    Depot Maintenance: Management Attention Required to Further
    Improve Workload Allocation Data (09-NOV-01, GAO-02-95).

    Federal statute stipulates that not more than 50 percent of
    annual depot maintenance funding can be used for work by private
    sector contractors. In a report on fiscal years 1998 and 1999
    prior-years workloads and fiscal years 2000-2004 future-years
    workloads, GAO could not determine whether the Department of
    Defense (DOD) had complied with the 50-percent limitation. More
    recent testimony highlighted continuing and pervasive weaknesses
    in DOD's financial management systems, operations, and controls,
    which impair its ability to accurately accumulate and report
    reliable budget execution (including disbursements and
    obligations) and cost data. The military departments had mixed
    results complying with the 50-50 requirement for private sector
    workloads in fiscal years 1999 and 2000. The projections of the
    Army, Air Force, and Navy in DOD's report for fiscal years 2001
    through 2005 are not accurate or reasonable estimates of the
    future allocations of public and private sector workloads. The
    services placed much less emphasis on the future-years data and
    reports. The reported projections are based in part on incorrect
    data, questionable assumptions, and some inconsistencies with
    existing budgets and management plans. DOD's report should be
    viewed with caution because it does not provide the best data
    available to DOD decisionmakers and congressional overseers, and
    the reported data are misleading with regard to how future
    workloads are likely to be allocated between the public and
    private sectors. Although DOD has greatly improved the 50-50
    reporting guidance and the implementation of the reporting
    process, opportunities for improvement still exist.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-02-95
        ACCNO:   A02417
      TITLE:     Depot Maintenance: Management Attention Required to
    Further Improve Workload Allocation Data
         DATE:   11/09/2001
      SUBJECT:   Contractors
    	     Facility maintenance
    	     Internal controls
    	     Maintenance costs
    	     Military budgets
    	     Military cost control
    	     Military facilities
    	     Reporting requirements
    	     AH-64 Helicopter
    	     Apache Helicopter
    	     Army Integrated Sustainment Maintenance
    	     Program
    	     Patriot Missile
    	     Towed Decoy Program

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    GAO-02-95

    Report to Congressional Committees

    United States General Accounting Office

    GAO

    November 2001 DEPOT MAINTENANCE

    Management Attention Required to Further Improve Workload Allocation Data

    GAO- 02- 95

    Page i GAO- 02- 95 Depot Maintenance Reporting Letter 1

    Results in Brief 3 Background 4 Military Departments Had Mixed Results
    Complying With 50- 50

    Prior- Years Requirement 6 Future- Year Projections Are Not Reasonably
    Accurate or Useful 14 Reporting Processes Improved, but Some Problems Remain
    25 Conclusions 28 Recommendations for Executive Action 29 Agency Comments
    and Our Evaluation 31 Scope and Methodology 32

    Appendix I Comments From the Department of Defense 35

    Appendix II GAO Contacts and Staff Acknowledgments 39 GAO Contacts 39
    Acknowledgments 39

    Related GAO Products 40

    Tables

    Table 1: DOD Reported Depot Maintenance Workload Allocations, Prior and
    Future- Years Reports 6 Table 2: GAO Changes to Army Prior- Years Report 7
    Table 3: GAO Changes to Air Force Prior- Years Report 9 Table 4: GAO Changes
    to Navy Prior- Years Report 13 Table 5: GAO Changes to Army Future- Years
    Report 15 Table 6: GAO Changes to Air Force Future- Years Report 18 Table 7:
    GAO Changes to Navy Future- Years Report 23

    Abbreviations

    DOD Department of Defense OSD Office of the Secretary of Defense Contents

    Page 1 GAO- 02- 95 Depot Maintenance Reporting

    November 9, 2001 The Honorable Carl Levin Chairman The Honorable John Warner
    Ranking Minority Member Committee on Armed Services United States Senate

    The Honorable Bob Stump Chairman The Honorable Ike Skelton Ranking Minority
    Member Committee on Armed Services House of Representatives

    Section 2466 of title 10, U. S. Code, stipulates that not more than 50
    percent of annual depot maintenance funding provided to the military
    departments and defense agencies can be used for work accomplished by
    private sector contractors. It also provides that the Secretary of a
    military department may waive the 50- 50 requirement if the Secretary
    determines a waiver is necessary for reasons of national security and
    notifies Congress regarding the reasons for the waiver. Further, section
    2466 provides that the Department of Defense (DOD) shall submit two reports
    on public- and private- sector depot maintenance workloads to the Congress
    every year. The first report is to provide the percentages of funds expended
    in the public and private sectors during the 2 preceding fiscal years (the
    ?prioryears report?), and the second report is to project this same
    information for the current and 4 succeeding fiscal years (the ?future-
    years report?). For 2001, the prior- years report was issued on February 1,
    2001, and the future- years report on April 1, 2001.

    Section 2466 requires us to submit to Congress our views on whether DOD
    complied with the 50- 50 requirement in the prior- years report and whether
    the projections in the future- years report are reasonable. Accordingly, as
    agreed with your offices, this report discusses whether (1) the military
    departments met the 50- 50 requirement for fiscal years 1999 and 2000 and
    (2) the projections for fiscal years 2001 through 2005 represent reasonable
    estimates. As a part of our work, we also examined the DOD?s efforts to
    improve the reporting process and sought to identify opportunities to
    further improve it. To accomplish these objectives, we analyzed each
    service?s procedures and internal management controls for collecting,

    United States General Accounting Office Washington, DC 20548

    Page 2 GAO- 02- 95 Depot Maintenance Reporting

    aggregating, and reporting depot maintenance information for purposes of
    responding to the section 2466 requirements. Further explanation of our
    methodology is provided in the scope and methodology section.

    This is one in a series of reports on the 50- 50 requirement. In last year?s
    report covering the fiscal year 1998 and 1999 prior- years workloads and
    fiscal year 2000- 2004 future- years workloads, we noted that because of DOD
    depot maintenance reporting data, we were unable to determine with precision
    whether DOD had complied with the 50- percent limitation. 1 That report
    recognized the limitations of DOD?s financial systems and data, noting that
    in addition to the data reliability weaknesses, our audits of financial
    management operations routinely identified pervasive weaknesses in financial
    systems and fund controls that adversely affected DOD?s ability to
    accumulate costs and reliably determine expenditures, obligations, and
    funding availability. While we recognized that our analysis of DOD?s 50- 50
    data showed that the quality of the data reported to Congress in 2000 was
    substantially improved over previous years, we continued to find errors and
    inconsistencies in the reporting and in how well the services documented
    their analyses supporting their workload reports. At that time we
    recommended, among other points, that the Secretary of Defense direct the
    military departments to provide improved guidance and increased management
    attention to improve workload reporting in several areas including the
    reporting of depot- related portions of contractor logistics support and
    warranties. We also recommended that the Air Force implement a long- term
    strategy to comply with the 50- percent requirement. In an earlier report, 2
    we observed that the future year projections, at best, provide a rough
    estimate of future workload allocations since they are developed with
    budgetary estimates that change over time. Consequently, the forecast and
    actual workload mix will continue to differ because of the changing nature
    of budget estimates.

    Moreover, our recent testimony 3 highlighted continuing and pervasive
    weaknesses in DOD?s financial management systems, operations, and controls,
    which impair its ability to accurately accumulate and report

    1 Depot Maintenance: Action Needed to Avoid Ceiling on Contract Workloads

    (GAO/ NSIAD- 00- 193, Aug. 24, 2000). 2 Depot Maintenance: Future Year
    Estimates of Public and Private Workloads Are Likely to Change (GAO/ NSIAD-
    00- 69, Mar. 1, 2000). 3 DOD Financial Management: Integrated Approach,
    Accountability, and Incentives Are Keys to Effective Reform (GAO- 01- 681T,
    May 8, 2001).

    Page 3 GAO- 02- 95 Depot Maintenance Reporting

    reliable budget execution (including disbursements and obligations) and cost
    data. To date, none of the military services or major DOD components has
    passed the test of an independent financial audit. A continuing inability to
    capture and report the full cost of its programs represents one of the most
    significant impediments facing the Department. Nonetheless, the reported 50-
    50 data are the only data available and are accepted and used for DOD
    decisionmaking and for congressional oversight.

    The military departments had mixed results complying with the 50- 50
    requirement for private sector workloads in fiscal years 1999 and 2000.
    Based on our review, the Army met the requirement for both 1999 and 2000,
    while the Air Force met the requirement in 1999 but exceeded it in 2000,
    issuing a national security waiver as provided for in 10 U. S. C. 2466.
    Although we identified some errors in the Army and Air Force prior- years
    data, improved guidance and data collection efforts and validation and
    reviews by the Army and Air Force audit agencies indicate that the processes
    of these departments provided a sufficient basis for evaluating compliance.
    Further, in the Army?s case, the errors we identified were not material in
    the context of the 50- 50 requirement because they were not sufficient to
    cause it to exceed the limitation. With respect to the Air Force, the
    cumulative errors added further support to the need for the Air Force
    waiver. Although the reported Navy numbers indicated compliance with the 50-
    50 requirement, because of concerns about management processes and data
    validation, there is insufficient support for us to determine the Navy?s
    compliance. An additional factor influencing our concerns is that Navy
    leadership did not involve its internal audit service, as did the other
    military departments.

    The projections of the Army, Air Force, and Navy in DOD?s report for fiscal
    years 2001 through 2005 are not accurate or reasonable estimates of the
    future allocations of public and private sector workloads. The services?
    management placed much less emphasis on the future- years data and reports.
    The reported projections are based in part on incorrect data, questionable
    assumptions, and some inconsistencies with existing budgets and management
    plans. Further, our review identified errors and other shortcomings. As a
    result, DOD?s report should be viewed with caution because it does not
    provide the best data available to DOD decisionmakers and congressional
    overseers, and the reported data are misleading with regard to how future
    workloads are likely to be allocated between the public and private sectors.
    For example, an apparent change in the Air Force?s public- private ratio for
    fiscal year 2002 is due largely to a 17 percent rate increase in public
    workloads. However, it is questionable that the Air Force?s projected
    workload would be funded at the increased Results in Brief

    Page 4 GAO- 02- 95 Depot Maintenance Reporting

    rate as officials noted that a price increase of that magnitude would likely
    result in a reduction in the amount of maintenance the operating commands
    would be able to fund. Further, since January 2000 the Air Force has told
    the Congress that it was developing a depot plan so that waivers of the 50-
    50 requirement would not be needed. As of November 2001, it has not been
    successful in implementing such a plan.

