Army Corps of Engineers: Improved Planning and Financial	 
Management Should Replace Reliance on Reprogramming Actions to	 
Manage Project Funds (16-SEP-05, GAO-05-946).			 
                                                                 
In recent years, the Army Corps of Engineers (Corps) has had more
work to accomplish than funds available. The Congress has	 
supported the Corps' need to reprogram funds to complete	 
projects. Reprogramming allows the Corps to move funds from	 
projects that can not use available funds to those that can.	 
However, concerns have been expressed about whether the Corps	 
reprogrammed funds in accordance with applicable guidance. GAO	 
determined for fiscal years 2003 and 2004 (1) the amount of funds
reprogrammed; (2) if the Corps followed reprogramming guidance;  
(3) why the Corps reprogrammed funds; and (4) how effective the  
Corps' reprogramming strategy was in managing funds.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-946 					        
    ACCNO:   A37057						        
  TITLE:     Army Corps of Engineers: Improved Planning and Financial 
Management Should Replace Reliance on Reprogramming Actions to	 
Manage Project Funds						 
     DATE:   09/16/2005 
  SUBJECT:   Appropriated funds 				 
	     Federal funds					 
	     Financial management				 
	     Funds management					 
	     Military policies					 
	     Monetary policies					 
	     Policy evaluation					 
	     Reprogramming of appropriated funds		 
	     Financial analysis 				 
	     Policies and procedures				 
	     Army Corps of Engineers Civil Works		 
	     Program						 
                                                                 

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GAO-05-946

                 United States Government Accountability Office

GAO	Subcommittee on Energy and Water Development, Committee on

                    Appropriations, House of Representatives

September 2005

ARMY CORPS OF ENGINEERS

     Improved Planning and Financial Management Should Replace Reliance on
                 Reprogramming Actions to Manage Project Funds

                                       a

GAO-05-946

[IMG]

September 2005

ARMY CORPS OF ENGINEERS

Improved Planning and Financial Management Should Replace Reliance on
Reprogramming Actions to Manage Project Funds

  What GAO Found

In fiscal years 2003 and 2004, the Corps reprogrammed funds over 7,000
times and moved over $2.1 billion among projects within the investigations
and construction appropriations. Moreover, funds were moved in and/or out
of nearly two thirds of the projects within these appropriation accounts.
Comparable data for the operation and maintenance appropriation could not
be provided by the Corps.

GAO reviewed a random sample of 271 general investigation, construction
general, and operation and maintenance projects and found that the Corps
generally reprogrammed funds in accordance with its guidance. However, in
eight cases, the Corps' reprogramming actions did not comply with the
guidance because it either exceeded established reprogramming thresholds
and/or did not provide the appropriate notification to the Congress.
Although in most cases the Corps reprogrammed funds according to its
guidance, this guidance is written in such a way that most reprogramming
actions do not count as reprogramming actions toward the congressional
notification thresholds, thereby diminishing the Congress' knowledge and
oversight of how the Corps spends appropriated funds.

In many cases, the Corps reprogrammed funds from projects that experienced
unforeseen delays to projects that could make use of additional funds. On
the other hand, reprogramming actions were conducted that were
inconsistent with the Corps' reprogramming guidance, such as to achieve a
Corps goal that all projects carry no funds into the next fiscal year.
Some of these movements were as small as 6 and 7 cents. Corps guidance
states that small reprogramming actions are inconsistent with sound
project management and increase its administrative burden. Funds were also
moved into projects that had a reported "need" and then were subsequently
removed because they were suddenly "excess"- sometimes on the same day or
within a few days or weeks. Such movements appear to serve little useful
purpose and create an administrative burden for the Corps because of the
time and effort needed to accomplish these movements.

The Corps has come to rely on reprogramming as its primary method to
manage project funds. The use of reprogramming is no longer used as a tool
when emergencies and unforeseen circumstances occur but instead has become
the regular, recurring financial management practice. Finally, the use of
numerous reprogramming actions to manage project funds, without a set of
formal Corps-wide priorities, has resulted in an uncoordinated movement of
funds between projects, with little consideration to pending needs or
long-term planning.

                 United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
The Corps Reprogrammed Significant Amounts of Funds among

Hundreds of Projects The Corps Followed Internal Guidance That Allowed
Extensive

Reprogrammings Without Congressional Notification The Corps Reprogrammed
Funds for Various Reasons The Corps' Reprogramming Activities Resulted in
Inefficient

Management of Funds Conclusions Recommendations for Executive Action
Agency Comments and Our Evaluation

1 3 6

10

11 18

21 26 27 28

Appendixes Appendix I: Appendix II: Appendix III:

Appendix IV: Appendix V: Scope and Methodology

Reprogramming Guidance Used by the Corps

Projects with Reprogrammings That Did Not Follow Corps Guidance

Fund Movements Conducted under ER 11-2-201 (October 1, 2002, to May 26,
2004)

Fund Movements Conducted under Guidance Based on the Direction Provided in
the House Report 108-554 (May 27 to September 30, 2004)

Comments from the Department of DefenseGAO Contact and Staff
Acknowledgments

GAO Contact
Staff Acknowledgments

                                     31 32

33

33

33

36

39 39 39

Tables        Table 1: Fiscal Years 2003 and 2004 Appropriations         7 
                 Table 2: Projects Where the Corps Failed to Follow        
                               Reprogramming Guidance                      12 
Figure  Figure 1: Reprogramming Categories during Fiscal Years 2003 and    
                                                                      2004 14

Contents

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protection in the United States. It may be reproduced and distributed in
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separately.

A

United States Government Accountability Office Washington, D.C. 20548

September 16, 2005

The Honorable David L. Hobson

Chairman, Subcommittee on Energy and Water Development Committee on
Appropriations House of Representatives

The Honorable Peter J. Visclosky
Ranking Minority Member
Subcommittee on Energy and Water Development
Committee on Appropriations
House of Representatives

Each year, the Congress provides funding to the U. S. Army Corps of
Engineers (Corps) for hundreds of investigations, construction, and
operation and maintenance projects for the nation's water resources.1
During fiscal year 2004, the Corps' budget for these types of projects was
more than $3.8 billion. The conference report accompanying the bill that
appropriates the funds includes a specific amount of funding for each
project, in effect providing the Corps with direction for accomplishing
water resource projects. However, the Corps may reprogram funds among
the projects. Reprogramming is generally defined as the movement of
funds among projects within an appropriation account and is permitted to
provide agencies with the flexibility needed to manage appropriated funds.

The authority to reprogram funds in and out of projects is implicit in an
agency's responsibility to manage its funds, and it has evolved largely in
the
form of informal nonstatutory agreements between agencies and their
congressional oversight committees. Although an agency's ability to
reprogram funds may be restricted by statute, more frequently
congressional guidance on the extent and nature of an agency's
reprogramming authority is provided in committee reports that accompany
appropriation bills. In the case of the Corps, the agency had developed
internal reprogramming guidance, based on previous congressional
direction, in 1995 that was in effect until May 2004. At that time, the
Corps
received reprogramming direction from both the Senate and the House

1In this report, the terms "investigations" and "construction" are used to
describe the appropriation accounts entitled "general investigations" and
"construction, general," respectively.

Appropriations Committees. Starting on May 27, 2004, the Corps'
reprogramming procedures were based on direction that was subsequently
included in the House of Representatives report on the fiscal year 2005
appropriations bill. The Corps' reprogramming guidance-both before and
after May 27, 2004-required notifying the Congress of the Corps' intention
to move funds when reprogrammings exceeded specific thresholds. The
thresholds vary by type of project and are set as a specific dollar amount
and/or a percentage of project funding. The May 27, 2004, guidance was
somewhat more restrictive, although still permitting the Corps to have
considerable flexibility in reprogramming funds between projects.

In this context, for fiscal years 2003 and 2004, we determined (1) how
much funding the Corps moved within its Civil Works appropriations, (2)
the extent to which the Corps followed applicable guidance in moving funds
between projects, (3) the reasons for Corps' reprogramming actions during
fiscal years 2003 and 2004, and (4) how effective the Corps' reprogramming
strategy was in managing appropriated funds. In conducting our work, we
reviewed the Corps' overall reprogramming activity within the
investigations, construction, and operation and maintenance appropriations
during fiscal years 2003 and 2004.2 We selected a random sample of 271
investigations, construction, and operation and maintenance projects from
these 2 years and reviewed each reprogramming activity, determined why
funds were reprogrammed, and whether funds were reprogrammed in accordance
with the guidance in effect at the time. We also held discussions with
program and project managers to obtain further details about the projects
included in our sample and about the advantages and disadvantages of the
Corps' use of reprogramming to manage project funds. We conducted our
review from December 2004 through June 2005 in accordance with generally
accepted government auditing standards, which included an assessment of
data reliability and internal controls. Appendix I contains a more
detailed discussion of our scope and methodology.

