ARMY WORKING 

CAPITAL FUND

Army Industrial 

Operations Could 

Improve Budgeting 

and Management of 

Carryover

Report to the Subcommittee on 

Readiness and Management Support, 

Committee on Armed Services, U.S. 

Senate

June 2016

GAO-16-543

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-543, a report to the 

Subcommittee on Readiness and 

Management Support, Committee on Armed 

Services, U.S. Senate

June 2016

ARMY WORKING CAPITAL FUND

Army Industrial Operations Could Improve Budgeting 

and Management of Carryover

Why GAO Did This Study

Industrial Operations’ activities support 

combat readiness by providing depot 

maintenance and ordnance services to 

keep Army units operating worldwide. 

To the extent that these activities do 

not complete work ordered and funded 

by fiscal year-end, the work and 

related funding will be carried over into 

the next fiscal year. DOD established a 

formula based on new orders from 

customers for determining the 

allowable carryover as defined by 

DOD’s Financial Management 

Regulation. GAO was asked to review

issues related to carryover.

GAO’s objectives were to determine 

(1) the extent to which Industrial 

Operations’ actual carryover differed 

from allowable amounts and reasons 

for differences; (2) the extent to which 

Industrial Operations’ budgeted 

carryover differed from actual 

carryover, reasons for differences, and 

actions Army is taking to improve 

related budgeting; and (3) the key 

drivers for orders with large carryover 

balances and the extent to which the 

Army is taking actions to reduce 

carryover. GAO reviewed carryover 

guidance, analyzed carryover and 

related data, and interviewed Army 

officials. 

What GAO Recommends

GAO recommends that DOD improve 

the budgeting and management for 

carryover by establishing procedures 

for correctly calculating the allowable 

carryover, improving budget estimates 

on carryover, and addressing in its

draft regulation scope of work and 

parts issues that affect carryover. DOD 

concurred with GAO’s 

recommendations and cited related 

actions planned or under way.

What GAO Found

GAO’s analysis of Army Industrial Operations (Industrial Operations) reports 

showed that Industrial Operations actual adjusted carryover exceeded its 

allowable carryover amount from fiscal years 2013 through 2015 by $195 million, 

$1.1 billion, and $854 million, respectively. This occurred because Industrial 

Operations performed less work (i.e., earned less revenue) than orders accepted 

due to staff reductions of more than 5,000 over the 2-year period for fiscal years 

2013 and 2014 caused by budgetary uncertainty and the across-the-board 

spending reductions referred to as sequestration. GAO also determined that the 

Army did not correctly calculate the allowable carryover amounts for fiscal years 

2013 and 2014 as specified by the Department of Defense (DOD) Financial 

Management Regulation because the Army did not use the most recent data 

available to perform the calculations. Based on GAO’s calculations, Industrial 

Operations exceeded the allowable amounts by $44 million less in fiscal year 

2013 and $27 million more in fiscal year 2014 than reported. 

Industrial Operations’ actual adjusted carryover also significantly exceeded 

budgeted adjusted carryover from fiscal years 2013 through 2015. While its

budgeted adjusted carryover would have been under the allowable amount by 

$174 million and $1.2 billion for fiscal years 2013 and 2014, respectively, and

over the allowable amount by $186 million for fiscal year 2015, the actual 

adjusted carryover amount exceeded the allowable amounts all 3 fiscal years

because Industrial Operations (1) accepted more new orders than budgeted and 

(2) performed less work (earned less revenue) than budgeted.

Actual and Budgeted Army Industrial Operations’ New Orders and Revenue for Fiscal Years 

2013 through 2015 

Dollars in millions

New orders Revenue

Fiscal year Actual Budget Difference Actual Budget Difference 

2013 5,375 5,092 283 5,061 6,268 (1,207)

2014 4,772 4,401 371 4,543 6,024 (1,481)

2015 4,474 3,984 490 4,529 4,661 (132)

Source: GAO analysis of Army Industrial Operations’ budgets. | GAO-16-543

To address budget concerns, the Army has implemented actions intended to 

improve budget information. However, Industrial Operations has not been able to

provide reliable budget information on carryover to decision makers from fiscal 

years 2013 through 2015.

GAO identified four key drivers for large Industrial Operations carryover 

balances: (1) work was scheduled to carry over at the end of the fiscal year as 

part of the normal course of business, (2) work on crash-damaged aircraft was 

difficult to predict and required nonstandard repairs that necessitated long lead 

time parts to perform the work, (3) work did not have a well-defined scope of 

work for repairing the assets, and (4) parts were not available to perform work. 

The Army is taking actions to reduce carryover. One of those actions is to 

develop a regulation that consolidates and updates guidance for Industrial 

Operations. However, this regulation has not yet been completed, issued, and 

implemented. 

View GAO-16-543. For more information, 

contact Asif A. Khan at (202) 512-9869 or 

khana@gao.gov.
Page i GAO-16-543 Army Industrial Operations Carryover

Letter 1

Background 4

Industrial Operations Actual Adjusted Carryover Exceeded the 

Allowable Amount Because It Performed Less Work Than 

Orders Accepted 8

Actual Adjusted Carryover Significantly Exceeded Budgeted 

Adjusted Carryover Because Industrial Operations 

Underestimated New Orders and Overestimated Revenue 14

Four Key Drivers Led to Carryover at the End of Fiscal Years 

2014 and 2015, and the Army Has Actions Under Way to 

Address Problem Areas 19

Conclusions 30

Recommendations for Executive Action 30

Agency Comments 31

Appendix I Scope and Methodology 33

Appendix II Comments from the Department of Defense 36

Appendix III GAO Contact and Staff Acknowledgments 39

Tables

Table 1: Army Industrial Operations Actual Adjusted Carryover, 

Allowable Carryover, and Carryover Amounts over the 

Allowable Amounts for Fiscal Years 2013 through 2015 9

Table 2: Actual Adjusted and Budgeted Adjusted Army Industrial 

Operations’ Carryover for Fiscal Years 2013 through 2015 14

Table 3: Actual Adjusted and Budgeted Adjusted Army Industrial 

Operations’ Carryover Amounts over or under Allowable 

Amounts for Fiscal Years 2013 through 2015 15

Table 4: Actual and Budgeted Army Industrial Operations’ New 

Orders for Fiscal Years 2006 through 2015 16

Table 5: Actual and Budgeted Army Industrial Operations’ 

Revenue for Fiscal Years 2013 through 2015 17

Contents
Page ii GAO-16-543 Army Industrial Operations Carryover

Figure

Figure 1: Summary-Level Formula for Calculating Dollar Amount 

of Actual Carryover at End of Fiscal Year 5

Abbreviations

AMC Army Materiel Command

DLA Defense Logistics Agency

DOD Department of Defense

LCMC Life Cycle Management Command

MATV MRAP All-Terrain Vehicle

MRAP Mine Resistant Ambush Protected vehicle

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-16-543 Army Industrial Operations Carryover

441 G St. N.W.

Washington, DC 20548

June 23, 2016

The Honorable Kelly Ayotte

Chairman

The Honorable Tim Kaine

Ranking Member

Subcommittee on Readiness and Management Support

Committee on Armed Services

United States Senate

The Army operates 13 Industrial Operations activities that provide depot 

maintenance and ordnance services as part of the Army Working Capital 

Fund.1 Depot maintenance services include the repair and overhaul of a 

wide range of vehicles and other military assets, including helicopters, 

combat vehicles, and air defense systems. Ordnance services include 

manufacturing, renovating, and demilitarizing munitions and components. 

From fiscal year 2013 through fiscal year 2015, the annual dollar amount 

of new orders to perform this work ranged from $4.5 billion to $5.4 billion. 

Many of these military assets and munitions were used to support the 

Army’s efforts in Iraq and Afghanistan.

When Army Industrial Operations (referred to as Industrial Operations in 

this report) work has been ordered and funded (obligated) by customers 

(such as the military services) but has not been completed by the end of a 

fiscal year, it is referred to as carryover.2 The Department of Defense 

(DOD) Financial Management Regulation establishes the formula to be 

 1

The 13 Army Industrial Operations’ activities are the Anniston Army Depot, Anniston, 

Alabama; the Blue Grass Army Depot, Richmond, Kentucky; the Corpus Christi Army 

Depot, Corpus Christi, Texas; the Crane Army Ammunition Activity, Crane, Indiana; the 

Letterkenny Army Depot, Chambersburg, Pennsylvania; the McAlester Army Ammunition 

Plant, McAlester, Oklahoma; the Pine Bluff Arsenal, Pine Bluff, Arkansas; the Red River 

Army Depot, Texarkana, Texas; the Rock Island Arsenal-Joint Manufacturing and 

Technology Center, Rock Island, Illinois; the Sierra Army Depot, Herlong, California; the 

Tobyhanna Army Depot, Tobyhanna, Pennsylvania; the Tooele Army Depot, Tooele, 

Utah; and the Watervliet Arsenal, Watervliet, New York.

2

An obligation is a definite commitment that creates a legal liability of the government for 

the payment of goods and services ordered or received, or a legal duty that could mature 

into a liability by virtue of actions outside of the government’s control. Payment can be 

made immediately or in the future.