    While DOD has greatly improved the 50- 50 reporting guidance and the
    implementation of the reporting process, opportunities for improvement still
    exist. We have noted improvements in the process each year in response to
    our recommendations, particularly with respect to revisions to the reporting
    guidance by the Office of the Secretary of Defense (OSD) and by the Air
    Force and Army?s use of internal auditors to review data. At the same time,
    some problems and concerns persist in the incomplete and inconsistent
    recordkeeping by the services and Navy?s inadequate data validation. Thus
    opportunities exist for DOD to take actions to improve the validity of the
    process and the reliability of the data. Increased management direction and
    oversight together with improved data validation efforts, expanded use of
    service auditors, and continued clarification of guidance in identified
    problem areas would help make the 50- 50 report a more useful management
    tool for DOD in managing the Department?s depot maintenance program to help
    maintain compliance with the 50- 50 requirement. It would also make the
    report more useful to the Congress in its oversight of this requirement.

    This report contains a number of recommendations for executive action
    designed to improve the 50- 50 reporting process and the usefulness of the
    data for Defense planners and for congressional oversight. DOD generally
    concurred with the recommendations.

    OSD has issued guidance to the military departments for reporting
    publicprivate workload allocations required by 10 U. S. C. 2466. The
    guidance is consistent with 10 U. S. C. 2460, which defines depot
    maintenance and repair. The guidance requires the comprehensive reporting of
    all work associated with the overhaul, upgrade, or rebuilding of parts,
    assemblies, and subassemblies and the testing and reclamation of equipment,
    regardless of the source of funds or the location at which maintenance is
    performed. It also requires the reporting of software maintenance, interim
    Background

    Page 5 GAO- 02- 95 Depot Maintenance Reporting

    contractor support, and contractor logistics support, to the extent work
    performed in these categories is depot maintenance. 4

    In recent years, the Department of Defense has implemented acquisition and
    logistics policy initiatives that have shifted depot maintenance workloads
    from the public to the private sector. We recently reported 5 that between
    1987 and 2000, the public sector?s share of depot maintenance work declined
    by 6 percent, while the private sector?s share increased by 90 percent. As
    the military departments move closer to the 50- percent ceiling for private
    sector work, with the Air Force exceeding the ceiling, the accuracy of the
    collection and aggregation of 50- 50 data becomes increasingly important.
    The data in the prior- years report are important because they provide the
    best indicators the military departments have of the current public- private
    sector allocations. While we have said that the future- year data provide a
    rough estimate, the data are the Department?s only predictor to indicate
    that management attention may be needed to avoid potential compliance
    problems.

    Table 1 provides a consolidated summary of DOD?s two reports to the Congress
    on depot maintenance public and private sector workload allocations, dated
    February 1, 2001 (prior- years) and April 1, 2001 (futureyears). The amounts
    shown are actual obligations incurred for depot maintenance work in fiscal
    years 1999 and 2000 and projected obligations for fiscal years 2001- 2005
    based on the defense budget and service funding baselines. 6 The percentages
    show the relative allocations between the public and private sectors.

    4 Interim contractor support is designed to be an interim support
    arrangement in which a contractor provides depot maintenance (and sometimes
    other logistics support) as part of the acquisition strategy for new
    systems. Contractor logistics support is designed to be a lifetime support
    concept in which a contractor provides most or all elements of logistics
    support, including depot maintenance.

    5 Defense Maintenance: Sustaining Readiness Support Capabilities Requires a
    Comprehensive Plan (GAO- 01- 533T, Mar. 23, 2001). 6 Although 10 U. S. C.
    2466 specifies reporting of funds expended in the prior- years and projected
    to be expended in the future- years, DOD?s past and current 50- 50 reports
    are based on obligations data. A DOD official explained that obligation data
    is considered to be more appropriate in view of the statutory requirement to
    report funds made available in a given fiscal year and expenditure data may
    not be completely recognized in the accounting records for a year or more
    following its obligation. Summary of 50- 50 Data

    Reported by DOD in February and April 2001 for Prior and Future Years

    Page 6 GAO- 02- 95 Depot Maintenance Reporting

    Table 1: DOD Reported Depot Maintenance Workload Allocations, Prior and
    Future- Years Reports

    Dollars in millions

    Prior Years Future Years 1999 2000 2001 2002 2003 2004 2005 Air Force

    Public $3,593 $3,066 $3,350 $3,998 $3,607 $3,604 $3,642 54% 49% 49% 54% 52%
    52% 52% Private $3,012 $3,199 $3,520 $3,343 $3,358 $3,361 $3,370

    46% 51% 51% 46% 48% 48% 48%

    Total $6,605 $6,265 $6,869 $7,341 $6,966 $6,965 $7,012 Army

    Pubic $1,035 $1,167 $1,257 $1,278 $1,575 $1,770 $1,670 53% 54% 54% 54% 59%
    60% 61% Private $925 $987 $1,088 $1,078 $1,101 $1,167 $1051

    47% 46% 46% 46% 41% 40% 39%

    Total $1,960 $2,154 $2,345 $2,356 $2,676 $2,937 $2,721 Navy

    Public $3,843 $3,984 $3,746 $4,282 $4,684 $4,323 $4,456 57% 55% 54% 55% 56%
    57% 57% Private $2,850 $3,267 $3,215 $3,478 $3,623 $3,271 $3,346

    43% 45% 46% 45% 44% 43% 43%

    Total $6,693 $7,251 $6,961 $7,759 $8,307 $7,594 $7,802

    Source: DOD ?50- 50 Reports?, dated Feb. 1 and Apr. 1, 2001. Marine Corps
    data are reported as part of the Navy Department total.

    The Department had mixed results complying with the 50- 50 prior- years
    requirement for fiscal years 1999 and 2000. Based on our review, the Army
    met the requirement for both 1999 and 2000, while the Air Force met the
    requirement in 1999 but exceeded it in 2000, issuing a national security
    waiver as provided for in the statute. Although we identified some errors in
    the Army and Air Force prior- years data, improved guidance and data
    collection efforts and validation and reviews by their audit agencies
    indicate that the Army and Air Force processes provide a sufficient basis
    for evaluating compliance. Further, in the Army?s case, the errors were not
    material in the context of the 50- 50 requirement because they would not be
    sufficient to cause it to exceed the limitation. With respect to the Air
    Force, the cumulative errors further support the need for the Air Force
    waiver. However, because of data reliability issues and concerns about
    management controls and data validation, there is insufficient support for
    us to determine the Navy?s compliance. Military Departments

    Had Mixed Results Complying With 50- 50 Prior- Years Requirement

    Page 7 GAO- 02- 95 Depot Maintenance Reporting

    Based on our review, the Army met the 50- 50 requirement in both 1999 and
    2000, with about a 53 to 47 percent public- private sector split in both
    fiscal years 1999 and 2000. Our review of the Army?s prior- years 50- 50
    report, internal reviews by auditors, and improved guidance and direction of
    the data collection effort indicate that the Army process provides a
    sufficient basis for determining that it met the 50- 50 requirement during
    this 2- year period. While we identified errors that would increase private
    sector costs, about 1 percent in fiscal year 2000 above that projected by
    the Army, this would not be material to the 50- percent requirement since
    the Army would still be about 3 percent below the ceiling. Table 2 shows our
    adjustments to the Army data to correct for the errors we identified and the
    resulting impacts on the public- private sector allocations.

    Table 2: GAO Changes to Army Prior- Years Report

    Dollars in millions

    1999 2000

    Public workload dollars reported $1,034.5 $1,167.1

    Percentage reported 53% 54%

    Army audit errors not corrected - $1.5 Other $3.7 $2.1 Revised public
    workload $1,038.2 $1,170.7

    Revised percentage 53% 53%

    Private workload dollars reported $924.7 $987.2

    Percentage reported 47% 46%

    Government material not reported - $24.0 Army audit errors not corrected -
    $20.4 Other - ($ 4.6) Revised private workload $924.7 $1,027.0

    Revised percentage 47% 47% Total dollars reported $1,959.2 $2,154.3 Total
    dollars revised $1,962.9 $2,197.7

    Note: Dollar amounts in parenthesis are negative.

    The errors and their impacts are as follows:

     One reporting activity did not report about $24 million in
    governmentfurnished material costs in fiscal year 2000. According to OSD and
    Army guidance, the costs of government- furnished material supporting work
    performed by contractors are to be reported as private sector costs. Other
    Army activities we reviewed properly reported government- furnished material
    costs. Army Met 50- 50

    Requirement in Fiscal Years 1999 and 2000

    Page 8 GAO- 02- 95 Depot Maintenance Reporting

     While we determined that the reliability of the Army data was enhanced by
    the work of the Army Audit Agency, the Army had not incorporated all the
    adjustments recommended by the Army Audit Agency before the 50- 50 data were
    submitted to OSD and subsequently to the Congress. Auditors reviewed more
    than one- half of the reported dollars submitted to Army headquarters for
    fiscal year 2000, identifying errors in about 5 percent of the items. Army
    officials revised the 50- 50 data to correct for about $70 million of the
    errors identified; but one activity- citing time constraints- did not make
    another $21.9 million in adjustments for errors before the Army submitted
    its report to OSD. Adjusting for these errors adds $20.4 million to the
    private sector total and $1.5 million to the public sector total.

     We identified several other small errors that in total would add $5.8
    million to the public sector in fiscal year 1999 and subtract $4.6 million
    from the private side in fiscal year 2000. These were attributable to
    officials using budgeted requirements instead of actual obligations, double
    counting, and other mistakes.

    As previously noted, we recognize there are some systemic problems with
    DOD?s financial data. However, based on the work of the Army Audit Agency
    and our work, we believe the Army process provides a sufficient basis for
    determining that it met the 50- 50 requirement during the 2- year prior-
    year period of fiscal years 1999 and 2000.