2Investigations are studies to determine the need, engineering
feasibility, economic justification, and the environmental and social
suitability of a project. Investigations also include preconstruction,
engineering, design work, data collection, and interagency coordination
and research activities. Construction projects are construction and major
rehabilitation projects that relate to navigation, flood control, water
supply, hydroelectric power, and environmental restoration. Operation and
maintenance projects include the preservation, operation, maintenance, and
care of existing river and harbor, flood control, and related activities
at the projects that the Corps operates and maintains.

Results in Brief	In fiscal years 2003 and 2004, the Corps conducted
thousands of reprogramming actions and moved billions of dollars among its
civil works projects. Specifically, in fiscal years 2003 and 2004, the
Corps reprogrammed funds over 7,000 times and moved over $2.1 billion
among investigations and construction projects; the Corps could not
provide agency wide data for reprogramming actions for operation and
maintenance projects.3 During fiscal years 2003 and 2004, more than 60
percent of the over 1,500 investigations and construction projects had
funds reprogrammed. In both years, the Corps reprogrammed over 56 percent
of the total funds appropriated for the investigations and construction
accounts.

Although the Corps generally followed its reprogramming guidance, the
guidance has been developed in such a way that it permits extensive
movements of funds without congressional notification. As a result, the
Corps was able to move billions of dollars among hundreds of projects
without congressional knowledge and oversight. For 263 of the 271 randomly
selected projects we reviewed, the Corps reprogrammed funds in fiscal
years 2003 and 2004 in accordance with its reprogramming guidance. For the
8 projects where the Corps' reprogramming actions did not comply with the
guidance, the Corps had exceeded the thresholds established for
reprogramming but did not provide the appropriate notifications to the
Congress. Even though the Corps moved funds according to its guidance, the
guidance had been developed in such a way that most movements of funds did
not count toward congressional notification thresholds. For example, for
investigations and construction projects, the Corps categorized all
reprogrammings of funds out of a project as "revocations" which, according
to its guidance, did not count toward congressional notification
thresholds. Consequently, the Corps could move most or all of the funds
out of a project without having to notify the Congress. Similarly, if
funds were returned to the same project at a later date, the Corps did not
consider these movements as reprogrammings that counted toward
congressional notification thresholds. Except for the period from May 27,
2004, to September 30, 2004, when different guidance was in effect, only
those movements of funds into a project that were specifically labeled by
the Corps as "reprogrammings" counted toward the congressional

3In this report, we calculate the dollar amount of reprogramming actions
as the total amount of funds moved into and out of a project. For
instance, if $10,000 was moved into a project and $5,000 was subsequently
moved out in the same fiscal year, we determined the total dollar amount
of reprogramming for that project to be $15,000.

notification threshold. This category was seldom used and, according to
Corps officials, when used, was generally limited to amounts that were
less than the congressional notification threshold. As a result, only
about 16 percent of investigations and construction reprogramming actions
prior to May 27, 2004, were categorized as Corps-defined "reprogrammings"
that counted toward the threshold for congressional notification. We
believe that all actions should have counted toward the congressional
notification thresholds, because when the Corps moves funds that create a
major deviation from the funding direction the Congress provided for these
projects, the Congress should be informed of the changes and the reason
for the changes no matter how the Corps chooses to categorize the
movement.

The Corps reprogrammed funds for a variety of reasons, some which appear
to be inconsistent with the Corps' internal reprogramming guidance. The
Corps' guidance states that reprogramming to address unforeseen events is
a valid use of reprogramming and increases the efficiency of the entire
program. In many cases, the Corps reprogrammed funds from projects that
were experiencing unforeseen delays to projects that could make use of
additional funds. Similarly, in other cases, funds were moved into
projects that experienced unexpected costs, such as a lock failure on a
waterway. In these cases, funds had to be moved from one project to
another because the Corps allocated all available funds to projects at the
beginning of the year and did not keep any funds aside for unexpected
project contingencies. On the other hand, large numbers of reprogrammings
were also conducted for reasons that were inconsistent with the Corps'
internal reprogramming guidance. For example, to achieve a Corps goal that
all projects carry no funds into the next fiscal year, even though Corps
funds are "no year" funds and remain available to the Corps until spent,
about 23 percent of all movements occurred during the last month of the
fiscal year. Some of these movements were as small as 6 and 7 cents. Such
movements appear to serve little useful purpose and create an
administrative burden for the Corps. Corps guidance states that small
reprogrammings are inconsistent with sound project management, cause
additional accounting and paperwork efforts at all levels, and increase
the risk of errors.

The Corps' financial management practice of conducting thousands of
reprogrammings resulted in movements of funds that were not necessary and
reflected poor planning and an absence of Corps-wide priorities for
projects. Corps reprogramming guidance discourages the temporary movement
of funds and considers such actions to be inconsistent with

sound project management practices. In addition, Corps reprogramming
guidance states that only funds surplus to current year requirements
should be a source for reprogramming. However, the Corps uses a
"just-in-time" reprogramming strategy under which it moves funds from
projects that currently have available funds to projects with an immediate
need, regardless of the donor projects' future needs or the relative
priority of the projects receiving the funds. As a result, funds were
removed from projects without considering their near-term funding
requirements, such as projects with impending studies. Funds were also
moved into projects that reportedly had a "need" and then were
subsequently removed because they were "excess"-sometimes on the same day
or within a few days or weeks. For example, in fiscal year 2004, the Corps
revoked 7 percent of the funds from every construction project-a total of
$154.6 million- regardless of whether the funds were needed on the project
or not. These funds were moved primarily to provide funds for "national
requirements projects" (projects to which Corps headquarters management
had promised to restore funds moved in prior years). Of the funds revoked
and moved to the national requirements projects, $38.8 million was
eventually moved to other projects because some of the national
requirements projects had no need for these funds. One national
requirements project- New York and New Jersey Harbor-received nearly $24.9
million. All of those funds, plus an additional $10.3 million were not
needed on the project and were subsequently moved to other projects.

We are making recommendations that the Secretary of Defense direct the
Commanding General and Chief of Engineers of the U.S. Army Corps of
Engineers to eliminate the use of excessive reprogramming actions and to
provide better financial management of project funds. In commenting on a
draft of this report, the Department of Defense stated that it was a
constructive report and concurred with all but one of our recommendations.
Regarding our recommendation that the Corps develop a financial planning
and management system for the investigations, construction, and operation
and maintenance appropriations that changes the way the Corps allocates
funds from an annual basis to a more frequent basis and reflects actual
schedule and project performance, the department said that it is important
that the Corps continue to allocate all funds provided by the Congress for
each project and that any deviation from that amount would not reflect the
intent of the Congress. The department also said that withholding funds
from the initial allocation would add administrative burden, increase
uncertainty in execution, and would not aid in scheduling and schedule
review.

We disagree with the department because from the time the Corps submits
its budget estimates until the appropriation is received, changes may have
occurred and projects may not need the amount of funds included in the
conference report or may need additional funds. Our recommendation would
allow the Corps to make these known changes before allocating all funds to
a project. Currently, the Corps makes such changes through reprogramming
actions. Our recommendation would merely serve to streamline the process.
This would eliminate the administrative burden of making project funding
allocations that the Corps already knows it is going to reallocate through
reprogramming actions.

Background	The Corps' Civil Works program is responsible for
investigating, developing, and maintaining the nation's water and related
environmental resources. In addition, the Civil Works program also
provides disaster response as well as engineering and technical services.
The Corps' headquarters is located in Washington, D.C., with eight
regional divisions, and 38 districts that carry out its domestic civil
works responsibilities.

Each year, the Corps' Civil Works program receives funding through the
Energy and Water Development Appropriations Act. The act normally
specifies a total sum for several different appropriation accounts,
including investigations, construction, and operation and maintenance, to
fund projects related to the nation's water resources. The funds
appropriated to the Corps are "no year" funds, which means that they
remain available to the Corps until spent. Table 1 shows the
appropriations received in fiscal years 2003 and 2004 for the
investigations, construction, and operation and maintenance accounts.

               Table 1: Fiscal Years 2003 and 2004 Appropriations

                              Dollars in thousands

                                         Fiscal year 2003    Fiscal year 2004 
               Appropriation accounts    budget authority    budget authority 
                       Investigations            $135,019            $116,949 
                         Construction           1,756,012           1,722,319 
            Operation and Maintenance           1,940,167           1,967,925 
                                Total          $3,831,198          $3,807,193 

Source: Fiscal years 2003 and 2004 Energy and Water Development
Appropriations Acts.