Letter
Page 2 GAO-16-543 Army Industrial Operations Carryover

used for calculating and determining the amount of carryover allowed at 

the end of each fiscal year, which is based in part on the amount of new 

orders from customers.3 The congressional defense committees have 

recognized that some carryover is appropriate to facilitate a smooth flow 

of work during the transition from one fiscal year to the next. However, 

past congressional defense committee reports have noted that the level 

of carryover in military service working capital funds may be more than is 

needed. Too much carryover could result in the working capital fund 

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

work until well into the next fiscal year or later. Further, excessive 

amounts of carryover may result in future appropriations or budget 

requests being subject to reductions by DOD and the congressional 

defense committees during the budget review process. For example, 

according to the explanatory statement accompanying DOD’s fiscal year 

2013 appropriations, congressional conferees agreed to reduce Army, 

Navy, Air Force, and Marine Corps fiscal year 2013 operation and 

maintenance appropriations by a total of $332.3 million because of 

concerns about excess carryover.4

You asked us to review issues related to Industrial Operations carryover. 

Our objectives were to determine (1) the extent to which Industrial 

Operations’ actual carryover differed from the allowable amounts from 

fiscal years 2013 through 2015 and the reasons for any differences; 

(2) the extent to which Industrial Operations’ budgeted carryover differed 

from actual carryover from fiscal years 2013 through 2015, reasons for 

any differences, and actions Army is taking to improve related budgeting; 

and (3) the key drivers for orders with large carryover balances for fiscal 

years 2014 and 2015 and the extent to which the Army is taking actions 

to reduce carryover.

To address the first and second objectives, we obtained and analyzed 

Industrial Operations reports and Army Working Capital Fund budget 

estimates submitted to Congress that contained information on budgeted 

and actual carryover and the allowable amount of carryover for fiscal 

years 2013 through 2015. We analyzed carryover since fiscal year 2013 

because we previously reported on Industrial Operations carryover from 

 3

Department of Defense, Financial Management Regulation 7000.14-R, vol. 2B, ch. 9, 

Defense Working Capital Fund Budget Justification Analysis (December 2014).

4

159 Cong. Rec. S1350-61 (Mar. 11, 2013).
Page 3 GAO-16-543 Army Industrial Operations Carryover

fiscal years 2006 through 2012.5 We met with responsible officials from 

the Army to determine the reasons for any variances between (1) actual 

carryover and the allowable amount of carryover and (2) budgeted and 

actual carryover. We also met with these officials to discuss actions the 

Army was taking to improve budgeting and management of carryover, 

including the reduction of actual carryover amounts. Further, we identified 

and analyzed any adjustments made by the Army that increased the 

allowable carryover amounts or reduced the amount of actual carryover. 

We reviewed DOD’s guidance for granting exceptions to the carryover 

policy and discussed any exceptions with officials from the Office of the 

Under Secretary of Defense (Comptroller) and Army headquarters to 

obtain explanations for the exceptions.

To address the third objective, we met with responsible officials from 

Army headquarters, Army Materiel Command, and Army depots to 

identify contributing factors that led to carryover. We focused on carryover 

balances for fiscal years 2014 and 2015 to identify current issues 

contributing to carryover. We also performed walk-throughs of four Army 

depot maintenance operations to observe the work being performed and 

discussed with officials the causes for workload carrying over from one 

fiscal year to the next. Further, to corroborate the information provided by 

Army officials, we obtained and analyzed a total of 80 customer orders 

consisting of the 40 orders that had the largest dollar amounts of 

carryover at the end of each of fiscal years 2014 and 2015. Carryover 

amounts associated with these orders represented 31 percent of the total 

carryover each year collectively at the four Army depots we visited for 

fiscal years 2014 and 2015. We also interviewed officials and obtained 

documentation on the actions the Army is taking to better manage and 

reduce carryover.

We obtained the financial and logistical data in this report from official 

budget documents and the Army’s logistical system. To assess the 

reliability of the data, we analyzed carryover and related data, interviewed 

Army officials knowledgeable about the carryover data, and reviewed 

customer orders to determine whether they were adequately supported 

 5

GAO, Army Industrial Operations: Budgeting and Management of Carryover Could Be 

Improved, GAO-13-499 (Washington, D.C.: June 27, 2013). We made three 

recommendations aimed at implementing the planned actions identified by the Army 

working group to improve the budgeting and management of carryover, and the Army took 

actions to address our recommendations.
Page 4 GAO-16-543 Army Industrial Operations Carryover

by documentation. On the basis of procedures performed, we have 

concluded that these data were sufficiently reliable for the purposes of 

this report. See appendix I for additional details on our scope and 

methodology.

We conducted this performance audit from June 2015 to June 2016 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

The 13 Industrial Operations’ activities provide services for a variety of 

customers, including the Army, the Navy, the Air Force, non-DOD 

agencies, and foreign countries. The majority of the work is for the Army. 

Operating under the working capital fund concept, Industrial Operations 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.6 Customers, 

such as the Army, use appropriated funds (typically operation and 

maintenance or procurement appropriations) to finance orders placed 

with Industrial Operations. When an Industrial Operations activity accepts 

a customer order, the amount of the order is obligated on the customer’s 

records. Upon accepting the order, the Industrial Operations activity can 

start work on the order, such as beginning the work and ordering the 

material or parts needed to perform the work.

Industrial Operations provides the Army an in-house industrial capability 

to (1) conduct depot-level maintenance, repair, and upgrade; (2) produce 

munitions and large-caliber weapons; and (3) store, maintain, and 

demilitarize material for DOD. Industrial Operations comprises 13 

government-owned and government-operated activities, each with unique 

core competencies: five maintenance depots (Anniston, Alabama; Corpus 

Christi, Texas; Letterkenny, Pennsylvania; Red River, Texas; and 

 6

The basic principle of the working capital fund structure in DOD is to create a customerprovider relationship between military operating units and support organizations. Working 

capital fund activities finance inventories of common supplies and provide working capital 

for industrial and commercial activities that provide common services within or among 

DOD entities.

Background
Page 5 GAO-16-543 Army Industrial Operations Carryover

Tobyhanna, Pennsylvania), three arsenals (Pine Bluff, Arkansas; Rock 

Island, Illinois; and Watervliet, New York), two munitions production 

facilities (Crane, Indiana, and McAlester, Oklahoma), and three storage 

sites (Blue Grass, Kentucky; Sierra, California; and Tooele, Utah). The 

five depots perform the preponderance of the Industrial Operations 

workload.

Army Materiel Command (AMC) serves as the management command for 

Industrial Operations. Industrial Operations activities report under the 

direct command and control of the Army’s Life Cycle Management 

Commands (LCMC), with each activity aligned in accordance with the 

nature of its mission. For example, the work performed at Anniston and 

Red River is aligned with the Army’s Tank-automotive and Armaments 

Command LCMC mission of developing, acquiring, fielding, and 

sustaining ground systems, such as the Mine Resistant Ambush 

Protected vehicles and Abrams tank. The work performed at Letterkenny 

and Corpus Christi is aligned with the Army’s Aviation and Missile 

Command LCMC mission of developing, acquiring, fielding, and 

sustaining aviation, missile, and unmanned vehicle systems, such as the 

Patriot missile and Black Hawk helicopter.

When Industrial Operations work has been ordered and funded 

(obligated) by customers but has not been completed at the end of a 

fiscal year, it is referred to as carryover. To calculate the actual carryover 

for Industrial Operations, the Army uses the summary-level formula 

shown in figure 1.

Figure 1: Summary-Level Formula for Calculating Dollar Amount of Actual Carryover at End of Fiscal Year

Some carryover is appropriate in order for working capital fund activities, 

such as Industrial Operations, to ensure the continuity of operations from 

Carryover and Its Use
Page 6 GAO-16-543 Army Industrial Operations Carryover

one fiscal year to the next. For example, if customers do not place orders 

at the beginning of the fiscal year because of uncertainty about their fullyear appropriations,7 carryover is necessary to ensure that Industrial 

Operations’ activities (1) have enough work to continue operations into 

the new fiscal year and (2) retain the appropriate number of personnel 

with sufficient skill sets to perform depot maintenance work. Too little 

carryover could result in inefficient use of resources with some personnel 

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

other hand, too much carryover could result in the working capital fund 

accepting orders from customers in one fiscal year but not performing the 

work until well into the next fiscal year or later. Further, excessive 

amounts of carryover may result in future appropriations or budget 

requests being subject to reductions by DOD and the congressional 

defense committees during the budget review process. By limiting the 

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

effective manner and minimize the backlog of work and “banking” of 

related funding for work and programs to be performed in subsequent 

years.

DOD’s Financial Management Regulation 7000.14-R, volume 2B, chapter 

9,8 provides that the allowable amount of carryover each year is to be 

based on the dollar amount of new orders received that year and the 

outlay rate of the customers’ appropriations financing the work.9 For 

example, customer orders financed with a specific appropriation total 

$100. If the outlay rate for this appropriation is 60 percent, then the 

 7

In recent years, DOD has often started the year under a continuing resolution, which 

provides budget authority to federal agencies to continue their operations when Congress 

and the President have not completed action on the regular appropriation acts by the 

beginning of the fiscal year.

8

The DOD Financial Management Regulation directs statutory and regulatory financial 

management requirements, systems, and functions for all appropriated and 

nonappropriated, working capital, revolving, and trust fund activities. See Department of 

Defense, Financial Management Regulation 7000.14-R, Introduction, p. I-3 (June 2011). 

