will expand as you type.   8.  Are you aware of any alternative approaches for separating  amounts designated for OCO from amounts designated for base  activities other than the ones listed above? Please consider both  approaches DOD could implement on its own (such as  approaches to separating OCO from base in the O&M account or  changes that make that unnecessary) and legislative approaches  the Congress could take. We are aware of the Enterprise Resource  Planning (ERP) systems listed above. For this question, we are  interested in the implementation of new potential alternatives other  than the ERP system. Please check one box.    Please continue to “a” through “e” to tell us about  one alternative. If you are aware of more than one,  you will be able to tell us about others in Questions   9-12.     Please skip to Question 13   Please skip to Question 13  a.   If yes, please briefly describe the first alternative approach.
The box will expand as you type.

Appendix IV: GAO Contact and Staff Acknowledgments

	GAO Contact

Elizabeth Field, (202) 512-2775 or fielde1@gao.gov.

	Staff Acknowledgments

In addition to the contact named above, Richard K. Geiger, Assistant  Director; Arkelga Braxton, Assistant Director; Rebekah Boone; Amie  Lesser; Felicia Lopez; James P. Klein (Analyst-in-Charge); Shylene Mata;  Sheila Miller; Richard Powelson; and Michael Silver made key  contributions to this report.

Output:
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.


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	Background

This section describes (1) NNSA’s weapons design and production sites;  (2) the framework for managing LEPs, known as the Phase 6.X process,  and NNSA’s program execution instruction; and (3) NNSA’s technology  development and assessment process.

		NNSA Weapons Design and Production Sites

NNSA oversees three national security laboratories—Lawrence  Livermore in California, Los Alamos in New Mexico, and Sandia in New  Mexico and California. Lawrence Livermore and Los Alamos are the  design laboratories for the nuclear components of a weapon, while  Sandia works with both to design nonnuclear components and as the  system integrator. Los Alamos led the original design of the W78, but  Lawrence Livermore is leading current efforts to design the replacement  warhead.
NNSA also oversees four nuclear weapons production plants—the  Pantex Plant in Texas, the Y-12 National Security Complex in Tennessee,  the Kansas City National Security Campus in Missouri, and the Savannah  River Site in South Carolina. In general, the Pantex Plant assembles,  maintains, and dismantles nuclear weapons; the Y-12 National Security  Complex produces the secondary and the radiation case; the Kansas City  National Security Campus produces nonnuclear components; and the  Savannah River Site replenishes a component known as a gas transfer  system that transfers boost gas to the primary during detonation.

		Phase 6.X Process for Managing LEPs and NNSA’s Program Management Directive

DOD and NNSA have established a process, known as the Phase 6.X  process, to manage life extension programs. According to a Nuclear  Weapons Council document, NNSA’s Office of Defense Programs will  follow this process to manage a W78 replacement program. As shown in  figure 1, this process includes key phases or milestones that a nuclear  weapon LEP must undertake before proceeding to subsequent steps.
In January 2017, while the program was still suspended, NNSA issued a  supplemental directive that defines additional activities that NNSA offices  should conduct in support of the Phase 6.X process. For example, as  discussed below, NNSA’s supplemental directive established a new  requirement during Phase 6.1 (Concept Assessment) that NNSA conduct  a technology readiness assessment of technologies proposed for  potential use in the warhead. In addition, NNSA’s Office of Defense  Programs issued a program execution instruction that defines enhanced  program management functions for an LEP and other programs. This  instruction also describes the level of program management rigor that the  LEP must achieve as it advances through the Phase 6.X process.