The conference report accompanying the Energy and Water Development
Appropriations Act specifically lists individual investigations,
construction, and operation and maintenance projects and the amount of
funds designated for each project. In effect, this provides the Corps with
its priorities for accomplishing its water resource projects. In recent
years, the Congress has appropriated fewer funds than the sum of the
amount designated to individual projects in the conference report. The
difference between the total amount designated for projects in the
conference report and the full appropriation is known as savings and
slippage. As directed by the Congress, the Corps reduces the conference
report amount for each project by a percentage to allow for savings and
slippage and then releases the entire amount of each projects' funding to
the districts' project managers for executing projects.4 However, once the
Corps has allotted the funds to specific projects, the Corps may reprogram
the funds to other projects.

Reprogramming Authority	Reprogramming is the shifting of funds from one
project or program to another within an appropriation or fund account for
purposes other than those contemplated at the time of appropriation. A
reprogramming transaction changes the amount of funds provided to at least
two projects- the donor project and the recipient project. However, more
than two projects are often involved in a single reprogramming action. For
example, in an effort to make effective use of available funding, the
Corps may move

4Part of the appropriation the Corps receives in its appropriation act is
designated or "earmarked" in the act itself for specific projects. In
general, funds that are earmarked to specific projects are not available
for reprogramming and savings and slippage is not deducted from project
funding.

funds from a construction project that has slipped due to inclement
weather and reprogram the funds to one or more construction projects that
are ahead of schedule or experiencing cost overruns.

The authority to reprogram funds is implicit in an agency's responsibility
to manage its funds; no specific additional statutory authority is
necessary. While there are no governmentwide reprogramming guidelines, the
Congress exercises control over an agency's spending flexibility by
providing guidelines or nonstatutory instructions on reprogramming in a
variety of ways. For example, some reprogramming and reporting guidelines
have evolved from informal agreements between various agencies and their
congressional oversight committees. Reprogramming guidelines frequently
involve some form of notification to the House and Senate appropriations
committees prior to the action.5 (In this report, notification to the
House and Senate appropriations committees will be referred to as
congressional notification or notifying the Congress.) In addition to
notification, reprogramming arrangements sometimes also provide for
committee approval prior to the movement of funds that exceed certain
thresholds.

The Corps' reprogramming guidelines have evolved over nearly 50 years,
stemming from direction provided to the Corps through congressional
reports and informal agreements with the House and Senate Appropriations
Committees.6 In 1995, the Corps published revised internal reprogramming
guidance based upon previous congressional direction (U.S. Army Corps of
Engineers, Engineering Regulation ER 11-2-201). These reprogramming
guidelines set forth procedures and polices on reprogramming actions for
civil works activities under investigations, construction, and operation
and maintenance appropriations titles, among others.

5In most cases, the committee review process is nonstatutory and derives
from instructions in committee reports, hearings, and other
correspondence.

6Congressional committee instructions to the Corps to reprogram
construction project funds were first contained in the House and Senate
reports on the 1957 Public Works Appropriation Bill. Reprogramming
instructions have been included many times since in subsequent
congressional reports. Congressional committee instructions to the Corps
to reprogram investigations and operation and maintenance project funds
were established by informal agreement and precedent over the years. It
was first formally addressed by the Congress in the Senate report on the
1980 Energy and Water Development Appropriations Bill.

Under the 1995 guidance, the Corps was permitted to reprogram construction
funds up to 15 percent of the base amount of a project for any fiscal
year. The base amount is the amount listed in the conference report plus
any funds carried in from previous fiscal years and adjusted for funds
sequestered, deferred, rescinded, or released from deferral.7 Any
reprogramming action(s) that exceeded the 15 percent threshold required
the Corps to coordinate its intentions with both the House and Senate
Appropriations Committees. There were two exceptions to the 15 percent
limitation. The Corps may reprogram up to $300,000, without regard to
percentage, for projects on which the amount available for the fiscal year
is $2 million or less, and the Corps may move up to $5 million per
construction project without regard to the percentage limitation when the
increased requirement results from a settled contractor claim, increased
contractor earnings due to accelerated rate of operations, or real estate
deficiency judgments.

For investigations projects, the Corps was permitted to reprogram up to
$25,000 for projects that have a base amount of $25,000 or less. When the
base amount exceeded $25,000, the reprogramming authority was 100 percent
of the base up to $50,000 and 25 percent of the increment over $50,000,
not to exceed a total reprogramming of $150,000. Any reprogramming
action(s) that exceeded these thresholds required the Corps to coordinate
with the Congress its intention to reprogram funds. The 1995 guidance does
not outline specific thresholds for congressional notification in the
operation and maintenance appropriation. According to Corps officials, the
agency interpreted the guidance as allowing unlimited reprogramming
authority without congressional notification thresholds for operation and
maintenance projects.

During the spring of 2004, the Corps received new reprogramming direction
from both the House and Senate Appropriations Committees. On May 27, 2004,
the Corps issued an internal memorandum changing the Corps' existing
reprogramming guidance to reflect direction that was subsequently provided
in the House of Representatives Committee on Appropriations Report
accompanying the 2005 Energy and Water Development Appropriation Bill
(House Report 108-554 accompanying H.R.

7Sequestration is the cancellation, in accordance with the Budget
Enforcement Act, of budgetary resources provided by discretionary
appropriations or direct spending law. A deferral is a postponement of
budget authority for up to 1 year. A rescission, which must be approved by
the Congress, is a cancellation of previously approved budget authority.

4614). The new guidance required the Corps to notify the Congress for any
intended single reprogramming action on construction and operation and
maintenance projects that exceeded $300,000 plus 20 percent of the base
amount and to obtain approval on any project's cumulative reprogramming
actions that exceeded $4 million. The base amount under House Report
108-554 was defined as the amount appropriated for the project or program
in the budget plus any amounts carried over from previous fiscal years or
reprogrammed during the budget year. For investigations, the Corps was the
required to notify the Congress for any intended single reprogramming
action that exceeded $50,000 plus 25 percent of the base and to obtain
approval on a project's cumulative reprogramming actions that exceeded
$250,000.

The Corps followed this guidance until the end of November 2004. At that
time, the Corps again received new direction from the Congress, contained
in the conference report accompanying the 2005 Energy and Water
Development Appropriation Act. These guidelines provided cumulative
reprogramming percentage thresholds for investigations, construction, and
operation and maintenance accounts. The guidelines further required the
Corps to provide quarterly reports notifying the Congress of reprogramming
actions that fell between certain thresholds and required congressional
approval for reprogramming actions that exceeded an upper threshold limit.
The guidelines also allowed certain categories of reprogramming actions to
be excluded from counting toward congressional notification thresholds.
Appendix II shows the 1995 and 2004 Corps reprogramming guidance.

  The Corps Reprogrammed Significant Amounts of Funds among Hundreds of Projects

In fiscal years 2003 and 2004, the Corps reprogrammed funds over 7,000
times (3,415 actions in fiscal year 2003 and 3,641 actions in fiscal year
2004) among investigations and construction projects. Sixty-three percent
(988 of 1,578) of fiscal year 2003 and 64 percent (998 of 1,533) of fiscal
year 2004 investigations and construction projects had funds either moved
in and/or out. On average, of the projects that had at least one
reprogramming, there were approximately 3.6 (3.5 in fiscal year 2003 and
3.6 in fiscal year 2004) actions per project. Corps-wide reprogramming
data on operation and maintenance projects are not available.

In terms of dollars, in fiscal years 2003 and 2004, the Corps reprogrammed
approximately $2.1 billion of the $3.7 billion available for
investigations and construction project funds. Additionally, the average
amount of funds moved per reprogramming action was approximately $298,026
($306,133 in

fiscal year 2003 and $290,423 in fiscal year 2004) for investigations and
construction projects.

Because the Corps could not provide us with Corps-wide reprogramming data
for operations and maintenance projects, we reviewed the 107 operations
and maintenance projects in our sample and found that the Corps
reprogrammed funds 459 times for this sample, which averaged to 4.29
reprogramming actions per project. These 459 reprogramming actions totaled
approximately $31 million, and the average amount of funds moved per
operation and maintenance reprogramming action was $67,592.

