Depot Maintenance: Persistent Deficiencies Limit Accuracy and
Usefulness of DOD's Funding Allocation Data Reported to Congress
(18-NOV-05, GAO-06-88).
Under 10 U.S.C. 2466, the military departments and defense
agencies can use no more than 50 percent of annual depot
maintenance funding for work performed by private-sector
contractors. The Department of Defense (DOD) must submit a report
to Congress annually on the division of depot maintenance funding
between the public and private sectors during the preceding
fiscal year and projected distribution for the current and
ensuing fiscal years. As required, GAO reviewed the report
submitted in April 2005 and is, with this report, submitting its
views to Congress on whether (1) the military departments
complied with the "50-50 requirement" for fiscal year 2004 and
(2) the projections for fiscal years 2005 and 2006 represent
reasonable estimates. Additionally, GAO is assessing whether the
data currently provided in DOD's annual 50-50 report are useful
to Congress in exercising its oversight role.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-88
ACCNO: A41818
TITLE: Depot Maintenance: Persistent Deficiencies Limit Accuracy
and Usefulness of DOD's Funding Allocation Data Reported to
Congress
DATE: 11/18/2005
SUBJECT: Accountability
Allocation (Government accounting)
Data collection
Defense budgets
Defense procurement
Financial management systems
Internal controls
Private sector
Projections
Reporting requirements
Stryker Armored Vehicle
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GAO-06-88
* Report to Congressional Committees
* November 2005
* depot maintenance
* Persistent Deficiencies Limit Accuracy and Usefulness of DOD's
Funding Allocation Data Reported to Congress
* Contents
* Results in Brief
* Background
* Summary of Data in DOD's 50-50 Report Submitted in April
2005
* Limitations on Use of 50-50 Data as Reported by DOD
* Management Control Weaknesses Prevent Determination of Military
Departments' Compliance with 50-50 Requirement for Fiscal Year
2004
* DOD's April 2005 Report to Congress Contained Data Errors,
Omissions, and Inconsistencies
* Department of the Army
* Department of the Navy
* Department of the Air Force
* Persistent Deficiencies Continue to Limit Accuracy of
Reported Data
* Inadequate Management Attention and Review
* Independent Review and Validation of Data Limited by
Time and Scope
* Inadequate Staff Training
* Fiscal Year 2005 and 2006 Projections Do Not Represent Reasonable
Estimates of Public- and Private- Sector Funding
* DOD's Current 50-50 Report Satisfies the Annual Mandate but Could
Provide More Useful Data and Analysis
* Conclusions
* Recommendations for Executive Action
* Matter for Congressional Consideration
* Agency Comments and Our Evaluation
* Scope and Methodology
* GAO Adjustments for Inaccuracies Found in the Military Departments'
50-50 Data for Fiscal Year 2004
* Comments from the Department of Defense
* GAO Contacts and Staff Acknowledgments
* Related GAO Products
Report to Congressional Committees
November 2005
DEPOT MAINTENANCE
Persistent Deficiencies Limit Accuracy and Usefulness of DOD's Funding
Allocation Data Reported to Congress
Contents
Tables
Figures
November 18, 2005Letter
The Honorable John Warner Chairman The Honorable Carl Levin Ranking
Minority Member Committee on Armed Services United States Senate
The Honorable Duncan L. Hunter Chairman The Honorable Ike Skelton Ranking
Minority Member Committee on Armed Services House of Representatives
Under 10 U.S.C. S: 2466, 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.
Section 2466 also directs the Department of Defense (DOD) to submit a
report to Congress by April 1 of each year on the percentage distribution
of depot-level maintenance and repair funds between the public- and
private-sectors for each military department and defense agency during the
preceding fiscal year and the projected distribution for the current and
ensuing fiscal years. The Secretary of Defense may waive the 50 percent
limitation if he determines the waiver is necessary for national security,
and he submits notification of the waiver along with the reasons for the
waiver to Congress. For fiscal year 2004, DOD issued the report on April
1, 2005. All the services reported that their private sector depot
maintenance allocation fell below the 50 percent funding limitation for
fiscal year 2004 and will remain below the 50 percent limitation for
fiscal years 2005 and 2006.
Section 2466 also requires us to review DOD's report to Congress and
evaluate whether DOD complied with the so-called 50-50 requirement. This
is the eighth year that we have evaluated and reported on DOD's annual 50-
50 report to Congress.1 Specifically, this report discusses whether (1)
the military departments complied with the 50-50 requirement for public
and private sector depot maintenance funding allocations in fiscal year
2004 and (2) the projections for public- and private-sector depot
maintenance funding allocations in fiscal years 2005 and 2006 represent
reasonable estimates. Additionally, we are providing our assessment
concerning whether the data currently provided by DOD in its annual 50-50
report are useful to Congress in exercising its oversight role.
To accomplish these objectives, we reviewed DOD and service-specific
guidance for collecting and reporting 50-50 data, and analyzed the
military services' procedures and internal management controls for
validating depot maintenance information included in the reported data and
for responding to the section 2466 requirements. We assessed the
reliability of the reported depot maintenance workload funding allocations
for fiscal year 2004 for each of the military services. To assess the
reliability of DOD's data, we undertook a number of steps, including
conducting variance analyses and limited testing on reported funding
allocations. Based on the significance of funding variance from previous
years and other factors, we selected specific locations and weapons
systems for more in-depth reviews. We conducted site visits, interviewed
service officials responsible for data collection, and reviewed the data
for accuracy and completeness. For example, we verified reported
obligations using the source documents provided by service officials. We
also reviewed the results of internal studies conducted by the service
audit agencies or other third parties, and reconciled areas of concern
identified during prior years' audits. As discussed below, we found that
the reported private- and public-sector allocation data are not reliable
because of long-standing systemic
weaknesses in DOD's financial systems2 and persistent deficiencies in
50-50 data reporting processes. Our analysis of projected allocations for
fiscal years 2005 and 2006 was limited because our initial audit efforts
identified significant recurring problems in these areas. We conducted our
review from April 2005 through September 2005 in accordance with generally
accepted government auditing standards. See appendix I for a more detailed
description of our scope and methodology.
Results in Brief
As in previous years, systemic weaknesses in DOD's financial systems and
persistent deficiencies in 50-50 data reporting processes continue to
prevent us from determining whether the military departments complied with
the 50-50 requirement for public- and private-sector depot maintenance
funding allocations for fiscal year 2004. Our analysis of the April 2005
report submitted to Congress and the military departments supporting data
identified errors, omissions, and inconsistencies in DOD funding
allocation data, which, if adjusted, would increase the Army's and Navy's
percentages of funding allocations going to the private sector, causing
them to come very close to reaching the 50 percent private-sector limit.
As a result, the data reported for fiscal year 2004 cannot be relied on to
provide an accurate measure of the balance of funding between the public
and private sectors or to determine if the military departments complied
with the statutory limitation set by Congress for private-sector
depot-level maintenance funding allocations. Persistent deficiencies, such
as inadequate management attention and review to ensure accurate and
complete reporting, limited independent review and validation of 50-50
data by audit services or other third parties, and inadequate training for
those responsible for data gathering and reporting, continue to limit the
accuracy of the 50-50 data submitted to Congress. Our previous reports
over the last 7 years identified similar problems and recommended
corrective actions, but DOD and the military services have failed to
consistently implement corrective actions sufficient to resolve the
deficiencies and alleviate data accuracy problems. The recurring nature of
these deficiencies in DOD's 50-50 reporting processes indicates a
management control weakness significant enough to be reported in DOD's
annual performance and accountability report.3 This weakness has not been
disclosed in DOD's annual accountability reports to Congress even though
the issues have been previously identified in prior audits.
