a

GAO

United States Government Accountability Office

Report to the Chairman, Subcommittee 

on Defense, Committee on 

Appropriations, House of 

Representatives

June 2006 DEFENSE WORKING 

CAPITAL FUND

Military Services Did 

Not Calculate and 

Report Carryover 

Amounts Correctly

GAO-06-530
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

June 2006

DEFENSE WORKING CAPITAL FUND

Military Services Did Not Calculate and 

Highlights of GAO-06-530, a report to the Report Carryover Amounts Correctly 

Chairman, Subcommittee on Defense, 

Committee on Appropriations, House of 

Representatives 

According to the Department of 

Defense’s (DOD) fiscal year 2006

budget estimates, working capital 

fund activity groups (depot

maintenance, ordnance, and 

research and development) will 

have about $6.3 billion of funded 

work that will be carried over from 

fiscal year 2006 into fiscal year

2007. The congressional defense 

committees recognize that these

activity groups need some

carryover to ensure smooth work 

flow from one fiscal year to the 

next. However, the committees 

have previously raised concern that 

the amount of carryover may be

more than is needed. GAO was 

asked to determine (1) if the

military services’ carryover 

calculations were in compliance

with DOD’s new carryover policy 

and (2) if customers were

submitting orders to working 

capital fund activities late in the

fiscal year and, if so, the effect this

practice has had on carryover. 

What GAO Recommends

GAO makes recommendations to 

DOD to (1) improve the military

services’ calculations of the 

allowable amount of carryover and 

actual carryover, (2) improve the

reporting of carryover information 

to Congress and DOD decision 

makers, and (3) ensure that the 

military services follow the DOD 

regulation concerning the 

acceptance of orders placed with 

working capital fund activities. 

DOD concurred with all the 

recommendations. 

The military services have not consistently implemented DOD’s revised 

policy in calculating carryover. Instead, the military services used different 

methodologies for calculating the reported actual amount of carryover and 

the allowable amount of carryover since DOD changed its carryover policy 

in December 2002. 

• The military services did not consistently calculate the allowable amount 

of carryover that was reported in their fiscal year 2004, 2005, and 2006 

budgets because they used different outlay rates for the same 

appropriation. 

• The Air Force did not follow DOD’s regulation on calculating carryover 

for its depot maintenance activity group, which affected the amount of 

allowable carryover and actual carryover by tens of millions of dollars 

and whether the actual carryover exceeded the allowable amount as 

reported in the fiscal year 2004, 2005, and 2006 budgets. 

• The Army depot maintenance and ordnance activity groups’ actual 

carryover was understated in fiscal years 2002 and 2003 because 

carryover associated with prior year orders was not included. 

• While the Navy generally followed DOD’s policy for calculating 

carryover, the Navy consolidated the reporting of carryover information 

for research and development activities. The Navy budgets no longer 

provide information to show if any of the five research and development 

subactivity groups individually exceeded the carryover ceiling as the 

Navy budgets did prior to the change in the carryover policy. 

As a result, carryover data provided to decision makers who review and use 

the data for budgeting are erroneous and not comparable across the three

military services. For example, the Air Force reported to Congress that the 

actual fiscal year 2002 carryover for depot maintenance was $87 million less

than the ceiling. If the Air Force followed DOD’s policy, GAO’s calculations 

show its carryover would have exceeded the ceiling by $216 million. 

Carryover is greatly affected by orders accepted by working capital fund 

activities late in the fiscal year that generally cannot be completed by fiscal 

year end, and in some cases cannot even be started prior to the end of the 

fiscal year. GAO’s analysis of 68 fiscal year-end orders identified four key 

factors contributing to orders generally being issued by customers late in the 

fiscal year and being accepted by the working capital fund activities during 

the last month of the fiscal year. These reasons included (1) funds provided 

to the customer late in the fiscal year to finance existing requirements, 

(2) new work requirements identified at year end, (3) problems encountered 

in processing orders, and (4) work scheduled at year end. GAO’s analysis

showed that over half of the orders reviewed were not completed at the end 

of the next fiscal year, generating a second year of carryover on the same 

order. As a result, some orders may not have been the most effective use of 

DOD resources at that time and may not have complied with all of the order 

acceptance provisions cited in the DOD Financial Management Regulation. 

www.gao.gov/cgi-bin/getrpt?GAO-06-530.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact McCoy 

Williams at (202) 512-9095 or 

Williamsm1@gao.gov. 
Page i GAO-06-530 Defense Working Capital Fund

Contents

Letter 1

Results in Brief 2

Background 5

The Military Services Did Not Follow DOD Policy in Calculating 

Carryover 7

Carryover Increased Due to Military Services Placing Orders Late in 

the Fiscal Year 20

Conclusions 28

Recommendations for Executive Action 29

Agency Comments and Our Evaluation 30

Appendixes

Appendix I: Scope and Methodology 33

Appendix II: Comments from the Department Of Defense 36

Appendix III: GAO Contacts and Staff Acknowledgments 40

Tables Table 1: Schedule of the Source of Outlay Rates Used in Calculating 

the Allowable Amount of Carryover by Service 9

Table 2: Schedule of Selected Appropriation Outlay Rates Used in 

Calculating the Allowable Amount of Carryover for the 

Fiscal Year 2005 Budget (in percent) 10

Table 3: Schedule of Selected Outlay Rates Used to Calculate 

Allowable Carryover That Was Included in the Fiscal Year 

2006 Budget (in percent) 11

Table 4: Air Force’s Reported Actual Carryover and GAO’s 

Calculation of the Amount of Actual Carryover with 

Respect to the Ceiling 14

Table 5: Dollar Amount of Reported Actual Carryover that 

Exceeded the Ceiling and the Amount of Carryover Not 

Included (dollars in millions) 16

Table 6: Navy’s Reported Actual Carryover in Relationship to the 

Ceiling by Activity Group 17

Table 7: Navy’s Reported Actual Carryover in Relationship to the 

Ceiling for the Research and Development Subactivity 

Groups 18

Figure Figure 1: Factors Contributing to Year-end Orders for 2003 and 

2004 21
Contents

Page ii GAO-06-530 Defense Working Capital Fund

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Page 1 GAO-06-530 Defense Working Capital Fund

United States Government Accountability Office

Washington, D.C. 20548

A

June 27, 2006 Letr

The Honorable C. W. Bill Young

Chairman, Subcommittee on Defense

Committee on Appropriations

House of Representatives

Dear Mr. Chairman:

According to the Department of Defense’s (DOD) fiscal year 2006 budget 

estimates, working capital fund activity groups (depot maintenance, 

ordnance, and research and development) will have about $6.3 billion of 

funded work that will be carried over from fiscal year 2006 into fiscal year 

2007.1

 The congressional defense committees recognize that these activity 

groups need some carryover to ensure a smooth flow of work during the 

transition from one fiscal year to the next. However, past congressional 

defense committee reports raised concerns that the level of carryover may 

be more than is needed. Excessive amounts of carryover financed with 

customer appropriations are subject to reductions by DOD and the 

congressional defense committees during the budget review process. To 

the extent that carryover is too high, Congress may redirect the funds 

gained from such reductions to other priority initiatives. For example, 

Congress reduced the Army’s fiscal year 2003 Operation and Maintenance 

appropriation by $48 million due to excessive carryover. 

In May 2001, we reported2 that DOD did not have a sound analytical basis 

for its 3-month carryover standard which it established in 1996. Based on 

our recommendation, in December 2002 DOD revised its carryover policy 

to eliminate the 3-month across-the-board standard for allowable 

carryover. Under the new policy, the allowable amount of carryover is to be 

1

 The carryover amount includes work for which obligations have been made by requesting 

organizations but that has not yet started and the cost to complete work that has been 

started. 

2

 GAO, Defense Working Capital Fund: Improvements Needed for Managing the Backlog of 

Funded Work, GAO-01-559 (Washington, D.C.: May 30, 2001).
Page 2 GAO-06-530 Defense Working Capital Fund

based on the outlay rate3 of the customers’ appropriations financing the 

work. This means that in determining allowable carryover, the first year 

outlay rate is used for new orders received in the current year (first year of 

the work order). However, during our review of Army depot maintenance 

operations, we reported4

 in June 2005 that the Army encountered several 

problems implementing DOD’s new policy on calculating actual carryover 

as well as the allowable amount of carryover. In that report, we also 

determined that activities exceeded the carryover ceiling because they 

received and accepted orders late in the fiscal year.

As requested and agreed to with your office, the objectives of this 

assignment were to determine (1) if the military services’ carryover 

calculations were in compliance with DOD’s new carryover policy and 

(2) if customers were submitting orders to working capital fund activities 

late in the fiscal year and, if so, the effect that this practice has had on 

carryover. Our review was performed from July 2005 through March 2006 

in accordance with U.S. generally accepted government auditing standards. 

The carryover information in this report is budget data obtained from 

official Army, Navy, and Air Force budget documents. To assess the 

reliability of the data, we (1) reviewed and analyzed the factors used in 

calculating carryover and (2) interviewed officials knowledgeable about 

the data. We determined that the data were sufficiently reliable for the 

purposes in this report. Further details on our scope and methodology can 

be found in appendix I. We requested comments on a draft of this report 

from the Secretary of Defense or his designee. Written comments from the 

Under Secretary of Defense (Comptroller) are reprinted in appendix II.

Results in Brief The military services have not consistently implemented DOD’s revised 

policy in calculating carryover. Instead, the military services have used 

different methodologies for calculating the reported actual amount of 

carryover and the allowable amount of carryover since DOD changed its 

carryover policy in December 2002. Specifically, (1) the military services 

3

 The amount of allowable carryover using the outlay rate follows. For example, customers 

order $100 of work, which is financed with a specific appropriation. If the outlay rate for this 

appropriation at the appropriation level is 60 percent, then this would result in the working 

capital fund activity group being allowed to carry over $40 ($100 – $60 [$100 x 60 percent] = 

$40). 