  The Corps Followed Internal Guidance That Allowed Extensive Reprogrammings
  Without Congressional Notification

For the majority of the reprogrammings that we reviewed as part of our
sample of 271 projects, the Corps followed the reprogramming guidance it
had in place at the time (under both the Corps' 1995 guidance and the May
2004 guidance). In the few instances where the guidance was not followed,
most involved the Corps failing to notify the Congress when it intended to
reprogram funds that would exceed certain limits. The Corps' reprogramming
guidance allowed most reprogrammings to be categorized as fund movements
that did not count toward the congressional notification thresholds. As a
result, the Corps was able to follow its reprogramming guidance, but still
conduct a large number of fund movements (that represented a major
deviation from the funding direction the Congress provided for the
projects in its conference report) and not have to inform the Congress of
the changes and the reason for the changes.

The Corps Generally In our sample of 271 projects, reprogramming actions
related to only 8 Followed Its projects did not follow the reprogramming
guidance in place at the time Reprogramming Guidance when the funds were
moved.8 For these 8 projects, there were a total of 12

movements of funds that did not conform to the reprogramming guidance.

One of these movements occurred during the period from October 1, 2003,

to May 26, 2004, when the Corps' reprogramming guidance was contained

8The Corps' reprogramming guidance changed during the fiscal year 2003
through 2004 timeframe of our review, and the guidance contains different,
specific criteria for investigations, construction, and operation and
maintenance projects. However, the guidance for all projects during this
timeframe generally contains limitations on the amount of funds that can
be reprogrammed by Corps districts and divisions and instructions for
notifying the Congress of the Corps' intention to reprogram funds that
exceed a specified amount.

in the 1995 guidance. The remaining 11 movements occurred after May 26,
2004, when the Corps' guidance was revised in accordance with the
direction provided in House Report 108-554. Table 2 lists the projects and
the reprogramming actions, and describes how the Corps failed to follow
its guidance.

Table 2: Projects Where the Corps Failed to Follow Reprogramming Guidance

Project Action Guidance not followed

Green and Barren Rivers Navigation Reprogrammed $25,000 into the project
Exceeded congressional notification Disposition in Kentucky threshold and
did not notify the Congress

New York City Watershed in New York Revoked $800,000	Exceeded
congressional notification threshold and did not notify the Congress until
after the funds were moved

McAlpine Locks and Dam  Moved $5.3 million into         Exceeded limit for 
      in Kentucky and         the project using          accelerated earnings 
          Indiana         accelerated contractor     movements and the reason 
                          earnings authority                       funds were 
                                                     moved was not a correct  
                                                     use of this              
                                                            authority         

Ramapo River at Oakland in New Jersey Revoked $600,000; revoked
$1,700,000; Exceeded congressional notification revoked $600,000 threshold
and did not notify the Congress or notified the Congress after the funds
were moved

Ohio River Flood Protection in Indiana Revoked $500,000	Exceeded
congressional notification threshold and did not notify the Congress

New York and New Jersey Harbor Revoked $6,900,000; revoked $8,587,000;
Exceeded congressional notification revoked $8,500,000 threshold and did
not notify the Congress until after the funds were moved

Bonneville Powerhouse Phase 1 in Oregon Restored $332,000 prior years
savings and Exceeded congressional notification and Washington slippage
threshold and did not notify the Congress

Plattsburgh Harbor in New York Revoked $625,000	Exceeded congressional
notification threshold and did not notify the Congress

Source: GAO.

In general, in cases where the Corps failed to notify the Congress of its
intention to move funds in excess of the notification threshold, Corps
officials said that the actions were conducted at the district and that
the district personnel were confused about the guidance. Additional
information on the eight projects and 12 movements are provided in
appendix III.

    The Corps' Reprogramming Guidance Allows Numerous Movements of Funds without
    Congressional Notification

Although in the majority of cases we reviewed the Corps complied with its
guidance, this guidance has been developed in such a manner that it
provides the agency with maximum flexibility to move funds without
notifying the Congress. Specifically, we found that most movements of
funds that were actually reprogramming actions were categorized by the
Corps, in accordance with its guidance, as other types of fund movements,
which did not have to be reported to the Congress. For example, the Corps
guidance allowed reprogrammings to be categorized under one of the
following categories, which did not count toward congressional
notification.

o  Revocations, which are movements of funds out of a project.

o 	Restorations of current year savings and slippage, which are movements
of funds into a project to restore that projects' current year savings and
slippage reduction.

o 	Restorations of prior year savings and slippage/revocation, which are
movements of funds into a project to restore savings and slippage
reductions and/or funds reprogrammed out of a project in prior fiscal
years.

o 	Restorations of current year revocations, which are movements of funds
into a project to restore funds previously reprogrammed out of that
project in the same fiscal year.

o 	$5 million accelerated contractor earnings, which are movements of
funds into a project to cover increased project requirements due to
settled contractor claims, increased contractor earnings due to
accelerated rate of operations, or a real estate deficiency judgment.

The Corps used another category-"reprogram"-to categorize some movements
of funds into a project. However, this category was seldom used and,
according to Corps officials, when it was used, in most cases was
generally limited to amounts under the congressional notification
threshold. Figure 1 shows the reprogramming categories that were most
commonly used for the investigations, construction, and operation and
maintenance appropriations and which categories counted and did not count
towards the congressional notification thresholds under the Corps' 1995
and 2004 guidance.

Figure 1: Reprogramming Categories during Fiscal Years 2003 and 2004

Source: GAO.

The following three examples illustrate how the Corps can move large
amounts of funds into or out of a project without notifying the
Appropriations Committees and still be in compliance with its guidance.
For the first project, the New York and New Jersey Harbor construction
project in fiscal year 2003, the Corps moved over $65 million in and out
of the project in the following 10 separate actions.

o  April 15, 2003; $28,052,000 revoked (funds needed for other projects);

o 	April 23, 2003; $2,685,000 restoration of current year revocation
(funds needed to continue project);

o 	May 7, 2003; $400,000 restoration of current year revocation (no
explanation in file);

o 	June 4, 2003; $13,200,000 restoration of current year revocation (no
explanation in file);

o  June 9, 2003; $5,758, 000 revoked (funds needed for other projects);

o 	July 18, 2003; $8,782,000 restoration of current year revocation (no
explanation in file);

o 	August 22, 2003; $1,600,000 restoration of current year revocation
(funds needed to continue project);

o 	September 4, 2003; $1,700,000 restoration of current year revocation
(funds needed to continue project);

o 	September 4, 2003; $2,500,000 restoration of current year revocation
(no explanation in file); and

o 	September 26, 2003; $460,000 restoration of current year revocation
(funds needed to continue project).

The amount moved was more than 4 times the cumulative threshold amount of
$15,665,850 for this project, and the April 15, 2003, movement of
$28,052,000, by itself, exceeded the threshold. Yet under the 1995 Corps
guidance, none of these 10 actions were categorized as actions that
counted toward the notification threshold and therefore the Corps did not
have to notify the Congress of these movements.

Similarly, in fiscal year 2003, the Corps moved a total of over $3.1
million in and out of the Ohio River Greenway Public Access construction
project in Indiana in the following seven separate actions.

o  April 22, 2003; $1,011,000 revoked (excess funds);

o  April 23, 2003; $313,000 revoked (no explanation in file);

o 	May 14, 2003; $1,112,000 restoration of current year revocation (no
explanation in file);

o  June 17, 2003; $150, 000 revoked (no explanation in file);

o  September 5, 2003; $342,000 revoked (excess funds);

o  September 9, 2003; $146,000 revoked (no explanation in file); and

o  September 29, 2003; $27,000 revoked (excess funds).

The amount moved was more than 10 times the cumulative threshold amount of
$300,000 for this project, yet under the 1995 Corps guidance, none of
these seven actions were categorized as actions that counted toward the
notification threshold and the Congress was not notified of the movements.

In the third project, in fiscal year 2003, the Corps moved a total of over
$10.1 million into the Columbia River Fish Mitigation construction project
in Oregon in the following seven separate actions.

o 	May 9, 2003; $4,700,000 restoration of current year savings and
slippage (needed for contract payments);

o 	July 16, 2003; $200,000 restoration of current year savings and
slippage (needed for continuation of programmed activities);

o 	July 22, 2003; $500,000 restoration of current year savings and
slippage (needed for critical research items);

o 	September 8, 2003; $456,000 restoration of current year savings and
slippage (needed for contractor earnings);

o 	September 12, 2003; $87,000 restoration of current year savings and
slippage (needed to pay contractor);

o 	September 22, 2003; $408,300 restoration of current year savings and
slippage (no explanation provided); and

o 	September 24, 2003; $3,772,000 restoration of current year savings and
slippage (no explanation provided).