    Based on our review, the Air Force met the 50- 50 requirement in fiscal year
    1999, with a 54 to 46 percent public- private split. However, the 48 to 52
    percent public- private sector split in fiscal year 2000 required that the
    Secretary of the Air Force issue a national security waiver and notify
    Congress. We identified some reporting weaknesses that increased the amount
    the Air Force exceeded the ceiling in fiscal year 2000 from the reported 1
    percent to about 2 percent; and correcting for these weaknesses resulted in
    increasing the private sector share in both fiscal years 1999 and 2000.
    Consequently, the weaknesses were not material in the context of meeting the
    50- 50 requirement since correcting for these weaknesses did not cause the
    Air Force to exceed the limitation in fiscal year 1999 and it had already
    reported exceeding the limitation in fiscal year 2000.

    While recognizing some problems in the data, the Air Force data review
    process added to the reliability and the credibility of the reported data
    and, together with our work, serves as a basis for determining compliance
    with the 50- 50 requirement. The 50- 50 data reported to Congress included
    Air Force Met 50- 50

    Requirement in Fiscal Year 1999 but Exceeded It in 2000, Issuing a Waiver

    Page 9 GAO- 02- 95 Depot Maintenance Reporting

    adjustments made as a result of reviews by the Air Force Audit Agency, Air
    Force Materiel Command, and Air Force Headquarters. The auditors identified
    adjustments amounting to 4.3 percent of the total workload. This rate is
    higher than last year?s and follows several years of gradually declining
    adjustment rates. 7 The higher rate was mainly attributed to rather large
    errors in one acquisition program, late posting of a cash transfer into the
    working capital fund, and high turnover in the staff assigned to collect
    data.

    Table 3 identifies the changes to the reported Air Force report after
    adjusting to correct weaknesses we identified.

    Table 3: GAO Changes to Air Force Prior- Years Report

    Dollars in millions

    1999 2000

    Public workload dollars reported $3,593.4 $3,066.3

    Percentage reported 54% 49%

    General & admin. adjustment (42.6) ($ 57.9) Revised public workload $3,550.8
    $3,008.4

    Revised percentage 54% 48%

    Private workload dollars reported $3,011.7 $3,199.1

    Percentage reported 46% 51%

    General & admin. adjustment $42.6 $57.9 Contracts not reported $0.2 $2.1
    Revised private workload $3,054.5 $3,259.1

    Revised percentage 46% 52% Total dollars reported $6,605.1 $6,265.4 Total
    dollars revised $6,605.3 $6,267.5

    Note: Dollar amounts in parenthesis are negative.

    7 The previous Air Force Audit Agency adjustment rates were 1.2 percent
    (1999), 3 percent (1998), and 9 percent (1997).

    Page 10 GAO- 02- 95 Depot Maintenance Reporting

    The reporting weaknesses and their impacts are as follows:

     As in past years, 1 Air Force officials continue to adjust the 50- 50 data
    for general and administrative expenses associated with managing depot
    maintenance contracts. These amounts are for overhead and salary costs
    incurred by government personnel charged with administering depot
    maintenance contracts funded through the working capital fund. Air Force
    headquarters and Materiel Command officials subtract these amounts ($ 57.9
    million in fiscal year 2000) from the private sector costs- where they are
    accounted for within the working capital fund- and add them to the public
    sector costs for 50- 50 purposes. Air Force officials told us that they
    believe these costs should be reported as part of the public sector since
    government employees incur them. Although this type of cost is not
    specifically addressed, OSD 50- 50 guidance requires that the costs for all
    factors of production- labor, material, parts, indirect, and overhead-
    associated with a particular repair workload should be counted in the sector
    accomplishing the actual maintenance. For example, contract maintenance on
    depot plant equipment used by government employees to repair items should be
    counted as public sector costs because they are incurred by the government
    in producing the repair. Thus, consistent with our prior assessments, we
    continue to believe that it is appropriate to count the general and
    administrative costs associated with administering depot maintenance
    contracts as part of the private sector costs of doing business.
    Accordingly, in table 2 we reversed the Air Force adjustments to again
    report them as private sector costs.

     We also identified unreported contractor logistics support costs totaling
    about $2.3 million in both fiscal years 1999 and 2000. The Joint Stars
    program office reported most of its depot maintenance dollars appropriately
    but did not report technical data support costs. Additionally, one office in
    the Special Operations Directorate did not report contract maintenance costs
    that should have been reported based on Air Force 50- 50 guidance.

    As previously noted, we recognize there are some systemic problems with
    DOD?s financial data, but the Air Force has made improvements in the

    1 We reported on this and other issues concerning DOD?s 50- 50 submissions
    last year in

    Depot Maintenance: Actions Needed to Avoid Exceeding the Ceiling on Contract
    Workloads (GAO/ NSIAD- 00- 193, Aug. 24, 2000). Other 50- 50 reports are
    listed in the Related GAO Products section at the end of this report.

    Page 11 GAO- 02- 95 Depot Maintenance Reporting

    50- 50 reporting data processes since the requirement to submit the report
    to Congress was imposed. Based on the past improvement efforts and the more
    recent work of the Air Force Audit Agency and us, we believe the Air Force
    provided a sufficient basis for determining that the Air Force met the 50-
    50 requirement during fiscal year 1999 and exceeded it in fiscal year 2000,
    but submitted a waiver as provided by statute.

    As authorized under section 2466, on January 11, 2000, the Air Force
    notified the Congress that the Secretary was waiving the applicability of
    the 50- percent limitation on private sector contracting for fiscal year
    2000 for reasons of national security. The Air Force explanation for the
    waiver was based primarily on the need to use temporary contracts to support
    transitioning workloads from closing depots. However, we reported previously
    that the temporary contracts represented only a minor share of the Air Force
    contract workload. 2 We noted that the more significant factors were
    previous Air Force actions, such as the increase of long- term depot
    maintenance contracts from $600 million in 1996 to $1.1 billion in 2000 and
    the transfer of about half of the workload from two closing depots to the
    private sector, had increased the private sector share from 36 percent in
    fiscal year 1991 to the 50- percent ceiling in fiscal year 2000. These
    actions left Air Force officials little flexibility to use emergency
    contracts without exceeding the ceiling for contract depot maintenance work.
    We also pointed out that while the Air Force projected that it would
    exercise management changes to remain within the 50- percent limitation in
    fiscal year 2000 and beyond, it was uncertain whether it would be successful
    in these efforts.

    Because of weaknesses in the Navy?s reporting processes and data, we were
    unable to determine whether the Navy complied with the 50- percent
    requirement for the 1999 and 2000 prior- years report. The Navy?s report, as
    presented, indicates that the Navy complied with the requirement in both
    years, with a 57- 43 percent mix in fiscal year 1999 and a 55- 45 percent
    mix in 2000. However, our review of the Navy 50- 50 data for fiscal years
    1999 and 2000 identified concerns about management controls and data
    validation processes. Also, Navy leadership chose not to use the Naval Audit
    Service as a part of this year?s process, and the absence of this review
    added to our concern about the reliability of the Navy data. The

    2 Depot Maintenance: Air Force Faces Challenges in Managing to 50- 50
    Ceiling

    (GAO/ T- NSIAD- 00- 112, Mar. 3, 2000) and Depot Maintenance: Air Force
    Waiver to 10 U. S. C. 2466 (GAO/ NSIAD- 00- 152R, May 22, 2000). 50- 50
    Waiver Issued for Fiscal

    Year 2000 Process and Data Weaknesses Preclude Determination of Compliance
    in Navy

    Page 12 GAO- 02- 95 Depot Maintenance Reporting

    specific process problems, which are discussed in more detail later in our
    overall analyses of the military services? data reporting processes, include
    (1) a decentralized and tiered reporting process that consolidated 50- 50
    numbers into summary reports with little evidence that the data were checked
    and validated while passing through the reporting layers and (2) the
    inability to track and document the estimating methodologies. While we have
    identified these same issues in the past, Navy leadership has not placed
    enough emphasis on the 50- 50 reporting process to make the improvements
    required to assure that the data reported provide a sufficient basis for
    developing the Navy?s 50- 50 information in the prioryears report.

    For example, the Naval Sea Systems Command, which reported about onefifth of
    the total Navy 50- 50 amount for this time period, had one coordinating
    official who received summary data from 37 reporting units. Some units had
    in turn rolled up data received from as many as 10 subactivities.
    Individuals generally accepted the data, rolled up totals, and transmitted
    them up the reporting chain without conducting in- depth critical checks of
    the data. In most cases, an audit trail to track individual subactivity 50-
    50 submissions that were subsequently rolled- up into a single program or
    project unit figure did not exist.

    In addition to our concerns about the Navy?s process, we identified one
    major reporting inconsistency that would impact the public- private sector
    allocations as shown in table 4.

    Page 13 GAO- 02- 95 Depot Maintenance Reporting

    Table 4: GAO Changes to Navy Prior- Years Report

    Dollars in millions

    1999 2000

    Public workload dollars reported $3,843.4 $3,983.5

    Percentage reported 57% 55%

    Revised public workload $3,843.4 $3,983.5

    Revised percentage 57% 55%

    Private workload dollars reported $2,850.0 $3,267.0

    Percentage reported 43% 45%

    Inactivation costs not reported $81.8 $31.8

    Revised private workload $2,931.8 $3,298.8 Revised percentage 43% 45% Total
    dollars reported $6,693.4 $7,250.5 Total dollars revised $6,775.2 $7,282.3

    We determined that two activities within the Naval Sea Systems Command
    reported inactivation activities 3 inconsistently. One project office
    reported $650 million in nuclear ship inactivation costs performed mainly at
    the public shipyards, but another project office did not report about $113.6
    million in conventional ship inactivation costs performed mainly in the
    private sector ($ 81.8 million in fiscal year 1999 and $31.8 million in
    fiscal year 2000). Officials from the non- reporting office said they did
    not know these types of costs were to be reported for 50- 50 purposes. It is
    uncertain how many other activities have similar non- reported costs. DOD?s
    financial management regulation includes inactivation activities as
    reportable depot maintenance workloads. The internal Navy guidance specified
    reporting nuclear ship inactivations but did not mention conventional ships.

    In commenting on a draft of this report, Navy officials said that the
    relatively complex process for nuclear ship inactivations is considered to
    be equivalent to depot maintenance and repair, while the less- complex
    process for conventional ship inactivations is not generally considered
    equivalent to depot- level work. However, we believe that some portion of
    the conventional ship workload should be reported as depot maintenance,

    3 DOD Financial Management Regulation 7000. 14- R, Vol. 6, Ch. 14 prescribes
    depot maintenance reporting requirements and includes inactivation as a
    depot maintenance activity. It defines inactivation as the servicing and
    preservation of an item before it is placed in storage or in an inactive
    status.