Reported projections do not represent reasonable estimates of public- and
private-sector depot maintenance funding allocations for fiscal years 2005
and 2006 because some errors and omissions in DOD's fiscal year 2004 data
are carried into the projected years. In addition, it is difficult to
project out-year data due to factors such as changing depot maintenance
requirements, the ongoing consolidation of maintenance facilities, and the
trend toward more contractor logistics support for new and existing weapon
systems. These factors limit the usefulness of the reported projections to
congressional and, DOD decision makers. We have reported these
shortcomings with the future years projections in the past, and the
problems continue to occur. The reported projection data show that all of
the military services are predicting higher percentages of funding for the
private sector and less for the public sector. Data inaccuracies similar
to those we identified for fiscal year 2004 could affect this trend, as
all of the services are moving closer to the threshold for private-sector
funding. For example, while the Army projects that its funding for fiscal
years 2005 and 2006 for the private sector will be around 46 percent, the
magnitude of the adjustments we made to the Army's fiscal year 2004 data,
when carried forward, could cause the Army to reach the limitation on
50-50. Additionally, increasing contractor maintenance support for
military operations and new weapon systems scheduled to reach initial
operational capability in fiscal year 2007 and beyond could result in all
the military departments exceeding the 50 percent threshold. The Air Force
has integrated 50-50 reporting requirements into its source of repair
decisions for new weapon systems and major system modifications.
Although DOD's current 50-50 report to Congress satisfies the annual
mandate, it lacks additional detail that might be useful to Congress as it
exercises its oversight role. The report currently submitted by DOD
contains data that are aggregated at a high level and provides no analysis
of changes from the prior years. For example, the report does not identify
funding trends and workload distribution variances from the prior year,
nor does it explain the reasons behind any significant variances.
Furthermore, it does not contain information on the methodologies used to
prepare the current and future year projections. Because of the limited
data provided by the military departments in the 50-50 report, we have
developed and reported these types of information as part of our mandated
work over the past 7 years to better meet Congress's needs in exercising
its oversight role.
We are making two recommendations to the Secretary of Defense to improve
the accuracy and reliability of depot maintenance funding allocation data
submitted to Congress and to provide congressional decision makers with
more useful information. In commenting on a draft of this report, DOD
partially concurred with our recommendations. DOD stated it has made and
will continue to make improvements in data quality and accuracy. However,
DOD did not indicate specific actions it would take to address the
persistent deficiencies we identified or to improve the usefulness of the
information provided to the Congress. Therefore, we are also suggesting
that the Congress require the Secretary of Defense to enhance the
department's annual 50-50 report submitted to Congress as stated in our
recommendations. DOD's comments and our evaluation are discussed in detail
in a later section of this report.
Background
In addition to the 50-50 requirement in 10 U.S.C. S: 2466, the following
provisions directly affect the reporting of workload funding allocations
to the public and private sectors.
o Section 2460 defines depot maintenance to include material maintenance
or repair requiring the overhauling, upgrading, or rebuilding of parts,
assemblies, or subassemblies and the testing and reclamation of equipment,
regardless of the source of funds or where maintenance or repair is
performed. Depot maintenance also encompasses software maintenance,
interim contractor support,4 and contractor logistics support5 to the
extent that work performed in these categories is for depot maintenance.
The statute excludes from depot maintenance the nuclear refueling of an
aircraft carrier; the procurement of major modifications or upgrades of
weapon systems that are designed to improve program performance; and the
procurement of parts for safety modifications, although the term does
include the installation of parts for safety modifications.
o Section 2474 directs DOD to designate public depots as Centers of
Industrial and Technical Excellence and to improve their operations to
serve as recognized leaders in their core competencies.6 Section 342 of
the National Defense Authorization Act for Fiscal Year 2002 (Pub. L. No.
107-107, Dec. 28, 2001) amended this statute to exclude qualifying
public-private partnerships,7
7DOD guidance defines a "public-private partnership" for depot maintenance
as an agreement between a public-sector depot maintenance activity and one
or more private industry or other entities to perform work or utilize
facilities and equipment. Such an arrangement includes the use of public
facilities, equipment, and employees to perform work for the private
sector under certain defined circumstances; private-sector use of
public-sector equipment and facilities to perform work for the public
sector; and work-sharing agreements using both public- and private-sector
facilities, employees, or both.
referred to as private exempt, from the 50 percent funding limitation on
contracting in section 2466. Specifically, section 342 provides that the
funds expended for the performance of depot-level maintenance by
nonfederal government personnel located at the Centers of Industrial and
Technical Excellence shall not be counted when applying the 50 percent
limitation if the personnel are provided pursuant to a public-private
partnership. This exclusion initially applied to depot maintenance funding
for fiscal years 2002 through 2005. The exclusion later was extended to
fiscal year 2006, and recently to fiscal year 2009.8
Section 2466 allows the Secretary of Defense to waive the 50 percent
limitation if he determines the waiver is necessary for national security.
The Secretary submits the notification of waiver together with the reasons
for the waiver to Congress. Waivers were previously submitted for the Air
Force for fiscal years 2000 and 2001.
The Office of the Secretary of Defense (OSD) issues guidance to the
military departments for reporting public-private workload funding
allocations. The guidance is consistent with the definition of
"depot-level maintenance and repair" in 10 U.S.C. S: 2460.9 The military
services have also issued internal instructions to manage the data
collection and reporting process, tailored to their individual
organizations and operating environments.
Summary of Data in DOD's 50-50 Report Submitted in April 2005
Figure 1 summarizes DOD's April 2005 report to Congress on public- and
private-sector funding allocations for depot maintenance.10 All three
departments reported that their private-sector depot maintenance
allocation fell below the 50 percent funding limitation for fiscal year
2004 and will remain below the 50 percent limitation for fiscal years 2005
and 2006. The amounts shown are from DOD's record of actual obligations
incurred for depot maintenance work in fiscal year 2004 and projected
obligations for fiscal years 2005 and 2006. The percentages show the
department's record of the relative allocations between the public and
private sectors and the exempted workload funding.
Figure 1: DOD's Prior, Current, and Budget Year Public- and Private-Sector
Allocations for Fiscal Years 2004 through 2006
Notes: Based on analysis of DOD's April 1, 2005, reported 50-50 data. The
Department of the Navy includes the Marine Corps.
Limitations on Use of 50-50 Data as Reported by DOD
DOD's 50-50 data, with our adjustments, only provide a rough approximation
of the allocation of depot maintenance funding between the public and
private sectors. Our prior reports on depot maintenance workload funding
allocations have recognized systemic weaknesses in DOD's financial
systems, operations, and internal controls that impede the department's
ability to provide useful, reliable, and timely financial information for
day-to-day management and decision making. In the financial management
systems area, DOD continues to struggle in its efforts to implement
systems to support managerial decision making. To date, none of the
military services have passed the test of an independent financial audit.
Nonetheless, the data used to develop the 50-50 report are the only data
available and are accepted by DOD and used as input to Congress for its
congressional oversight.
Management Control Weaknesses Prevent Determination of Military
Departments' Compliance with 50-50 Requirement for Fiscal Year 2004
As in previous years, management control weaknesses in DOD's financial
systems and persistent deficiencies in 50-50 data reporting processes
continue to prevent us from determining whether the military departments
complied with the 50-50 requirement for public- and private-sector depot
maintenance funding allocations for fiscal year 2004. DOD's April 1, 2005,
report to Congress contained data errors, omissions, and inconsistencies
due to persistent deficiencies, such as inadequate management attention
and review to ensure accurate and complete reporting, limited independent
review and validation of 50-50 data by audit services or other third
parties, and inadequate training for those responsible for data gathering
and reporting. As a result, the data reported for the prior year cannot be
relied on to provide an accurate measure of the balance of funding between
the public and private sectors or to determine if the military departments
complied with the statutory limitation set by Congress for private-sector
depot-level maintenance funding allocations. The recurring nature of these
deficiencies indicates a management control weakness in DOD's 50-50 data
reporting processes significant enough to be reported in DOD's annual
performance and accountability report. This weakness has not been
disclosed in DOD's annual accountability reports to Congress, even though
the issues have been identified in prior audits.
DOD's April 2005 Report to Congress Contained Data Errors, Omissions, and
Inconsistencies
DOD's April 1, 2005, report to Congress contained errors, omissions, and
inconsistencies in the depot maintenance funding allocation data for
fiscal year 2004. The net effects of correcting the data inaccuracies we
identified would increase the Army's and Navy's percentages of funding
allocations going to the private sector, causing both military departments
to come very close to the 50 percent private-sector limitation. Although
we also found inaccuracies in the Air Force data, adjusting for them does
not change the funding allocation distribution percentages. Table 1
summarizes the amounts and effects of our adjustments to DOD's reported
depot funding allocation data for fiscal year 2004.