4

 GAO, Army Depot Maintenance: Ineffective Oversight of Depot Maintenance Operations 

and System Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 2005).
Page 3 GAO-06-530 Defense Working Capital Fund

did not consistently calculate the allowable amount of carryover that was 

reported in their fiscal year 2004, 2005, and 2006 budgets because they used 

different tables (both provided by DOD) that contained different outlay 

rates for the same appropriation; (2) the Air Force did not follow DOD’s 

regulation on calculating carryover for its depot maintenance activity 

group, which affected the amount of allowable carryover and actual 

carryover by tens of millions of dollars as well as whether the actual 

amount of carryover exceeded the allowable amount as reported in the 

fiscal year 2004, 2005, and 2006 budgets; and (3) the Army depot 

maintenance and ordnance activity groups’ actual carryover was 

understated in fiscal years 2002 and 2003 because carryover associated 

with prior year orders was not included in the carryover calculation as 

required. Further, while the Navy generally followed DOD’s policy for 

calculating carryover, the Navy consolidated the reporting of carryover 

information for research and development activities beginning with the 

fiscal year 2004 budget that included actual carryover information for fiscal 

year 2002. As a result, the Navy budgets no longer provide information to 

show if any of the five research and development subactivity groups 

individually exceeded the carryover ceiling as the Navy budgets did prior to 

the change in the carryover policy in December 2002. For example, Navy 

budget documents to Congress show that the Navy research and 

development activity group did not exceed the carryover ceiling for fiscal 

years 2003, 2004, and 2005. However, our analysis of Navy reports showed 

that the Naval Air Warfare Center—one of the subactivity groups—

exceeded the carryover ceiling for these 3 fiscal years by $19 million, $57 

million, and $52 million, respectively. The primary factor for these 

inconsistencies is that DOD’s December 2002 guidance was verbal and 

DOD did not issue detailed written procedures for calculating carryover 

and the allowable amount of carryover until June 2004. As a result, year-end 

carryover data provided to decision makers who review and use the data 

for budgeting—Office of the Under Secretary of Defense (Comptroller) and 

congressional decision makers—are erroneous and not comparable across 

the three military services. For example, the Air Force reported to 

Congress that the actual fiscal year 2002 carryover for depot maintenance 

was $87 million less than the carryover ceiling. However, if the Air Force 

had followed DOD’s policy, our calculations show that its carryover would 

have actually exceeded the ceiling by $216 million. 

Carryover is greatly affected by orders accepted by working capital fund 

activities late in the fiscal year that generally cannot be completed by fiscal 

year end, and in some cases cannot even be started prior to the end of the 

fiscal year. As a result, almost all orders accepted late in the fiscal year 
Page 4 GAO-06-530 Defense Working Capital Fund

increase the amount of carryover. We analyzed 68 orders accepted in 

September 2003 and September 2004 by certain activity groups for the 

three military services.5

 Our analysis identified four key factors 

contributing to orders generally being issued by customers late in the fiscal 

year and being accepted by the working capital fund activities during the 

last month of the fiscal year. These reasons included (1) funds provided to 

the customer late in the fiscal year to finance existing requirements, 

(2) new work requirements identified at year end, (3) problems 

encountered in processing orders, and (4) work scheduled at year end. 

Further, our analysis showed that 39 of the 68 orders—over half of the 

orders reviewed—were not completed at the end of the next fiscal year, 

generating a second year of carryover. For example, on September 29, 2004, 

an Army working capital fund activity accepted an order for about $2 

million for 17,848 illumination candles with parachutes.6

 Due to the late 

acceptance of this order, about $2 million was carried over into fiscal year 

2005. However, because another Army activity failed to supply enough 

component parachutes to meet the production schedule, about $1.9 million 

was carried over into fiscal year 2006. DOD Financial Management 

Regulation 7000.14-R, Volume 11A, identifies a number of requirements 

before a working capital fund activity accepts an order. For example, the 

work is expected to (1) begin without delay (usually within 90 days) and 

(2) be completed within the normal production period for the specific work 

ordered. However, our review of 68 orders accepted by the working capital 

fund activities at year end determined that work on some of these orders 

did not begin within 90 days or was not completed within the normal 

production period for the work being performed. As a result, these orders 

may not have been the most effective use of DOD resources at that time 

and may not have complied with all of the provisions cited in the above 

regulation. 

We are making eight recommendations to DOD to (1) improve the military 

services’ calculations of the allowable amount of carryover and actual 

carryover, (2) improve the reporting of carryover information to Congress 

and DOD decision makers, and (3) ensure that the military services follow 

5

 As noted in our scope and methodology (app. I), the scope of our work for this review did 

not include determining whether there was a bona fide need for the work being ordered by 

the customers.

6

 Illumination candles are devices used by the military to provide light in the battlefield to 

see the enemy. The illumination candles are fired from a mortar and are held up in the sky 

with parachutes.
Page 5 GAO-06-530 Defense Working Capital Fund

the DOD regulation concerning the acceptance of orders placed with 

working capital fund activities. DOD concurred with all the 

recommendations and identified corrective actions it is taking. It also 

commented that the inaccuracies we identified in reported carryover did 

not materially distort the evaluation of depot operations or projected 

workload levels. While we do not know how DOD defines materiality, the 

reporting inaccuracies we identified totaled hundreds of millions of dollars. 

DOD’s comments are reprinted in appendix II. 

Background A working capital fund relies on sales revenue rather than direct 

appropriations to finance its continuing operations. A working capital fund 

is intended to (1) generate sufficient resources to cover the full costs of its 

operations and (2) operate on a break-even basis over time—that is, neither 

make a gain nor incur a loss. Customers use appropriated funds, primarily 

Operation and Maintenance appropriations, to finance orders placed with 

the working capital fund. DOD estimates that in fiscal year 2006, the 

Defense Working Capital Fund—which consists of the Army, Navy, Air 

Force, Defense-wide, and Defense Commissary Agency working capital 

funds—will have revenue of about $105 billion. 

The Defense Working Capital Fund finances the operations of three 

fundamentally different types of support organizations: (1) stock fund 

activities, which provide spare parts and other items to military units and 

other customers; (2) industrial activities, which provide depot 

maintenance, research and development, ordnance, and other services to 

their customers; and (3) other service activities, which provide various 

services such as accounting (Defense Finance and Accounting Service) and 

computer services (Defense Information Systems Agency). Because 

carryover is primarily associated with industrial operations, this report 

discusses the results of our review of Defense Working Capital Fund 

industrial operations. 

What Is Carryover and Why 

Is It Important?

Carryover is the dollar value of work that has been ordered and funded 

(obligated) by customers but not completed by working capital fund 

activities at the end of the fiscal year. Carryover consists of both the 

unfinished portion of work started but not completed, as well as requested 

work that has not yet commenced. Some carryover is necessary at fiscal 

year end if working capital funds are to operate efficiently and effectively. 

For example, if customers do not receive new appropriations at the 
Page 6 GAO-06-530 Defense Working Capital Fund

beginning of the fiscal year, carryover is necessary to ensure that the 

working capital fund activities have enough work to ensure a smooth 

transition between fiscal years. Too little carryover could result in some 

personnel not having work to perform at the beginning of the fiscal year. 

On the other hand, too much carryover could result in an activity group 

receiving funds from customers in one fiscal year but not performing the 

work until well into the next fiscal year or subsequent years. By minimizing 

the amount of carryover, DOD can use its resources in the most effective 

manner and minimize the “banking” of funds for work and programs to be 

performed in subsequent years. 

DOD Revised Its Carryover 

Policy

In 1996, DOD established a 3-month carryover standard for all working 

capital fund activities except for the contract portion of the Air Force depot 

maintenance activity group.7

 In May 2001, we reported8 that DOD did not 

have a basis for its carryover standard and recommended that DOD 

determine the appropriate carryover standard for the depot maintenance, 

ordnance, and research and development activity groups. According to 

Office of the Under Secretary of Defense (Comptroller) officials, DOD 

provided verbal guidance concerning its new carryover policy for working 

capital fund activities in December 2002. Subsequently, DOD included its 

revised carryover policy in its DOD Financial Management Regulation 

7000.14-R, Volume 2B, Chapter 9, dated June 2004, which eliminated the 3-

month standard for allowable carryover. Under the new policy, the 

allowable amount of carryover is to be based on the outlay rate9

 of the 

customers’ appropriations financing the work. This meant that in 

determining allowable carryover, the first year outlay rate would be used 

for new orders received in the current year (first year of the work order). 

7

 The Air Force is the only military service that included its contract depot maintenance 

operation in its working capital fund. To reflect this difference, DOD established a 4.5-month 

carryover standard to account for the additional administrative functions associated with 

awarding contracts. The Air Force is currently taking its contract depot maintenance 

operation out of the working capital fund and plans to complete this action by the end of 

fiscal year 2006.

8

 GAO, Defense Working Capital Fund: Improvements Needed for Managing the Backlog of 

Funded Work, GAO-01-559 (Washington, D.C.: May 30, 2001).

9

 The amount of allowable carryover using the outlay rate follows. For example, customers 

order $100 of work, which is financed with a specific appropriation. If the outlay rate for this 

appropriation at the appropriation level is 60 percent, then this would result in the working 

capital fund activity group being allowed to carry over $40 ($100 – $60 [$100 x 60 percent] = 

$40). 
Page 7 GAO-06-530 Defense Working Capital Fund

According to the DOD regulation, this new metric allows for an analyticalbased approach that holds working capital fund activities to the same 

standard as general fund execution and allows for more meaningful budget 

execution analysis. 

