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GAO-07-688R 1 (2007-04-26)

handle is hein.gao/gaocrptavfq0001 and id is 1 raw text is: 


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       Accountability * Integrity * Reliability
United States Government Accountability Office
Washington, DC 20548


         April 26, 2007

         The Honorable Carl Levin
         Chairman
         The Honorable John McCain
         Ranking Member
         Committee on Armed Services
         United States Senate

         The Honorable Ike Skelton
         Chairman
         The Honorable Duncan L. Hunter
         Ranking Member
         Committee on Armed Services
         House of Representatives

         Subject: Defense Budget: Review of DOD's Report on Budgeting for Fuel Cost
         Fluctuations

         The Office of Management and Budget (OMB) establishes for the Department of
         Defense (DOD) the price DOD will use for pricing crude oil when constructing its
         budget for upcoming fiscal years. DOD in turn uses OMB's price in establishing the
         standard price to be used for a barrel of fuel for budgeting purposes by DOD fuel
         customers such as the military services. Because of the volatility of world petroleum
         prices, the standard price for a barrel of fuel included in the President's annual
         budget request for DOD may be lower or higher than the actual price established by
         the world market at any point in time after DOD's budget request is submitted to the
         Congress. During the fiscal year, DOD pays for fuel at the actual market rate, which
         typically varies from the budgeted rate. As a result, if the actual price of crude oil
         increases above the price DOD charges its customers, more dollars are needed to pay
         for fuel than originally budgeted. If the actual price is lower than what DOD charges
         its customers, DOD has more dollars than needed. Additionally, if DOD responds to
         increases in the world market crude oil prices by increasing the price it charges its
         customers above what they initially budgeted, the customers will have additional
         funding needs to pay their fuel bills.

         Concerned as to whether DOD's method for setting fuel prices has produced realistic
         budget estimates, last year the Congress required DOD to consider alternative
         methods. Specifically, the John Warner National Defense Authorization Act for Fiscal
         Year 2007 requires the Secretary of Defense to submit a report on the fuel rate and


GAO-07-688R Fuel Fluctuations

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