    Page 14 GAO- 02- 95 Depot Maintenance Reporting

    based on follow- up reviews with Navy program officials. OSD is developing
    additional guidance to clarify this reporting category for future 50- 50
    reports.

    The projections of the Army, Air Force, and Navy in DOD?s future- years?
    report for fiscal years 2001 through 2005 are not reasonably accurate
    estimates of the future allocations of public and private sector workloads.
    The services? management placed much less emphasis on the future- years data
    and reports. The reported projections are based in part on incorrect data,
    questionable assumptions, and some inconsistencies with existing budgets and
    management plans. Further, our review identified errors, inconsistencies,
    and other shortcomings. As a result, DOD?s future- years report should be
    viewed with caution because it does not provide the best data available to
    DOD decisionmakers and congressional overseers, and the reported data is
    misleading with regard to how future workloads are likely to be allocated
    between the public and private sectors. To make the future year 50- 50
    report a useful management tool would require improved management oversight
    and direction.

    While the reported Army future years? workload allocations show an
    increasing public sector share, after adjusting the reported numbers to
    correct for errors and omissions, the net effect is an increase in the
    projected private sector?s share for each year. In our last year?s report,
    we noted that the Army faced long- term challenges remaining within the
    contract ceiling. Army officials said that they had taken action to increase
    the public sector?s share, not only to deal with the contract workload
    ceiling but also to more cost- effectively use underutilized Army depot
    infrastructure. The reported Army numbers suggested that these actions were
    effective. However, we identified significant problems and omissions in the
    Army?s reporting of its future- years 50- 50 data, the net effect of which
    significantly increases the projected private sector?s share each year.
    Whereas the Army reported that public sector workloads were projected to
    increase in the future years, in actuality, after correcting for errors and
    omissions, the data show that the Army is substantially closer to the
    private sector limitation and that the future expected public- private
    sector allocations are relatively constant. Table 5 summarizes adjustments
    we made to the reported future year Army numbers. Future- Year

    Projections Are Not Reasonably Accurate or Useful

    Army Future- Year Projections Are Inaccurate and Do Not Portray Continuing
    Challenge

    Page 15 GAO- 02- 95 Depot Maintenance Reporting

    Table 5: GAO Changes to Army Future- Years Report

    Dollars in millions

    2001 2002 2003 2004 2005

    Public workload dollars reported $1,256.6 $1,278.0 $1,575.2 $1,769.9
    $1,670.4

    Percentage reported 54% 54% 59% 60% 61%

    Transcription error - - (211.6) ($ 324.0) ($ 147.9) Repairs at non- depot
    locations $24.0 $24.0 $24.0 $24.0 $24.0 Double- counting costs - - - ($
    19.9) Revised public workload $1,280.6 $1,302.0 $1,387.6 $1,450.0 $1,546.5

    Revised percentage 52% 52% 53% 53% 56%

    Private workload reported $1,088.0 $1,077.9 $1,100.6 $1,167.2 $1,050.8

    Percentage reported 46% 46% 41% 40% 39%

    Contractor costs not reported $25.7 $28.6 $37.0 $63.5 $72.3 Government
    material not reported $24.0 $24.0 $24.0 $24.0 $24.0 Repairs at non- depot
    locations $56.0 $56.0 $56.0 $56.0 $56.0 Double- counting costs - - - ($
    36.3) Revised private workload $1,193.7 $1.186.5 $1,217.6 $1,274.4 $1,203.1

    Revised percentage 48% 48% 47% 47% 44% Total dollars reported $2,344.6
    $2,355.9 $2,675.8 $2,937.1 $2,721.2 Total dollars revised $2,474.3 $2,488.5
    $2,605.2 $2,724.4 $2,749.6

    Note: Dollar amounts in parenthesis are negative.

    The errors and their impacts are as follows:

     One reporting activity made a series of transcription errors that reported
    thousands of dollars as millions of dollars. These errors overstated public
    sector workloads by a total of $683.5 million in fiscal years 2003 -2005.

     This same activity did not fully report contractor costs for contractor
    logistics support, which resulted in understating private sector workloads
    by a total of about $227. 1 million in fiscal years 2001- 2005.

    Page 16 GAO- 02- 95 Depot Maintenance Reporting

     Two major commands did not report depot costs associated with the Army?s
    Integrated Sustainment Management program. 4 Officials said they did not
    report these costs because the Army Materiel Command will eventually be
    responsible for the reporting. However, a Materiel Command official told us
    the command was not ready to assume this reporting and did not include the
    costs of these activities in the 50- 50 report. These additional projected
    costs are estimated to add $24 million per year to the public sector
    reporting and $56 million per year for the private sector. As we reported in
    the past, the Army?s move to consolidate maintenance activities under the
    National Maintenance Program and to perform depot- level maintenance at
    field locations continues to pose reporting challenges and could result in
    an underreporting of both public and private sector costs. 5

     As discussed in the section on the prior- years report, one Army reporting
    activity had not reported the costs of government- furnished material. This
    material, when supplied to a contractor for use in the maintenance process,
    should be counted as private sector work. Assuming annual material costs
    stay constant at the fiscal year 2000 level ($ 24 million), this activity
    underreported private sector costs by about $120 million over the 5- year
    reporting period.

     Another activity double- counted $19.9 million dollars of its public
    sector workload and $36 million of its private sector workload for fiscal
    year 2004. Estimates for maintenance costs for 7 systems were erroneously
    entered twice for 2004.

    There are some additional non- quantifiable factors that are expected to
    have major impacts on the Army?s future depot maintenance program and these
    factors further support our concern (1) with the reasonableness of the
    Army?s future year projections and (2) that the Army will be challenged in
    the future to manage its depot maintenance program within

    4 Integrated Sustainment Management is a program established by the Army
    Materiel Command in 1996 to consolidate workloads and eliminate the
    proliferation of depot maintenance- type activities. Our prior work, Depot
    Maintenance: Army Report Provides Incomplete Assessment of Depot- type
    Capabilities (GAO/ NSIAD 00- 20, Oct. 15, 1999), showed that the Army?s
    major operating commands developed extensive redundant local maintenance
    facilities at multiple locations that supported similar capabilities and
    workloads.

    5 Depot Maintenance: Army Report Provides Incomplete Assessment of Depot-
    type Capabilities (GAO/ NSIAD- 00- 20, Oct. 15, 1999).

    Page 17 GAO- 02- 95 Depot Maintenance Reporting

    the 50- 50 ceiling. First, quality of the future- years data is questionable
    because some funding priorities and plans have substantially changed since
    the budget figures supporting the 50- 50 projections were prepared. Revised
    plans for extensive repairs of the Patriot Missile and the Apache Helicopter
    will likely alter depot workload projections and public- private sector
    percentage allocations.

    A second factor of potentially greater impact involves depot maintenance
    requirements associated with the Army?s recapitalization program. 6 Funding
    requirements and implementation strategies for the recapitalization program
    are not fully known at this time and continue to evolve. Consequently, these
    requirements and expected public- private sector allocations were not fully
    reflected in the 50- 50 outyear projections. At the time of our review, Army
    records showed that it planned to spend about $15.5 billion on recapitalized
    systems between fiscal years 2002 and 2007. Army officials said, however,
    that additional funding of at least $7.6 billion is needed over this period
    but this has not yet been budgeted. 7 Procedures for managing and
    coordinating the recapitalization program were finalized in April 2001, and
    detailed implementation strategies are currently being developed for each of
    the 21 weapon systems to be recapitalized. While it appears that a
    significant portion of the program expenditures will be considered depot
    maintenance- type work, the plans supporting the distribution of workloads
    between the public and private sectors have not yet been finalized.

    Although the reported data indicate that the Air Force would breach the 50-
    percent ceiling in fiscal year 2001 but not in fiscal years 2002- 2005, we
    identified significant problems and questionable assumptions in the Air
    Force?s reporting of its future year 50- 50 data, which indicate that the
    future contract work is understated. After adjusting the reported numbers to
    correct the problems we could quantify, the net effect is an increase in the
    private sector share projected for each year. In addition, other significant
    factors cannot be quantified, but indicate further growth in the private
    sector is likely. Taken together, the Air Force will likely continue

    6 The recapitalization program is the Army?s plan to modernize and sustain
    its aging weapon systems. The program will restore currently fielded systems
    such as the M- 1 tank and the Bradley infantry vehicle. It will rebuild and
    upgrade the systems to ensure operational readiness and a ?zero time/ zero
    mile? like new condition.

    7 Five of the 21 Army Recapitalization Programs have not yet been funded and
    there is a funding shortfall for the other systems. Air Force?s Future- Year

    Projections Are Inaccurate and Problems Will Likely Lead to More Waivers

    Page 18 GAO- 02- 95 Depot Maintenance Reporting

    to exceed the 50- percent private sector limitation, leading to more waivers
    such as the second one recently issued for fiscal year 2001. Table 6 shows
    the reported data, our quantifiable adjustments, and the resulting impacts
    on allocations. The revised allocations show the Air Force just under the
    50- percent ceiling for the future years. Significantly, the reported and
    revised amounts are both over the 48- percent target for private- sector
    allocation that Air Force officials established for management purposes to
    allow for some flexibility under the ceiling if estimates and circumstances
    change.