Further, based on our work on Army depot maintenance operations, we 

recommended in our June 2005 report10 that DOD clarify its written 

guidance for calculating the actual amount of carryover as well as the 

allowable amount of carryover. On June 29, 2005, DOD issued clarifying 

guidance on carryover.11 The guidance specified that (1) the actual amount 

of carryover associated with current and prior year orders is required to be 

the amount reported to Congress and within DOD, (2) the allowable 

amount of carryover is to be calculated based on current year customer 

orders received and the first year outlay rate for the appropriations 

financing those orders for all activity groups except shipyards, and 

(3) shipyards are authorized to use 2 years of customer orders in the 

calculation of the allowable amount of carryover and to use the first and 

second year outlay rates for the appropriations financing those orders. 

The Military Services 

Did Not Follow DOD 

Policy in Calculating 

Carryover

The military services have not consistently implemented DOD’s 2002 

revised policy in calculating carryover. Instead, the military services used 

different methodologies for calculating the reported actual and the 

allowable amount of carryover since DOD changed its carryover policy in 

December 2002. Specifically, (1) the military services did not consistently 

calculate the allowable amount of carryover that was reported in their 

fiscal year 2004, 2005, and 2006 budgets because they used different tables 

(both provided by DOD) that contained different outlay rates for the same 

appropriation; (2) the Air Force did not follow DOD’s regulation on 

calculating carryover, which affected the amount of allowable carryover 

and actual carryover by tens of millions of dollars and whether the actual 

amount of carryover exceeded the allowable amount as reported in the 

fiscal year 2004, 2005, and 2006 budgets; and (3) the Army depot 

maintenance and ordnance activity groups’ actual carryover was 

understated in fiscal years 2002 and 2003 because carryover associated 

10 GAO, Army Depot Maintenance: Ineffective Oversight of Depot Maintenance Operations 

and System Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 2005).

11 Office of the Under Secretary of Defense (Comptroller), Director of Revolving Funds, 

memorandum on clarifying guidance on carryover, June 29, 2005.
Page 8 GAO-06-530 Defense Working Capital Fund

with prior year orders was not included in the carryover calculation as 

required. Further, while the Navy generally followed DOD’s policy for 

calculating carryover, the Navy consolidated the reporting of carryover 

information for research and development activities. As a result, the Navy 

budgets no longer provide information to show if any of the five research 

and development subactivity groups individually exceed the carryover 

ceiling. This information had been provided in the Navy budgets prior to 

the change in the carryover policy in December 2002. The primary factor 

for these inconsistencies is that DOD’s December 2002 guidance was verbal 

and DOD did not issue detailed written procedures for calculating 

carryover and the allowable amount of carryover until June 2004. 

Afterwards, DOD issued clarifying written guidance in June 2005, January 

2006, and February 2006. As a result, year-end carryover data provided to 

decision makers who review and use these data for budgeting—Office of 

the Under Secretary of Defense (Comptroller) and congressional decision 

makers—are erroneous and not comparable across the three military 

services. 

Military Services Used 

Different Outlay Rate Tables 

to Calculate the Allowable 

Amount of Carryover

The military services used different outlay rate tables that provided 

different outlay rates for the same appropriation when calculating the 

allowable amount of carryover. The outlay rate tables came from two 

sources—the Office of the Under Secretary of Defense (Comptroller), 

Revolving Funds Directorate,12 and the Financial Summary Tables 

published by Office of the Under Secretary of Defense (Comptroller), 

Directorate for Program and Financial Control. Because the outlay rates in 

these documents sometimes differ, this could affect whether an activity 

group exceeded the carryover ceiling or not. Under the new carryover 

policy, the allowable amount of carryover is to be based on the outlay rates 

of the customers’ appropriations financing the work. In implementing this 

policy, it is important for the services to use the same outlay rate tables so 

that their calculations on the allowable amount of carryover are consistent. 

However, when DOD changed the carryover policy in December 2002, DOD 

did not instruct the services, in writing, on which outlay rate tables should 

be used to calculate the allowable amount of carryover. Table 1 shows 

which outlay rate source each of the military services used. 

12 Unless otherwise noted in this report, the tables provided by the Office of the Under 

Secretary of Defense (Comptroller), Revolving Funds, will be referred to as the Office of the 

Under Secretary of Defense (Comptroller) tables.
Page 9 GAO-06-530 Defense Working Capital Fund

Table 1: Schedule of the Source of Outlay Rates Used in Calculating the Allowable 

Amount of Carryover by Service

Source: GAO analysis.

Table 2 shows the differences between the outlay rates for selected 

appropriations in the tables provided by the Office of the Under Secretary 

of Defense (Comptroller) and the DOD Financial Summary Tables that 

were used to calculate the allowable amount of carryover, which is 

included in the fiscal year 2005 budget. Some of the differences are large 

while others are small. These outlay rates, along with the amount of 

appropriations financing orders, are used to determine the allowable 

carryover (ceiling). Because the dollar amount of appropriations financing 

orders is sometimes in the hundreds of millions of dollars, even a small rate 

difference could result in significantly more or less allowable carryover. 

For example, the Navy estimated that the naval aviation depots would 

receive $694 million for new Operation and Maintenance, Navy orders in 

fiscal year 2005. Using the outlay rate provided in the DOD Financial 

Summary Tables, the Navy would be allowed to carry over about $146 

million. In contrast, using the outlay rate table provided by the Office of the 

Under Secretary of Defense (Comptroller), the Navy would be allowed to 

carry over $180 million—about a $34 million difference for just this one 

appropriation financing orders received by the naval aviation depots.

Service

Fiscal year 2004 

budget

Fiscal year 2005 

budget

Fiscal year 2006 

budget

Army Office of the Under 

Secretary of Defense 

(Comptroller) table

Office of the Under 

Secretary of Defense 

(Comptroller) table

DOD Financial 

Summary Tables

Navy DOD Financial 

Summary Tables 

DOD Financial 

Summary Tables

DOD Financial 

Summary Tables

Air Force Office of the Under 

Secretary of Defense 

(Comptroller) table

Office of the Under 

Secretary of Defense 

(Comptroller) table

Office of the Under 

Secretary of Defense 

(Comptroller) table
Page 10 GAO-06-530 Defense Working Capital Fund

Table 2: Schedule of Selected Appropriation Outlay Rates Used in Calculating the 

Allowable Amount of Carryover for the Fiscal Year 2005 Budget (in percent)

Sources: Office of the Under Secretary of Defense (Comptroller) table and the DOD Financial Summary Tables.

In addition to using different outlay rate tables, there appeared to be 

uncertainties regarding which year’s outlay rates to use. For the fiscal year 

2006 budget, the Army and Navy used the DOD Financial Summary Tables 

to determine the appropriation outlay rates used in calculating the 

allowable amount of carryover. These tables contain different 

appropriation outlay rates for each fiscal year. Military service officials 

stated that DOD had not provided any written guidance on whether the 

services should use the fiscal year 2004 or 2005 outlay rates or both when 

determining the allowable amount of carryover in preparing the fiscal year 

2006 budget. An excerpt of the outlay rates from the DOD Financial 

Summary Tables dated February 2004 follows.

Appropriation

Outlay rates in the 

Office of the Under 

Secretary of Defense 

(Comptroller) table

Outlay rates in 

the DOD Financial 

Summary Tables

Operation and Maintenance, 

Army

78 68.8

Operation and Maintenance, 

Army Reserve

68 71.5

Research, Development, Test, 

and Evaluation, Army

53 51.5

Missile Procurement, Army 13 10.0

Operation and Maintenance, 

Navy

74 79.0

Operation and Maintenance, 

Navy Reserve

67 70.2

Other Procurement, Navy 39 36.5

Procurement, Marine Corps 26 30.0

Research, Development, Test, 

and Evaluation, Navy

59 56.0

Operation and Maintenance, Air 

Force

70 72.5

Operation and Maintenance, Air 

Force Reserve

70 80.8

Operation and Maintenance, Air 

National Guard

68 82.0

Research, Development, Test, 

and Evaluation, Air Force

57 61.58
Page 11 GAO-06-530 Defense Working Capital Fund

Table 3: Schedule of Selected Outlay Rates Used to Calculate Allowable Carryover 

That Was Included in the Fiscal Year 2006 Budget (in percent)

Source: DOD Financial Summary Tables, dated February 2004.

The Navy used the fiscal year 2005 outlay rates for calculating the 

allowable amount of carryover for fiscal years 2004, 2005, 2006, and 2007—

the fiscal years that are included in the fiscal year 2006 budget. The Army 

used the same document but instead used the fiscal year 2004 outlay rates 

for calculating the allowable carryover for fiscal year 2004. The Army used 

the fiscal year 2005 rates for calculating the allowable carryover for fiscal 

years 2005, 2006, and 2007. While this might appear to be a small matter 

because the rates are generally the same or almost the same from one fiscal 

year to the next, using the different rates (2004 versus 2005) for calculating 

the allowable carryover for the Army industrial operations activity group in 

fiscal year 2004 results in a different outcome. Based on its calculations, 

the Army reported that its actual carryover was $141 million below the 

ceiling for fiscal year 2004. However, using the fiscal year 2005 rates (the 

rates that the Navy used) would show the Army exceeded the ceiling by 

about $275 million—a swing of $416 million. This difference is attributable 

to the outlay rate for the Operation and Maintenance, Army appropriation 

being 52.03 percent for fiscal year 2004 but 68.8 percent for fiscal year 2005. 

According to Army officials, the outlay rate varied significantly for these 2 

fiscal years because of the supplemental appropriations received during 

fiscal year 2004.