		NNSA’s Technology Development and Assessment Process

According to NNSA’s Fiscal Year 2018 Stockpile Stewardship  Management Plan, NNSA extends the life of existing U.S. nuclear  warheads by replacing aged nuclear and non-nuclear components with  modern technologies. In replacing these components, NNSA seeks  approaches that will increase safety, improve security, and address  defects in the warhead. Several technologies are frequently developed  concurrently before one approach is selected. According to NNSA’s  Fiscal Year 2018 Stockpile Stewardship Management Plan, this approach  allows selection of the option which best meets warhead requirements  and reduces the risks and costs associated with an LEP. NNSA conducts  technology readiness assessments to provide a snapshot in time of the  maturity of technologies and their readiness for insertion into a program’s  design and schedule, according to NNSA’s guidance. NNSA’s  assessments also look at the ability to manufacture the technology.  NNSA measures technological maturity using technology readiness levels  (TRLs) on a scale from TRL 1 (basic principles developed) through TRL 9  (actual system operation). Similarly, NNSA measures manufacturing  readiness using manufacturing readiness levels (MRL) on a scale from  MRL 1 (basic manufacturing implications identified) through MRL 9  (capability in place to begin full rate production). According to NNSA’s  guidance, NNSA recommends but does not require that an LEP’s critical  technologies reach TRL 5 (technology components are integrated with  realistic supporting elements) at the beginning of Phase 6.3  (Development Engineering). At the end of Phase 6.3, it recommends  that a technology be judged to have achieved MRL 5 (capability to  produce prototype components in a production relevant environment).  However, according to NNSA officials, lower TRLs and MRLs may be  accepted in circumstances where a technology is close to achieving the  desired levels or the program team judges that the benefit of the  technology is high and worth the increased risk that it may not be  sufficiently mature when the program needs it.

	NNSA Has Taken Steps to Prepare to Restart a Program to Replace the W78 Nuclear Warhead Capability

NNSA has taken steps to prepare to restart a program to replace the W78  nuclear warhead capability. According to NNSA officials, these steps are  typically needed to conduct any LEP. Therefore, they can be undertaken  despite the uncertainty about whether the final program will develop the  warhead for the Air Force only or for both the Air Force and the Navy.  Specifically, NNSA has (1) taken initial steps to establish the program  management functions needed to execute the program and assemble  personnel for a program management team; (2) assessed technologies  that have been under development while the program was suspended  that could potentially be used to support a W78 replacement; and (3)  initiated plans for the facilities and capabilities needed to provide the  nuclear and nonnuclear components for the warhead.
At the time of our review, NNSA and DOD officials stated that, in  response to the 2018 NPR, they planned to restart a program that would  focus on replacing the capabilities of the W78 for the Air Force; however,  the extent to which the program would focus on providing a nuclear  explosive package for the Navy was uncertain. DOD officials said that  the Navy plans to complete a study examining the feasibility of using the  nuclear explosive package developed for the W78 replacement warhead  in its SLBM system by the end of fiscal year 2019. According to DOD  officials, the Nuclear Weapons Council will make a decision about  developing an interoperable warhead for the Air Force and the Navy  based on the results of the study but, as of August 2018, had not  established time frames for making that decision. According to Air Force  and NNSA officials, if the Nuclear Weapons Council decided that the  Navy should participate in the program, then NNSA would not need to  redo the work planned for fiscal year 2019.