The amount moved exceeded the cumulative threshold amount of $9,256,350
for this project, yet under the 1995 Corps guidance, none of these seven
actions were categorized as actions that counted toward the notification
threshold and the Congress was not notified of these movements. In all of
these examples, if all the movements of funds had

been categorized as "reprogrammings" and therefore had counted toward the
notification threshold, the Corps would have had to notify the Congress
that it intended to reprogram funds for these projects.

The consequence of the Corps' guidance is that it allowed the Corps to
categorize reprogrammings in fiscal years 2003 and 2004 so that few
reprogramming actions counted toward notification thresholds. We found
that from October 1, 2002, through May 26, 2004, when the Corps' 1995
guidance was in effect, because of the way the Corps categorized movements
of funds, only 18.2 percent of investigations movements and 14.5 percent
of construction movements counted toward the notification thresholds.
(There was no notification threshold for operation and maintenance
projects.) From May 27 to October 30, 2004, when the guidance was revised
and made more restrictive, 79 percent of investigations movements and 74
percent of construction movements counted toward the notification
thresholds.

On the basis of our review of 271 projects, if all movements of funds
counted toward the notification threshold, the Corps would have had to
notify the Congress about its intention to reprogram in 47 percent of the
projects in fiscal year 2003 and 10 percent of the projects in fiscal year
2004. (This assumes that the amount of each movement counts toward the
threshold whether the funds are moved into or out of the project. The
results are similar, however, if the cumulative impact of the movements
are totaled (netted). For example, if the movements are netted, a movement
into a project for $100,000 would offset another $100,000 movement out of
that same project for a total of $0 counting toward the threshold. If
movements were netted, the Corps would have had to notify the Congress
about its intention to reprogram in 36 percent of the projects in fiscal
year 2003 and 6 percent of the projects in fiscal year 2004.) Instead, for
the projects included in our sample, the Congress received notifications
of intended reprogrammings for less than 1 percent of the projects in
fiscal year 2003 and about 2 percent of the projects in fiscal year 2004.

In discussing the manner in which the Corps conducted reprogrammings
during fiscal years 2003 and 2004, Corps officials said that the number of
reprogrammings and the manner in which they were categorized was necessary
to fund projects during a period of restricted budgets. We believe,
however, the movements of funds previously discussed are reprogrammings
that should be counted toward congressional notification thresholds. The
number of reprogrammings and the amount of the reprogrammings conducted by
the Corps can result in a significant

deviation from the funding profile the Congress provided for the projects
in its conference report, yet the Congress was seldom informed of the
changes and the reason for the changes. Such notification would provide
the Congress with information concerning where the Corps was spending its
funds and would allow the Congress to provide oversight of Corps
activities.

  The Corps Reprogrammed Funds for Various Reasons

Because the Corps typically allocates all its appropriations to authorized
projects and does not keep any centralized funds available for unexpected
project contingencies, reprogramming provides the flexibility to shift
funds to respond to project changes and unforeseen events. Some of the
reasons why the Corps reprogrammed funds in fiscal years 2003 and 2004
include weather factors, contract disputes, infrastructure malfunctions,
new policy requirements, delays in securing cost-sharing agreements,
unanticipated project starts, and savings and slippage. However, the Corps
also reprogrammed funds for reasons that were inconsistent with the Corps'
guidance, such as to achieve the Corps' goal of carrying zero funds into
the next fiscal year and to restore funds to donor projects without regard
to funding needs.

    The Corps Reprogrammed Funds to Respond to Project and Funding Changes

Project and program managers at the Corps typically estimate project needs
1 to 2 years prior to receiving appropriated funds. As with all agencies
that are funded through the annual budget process, by the time the Corps
obtains its funding, factors upon which such estimates were based may have
changed and unforeseen events may have occurred. Responding to
circumstances such as unexpected weather patterns, infrastructure
emergencies, and hurdles in obtaining cost-share funding may require the
use of reprogramming actions.

For example, weather may have significant impacts on project costs and
schedules. Unusually good weather may impact the execution of a project by
extending the construction season and allowing more work to be completed;
whereas unexpected weather may cause work delays. Weather may also impact
project costs by causing damage that must be repaired. The Corps has often
used reprogramming actions to adjust funding to accommodate unanticipated
weather impacts. For example, in fiscal year 2004, mud slides, caused by
heavy rains, which breached the top of the dam embankment at the Joe Pool
Lake operations and maintenance project in Texas, required emergency
maintenance to stabilize the banks of the lake.

The Corps reprogrammed $43,000 into the project to ensure the stability
and safety of the dam.

The Corps has also used reprogramming to fund repairs required as the
result of unexpected infrastructure malfunctions, such as a lock failure
on a waterway. In November 2002, an upstream lock gate malfunctioned at
the John Day Lock and Dam on the Columbia River in Oregon. It took the
Corps several months to repair the gate. While repairs were being made,
the Corps found additional structural damage and had to award a new
contract to fix these problems. In fiscal years 2003 and 2004, the Corps
reprogrammed nearly $21 million dollars into the project to cover the cost
of the repairs.

Similarly, for investigations projects, one-half of the funds for most
feasibility studies must be provided by a cost share partner, such as a
local or state government. Delays in securing this second-party funding
may sometimes slow or halt a project's schedule and allow the funds to be
reprogrammed to other projects that could use the funds. For example, in
the Metropolitan Louisville Mill Creek Basin investigations project in
Kentucky, the project's local cost-share sponsor decided not to fund the
project and the land needed to begin the study could not be acquired. As a
result, most of the project's funds could not be used by the Corps and
about 90 percent of project's fiscal year 2004 funds were reprogrammed to
projects that could use the funds.

    The Corps Also Reprogrammed Funds for Reasons That Were Inconsistent with
    the Corps' Guidance

In managing its national program, the Corps also conducted some
reprogramming actions for reasons that were inconsistent with the Corps'
internal reprogramming guidance. The Corps' Civil Works training manual on
reprogramming advises program managers to round reprogramming requests to
the thousands or tens of thousands of dollars and states that minor
reprogramming to close out accounts is not permitted. The Corps' internal
reprogramming guidance also advises that staff should not engage in small
reprogrammings actions, but instead round transactions to the nearest
$1,000. The guidance cites the negative administrative impact of such
actions by stating that "minor reprogrammings cause additional accounting
and paperwork efforts at all levels and increase the risk of errors."
However, the Corps conducted reprogramming actions simply to achieve an
internal goal of a zero carry-over balance for each project at the end of
the fiscal year. Such reprogramming actions resulted in numerous shifts of
funds of small dollar amounts, thereby increasing the administrative
burden on managers.

Achieving 100 percent execution of project funds and zero carry-over
balances was a management goal of the Corps' Civil Works program during
the time frame covered by our review. Realization of this goal was one of
the primary performance metrics for project managers, who were rated on
their ability to reach this target. In regard to achieving this goal, the
Chief of the Civil Works Programs Integration Division noted that he had
verbalized to Corps managers that "nothing else was acceptable." Several
Corps program managers commented that this internal performance measure
resulted in large numbers of reprogramming actions. If project managers
felt that they could not execute all of their project's funds, they had an
incentive to reprogram funds out of their project's account, since their
performance was measured by their ability to execute only funds remaining
for the project. Such reprogramming actions make it easier for a manager
to reach the 100 percent execution target and, therefore, receive a higher
performance rating.

Many of these actions occurred at the end of the fiscal year as project
managers scrutinized their budgets for any funds that could not be
expended within the fiscal year. Some of these reprogrammings were
beneficial because the funds were moved to projects with year-end funding
needs. However, some program managers told us that they felt the need to
locate even excess "pennies" at the end of the fiscal year in order to
achieve the target of zero carry over. As a result, in fiscal years 2003
and 2004, more reprogrammings occurred during the last month of the fiscal
year than any other. For all investigations and construction projects in
fiscal years 2003 and 2004, approximately 23 percent of the reprogrammings
conducted by the Corps occurred in the last month of the fiscal year,
resulting in 1,617 actions moving over $235 million. Just over 6 percent
of these movements were for amounts of $1,000 or under. We found similar
results for our sample of 271 projects. About 35 percent of the
reprogrammings occurred in the last month of the fiscal year (343 actions
moving over $31 million). Just over 13 percent of these movements were for
amounts of $1,000 or under, with one as small as 6 cents. We found other
projects, not included in our sample, with year-end reprogramming actions
of $0.07, $13.42, $13.84, $14.00, $23.36, and $25.00. Reprogramming such
small amounts of funds may unnecessarily strain administrative resources.