Table 1: GAO Adjustments to DOD's Reported Depot Maintenance Funding
Allocations for Fiscal Year 2004
Dollars
in
millions
Army Navya Air
Force
Amount Percentage Amount Percentage Amount Percentage
Private Reported $ 45.0 $ 46.2 $ 45.3
2,376.3 4,675.3 4,417.2
Adjusted 2,425.9 49.2 4,793.3 48.5 4,416.9 45.3
Public Reported 2,902.1 55.0 5,085.2 50.2 5,329.2 54.6
Adjusted 2,505.1 50.8 4,705.6 47.7 5,329.2 54.6
Private Reported 0.0 0.0 366.1 3.6 13.3 0.1
exempt Adjusted 0.3 0.0 376.0 3.8 13.3 0.1
Source: GAO analysis of DOD data.
Notes: Based on analysis of Distribution of DOD Depot Maintenance
Workloads, Fiscal Year 2004, Office of the Secretary of Defense, April 1,
2005. Shaded cells indicate percentages within 2 percentage points of the
50 percent limitation.
aThe Department of Navy consists of the Navy and Marine Corps.
Department of the Army
Adjusting the Army's data on the basis of the specific inaccuracies we
identified would reduce its total depot maintenance funding by $347.1
million for fiscal year 2004. The net effect of correcting for these
inaccuracies would increase the private-sector percentage allocation by
about 4.2 percentage points for an overall allocation of 49.2 percent.
(See table 3 in app. II for a detailed breakout of these adjustments.)
The Army's most significant data inaccuracies generally were due to
overreported public depot funding and underreported or unreported private
depot funding. Adjustments to the Army's reported public work amounted to
a $397 million decrease. The most significant of the errors in
public-sector depot maintenance reporting, $399.4 million, was due to a
transcription error. The Army also overreported an additional $9.6 million
due to double-counting and $7.8 million for misclassifying private-sector
workload as public. Additionally, the Army underreported $18.4 million in
public-sector depot maintenance funding at the Aviation and Missile
Command and the Communications and Electronics Command and did not report
nearly $0.9 million in depot maintenance funding for the FOX vehicle.
Adjustments to the Army's private sector workload resulted in a net
increase of $49.6 million mostly due to unreporting or underreporting. The
Army did not report private depot work for onetime repairs at a nondepot
aviation location in the amount of $20.7 million. The Army also failed to
report $2.2 million in private depot work at Anniston Army Depot and $6.2
million in private depot work at a National Guard aviation classification
and repair depot. It also did not report $6.9 million in private depot
work for the Stryker vehicle and $5.9 million for the FOX vehicle. For
fiscal year 2004, the Army included amounts for its National Maintenance
Program,11 one of the two areas the Army previously estimated made up the
majority of its unreported depot-level maintenance work performed at
nondepot facilities; however, $5.7 million was underreported because
planned funding was reported instead of the amounts actually obligated.
Finally, the Army underreported $7.8 million through a misclassification
of private work as public work.
Department of the Navy
Adjusting the Navy's and Marine Corps' data on the basis of the specific
inaccuracies we identified would reduce their total depot maintenance
funding by $251.7 million for fiscal year 2004, the net effect of
correcting for these inaccuracies would increase the private-sector
percentage allocation by 2.4 percentage points for an overall allocation
of 48.5 percent. (See table 4 in app. II for a detailed breakout of these
adjustments.)
The Navy's most significant data inaccuracies generally were due to
unreported private depot funding and overreported public depot funding.
For example, as we reported in past years, the Navy did not report $80.3
million in depot maintenance funding for work accomplished during the
nuclear refueling of aircraft carriers, citing the exclusion of nuclear
refueling from the 10 U.S.C. S: 2460 definition of "depot maintenance." We
continue to believe that depot maintenance repairs not directly associated
with the task of nuclear refueling should be reported because these types
of repair actions are reported by other organizations and it is possible
to identify the funding for these tasks in Navy contracts and financial
systems. The Navy also, as in prior years, inconsistently reported on
inactivation activities related to the servicing and preservation of
systems and equipment prior to their placement in storage or on inactive
status. Specifically, the Navy did not report $14.4 million of
private-sector allocations for inactivation work on non-nuclear ships,
even though it reported private-sector funding for the inactivation for
nuclear ships. The Navy contends that the work for nuclear ship
inactivation is complex while the work for non-nuclear ships is not. We
maintain that all such depot-level work should be reported, since the
statute and implementing guidance do not make a distinction based on
complexity. Additionally, the Navy's public-sector depot maintenance
allocation was overreported by $357.6 million because of errors in
reporting obligations for funds available to be spent over multiple years.
Navy and OSD guidance requires that commands only report the funds
actually obligated in the fiscal year. We found that some Naval Sea
Systems Command activities incorrectly reported the funds available for
obligation for depot maintenance in fiscal year 2004 instead of the funds
that were actually obligated. As a result, some of the amounts included in
the Navy's 50-50 report were not obligated during fiscal year 2004.
Additionally, multiyear funds from a prior year appropriation that were
obligated in fiscal year 2004 were not, but should have been, included.
Our review of the Marine Corps' 2004 data found that it underreported the
public-sector total by about $1.3 million for maintenance work performed
at other military service depots. In previous years, the Marine Corps'
error rate was relatively high compared to that of the other services
despite its smaller depot maintenance program. Based on our recommendation
from last year, the Marine Corps addressed a key contributor to its high
error rate by appointing a 50-50 focal point for the Marine Corps Systems
Command, the command responsible for acquiring and upgrading weapon
systems. The focal point is responsible for preparing and submitting a
consolidated report for the command's depot maintenance funding allocation
between the public and private sectors.
Department of the Air Force
Adjusting the Air Force's data on the basis of the specific inaccuracies
we identified would increase its total depot maintenance funding by $0.3
million but would not change the percentage allocation between the public
and private sectors. (See table 5 in app. II for a detailed breakout of
these adjustments.)
Additionally, we were unable to verify some of the private depot
maintenance amounts reported because the Air Force had no supporting data.
For example, we were unable to verify the total amount in private-sector
workload funding allocation for air crew training devices used to train
active duty air crews. According to the Air Force, all air crew training
devices are operated and maintained through contractor logistics support
contracts. The depot maintenance portion for these contracts is computed
by taking a percentage of the cost incurred against a selected contract
line item or, in some instances, a percentage of the entire amount
obligated for the year. DOD's 50-50 guidance allows algorithms to be used
when precise determinations cannot be made; however, the line items
included and the percentages used are largely determined by the
contractor, and the Air Force lacks access to the data needed to validate
the percentages used.
Additionally, the Air Force incorrectly reported amounts for depot
maintenance warranties in its fiscal year 2004 50-50 data. The Air Force's
guidance states that onetime obligations for warranties over extended
periods will be prorated for each year over the life of the warranty.
However, OSD guidance states that although warranty support that occurs
prior to initial operating capability shall not be reported as depot
maintenance and repair, warranty support that is contracted for prior to
initial operating capability but occurs after initial operating capability
shall be reported. Also, the total warranty costs for depot maintenance
and repair services are to be reported in the year in which the obligation
occurs. Therefore, consistent with OSD guidance, the Air Force should have
reported all amounts obligated for warranties for depot maintenance repair
that cover periods after initial operating capability in the year the
obligations were made.
Although we found the aforenoted inaccuracies, overall the Air Force's
data had the least problems. Additionally, the Air Force correctly
included contract administrative and oversight costs in its fiscal year
2004 data. In previous years, the Air Force adjusted its reported amounts
for contract administration and oversight costs, which decreased the
amount of funding for the private sector and increased funding for the
public sector. We repeatedly reported that this adjustment was not
consistent with 50-50 guidance, which states that costs should be
associated with the end product (i.e., the repaired item), and that the
costs should be treated as contracting expenses.