		Program Management and Personnel

NNSA has taken initial steps to establish the program management  functions needed to execute the program and assemble personnel for a  program management team, as follows:
Program management. In fiscal year 2018, NNSA started to  establish the program management functions needed to execute a  W78 replacement program, as required in the Office of Defense  Programs’ program execution instruction. In preparation for the  program restart, NNSA assigned a manager for a W78 replacement  program who is taking or plans to take steps to implement these  functions. For example, among other steps, the W78 replacement  program manager told us that he had started developing the risk  management plan to define the process for identifying and mitigating  risks that may impact the program. The program manager also said  NNSA had started to adapt a standardized work breakdown structure  for life extension programs to define and organize the W78  replacement program’s work scope for restart. An initial version of  this work breakdown structure would be completed before the  program restarts in fiscal year 2019, according to the program  manager. Further, as NNSA refines the scope of work, the agency will  refine and tailor the work breakdown structure. At the time of our  review, this work was under development and therefore we were not  able to review these plans and tools.
In addition, as of July 2018, NNSA had created a preliminary schedule  for a W78 replacement program under the Phase 6.X process (see  fig. 2).
According to NNSA’s preliminary schedule, the program will:
Restart in Phase 6.2 (Feasibility and Design Options) in the third  quarter of fiscal year 2019. NNSA previously completed Phase 6.1  and was authorized by the Nuclear Weapons Council to start  Phase 6.2 in June 2012. During Phase 6.2, NNSA plans to,  among other things, select design options and develop cost  estimates of the selected design options.
Conduct Phase 6.2A (Design Definition and Cost Study) for one  year beginning in the fourth quarter of fiscal year 2021. During this  phase, for example, NNSA plans to develop a preliminary cost  estimate for the program, called a weapons design and cost  report, and also produce an independent cost estimate.
Start Phase 6.3 (Development Engineering) in the fourth quarter  of fiscal year 2022 and transition to Phase 6.4 (Production  Engineering) in the mid-2020s. During these phases, NNSA will  develop the final design as well as begin producing selected  acquisition reports, which detail the total program cost, schedule,  and performance, among other things. According to the W78  program manager, the military characteristics will be finalized in  Phase 6.4 and before that point DOD will continue to update the  requirements.
Achieve production of the first warhead—Phase 6.5—by the  second quarter of fiscal year 2030 so that it can be fielded on the  Air Force’s planned Ground Based Strategic Deterrent that same  year.
Start Phase 6.6 (Full Scale Production) by the second quarter of  fiscal year 2031.
When the program restarts in fiscal year 2019, NNSA intends to  develop or finalize initial versions of other plans and tools such as a  requirements management plan, according to the program manager.  (See appendix I for a detailed description of the steps NNSA is taking  or plans to take to establish the program management functions  needed to execute a W78 replacement program, according to the  manager for the W78 replacement program.)
The program manager also told us that as the program progresses  through Phases 6.2 (Feasibility and Design Options), 6.2A (Design  Definition and Cost Study), and 6.3 (Development Engineering),  NNSA will increase the maturity of the program management  processes and tools, consistent with the Office of Defense Programs’  program execution instruction. For example, in Phases 6.2 and 6.2A,  NNSA intends to establish an earned value management system  (EVM)—used to measure the performance of large, complex  programs. In Phase 6.3, NNSA will further develop the system to be  consistent with DOE and industry standards, as specified in the  program execution instruction. NNSA officials said they will need to  achieve sufficient program management rigor in Phase 6.3 to  effectively report to Congress on the status and performance of the  program as NNSA develops cost and schedule baselines.
Personnel. At the time of our review, NNSA was reconstituting a  program management team. Specifically, as mentioned above, NNSA  assigned a new program manager in March 2017. In the spring of  2018, NNSA began assigning additional federal staff and contractor  support to help ramp up the program in advance of the fiscal year  2019 restart date. According to the program manager, he expected to  complete a plan in the late summer or early fall of 2018 that NNSA  could use to hire additional federal staff needed to manage the  program in fiscal year 2019. The advanced development and  implementation of staffing plans prior to each phase of an LEP was a  key lesson learned from an NNSA review of another LEP—the W76- 1.