Removing most of a project's funding at the end of the fiscal year may
also result in the Corps overlooking short-term project needs,
particularly those at the beginning of the next fiscal year, and ends up
resulting in additional unnecessary reprogramming actions. For example, in
the Grand Isle and Vicinity construction project in Louisiana, the Corps
revoked $28,000 on

the last day of fiscal year 2003, based on the rationale that it was
surplus to the project's needs. However, just over 1 week later, in fiscal
year 2004, $17,000 was restored to the project, according to the Corps, to
pay labor costs.

Reprogramming actions to restore funds to donor projects from projects
that did not have a surplus also appears to be inconsistent with the
Corps' reprogramming guidance. Corps reprogramming guidance states that
only funds surplus to current year requirements should be a source for
reprogramming and that temporary borrowing or loaning is inconsistent with
sound project management practices. Despite this guidance, in fiscal years
2003 and 2004, we found several instances where the Corps returned funds
to a donor project from projects that had funding needs and did not have
surplus funds. In some instances, separate reprogramming actions to
transfer funds out of a project to repay a donor, and to transfer funds
into that same project in order to complete work schedules, occurred on
the same day or within a few days or weeks. For example, on May 1, 2003,
the Corps reprogrammed $425,000 out of the Johnson Creek Upper Trinity
River construction project in Texas to repay a donor project. On the same
day, the Corps reprogrammed $1.5 million into the Johnson Creek project to
provide funds for property acquisition necessary to keep the project on
schedule.

  The Corps' Reprogramming Activities Resulted in Inefficient Management of
  Funds

As stated previously, Corps reprogramming guidance states that only funds
surplus to current year requirements should be a source for reprogramming
and that temporary borrowing or loaning is inconsistent with sound project
management practices and increases the Corps' administrative burden. In
fiscal year 2003 and fiscal year 2004, the Corps managed its civil works
project funds using a "just-in-time" reprogramming strategy. The basis for
this strategy was to allow for the movement of funds from projects that do
not have urgent funding needs to projects that need funds immediately.
While the just-in-time approach may have moved funds rapidly, its
implementation sometimes resulted in uncoordinated and unnecessary
movements of funds from project to project. We found that funds were moved
into projects that had a reported "need," but were subsequently removed
because they were "excess," revoked from projects without regard to their
near-term funding requirements, reprogrammed into and out of the same
project on the same day, moved into and out of the same project multiple
times a year, and reprogrammed without a system to evaluate the priority
level of the affected projects. This strategy has resulted in numerous
reprogrammings that may otherwise have been

unnecessary if the Corps had employed a financial planning and management
process in which funding priorities had been clearly established. In
addition, the relative convenience and ease of reprogramming within Corps
districts may have resulted in increased numbers of reprogrammings and
reprogrammings from projects with funding needs.

In our review of projects from fiscal years 2003 and 2004, we found that
funds were moved into projects, only to be subsequently revoked because
they were excess to the project's funding needs. For example, in fiscal
year 2004, 7 percent of the funds (totaling almost $154.6 million) from
every nonearmarked construction project were revoked in order to provide
funding to projects designated as "national requirements" by the Corps.
The national requirements projects were a group of projects to which Corps
headquarters management had promised to restore funding that had been
revoked in previous years. These projects included the Houston-Galveston
navigation channel construction project in Texas, New York and New Jersey
Harbor, Comite River diversion channel in Louisiana, Guadalupe River
channel improvement in California, Lackawanna River at Scranton levee
project in Pennsylvania, three navigation projects in Alaska (Saint Paul
Harbor, Nome Harbor, and Wrangell Harbor), and various projects under the
Continuing Authorities Program.9

After the Corps moved the $154.6 million into the national requirements
projects, the Corps revoked over a quarter of those funds, $38.8 million,
from these projects because they actually did not need the funds. For
example, one national requirements construction project, New York and New
Jersey Harbor, received $24.9 million. All of these funds, plus an
additional $10.3 million, were excess to the needs of the project at the
time and were subsequently reprogrammed to other projects. Corps officials
in the New York District told us that, prior to receiving the national
requirements funds, they had informed Corps headquarters that they could
not use the additional funds. Corps headquarters officials said that the
district had requested the funds based on need. Other national
requirements projects that received funds that were subsequently
reprogrammed include:

9The Continuing Authorities Program is a program that allows the Corps to
conduct small water resource projects without specific congressional
authorization. Included in this program are flood control, beach erosion,
shoreline protection, and environmental improvement projects that range
from $500,000 to $5 million.

o 	The Comite River construction project received almost $3 million. Later
in fiscal year 2004, the Corps revoked nearly $1.5 million (about 50
percent) of that funding.

o 	The Lackawanna River at Scranton construction project received $15
million. Later in fiscal year 2004, the Corps revoked $5 million (about 33
percent) of that funding.

o 	The Houston-Galveston construction project received nearly $28 million.
Later in fiscal year 2004, the Corps revoked about $7.25 million (about 26
percent) of that funding.

The use of the just-in-time strategy also resulted in funds being removed
from projects without considering their near-term funding requirements,
such as projects with impending studies. For example, on August 1, 2003,
the Corps revoked $85,000 from the Saw Mill River and Tributaries
investigation project in New York with the explanation that the funds were
excess to the project's needs in the current year. Six weeks later,
however, on September 15, 2003, $60,000 of funding was reprogrammed back
into the project in order to initiate a feasibility study. Corps documents
explaining the revocation of funds from the Saw Mill River and Tributaries
project indicate the Corps' awareness of the project's impending needs,
acknowledging that funds for the project would be needed again in
September 2003 to execute a feasibility study.

We also determined that under the just-in-time reprogramming strategy,
funds were moved into and out of the same project on the same day.
Overall, we found that 3 percent of investigations and construction
projects in fiscal year 2003 and 2 percent of investigations and
construction projects in fiscal year 2004 moved funds into and out of the
same project on the same day. Some specific examples include, on February
6, 2004, the Corps reprogrammed just over $2 million into the Mill Creek
construction project in Ohio from the Olmsted ($1,500,000) and Pond Creek
($550,000) projects and reprogrammed out $272,000 the same day. The Corps
explained that they initiated the $272,000 revocation in order to balance
the books from previous reprogrammings. Also, in fiscal year 2003, the
Corps used 18 separate actions to reprogram approximately $25 million into
and about $10.5 million out of the Central and Southern Florida
construction project, including three separate occasions when funds were
both moved into and out of the project on the same day.

Furthermore, the Corps reprogrammed funds in and out of some projects
numerous times during a single fiscal year. For instance, in 12 separate
actions in fiscal year 2004, the Corps reprogrammed a total of $166,000
into the Dalles Lock and Dam operation and maintenance project in
Washington and Oregon and revoked a total of $817,000. Many of these
actions took place only days or weeks apart from one another.

o  March 9, 2004; $76,000 revoked;

o  March, 23, 2004; $261,000 revoked;

o  May 27, 2004; $31,000 revoked;

o  June 29, 2004; $200,000 revoked;

o  July 6, 2004; $38,000 revoked;

o  July 28, 2004; $40,000 reprogrammed;

o  August 4, 2004; $18,000 reprogrammed;

o  August 12, 2004; $125,000 revoked;

o  August 24, 2004; $105,000 reprogrammed;

o  August 31, 2004; $3,000 reprogrammed;

o  September 17, 2004; $8,000 revoked; and

o  September 29, 2004; $78,000 revoked.

Similarly, in the San Antonio Channel Improvements construction project in
Texas, the Corps reprogrammed slightly over $1.9 million into and $81,000
out of the project in 15 separate actions in fiscal year 2004. Forty
percent of the actions took place in the final weeks of the fiscal year,
with six separate transactions recorded between September 13 and September

30.

The just-in-time reprogramming strategy also moved money into and out of
projects without regard to the relative priorities of the projects. During
the period of our study, the Corps lacked a set of formal, Corps-wide
priorities for use when deciding to reprogram funds from one project to
another.

Instead, according to the Chief of the Civil Works Programs Integration
Division, during fiscal years 2003 and 2004, reprogramming decisions were
left up to the intuition of program and project managers at the district
level. While this decentralized system might have allowed for prioritized
decision making at the district level, when reprogramming actions occurred
across districts or across divisions, the Corps lacked any formal system
of evaluation as to whether funds were moving into or out of high priority
projects. The lack of a Corps-wide priority system limits its ability to
effectively manage its appropriations, especially in an era of scarce
funding resources when choices have to be made between competing needs of
donor and recipient projects.