9

The outlay rate for appropriations is contained in the DOD Financial Summary Tables, 

which are published each year. The outlay rates provide a profile of how money 

appropriated for a program is expected to be spent over time according to the type of 

program. For example, aircraft procurement is allowed to be spent over a period of several 

years. Each appropriation category has an outlay profile that specifies the percentage of 

the appropriation that is expected to be spent in the first year of appropriation, the second 

year, and so on until 100 percent is spent. 

DOD’s Carryover Policy
Page 7 GAO-16-543 Army Industrial Operations Carryover

working capital fund activity group is allowed to carry over $40 (i.e., $100 

- [$100 x 60 percent] = $40). The DOD carryover policy further provides 

that for orders funded with non-procurement appropriations, work on the 

current fiscal year’s orders is expected to be completed by the end of the 

following fiscal year. For orders funded with procurement appropriations, 

however, the DOD Financial Management Regulation requires the first 

and second year published outlay rates be used to calculate the allowable 

carryover amount. The Army calculates the allowable amount of carryover 

for Industrial Operations.

DOD’s Financial Management Regulation also provides that 

(1) nonfederal orders, non-DOD orders, foreign military sales, work 

related to base realignment and closure, and work in progress are to be 

excluded from the carryover calculation; (2) exceptions to the carryover 

policy that have been approved by the Director for Revolving Funds, 

Office of the Under Secretary of Defense (Comptroller), are to be 

excluded from the carryover calculation; and (3) the reported actual 

carryover after applying these exclusions and exceptions (referred to as 

actual adjusted carryover in this report) is then compared to the amount 

of allowable carryover to determine whether the actual carryover amount 

is over or under the allowable carryover amount.

According to the DOD Financial Management Regulation, this carryover 

policy allows for an analytical-based approach that holds working capital 

fund activities to the same outlay standard as the general fund and allows 

for meaningful budget execution analysis. Requests for exceptions to the 

carryover policy must be submitted by the military services to the Director 

for Revolving Funds, Office of the Under Secretary of Defense 

(Comptroller), separate from the budget documents. Office of the Under 

Secretary of Defense (Comptroller) officials told us that they review 

requests for exceptions to the carryover policy on a case-by-case basis. 

Depending on the request, they may ask for additional information to 

evaluate the request.
Page 8 GAO-16-543 Army Industrial Operations Carryover

Our analysis of Industrial Operations reports shows that Industrial 

Operations actual adjusted carryover exceeded the allowable carryover 

amount by $195 million, $1,065 million, and $854 million for fiscal years 

2013, 2014, and 2015, respectively. This occurred because Industrial 

Operations performed significantly less work (earned less revenue) than 

the amount of orders it accepted. Industrial Operations performed less 

work because it reduced personnel by more than 5,000 over the 2-year 

period for fiscal years 2013 and 2014 due to budgetary uncertainty based 

on the continuing resolution that extended throughout much of fiscal year 

2013 and across-the-board spending reductions referred to as 

sequestration.10 We also found that the Army’s calculations of the 

allowable carryover amounts for fiscal years 2013 and 2014 were 

incorrect as specified by DOD’s Financial Management Regulation 

because it did not use data from the most recent DOD Financial 

Summary Tables to perform the calculations.11 Based on our calculations, 

Industrial Operations exceeded the allowable amounts by $44 million less 

in fiscal year 2013 and $27 million more in fiscal year 2014 than reported 

in its budgets.

10Sequestration is the cancellation of budgetary resources under a presidential order, as 

authorized by applicable federal budget statutes. On March 1, 2013, pursuant to the 

Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), Pub. L. No. 99-

177, title II (Dec. 12, 1985), as amended by the Budget Control Act of 2011, Pub. L. No. 

112-25 (Aug. 2, 2011), the President ordered the sequestration of $85.3 billion across the 

federal government. The Budget Control Act of 2011’s amendments established the Joint 

Committee on Deficit Reduction (Joint Committee), which was tasked with proposing 

legislation to reduce the deficit by at least an additional $1.2 trillion through fiscal year 

2021. The Joint Committee did not report a proposal and legislation was not enacted. This 

triggered the sequestration process in section 251A of BBEDCA, known as the Joint 

Committee Sequestration. Under the Joint Committee Sequestration, BBEDCA required 

an annual reduction of $109.3 billion, which was reduced to $85.3 billion for fiscal year 

2013 in January 2013 due to savings achieved under the American Taxpayer Relief Act of 

2012. Final appropriations enacted on March 26, 2013 had the effect of reducing this 

amount to $80.5 billion. Over $37 billion of DOD’s budgetary resources were sequestered 

in fiscal year 2013.

11DOD Financial Summary Tables are updated annually and provide information on 

appropriations such as total obligational authority, budget authority, and outlays and 

obligation rates for appropriations. The outlay rates are used in calculating the allowable 

carryover amount. 

Industrial Operations 

Actual Adjusted 

Carryover Exceeded 

the Allowable Amount 

Because It Performed 

Less Work Than 

Orders Accepted
Page 9 GAO-16-543 Army Industrial Operations Carryover

Our analysis of Industrial Operations reports showed that Industrial 

Operations actual adjusted carryover amounts for fiscal years 2013 

through 2015 exceeded the allowable amounts for each fiscal year 

because Industrial Operations performed significantly less work than 

orders accepted in fiscal years 2013 and 2014. Table 1 shows the 

amounts of actual adjusted carryover, the allowable amounts, and the 

actual adjusted carryover amounts over the allowable amounts in 

Industrial Operations budgets for fiscal years 2013 through 2015.

Table 1: Army Industrial Operations Actual Adjusted Carryover, Allowable Carryover, and Carryover Amounts over the 

Allowable Amounts for Fiscal Years 2013 through 2015

Dollars in millions

Fiscal year Actual adjusted carryover Allowable amount

Actual adjusted carryover

over allowable amount

2013 4,491 4,297 195

2014 4,445 3,379 1,065

2015 3,988 3,134 854

Source: Army Industrial Operations’ budgets. | GAO-16-543

Note: The allowable amounts presented in this table are the amounts shown in the Army Industrial 

Operations’ budgets submitted to Congress. As discussed later in this report, we identified errors in 

the allowable amounts the Army reported; however, even after adjusting for these errors, the actual 

adjusted carryover still exceeded the allowable carryover each year.

Our analysis of Industrial Operations reports showed that it performed 

$313 million and $229 million less work than the value of orders accepted 

in fiscal years 2013 and 2014, respectively. For fiscal year 2015, our 

analysis showed that it performed $55 million more work than orders 

accepted. However, because of the significant backlog of unfilled orders 

from the prior years— work still needed to be performed in fiscal year 

2015—the amount of carryover in fiscal year 2015 still exceeded the 

allowable amount. Army headquarters and AMC officials stated that 

significantly less work was performed, resulting in less revenue earned for 

fiscal years 2013 and 2014, because Industrial Operations reduced 

personnel by approximately 4,200 in fiscal year 2013 and an additional 

900 in fiscal year 2014. Industrial Operations reduced personnel because 

of budgetary uncertainty related to a continuing resolution that extended 

throughout much of fiscal year 2013 and sequestration as discussed 

below.

Work Performed by 

Industrial Operations Was 

Less Than Orders 

Accepted for Fiscal Years 

2013 and 2014, Resulting 

in Adjusted Carryover 

Exceeding the Allowable 

Amounts
Page 10 GAO-16-543 Army Industrial Operations Carryover

• On January 10, 2013, the Deputy Secretary of Defense directed the 

military departments, including the Army, to take immediate action to 

help mitigate budget execution risk because of budgetary uncertainty 

based on the fact that DOD was operating under a continuing 

resolution and the possibility of the implementation of sequestration in 

the beginning of March 2013.12 The Deputy Secretary of Defense 

directed the military departments to formulate plans to mitigate the 

effects associated with budgetary uncertainty. The details of the 

guidance included imposing hiring freezes, releasing temporary 

employees, not renewing term hires, and consideration of the 

possibility of furloughs.

• Pursuant to the DOD guidance, the Army issued implementing 

guidance to the Army components on January 16, 2013.13 The 

guidance directed the Army components to immediately freeze hiring 

of civilian personnel with the exception of those for mission-critical 

activities, terminate the employment of temporary employees 

consistent with mission requirements, consider the possibility of 

furloughs, review contract workforce levels for potential adjustment in 

accordance with critical mission requirements, and cancel third and 

fourth quarter depot maintenance orders and contracts that did not 

directly support units deployed to a theater of operations or another 

Army priority.

Consistent with direction from DOD and the Army, Industrial Operations 

implemented a hiring freeze of civilian employees, restricted overtime, 

terminated temporary employees consistent with mission requirements, 

and furloughed civilian employees a total of 6 days in fiscal year 2013. 

Further, because the fiscal year 2013 full-year DOD appropriations act 

was not passed by Congress until midway through fiscal year 2013, some 

orders for work at the Industrial Operations activities that DOD customers 

likely would have submitted earlier in the year had there been a budget 

passed were not submitted until late in fiscal year 2013. According to 

Army headquarters officials, the combination of the personnel reductions, 

hiring freeze, overtime restrictions, furloughs, and late receipt of orders 

resulted in the Industrial Operations activities earning over $1 billion less 

 12Department of Defense, Handling Budgetary Uncertainty in Fiscal Year 2013, Deputy 

Secretary of Defense Memorandum (Washington, D.C.: Jan. 10, 2013). 