    Table 6: GAO Changes to Air Force Future- Years Report

    Dollars in Millions

    2001 2002 2003 2004 2005

    Public workload reported $3,349.6 $3,997.6 $3,607.4 $3,603.6 $3,642.0

    Percentage reported 49% 55% 52% 52% 52%

    General & admin. adjustment ($ 56.1) ($ 53.2) ($ 51.1) ($ 51.0) ($ 51.7)
    Additional bridge contracts - ($ 11.0) ($ 2.6) ($ 2.5) Additional contract
    augmentees ($ 1. 6)($ 3. 4)-- New Items in source of repair - $0.7 $3.9 $3.9
    $4.4 Revised public workload $3,291.9 $3,930.7 $3,557.6 $3,554.0 $3,594.7

    Revised percentage 48% 53% 51% 51% 51%

    Private workload reported $3,519.8 $3,342.9 $3,358.1 $3,361.3 $3,369.5

    Percentage reported 51% 45% 48% 48% 48%

    General & admin. adjustment $56.1 $53.2 $51.1 $51.0 $51.7 Additional bridge
    contracts - $11.0 $2.6 $2.5 Additional contract augmentees $1.6 $3.4 - - New
    items in source of repair - $32.2 $41.3 $58.0 $56.3 Contracts not reported
    $2.4 $0.7 $0.7 $0.7 $0.7 Mod installations not reported - - $1.0 $1.0 $1.0
    Revised private workload $3,579.9 $3,443.4 $3,454.8 $3,474.5 $3,479.2

    Revised percentage 52% 47% 49% 49% 49% Total dollars reported $6,869.4
    $7,340.5 $6,965.5 $6,964.9 $7,011.5 Total dollars revised $6,871.8 $7,374.1
    $7,012.4 $7,028.5 $7,073.9

    Note: Dollar amounts in parenthesis are negative.

    Page 19 GAO- 02- 95 Depot Maintenance Reporting

    The reporting weaknesses, errors, and their impacts are as follows:

     As discussed in our analysis of the Air Force?s prior- year numbers, the
    Air Force?s adjustments for general and administrative expenses associated
    with contracted workload shifts more than $100 million annually adding about
    $50 million to the public sector and subtracting the same amount from the
    private sector. We think it more appropriate to count these expenses as part
    of the private sector amounts. They are overhead costs required to manage
    contract workloads; and the OSD reporting guidance says that the costs for
    all factors of production labor, material, parts, indirect, and overhead
    associated with a particular repair workload should be counted in the sector
    accomplishing the actual maintenance. In table 6 we reverse the contract
    administration adjustment each year. This adds about $263.1 million to
    projected private sector work for the reporting period and decreases the
    public sector by the same amount.

     The Air Force data do not fully reflect depot officials? estimates of the
    continuing need for temporary contracts and contractor augmentees resulting
    from work transfers from base closures and contract competitions. 8 At the
    time the future- years report was submitted, these would have added about
    $21.1 million to the private sector costs for the fiscal year 2001- 2004
    reporting period and decreased the public side by the same amount.

     The Air Force data do not include the estimated repair costs of new
    systems and upgrades being reviewed for establishing the source of repair.
    Most of these items 48 of 66 and representing about 90 percent of the repair
    cost estimates for all the systems undergoing the review are currently
    recommended for private sector repair. Examples include the C- 5 AMP repair,
    which is expected to add about $57 million in private sector repair costs
    and the KC- 10 reverser fan modification, which is expected to add $41
    million in private sector repair costs between fiscal years 2001 and 2005.
    Although some of these source- of- repair decisions could change, as they
    stand now, the net effect of the additional workloads would add about
    another $175 million to the private sector costs for fiscal years 2002
    through

    8 Increased use of temporary contracts and contractor augmentees (temporary
    contract personnel performing depot maintenance at a government facility)
    was the stated basis for the fiscal year 2000 waiver of the 50- 50
    requirement. However, as previously discussed, we determined that these
    costs were a minor part of the Air Force?s 50- 50 problem.

    Page 20 GAO- 02- 95 Depot Maintenance Reporting

    2005. In commenting on a draft of this report, Air Force officials pointed
    out that it is difficult to accurately project the outcome of the source of
    repair process and that the annual dollar projections are very rough budget
    estimates. However, all of the data projected in the future- years report
    are point- in- time estimates and subject to change. Incorporating estimated
    costs for systems in the source- of- repair process would provide a more
    comprehensive and useful projection of expected future public- private
    sector allocations.

     We also identified underreported contractor logistics support costs and
    contractor costs to install modifications totaling about $8.2 million.
    Program officials at one activity were unaware of the 50- 50 reporting
    requirement, while other offices reported some, but not all, of the depot-
    related contract costs. Officials in the Towed Decoy program office said
    they did not know that the costs for installing modifications should be
    reported as depot maintenance costs. The Joint Stars program office did not
    report technical data support costs and the Special Operations office did
    not report contract maintenance costs. As we have reported in the past, it
    is difficult to identify to what extent costs that should be reported are
    being reported. However, based on our review this year, we noted
    improvements in reporting these kinds of contract costs.

    In addition to the problems we could quantify, there are some other
    significant factors which, while they cannot be quantified, are likely to
    have major impacts on future- year workloads as the Air Force moves closer
    to execution. Both public and private sector amounts can be affected.
    However, based on past experience, the Air Force?s practice of placing more
    depot repair work for new and upgraded systems in the private sector, and
    the unlikely event that the in- house depots will receive the projected
    amounts of work currently estimated, it is likely that the Air Force will
    continue to need to waive the 50- percent limitation in the future, absent
    corrective action.

    One of the non- quantifiable factors is the relative accuracy of cost and
    budget data reported by the depot maintenance activity group, a part of the
    Air Force working capital fund. From 70 to 80 percent of the total depot
    maintenance amounts reported annually by the Air Force are financed through
    the depot maintenance activity group. Consequently, the relative accuracy of
    budget projections and accounting records for the activity group will
    significantly affect the quality and completeness of the Air Force?s 50- 50
    data. However, our review last year of the depot maintenance activity group
    identified poor budget estimates, inaccurate

    Page 21 GAO- 02- 95 Depot Maintenance Reporting

    pricing, and overoptimistic assumptions about worker productivity and
    process improvement savings. 9

    In addition, the rates charged for maintenance work and workload assumptions
    used in estimating fiscal years 2003- 2005 requirements did not incorporate
    price increases for both public and private workloads, nor did they fully
    reflect expected surcharges and other workload changes. In recent years,
    operating losses in the depot maintenance activity group have necessitated
    large cash inflows and surcharges applied to maintenance rates to balance
    the accounts. For example, a reimbursement of $483 million ($ 417 million
    for the public sector and $66 million for the private sector) was spread
    over fiscal years 2001 and 2002 to make up for accumulated losses in the
    Depot Maintenance Activity Group operations for fiscal year 2000 and prior
    years. Performance indicators to date indicate that financial performance
    problems are continuing in fiscal year 2001 that could require changes in
    future rates and surcharges. Also, the apparent improvement in the 50- 50
    ratio for fiscal year 2002 shown in DOD?s report and table 1 in this report
    is due largely to a 17- percent rate increase on public workloads. However,
    it is questionable whether the projected public workload program can be
    funded at the higher rates. Depot officials noted that a price increase of
    that magnitude would likely result in a reduction in the amount of
    maintenance the operating commands would be able to fund. They said that
    budget estimates used to support the projections assumed that 100 percent of
    the anticipated workload would be accomplished. In reality, actual
    performance generally does not approach 100 percent, resulting in an
    overstatement of the reported 50- 50 data. Officials at the three Air Force
    depots said that historically in the year of program execution, there are
    reductions in the depot maintenance program performed in the public depots
    and an increase in the amount of contracted workload over what had been
    projected. An official at one depot said that only about 94 percent of the
    current program would likely be accomplished in fiscal year 2001 due to
    operating inefficiencies, parts shortages, budget reductions, and other
    constraints. Air Force Materiel Command headquarters officials said this
    lower execution rate can affect both public and private workloads, but it
    generally has a greater impact in reducing the actual work accomplished in
    public depots. Changes in the amount of workload that is actually

    9 Air Force Depot Maintenance: Budgeting difficulties and Operational
    Inefficiencies

    (GAO/ AIMD/ NSIAD- 00- 185, Aug. 15, 2000.)

    Page 22 GAO- 02- 95 Depot Maintenance Reporting

    accomplished will have obvious impacts on the dollars and public- private
    sector allocations reported in the future.

    The Air Force future- years report shows the Department exceeding the 50-
    percent ceiling in 2001. On July 31, 2001, the Air Force notified Congress
    that the Secretary of the Air Force had waived the 50- percent requirement
    for fiscal year 2001. The waiver determination was justified as necessary
    for national security because ?the Air Force concluded that no significant
    workload could be moved into the public depots in the near term without
    increased cost and an adverse effect on readiness.? While we did not analyze
    the basis for the Air Force?s determination, we agree that those
    transitioning workloads, whether new or old ones, to a military depot would
    require increased funding.

    The Air Force waiver determination also said that to address future
    compliance, the Air Force is preparing a long- term strategic plan that will
    address current capacity shortfalls, as well as new technologies and the
    associated infrastructure. This long- term depot strategy is supposed to be
    designed to ensure compliance with the 50- percent limitation.

    However, the Air Force promised such a plan last year but has not been
    successful in developing it. After announcing on January 11, 2000, that the
    Air Force would exceed the 50- percent limitation last year, the Air Force
    told interested Congressional members and the Subcommittee on Readiness,
    Senate Committee on Armed Services, that it was developing a short- and
    long- term strategy for resolving the 50- 50 dilemma. According to Air Force
    officials, they were unsuccessful in identifying workloads that could be
    moved into the Air Force depots in the short term and were equally
    unsuccessful in identifying workload to transfer into the depots in the long
    term. Program offices said they had entered into long- term contracts with
    private contractors and they had not budgeted for technical data or depot
    plant equipment and facilities that might be required before establishing an
    in- house capability in one of the three remaining Air Force depots.
    Further, DOD and Air Force acquisition strategy continues to express a
    preference for long- term contractor logistics support, to include
    maintenance, supply, and other logistics functions. This year?s waiver
    determination did not specify a date for the completion of the Air Force?s
    latest effort in developing a long- term depot strategy that would resolve
    the Air Force?s current 50- 50 imbalance. As of November 2001, it has not
    been successful in implementing such a plan. Without an approved strategy
    for increasing the Air Force depots? workloads and the funding of the
    resources required to establish new capability, the Air Force will not be
    able to resolve its 50- 50 problem. The Air Force?s long- term depot Air
    Force Issued a Second

    Waiver for Fiscal Year 2001

    Page 23 GAO- 02- 95 Depot Maintenance Reporting

    strategy is now expected to be completed by the end of calendar year 2001,
    according to officials commenting on our draft report.

    We identified two major problems in reporting that, together with our
    reservations about the reliability of the Navy?s data, lead us to conclude
    that, like the other services, the Navy?s future year projections are not
    accurate. The resulting impacts on public- private sector allocations after
    adjusting for these problems are displayed in table 7.

