Summary: Testimony was given discussing the Department of Defense's (DOD) efforts to budget for inflation. Unexpectedly high rates of inflation in the 1970's created major problems in executing defense procurement programs. During the early 1980's, inflation fell more rapidly than expected, creating excess funds in the defense budget. A special multiplier used for budgeting for inflation in major weapon systems procurement accounted for much of the surplus. Although DOD has reprogrammed surplus funds more often, it has left some funds unobligated since it has been unable to obligate the funds as rapidly as planned. Ideally, the aggregate level of unobligated balances should be the minimum funding needed to fill outyear contracts for the sum of each program. At the end of 1985, unobligated balances were $12.1 billion greater than projected. Congress has given DOD limited authority to reprogram and transfer appropriated funds; however, if an action increases authorized procurement quantities or has been designated as an item of congressional interest, prior approval is required. GAO found that, in recent years, the amount of money reprogrammed to solve program problems has declined and money has been reprogrammed for unplanned requirements. It is now apparent that more funds were available in the DOD budget than Congress intended and that actions are needed to improve inflation budgeting. GAO believes that Congress should require DOD to regularly report on inflation budgeting assumptions and transfer unobligated balances into future budgets or return them to the Treasury if they are found to be in excess of program needs.