13Department of the Army, Fiscal Planning Guidance for Budgetary Uncertainty, Assistant 

Secretary of the Army Memorandum (Washington, D.C.: Jan. 16, 2013). 
Page 11 GAO-16-543 Army Industrial Operations Carryover

revenue than planned in fiscal year 2013. These actions resulted in 

Industrial Operations carryover exceeding the allowable amount by 

$195 million in fiscal year 2013. The manpower restrictions imposed on 

Industrial Operations in fiscal year 2013 continued to negatively affect 

carryover in fiscal years 2014 and 2015. Army headquarters officials 

stated that Industrial Operations decided not to rehire the employees 

released in fiscal year 2013 as the long-term resource outlook indicated 

that Industrial Operations’ workload would continue to decline in the 

future and it would not have been economical to rehire thousands of 

personnel solely to reduce carryover in a declining workload environment. 

Consequently, Industrial Operations’ carryover exceeded the allowable 

amount by $1,065 million in fiscal year 2014 and $854 million in fiscal 

year 2015.

Based on our review of documentation of how Army calculated the 

allowable amounts, we determined that the Army did not use the 

appropriate outlay rates in its calculation of the allowable carryover 

amounts for fiscal years 2013 and 2014.14 The Army used the correct 

outlay rates for calculating the allowable carryover amount for fiscal year 

2015. The correct calculation of the allowable carryover amount is critical 

because DOD decision makers and the congressional defense 

committees use this information to determine if the carryover was higher 

or lower than the allowable carryover amount, which in turn is used to 

make budgetary decisions that could affect the amount of appropriations 

the Army receives.

According to an Office of the Under Secretary of Defense (Comptroller) 

official, the Army should use the most recent DOD Financial Summary 

Tables, which are updated annually and contain the outlay rates used for 

calculating the allowable amount of carryover. However, the Army did not 

do so for the fiscal years 2013 and 2014 calculations of the allowable 

carryover amounts and instead used the same outlay rates for some 

appropriations that it used for the fiscal year 2012 allowable carryover 

calculation. If the Army had used the most recent DOD Financial 

 14Each budget provides information for 3 fiscal years. For example, the fiscal year 2015 

budget contains information on (1) the fiscal year 2015 budget, (2) the fiscal year 2014 

revised budget, and (3) the fiscal year 2013 actual information. Our analysis of Industrial 

Operations’ actual and allowable carryover amounts covered fiscal years 2013, 2014, and 

2015 actual information contained in the fiscal years 2015, 2016, and 2017 budgets. 

The Army Did Not 

Calculate the Fiscal Years 

2013 and 2014 Allowable 

Carryover Amounts 

Correctly
Page 12 GAO-16-543 Army Industrial Operations Carryover

Summary Tables issued at the time of its calculations, our analysis 

determined that (1) the fiscal year 2013 allowable carryover amount 

would have been $44 million higher and correspondingly the amount of 

actual adjusted carryover that exceeded the allowable carryover amount 

in fiscal year 2013 would be lower by the same amount and (2) the 

allowable carryover amount would have been $27 million lower for fiscal 

year 2014 and correspondingly the amount of actual adjusted carryover 

that exceeded the allowable carryover amount in fiscal year 2014 would 

be higher by the same amount.

Army headquarters officials stated that one of the reasons why they did 

not use outlay rates contained in the most recent DOD Financial 

Summary Tables to calculate the fiscal years 2013 and 2014 allowable 

carryover was because the DOD Financial Management Regulation was

not clear on the need to do so when calculating the allowable carryover 

amount.

Our review of the provisions contained in the DOD Financial Management 

Regulation that cover calculating the allowable carryover amount found 

that the DOD Financial Management Regulation did not always specify 

using the most recent DOD Financial Summary Tables when calculating 

the allowable carryover amount. Specifically, the portion of DOD’s 

Financial Management Regulation, volume 2B, chapter 9, titled 

“Additional Instructions for Carryover Calculations for the Preparation of 

Exhibit Fund-11, Source of Revenue,” states that “Since the FY (fiscal 

year) 2004 budget submission, the approved amount of workload carrying 

over to subsequent fiscal years is linked to the outlay rate of the source 

appropriation as published in the most recent Department of Defense 

Financial Summary Tables.” However, the DOD Financial Management 

Regulation does not use “most recent” when referring to the DOD 

Financial Summary Tables anywhere else in this chapter. For example, 

the portion of that same chapter titled, “Instructions for Completing the 

Fund-11b, Carryover Ceiling Calculation” states only that “the approved 

appropriations outlay rates can be found in the Department of Defense 

Financial Summary Tables.” In our discussion of this issue with an Office 

of the Under Secretary of Defense (Comptroller) official, the official 

agreed with the Army that the language in the DOD Financial 

Management Regulation should be clarified and stated that the Office of 

the Under Secretary of Defense (Comptroller) plans to update the DOD 

Financial Management Regulation to specifically require DOD Working 

Capital Fund activities to use the most recent DOD Financial Summary 

Tables when calculating the allowable carryover amount.
Page 13 GAO-16-543 Army Industrial Operations Carryover

Army headquarters officials stated that another reason why they did not 

use outlay rates contained in the most recent DOD Financial Summary 

Tables for calculating the fiscal years 2013 and 2014 allowable carryover 

was because the Army did not have documented procedures for 

calculating the allowable carryover amount. GAO’s Standards for Internal 

Control in the Federal Government states that a key factor in helping 

agencies achieve their missions and program results is to implement 

appropriate internal controls to help ensure that management’s directives 

are carried out.15 One such control activity would be to develop policies 

and procedures to help ensure agency adherence to budget development 

and execution requirements. Since the Army did not have documented 

procedures for calculating the allowable carryover that is used in its 

budget submissions to Congress, the outlay rates used for the fiscal 

years 2013 and 2014 allowable carryover calculations were not based 

upon the current outlay rates available at the time the budgets were 

prepared. Without consistent, reliable calculations of the allowable 

carryover amount, DOD decision makers and congressional defense 

committees may make important budgeting and resource decisions based 

on incorrect information.

 15GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: November 1999).
Page 14 GAO-16-543 Army Industrial Operations Carryover

From fiscal years 2013 through 2015, we found that Industrial Operations’

actual adjusted carryover significantly exceeded budgeted adjusted 

carryover. This occurred because Industrial Operations accepted more 

orders than budgeted and performed less work (and thus earned less 

revenue) than budgeted all 3 years. As shown in table 2, actual adjusted

carryover exceeded budgeted adjusted carryover by over a billion dollars 

each year.

Table 2: Actual Adjusted and Budgeted Adjusted Army Industrial Operations’ Carryover for Fiscal Years 2013 through 2015

Dollars in millions

Fiscal year

Actual adjusted 

carryover (dollars)

Budgeted

adjusted carryover

(dollars) Difference (dollars)

Percentage

difference

2013 4,491 3,100 1,392 45

2014 4,445 1,868 2,577 138

2015 3,988 2,860 1,128 39

Source: GAO analysis of Army Industrial Operations’ budgets. | GAO-16-543

Note: Dollar amounts do not always total because of rounding.

Industrial Operations budgeted for adjusted carryover to fall below the 

allowable carryover amounts by $174 million and $1.2 billion in fiscal 

years 2013 and 2014, respectively, and to exceed the allowable carryover 

amount by $186 million in fiscal year 2015. However, because of the 

magnitude of differences between budgeted and actual adjusted 

carryover shown above, the actual adjusted carryover amount was over 

the allowable amount for all 3 years by $195 million, $1.1 billion, and 

$854 million for fiscal years 2013, 2014, and 2015, respectively, as shown 

in table 3.

Actual Adjusted 

Carryover 

Significantly 

Exceeded Budgeted 

Adjusted Carryover 

Because Industrial 

Operations 

Underestimated New 

Orders and 

Overestimated 

Revenue
Page 15 GAO-16-543 Army Industrial Operations Carryover

Table 3: Actual Adjusted and Budgeted Adjusted Army Industrial Operations’ Carryover Amounts over or under Allowable 

Amounts for Fiscal Years 2013 through 2015 

Dollars in millions

Fiscal year

Actual adjusted carryover

over allowable amount

Budgeted adjusted carryover

over (under) allowable amount Difference 

2013 195 (174) 369

2014 1,065 (1,174) 2,239

2015 854 186 668

Source: GAO analysis of Army Industrial Operations’ budgets. | GAO-16-543

Note: The actual and budgeted adjusted carryover over (under) the allowable amounts in this table 

are the amounts presented in the Army Industrial Operations’ budgets.

Our analysis showed that actual new orders exceeded budgeted new 

orders each year from fiscal years 2013 through 2015. Furthermore, this 

problem with actual new orders exceeding budgeted new orders is not 

new for Industrial Operations. While fiscal years 2013 through 2015 

generally showed improvement over prior years, our analysis of budgeted 

and actual new orders showed that for the 10-year period from fiscal 

years 2006 through 2015, the Army significantly underestimated the 

amount of new orders to be received from its Industrial Operations 

customers each year. Table 4 compares the dollar amounts of Industrial 

Operations actual and budgeted new orders and the differences between 

these amounts for the past decade.