Finally, the Corps' practice of allocating all funds to projects as soon
as the funds are allotted to the Corps, coupled with the reprogramming
flexibility provided to the districts, may result in an elevated number of
reprogramming actions. Typically, once the Corps receives appropriated
funds from the Congress, the Corps disperses all of these funds directly
into project accounts at the district level. Allocating funding in this
manner, according to Corps officials, is done to remain consistent with
congressional direction. However, projects that have experienced delays in
the time period between the Corps initial budget submittal and the
agency's receipt of its appropriation may receive more money than they are
able to spend. In some cases we reviewed, the Corps dispersed an entire
fiscal year's worth of funding to a project even though they knew that the
project manager could not spend all of the funding. This type of allotment
system may result in an elevated number of reprogramming actions. For
instance, within 2 weeks after the Corps dispersed its fiscal year 2003
appropriation to specific projects, it made 369 reprogramming actions to
realign funding in its investigations and construction appropriations;
within 2 weeks after dispensing fiscal year 2004 dollars, the Corps made
64 such actions.

The flexibility provided to district managers once they receive their
funding may also increase the number of reprogramming transactions. Corps
reprogramming guidance allows the districts to reprogram funds up to a
certain amount without notifying division or headquarters staff. According
to some Corps program managers, the relative ease of conducting
reprogramming actions at the district level, without the need to obtain
division or headquarters approval, creates incentives for project managers
to transfer funds among projects within the district even if it creates a
greater number of reprogramming actions. For example, when project
managers have an immediate need for funds, they may be more likely to
reprogram funds between projects within their own district, even if the

donor project has a need for funds in a few weeks or months, because the
guidance allows them to do so.

The Corps' reprogramming practices place a large demand on the
administrative resources of the agency. In fiscal year 2003, after
receiving their appropriated funds from the Congress, the Corps conducted
at least one reprogramming action every business day of the fiscal year
except for 4; after receiving their funds in fiscal year 2004, the Corps
conducted at least one reprogramming action on every business day of the
fiscal year except for 14. Each reprogramming action conducted requires
the Corps to expend time and personnel resources to locate donor projects,
file necessary paperwork, and in some cases obtain the approval of
appropriate Corps staff and, possibly, the Congress. In particular,
locating sources of donor funding is often a time-consuming process, as
the project manager seeking funding must wait for other project managers
to acknowledge excess funds and offer them for use on other projects.

Conclusions	The ability to move funds among projects is a useful and
necessary management tool to adjust project funding to reflect changing
conditions and needs over the life of a civil works project. For an agency
like the Corps, which has responsibility for hundreds of projects, the
ability to reprogram funds, if used effectively, provides the flexibility
to take funds from a project that cannot spend allotted funds because of
delays due to factors such as bad weather or labor problems and move those
funds to a project that has a need for additional funding to accelerate or
complete ongoing work. However, the Corps' reprogramming guidance allows
movements of funds by categorizing reprogrammings as fund movements that
do not count toward notifying the Congress. As a result, following its
guidance, the Corps is able to effect major deviations from the funding
direction the Congress provided for projects in its conference report and
does not have to inform the Congress of the changes and the reason for the
changes. Because the Corps' reprogramming reflects the direction and
guidance provided by the appropriations committees and this guidance has
changed over time, we believe that the Corps needs to reach agreement with
the Congress on what types and levels of reprogramming actions are
appropriate for the Corps to conduct without congressional notification.

Reprogramming has become the Corps' routine way of managing project funds,
and the Corps has used reprogramming as a substitute for an effective and
fiscally prudent financial planning, management, and prioritysetting
system for its Civil Works program. The Corps allocates all funding

to the projects, on an annual basis, at the beginning of the year and has
no available means, other than reprogramming, to adjust project funding as
circumstances change during the year. As a result, reprogramming has been
used extensively for moving funds among projects in an environment where
most projects have unmet funding needs and very few have excess funding.
In addition, there is no formal system to prioritize potential donor or
recipient projects and no financial planning occurs to monitor project
schedules and progress. Instead, decisions are made instantly to meet
immediate funding needs. Consequently, funds are frequently moved from
projects that have or will have the need for those funds in the not too
distant future and are shifted to other projects, some which have funding
needs and some that do not.

  Recommendations for Executive Action

To eliminate the burden of excessive reprogramming actions and to provide
better financial management of projects, we recommend that the Secretary
of Defense direct the Commanding General and Chief of Engineers of the
U.S. Army Corps of Engineers to take the following five actions:

o 	work with congressional committees to provide meaningful and consistent
guidance for the investigations, construction, and operation and
maintenance appropriations for what actions count as reprogrammings and
what reporting thresholds should apply on a program and project basis;

o 	develop a financial planning and management system for the
investigations, construction, and operation and maintenance appropriations
that, at a minimum,

o 	changes the way the Corps allocates funds from an annual basis to a
more frequent basis that reflect actual schedule and project performance;

o 	periodically reviews project schedules and performance and revises
funding allocations as needed; and

o 	develops and implements criteria for setting reprogramming priorities;
and

o 	provide direction and training to change the culture prevalent
throughout the Corps that reprogramming is an acceptable, routine

financial management practice and instead place greater emphasis on the
use of financial planning approaches and priority-setting mechanisms for
managing project funding.

  Agency Comments and Our Evaluation

We provided a draft of this report to the Department of Defense for its
review and comment. The Department stated that the report was very
constructive and concurred with four of the five recommendations.
Specifically, the Department concurred with the recommendation that the
Corps work with congressional committees to provide meaningful and
consistent guidance for the investigations, construction, and operation
and maintenance appropriations as to which actions count as reprogrammings
and what reporting thresholds should apply on a program and project basis.
The Department said the Corps is preparing an Engineer Circular that will
address the reprogramming direction provided in the House report
accompanying the fiscal year 2005 appropriations for energy and water
development. The Department also said that the Corps is coordinating with
the appropriate House and Senate subcommittees and the Engineer Circular
is scheduled to be issued in the first quarter of fiscal year 2006.

The Department concurred with our recommendation that the Corps develop a
financial planning and management system for the investigations,
construction, and operation and maintenance appropriations that
periodically reviews project schedules and performance and revises funding
allocations as needed. The Department said that during the first quarter
of fiscal year 2006, the Corps intends to institute improvements in
project scheduling to provide more reliable estimates of funding
capabilities and to emphasize periodic reviews of project schedules,
performance, and funding allocations.

The Department concurred with our recommendation that the Corps develop a
financial planning and management system for the investigations,
construction, and operation and maintenance appropriations that develops
and implements criteria for setting reprogramming priorities. The
Department said that the Engineer Circular to be issued in the first
quarter of fiscal year 2006 will include criteria to prioritize
reprogramming actions.

The Department concurred with our recommendation that the Corps provide
direction and training to change the culture prevalent throughout the
Corps that reprogramming is an acceptable, routine financial management
practice and instead place greater emphasis on the use of

financial planning approaches and priority-setting mechanisms for managing
project funding. The Department said that the forthcoming Engineer
Circular and subsequent training of project managers will strengthen
limits on reprogramming and ensure understanding of those limits.

Regarding our recommendation that the Corps develop a financial planning
and management system for the investigations, construction, and operation
and maintenance appropriations that changes the way the Corps allocates
funds from an annual basis to a more frequent basis that reflects actual
schedule and project performance, the Department did not concur. The
Department said that it is important that the Corps continue to allocate
all funds provided by the Congress for each project and that any deviation
from that amount would be regarded as a reprogramming and would not
reflect the intent of the Congress. The Department also said that
withholding funds from the initial allocation would add administrative
burden, increase uncertainty in execution, and would not aid in scheduling
and schedule review.

We disagree with the Department's views on the effects of changing the
Corps allocation of funds from an annual basis to a more frequent basis
during the fiscal year. While the conference report includes amounts for
each project and that amount does reflect the intent of the Congress,
changes often occur in the funding needs and project expenditure
capabilities from the time the Corps submits its budget estimates until
the appropriation is received 18 or more months later. As a result, when
the appropriation is received, projects may not need the amount of funds
included in the conference report or may need additional funds. Our
recommendation would allow the Corps to make these known needed changes
before allocating all funds to a project. This would serve to streamline
the process and eliminate the administrative burden of making project
funding allocations that the Corps knows it is going to reallocate through
reprogramming actions almost immediately after the initial allocations are
made. Providing periodic allocations of funds during the year, especially
when coupled with reviews of project schedules, performance, and fund
allocations and the development and implementation of criteria for setting
reprogramming priorities -which the Department said the Corps will
implement - should allow the Corps to better spend its limited funds in
accordance with the intent of the Congress. Use of these tools will allow
the Corps to allocate funds based on the most recent project information
to those projects with the highest priority and the most immediate need.
We also disagree that the use of

periodic allotments would result in uncertainty in execution. Instead,
periodic allocation of funds would provide increased certainty in
execution of projects that needed funds and would not affect the execution
of projects that did not have a current need for funds.

