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Review of DOD's Report on Budgeting for Exchange Rates for Foreign Currency Fluctuations
The Department of Defense (DOD) expends a significant amount of funds overseas, particularly from its Operation and Maintenance (O and M) and Military Personnel (MILPERS) appropriations. As the rate of overseas currencies fluctuates on a daily basis, such fluctuations have an impact on the various expenditures that DOD makes. For budgeting purposes, DOD establishes foreign currency exchange rates to determine its O and M and MILPERS funding needs. During the fiscal year, DOD incurs expenditures at the actual exchange rate, which varies from the budgeted rate. For example, if the dollar depreciates in value, more dollars are needed to pay for goods and services overseas than originally budgeted. Concerned about whether DODs method for selecting foreign currency rates has produced realistic estimates in its budget submissions, Congress required DOD to consider alternative methods. Specifically, the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 required the Secretary of Defense to submit a report on the foreign currency exchange rate projections used in annual DOD budget presentations. 1 The act required that DOD identify alternative approaches, including the feasibility of using private economic forecasting and approaches used by other federal departments and agencies, for selecting foreign currency exchange rates that would produce more realistic estimates of the amounts required for DOD to accommodate foreign currency exchange rate fluctuations. DOD also was required to discuss the advantages and disadvantages of each approach and to identify the departments preferred approach among the alternatives and provide a rationale for preferring that approach. Finally, the act further required that we review DODs report, including the basis for the Secretary's conclusions for the preferred approach. DOD submitted its report to Congress on April 15, 2005.
Approved For Public Release