Actual New Orders Have 

Consistently Exceeded 

Budgeted New Orders
Page 16 GAO-16-543 Army Industrial Operations Carryover

Table 4: Actual and Budgeted Army Industrial Operations’ New Orders for Fiscal Years 2006 through 2015

Dollars in millions

Fiscal year

Actual

new orders (dollars)

Budgeted

new orders (dollars) Difference (dollars)

Percentage

difference

2006 5,425 3,188 2,237 70

2007 6,850 4,562 2,288 50

2008 6,991 6,300 691 11

2009 6,393 5,016 1,377 27

2010 6,340 5,715 625 11

2011 7,529 6,163 1,366 22

2012 6,189 4,672 1,517 32

2013 5,375 5,092 283 6

2014 4,772 4,401 371 8

2015 4,474 3,984 490 12

Total 60,339 49,093 11,246 23

Source: GAO analysis of Army Industrial Operations’ budgets. | GAO-16-543

Note: Dollar amounts do not always total because of rounding.

Army officials acknowledged that Industrial Operations has had difficulty 

accurately budgeting for new orders, as shown above. The officials stated 

that Industrial Operations developed its budgets based on input from 

customers for future workload projections. These budgets were 

developed 2 years in advance of execution. Army officials stated that in 

many cases Industrial Operations customers weighed their expected 

requirements against their projected funding levels and provided 

conservative new order estimates since the operational and fiscal 

environment had been so volatile over the past decade. If the Army 

includes workload in its new order estimates that does not materialize, a 

depot is at risk of incurring unplanned financial loss because the depot is 

allocating its overhead costs over less work than planned. These losses 

may lead the depots to increase their rates for repairing assets. If funding 

availability is higher than the customer originally anticipated or if 

operational decisions lead to changes in requirements or priorities, 

unplanned workload may materialize at the depots resulting in additional 

carryover.

Furthermore, the mix of customer orders (workload) tends to change 

during the year of execution from what was previously estimated because 

of operational decisions and changing customer requirements that can 

increase the carryover at fiscal year-end. For example, Army 
Page 17 GAO-16-543 Army Industrial Operations Carryover

headquarters officials stated that if a customer told a depot to expect a 

$10 million order to repair High Mobility Multi-purpose Wheeled Vehicles, 

but instead sends an order for $10 million to repair trucks, revenue would 

most likely be delayed thus increasing carryover. This would occur 

because the customer’s change in requirements would necessitate the 

depot creating a different production line than anticipated prior to 

beginning repair work on the trucks.

As shown in table 4, our analysis showed that budgeted new order data 

for the last 3 fiscal years has generally improved from the prior 7 fiscal 

years. Army officials stated that the budgeted new orders for the past 3 

fiscal years (2013, 2014, and 2015) improved because the Army ended 

combat operations in Iraq, thus decreasing operational volatility. As a 

result, the workload requirements for the Industrial Operations activities 

were more predictable. However, despite the improvement in budgeting 

new orders, the Army still consistently underestimated the amount of new 

orders accepted from its customers by hundreds of millions of dollars 

each year.

While Industrial Operations actual new orders exceeded budgeted new 

orders, resulting in more work to be performed, Industrial Operations also 

performed less work than it had budgeted. Our analysis of revenue (work 

performed) showed that Industrial Operations performed less actual work 

than the amount of work that was expected to be performed as shown in 

the budgets for fiscal years 2013 through 2015; the difference was more 

than a billion dollars for fiscal years 2013 and 2014, as shown in table 5.

Table 5: Actual and Budgeted Army Industrial Operations’ Revenue for Fiscal Years 2013 through 2015

Dollars in millions

Fiscal year Actual revenue Budgeted revenue Difference 

2013 5,061 6,268 (1,207)

2014 4,543 6,024 (1,481)

2015 4,529 4,661 (132)

Source: GAO analysis of Army Industrial Operations’ budgets. | GAO-16-543

Industrial Operations’ actual revenue was significantly less than budgeted 

for fiscal years 2013 and 2014 because, as discussed previously, 

Industrial Operations reduced personnel by approximately 4,200 in fiscal 

year 2013 and an additional 900 in fiscal year 2014. Industrial Operations 

reduced personnel because of budgetary uncertainty related to the 

Actual Revenue Was Less 

Than Budgeted Revenue 

for Fiscal Years 2013 

through 2015
Page 18 GAO-16-543 Army Industrial Operations Carryover

extended continuing resolution and sequestration in fiscal year 2013. 

Army officials stated that sequestration and its associated manpower 

constraints were implemented in the year of execution and the impact to 

revenue was not considered or known when establishing the fiscal years 

2013 and 2014 budgets.

To address budgeting concerns, the Army has implemented actions 

intended to improve budget information. First, in fiscal year 2012, Army 

and AMC senior leadership began reviewing carryover on a continual 

basis. There are several senior leader forums where carryover is 

reviewed on a weekly, monthly, and quarterly basis. These forums 

include, among other things, reviewing variances between budgeted 

carryover and actual carryover, identifying factors contributing to the 

variances, and identifying actions needed to perform work and reduce 

carryover, such as obtaining parts. Second, in fiscal year 2013, the Army 

began requiring customers in the acquisition community (i.e., those that 

use procurement appropriations to fund orders) to identify depot 

maintenance workload in their internal budget documentation to aid the 

Army in estimating the workload for the Army Working Capital Fund 

budget submission. This internal budget documentation, which is 

available to Industrial Operations, includes depot maintenance 

requirements for the current year, 1 budget year, and 5 future years. 

Additionally, the acquisition community was directed to notify the Army 

LCMCs of plans to execute depot maintenance requirements no later 

than the end of the first quarter in the year of execution.

The above actions are positive and have the potential for improving future 

budgeted carryover information. However, despite these efforts, which 

have been under way since at least 2012, the Army’s budgeted carryover 

information has continued to differ from actual carryover information by 

hundreds of millions or billions of dollars. Since Industrial Operations’

budgets are based on input from its customers, it is important that 

Industrial Operations continue to work with its customers to take steps to 

reduce the differences between budgeted and actual orders in developing 

future budgeted estimates. Reliable budget estimates on carryover are 

critical because decision makers use this information when reviewing 

Industrial Operations’ budgets. As discussed earlier, actual new orders 

have consistently exceeded budgeted new orders for at least a 10-year 

period. Internal control standards state that for an entity to run and control 

The Army Has Actions 

Under Way to Improve 

Budgeted Information, but 

Problems Remain
Page 19 GAO-16-543 Army Industrial Operations Carryover

its operations, it must have relevant, reliable, and timely information.16

This includes budget information on new orders, revenue, and carryover. 

Also, internal control standards state that program managers need both 

operational and financial data to determine whether they are meeting their 

agencies’ strategic and annual performance plans and meeting their 

goals for accountability for effective and efficient use of resources. 

Further, financial information is needed for both internal and external 

uses. This includes providing reliable budgeted carryover information to 

DOD and Congress annually. Without reliable budgeted carryover 

information, DOD and congressional decision makers may not be able to 

make informed budget decisions.

Our analysis of 80 orders (and related amendments) with the largest 

amounts of carryover for fiscal years 2014 and 2015 (the most recent 

data available) identified four key drivers that contributed to carryover.17

These were (1) orders for work that was scheduled to carry over at the 

end of the fiscal year, (2) orders for work on crash-damaged aircraft, 

(3) orders for work that did not have a well-defined scope of work for 

repairing the assets, and (4) orders affected by parts shortages that 

delayed the performance of work. Actions to address the first driver are 

not necessary because this work was planned to carry over at the end of 

the fiscal year as part of the normal business process, and any actions to 

address the second driver, crash-damaged aircraft, are limited because of 

the unique and unpredictable nature of this type of damage and needed 

repairs. The Army has actions under way to address carryover associated 

with the work on assets that did not have a well-defined scope of work for 

repairing them and parts shortages, but problems continue to persist.

Our analysis of 80 orders (and related amendments) for fiscal years 2014 

and 2015 determined that 22 orders totaling $190 million and $153 million 

in carryover, respectively, involved work that was scheduled to begin 

either (1) in the same fiscal year the orders were accepted by the 

 16GAO/AIMD-00-21.3.1.

17Because we selected orders for review based on dollar size of carryover, they do not 

represent a statistical selection and the results cannot be projected to the population. See 

app. I for more details. Further, some of the orders were affected by more than one of the 

key drivers that contributed to carryover.