Based on our work involving the Army depot maintenance activity group, 

we recommended in our June 2005 report13 that DOD clarify its written 

guidance for calculating the actual amount of carryover as well as the 

allowable amount of carryover. DOD concurred with our recommendations 

Appropriation

Fiscal year 2004 outlay 

rates

Fiscal year 2005 outlay 

rates

Operation and Maintenance, 

Army

52.03 68.80

Operation and Maintenance, 

Navy

76.08 79.00

Operation and Maintenance, 

Air Force

66.59 73.50

13 GAO, Army Depot Maintenance: Ineffective Oversight of Depot Maintenance Operations 

and System Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 2005).
Page 12 GAO-06-530 Defense Working Capital Fund

and on June 29, 2005, DOD issued clarifying guidance on carryover. Among 

other things, the guidance specified that (1) the allowable amount of 

carryover is to be calculated based on current year customer orders 

received and the first year outlay rates for the appropriations financing 

those orders for all activity groups except shipyards and (2) the outlay 

rates are to be based on historic outlay rates in the DOD Financial 

Summary Tables. DOD’s guidance clarifies which source document should 

be used to identify the outlay rates. However, it does not address the 

question of which fiscal year or years that are contained in the DOD 

Financial Summary Tables are to be used.

During our current review, we informed Office of the Under Secretary of 

Defense (Comptroller) officials that the services did not always comply 

with DOD’s policy on calculating the allowable amount of carryover. 

Specifically, the services (1) did not always use the correct outlay rate 

tables in determining the amount of allowable carryover and (2) used 

different outlay rates contained in the DOD Financial Summary Tables for 

calculating the allowable amount of carryover for specific fiscal years. In 

responding to our discussions, DOD took two actions. First, DOD included 

carryover guidance in its January 17, 2006, memorandum on the fiscal year 

2007 budget justification book material for Congress. This guidance 

specifies that the services are to use the fiscal year 2006 DOD Financial 

Summary Tables to calculate carryover. The guidance further specifies that 

the services must use the rates in the DOD Financial Summary Tables 

unless a waiver is approved in writing by the Office of the Under Secretary 

of Defense (Comptroller), Director for Revolving Funds. Second, in 

February 2006, the Office of the Under Secretary of Defense (Comptroller) 

provided additional guidance to the services for the fiscal year 2007 budget 

specifying that the (1) fiscal year 2005 outlay rates in the DOD Financial 

Summary Tables will be used for calculating the allowable amount of 

carryover for fiscal year 2005 and (2) fiscal year 2006 outlay rates in the 

DOD Financial Summary Tables will be used for calculating the allowable 

amount of carryover for fiscal years 2006 and 2007.

Air Force Did Not Calculate 

Actual Carryover and 

Allowable Carryover 

Correctly

In reviewing the Air Force carryover figures shown in the fiscal year 2004, 

2005, and 2006 budgets to Congress, we found a number of problems with 

how the Air Force calculated the reported actual as well as the allowable 

amount of carryover for the depot maintenance activity group. These 

problems significantly affected the determination of allowable carryover 

and whether the Air Force depot maintenance activity group exceeded that 

ceiling. With one exception, the Air Force took action and corrected the 
Page 13 GAO-06-530 Defense Working Capital Fund

problems when preparing the fiscal year 2007 budget. These problems are 

discussed below.

• The Air Force used the fiscal year 2001 outlay rates provided by the 

Office of the Under Secretary of Defense (Comptroller) to determine the 

allowable amount of carryover in the fiscal year 2004 budget. This was 

the appropriate outlay rate table to use for that budget. However, even 

though the Office of the Under Secretary of Defense (Comptroller) 

provided updated outlay rates for the next fiscal year, the Air Force did 

not use the updated outlay rates when calculating its allowable 

carryover in the fiscal year 2005 budget. Instead, the Air Force 

continued to use the fiscal year 2001 outlay rates. Moreover, the Air 

Force continued to use the fiscal year 2001 outlay rates to calculate the 

allowable carryover in the fiscal year 2006 budget instead of using the 

updated outlay rates published by DOD.

• The Air Force used all orders received (both prior year and current year 

orders) in calculating the allowable amount of carryover in the fiscal 

year 2004, 2005, and 2006 budgets. For example, in calculating the 

allowable carryover for fiscal year 2004, the Air Force included about 

$1.8 billion of prior year orders in the calculation. DOD carryover policy 

states that only current year orders should be used in determining the 

allowable carryover. The Air Force method of including all orders 

allowed too much carryover.

• The Air Force excluded orders received from the U.S. Transportation 

Command when calculating the amount of actual carryover in the fiscal 

year 2004, 2005, and 2006 budgets. DOD Financial Management 

Regulation 7000.14-R, Volume 2B, Chapter 9, permits excluding some 

orders financed with non-DOD funds, such as orders received from 

foreign countries, but does not permit excluding U.S. Transportation 

Command orders. For example, because the Air Force excluded about 

$214 million of U.S. Transportation Command orders when calculating 

its actual carryover for fiscal year 2004, its carryover was understated.

• The Air Force’s fiscal year 2006 budget to Congress expressed carryover 

in equivalent months of work (this is the old method of reporting 

carryover) rather than in terms of the allowable and actual carryover 

dollar amounts as required by DOD Financial Management Regulation 

7000.14-R, Volume 2B, Chapter 9.
Page 14 GAO-06-530 Defense Working Capital Fund

The problems cited above had a significant impact on the amount of 

allowable carryover and actual carryover and whether the actual carryover 

exceeded the allowable amount, as shown in table 4. 

Table 4: Air Force’s Reported Actual Carryover and GAO’s Calculation of the 

Amount of Actual Carryover with Respect to the Ceiling 

Source: GAO analysis based on Air Force carryover data.

a

We calculated the allowable amount of carryover and actual amount of carryover in accordance with 

DOD guidance in its regulation to determine the amount of actual carryover in relationship to the 

ceiling.

In discussing the carryover calculations with Air Force officials, they 

agreed that they were not calculating either the allowable amount of 

carryover or the actual amount of carryover correctly in the fiscal year 

2004, 2005, and 2006 budgets. They informed us that in preparing the 

carryover information contained in the fiscal year 2004 budget, DOD 

budget analysts who review the budget information, including the 

carryover information, did not raise questions with the Air Force carryover 

calculations. Accordingly, they continued to use the same methodology for 

calculating the allowable carryover and actual carryover that was included 

in the fiscal year 2005 and 2006 budgets to Congress. Based on our 

discussions with them, these officials informed us that the Air Force would 

be developing the carryover figures that will be used in the fiscal year 2007 

budget in accordance with DOD policy.

In reviewing the Air Force fiscal year 2005 carryover calculations included 

in the fiscal year 2007 budget, we determined that the Air Force was 

complying with DOD’s carryover policy with one exception. For orders 

financed with the Air Force working capital fund supply account, the Air 

Force used a 61 percent outlay rate to calculate its allowable carryover 

instead of the 73.5 percent outlay rate for the Air Force operation and 

maintenance appropriation contained in the DOD Financial Summary 

Tables and required by the Office of the Under Secretary of Defense 

Fiscal year and Air 

Force activity group

Air Force reported 

actual carryover 

GAO calculated 

actual carryovera Difference 

Fiscal year 2002 

depot maintenance

$87 million under 

ceiling

$216 million over 

ceiling

$303 million

Fiscal year 2003 

depot maintenance

$396 million under 

ceiling

$428 million under 

ceiling

($32 million)

Fiscal year 2004 

depot maintenance

$722 million under 

ceiling

$598 million under 

ceiling

$124 million
Page 15 GAO-06-530 Defense Working Capital Fund

(Comptroller), Revolving Fund Directorate. Using the 61 percent figure, the 

Air Force reported that its actual carryover for fiscal year 2005 was about 

$193 million under the carryover ceiling. However, if the Air Force used the 

73.5 percent outlay rate, our analysis show that the fiscal year 2005 actual 

carryover would have exceeded the carryover ceiling by about $148 

million. In discussing the outlay rate difference with the Air Force, officials 

stated that they used the 61 percent figure because the rate was more 

consistent with the actual outlay rate of the Air Force working capital fund 

supply account. However, the Air Force could not provide us with 

documentation supporting how they arrived at the 61 percent figure. On 

February 7, 2006, the Air Force requested from the Office of the Under 

Secretary of Defense (Comptroller) that it be allowed to use the 61 percent 

figure in developing the carryover ceilings contained in the fiscal year 2007 

budget. The Office of the Under Secretary of Defense (Comptroller) 

approved the Air Force’s request on March 6, 2006. 

Army’s Reported Actual 

Carryover Was Understated 

in Fiscal Years 2002 and 

2003 because Prior Year 

Orders Were Not Included

In June 2005, we reported14 that the Army understated the reported actual 

carryover for the depot maintenance activity group for fiscal years 2002 

and 2003 because it interpreted DOD’s 2002 carryover guidance as requiring 

only the inclusion of customer orders received in the current year when 

calculating actual carryover. During this review, we found this same 

problem affected the reported actual carryover for the ordnance activity 

group. Thus, the Army did not include customer orders received in prior 

years and the carryover related to those orders. The Army corrected this 

problem and included all carryover when it prepared its fiscal year 2006 

budget. Table 5 provides information on the actual amount of carryover 

reported to Congress for fiscal years 2002 and 2003 and the amount of 

carryover not included. 

14 GAO, Army Depot Maintenance: Ineffective Oversight of Depot Maintenance Operations 

and System Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 2005).
Page 16 GAO-06-530 Defense Working Capital Fund

Table 5: Dollar Amount of Reported Actual Carryover that Exceeded the Ceiling and 

the Amount of Carryover Not Included (dollars in millions)

Source: GAO analysis of Army carryover data.

Army officials at headquarters acknowledged that the reported actual 

carryover did not include carryover related to prior year orders. Although 

DOD changed its carryover policy in December 2002, it did not issue 

detailed written procedures for calculating actual carryover until June 

2004. Army headquarters officials stated that prior to the issuance of the 

written guidance in June 2004, the new carryover calculation was based on 

verbal instructions that the Army received from the Office of the Under 

Secretary of Defense (Comptroller). The Army said they interpreted the 

new guidance to include only actual carryover on orders received in the 

current year and instructed the Army Materiel Command to calculate 

carryover accordingly. When DOD issued the revised DOD regulation in 

June 2004, Army officials said they realized that they were not calculating 

reported actual carryover correctly and changed their methodology in 

developing the fiscal year 2006 budget so that the actual carryover 

calculation would include prior year orders and be in accordance with 

DOD’s written guidance.