		Technology Development and Assessment

While the program was suspended, NNSA supported other programs that  developed weapons technologies—including materials and manufacturing  processes—that could potentially be used by the W78 replacement  program and potentially by other future life extension programs.  Specifically, according to NNSA officials, NNSA supported the  development of technologies through ongoing LEPs (such as the W80-4  LEP) and other technology maturation projects (such as the Joint Technology Demonstrator) that could support future LEPs. For example,  the W80-4 program has supported development at Lawrence Livermore  of certain new materials as a risk mitigation strategy in case certain  legacy materials used in the secondary are not available. According to  NNSA officials, NNSA will likely continue to develop these new materials  for use in future weapons, including the W78 replacement. In addition,  contractors at Lawrence Livermore told us that test demonstrations  conducted under the Joint Technology Demonstrator have helped to  mature potential technologies for a W78 replacement. Examples they  cited included additively manufactured mounts and cushions for securing  and stabilizing the nuclear explosive package inside the Air Force’s  aeroshell.
In May 2018, in anticipation of the restart of a W78 replacement program  and to retroactively address NNSA’s new supplemental requirement to  conduct a technology readiness assessment in Phase 6.1, NNSA’s Office  of Systems Engineering and Integration completed a technology  readiness assessment that evaluated the maturity of technologies  potentially available for the W78 replacement program. According to  NNSA officials, the assessment identified and evaluated technologies that  NNSA would have available for the next LEP, irrespective of whether the  final program will replace the W78 warhead in ICBMs only or will also be  used in the Navy’s SLBMs.
The assessment evaluated 126 technologies based on proposals from  the laboratories and production sites. As shown in table 1 below, the proposals related to key functional areas of the warhead, including the  nuclear explosive package and the arming, fuzing, and firing  mechanism—which provides signaling that initiates the nuclear explosive  chain. For the W78 warhead replacement, DOD divided the military  characteristics into two categories: threshold or minimum requirements  (or “needs”) and objective or optional requirements (or “wants”). NNSA’s  assessment grouped the technologies into one of three categories, as  follows.
Must do. A technology deemed “must do” means that it is the only  technology available that can meet a minimum requirement (or  “need”) for the warhead to function. The technology that previously  fulfilled this requirement is generally obsolete or no longer produced,  and there are no alternatives.
Must do (trade space). “Must do (trade space)” technologies fulfill a  minimum requirement (or “need”) for the warhead, but there are two  or more technologies that could meet this need. NNSA must evaluate  and select which technology it will use to fulfill the need.
Trade space. “Trade space” technologies are those that can meet an  optional requirement (or “want”) for the warhead.
Among the nine “must do” technologies that NNSA evaluated, for  example, was a new manufacturing process being developed at Sandia to  produce a type of magnesium oxide—needed for use in the thermal  batteries that power the warhead’s firing mechanism—that is no longer  available from a vendor and for which NNSA’s existing supplies are  limited. For this new process, the assessment team estimated that it had  completed TRL 1 (basic principles developed) but had not yet reached  MRL 1 (basic manufacturing implications identified). The technology  readiness assessment noted that for technologies with a TRL of 3 or less,  an MRL of 1 or less is expected. In addition, according to the report,  Sandia estimated that it may cost about $7.1 million to develop the  material and manufacturing process to TRL 5 and MRL 4 during fiscal  years 2018 through 2023—when the program is slated to reach Phase  6.3—to achieve a level of readiness where it could potentially be included  in the design of the W78 replacement warhead.