    Table 7: GAO Changes to Navy Future- Years Report

    Dollars in millions

    2001 2002 2003 2004 2005

    Public workload reported $3,745.7 $4,281.9 $4,684.0 $4,323.1 $4,456.0

    Percentage reported 54% 55% 56% 57% 57%

    Revised public workload $3,745.7 $4,281.9 $4,684.0 $4,323.1 $4,456.0

    Revised percentage 52% 54% 56% 56% 56%

    Private workload reported $3,215.0 $3,477.5 $3,623.1 $3,271.0 $3,346.2

    Percentage reported 46% 45% 44% 43% 43%

    Inactivation costs not reported $74.5 $56.6 $86.8 $58.2 $80.7 USS Cole
    repairs not counted $150.0 $93.0 - - Revised private workload $3,439.5
    $3,627.1 $3,709.9 $3,329.2 $3,426.9

    Revised percentage 48% 46% 44% 44% 44% Total dollars reported $6,960.7
    $7,759.4 $8,307.1 $7,594.1 $7,802.2 Total dollars revised $7,185.2 $7,909.0
    $8,393.9 $7,652.3 $7,882.9

    The problems and their impacts on the allocations are as follows:

     As discussed in the earlier section on the prior- years 50- 50 report, the
    Navy did not report inactivation costs for conventional ships as depot
    maintenance costs but reported similar work for nuclear ships. The Navy
    projects that up to $357 million over the 5- year period covered in the
    future- years report will be spent on conventional ship inactivation
    activities, mostly in the private sector. The Navy projections did include
    about $1.2 billion in nuclear inactivation workloads at public shipyards for
    this time period. As discussed earlier, the Navy believes that conventional
    ship inactivation workload is generally not equivalent in complexity to
    depot- level maintenance. A Navy official said they would use the additional
    clarifying guidance being developed by OSD in reporting future 50- 50
    workload allocations. Navy and Marine Corps

    Future- Year Projections Are Inaccurate

    Page 24 GAO- 02- 95 Depot Maintenance Reporting

     We also determined that the Navy did not include the costs of repairs on
    the USS Cole, the target of last year?s terrorist attack. The Congress late
    in calendar year 2000 appropriated $150 million in fiscal year 2001 funds
    for these repairs, which are to be accomplished at a private shipyard.
    Officials said the 2001 supplemental came after the 50- 50 report was
    developed. Officials estimate that about another $93 million will be
    required to complete repairs on the USS Cole, which was also not reported in
    the 50- 50 data. For display purposes, table 7 shows this additional amount
    in fiscal year 2002.

    Several other issues affect the Navy?s report but are not quantified. For
    example, the Navy plans call for a substantial increase in submarine depot
    maintenance workloads associated with a major refueling program during this
    reporting period. Most of the work is expected- and was reported for 50- 50
    purposes- to be accomplished at the public shipyards. However, Naval Sea
    Systems Command officials told us that the plans and depot requirements are
    not yet firm and that extensive use of contract employees to augment the
    civilian workforce at the shipyards is anticipated. These contract
    requirements have not been fully identified and were not included in the 50-
    50 report. In commenting on a draft of this report, Navy officials stated
    that as soon as contract requirements for shipyard augmentation are
    determined, the amounts will be included in the 50- 50 reports.

    As we reported last year, the Navy is moving to a regional maintenance
    approach, which has made it difficult to identify and report depot- level
    work. Initially implemented at Pearl Harbor, this approach combines depot-
    level and lower levels of non- depot maintenance, changes funding sources,
    and consolidates financial systems. The Navy has not yet developed a system
    to discretely track and account for work meeting the definition of depot
    maintenance. In its absence, the officials used estimates to report 50- 50
    data. While this is a reasonable approach, actual data will likely cause
    future estimates to be revised if this program is implemented as planned
    throughout the Navy.

    The Marines Corps projections for fiscal years 2001- 2005 were based on a
    combination of budget formulation figures and straight- line projections.
    Headquarters Materiel Command Officials agreed that the reported data do not
    fully reflect the planned decrease in total revenues for this period, the
    impact of new systems going to the private sector for support, and the
    anticipated decrease in the public depot workforce. They did not provide an
    estimate to reflect these changes but said actions are underway to improve
    future reports.

    Page 25 GAO- 02- 95 Depot Maintenance Reporting

    In its report, we observed that the Navy and Marine Corps are now projecting
    a substantial shift to more private sector workload over the 50- 50
    reporting period compared to last year. Comparing the 5 years that the
    current 50- 50 reports and last year?s reports have in common (fiscal years
    2000- 2004), the Navy is now projecting an additional $2.9 billion in
    private sector work and a decrease of $1.1 billion in public sector work.
    Whereas in last year?s reports they were projecting private sector
    allocations in the 35- to 42- percent range, this year?s reports project a
    significantly higher 43- to 46- percent range. Navy officials responsible
    for coordinating and reporting the 50- 50 data attributed the increase in
    private sector amounts to (1) a sharp increase in the private sector wage
    rates, (2) some shifts in ship maintenance from the public to private
    sectors to make room for the extensive submarine refueling effort to be
    accomplished mainly in the public sector, (3) contracts with private
    shipyards, and (4) changes in cost models and estimating baselines.

    While DOD has greatly improved the 50- 50 reporting guidance and
    implementation, opportunities for improvement still exist. We have noted
    improvements in the process each year, particularly with respect to the Air
    Force and Army?s use of internal auditors to review data, the Navy?s
    development of internal guidance, and OSD?s revisions to its reporting
    guidance in response to our recommendations. At the same time, some problems
    and concerns persist, including incomplete and inconsistent recordkeeping by
    the services and the Navy?s inadequate data validation. While the 50- 50
    process and resulting data will never be perfect, there are still
    opportunities for DOD to take actions to improve the validity of the process
    and the reliability of the data. If implemented, these improvements could
    improve the reasonableness of the 50- 50 data as input to the management of
    the depot maintenance program to attain future compliance with the 50- 50
    requirement.

    For this year?s 50- 50 data collection, Army officials added to the already
    extensive and detailed internal instructions used to supplement the OSD
    guidance. Army officials cited our report findings and their auditor
    findings to improve guidance in several areas, including warranties and
    contractor logistics support. Also, the Deputy Chief of Staff for Logistics
    held two workshops to prepare for the 50- 50 data call and to address our
    prior- year findings, OSD?s reporting requirements, as well as the changes
    in the Army supplemental instructions. Command individuals responsible for
    responding to the data call and coordinating reporting efforts within their
    respective commands attended the workshops. Nonetheless, we noted that
    guidance and reporting requirements were not always clearly Reporting
    Processes

    Improved, but Some Problems Remain

    Army

    Page 26 GAO- 02- 95 Depot Maintenance Reporting

    communicated or understood by potential reporting activities, resulting in
    some incomplete and missed reporting. The Army?s task in this regard is
    challenging in that 14 major commands need to be involved, along with
    numerous reporting levels within each command. Nonetheless, improved
    communication of the reporting guidance to activities that may not initially
    recognize that they have reportable maintenance activities should mitigate
    the problem of incomplete and missed reporting in the future.

    The Army Audit Agency reviewed the data collection process at command levels
    as it was evolving, and problems they identified in the report for fiscal
    year 2000 were for the most part corrected before the activity reports were
    sent to Army headquarters. The error rate identified by the auditors was
    about one- half the rate found last year 7.1 percent for fiscal year 2000
    versus 15 percent in fiscal year 1999. For fiscal year 2000, Army auditors
    reviewed about $13 billion and identified adjustments of about $92 million.
    Auditors attributed the improvement to better guidance, the planning
    workshops, and overall management efforts. However, Army auditors put little
    emphasis on reviewing the future- year projections. This year?s review of
    the future year projections was concerned only with the process and how
    reporting organizations were determining projections. The Army auditors did
    not review or spot check the amounts projected for individual items or
    weapon systems, deciding that a detailed audit was not necessary since they
    had done a more thorough analysis of the future process and numbers last
    year without identifying significant errors. Nonetheless, we found
    significant errors that would likely have been identified by Army auditors
    if they had spot- checked projected amounts.

    The Air Force supplemented OSD guidance by adding details on contractor and
    interim contractor logistics support contracts, partnering, and software
    maintenance to its internal instructions. For the fourth consecutive year,
    the Air Force Audit Agency assisted Air Force headquarters and Materiel
    Command officials in verifying data and validating collection processes,
    significantly improving the quality and completeness of data before its
    submission to OSD and the Congress.

    However, as in the other services, some Air Force offices did not maintain
    adequate documentation for reviewing and supporting data. Some offices we
    visited could not readily reconstruct estimating methodologies and provide
    source documents for their reported data. For example, F- 117 contractor
    logistics support costs and F- 15/ F- 16 trainer/ simulator costs were
    omitted. Documentation requirements are not only valuable for audit purposes
    and management review but also as a method of maintaining Air Force

    Page 27 GAO- 02- 95 Depot Maintenance Reporting

    historical records that can be used in subsequent years. This is especially
    important given the high turnover of staff performing these functions.

    In response to our prior findings and those of the Naval Audit Service, Navy
    headquarters compiled and distributed a handbook with guidance to supplement
    the OSD reporting requirements. This handbook improved the Navy?s process as
    it included more detailed data collection procedures, a responsibility
    matrix, and a standard reporting format. Some commands also prepared
    additional instructions to reporting units. In addition, the headquarters
    official responsible for coordinating the Navy?s reports conducted on- site
    reviews at several commands and identified some errors that were corrected
    before the data was reported to OSD. However, the Navy did not hold a
    planning meeting to assemble the key staff involved in the 50- 50 reporting
    process from the major commands to discuss and critically analyze procedural
    guidance. We have found such meetings to be useful in the Air Force and the
    Army in surfacing problems and concerns and helping to ensure a more
    consistent approach to data collection.

    Furthermore, the Naval Audit Service was not asked to review processes and
    validate this year?s 50- 50 data. Last year, auditors found that Navy
    guidance, data validation, and documentation lacked the detail to identify,
    collect, support, report, and document depot- level maintenance between
    public and private sectors. As a result, the Naval Audit Service concluded
    that the quality of the data reviewed was inadequate to determine the
    accuracy and completeness of the prior submission for fiscal year 1999.
    According to audit officials, by not doing a follow- on review, the accuracy
    and completeness of the Navy?s 50- 50 data remain suspect.