Persistent Deficiencies Continue to Limit Accuracy of Reported Data
Systemic weakness in DOD's financial systems and persistent deficiencies,
such as inadequate management attention and review to ensure accurate and
complete reporting, limited independent review and validation of 50-50
data by audit agencies or other third parties, and inadequate training for
those responsible for data collection and reporting continue to limit the
accuracy of the 50-50 data provided to Congress. For these reasons, the
reported data cannot be relied on to provide an accurate measure of the
balance of funding between the public and private sectors or to determine
whether the military departments complied with the 50 percent statutory
limitation set by Congress for private-sector depot-level maintenance.
Moreover, during the past 7 years, we have made 33 recommendations for
improving the depot maintenance reporting process for 50-50 purposes,
addressing both DOD and individual service reporting issues and concerns.
Of these recommendations 19 have been officially closed by GAO. The 14
recommendations that remain open contain several recurring themes. Table 2
summarizes the number of times these themes are mentioned in the 14 open
recommendations as well as the number of times these themes have been
recommended throughout the course of the past 7 years of reviewing DOD's
50-50 depot maintenance report.
Table 2: Summary of Prior GAO 50-50 Recommendations
Recommendation Number of open Number of Year(s)
recommendationsa times recommendedb
recommended
over 7 years
Improve management 4 9 1999, 2000,
attention, controls, and 2001, 2002
oversight (Marine Corps,
Army)
Document procedures and 2 6 1998,1999, 2000,
retention of records to 2001
support reported data for
future follow-up
Use service audit agencies 4 6 1999, 2001
or third party to validate (Army, Navy),
data before sending to 2002 (Navy),
OSD/Congress 2003, 2004
Ensure proper and timely 2 2 2003, 2004
training for staff
involved in 50-50 process
Issue, clarify, and/or 6 14 1998, 1999,
disseminate guidance 2000, 2001,
2002, 2003
Source: GAO.
aIn many cases, the recommendations covered multiple issue areas, and
therefore the number of open recommendations is not equal to the number of
times these issues are mentioned in the open recommendations.
bRecommendations made prior to 2001 have been closed. However, most
recommendations made in 2001 or later have not been implemented or have
been partially implemented and therefore remain open.
The problems in DOD's 50-50 data reporting processes have not been
disclosed in DOD's annual accountability reports to Congress, even though
the problems have been previously identified in prior audits, and in our
view result in more than a remote risk that significant misstatements will
not be prevented or detected. As a result, managers or oversight
officials' decisions based on this reporting-to include workload or
funding
allocation decisions-may be adversely affected. Title 31 U.S.C. S:
3512(c)12 requires that management controls be in place to reasonably
ensure that obligations and costs comply with the applicable law; all
assets are safeguarded against waste, loss, unauthorized use, and
misappropriation of assets; and revenues and expenditures are properly
reported and accounted for. Management controls are the organization,
policies, and procedures that help managers achieve results and safeguard
the integrity of their programs. Title 31 U.S.C. S: 3512(c) also requires
agency heads to provide an annual statement of assurance on the
effectiveness of the management controls and to identify and report on
material weaknesses. As defined in Office of Management and Budget
Circular A-123, Management's Responsibility for Internal Control, December
21, 2004 (effective for Fiscal Year 2006), materiality for financial
reporting13 is risk of error or misstatement that could occur in a
financial report that would affect management's or users' decisions or
conclusions based on such report. An official from OSD's Materiel
Readiness and Maintenance Policy, the office responsible for submitting
the 50-50 report to Congress each year, told us they had never evaluated
whether DOD's 50-50 reporting should be included in DOD's annual
accountability report.
Inadequate Management Attention and Review
One of the primary reasons for the recurring inaccuracies in the military
services' 50-50 data was inadequate management attention and review to
ensure accurate and complete reporting. Generally, we found that personnel
collecting the data at the various reporting centers or program offices
did not review or verify the data before submitting them up the reporting
chain to the service representative responsible for compiling and
forwarding the data to OSD. Additionally, little documentation is provided
to the military service's 50-50 data focal points or the reporting
commands' focal points to support the data included in the 50-50 report.
In prior reports we recommended that the Secretary of Defense direct the
military services to provide more management review at all levels in DOD
to ensure accurate and complete reporting. Despite these recommendations,
the services have limited policies and procedures for such management
review. For example, an Army official told us that no one checks the
accuracy of the data or performs a variance analysis with previously
reported data. Our variance analysis of the Army's fiscal year 2004 data
compared with the fiscal year 2003 data resulted in identifying nearly
$400 million in overreported public-sector workload funding allocations
due to a transcription error. The same location reported only about $2.3
million the previous fiscal year. This error may have been identified and
corrected if the Army emphasized reviewing, analyzing, and questioning
variances from year to year.
As in previous years, we found that the Marine Corps officials responsible
for compiling and submitting the Marine Corps' final report to OSD
performed no review to ensure the completeness or accuracy of the reported
data. Moreover, during our review of the Navy's U.S. Pacific Fleet, we
found the Southwest Regional Maintenance Facility did not maintain
documentation to support the amounts it reported. It took the facility
more than a month to recreate a list of the transactions to support the
$339.3 million in workload funding allocation data reported for fiscal
year 2004. Additionally, the Naval Audit Service could not verify the
amount of public-sector depot maintenance workload funding allocation for
the Puget Sound Naval Shipyard and Intermediate Maintenance Facility.
Moreover, the Air Force often lacks access to the documentation needed to
validate the completeness or accuracy of the data associated with its
contractor logistics support/interim contractor support programs and the
algorithms used to determine the amount of depot maintenance for each
contract.
Independent Review and Validation of Data Limited by Time and Scope
Although each of the military departments obtained some level of
independent review and validation14 of its 50-50 data, the reviews were
constrained by time and limited in scope. Moreover, not all of the errors
were corrected prior to submission to Congress. In prior reports we
repeatedly recommended that to further enhance 50-50 data accuracy, the
Secretary of Defense require the secretaries of the military departments
to direct the use of service audit agencies, or an agreed-upon alternate
method, for third-party review and validation of depot maintenance
workload funding allocation data and to ensure that auditor-identified
errors in the data are rectified before reports are submitted to Congress.
DOD guidance for this year's 50-50 report directed the military
departments to implement this recommendation.
Concerning fiscal year 2004 depot maintenance allocation data, the Army
Audit Agency evaluated whether the Army implemented or planned to
implement selected recommendations made based on prior audits of
depot-level maintenance workload allocation reporting, and whether the
Army accurately reported the status of implementation to the Office of the
Army Deputy Chief of Staff for Logistics. The Army Audit Agency did not
review the accuracy of the 50-50 data submitted to Congress. The Army
hired a consulting firm to review and validate its 50-50 data for fiscal
year 2004. The firm selected a statistical sample of the reported
allocations to review. However, due to time constraints, the Army did not
correct several of the errors identified by the consulting firm prior to
submitting the report to Congress. Naval Audit Service identified errors
in the Navy's data, which were corrected before the 50-50 report went to
Congress. However, the Naval Audit Service's review was limited to two
activities, which accounted for only 6 percent of the Navy's reported
depot maintenance funding for fiscal year 2004. Furthermore, although it
did not review 100 percent of transactions, the results and errors found
during the review were considered an indicator that similar errors might
exist at the other eight Navy reporting organizations. Due to time
constraints, the Naval Audit Service did not attempt to determine the
underlying cause for the errors identified. Air Force Audit Agency focused
its review on contractor logistics support/interim contractor support
maintenance programs, an area where problems in 50-50 reporting had been
identified in the past. The contracts reviewed by the audit agency
represented about three-fourths of the contractor logistics
support/interim contractor support programs. Errors identified by the Air
Force Audit Agency were corrected prior to submitting the report to
Congress. Air Force officials acknowledge that even with improvements,
errors still occur and accurate reporting remains an ongoing concern.
However, they do not believe additional errors that may be found would
threaten compliance with the 50-50 statute.