Among the 59 “must do (trade space)” technologies that NNSA evaluated  were, for example, two new gas transfer system technologies developed  by Sandia that may offer advantages compared with the existing  technology. A gas transfer system is a required capability (or “must do”)  but, according to the technology readiness assessment report, NNSA  needs to compare the costs, benefits, and risks of these new  technologies with the traditional technology (i.e., evaluate the “trade  space”) and make a selection among them. The first new technology was  a gas transfer system bottle made out of aluminum that could be cheaper,  weigh less, and last longer than the gas transfer system used in the W78.  According to the technology readiness assessment report, the  assessment team estimated the aluminum-based bottle had completed  TRL 2 but did not have enough information to estimate an MRL. Sandia  estimated that it would cost about $6.5 million to achieve TRL 5 and MRL  4 during fiscal years 2018 through 2023. The second Sandia technology  involved an advanced gas transfer system technology. The assessment  team estimated that this technology had completed TRL 3 but did not  have enough information to estimate an MRL. Sandia estimated that it  would cost about $5.4 million to achieve TRL 5 and MRL 4 during fiscal  years 2018 through 2023. According to the technology readiness  assessment report, NNSA will need to further evaluate these approaches  as well as the traditional technology to make a selection for a W78  replacement program.
The 75 “trade space” technologies that the assessment team evaluated  included, for example, several proposed by Lawrence Livermore, Los  Alamos, and Sandia for providing an advanced safety feature to prevent  unauthorized detonation of the warhead. As mentioned above, when  NNSA extends the life of existing U.S. nuclear warheads it also seeks  approaches that will increase the safety and improve security of the  warhead. According to the report, the laboratories proposed similar  concepts that varied in maturity levels and estimated costs for further  development. Specifically, the assessment team estimated the Lawrence  Livermore and Los Alamos technologies to have completed TRL 4 and  Sandia’s proposal to have completed TRL 3. Regarding MRLs, the  assessment team also estimated Lawrence Livermore’s technology to  have completed MRL 1, Los Alamos’s technology to be at MRL 1, and did  not have enough information to estimate the MRL for Sandia’s  technology. In addition, according to the report, Lawrence Livermore  estimated costs of about $31.2 million to $45.6 million to further mature its  technology during fiscal years 2018 through 2023. Los Alamos estimated  costs of about $72.1 million to $154.5 million to further mature its  technology during the same period. Sandia estimated costs of about $8.2  million to further mature its technology during the same period. Because  the feature is not a minimum requirement, NNSA officials told us that they  are continuing to evaluate the costs, benefits, and risks of including the  feature.
According to NNSA’s manager for the W78 replacement program and key  staff involved in preparing to restart the program, when the program  restarts in fiscal year 2019 they will use the assessment to identify  specific technologies or groups of technologies (i.e., trade spaces) to  further evaluate for potential use in the warhead. These officials said they  will continue evaluating technologies and make selections of preferred  options at the same time that the warhead’s program requirements and  priorities are refined during Phases 6.2 and 6.2A. According to the  program manager, NNSA will produce a technology development plan for  technologies selected for a W78 replacement during Phase 6.2 and 6.2A  and that will identify the current readiness levels of the technologies, key  risks, and estimated costs to bring them to TRL 5 in Phase 6.3.
In addition, the technology readiness assessment team made several  recommendations to the NNSA Deputy Administrator for Defense  Programs regarding the development of technologies that could provide  benefits to the nuclear security enterprise overall. For example, the  assessment team observed that 21 of the proposed technologies for a  W78 replacement involved the use of additive manufacturing. The  assessment noted that, if successful, these technologies could reduce  component production costs and schedule risks for future LEPs  compared to current methods. The team recommended that the Office of  Defense Programs conduct an analysis to validate these capabilities and  develop a nuclear enterprise-wide effort to address additive  manufacturing for a W78 replacement, future LEPs, and other  applications. According to the NNSA official who led the assessment, at  the time of our review, the assessment team was preparing to present its  enterprise-wide recommendations to the Office of Defense Program’s  senior leadership; therefore, specific follow-on actions had not yet been  decided.