Navy Generally Followed 

DOD’s Carryover Policy but 

Better Disclosure Is Needed 

for Reporting on Research 

and Development Activity 

Group’s Carryover

In analyzing the Navy’s actual carryover figures for the naval shipyards, 

aviation depots, and research and development activity groups shown in 

the fiscal year 2004, 2005, 2006, and 2007 budgets to Congress, we found 

that the Navy generally followed DOD’s policy on calculating the actual 

amount of carryover as well as the allowable amount of carryover. Our 

analysis of the Navy budgets submitted to Congress shows that the naval 

aviation depots have consistently exceeded the carryover ceilings as shown 

in table 6. According to Navy budget documents and officials, the reasons 

Fiscal year and Army 

activity group

Reported carryover 

that exceeded 

ceiling

Carryover not 

included 

Total carryover 

exceeding 

ceiling 

Fiscal year 2002 

depot maintenance

$36. 1 $94.4 $130.5 

Fiscal year 2003 

depot maintenance

127.1 195.1 322.2 

Fiscal year 2002 

ordnance

3.9 98.0 101.9 

Fiscal year 2003 

ordnance

96.6 138.9 235.5
Page 17 GAO-06-530 Defense Working Capital Fund

why the actual reported carryover exceeded the ceiling for the aviation 

depots were (1) the lack of material to repair the components being fixed; 

(2) the increased deterioration of components, leading to longer repair 

cycles; and (3) the large dollar amount of orders financed with 

supplemental appropriations for fiscal year 2003.

Table 6: Navy’s Reported Actual Carryover in Relationship to the Ceiling by Activity 

Group 

Source: Navy Working Capital Fund budgets.

Note: We highlighted the years when the activity group exceeded the carryover ceiling.

While the budgets show that the Navy research and development activity 

group did not exceed the ceiling for any of the 4 years, the budgets no 

longer provide information that shows if any of the five subactivity groups 

individually exceeded the carryover ceiling, as the Navy budgets did prior 

to the change in the carryover policy in December 2002. Prior to the Office 

of the Under Secretary of Defense (Comptroller) changing its carryover 

policy in December 2002, the Navy Working Capital Fund budget provided 

carryover information, such as the dollar amount of carryover and the 

number of months of carryover for each of the subactivity groups. An 

analysis of the budget documents would show if any of the subactivity 

groups exceeded the 3-month carryover standard. After DOD changed the 

carryover policy in December 2002, the Navy changed the level of reporting 

carryover information to be at the aggregate level and no longer provided 

carryover information at the subactivity group level. Our analysis of Navy 

reports showed that the Naval Air Warfare Center exceeded the ceiling for 

fiscal years 2003, 2004, and 2005, and the Naval Surface Warfare Center 

exceeded the ceiling for fiscal year 2002, as shown in table 7.

Activity group

Fiscal year 

2002

Fiscal year 

2003

Fiscal year 

2004

Fiscal year 

2005

Aviation depots $113 million 

over ceiling

$205 million 

over ceiling

$5 million

 over ceiling

$0.2 million

 over ceiling

Shipyards $76 million 

under ceiling

$195 million 

over ceiling

 $210 million 

under ceiling

$226 million 

under ceiling

Research and 

development

$442 million 

under ceiling

$435 million 

under ceiling

$439 million 

under ceiling

$310 million 

under ceiling
Page 18 GAO-06-530 Defense Working Capital Fund

Table 7: Navy’s Reported Actual Carryover in Relationship to the Ceiling for the 

Research and Development Subactivity Groups

Source: Navy reports on the research and development subactivity groups.

Note: We highlighted the years when the subactivity group exceeded the carryover ceiling.

a

There is a $31 million difference between the amount shown here and the amount shown in table 6 for 

the research and development activity group. The Navy’s report to Congress and its internal report on 

the subactivity groups contained different amounts.

b Due to rounding, there is a $1 million difference between the amount shown here and the amount 

shown on table 6 for the research and development activity group.

According to the Navy, there are two reasons why carryover should be 

reported at the activity group level and not at the subactivity group level. 

First, the Office of the Under Secretary of Defense (Comptroller) required 

the research and development activities to use a higher outlay rate for 

orders financed with procurement appropriations than the official 

published procurement outlay rates. Using a higher procurement outlay 

rate for calculating the carryover ceiling lowers the amount of allowable 

carryover. Because of this higher rate, a Navy official stated that the 

carryover should be reported at the aggregate level since subactivity 

groups reporting under the ceiling will offset those subactivity groups 

reporting over the ceiling. Second, the new methodology did not allow the 

exclusion of intrafund orders from the carryover calculation. These are 

orders placed by one research and development activity with another 

research and development activity. Since intrafund orders were no longer 

allowed to be excluded from the carryover calculation, this resulted in the 

double counting of actual carryover associated with these intrafund orders. 

Because the above two reasons reduce the carryover ceiling and increase 

Subactivity group

Fiscal year 

2002

Fiscal year 

2003

Fiscal year 

2004

Fiscal year 

2005

Naval Air Warfare 

Center

$201 million 

under ceiling

$19 million 

over ceiling

$57 million

 over ceiling

$52 million

 over ceiling

Naval Surface Warfare 

Center

$95 million

 over ceiling

$211 million 

under ceiling

$247 million 

under ceiling

$166 million 

under ceiling

Naval Undersea 

Warfare Center

$78 million 

under ceiling

$87 million 

under ceiling

$80 million 

under ceiling

$58 million 

under ceiling

Space and Naval 

Warfare Center

$148 million 

under ceiling

$76 million 

under ceiling

$81 million 

under ceiling

$51 million 

under ceiling

Naval Research 

Laboratory

$79 million 

under ceiling

$81 million 

under ceiling

$88 million 

under ceiling

$86 million 

under ceiling

Total $411 million 

under ceilinga

$436 million 

under ceilingb

$439 million 

under ceiling

$309 million 

under ceilingb
Page 19 GAO-06-530 Defense Working Capital Fund

the actual amount of carryover, the Navy reports the carryover information 

at the activity group level. 

However, we believe that the carryover associated with the research and 

development activity group should be reported at the subactivity group 

level for several reasons. First, according to the fiscal year 2007 budget, the 

research and development activity group is the largest Navy activity 

group—it received about $10 billion of new orders and carried over about 

$3.5 billion for fiscal year 2005. By comparison, for fiscal year 2005, the 

Navy shipyards received about $1.8 billion of new orders and carried over 

about $636 million, and the aviation depots also received about $1.8 billion 

and carried over about $470 million. Further, the dollar amount of new 

orders received by three research and development subactivity groups 

(Naval Surface Warfare Center--$3.4 billion, Naval Air Warfare Center--$2.7 

billion, and Space and Naval Warfare Systems Centers--$2.2 billion) 

exceeded the amount of new orders received by the shipyards and aviation 

depots for fiscal year 2005. Because of the dollar magnitude of research 

and development subactivity groups, we believe carryover reporting at the 

subactivity group level is needed for Congress and DOD to maintain 

oversight. 

Second, concerning the Navy’s comment on using a higher outlay rate for 

calculating the carryover ceiling, we agree with the Office of the Under 

Secretary of Defense (Comptroller) that the Navy should use a higher rate. 

We also believe that the Navy should report carryover information at the 

subactivity group level from a disclosure standpoint. Otherwise, subactivity 

groups reporting under the ceiling will offset those subactivity groups 

reporting over the ceiling and this information would not be available in the 

budgets to Congress. In the December 2002 management initiative 

decision, the Office of the Under Secretary of Defense (Comptroller) stated 

that research and development activities could achieve better results than 

the established outlay rates for orders financed with procurement 

appropriations because of the type of work performed by these activities. 

DOD further stated that 45 percent of the fiscal year 2002 carryover was 

linked to contractual efforts and 55 percent supported in-house 

requirements. DOD concluded that carryover linked to contractual 

obligations would disburse at the procurement appropriations rate. 

However, the amount supporting the in-house requirements would disburse 

at a higher rate because such requirements tend to be funded on an 

annualized basis. The Office of the Under Secretary of Defense 

(Comptroller) requested that the Navy examine the nature and scope of the 

procurement-funded work and report its recommendations by February 15, 
Page 20 GAO-06-530 Defense Working Capital Fund

2003, to the Comptroller. At the time DOD issued the management initiative 

decision in December 2002, the Navy reported carryover information to 

Congress at the subactivity group level. The Navy determined, based on 

work performed by one Warfare Center, that the outlay rate for Navy 

procurement appropriations should be 40 percent, which is higher than the 

actual outlay rate for these appropriations. However, the December 2002 

management initiative decision did not discuss the Navy changing its level 

of reporting carryover information from the subactivity group level to the 

aggregate level.

Third, concerning the Navy’s comments on intrafund orders, the Navy is 

correct in that the amount of actual carryover will be double counted. 

However, the effect of this is negated since the amount of allowable 

carryover is also double counted since both of these activities will include 

the intrafund order as a new order and include the new order in their 

calculations for determining the allowable amount of carryover. 

Furthermore, in May 2001 we reported15 that the Navy was not following 

DOD’s guidance on calculating carryover on intrafund orders. Specifically, 

Navy working capital fund activities reduced carryover for orders received 

from other working capital fund activities. However, Navy working capital 

fund activities categorized orders they sent to other working capital fund 

activities as contractual obligations and used these obligations to reduce 

reported year-end carryover. As a result, not only did the Navy eliminate the 

double counting of such orders, it eliminated all these orders from its 

calculations, thus understating the equivalent number of months of 

carryover work.