Inadequate Staff Training
Inadequate training for those responsible for collecting, aggregating, and
reporting 50-50 data continues to be a problem. In two prior reports we
recommended that the Secretary of Defense require the secretaries of the
military departments to ensure that the 50-50 guidance is properly
disseminated and that staff are properly and promptly trained in the
application of the 50-50 guidance. During our review we found that
although the reporting activities generally received the 50-50 data call
guidance, several reporting activities did not report 50-50 data
accurately. Additionally, we found that although the Army, Marine Corps,
and Air Force provide some training, not all staff responsible for 50-50
reporting attended this training. According to a Navy official, no formal
training on procedural requirements or Navy guidance to develop and report
the 50-50 data is provided to the personnel responsible for compiling the
data. Rather, the reporting activity coordinators are expected to provide
guidance on reporting requirements as questions arise from the reporting
activities. According to an Air Force official, program managers have not
had sufficient training to prepare and maintain documentation to ensure
that 50-50 data are accurate.
Fiscal Year 2005 and 2006 Projections Do Not Represent Reasonable
Estimates of Public- and Private-Sector Funding
DOD's reported projections for fiscal years 2005 through 2006 do not
represent reasonable estimates of public- and private-sector depot
maintenance funding allocations. The usefulness of the reported
projections to congressional and DOD decision makers is limited because
errors, omissions, and inconsistencies in DOD's reported prior-year data
are carried into future years and because of the difficulty in projecting
out-year data due to factors such as changing depot maintenance
requirements, consolidating maintenance facilities, and the trend toward
more contractor logistics support for new and existing weapon systems. We
reported these shortcomings with the future years' projections in the
past. While limitations affect the usefulness of the data reported as a
predictor of funding allocations, the reported projection data show that
all of the military services are predicting a greater percentage of funds
for the private sector and less for the public sector.
Recurring errors, omissions, and inconsistencies similar to those we
identified for the fiscal year 2004 reported data could affect this trend,
as all of the services are moving closer to the threshold for
private-sector funding. For example, while the Army projects that its
private-sector depot maintenance workload allocation will be around 46
percent, the magnitude of the adjustments we made to the Army's fiscal
year 2004 data-increasing the private-sector percentage by about 4.2
percentage points-when carried forward, could cause the Army to exceed the
50-50 limitation. Similarly, the Navy projects that its private-sector
depot maintenance workload allocation for fiscal year 2006 will be around
48 percent. The magnitude of the adjustments we made to the Navy's fiscal
year 2004 data-increasing the private-sector percentage by about 2.4
percentage points-when carried forward, could cause the Navy to exceed the
50-50 limitation.
DOD has agreed that 50-50 data within 2 percentage points of exceeding the
50 percent threshold is a reasonable trigger for additional oversight and
management to ensure compliance with the 50 percent threshold. Last year,
we recommended that the Secretary of Defense direct each military
department's secretary, within 30 days of reporting 50-50 data indicating
that past, current, or budget year data are within 2 percentage points of
exceeding the 50 percent threshold, to submit a plan to OSD that
identifies actions the military department shall take to ensure continued
compliance, including the identification of decisions on candidate
maintenance workload sourcing that could be made to support remaining
within the 50 percent threshold. To date, none of the services have
provided such plans because their reported data did not indicate that such
submissions were necessary.
Additionally, increasing contractor maintenance support for military
operations and increasing the number of new weapon systems scheduled to
reach initial operational capability in fiscal year 2007 and beyond could
result in all the military departments exceeding the 50 percent threshold.
During our review, the Air Force provided evidence that it has integrated
50-50 reporting requirements into its source of repair decisions for new
weapon systems and major system modifications.
DOD's Current 50-50 Report Satisfies the Annual Mandate but Could Provide
More Useful Data and Analysis
Although DOD's current 50-50 report to Congress satisfies the annual
mandate, it lacks additional detail that might be useful to Congress as it
exercises its oversight role. For example, the report provides no analysis
of the data to show how the fiscal year 2004 funding allocations compared
to prior years' figures. Furthermore, the reported data are aggregated at
the service level. The report also does not identify funding allocation
variances from year to year, nor explain the reasons behind them.
Additionally, the report does not contain analysis of long-term trends;
historical trend data must be calculated using previous 50-50 reports.
Finally, DOD's 50-50 report to Congress does not contain information about
the methodologies used to prepare the current and future year projections
or the reasons for projected funding variances and changes in workload
distribution.
Because of the limited data provided in DOD's 50-50 report, we have
developed these types of information as part of our mandated work over the
past 8 years to better meet Congress's needs in exercising its oversight
role. Our analysis of trend data shows that although reported depot
maintenance funding for fiscal year 2004 increased by about $700 million
over fiscal year 2003, only the Army's total funding and private-sector
workload allocation increased significantly. Compared to the other
services, the Army reported the largest increase in total funding (almost
$1.8 billion) and the largest jump in workload funding allocation to the
private sector. With this increase, the Army's reported private sector
allocation is on par with those of the other services. The Navy shows the
biggest overall decrease in depot workload funding allocation (almost $1.3
billion), and the Air Force shows little change. Figure 3 shows a
historical trend for private-sector reported allocations for fiscal years
1998 through 2004.
Figure 2: Historical Private-Sector Reported Allocations (Fiscal Years
1998-2004)
Note: Decrease in private-sector percentage starting in fiscal year 2002
was largely due to reporting private-exempt allocations separately.
Conclusions
Year after year we continue to see the same persistent deficiencies in
DOD's 50-50 report to Congress. As a result, the reported 50-50 data
cannot be relied on to provide an accurate measure of the balance of
funding between the public and private sectors or to determine if the
military services exceeded the statutory limitations set by Congress for
private-sector depot-level maintenance funding allocations. By disclosing
the persistent deficiencies in the 50-50 reporting processes as a
management control weakness, along with planned corrective actions, in
future accountability reports, DOD will increase the level of management
attention and help focus improvement efforts so that the data provided to
Congress are accurate and complete.
The data DOD provides in its annual 50-50 report to Congress satisfy the
annual mandate but lack additional detail that may well be useful to
Congress as it exercises its oversight role. Until DOD provides additional
information and analysis on changes in depot maintenance funding and
allocations, significant variances from the prior year's report, and
methodologies used to estimate workload allocation projections for the
current and ensuing fiscal years in its annual 50-50 report, Congress will
continue to be hindered in its ability to exercise effective oversight.
Additionally, the extent of the percentage adjustments we find each year,
coupled with the persistent lack of progress by the Army and the Navy
toward improving their reporting processes and data quality, indicate that
DOD cannot afford to wait until the services reach the 50 percent limit
before formulating and providing a plan that identifies actions the
military departments will take to avoid exceeding the threshold for
private-sector funding.
Recommendations for Executive Action
To improve the accuracy and reliability of depot maintenance funding
allocation data submitted to Congress and to provide congressional
decision makers with better information on funding allocations, we
recommend that the Secretary of Defense take the following two actions.
We recommend that the Secretary, in future accountability reports,
disclose a management control weakness in DOD's 50-50 data reporting
processes along with planned corrective actions to improve management
control in the following areas:
o Management review, attention, and policies sufficient to ensure accurate
and complete 50-50 reporting.
o Independent review and validation of 50-50 data by service audit
agencies or other third parties, with auditor-identified data inaccuracies
corrected prior to submission of the annual report to Congress.
o Annual training on 50-50 policies and procedures for all individuals
participating in data gathering and reporting.
We also recommend that the Secretary enhance DOD's annual 50-50 report
submitted to Congress. This enhanced reporting should include the
following types of information:
o Variance analyses that identify significant changes in depot maintenance
workload allocations from the prior year's report and the reasons for
these variances.
o Analysis of historical trends in depot maintenance workload allocations.
o Explanation of the methodologies used to estimate workload allocation
projections for the current and ensuing fiscal years.
o The military departments' plans to ensure continued compliance with the
50-50 requirement, including the identification of decisions on new weapon
systems maintenance workload sourcing that could be made to support
remaining within the 50 percent threshold.
Matter for Congressional Consideration
If Congress determines, for oversight purposes, that improvements are
needed in the reliability and usefulness of DOD's annual report on depot
maintenance funding allocations, Congress should require the Secretary of
Defense to enhance its annual 50-50 report to Congress as stated in our
recommendations. Specifically, this enhanced reporting should include (1)
variance analyses of significant changes in depot maintenance workload
allocations from the prior year's report and the reasons for these
variances; (2) analysis of historical workload allocation trends; (3)
explanation of the methodologies used to estimate workload allocation
projections; and (4) plans to ensure continued compliance with the 50-50
requirement, including the identification of decisions on new weapon
systems maintenance workload sourcing that could be made to support
remaining within the 50 percent threshold. Additionally, the enhanced
reporting should address the corrective actions DOD is taking to improve
the persistent deficiencies we have identified in DOD's 50-50 data
reporting processes.
