Depot Maintenance:
Persistent Deficiencies Limit Accuracy and Usefulness of
DOD's Funding Allocation Data Reported to Congress

GAO-06-88, a report to congressional committees 18nov2005

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For complete document: www.gao.gov/cgi-bin/getrpt?GAO-06-88

Highlights

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. 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.

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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

		              DOD           	             GAO            .
		  Private work	Private work	Private work	Private 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.

DOD’s Reported Fiscal Year 2004 50-50 Data and GAO’s Adjustments in Percentages Service Private work reported Private work adjusted Public work reported Public work 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.

Figure 1: DOD’s Prior, Current, and Budget Year Public- and Private-Sector Allocations for Fiscal Years 2004 through 2006

Sources: DOD (data); GAO (analysis).
Notes: Based on analysis of DOD’s April 1, 2005, reported 50-50 data. The Department of the Navy includes the Marine Corps.

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November 18, 2005

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. § 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.

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.

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1 For the two most recent reports, see GAO, Depot Maintenance: DOD Needs Plan to Ensure Compliance with Public- and Private-Sector Funding, GAO-04-871 (Washington, D.C.: Sept. 29, 2004), and Depot Maintenance: DOD’s 50-50 Reporting Should Be Streamlined, GAO-03-1023 (Washington, D.C.: Sept. 15, 2003). Other related GAO products are listed at the end of this report.

2 GAO has repeatedly reported about long-standing systemic weaknesses in DOD’s financial systems. See GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005); DOD Business Systems Modernization: Billions Being Invested without Adequate Oversight, GAO-05-381 (Washington, D.C.: Apr. 29, 2005); DOD Business Systems Modernization: Billions Continue to Be Invested with Inadequate Management Oversight and Accountability, GAO-04-615 (Washington, D.C.: May 27, 2004), and Department of Defense: Financial and Business Management Transformation Hindered by Long- standing Problems, GAO-04-941T (Washington, D.C.: July 8, 2004).

3 Title 31, U.S.C. § 3512(c), (d), commonly referred to as the Federal Financial Managers’ Financial Integrity Act, requires federal agencies to report on whether the agency management controls are adequate and effective and are achieving their intended objectives. Guidance on reporting on management controls is contained in Office of Management and Budget Circular A-123 (effective through fiscal year 2005) (revised June 21, 1995).

4 Interim contractor support is an interim support arrangement in which a contractor provides depot maintenance (and sometimes other logistics support) as part of the acquisition strategy for new systems.

Source: www.gao.gov/cgi-bin/getrpt?GAO-06-88 23nov2005