    We encountered similar problems during this review. The Navy?s decentralized
    and tiered reporting process rolls up data from numerous subactivities,
    consolidating 50- 50 numbers into summary reports with little evidence that
    the data were checked and validated while passing through the reporting
    layers. In many cases, an audit trail did not exist which was sufficient to
    track and document the estimating methodologies and the data used to develop
    the individual subactivity 50- 50 submissions that were subsequently rolled
    up into a single program or major activity amount. Although the Air Force
    and Army also have multi- layered reporting chains, we found their processes
    for collecting and verifying information to be generally better, especially
    their use of audit agencies to provide an effective third party review of
    the data collection process and to correct errors and validate data before
    submitting it to OSD and to the Congress. Navy

    Page 28 GAO- 02- 95 Depot Maintenance Reporting

    Our review this year, as in the past, determined that each of the services
    could better maintain auditable records for documenting data collection
    methodology, estimating techniques, and final reported results. While some
    central records are maintained, information and reporting rationales at
    program offices and maintenance activities are sometimes lacking, and it is
    difficult for a third party to understand and reconstruct the methodology
    and verify results. For example, some Air Force reporting activities had not
    kept consolidated records to document their data collection procedures,
    estimating methodologies and assumptions, and data sources. In some other
    instances, key reporting staff had been transferred and, without adequate
    documentation, new staff could not readily explain nor replicate the
    results. Also, a Navy major command was in the process of realigning its
    units for budget purposes; and neither we nor officials responsible for the
    50- 50 effort could always determine which project unit actually provided
    the data, the type of depot maintenance being performed, and the class of
    ship involved. We also noted that the command had developed special budget
    codes to help identify and track depot funding, but that the codes were not
    extensively or consistently used. Good records, documentation of processes
    followed, and identification of data sources used are important not only for
    audit and management oversight but also for use as a historical record that
    can be followed by newly assigned staff to assist in data collection and by
    programs reporting for the first time.

    Expanded guidance and the efforts of service audit agencies have improved
    the prior- years 50- 50 report overall, but more so in the Army and the Air
    Force. Nonetheless, problems still exist, and this is particularly true in
    the Navy, where inadequate management oversight has resulted in continuing
    weaknesses in reporting control processes and data validation procedures.
    These weaknesses make it difficult to verify the reliability of reported
    data. Correcting reporting accuracy problems in all the services is
    necessary to provide the Congress and DOD managers assurance that the
    requirements of 10 U. S. C. 2466 are being met. Also, inaccurate data hinder
    Defense managers in taking timely actions to meet the statutory requirements
    and leave the Congress uncertain as to whether legislative requirements are
    being met.

    The future- years report is not accurate or reasonable and is not currently
    a useful tool for guiding DOD actions or informing the Congress about likely
    future compliance with section 2466 requirements. The management of the
    military services placed much less emphasis on ensuring the accuracy or
    reasonableness of the future- years data. Accurate or reasonable projections
    are of particular importance for the Air Force, which has now Record-
    Keeping

    Weaknesses Continue to Be a Problem

    Conclusions

    Page 29 GAO- 02- 95 Depot Maintenance Reporting

    issued two waivers of the limitation on the private sector and is likely to
    exceed the 50- percent ceiling in future years. The Army also faces
    increasing management challenges in managing its depot maintenance work
    within the 50- percent ceiling, but problems with the reliability of the
    data and the lack of an effective review of the future- years data and
    process by the Army Audit Agency concealed the impact of the results.
    Admittedly, projecting the future public- private sector mix is much more
    difficult and much less precise than quantifying the results of what has
    already occurred. Depot plans and strategies are still evolving with
    uncertain impacts on depot workloads. Similarly, repair plans for new and
    upgraded systems and other logistics programs and initiatives impacting the
    amount and location of depot maintenance services are not fully known. Yet
    future- year projections must use the best information available to make the
    most reasonable estimates. Such information should include the latest budget
    estimates with reasonable adjustments made as needed.

    Although DOD and service guidance for both the prior and future- years
    reports has been improved over the years, we continue to identify errors,
    omissions, and inconsistencies in several reporting categories. These were
    caused in large part by insufficient direction and clarification in the
    reporting guidance and inadequate management attention. These problem areas
    include inactivation activities, contractor logistics support, depot
    maintenance at non- depot locations, government- furnished material,
    contract general and administrative expenses, incorporation of future repair
    costs for new systems, and adjustments for expected execution of programmed
    workload. In addition, record- keeping weaknesses hinder audit and
    management oversight efforts and do not provide a sound historical record
    for facilitating future data collection and reporting efforts. With improved
    management oversight and direction and the implementation of the required
    corrective actions, the 50- 50 report could become a more useful management
    tool for DOD and the Congress in managing the Department?s depot maintenance
    program to attain future compliance with the 50- 50 requirement.

    To improve 50- 50 data collection, validation, and reporting processes for
    prior- years and future years data and thus the reliability and
    reasonableness of the reported data, and to improve management direction and
    oversight, we recommend that the Secretary of Defense require

     the Secretary of the Army (1) identify depot maintenance requirements
    associated with the recapitalization program, (2) require that the Army
    Recommendations for

    Executive Action

    Page 30 GAO- 02- 95 Depot Maintenance Reporting

    Audit Agency review both prior- years and future- years 50- 50 data, (3)
    communicate the reporting requirements to all organizational levels
    responsible for reporting data, and (4) finalize and issue guidance
    concerning the reporting of depot maintenance at non- depot locations;

     the Secretary of the Navy (1) review the management priority accorded the
    50- 50 reporting process throughout the command structure, (2) implement
    improved management controls and oversight of the processes used by the
    individual reporting commands to collect, verify, and report 50- 50 data,
    (3) finalize procedures for accurately identifying and reporting depot
    maintenance costs at regional and other non- depot locations, (4) prior to
    issuing the data call for the 50- 50 reports due in fiscal year 2002, hold a
    planning meeting of key officials representing all reporting commands to
    discuss and agree upon 50- 50 data collection processes and guidance, and
    (5) direct the Naval Audit Service to review 50- 50 processes and data to
    validate the data collection processes and results for both the prior- years
    and future- years reports;

     the Assistant Deputy Under Secretary of Defense for Maintenance Policy,
    Programs and Resources expand and clarify its guidance to (1) specify
    whether contract general and administrative expenses incurred by government
    employees and similar types of costs should be counted as part of the public
    or the private sector, and (2) allow for revisions to budgetary estimates to
    better reflect known and anticipated changes in workloads, workforce,
    priorities, and performance execution rates in order to achieve more
    reasonable projections of depot requirements where historical data indicates
    that budget data are unrealistic;

     the Assistant Deputy Under Secretary of Defense for Maintenance Policy,
    Programs and Resources, in conjunction with the secretaries of the military
    departments, improve and clarify 50- 50 reporting guidance in problem areas
    noted in this report, including inactivation activities, contractor
    logistics support, incorporation of future repair costs for new and upgraded
    systems in 50- 50 projections, depot- level maintenance performed at non-
    depot locations, and inclusion of government- furnished material in contract
    repair costs; and

     the secretaries of the military departments reemphasize and expand
    procedures for maintaining adequate records to document data collection
    processes, data sources, and estimating methodologies in order to facilitate
    management oversight and audits, as well as provide an historical record
    that can be readily used by staff newly assigned to

    Page 31 GAO- 02- 95 Depot Maintenance Reporting

    the 50- 50 process to annually replicate sound, efficient, and consistent
    data collection efforts.

    DOD generally concurred with our recommendations. However, it did not concur
    with certain parts of two recommendations. The Department?s specific
    comments and our evaluation of them are discussed below. Service officials
    also offered some technical comments that we incorporated in this report
    where appropriate. DOD?s comments are included as appendix I to this report.

    The Department did not concur with two parts of our recommendation
    addressing Navy 50- 50 issues. First, regarding our recommendation that the
    Navy hold a 50- 50 planning meeting, the Navy response said that its new
    handbook, frequent contacts between the 50- 50 manager and key reporting
    officials, and meetings held internally by reporting organizations
    accomplish the same purpose. While we agree that these efforts are important
    and should be continued, an initial planning meeting of key representatives
    of reporting commands has proven useful in both the Army and the Air Force.
    For example, service officials have said that these meetings surfaced
    reporting issues up- front and helped ensure more consistency in reporting
    processes and results. Thus, we continue to believe the Navy should hold an
    initial planning meeting. Second, the Navy disagreed with our recommendation
    that the Naval Audit Service review 50- 50 processes and data. The
    Department?s response noted that the Navy believes sufficient management
    attention has been given to this process and is confident in the integrity
    of its data. However, the comments also stated that the Naval Audit Service
    will be used should the Navy determine that an audit service review is
    necessary. Because of the value added by audit services in the Army and the
    Air Force (and by the Navy last year), we continue to believe that the Naval
    Audit Service should be used to review 50- 50 processes and data.

    Finally, the Department did not concur with one part of our recommendation
    regarding clarification of Office of Secretary of Defense 50- 50 guidance to
    the services. Specifically, the Department?s response noted that the
    counting of contract general and administrative expenses incurred by
    government employees is unique to the Air Force and additional departmental
    guidance is not necessary. We continue to believe that this issue should be
    clarified in the OSD guidance because a substantial amount is involved and
    the Air Force continues to make this adjustment every year. Agency Comments

    and Our Evaluation

    Page 32 GAO- 02- 95 Depot Maintenance Reporting

    To determine whether the military departments met the 50- 50 requirement in
    the prior- years report, we analyzed each service?s procedures and internal
    management controls for collecting and reporting depot maintenance
    information for purposes of responding to the section 2466 requirement. We
    reviewed supporting details (summary records, accounting reports, budget
    submissions, and contract documents) at departmental headquarters, major
    commands, and selected maintenance activities. We compared processes to
    determine consistency and compliance with legislative provisions, OSD
    guidance, and military service instructions. We selected certain programs
    and maintenance activities for more detailed review. 10 We particularly
    examined reporting categories that DOD personnel and we had identified as
    problem areas in current and past reviews; these areas included
    interserviced 11 workloads, contractor logistics support, warranties,
    software maintenance, and depot maintenance at non- depot locations. We
    evaluated processes for collecting and aggregating data to ensure accurate
    and complete reporting and to identify errors, omissions, and
    inconsistencies. We coordinated our work, shared information, and obtained
    results of the Army and Air Force service audit agencies? data validation
    efforts.