Carryover Increased 

Due to Military 

Services Placing 

Orders Late in the 

Fiscal Year 

Carryover is greatly affected by orders accepted late in the fiscal year that 

generally cannot be completed, and in some cases cannot even be started, 

prior to the end of the fiscal year. As a result, almost all orders accepted 

late in the fiscal year increase the amount of carryover. We analyzed 68 

orders accepted in September 2003 and September 2004 by certain activity 

groups for the three military services. Our analysis identified four key 

factors contributing to orders generally being issued by customers late in 

the fiscal year and being accepted by the working capital fund activities 

during the last month of the fiscal year. These reasons included (1) funds 

provided to customers late in the fiscal year to finance existing 

15 GAO, Defense Working Capital Fund: Improvements Needed for Managing the Backlog 

of Funded Work, GAO-01-559 (Washington, D.C.: May 30, 2001).
Page 21 GAO-06-530 Defense Working Capital Fund

requirements, (2) new work requirements identified at year end, 

(3) problems encountered in processing orders, and (4) work scheduled at 

year end. Further, our analysis showed that 39 of the 68 orders—over half 

of the orders reviewed—were not complete at the end of the next fiscal 

year, generating a second year of carryover. In addition to increasing 

carryover amounts, orders accepted by working capital fund activities late 

in the fiscal year, in which these activities do not perform the work until 

well into the next fiscal year or even subsequent years, may not (1) be the 

most effective use of DOD resources at that time and (2) have complied 

with all of the order acceptance provisions cited in the DOD Financial 

Management Regulation. As noted in our scope and methodology (app. I), 

the scope of our work for this review did not include determining whether 

there was a bona fide need for the work being ordered by customers. 

Reasons Customer Orders 

Are Placed Late in the Fiscal 

Year

As shown in figure 1, our review of 68 fiscal year-end orders for 2003 and 

2004 identified four key factors contributing to orders generally being 

issued by customers late in the fiscal year and being accepted by the 

working capital fund activities during the last month of the fiscal year. 

Figure 1: Factors Contributing to Year-end Orders for 2003 and 2004

As depicted in figure 1, the factor contributing most frequently to orders 

being accepted by working capital fund activities late in the fiscal year—29 

of the 68 orders (43 percent) we reviewed—is the late receipt of funds from 

Number of orders

Source: GAO analysis of Working Capital Fund late year orders.

0 5 10 15 20 25 30

Work scheduled at year end

Problems encountered with processing orders

New work requirements identified at year end

Funds provided to customers late in the fiscal year

to finance existing requirements
Page 22 GAO-06-530 Defense Working Capital Fund

customers to finance existing requirements. DOD customers stated that it 

is common for the military services to provide funds to them late in the 

fiscal year after the military services review their programs to identify 

funds that will not be obligated by year end. When these funds are 

identified, the military services realign the funds to programs that can use 

them. These funds are then used to finance orders placed with working 

capital fund activities at year end. Further, in fiscal years 2003 and 2004, the 

military services received supplemental appropriations from Congress to 

fund ongoing military operations. Some of these funds were distributed to 

DOD customers late in the fiscal year to finance repairs on DOD assets. The 

following examples illustrate situations when funds were provided to 

customers late in the fiscal year. 

• On September 4, 2003, the Ogden Air Logistics Center accepted an order 

from the Air Force Ground Theater Air Control System program office 

totaling about $4.8 million financed with operation and maintenance 

funds that would have expired on September 30, 2003. This order 

provided for Ground Theater Air Control System hardware and software 

upgrades. According to program office officials, the Air Combat 

Command traditionally funds about 60 to 70 percent of its total software 

development requirements annually. However in August 2003, the 

Command provided the program office with funding to cover 100 

percent of its fiscal year 2003 software requirements. Thus, the program 

office applied the funds to its next highest priority workload and issued 

the $4.8 million order.

• On September 27 and 29, 2003, the Space and Naval Warfare Systems 

Center in San Diego accepted two orders from the U.S. Pacific Fleet 

totaling approximately $4.15 million financed with operation and 

maintenance funds that would have expired on September 30, 2003. 

These two orders were to provide the technical and engineering support 

for the relocation of a Sea-Based Battle Laboratory from the USS 

Coronado to a new ashore headquarters activity. The Pacific Fleet 

identified this requirement in early fiscal year 2003; however, funds were 

not made available until the end of the fiscal year, when additional funds 

were identified from other programs. 

• On September 26, 2003, the Red River Army Depot accepted an order 

from the Army Tank-automotive and Armaments Command totaling 

$17.9 million financed with operation and maintenance funds that would 

have expired on September 30, 2003. The order was for the repair and 

upgrade of 41 Bradley Fighting Vehicles needed to support the war 
Page 23 GAO-06-530 Defense Working Capital Fund

effort in Iraq and Afghanistan. These vehicles were to be prepositioned 

in the theater of operation. According to a Tank-automotive and 

Armaments Command official, the order was issued late in fiscal year 

2003 because the Army Materiel Command did not provide them with 

funding until September 2003. An Army Materiel Command official 

noted that the effort was funded by a supplemental appropriation used 

to support war operations.

The second most significant factor that contributed to the year-end orders 

we reviewed—17 of the 68 orders (25 percent)—was the identification of 

new requirements at year end. Some examples of DOD customers 

identifying requirements at year end include (1) a Navy aviation depot in 

performing scheduled maintenance identified damage to aircraft beyond 

what was originally included in its statement of work, (2) an Army depot 

identified inspection requirements at year end to keep ammunition storage 

inspections current and to satisfy requisitions to support the soldiers in the 

field, (3) Navy aircraft repair requirements were moved from fiscal year 

2004 to fiscal year 2003 to meet an earlier deployment schedule, (4) the 

Army identified new requirements at year end for repair of Army assets 

necessary to support ongoing military operations, and (5) the Navy 

identified the need for additional capabilities for several aircraft and also 

needed to perform emergency repairs on one of its aircraft carriers. Two 

examples of some of the reasons for new requirements being identified at 

year end follow. 

• On September 27 and 30, 2004, the Space and Naval Warfare Systems 

Center in Charleston accepted an order and an amendment from the 

Commander, Naval Air Force, U.S. Atlantic Fleet, totaling $425,000 

financed with operation and maintenance funds that would have 

expired on September 30, 2004. A fleet official stated that it had received 

a casualty report from the USS Harry S. Truman on September 24, 2004, 

indicating repairs needed to be made to the ship’s announcing system. 

An activity official stated that the order was accepted regardless of 

carryover concerns due to the urgency associated with a casualty 

report. Additionally, a fleet official noted that the time to complete the 

needed repairs was limited due to the ship’s impending deployment. 

• On September 8, 2004, the Army Rock Island Arsenal accepted an order 

from the Tank-automotive and Armaments Command totaling about $1.4 

million financed with operation and maintenance funds that would have 

expired on September 30, 2004. The order was for the reconditioning of 

chemical biological protective shelters. The shelters mount on high- 
Page 24 GAO-06-530 Defense Working Capital Fund

mobility, multipurpose wheeled vehicles and provide an 

environmentally controlled work area that filters out nuclear, biological, 

and chemical agents. According to a logistics manager, in the fourth 

quarter of fiscal year 2004 the Tank-automotive and Armaments 

Command identified 11 shelters that needed reconditioning and issued 

an order to the Army Rock Island Arsenal for the work. 

Further, we found 12 of the 68 orders (18 percent) were accepted by 

working capital fund activities in the last month of the fiscal year due to 

problems encountered with processing the orders. These problems 

included (1) delays in processing forms through different activities and 

multiple nonintegrated systems, (2) data input errors that were not 

corrected until September, and (3) difficulties encountered in processing 

documents and related funding from non-DOD customers to working 

capital fund activities. Two examples follow. 

• In July 2003, the Air National Guard Headquarters prepared 

documentation that directed the Pennsylvania Air National Guard to 

send its ground mobile navigation radar to the Tobyhanna Army Depot 

to repair damage sustained by the radar system from multiple lightening 

strikes and power surges and to overhaul the system. The order was not 

accepted by the depot until September 26, 2003, about 3 months later. 

The delay in acceptance of the order was due to (1) the normal time 

required to process forms through six different activities using 

nonintegrated systems, (2) paperwork processing delays due to missing 

information, (3) confusion on how to process the workload in a new 

Army system implemented in July 2003, and (4) errors made in entering 

data into the Army system. 

• Due to delays in correcting input errors on an order, the Warner Robins 

Air Logistics Center did not accept a $2.8 million order from the F-15 

program office, financed with operation and maintenance funds, until 

September 17, 2004. The order was for the maintenance of an Air 

National Guard F-15 aircraft. When an order was generated by the F-15 

program office on June 10, 2004, the office entered the program control 

and serial numbers into the project order system incorrectly. On 

September 17, 2004, the Center established a new order with the 

corrected information. 

Finally, we found 10 of the 68 orders (15 percent) were accepted by 

working capital fund activities in the last month of the fiscal year when 

DOD assets were scheduled for maintenance. According to Air Force and 
Page 25 GAO-06-530 Defense Working Capital Fund

Navy officials, planning for the repair of major assets such as aircraft, 

ships, and engines begins several years prior to the date on which repairs 

will actually be performed. The assets are scheduled for maintenance 

based on routine cycles, such as numbers of years since the last depot 

maintenance was performed. The services include funding requirements 

for these repairs in their annual budget submissions. Generally, in the 

quarter the assets are scheduled for maintenance, the major commands 

distribute the repair funds to their customers and the customers, in turn, 

issue orders to fund the repair. Two examples follow.