		Coordination with Facilities and Capabilities

The manager of the W78 replacement program said that he has begun to  identify the facilities and capabilities at the laboratories and production  sites that will be needed to provide the nuclear and nonnuclear  components for a W78 replacement, and plans to draft formal  agreements to help ensure coordination with them. According to the  program manager, collecting the information that identifies facilities and  capabilities—including a rough idea of key milestone dates for when the  program will need to use them—is the first step in producing a major  impact report, which is required upon completion of Phase 6.2 and  accompanies the final Phase 6.2 study report delivered to the Nuclear  Weapons Council. Among other things, a major impact report identifies  aspects of the program—including facilities and capabilities to support it— that could affect the program’s schedule and technical risk, according to  the Phase 6.X guidelines.
According to an NNSA official and contractor representatives, many of the  existing nuclear and nonnuclear components of the W78 are outdated or  unusable and a W78 replacement will need all newly manufactured  components. As a result, NNSA will need to exercise numerous  manufacturing capabilities in support of this effort, and the facilities and  capabilities must be ready to support the work. However, many of the  facilities that may be needed to provide components for a W78  replacement program are outdated and are undergoing modernization to  either build new facilities or repair existing facilities and capabilities, which  represents a critical external risk to the program. According to NNSA’s  Fiscal Year 2018 Stockpile Stewardship and Management Plan, these  planned modernization activities will require sustained and predictable  funding over many years to ensure they are available to support the  weapons programs. Some examples of NNSA activities to build or repair  facilities and capabilities that will provide nuclear or nonnuclear  components for a W78 replacement warhead—and which may have  schedule, cost, or capacity issues that could impact the program— include:
Plutonium pit production facilities. NNSA does not currently have  the capability to manufacture sufficient quantities of plutonium pits for  a W78 replacement program. NNSA’s Fiscal Year 2018 Stockpile  Stewardship and Management Plan stated that the agency will  increase its capability to produce new pits over time, from 10 pits per  year in fiscal year 2024 to 30 pits per year in fiscal year 2026, and as  many as 50 to 80 pits per year by 2030. NNSA is refurbishing its pit  production capabilities at Los Alamos to produce at least 30 pits per  year. In addition, in May 2018, NNSA announced its intention to  repurpose the Mixed Oxide Fuel Fabrication Facility at the Savannah  River Site in South Carolina to produce at least an additional 50 pits  per year by 2030. NNSA officials told us that they will need both the  Los Alamos and Savannah River pit production capabilities to meet  anticipated pit requirements for the W78 replacement program and for  future warhead programs.
Uranium processing facilities. NNSA’s construction of the Uranium  Processing Facility at the Y-12 National Security Complex will help  ensure NNSA’s continued ability to produce uranium components for  the W78 replacement program. NNSA plans to complete the facility  for no more than $6.5 billion by the end of 2025—approximately 4  years before the scheduled delivery of the first production unit of a  W78 replacement program warhead. This effort is part of a larger  NNSA plan to relocate and modernize other enriched uranium  capabilities performed in a legacy building at the Y-12 National  Security Complex to other existing buildings or in newly constructed  buildings.
Lithium production facility. NNSA will require lithium for a W78  replacement warhead. The United States no longer maintains full  lithium production capabilities and relies on recycling as the only  source of lithium for nuclear weapon systems. According to the Fiscal  Year 2018 Stockpile Stewardship and Management Plan, NNSA has  analyzed options to construct a new lithium production facility, and a  conceptual design effort is next, with an estimated completion date of  fiscal year 2027 for the new facility. Until the facility is available,  NNSA has developed a bridging strategy to fill the interim supply  gaps.
Radiation-hardened microelectronics facility. Nuclear warheads,  such as a W78 replacement warhead, include electronics that must  function reliably in a range of operational environments. NNSA has a  facility at Sandia that produces custom, strategic radiation-hardened  microelectronics for nuclear weapons. In August 2018, NNSA officials  told us that this facility, known as Microsystems and Engineering  Sciences Applications, can remain viable until 2040—but would need  additional investment.
The W78 replacement program manager told us that the need for newly  manufactured components coupled with the scale of NNSA’s  modernization activities means that a comprehensive coordination effort  will be necessary to ensure that the facilities and capabilities are ready to  provide components for the warhead by the end of the 2020s. Because  these activities are separately managed and supported outside the W78  replacement program, NNSA considers progress on them to represent a  critical external risk to the program.
NNSA is taking or plans to take some action to mitigate this external risk  at the program and agency level. One step that the program plans to take  to address this risk is to draft formal agreements—called interface  requirements agreements—with other NNSA program offices that  oversee the deliverables and schedules for the design, production, and  test facilities that are needed for the program. These agreements  describe the work to be provided by these external programs, including  milestone dates for completing the work; funding; and any risks to cost,  schedule, or performance. The W78 program manager stated that they  are generally drafted toward the end of Phase 6.2 through Phase 6.2A  and largely finalized in Phase 6.3—though small adjustments may be  made into Phase 6.4 (Production Engineering).
At the agency level, in response to a direction in the 2018 NPR, NNSA  officials told us that the agency is also developing an agency-wide  integrated master schedule that is intended to align NNSA’s enterprise- wide modernization schedule with milestone delivery dates for nuclear  weapons components. The W78 program manager and other NNSA  officials told us that the information they provide on the facilities and  capabilities needed, as well as milestone dates, will be integrated into this  schedule and used to help ensure that the facilities and capabilities are  ready to support the program.

	Agency Comments

We provided a draft of this report to NNSA and DOD for comment. NNSA  and DOD provided technical comments, which we incorporated as  appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretaries of Defense and Energy, the Administrator of  NNSA, and other interested parties. In addition, this report is available at  no charge on the GAO website at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or bawdena@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made significant  contributions to the report are listed in appendix II.