Four Key Drivers Led 

to Carryover at the 

End of Fiscal Years 

2014 and 2015, and 

the Army Has Actions 

Under Way to 

Address Problem 

Areas

Orders for Work 

Scheduled to Carry Over 

at the End of the Fiscal 

Year
Page 20 GAO-16-543 Army Industrial Operations Carryover

Industrial Operations depots and be completed in the next fiscal year 

because of the length of time needed to complete the work or (2) late in 

the fiscal year or in the next fiscal year because other work at the 

Industrial Operations depots was scheduled ahead of work on those 

orders. As discussed earlier in the report, some carryover is to be 

expected and is appropriate at the end of the fiscal year in order for the 

Industrial Operations depots to operate efficiently and effectively by 

maintaining a steady flow of work. Without sufficient carryover, Industrial 

Operations depot officials stated that the depots could not (1) ensure that 

enough funded work would be available to continue operations in the next 

fiscal year and (2) retain the appropriate number of personnel with 

sufficient skill sets to perform depot maintenance work. Adequate 

carryover is particularly important when DOD operates under a continuing 

resolution, under which Industrial Operations customers do not know their 

full-year funding levels at the beginning of the fiscal year. This, in turn, 

may cause the Industrial Operations depots to operate for several months 

into the next fiscal year relying mostly on funded work from prior fiscal 

year orders (i.e., carryover) to continue operations because customers 

may limit the amount of new orders they place at the beginning of the 

fiscal year in light of budget uncertainties. Carryover provides the 

continuity of funded workload necessary to maintain operations from one 

year to the next.

Our analysis of 80 orders (and related amendments) for fiscal years 2014 

and 2015 determined that 10 orders involved crash-damaged aircraft. For 

crash-damaged aircraft, the requirements to repair the aircraft are largely 

unknown prior to inspection, and the repair solutions are based on the 

damage and therefore unique to each aircraft. Our review of 

documentation on crash-damaged aircraft found that in fiscal years 2014 

and 2015, Industrial Operations had a total of $105 million for 20 aircraft 

and $71 million for 10 aircraft, respectively, in carryover on orders to 

repair crash-damaged aircraft.18 Crash-damaged aircraft are only repaired 

at the Corpus Christi Army Depot.

When crash-damaged aircraft arrive at Corpus Christi Army Depot for 

repair, the depot inspects the aircraft for damage to determine what 

 18Crash-damaged aircraft include various models of the AH-64 Apache and UH-60 Black 

Hawk helicopters.

Repair of Crash-Damaged 

Aircraft Contributed to 

Carryover
Page 21 GAO-16-543 Army Industrial Operations Carryover

needs to be repaired and develops repair solutions for the damaged 

areas of the aircraft. As the depot develops the repair solutions, the depot 

orders the required parts from the DOD supply system, or if the parts are 

not in the DOD’s supply system, the depot manufactures the parts or 

orders them from a contractor. Once the repair solutions are determined 

and parts are obtained, the depot can repair the aircraft. The entire 

process can take 2 or more years to complete, depending on what needs 

to be repaired on the aircraft.

Our analysis of 80 orders (and related amendments) for fiscal years 2014 

and 2015 determined that work on 19 orders totaling $405 million and 

$293 million in carryover, respectively, for these 2 years was delayed 

because of the lack of a well-defined scope of work, including approved 

technical data, such as engineering drawings and lists of parts needed to 

repair the assets (referred to as bill of material).19 When the depots 

(1) have to develop the engineering drawings or (2) do not have a 

complete and accurate bill of material and must identify the parts needed 

to perform the repair work, actual performance of work is delayed and 

thus carryover increases. In those instances, the dollar amount of 

carryover is directly affected by the dollar size of the order(s) received 

from customers for this work. If the dollar amount of the order is small and 

is for the repair of a small number of assets, as generally is the case for 

orders for work performed on prototype assets, the dollar amount of the 

carryover will be small. On the other hand, if the dollar amount of the 

order is large and is for the repair of a large number of assets, as 

generally is the case for orders on full production assets, the dollar 

amount of carryover will be large. For the 19 orders that we reviewed that 

had a scope of work problem, 14 had order and carryover amounts 

greater than $10 million each. The following example describes work 

performed on Mine Resistant Ambush Protected vehicles (MRAP) that 

 19A technical data package is a technical description of an item adequate for supporting 

an acquisition strategy, development, manufacturing development, production, 

engineering, and logistics throughout the item’s life cycle. The technical description 

defines the required design configuration and procedures to ensure adequacy of item 

performance. The technical data package consists of a variety of data that may include 

product definition data, engineering drawings, associated lists, specifications, standards, 

performance requirements, quality assurance provisions, reliability data, and packaging 

data. 

Lack of Well-Defined 

Scope of Work on Orders 

Contributed to Carryover
Page 22 GAO-16-543 Army Industrial Operations Carryover

contributed to carryover because of the lack of a well-defined scope of 

work.20

• In March and July 2012, Letterkenny Army Depot accepted two 

production orders totaling $254 million to convert 392 MRAPs to 

Route Clearance Vehicles.21 By the end of fiscal year 2014, the 

orders were amended a combined 11 times to decrease vehicle 

quantities to 284 and funding to $213 million. Because the depot did 

not have a technical data package for the vehicles, it had to develop 

approximately 427 engineering drawings to perform the work. Further, 

work was delayed on the two orders for about 2 fiscal years because 

the depot experienced problems designing the prototype vehicles, 

reaching agreement with its customer on the new design, and 

performing tests on the prototype vehicles. The final technical data 

package for converting the vehicles and the development of the 

statement of work and bill of materials on the two orders were delayed 

until the new design was agreed upon and the prototype vehicles 

were tested.22 Final approval of the engineering drawings occurred in 

March 2014, and the depot started work on the two production orders 

in April 2014. Even though the depot started work on the vehicles in 

fiscal year 2014, none of the vehicles could be completed by the end 

of the fiscal year because of the lack of parts needed to finish them. 

The depot carried over about $162 million on these orders into fiscal 

year 2015.

By January 2015, the depot was consistently meeting its production 

schedule of 18 to 22 Route Clearance Vehicles per month. However, 

in August 2015, production halted with 36 vehicles remaining because 

of the lack of 56 parts needed to continue the production line. As a 

result, the depot released 53 contractor personnel working on the 

vehicles. The depot carried over $25.8 million on these orders into 

fiscal year 2016. Because of the parts shortages, the depot does not 

 20The MRAP is designed to withstand attacks in combat situations and provide the 

warfighter protection from improvised explosive devices, mines, and other explosives. 

There are multiple variants of the MRAP that are manufactured by various contractors. 

21The Route Clearance Vehicle is a vehicle for route clearance and explosive ordnance 

disposal.

22Letterkenny Army Depot documentation showed that the conversion of the vehicle 

requires approximately 1,700 different operations and 3,300 different parts. 
Page 23 GAO-16-543 Army Industrial Operations Carryover

plan to complete the vehicles until fiscal year 2017—over 4 full fiscal 

years after the acceptance of the two fiscal year 2012 orders.

Our analysis of 80 Industrial Operations orders (and related amendments) 

for fiscal years 2014 and 2015 determined that parts shortages 

contributed to carryover on 50 orders totaling $682 million and 

$516 million in carryover, respectively. Parts shortages delayed the repair 

work being performed on a variety of military assets. Some examples of 

parts shortages that contributed to carryover on work at the depots at the 

end of fiscal years 2014 and 2015 are discussed below.

• Because of the unavailability of radiators, work was delayed on the 

repair of Paladin self-propelled howitzers, which are cannon artillery 

systems, built on tracked wheeled chassis and operated by crews of 

four for use in combat.

• Because of the unavailability of parts, work was delayed on the 

manufacturing and assembling of ammunition racks, which are used 

to store ammunition for the main gun of the Abrams tank.

• Because of the unavailability of trigger housings, work was delayed on 

the repair of M240 machine guns.

• Because of the unavailability of parts such as torque rods, radiators, 

alternators, and steering gears, work was delayed on M915A3 trucks.

• Because of the unavailability of water heaters, work was delayed on 

Force Providers, which is a transportable base camp system that 

provides housing and operation space for a variety of missions.

In order to obtain parts from the DOD supply system, the Industrial 

Operations activities order them through the Defense Logistics Agency 

(DLA) or Army Supply Management.23 However, if DLA or Army Supply 

Management is unable to provide the parts, the Industrial Operations 

activities may use other methods to obtain the parts, such as obtaining 

parts from other assets (e.g., vehicles or engines), manufacturing the 

 23DLA is the Industrial Operations activities’ primary source for spare parts. DLA manages 

nearly 6 million items and is the major supplier of spare parts for the military services. In 

addition, the Army Supply Management activity group buys and manages spare and repair 

parts for sale to its customers. Army Supply Management also administers spare parts 

inventory for Army managed items, non-Army managed materiel, and war reserve 

secondary items.

Parts Needed to Perform 

Work Were Not Readily 

Available, Which 

Contributed to Carryover
Page 24 GAO-16-543 Army Industrial Operations Carryover

parts, or purchasing the parts using its local procurement authority. If the 

Industrial Operations activities manufacture the parts, they must have the 

raw material to perform the work and obtain the specifications for the 

parts to be made. While these methods allow work to continue, obtaining 

the needed parts this way is generally inefficient. The following two 

examples illustrate how parts shortages contributed to carryover.