    To determine whether the future- years projections were based on accurate
    data, valid assumptions, and existing plans, and represented reasonable
    estimates, we followed the same general approach and methodology used to
    review the report on the preceding years discussed above. Although the
    future- years report is a budget- based projection of expenditures, the
    definitions, guidance, organization, and processes used to report future
    data are much the same as for the prior- years report of actual obligations.
    We discussed with DOD officials the main differences between the two
    processes and the manner in which the data were derived from budgets and
    planning requirements and key assumptions made in the outyear data.

    For reviews of both 50- 50 reports, we performed certain checks and tests,
    including variance analyses, to judge the consistency of this information
    with data from prior years and with the future- years budgeting and

    10 We selected the programs reviewed based on size and importance, leads
    obtained from internal auditors, and any previously identified areas of
    concern. Given the nature of our sample, the results are not projectible to
    the universe of depot maintenance activities. We also did not audit the
    integrity of DOD?s financial systems and accounting data used to prepare the
    50- 50 reports.

    11 Interserviced workload is maintenance that one military service performs
    on equipment owned and funded by another service. Scope and

    Methodology

    Page 33 GAO- 02- 95 Depot Maintenance Reporting

    programming data used in DOD?s budget submissions and reports to the
    Congress. For example, we compared each service?s 50- 50 data reported in
    February and April 2001 for the period 1999 through 2004 with data reported
    for these same years in the 50- 50 reports submitted in 2000. We found
    repeated and significant changes, even though the estimates were prepared
    only about one year apart. This analysis helped us identify large
    transcription errors and unreported costs that the Army had made which
    resulted in the data reported to Congress erroneously indicating an increase
    in the percentage of depot maintenance work assigned to the public sector.
    Instead, our corrected data shows the Army allocation percentages staying
    rather constant during this period and closer to the 50- percent ceiling.
    This analysis also revealed a greater increase in the Navy?s shift to more
    private sector workload than had been projected last year. Variance analysis
    showed that congressional and DOD decisionmakers were given quite a
    different view of the public- private sector workload mix than that
    presented just last year. During this review we also used to a great extent
    our prior and ongoing audits in such areas as sustainment planning, depot
    policies, financial systems and controls, and DOD pilots and initiatives for
    increasing contractor involvement in maintenance.

    Several factors concerning data validity and completeness were considered in
    our methodology and approach to reviewing the prior and future years?
    reports. One key factor is the continuing deficiencies GAO has noted in
    DOD?s financial systems and reports that preclude a clean opinion on its
    financial statements and which results in limited accuracy of budget and
    cost information. Another factor is that documenting depot maintenance
    workload allocations between the public and private sectors is becoming more
    complicated by the consolidation of maintenance activities and performance
    of depot- level maintenance at field locations. This (1) makes it more
    difficult to identify work that meets the statutory definition of depot
    maintenance; (2) complicates workload reporting; and (3) results in
    underreporting of depot maintenance for both the public and private sectors.
    In addition, many contracts, especially the newer performance- based
    contracts, do not separately identify maintenance activities or account
    separately for their costs, which can result in underand over- reporting of
    depot maintenance work performed in the private sector.

    To review DOD efforts to improve the accuracy and completeness of reports,
    we discussed with officials managing and coordinating the reporting process
    their efforts to address known problem areas and respond to recommendations
    by the audit agencies and us. We compared

    Page 34 GAO- 02- 95 Depot Maintenance Reporting

    this year?s sets of instructions with last year?s to identify changes and
    additions. We reviewed efforts to identify reporting sources and to
    distribute guidance and taskings. We asked primary data collectors their
    opinions on how well efforts were managed and data verified. We asked them
    to identify ?pain points? and ideas they had to improve reporting. We
    reviewed prior recommendations and service audit agency findings to
    determine whether known problem areas were being addressed and resolved.

    We interviewed officials, examined documents, and obtained data at OSD,
    Army, Navy, and Air Force Headquarters in Washington, D. C.; Army Materiel
    Command in Alexandria, Virginia; Naval Sea Systems Command in Arlington,
    Virginia; Naval Air Systems Command in Patuxent River, Maryland; Air Force
    Materiel Command in Dayton, Ohio; Army Audit Agency in Washington, D. C.;
    Air Force Audit Agency in Dayton, Ohio; and several operating activities
    under the military departments? materiel commands. We conducted our review
    from February to July 2001, in accordance with generally accepted government
    auditing standards.

    We are sending copies of this report to the Secretary of Defense, the
    Secretary of the Air Force, the Secretary of the Army, the Secretary of the
    Navy, the Commandant of the Marine Corps, the Director of Office of
    Management and Budget, and interested congressional committees. We will make
    copies available to others upon request and will post the report to GAO?s
    homepage at www. gao. gov. Key contributors to this report are listed in
    appendix II.

    David R. Warren, Director Defense Capabilities and Management

    Appendix I: Comments From the Department of Defense

    Page 35 GAO- 02- 95 Depot Maintenance Reporting

    Appendix I: Comments From the Department of Defense

    Appendix I: Comments From the Department of Defense

    Page 36 GAO- 02- 95 Depot Maintenance Reporting

    Appendix I: Comments From the Department of Defense

    Page 37 GAO- 02- 95 Depot Maintenance Reporting

    Appendix I: Comments From the Department of Defense

    Page 38 GAO- 02- 95 Depot Maintenance Reporting

    Appendix II: GAO Contacts and Staff Acknowledgments

    Page 39 GAO- 02- 95 Depot Maintenance Reporting

    David R. Warren (202) 512- 8412 Julia C. Denman (202) 512- 4290

    In addition to the above contacts, John Brosnan, Raymond Cooksey, Bruce
    Fairbairn, Johnetta Gatlin- Brown, Jane Hunt, Steve Hunter, Glenn Knoepfle,
    Ron Leporati, Fred Naas, Andy Marek, and Bobby Worrell made contributions to
    this report. Appendix II: GAO Contacts and Staff

    Acknowledgments GAO Contacts Acknowledgments

    Related GAO Products Page 40 GAO- 02- 95 Depot Maintenance Reporting

    Defense Maintenance: Sustaining Readiness Support Capabilities Requires a
    Comprehensive Plan (GAO- 01- 533T, Mar. 23, 2001)

    Depot Maintenance: Key Financial Issues for Consolidations at Pearl Harbor
    and Elsewhere Are Still Unresolved (GAO- 01- 19, Jan. 22, 2001).

    Depot Maintenance: Action Needed to Avoid Exceeding Ceiling on Contract
    Workloads (GAO/ NSIAD- 00- 193, Aug. 24, 2000).

    Air Force Depot Maintenance: Budgeting Difficulties and Operational
    Inefficiencies (GAO/ AIMD/ NSIAD- 00- 185, Aug. 15, 2000.)

    Depot Maintenance: Air Force Waiver to 10 U. S. C. 2466

    (GAO/ NSIAD- 00- 152R, May 22, 2000).

    Depot Maintenance: Air Force Faces Challenges in Managing to 50- 50 Ceiling
    (GAO/ T- NSIAD- 00- 112, Mar. 3, 2000).

    Depot Maintenance: Future Year Estimates of Public and Private Workloads Are
    Likely to Change (GAO/ NSIAD- 00- 69, Mar. 1, 2000).

    Depot Maintenance: Army Report Provides Incomplete Assessment of Depot- type
    Capabilities (GAO/ NSIAD- 00- 20, Oct. 15, 1999).

    Depot Maintenance: Status of the Navy?s Pearl Harbor Project

    (GAO/ NSIAD- 99- 199, Sep. 10, 1999).

    Depot Maintenance: Workload Allocation Reporting Improved, but Lingering
    Problems Remain (GAO/ NSIAD- 99- 154, July 13, 1999).

    Navy Ship Maintenance: Allocation of Ship Maintenance Work in the Norfolk,
    Virginia, Area (GAO/ NSIAD- 99- 54, Feb. 24, 1999).

    Defense Depot Maintenance: Public and Private Sector Workload Distribution
    Reporting Can Be Further Improved (GAO/ NSIAD- 98- 175, July 23, 1998).

    Defense Depot Maintenance: DOD Shifting More Workload for New Weapon Systems
    to the Private Sector (GAO/ NSIAD- 98- 8, Mar. 31, 1998).

    Defense Depot Maintenance: Information on Public and Private Sector Workload
    Allocations (GAO/ NSIAD- 98- 41, Jan. 20, 1998). Related GAO Products

    Related GAO Products Page 41 GAO- 02- 95 Depot Maintenance Reporting

    Outsourcing DOD Logistics: Savings Achievable But Defense Science Board?s
    Projections Are Overstated (GAO/ NSIAD- 98- 48, Dec. 8, 1997).

    Navy Regional Maintenance: Substantial Opportunities Exist to Build on
    Infrastructure Streamlining Progress (GAO/ NSIAD- 98- 4, Nov. 13, 1997).

    Defense Depot Maintenance: Uncertainties and Challenges DOD Faces in
    Restructuring Its Depot Maintenance Program (GAO/ T- NSIAD- 97- 112, May 1,
    1997) and (GAO/ T- NSIAD- 97- 111, Mar. 18, 1997).

    Defense Depot Maintenance: DOD?s Policy Report Leaves Future Role of Depot
    System Uncertain (GAO/ NSIAD- 96- 165, May 21, 1996).

    Defense Depot Maintenance: More Comprehensive and Consistent Workload Data
    Needed for Decisionmakers (GAO/ NSIAD- 96- 166, May 21, 1996).

    Defense Depot Maintenance: Privatization and the Debate Over the Public-
    Private Mix (GAO/ T- NSIAD- 96- 148, Apr. 17, 1996) and (GAO/ T- NSIAD- 96-
    146, Apr. 16, 1996).

    Depot Maintenance: Issues in Allocating Workload Between the Public and
    Private Sectors (GAO/ T- NSIAD- 94- 161, Apr. 12, 1994).

    (350048, 350046)

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