Appendix I: NNSA’s Program Management Functions to Execute a W78 Replacement Program

The table below identifies the steps NNSA is taking or plans to take to  establish the program management functions needed to execute a W78  replacement program. NNSA was directed by the Nuclear Weapons  Council to suspend the program in fiscal year 2014 and the 2018 Nuclear  Posture Review directed NNSA to restart the program in fiscal year 2019.  The NNSA Office of Defense Program’s program execution instruction  defines enhanced program management functions for a warhead life  extension program (LEP) such as the W78 replacement program and  other programs. The instruction also describes the level of program  management rigor that the LEP must achieve as it advances through the  Department of Defense and NNSA process for managing life extension  programs called the Phase 6.X process. This process includes key  phases or milestones that a nuclear weapon life extension program must  undertake before proceeding to subsequent steps. NNSA completed  Phase 6.1 (Concept Assessment) and started Phase 6.2 (Feasibility and  Design Options) activities before the program was suspended in fiscal  year 2014. NNSA, therefore, plans to restart the program in Phase 6.2.

Appendix II: GAO Contact and Staff Acknowledgments

	GAO Contact

Allison B. Bawden, (202) 512-3841 or bawdena@gao.gov.

	Staff Acknowledgments

In addition to the individual named above, William Hoehn (Assistant  Director), Brian M. Friedman (Analyst in Charge), and Julia T. Coulter  made significant contributions to this report. Also contributing to this  report were Antoinette Capaccio, Pamela Davidson, Penney Harwell  Caramia, Greg Marchand, Diana Moldafsky, Cynthia Norris, Katrina  Pekar-Carpenter, and Sara Sullivan.

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Why GAO Did This Study

The Department of Defense and NNSA have sought for nearly a decade to replace the capabilities of the aging W78 nuclear warhead used by the U.S. Air Force. NNSA undertakes LEPs to refurbish or replace the capabilities of nuclear weapons components. In fiscal year 2014, NNSA was directed to suspend a program that was evaluating a capability that could replace the W78 and also be used by the U.S. Navy. NNSA's most recent estimate—reported in October 2018—was that the combined program would cost about $10 billion to $15 billion. NNSA has been directed by the 2018 Nuclear Posture Review to restart a program to replace the W78 for the Air Force in fiscal year 2019. The 2018 Nuclear Posture Review also directed NNSA and the Navy to further evaluate whether the Navy could also use the warhead.
Senate report 115-125 included a provision for GAO to review NNSA's progress on the program to replace the W78.
GAO's report describes NNSA's steps in key early planning areas—including program management, technology assessment, and coordination with facilities and capabilities—to prepare to restart a program to replace the W78. GAO reviewed documentation on areas such as program management, technologies, and facilities needed for the program, and interviewed NNSA and DOD officials.

What GAO Found

The Department of Energy's National Nuclear Security Administration (NNSA) has taken steps to prepare to restart a life extension program (LEP) to replace the capabilities of the Air Force's W78 nuclear warhead—a program which was previously suspended. According to NNSA officials, these steps are typically needed to conduct any LEP. Therefore, they can be undertaken despite the current uncertainty about whether the final program will develop the warhead for the Air Force only or for both the Air Force and the Navy. Specifically, NNSA has taken the steps described below:
Program management. NNSA has begun to establish the program management functions needed to execute a W78 replacement program, as required by NNSA's program execution instruction. For example, NNSA has started to develop a risk management plan to define the process for identifying and mitigating risks. In addition, NNSA has created a preliminary schedule to restart the program in fiscal year 2019 in the feasibility and design options phase with the goal of producing the first unit in fiscal year 2030. (See figure)
Technology assessment. In May 2018, NNSA completed an assessment of 126 technologies for potential use in a W78 replacement. These included nine technologies that are needed to replace obsolete or no longer available technologies or materials. These are considered “must-do” because they are the only technologies or materials available to meet minimum warhead requirements established by the Department of Defense and NNSA. NNSA officials said that in fiscal year 2019 they will use the assessment to further evaluate technologies for potential use in the warhead.
Coordination with facilities and capabilities. NNSA's program manager is identifying the facilities and capabilities needed to provide components for the warhead. This information will be used to produce a report that identifies aspects of the program—including facilities and capabilities to support it—that could affect the program's schedule and technical risk. However, several of the needed facilities must be built or repaired, and these activities are separately managed and supported outside the W78 replacement program—representing a critical external risk to the program. As mitigation, the program intends to coordinate with the offices that oversee these facilities to draft agreements that describe the work to be performed and timeframes, among other things.

What GAO Recommends

GAO is not making recommendations. NNSA and DOD provided technical comments, which GAO incorporated as appropriate.