Defense Budget: Review of DOD's Report on Budgeting for Fuel Cost Fluctuations Page: 2 of 11
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cost projection used in the annual DOD budget presentation.! The act required that
DOD identify alternative approaches, including approaches used by other federal
departments and agencies and the feasibility of using private economic forecasting
organizations, for selecting fuel rates that would produce more realistic estimates of
the amounts required for DOD to accommodate fuel rate fluctuations. DOD is also
required to discuss the advantages and disadvantages of each approach and to
identify the department's preferred approach among the alternatives and provide a
rationale for preferring that approach. Finally, the act further requires that GAO
review DOD's report, including the basis for the Secretary's conclusions for the
preferred approach. DOD submitted its report to the Congress on February 27, 2007.
In response to the act, we determined (1) the extent to which DOD identified and
evaluated alternative crude oil forecasts that could be used in setting its fuel rates-
such as forecasts used by other federal departments and agencies and private
economic forecasting organizations, and (2) DOD's basis for selecting its preferred
fuel rate setting approach.
In conducting our work, we examined DOD's report to the Congress on budgeting for
fuel cost fluctuations and other pertinent documentation on DOD's methodology to
identify the alternative crude oil forecasts DOD considered for selecting budgeted
fuel rates. We interviewed responsible officials from the Office of the Under
Secretary of Defense, the DOD Comptroller, and Defense Logistics Agency (DLA),
and OMB to discuss DOD's methodology and rationale for selecting its preferred fuel
rate selection approach. We also assessed DOD's comparative analyses and the basis
for its conclusions. We conducted our work from February 2007 to April 2007 in
accordance with generally accepted government auditing standards.
Summary
DOD identified and evaluated approaches for forecasting crude oil prices used by
other federal departments and forecasts from private forecasting organizations. DOD
received responses from eight agencies.2 DOD determined that seven of the eight
respondents used DOD's forecast, did not have a forecast method, or did not have a
forecasting method that would accommodate the size and complexity of DOD's fuel
requirement. Thus, DOD concluded that only the Department of Energy's (DOE)
forecasting method, which uses the Energy Information Administration (EIA)3 to
provide forecast prices for crude oil, was an option that warranted further evaluation.
According to DOD's report, it conducted four4 analyses using different scenarios to
compare its forecast approach, which is based on crude oil forecasts provided by
'Pub. L. No. 109-364, 1006 (2006).
2DOD solicited inquiries from at least 21 federal departments and several independent agencies but did
not have information on the exact number.
3The Congress created EIA within the DOE in 1977. As a statistical agency, it provides policy-
independent data, forecasts, and analyses to promote sound policy making, efficient markets, and
public understanding regarding energy and its interaction with the economy and the environment.
4DOD actually analyzed five scenarios but eliminated one in its report to the Congress because the data were
similar to scenario four.GAO-07-688R Fuel Fluctuations
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United States. Government Accountability Office. Defense Budget: Review of DOD's Report on Budgeting for Fuel Cost Fluctuations, text, April 26, 2007; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc302816/m1/2/: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.