• In fiscal years 2014 and 2015, Red River Army Depot received 8 

orders totaling $173 million to repair 1,152 Army MRAP All-Terrain 

Vehicles (MATV).24 The MATV work was a new requirement for this 

depot. Time limitations caused by the customers’ need for immediate 

production prevented the upfront planning necessary for establishing 

an efficient repair process at the beginning of the program. Because 

the scope of work was to inspect and repair each MATV as needed, 

the parts requirement for each vehicle was varied and prevented the 

depot from accurately forecasting all parts requirements at the time 

the work was started on a vehicle. While the depot was performing the 

repair work, it was addressing issues such as identifying and ordering 

the parts it needed for the repairs. In some cases, because of 

inaccurate technical data, the depot ordered the wrong parts and had 

to return those parts, perform additional analysis to identify the correct 

parts, and then order those parts. Furthermore, the depot could not 

always obtain the material and parts it needed to make repairs in a 

timely manner. For example, some Army MATVs had damage to the 

material that lines the floor and sidewalls of the vehicle that provides 

additional protection for the warfighter inside the vehicle. However, 

the depot could not obtain the material it needed to make these 

repairs in a timely manner. As a result of parts and material 

shortages, at the end of fiscal year 2015, Red River Army Depot had 

completed only 240 of the 1,152 Army MATV vehicles ordered by 

customers on these 8 orders. In addition, the depot assembled 

another 419 vehicles, but the vehicles were missing parts and 

material needed to produce complete vehicles that complied with the 

scope of work. At the end of fiscal year 2014, the depot carried over 

$113 million of the $120 million of MATV orders it accepted. At the 

end of fiscal year 2015, the depot carried over $50 million of the 

$173 million of orders.

 24The MATV is a lighter version of the MRAP and is better suited for operating in 

mountainous terrain. The Red River Army Depot accepted 7 orders totaling $120 million in 

fiscal year 2014 and 1 order for $53 million in fiscal year 2015.
Page 25 GAO-16-543 Army Industrial Operations Carryover

• In fiscal year 2012, Anniston Army Depot accepted an order for 

$14 million to repair and overhaul 12 Armored Vehicle Launched 

Bridges. The Armored Vehicle Launched Bridge is a tracked vehicle 

that carries a folding metal bridge and allows armored or infantry units 

to cross rivers, ravines, and other obstacles when no bridge is 

conveniently located. Because the launcher configuration for the 

folding metal bridge was old and considered obsolete, the Army 

developed a new configuration to the hydraulic and electrical system 

to increase its lifespan and sustain readiness. In order to perform the 

repair and overhaul for the new configuration, the depot needed to 

install hydraulic electrical upgrade kits. Each kit is made up of about 

220 parts, including hoses, clamps, bushings, pipes, tubes, and 

wiring. According to depot officials, these kits were not available 

through the DOD supply system, and therefore the depot had to 

obtain the parts and assemble the kits piece by piece. Further, the 

depot had problems obtaining several of these parts from different 

vendors in a timely manner. As a result, the amount of carryover at 

the end of fiscal year 2015 was $13.9 million on this $14 million fiscal 

year 2012 order.

Parts were not always available to perform the work because the DOD 

supply system did not maintain sufficient parts in the right mix to meet 

demand. Without the DOD supply system maintaining the right mix and 

sufficient quantities of spare parts, Industrial Operations activities cannot 

complete their funded workload timely and efficiently. Supply chain 

management has been a long-standing problem for DOD.25 In January 

2009, we reported the Army had accumulated billions of dollars in excess 

spare parts inventory against current requirements for some items and 

substantial inventory deficiencies in other items.26 The Army inventory did 

not align with the current requirements at the time because of (1) a lack of 

cost-efficiency metrics and goals and (2) inaccurate demand forecasting. 

We reported that without accurate and timely demand data, managers 

cannot ensure that their purchasing decisions will result in inventory 

levels that are sized to minimize DOD’s investment needed to support 

requirements. The Army acknowledged that it faced challenges in its 

 25DOD’s supply chain is a global network that provides material, services, and equipment 

to the joint forces. Supply chain management encompasses the processes and systems 

for delivering the right items to the right place at the right time and at the right cost. 

26GAO, Defense Inventory: Army Needs to Evaluate Impact of Recent Actions to Improve 

Demand Forecasts for Spare Parts, GAO-09-199 (Washington, D.C.: Jan. 12, 2009). 
Page 26 GAO-16-543 Army Industrial Operations Carryover

forecasting procedures and began taking steps to address them. 

However, our April 2015 report on defense inventory and our current 

review shows that DOD, including the Army, has not fully resolved its 

ineffective and inefficient inventory management practices.27 As a result, 

since 1990 we have continued to identify DOD supply chain management 

as a high-risk area in part because of ineffective and inefficient 

management practices and procedures, weaknesses in accurately 

forecasting the demand for spare parts, and other supply chain 

challenges.28

The Army has three key actions under way to address problems related 

to scope of work and parts shortages that we identified in our analysis of 

80 orders. First, the Army began holding a series of weekly, monthly, and 

quarterly meetings that provide information, among other things, on the 

status of Industrial Operations’ carryover, orders, and revenue. These 

meetings provide the Army a forum for better identifying carryover issues 

and developing plans to mitigate the problems. For example, beginning in 

fiscal year 2012, the Army began holding weekly meetings called the 

Organic Industrial Base Review that provide information on the status of 

Industrial Operations carryover, orders, and revenue.29 At the meetings, 

the Army discusses production issues for specific workloads, such as 

parts shortages, and strategies to reduce carryover. The meetings are 

attended by Army senior leadership and other officials from organizations 

involved in various aspects of the depot maintenance process, such as 

AMC, the LCMCs, the 13 Industrial Operations activities, and DLA.

 27GAO, Defense Inventory: Services Generally Have Reduced Excess Inventory, but 

Additional Actions Are Needed, GAO-15-350 (Washington, D.C.: Apr. 20, 2015). We made 

seven recommendations to enhance the military services ability to effectively and 

efficiently manage their inventory. DOD concurred with all seven recommendations. As of 

March 2016, DOD implemented three of the recommendations and is taking actions to 

address the remaining four.

28DOD’s inventory management was included in GAO’s original list of high-risk areas, 

which was communicated to Congress by letter (on January 23, 1990). DOD inventory 

management was redesignated as DOD supply chain management in the 2005 update to 

our high-risk series. For our most recent update, see GAO, High-Risk Series: An Update, 

GAO-15-290 (Washington, D.C.: Feb. 11, 2015). 

29Organic refers to maintenance activities that take place at government-owned facilities 

(in-house work) rather than contractor facilities.

The Army Has Actions 

Under Way to Help 

Reduce Carryover, but 

Problems Persist with a 

Lack of a Well-Defined 

Scope of Work and Parts 

Shortages
Page 27 GAO-16-543 Army Industrial Operations Carryover

Second, the Army established a specific managerial approval process for 

analyzing and accepting orders for work performed at Industrial 

Operations activities in fiscal year 2014, and all four depots we visited 

had implemented the process by the end of fiscal year 2015. This process 

was established in response to work performed by an Army working 

group formed in April 2012 to address carryover issues. The Army 

evaluates orders based on seven key dimensions. If deficiencies are 

identified in one or more of the dimensions, the Industrial Operations 

activities are responsible for developing mitigation plans to resolve them. 

The seven dimensions consist of the following.

• Skilled labor. Industrial Operations activities must ascertain the 

availability of all requisite skill levels and labor hours required to 

execute the work order.

• Parts. Industrial Operations activities must ascertain whether the 

DOD supply system has the right quantity and mix of spare parts to 

perform the work. Army LCMCs and Industrial Operations activities 

must conduct production planning, material provisioning, and 

command scheduling to ensure sufficient coordination of available 

parts with all sources of supply to meet requirements.

• Tools and equipment. Industrial Operations activities must ascertain 

whether the activities have all required tools, production equipment, 

handling equipment, and quality and testing equipment to perform the 

work.

• Process. Industrial Operations activities must ascertain whether the 

activities have processes that define the scope of work and include 

approved technical data, documented internal processes, and 

capacity to complete the work.

• Assets. Industrial Operations activities must ascertain whether assets 

needing repair will be available at the scheduled time for beginning 

work at the activities.

• Requirements. Industrial Operations activities must ascertain 

whether the workload accepted by the activities has a well-defined 

scope of work. This includes having information on required 

production, impact of back orders, average monthly demand, potential 

surge requirements, available technical data package/work 

instructions, and alternate sources of supply for unique critical parts 

and components.

• Funding. Industrial Operations activities must ascertain whether the 

accepted workload has available funding to adequately support 

production of required deliverables.
Page 28 GAO-16-543 Army Industrial Operations Carryover

Third, AMC is consolidating and updating operational responsibilities and 

guidance for planning, accepting, scheduling, controlling, and reporting 

depot maintenance and other functions, such as ammunitions operations, 

into a single draft regulation titled AMC Organic Industrial Base 

Operational Management Policy and Implementation Guidance. 

According to an AMC official, the draft guidance is planned to be issued 

during fiscal year 2016. The draft regulation provides guidance on the 

scope of work and parts as well as coordination and communication 

among both AMC and non-AMC stakeholders involved in Industrial 

Operations depot activities.30 For example, the draft regulation states that 

the work requirements and changes to the scope of work should be 

documented and attached or referenced on the order, and that every 

effort should be made to ensure that work specifications and changes are 

clear and well documented, especially where new work requirements are 

involved. The draft regulation also establishes procedures for managing 

the currency and accuracy of production data, including applicable bills of 

material, technical data packages, and other technical production data, in 

coordination with program executive offices, program managers, 

responsible engineering support activities, and depots.