In addition to the Department of Defense's overall comments on our draft
report (see app. IV for the full text of the Department's comments), the
Corps provided a number of technical comments and clarifications, which we
incorporated in this report as appropriate.

As arranged with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after the date of this report. At that time, we will send copies of the
report to interested congressional committees, the Commanding General and
Chief of Engineers of the U.S. Army Corps of Engineers, and the Director
of the Office of Management and Budget. We will make copies available to
others on request. In addition, this report will be available at no charge
on the GAO Web site at www.gao.gov.

If you or your staff have questions about this report, please call me at
(202) 512-3841 or contact me at [email protected]. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. Key contributors to this report are listed in
appendix V.

Anu K. Mittal Director, Natural Resources

and Environment

Appendix I

Scope and Methodology

To determine the extent to which the Corps reprogrammed appropriated funds
among investigations, construction, and operation and maintenance projects
in fiscal years 2003 and 2004, we obtained relevant funding and project
data from the Corps. However, the Corps could not provide data about
reprogramming of operation and maintenance project funds. We determined,
based on written documentation, interviews with Corps officials, and
electronic data testing, that the data were sufficiently reliable for our
purposes.

To determine if the Corps followed internal guidance and congressional
direction when reprogramming funds and why the Corps conducted
reprogramming funds, we obtained the Corps' internal guidance for
reprogramming and congressional reports and correspondence that contained
direction for conducting reprogramming. We selected four Corps divisions
randomly with probabilities proportional to the number of projects and
judgmentally selected one district from each of those divisions for
review. The divisions and districts selected were Great Lakes & Ohio River
(Louisville District), North Atlantic (New York District), Northwestern
(Portland District), and Southwestern (Fort Worth District). Within the
four districts, we randomly selected a total of 271 projects from the
population of investigations, construction, and operation and maintenance
projects that had funds reprogrammed during fiscal years 2003 and 2004.
For the selected projects, we reviewed project files and held discussions
with managers to obtain background information on the project and
information on the amount, date, and reason for each reprogramming. File
information was entered into a data collection instrument to ensure
uniformity. This information was entered into a spreadsheet for analysis.
The spreadsheet was independently verified with the data collection
instruments. We compared the Corps' reprogramming activities for each
selected project to the internal guidance and congressional direction that
was in effect at the time the reprogramming was conducted.

To determine how effective the Corps' reprogramming strategy was in
managing appropriated funds, we reviewed the results of our sample
analysis and discussed those results with program managers. We also
discussed the Corps' financial management strategy with program managers
at Corps headquarters, division offices, and district offices and with
individual project managers.

Appendix II

                    Reprogramming Guidance Used by the Corps

Sources: ER 11-2-201; Internal Corps Memorandum and House Report 108-554.

Appendix III

Projects with Reprogrammings That Did Not Follow Corps Guidance

  Fund Movements Conducted under ER 11-2-201 (October 1, 2002, to May 26, 2004)

    Green and Barren Rivers Navigation Disposition in Kentucky

The cumulative threshold amount for notifying the Congress was $25,000 for
this investigations project. On April 22, 2003, $25,000 was reprogrammed
into the project. On April 28, 2003, another $25,000 was reprogrammed into
the project, exceeding the cumulative threshold. The Corps did not notify
the Congress of its intention to reprogram the funds in excess of the
threshold. Corps officials explained that they made a mistake and did not
initially realize that the threshold had been exceeded. When the error was
realized, the Corps revoked $25,000 on May 29, 2003, to undo the previous
error.

  Fund Movements Conducted under Guidance Based on the Direction Provided in the
  House Report 108554 (May 27 to September 30, 2004)

New York City Watershed in The single action threshold was $300,000 for
this construction project. On

New York	September 20, 2004, the Corps revoked $800,000 exceeding the
single action threshold of $300,000. The Corps notified the Congress of
its intention to reprogram the $800,000, on September 24, 2004, 4 days
after the funds had been moved.

McAlpine Locks and Dam in The single action threshold for this
construction project was $7,301,200 and

Kentucky and Indiana	the cumulative threshold was $4 million. (In this
case, because of the size of the project, the threshold calculations
resulted in a higher single action

  Appendix III Projects with Reprogrammings That Did Not Follow Corps Guidance

threshold than a cumulative threshold.) On August 6, 2004, the Corps moved
$5.3 million into the project using its accelerated contractor earnings
authority. However, the accelerated contractor earnings authority only
allows the Corps to move up to $5 million and it must be used for settling
a contractor's claim, increased contractor earnings due to accelerated
rate of operations, or real estate deficiency judgment. In addition to
exceeding their authority to move funds under this provision, Corps
officials told us that the funds were not moved for any of the authorized
purposes. Rather, the funds were used to continue funding a contract. The
Corps had awarded a contract for about $80 million for fiscal year 2004,
but received only about $27 million for the project. To avoid a work
stoppage, possible contractor claims, and/or possible interest payments,
the Corps moved a large amount of funds into the project, including the
$5.3 million.

    Ramapo River at Oakland in New Jersey

The single action threshold for this construction project was $311,800 and
the cumulative threshold was $4 million. On September 1, 2004, the Corps
revoked $600,000; on September 20, 2004, the Corps revoked $1,700,000; and
on September 29, 2004, the Corps revoked $600,000. All these actions
exceeded the single action threshold. The Corps did not notify the
Congress of their intention to reprogram the funds in excess of the
thresholds on September 1 and 24. A letter was sent to the Congress for
the September 20, 2004, action; however, the letter was sent on September
24, 2004, after the funds had been moved.

Ohio River Flood Protection The single action threshold for this
construction project was $430,000 and

in Indiana	the cumulative threshold was $4 million. On June 28, 2004, the
Corps revoked $500,000, exceeding the single action threshold of $430,000.
The Corps did not notify the Congress of its intention to reprogram the
funds in excess of the threshold. Corps officials told us that the action
was processed at the district and they were confused about the procedure.

New York and New Jersey The single action threshold for this construction
project was $22,303,000

Harbor	and the cumulative threshold was $4 million. (In this case, because
of the size of the project, the threshold calculations result in a higher
single action threshold than a cumulative threshold.) In 2004, in 10
different actions, the Corps moved a total of $82,559,000 in and out of
the project. Specific actions that exceeded the $4 million threshold
occurred on June 17, 2004,

  Appendix III Projects with Reprogrammings That Did Not Follow Corps Guidance

($6,900,000 revoked), June 22, 2004, ($8,587,000 revoked), June 24, 2004,
($10,000,000 revoked) and on August 6, 2004, ($8,500,000 revoked). The
Corps sent notification to the Congress for the June 24, 2004, action on
May 13, 2004. Letters were also sent for the other actions; however, these
letters were sent after the funds had been moved. The letter for the June
22, 2004, action was sent on June 29, 2004. The letters for the June 17,
2004, and the August 6, 2004, actions were sent on September 24, 2004.

Bonneville Powerhouse The single action threshold for this construction
project was $302,000 and Phase 1 in Oregon and the cumulative threshold
was $4 million. On May 28, 2004, the Corps Washington restored $332,000
prior year savings and slippage, exceeding the single

action threshold of $302,000. The Corps did not notify Congress of their
intention to reprogram the funds in excess of the threshold. Corps
headquarters officials told us that the action was processed at the
district and they were confused about the procedure while district
officials said that headquarters approved the action.

Plattsburgh Harbor in New The single action threshold for this operation
and maintenance project was

York	$438,240 and the cumulative threshold was $4 million. On August 16,
2004, the Corps revoked $625,000, exceeding the single action threshold of
$438,240. The Corps did not notify the Congress of their intention to
reprogram the funds in excess of the threshold. Corps officials told us
that the action was processed at the district and they were confused about
the procedure.

                                  Appendix IV

                    Comments from the Department of Defense

Appendix IVComments from the Department of Defense

Appendix IVComments from the Department of Defense

Appendix V

                     GAO Contact and Staff Acknowledgments

                    GAO Contact Anu K. Mittal (202) 512-3841

Staff 	In addition to the individual named above, Edward Zadjura, James D.
Ashley, Kenneth E. Lightner Jr., John Mingus, Matthew Reinhart, Elizabeth

Acknowledgments	Repko, Carol Herrnstadt Shulman, and Barbara R. Timmerman
made contributions to this report.

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