Agency Comments and Our Evaluation
In commenting on a draft of this report, DOD partially concurred with our
recommendations but did not indicate specific actions it would take
address the persistent deficiencies we identified in its 50-50 reporting
processes or to improve the usefulness of the information provided to
Congress. DOD agreed there were errors in the 50-50 report and stated that
it is committed to providing accurate data in its annual report to
Congress, has made improvements in its reporting over the past several
years, and will continue to improve.
DOD partially concurred with our recommendation that the Secretary of
Defense, in future accountability reports, disclose a management control
weakness in DOD's 50-50 data reporting processes along with planned
corrective actions to improve management control. However, DOD did not
indicate that it would disclose its 50-50 data reporting processes as a
management control weakness in future accountability reports. Instead, DOD
stated that it currently reports internal management control weaknesses in
its annual accountability reports. The currently reported weaknesses,
however, are not specific to DOD's 50-50 data reporting processes, and we
continue to believe that the recurring nature of the deficiencies we have
found in DOD's 50-50 reporting processes indicates a management control
weakness significant enough to be reported separately in DOD's annual
accountability reports. Neither DOD nor the military services have
consistently implemented corrective actions sufficient to resolve the
deficiencies. As discussed in the report, during the past 7 years we have
made 33 recommendations for improving 50-50 reporting. Of these
recommendations, 19 have been officially closed by GAO. The 14
recommendations that remain open contain several recurring themes, which
include the need for increased management attention to ensure accurate and
complete 50-50 reporting, independent review, and validation of data and
annual training on 50-50 policies and procedures for all individuals
participating in data gathering and reporting. Nevertheless, in its
comments DOD stated that systemic changes to the reporting process have
already been made in response to previous recommendations. DOD noted that
it instituted third-party review of data by service audit agencies and
corrected auditor-identified data inaccuracies prior to submission of the
annual report to Congress. While we agree that DOD has made improvements
in its reporting processes over the past several years, our work
nevertheless has identified persistent deficiencies in these processes
that continue to prevent us from determining whether the military
departments complied with the 50-50 requirement. For example, as we
reported, although each of the military services obtained some level of
independent review and validation this year, the reviews were constrained
by time and limited in scope. Moreover, not all of the errors were
corrected prior to submission to Congress. Disclosing 50-50 reporting
processes as a management control weakness in future accountability
reports could increase DOD management emphasis on addressing the
persistent deficiencies that continue to limit the accuracy and usefulness
of the depot maintenance funding allocation data reported to Congress.
DOD also partially concurred with our recommendation that the Secretary of
Defense enhance DOD's annual 50-50 report submitted to Congress. However,
DOD stated that producing the types of information suggested in our
recommendation would require a massive undertaking and may be of limited
value. We disagree. We have developed these types of information as part
of our annual mandated review of DOD's 50-50 report, and the information
has been valuable in understanding and evaluating DOD's depot maintenance
funding allocations. For example, we compared fiscal year 2004 reported
allocations for specific programs and reporting centers with fiscal year
2003 allocations, and followed up with the military services to determine
the reasons for significant differences. The goal of this recommendation
is not to place an unnecessary burden on the department but to provide
additional information on depot maintenance funding that would make the
annual 50-50 report to Congress more informative and useful as an
oversight tool. Furthermore, we believe that if DOD would provide more
detailed and analytical information to Congress, it would place additional
emphasis on assuring the accuracy of the data provided in its annual 50-50
report.
Because it does not appear to us that DOD's actions will address the
persistent deficiencies we identified in its 50-50 reporting processes or
improve the usefulness of the information provided to Congress, we have
added a matter for congressional consideration suggesting that Congress
require the Secretary of Defense to enhance the department's annual 50-50
report as stated in our recommendations.
DOD also stated in its written comments that its 50-50 data quality has
improved, as shown by reductions in the Navy's and the Air Force's
private-sector corrections. DOD further noted that the Army's one
transcription error accounted for 99.3 percent of its private sector
corrections. Our report does not conclude that the department's data
quality has improved. On the contrary, we state as in past years that
DOD's 50-50 data, with our adjustments, provide only a rough approximation
of the allocation of depot maintenance funding between the public and
private sectors. We reported that DOD's April 1, 2005, report to Congress
contained errors, omissions, and inconsistencies that if corrected, would
increase the Army's and Navy's percentages of funding allocations going to
the private sector. Additionally, we did not conduct a detailed review of
all reported 50-50 data; therefore, there may be additional errors,
omissions, and inconsistencies that were not identified during our review.
We agree that the Army's $399.4 million transcription error was the single
largest correction we identified. However, this error involved a
public-sector correction rather than a private-sector correction as DOD
stated. We noted several other errors in the Army's data for both the
public and private sectors, as shown in table 3 of this report. We
continue to believe that adequate management attention and review of 50-50
data to ensure accurate and complete reporting would have helped identify
the transcription error and other errors prior to submitting the data to
DOD and Congress.
DOD believes, based on guidance from the General Counsel's office in the
Department of the Navy, that it has properly excluded depot maintenance
associated with nuclear carrier refueling and inactivation work performed
on non-nuclear ships. We have disagreed in prior years with DOD's decision
to exclude these types of depot maintenance repairs from its 50-50
reports. As discussed in our report, we continue to believe that depot
maintenance repairs not directly associated with the task of refueling of
nuclear aircraft carriers should be included in DOD's annual report to
Congress. We also continue to believe that inactivation work performed on
non-nuclear ships should be included in DOD's report.
DOD's written comments are reprinted in appendix III.
We are sending copies of this report to appropriate congressional
committees; the Secretary of Defense; the Secretaries of the Army, Navy,
and Air Force; the Commandant of the Marine Corps; and the Director,
Office of Management and Budget. We will make copies available to others
upon request. In addition, the report will be available at no charge on
the GAO Web site at http://www.gao.gov. If you or your staff have any
questions on the matters discussed in this report, please contact me at
(202) 512-8365 or [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 IV.
William M. Solis Director, Defense Capabilities and Management
Scope and MethodologyAppendix I
To determine the accuracy of the military services' reporting of their
depot maintenance allocations and whether they met the 50-50 requirement
for fiscal year 2004, we analyzed each service's procedures and internal
management controls for collecting and reporting its depot maintenance
allocations. Certain programs, reporting centers, and maintenance
activities were identified for in-depth reviews.1 In particular, we
focused on those reporting locations, programs, and issues that Department
of Defense (DOD) personnel and we identified as problem areas in current
and past reviews as well as those that had experienced significant funding
variances over time. We did not conduct a detailed review of all reported
50-50 data; therefore there may be additional errors, omissions, and
inconsistencies that were not identified.
As part of these in-depth reviews, we conducted site visits to
departmental headquarters, major commands, selected maintenance
activities, and reporting centers; interviewed the service officials
involved with the data collection; and reviewed the data utilized for
accuracy and completeness. Our data verification efforts included
examining summary records, accounting reports, budget submissions, and
contract documents. We also reviewed DOD, military service, and
command-specific guidance for collecting and aggregating 50-50 data. We
also compared this year's instructions with last year's to identify any
changes and additions and reviewed service efforts to identify reporting
sources and to distribute guidance and tasks to develop and report the
50-50 data.
To determine what actions the services took to improve the quality of
reported 50-50 data and implementation of GAO's prior year's
recommendations, we reviewed the results of internal studies conducted by
the service audit agencies or other third parties, and reconciled areas of
concern identified during prior years' audits. Additionally, we reviewed
prior years' recommendations to determine whether known problem areas were
being addressed and resolved. We applied this knowledge to identify
additional areas for improving the reporting process and management
controls. We examined the process used to compile the reports and the data
reported to determine that it was consistent and in compliance with
legislative requirements and to identify any errors, omissions, or
inconsistencies in the data reported. We discussed with officials managing
and coordinating the reporting process their efforts to address known
problem areas and respond to recommendations by internal audit agencies
and GAO.