• On September 16, 2003, the Oklahoma City Air Logistics Center 

accepted an order from the Air National Guard totaling about $7.2 

million financed with operation and maintenance funds set to expire on 

September 30, 2003. The order was for the scheduled maintenance of 

the 39th Air National Guard KC-135E aircraft in fiscal year 2003. During 

fiscal year 2001, the Air National Guard determined that 39 KC-135E 

aircraft required maintenance in fiscal year 2003 in accordance with 

their 5-year maintenance schedule. In fiscal year 2001, the Air National 

Guard began planning and budgeting for the maintenance of these 

aircraft. The 39th aircraft arrived at the air logistics center in midSeptember 2003 as planned. The Air National Guard issued the order in 

September 2003 once it determined that the work on this aircraft would 

be performed at the air logistics center instead of contracting out the 

workload. 

• On September 29, 2003, the Naval Air Warfare Center-Aircraft Division 

accepted an order from the U.S. Atlantic Fleet in the amount of 

approximately $2.4 million financed with operation and maintenance 

funds set to expire the next day. The order required repairs and/or 

replacement of deteriorated and worn components to support flight 

deck operations on the USS Harry S. Truman. This work was scheduled 

for overhaul in fiscal year 2003. A fleet official stated that they did not 

perform an inspection of the ship to determine specific repair 

requirements until late in the fiscal year.

Impact of Late Orders on 

Carryover

Our further review of the 68 fiscal year-end orders for 2003 and 2004 

disclosed that 39 of these orders—over half—were not completed within 

the next fiscal year, which resulted in carryover of 2 or more years. As we 
Page 26 GAO-06-530 Defense Working Capital Fund

reported in June 2005,16 two reasons generally caused work to carryover 

into a second fiscal year. First, the depots received orders late in the fiscal 

year and were unable to complete the effort by year end, as discussed in 

the previous section; and second, some depots were unable to obtain the 

materials/parts needed in a timely manner to complete the work. In 

addition to these reasons, we found that some working capital fund 

activities were unable to complete work within 1 year because of delays 

caused by backlogged or other higher priority work and broken or unsafe 

repair equipment. These factors have resulted in orders being carried over 

for more than 1 fiscal year and increased the carryover balances for 

subsequent years. As a result, these orders may not have been the most 

effective use of DOD resources at that time and may not have complied 

with all of the order acceptance provisions cited in the DOD Financial 

Management Regulation. 

The DOD Financial Management Regulation 7000.14-R, Volume 11A, 

Chapters 2 and 3, prescribes regulations governing the use of orders placed 

with working capital fund activities. When a working capital fund activity 

accepts an order, the customer’s funds financing the order are obligated. 

The DOD regulation identifies a number of requirements before a working 

capital fund activity accepts an order. For example, work to be performed 

under the order shall be expected to begin within a reasonable time after 

the order is accepted by the performing DOD activity. As a minimum 

requirement, it should be documented that when an order is accepted, the 

work is expected to (1) begin without delay (usually within 90 days) and 

(2) be completed within the normal production period for the specific work 

ordered. Further, the regulation states that no project order shall be issued 

if commencement of work is contingent upon the occurrence of a future 

event. Our review of 68 orders accepted by the working capital fund 

activities at year end determined that work on some of these orders did not 

begin within 90 days or was not completed within the normal production 

period for the work being performed. The following examples illustrate 

orders that were accepted by working capital fund activities at year end 

and (1) may not be the most effective use of DOD resources at that time 

and (2) may not have complied with all of the provisions contained in this 

regulation.

16GAO, Army Depot Maintenance: Ineffective Oversight of Depot Maintenance Operations 

and System Implementation Efforts, GAO-05-441 (Washington, D.C.: June 30, 2005).
Page 27 GAO-06-530 Defense Working Capital Fund

• On September 25, 2003, the Crane Army Ammunition Activity accepted 

an order totaling $1,885,000 that was financed with operation and 

maintenance funds for X-ray work to determine the safety and usability 

of 200,000 rounds of 40-millimeter high-explosive ammunition. However, 

due to problems with the X-ray inspection machine, the activity had to 

suspend work on the ammunition until the inspection machine was 

qualified as safe to use. According to the program engineer, work was 

delayed because imaging panels in the inspection machine were burning 

up and had to be replaced. Compounding this problem was a delay in 

the approval process for the safe operation of the machine. As a result, 

very little work was completed on this order over 3 fiscal years. 

Specifically, $1,885,000 carried over into fiscal year 2004 and $1,881,105 

carried over into fiscal year 2005 and again into fiscal year 2006. 

• On September 14, 2004, the Ogden Air Logistics Center accepted an 

order totaling $3.4 million that was financed with operation and 

maintenance funds to build an F-16 radar test station on behalf of the Air 

National Guard. According to a center official, even though the depot 

did not have the material to build the station, it accepted the order late 

in the fiscal year. Thus, the entire $3.4 million order carried over into 

fiscal year 2005. The center official noted that during fiscal year 2005, 

the activity group ordered the material and began work assembling the 

station, but as of the end of fiscal year 2005 all the material had not yet 

been received from contractors. Therefore, $277,898 carried over into 

fiscal year 2006.

• On September 29, 2003, the Sierra Army Depot accepted an order 

totaling $11,680,175 that was financed with operation and maintenance 

funds for the receipt, inspection, storage, and re-containerizing of 203 

containers of gas and oil pipeline equipment returned from Iraq and 

Afghanistan. Because this order was received so late in the fiscal year, 

the entire amount of the order—$11,680,175—was carried over into 

fiscal year 2004. According to the mission director, this order was 

delayed because (1) some containers were not returned from the war 

zones in a timely manner so the depot could refurbish them and (2) the 

depot received other, higher priority workloads, such as armored plating 

on wheeled vehicles. As a result, over half of the dollar amount of the 

order—$6,847,529—carried over into fiscal year 2005 and $2,643,093 

carried over into fiscal year 2006. 

• On September 16, 2003, the Space and Naval Warfare Systems Center in 

Charleston accepted an order for $232,200 that was financed with 
Page 28 GAO-06-530 Defense Working Capital Fund

operation and maintenance funds. The U.S. Naval Forces Central 

Command identified and funded this emergent requirement in August 

2003 in support of the Combat Terrorism Initiative during the Iraq war. 

More specifically, this order was for technical and installation services 

for a new communications link between Bahrain and Dubai. An activity 

official stated that minimal engineering services were initiated prior to 

the end of fiscal year 2003, so almost the entire dollar amount of the 

order—$230,000—carried over into fiscal year 2004. This official also 

stated the center encountered delays when the government of Dubai 

would not allow the leased line into the country from Bahrain. This 

resulted in $207,000 being carried over into fiscal year 2005, and $12,000 

being carried over into fiscal year 2006. 

• On September 11, 2003, the Oklahoma City Air Logistics Center 

accepted an order totaling about $1.8 million that was financed with 

operation and maintenance funds for the analytical condition 

inspection17 of a F110-129 engine. According to an Oklahoma City Air 

Logistics Center official, the center brought the engine in for repair in 

September 2003 to ensure that the funds were obligated by fiscal year 

end. Otherwise, the funds would expire and be unavailable for new 

workload. However, the center did not begin work on the engine until 

March 2004 due to a backlog of engines waiting for repair. Since the 

engine was accepted for repair in the last month of the fiscal year, 

almost the entire $1.8 million was carried over into fiscal year 2004. 

Further, because of production delays and a failed serviceability test, 

the center carried funds into fiscal year 2005 and again into fiscal year 

2006—more than 2 years after the order was accepted.

Conclusions The military services have provided erroneous carryover information to 

Congress and DOD decision makers because the services have not 

consistently applied DOD’s revised policy on carryover. Reliable and 

consistent carryover information is essential for Congress and DOD 

decision makers to perform their oversight, including reviewing DOD’s 

budget to determine if an activity group has too much or not enough 

17An analytical condition inspection is a systematic disassembly and inspection of a 

representative sample of end items to find hidden defects, deteriorating conditions, 

corrosion fatigue, overstress, or other deficiencies in an aircraft structure or systems. These 

inspections are normally over and above those inspections in normal program depot 

maintenance.
Page 29 GAO-06-530 Defense Working Capital Fund

carryover. To provide greater assurance that the military services provide 

reliable and consistent carryover information, the military services must be 

held accountable for the accuracy of reported carryover information and 

ensure the timely identification of unneeded customer funds. While DOD’s 

guidance on calculating carryover was not adequate when it revised its 

carryover policy in 2002, DOD began improving the guidance in 2004. 

However, DOD has not updated the Financial Management Regulation so 

that it includes comprehensive carryover guidance to the military services, 

and the services have not always complied with the carryover guidance in 

the past. Until this is done, Congress and DOD decision makers will be 

forced to make key budget decisions, such as whether to enhance or 

reduce customer budgets, based on unreliable information. In addition, 

DOD working capital fund activities’ acceptance of year-end orders 

(1) increases the amount of carryover and (2) in some cases, contributes to 

DOD working capital fund activities’ actual carryover amounts exceeding 

their allowable amounts by tens of millions of dollars. Excessive amounts 

of year-end carryover tie up customer funds that could be put to better 

near-term use and are subject to reductions by DOD and the congressional 

defense committees during the budget review process.

Recommendations for 

Executive Action

In order to improve the business operations of the Department of Defense 

Working Capital Fund, we are making the following eight 

recommendations to the Secretary of Defense.

We recommend that the Secretary of Defense direct the Under Secretary of 

Defense (Comptroller) to take the following actions:

• Issue written instructions in its DOD Financial Management Regulation 

7000.14-R specifying the outlay rates to be used by DOD working capital 

fund activities for calculating the allowable amount of carryover and 

continue to issue carryover guidance to the military services in its 

annual guidance on preparing budget justification book material for 

Congress.

• Review the carryover information provided in the military services’ 

annual budget submissions to help ensure the services are calculating 

their allowable and actual carryover amounts in accordance with DOD 

policy. 

• Reiterate the requirements in the DOD Financial Management 

Regulation 7000.14-R to help ensure that working capital fund activities 
Page 30 GAO-06-530 Defense Working Capital Fund

are in compliance with the regulations governing acceptance of orders, 

particularly at fiscal year end.