Our analysis of the data for fiscal years 2005 and 2006 was limited
because our audit efforts identified significant recurring problems in
this area of the report. To determine whether DOD's projected allocations
for the current fiscal year and ensuing fiscal year were reasonable, 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 programming data used in DOD's budget
submissions and reports to Congress. We found repeated and significant
changes, even though the estimates were prepared only about 1 year apart.
We used the results of our analysis of fiscal year 2005 and 2006
projections to further discuss with officials, and analyze the reasons
behind, changes in reported data and percentage allocations between the
2004 and 2005 50-50 reports submitted to Congress. Our current and past
work on this issue has shown that DOD's 50-50 data cannot be relied upon
as a precise measure of the allocation of depot maintenance funds between
the public and private sectors. However, the mandate in 10 U.S.C. S: 2466
requires (1) DOD to report the data, which are the only data available and
accepted and used for DOD decision making and for congressional oversight,
and (2) us to submit our views on whether DOD has complied with the 50-50
requirement to Congress. While DOD's data cannot be relied upon to provide
a precise measure of the funding between the public and private sectors,
the data, along with our adjustments, provide a rough approximation of the
allocations and some trends that may be useful to Congress in exercising
its oversight role and to DOD officials in managing the depot maintenance
program. Concerns about the accuracy and completeness of the 50-50 data
available were considered and incorporated into our methodology and
approach to reviewing the fiscal year 2004 report. Along with the
limitations on the 50-50 data available from DOD, the constrained time
frame for our review limited the extent to which our analysis could be
relied upon to identify all the errors, inconsistencies, and omissions in
DOD's data. We recognize that we have not been able to comprehensively
identify all of the errors and omissions in the 50-50 report for fiscal
year 2004. However, we were able to conclude that the reported depot
maintenance workload funding allocations were not sufficiently reliable
for accurately determining whether the military departments complied with
the 50-50 requirement for fiscal year 2004. As a result, we developed
recommendations for improving the 50-50 data collection, verification, and
reporting processes.
We interviewed officials, examined documents, and obtained data at the
Office of the Secretary of Defense, Army, Navy, Marine Corps, and Air
Force headquarters in the Washington, D.C., area; Anniston Army Depot in
Anniston, Alabama; Army Materiel Command in Alexandria, Virginia; National
Guard Bureau Aviation Classification Repair Activity Depot in Gulfport,
Mississippi; Tank Automotive Command in Warren, Michigan; Naval Air
Systems Command in Patuxent River, Maryland; Naval Sea Systems Command in
Washington, D.C.; Naval Inventory Control Point in Philadelphia,
Pennsylvania; U.S. Fleet Forces Command in Norfolk, Virginia; Pearl Harbor
Naval Shipyard and Intermediate Maintenance Facility in Honolulu, Hawaii;
U.S. Pacific Fleet Command in Honolulu, Hawaii; Air Force Materiel Command
in Dayton, Ohio; Ogden Air Logistics Center in Ogden, Utah; Marine Corps
Logistics Command in Albany, Georgia; Marine Corps Logistics Command in
Barstow, California; Marine Corps Systems Command in Quantico, Virginia;
Army, Naval, and Air Force Audit Services; several public depots managed
by the military departments' materiel commands; and selected operating
bases. We conducted our review from April 2005 through September 2005 in
accordance with generally accepted government auditing standards.
GAO Adjustments for Inaccuracies Found in the Military Departments' 50-50
Data for Fiscal Year 2004Appendix II
Our review of the data supporting DOD's 50-50 report identified errors,
omissions, and inconsistencies that if corrected, would revise the total
workload funding allocations and increase the private-sector allocations
for each of the military departments. (See tables 3, 4, and 5.)
Table 3: GAO's Adjustments to the Army's Fiscal Year 2004 Reported Depot
Maintenance Allocations
Dollars in millions
Category Allocation Percentage
Private work reported $2,376.3 45.0%
Private work adjusted 2,425.9 49.2%
Change $49.6 4.2%
Overreported-third party verification analysis at (5.8)
Aviation and Missile Command and Communications and
Electronics Command
Underreported-misclassified as public work 7.8
Underreported-private depot work at National 5.7
Maintenance Program nondepot locations due to
reporting planned versus obligated funding
Unreported-private depot work at Anniston Army Depot 2.2
Unreported-private depot work ($3.5 million) and 6.2
government-furnished equipment ($2.7 million) at a
National Guard Aviation Classification and Repair
Depot
Unreported-private depot work for onetime repairs at 20.7
nondepot aviation maintenance location
Unreported-private depot work for Stryker vehicle 12.8
($6.9 million) and FOX vehicle ($5.9 million)
Public work reported $2,902.1 55.0%
Public work adjusted 2,505.1 50.8%
Change ($397.0) -4.2%
Overreported-transcription error (399.4)
Overreported-double-counting (9.6)
Overreported-misclassified private work (7.8)
Underreported-reported workload allocation at 18.4
Aviation and Missile Command and Communications and
Electronics Command
Underreported-National Maintenance Program workload 0.5
allocation reported as amounts planned rather than
obligated
Unreported-FOX vehicle 0.9
Private work exempt reported 0.0 0.0%
Private work exempt adjusted $0.3 0.0%
Change $0.3 0.0%
Unreported-two partnerships at Anniston Army Depot 0.3
that qualified for Centers of Industrial and
Technical Excellence exemption
Total work reported $5,278.4
Total work adjusted $4,931.3
Change ($347.1)
Sources: DOD (data); GAO (analysis).
Notes: Numbers in parentheses are negative. Percentages subject to
rounding.
Table 4: GAO's Adjustments to the Navy's Fiscal Year 2004 Reported Depot
Maintenance Allocations
Dollars in millions
Category Allocation Percentage
Private work reported $4,675.3 46.2%
Private work adjusted 4,793.3 48.5%
Change $118.0 2.4%
Unreported-non-nuclear conventional ship 14.4
inactivations
Unreported-depot maintenance performed while nuclear 80.3
refueling of carriers
Underreported-misclassified, private workload 23.3
allocation incorrectly reported as public
Public work reported $5,085.2 50.2%
Public work adjusted 4,705.6 47.7%
Change ($379.6) -2.6%
Unreported-United States Marine Corps work performed 1.3
at other public depots
Overreported-incorrect reporting of multiyear (357.6)
appropriations
Overreported-misclassified, private workload (23.3)
allocation incorrectly reported as public
Private work exempt reported $366.1 3.6%
Private work exempt adjusted 376.0 3.8%
Change $9.9 0.2%
Underreported-incorrect reporting of multiyear 9.9
appropriations
Total work reported $10,126.6
Total work adjusted $9,874.9
Change ($251.7)
Sources: DOD (data); GAO (analysis).
Notes: Numbers in parentheses are negative. Percentages subject to
rounding. The Department of Navy consists of the Navy and Marine Corps.
Table 5: GAO's Adjustments to the Air Force's Fiscal Year 2004 Reported
Depot Maintenance Allocations
Dollars in millions
Category Allocation Percentage
Private work reported $4,417.2 45.3%
Private work adjusted 4,416.9 45.3%
Change ($0.3) 0.0%
Underreported 2.0
Overreported (2.3)
Public work reported $5,329.2 54.6%
Public work adjusted 5,329.2 54.6%
Change $0.0 0.0%
Private work exempt reported $13.3 0.1%
Private work exempt adjusted 13.3 0.1%
Change $0.0 0.0%
Total work reported $9,759.7
Total work adjusted $9,759.4
Change ($0.3)
Sources: DOD (data); GAO (analysis).
Notes: Numbers in parentheses are negative. Percentages subject to
rounding.
Comments from the Department of DefenseAppendix III
GAO Contacts and Staff AcknowledgmentsAppendix IV
William M. Solis (202) 512-8365
Key contributors to this report include Thomas Gosling, Assistant
Director; Claudia Dickey; Frank Smith; Andy Marek; Janine Prybyla; Oscar
Mardis; Jennifer Jebo; Bathsheba Everett; Michael Zola; Renee McElveen;
and Renee Brown.
Related GAO Products
Depot Maintenance: DOD Needs Plan to Ensure Compliance with Public- and
Private-Sector Funding Allocation. GAO-04-871. Washington, D.C.: September
29, 2004.
Depot Maintenance: Army Needs Plan to Implement Depot Maintenance Report's
Recommendations. GAO-04-220. Washington, D.C.: January 8, 2004.
Depot Maintenance: DOD's 50-50 Reporting Should Be Streamlined.
GAO-03-1023. Washington, D.C.: September 15, 2003.
Depot Maintenance: Key Unresolved Issues Affect the Army Depot System's
Viability. GAO-03-682. Washington, D.C.: July 7, 2003.
Department of Defense: Status of Financial Management Weaknesses and
Progress Toward Reform. GAO-03-931T. Washington, D.C.: June 25, 2003.
Depot Maintenance: Change in Reporting Practices and Requirements Could
Enhance Congressional Oversight. GAO-03-16. Washington D.C.: October 18,
2002.
Depot Maintenance: Management Attention Needed to Further Improve Workload
Allocation Data. GAO-02-95. Washington, D.C.: November 9, 2001.
Defense Logistics: Actions Needed to Overcome Capability Gaps in the
Public Depot System. GAO-02-105. Washington, D.C.: October 12, 2001.
Defense Maintenance: Sustaining Readiness Support Capabilities Requires a
Comprehensive Plan. GAO-01-533T. Washington, D.C.: March 23, 2001.
Depot Maintenance: Key Financial Issues for Consolidations at Pearl Harbor
and Elsewhere Are Still Unresolved. GAO-01-19. Washington, D.C.: January
22, 2001.
Depot Maintenance: Action Needed to Avoid Exceeding Threshold on Contract
Workloads. GAO/NSIAD-00-193. Washington, D.C.: August 24, 2000.
Depot Maintenance: Air Force Waiver to 10 U.S.C. 2466. GAO/NSIAD-00-152R.
Washington, D.C.: May 22, 2000.
Depot Maintenance: Air Force Faces Challenges in Managing to 50-50
Threshold. GAO/T-NSIAD-00-112. Washington, D.C.: March 3, 2000.
Depot Maintenance: Future Year Estimates of Public and Private Workloads
Are Likely to Change. GAO/NSIAD-00-69. Washington, D.C.: March 1, 2000.
Depot Maintenance: Army Report Provides Incomplete Assessment of
Depot-Type Capabilities. GAO/NSIAD-00-20. Washington, D.C.: October 15,
1999.
Depot Maintenance: Status of the Navy's Pearl Harbor Project.
GAO/NSIAD-99-199. Washington, D.C.: September 10, 1999.
Depot Maintenance: Workload Allocation Reporting Improved, but Lingering
Problems Remain. GAO/NSIAD-99-154. Washington, D.C.: July 13, 1999.
Navy Ship Maintenance: Allocation of Ship Maintenance Work in the Norfolk,
Virginia, Area. GAO/NSIAD-99-54. Washington, D.C.: February 24, 1999.
Defense Depot Maintenance: Public and Private Sector Workload Distribution
Reporting Can Be Further Improved. GAO/NSIAD-98-175. Washington, D.C.:
July 23, 1998.
Defense Depot Maintenance: DOD Shifting More Workload for New Weapon
Systems to the Private Sector. GAO/NSIAD-98-8. Washington, D.C.: March 31,
1998.
Defense Depot Maintenance: Information on Public and Private Sector
Workload Allocations. GAO/NSIAD-98-41. Washington, D.C.: January 20, 1998.
Defense Depot Maintenance: Uncertainties and Challenges DOD Faces in
Restructuring Its Depot Maintenance Program. GAO/T-NSIAD-97-112.
Washington, D.C.: May 1, 1997. Also GAO/T-NSIAD-97-111. Washington, D.C.:
March 18, 1997.
Defense Depot Maintenance: More Comprehensive and Consistent Workload Data
Needed for Decisionmakers. GAO/NSIAD-96-166. Washington, D.C.: May 21,
1996.
Defense Depot Maintenance: DOD's Policy Report Leaves Future Role of Depot
System Uncertain. GAO/NSIAD-96-165. Washington, D.C.: May 21, 1996.
Defense Depot Maintenance: Privatization and the Debate over the
Public-Private Mix. GAO/T-NSIAD-96-148. Washington, D.C.: April 17, 1996.
Also GAO/T-NSIAD-96-146. Washington, D.C.: April 16, 1996.
Depot Maintenance: Issues in Allocating Workload Between the Public and
Private Sectors. GAO/T-NSIAD-94-161. Washington, D.C.: April 12, 1994.
(350727)
www.gao.gov/cgi-bin/getrpt? GAO-06-88 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact William M. Solis at (202) 512-8365 or
[email protected].
Highlights of GAO-06-88 , a report to congressional committees
November 2005
DEPOT MAINTENANCE
Persistent Deficiencies Limit Accuracy and Usefulness of DOD's Funding
Allocation Data Reported to Congress
Under 10 U.S.C.S: 2466, the military departments and defense agencies can
use no more than 50 percent of annual depot maintenance funding for work
performed by private- sector contractors. The Department of Defense (DOD)
must submit a report to Congress annually on the division of depot
maintenance funding between the public and private sectors during the
preceding fiscal year and projected distribution for the current and
ensuing fiscal years. As required, GAO reviewed the report submitted in
April 2005 and is, with this report, submitting its views to Congress on
whether (1) the military departments complied with the "50-50 requirement"
for fiscal year 2004 and (2) the projections for fiscal years 2005 and
2006 represent reasonable estimates. Additionally, GAO is assessing
whether the data currently provided in DOD's annual 50-50 report are
useful to Congress in exercising its oversight role.
What GAO Recommends
GAO recommends that DOD improve the accuracy, reliability and usefulness
of depot maintenance workload allocation data submitted to Congress. DOD
partially concurred with the recommendations but did not indicate specific
actions it would take. GAO suggests the Congress require DOD to enhance
its annual 50-50 report as stated in GAO's recommendations.
As in previous years, systemic weaknesses in DOD's financial systems and
persistent deficiencies in 50-50 data reporting processes continue to
prevent GAO from determining whether the military departments complied
with the 50-50 requirement for public- and private-sector depot
maintenance funding allocations for fiscal year 2004. Persistent
deficiencies, such as inadequate management attention and review to ensure
accurate and complete reporting, limited independent review and validation
of data by audit services or other third parties, and inadequate training
for those responsible for data gathering and reporting, continue to limit
the quality of the 50-50 data submitted to Congress. GAO's previous
reports over the last 7 years identified similar problems and recommended
corrective actions, but DOD and the military services have failed to
consistently implement corrective actions sufficient to resolve the
deficiencies and alleviate data accuracy problems. The recurring nature of
these problems indicates a management control weakness as defined under
the Federal Managers' Financial Integrity Act.
Reported projections do not represent reasonable estimates of public- and
private-sector depot maintenance funding allocations for fiscal years 2005
through 2006 because some data errors and omissions in DOD's prior-year
report are carried into the projected years. It is difficult to project
out-year data due to factors such as changing depot maintenance
requirements, the ongoing consolidation of maintenance facilities, and the
trend toward more contractor logistics support for new and existing weapon
systems.
Although DOD's current 50-50 report to Congress satisfies the annual
mandate, it lacks additional detail that might be useful to Congress as it
exercises its oversight role. The report currently submitted by DOD
contains data that are aggregated at a high level and provides no analysis
of changes from the prior years or long-term trends. The report also does
not identify actual funding and workload distribution variances from year
to year, nor explain the reasons behind them. Furthermore, it does not
contain information as to the methodologies used to prepare the current
and future year projections.
DOD's Reported Fiscal Year 2004 50-50 Data and GAO's Adjustments in
Percentages
Private work Private work Public work Public work
Service reported adjusted reported adjusted
Army 45.0 49.2 55.0 50.8
Navy/Marine
Corps 46.2 48.5 50.2 47.7
Air Force 45.3 45.3 54.6 54.6
Sources: DOD (data); GAO (analysis).
Notes: Totals will not equal 100 percent because of rounding and
legislatively excluded public-private partnerships. Shaded cells indicate
percentages within 2 percentage points of the 50 percent limitation.
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