We recommend that the Secretary of Defense direct the Secretary of the Air 

Force to take the following actions:

• Use the current outlay rate tables that are included in the DOD Financial 

Summary Tables when calculating the allowable carryover amounts for 

the Air Force depot maintenance activity group, consistent with DOD 

policy.

• Use only current year orders for calculating the allowable carryover 

amounts for the Air Force depot maintenance activity group, as required 

by DOD carryover policy.

• Include all orders when calculating the amount of actual carryover for 

the Air Force depot maintenance activity group, except those orders 

that are specifically excluded in DOD Financial Management Regulation 

7000.14-R or are excluded by the Under Secretary of Defense 

(Comptroller) in writing.

• Include the allowable and actual dollar amounts of carryover for the Air 

Force depot maintenance activity group in the Air Force’s annual budget 

to Congress, as required by DOD Financial Management Regulation 

7000.14-R.

We recommend that the Secretary of Defense direct the Secretary of the 

Navy to include the allowable and actual amounts of carryover for each of 

the five Navy research and development subactivity groups in the Navy’s 

annual budget to Congress. 

Agency Comments and 

Our Evaluation

DOD provided written comments on a draft of this report. DOD concurred 

with all eight of our recommendations. Regarding its plans for 

implementing the eight recommendations, DOD stated that it is in the 

process of updating its financial management regulations and issuing 

budget guidance for the fiscal year 2008/2009 President’s Budget, which 

will address calculating the allowable amount of carryover. Further, DOD 

stated that it made a more rigorous review of the services’ carryover 

information in the fiscal year 2007 President’s Budget submission and that 

it will continue reviewing the services’ budgets to ensure that the services 

are calculating allowable and actual amounts of carryover in accordance 
Page 31 GAO-06-530 Defense Working Capital Fund

with DOD policy. DOD also stated that it will direct the Navy to report 

carryover information for each of the five Navy research and development 

subactivity groups in the Navy’s annual budget to Congress. Finally, as 

preparation for the close out of fiscal year 2006, DOD will reiterate the 

guidance in its Financial Management Regulation governing the working 

capital fund acceptance of orders which obligates customers’ funds, 

particularly at year end.

DOD also commented that the inaccuracies we identified in reported 

carryover did not materially distort the evaluation of depot operations or 

projected workload levels. While we do not know how DOD defines 

materiality, we believe that the reporting inaccuracies affect the evaluation 

of depot operations from a workload standpoint because the inaccuracies 

understated the carryover balances for some activity groups by hundreds 

of millions of dollars. For example, as stated in our report, the Air Force 

reported that its fiscal year 2002 depot maintenance carryover was $87 

million under the ceiling but our calculation shows that the carryover 

exceeded the ceiling by $216 million, a difference of $303 million. In 

another case, the Army reported that its fiscal year 2003 depot maintenance 

carryover was $127 million over the ceiling but our calculations show that 

it was over the ceiling by $322 million, a difference of $195 million. As a 

result of these understatements, the amount of work carried over from one 

year to next was not reliable and could have affected DOD’s and the 

congressional defense committees’ review and evaluation of carryover 

during their annual budget review.

We are sending copies of this report to the Chairmen and Ranking Minority 

Members of the Senate Committee on Armed Services; the Subcommittee 

on Readiness and Management Support, Senate Committee on Armed 

Services; the Subcommittee on Defense, Senate Committee on 

Appropriations; the House Committee on Armed Services; the 

Subcommittee on Readiness, House Committee on Armed Services; and the 

Ranking Minority Member, Subcommittee on Defense, House Committee 

on Appropriations. We are also sending copies to the Secretary of Defense, 

Secretaries of the Army, Navy, and Air Force, and other interested parties. 

Copies will be made available to others upon request. Should you or your 

staff have any questions concerning this report, please contact McCoy 

Williams, Director, at (202) 512-9095 or williamsm1@gao.gov, or William M. 

Solis, Director, at (202) 512-8365 or solisw@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 
Page 32 GAO-06-530 Defense Working Capital Fund

last page of this report. Key contributors to this report are listed in 

appendix III.

Sincerely yours,

McCoy Williams

Director, Financial Management and Assurance

William M. Solis

Director, Defense Capabilities and Management
Page 33 GAO-06-530 Defense Working Capital Fund

Appendix I

Scope and Methodology AAppenednxidexiIs

To determine if the military services’ carryover calculations were in 

compliance with the Department of Defense’s (DOD) new carryover policy, 

we obtained and analyzed the services’ calculations for the (1) reported 

year-end actual carryover balances for fiscal years 2002 through 2005 and 

(2) allowable amount of carryover for fiscal years 2002 through 2005. We 

recomputed the services’ calculations following DOD’s regulation on 

carryover and compared our carryover calculations with the services’ 

carryover calculations. We met with officials from the Army, Navy, and Air 

Force to discuss (1) the methodology the services used to calculate 

carryover and (2) any differences between our calculations and their 

calculations. We also met with officials from the Office of the Under 

Secretary of Defense (Comptroller) to discuss DOD’s new carryover policy, 

including the proper calculation for actual carryover and the allowable 

amount of carryover. To assess the reliability of the carryover data, we 

(1) reviewed and analyzed the factors used in calculating carryover and 

(2) interviewed officials knowledgeable about the data. We determined that 

the data were sufficiently reliable for the purposes in this report.

To determine if customers were submitting orders to working capital fund 

activities late in the fiscal year and, if so, the effect that this practice has 

had on carryover, we obtained data on orders accepted by working capital 

fund activities in September 2003 and September 2004. Initially, we 

obtained information on the top 20 orders from a dollar standpoint that 

selected working capital fund activities accepted from customers in 

September 2003 and September 2004. We analyzed the information on the 

orders, which included the appropriation financing the order, the date the 

order was accepted by the working capital fund activity, and a description 

of the work to be performed. We then selected and analyzed 68 orders with 

large dollar amounts that working capital fund activities accepted in 

September. We also interviewed (1) working capital fund officials to 

determine the current status of performing the work on the orders and 

(2) customers to determine the reasons why they sent the orders to the 

working capital fund activities late in the fiscal year. In performing our 

work on these orders, we did not review these orders to determine if there 

was a bona fide need for the work being ordered by customers. 

We performed our work at the headquarters offices of the Under Secretary 

of Defense (Comptroller), the Assistant Secretary of the Army (Financial 

Management and Comptroller), the Assistant Secretary of the Navy 

(Financial Management and Comptroller), and the Assistant Secretary of 

the Air Force (Financial Management and Comptroller), Washington, D.C. 

In performing our work on reviewing the services’ carryover calculations, 
Appendix I

Scope and Methodology

Page 34 GAO-06-530 Defense Working Capital Fund

we obtained carryover information on the following Defense Working 

Capital Fund activity groups: (1) Army depot maintenance, (2) Army 

ordnance, (3) Army industrial operations, (4) Air Force depot maintenance, 

(5) Naval aviation depots, (6) Naval shipyards, and (7) Naval research and 

development. The Naval research and development activity group consists 

of the following five subgroups: Naval Air Warfare Center, Naval Surface 

Warfare Center, Naval Undersea Warfare Center, Naval Research 

Laboratory, and the Space and Naval Warfare Systems Command Center. 

In performing our work on reviewing individual orders, we obtained 

information from the following working capital fund activities and their 

customers that submitted the orders.

Air Force • Ogden Air Logistics Center, Hill Air Force Base, Utah

• Oklahoma City Air Logistics Center, Tinker Air Force Base, Oklahoma

• Warner Robins Air Logistics Center, Robins Air Force Base, Georgia

Navy • Naval Air Systems Command, Patuxent River, Maryland

• Naval Air Warfare Center, Aircraft Division, Patuxent River, Maryland

• Naval Air Warfare Center, Weapons Division, China Lake, California

• Naval Aviation Depot, San Diego, California

• Space and Naval Warfare Systems Command, San Diego, California

• Space and Naval Warfare Systems Center, San Diego, California

• Space and Naval Warfare Systems Center, Charleston, South Carolina

Army • Blue Grass Army Depot, Richmond, Kentucky

• Crane Army Ammunition Activity, Crane, Indiana

• Rock Island Arsenal, Rock Island, Illinois

• Sierra Army Depot, Herlong, California

• Red River Army Depot, Texarkana, Texas

• Tobyhanna Army Depot, Tobyhanna, Pennsylvania

The carryover information in this report is budget data obtained from 

official Army, Navy, and Air Force budget documents. We conducted our 

work from July 2005 through March 2006 in accordance with U.S. generally 

accepted government auditing standards. We requested comments on a 

draft of this report from the Secretary of Defense or his designee. The 

Under Secretary of Defense (Comptroller) provided written comments, and 
Appendix I

Scope and Methodology

Page 35 GAO-06-530 Defense Working Capital Fund

these comments are presented in the Agency Comments and Our 

Evaluation section of this report and are reprinted in appendix II.
Page 36 GAO-06-530 Defense Working Capital Fund

Appendix II

Comments from the Department Of Defense ApendxiI
Appendix II

Comments from the Department Of Defense

Page 37 GAO-06-530 Defense Working Capital Fund
Appendix II

Comments from the Department Of Defense

Page 38 GAO-06-530 Defense Working Capital Fund
Appendix II

Comments from the Department Of Defense

Page 39 GAO-06-530 Defense Working Capital Fund
Page 40 GAO-06-530 Defense Working Capital Fund

Appendix III

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts McCoy Williams, (202) 512-9095

William M. Solis, (202) 512-8365

Acknowledgments Staff who made key contributions to this report were Richard Cambosos, 

Francine DelVecchio, Keith McDaniel, Clara Mejstrik, Greg Pugnetti, Chris 

Rice, and Hal Santarelli.

(195066)
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