The Army’s issuance and implementation of the draft AMC regulation has 

the potential to help resolve scope of work and parts problems that we 

identified during our review of orders. For example, the draft AMC 

regulation would require a process similar to that the Army used on a 

particular MRAP vehicle referred to as the MaxxPro, and this resulted in 

the successful performance of work on this vehicle.31 Specifically, Red 

River Army Depot officials stated that prior to the acceptance of full 

production orders for the repair of the MaxxPro, the program underwent a 

repair planning process in which there was upfront communication and 

coordination among the stakeholders from three separate organizations: 

the Red River Army Depot, the Tank-automotive and Armaments 

Command, and the MaxxPro program manager. The coordinated team 

provided expertise in several different functional areas, including 

engineering, quality assurance, and supply management. The team’s 

objective was to develop the instruction documentation for this new 

 30Stakeholders include customers, depots, program managers, Army supply 

management, DLA, and LCMCs. 

31The MaxxPro is a variant of the MRAP that features a v-shaped hull that helps deflect 

blasts away from the vehicle.
Page 29 GAO-16-543 Army Industrial Operations Carryover

requirement that specified the work steps to be performed on the 

MaxxPro and the identification of the parts needed to perform the repair 

work, and to verify the execution of the process through the means of a 

pilot program for this vehicle. Red River Army Depot officials stated that 

the stakeholders worked closely together to develop a prototype vehicle, 

which resulted in the development of a well-defined scope of work and 

the list of parts needed to perform the repair work. Red River Army Depot 

began work on the MaxxPro production order in fiscal year 2015 and 

completed 105 MaxxPro vehicles in fiscal year 2015. According to Red 

River Army Depot officials, Red River Army Depot has been successfully 

meeting the MaxxPro production schedules set by the customer.

AMC officials acknowledged problems with the scope of work and parts 

shortages that we identified on the orders we reviewed. These officials 

stated that both the analysis on new orders based on the seven key 

dimensions and the draft AMC regulation should help address the scope 

of work and parts problems. Specifically, the depots’ analysis of new 

orders based on the seven key dimensions was implemented during fiscal 

year 2015, and AMC officials stated that the benefits are just now being 

realized. Also, the draft AMC regulation contains provisions to help 

address the concerns related to scope of work and parts shortages as 

well as coordination with stakeholders (both AMC and non-AMC 

organizations) involved in performing the work. Once finalized, the draft 

regulation is scheduled to be issued in fiscal year 2016 and implemented 

after issuance.

As stated previously, GAO’s Standards for Internal Control in the Federal 

Government states that a key factor in helping agencies achieve their 

missions and program results is to implement appropriate internal 

controls.32 Internal control activities help ensure that management’s 

directives are carried out. Control activities are the policies, procedures, 

techniques, and mechanisms that enforce management directives. One 

such control activity would be to develop policies and procedures for 

planning, accepting, scheduling, controlling, and reporting for AMC 

organic industrial base. However, the draft AMC regulation, which aims to 

provide such policies and procedures, has not been completed. Internal 

controls and their proper implementation are important because they 

 32GAO/AIMD-00-21.3.1.
Page 30 GAO-16-543 Army Industrial Operations Carryover

provide reasonable assurance that management directives are carried 

out.

The Army’s 13 Industrial Operations activities provide crucial depot 

maintenance and ordnance services to support a wide range of military 

assets and programs. In order to provide those services, these activities 

must maintain depot maintenance and ordnance production capabilities 

year round. Carryover provides the continuity of funded workload 

necessary to maintain operations from one fiscal year to the next. While 

some carryover is needed to maintain operations from year to year, 

Industrial Operations exceeded the allowable amount of carryover the 

past 3 fiscal years. Industrial Operations consistently underestimated new 

orders and overestimated the amount of work to be performed—the key 

elements that determine carryover—by hundreds of millions and 

sometimes billions of dollars in its budgets for the past 3 years. In 

addition, it made errors in calculating the allowable carryover amounts in 

fiscal years 2013 and 2014. Unreliable budget and carryover information 

may result in DOD and congressional decision makers making important 

budget decisions based on inaccurate data. While some of these 

differences were the result of events outside of Industrial Operations’

control, such as sequestration, the Army has several positive actions 

under way to help reduce its scope of work and parts problems that 

contributed to excess carryover. The ongoing development of a new 

regulation on Industrial Operations will be key to improving the 

management of carryover. If successfully implemented, this draft 

regulation will consolidate and update guidance that among other things 

should help reduce scope of work and parts problems and improve 

coordination and communication between AMC and non-AMC 

organizations.

We are making four recommendations to the Secretary of Defense to 

improve budgeting and management of carryover.

We recommend that the Secretary of Defense direct the Under Secretary 

of Defense (Comptroller) to clarify existing guidance in the DOD Financial 

Management Regulation to require DOD Working Capital Fund activities 

to use the most recent DOD Financial Summary Table when calculating 

allowable carryover amounts in annual budget submissions to Congress.

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

Army to develop, document, and implement internal controls for 

Conclusions

Recommendations for 

Executive Action
Page 31 GAO-16-543 Army Industrial Operations Carryover

developing and monitoring the process of calculating the allowable 

amount of carryover in annual budget submissions to Congress.

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

Army to improve its budget estimates on orders by directing Industrial 

Operations to continue to work with its customers on identifying 

differences in budgeted and actual orders and consider these differences 

and their potential consequences when developing budget estimates.

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

Army to direct the Army Materiel Command to incorporate in its regulation 

provisions for a repair process that includes upfront communication and 

coordination among AMC and non-AMC stakeholders that will result in 

the development of a well-defined scope of work and parts needed by the 

Industrial Operations activities to perform the repair work that will help 

reduce carryover.

We provided a draft of this report to DOD for comment. In its written 

comments, which are reprinted in appendix II, DOD concurred with the 

four recommendations and cited actions planned or under way to address 

them. Specifically, in response to our first recommendation, DOD 

commented that it will update the draft DOD Financial Management 

Regulation as we recommended to require that DOD Working Capital 

Fund activities use the most recent DOD Financial Summary Table for 

calculating allowable carryover amounts in its annual budget 

submissions. DOD also stated that it expects to finalize the updated draft 

DOD Financial Management Regulation in December 2016. Further, DOD 

stated in response to our second recommendation that the Army’s recent 

update to its annual working capital fund formulation guidance included 

internal procedures for calculating the allowable carryover in annual 

budget submissions and will be used in developing the Army Working 

Capital Fund’s annual budget submissions beginning with the fiscal year 

2018 budget submission. 

In response to our third recommendation related to improving budget 

estimates on orders, DOD stated that the Army will continue to stress the 

importance of improving communication among all Industrial Operations 

stakeholders during the depot maintenance requirements and budget 

estimate development processes. Further, DOD stated that the Army will 

enforce Army policies and business rules on the acceptance of new 

orders and the use of historical trend analysis in the preparation of fiscal 

year 2018 budget estimates. In response to our fourth recommendation 

Agency Comments
Page 32 GAO-16-543 Army Industrial Operations Carryover

related to the Army Materiel Command incorporating in its regulation 

provisions for a repair process that includes upfront communication and 

coordination among AMC and non-AMC stakeholders, DOD stated that 

the Army will enforce policy and business rules that require Organic 

Industrial Base facilities to communicate with their customers early to 

verify the scope of work and ensure that the Army has the required 

capability, capacity, equipment, and parts needed to meet delivery 

schedules and avoid excessive carryover. DOD also stated that it will 

update its policy and publish its draft regulation during fiscal year 2017. 

We are sending copies of this report to the appropriate congressional 

committees, the Secretary of Defense, the Secretary of the Army, and the 

Under Secretary of Defense (Comptroller). In addition, the report is 

available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202) 512-9869 or khana@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

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

appendix III.

Asif A. Khan

Director, Financial Management and Assurance
Appendix I: Scope and Methodology

Page 33 GAO-16-543 Army Industrial Operations Carryover

To determine the extent to which Army Industrial Operations’ (Industrial 

Operations) actual carryover differed from the allowable amounts from 

fiscal years 2013 through 2015 and the reasons for any differences, we 

obtained and analyzed Industrial Operations reports and Army Working 

Capital Fund budget estimates submitted to Congress that contained 

information on actual carryover and the allowable amount of carryover for 

fiscal years 2013 through 2015. We analyzed carryover since fiscal year 

2013 because we previously reported on Industrial Operations carryover 

from fiscal years 2006 through 2012.1 We met with responsible officials 

from the Army to determine the reasons for variances between actual 

carryover and the allowable amount. Further, we identified and analyzed 

any adjustments made by the Army that increased the allowable 

carryover amounts or reduced the amount of carryover. We reviewed the 

Department of Defense’s (DOD) guidance for granting exceptions to the 

carryover policy and discussed any exceptions with officials from the 

Office of the Under Secretary of Defense (Comptroller) and Army 

headquarters to obtain explanations for the exceptions.

To determine the extent to which Industrial Operations’ budgeted 

carryover differed from actual carryover from fiscal years 2013 through 

2015, reasons for any differences, and the actions the Army is taking to 

improve related budgeting, we obtained and analyzed Industrial 

Operations reports and Army Working Capital Fund budget estimates 

submitted to Congress that contained information on budgeted and actual 

new orders, revenue, and carryover data for fiscal years 2013 through 

2015. We analyzed carryover since fiscal year 2013 because we 

previously reported on Industrial Operations carryover from fiscal years 

2006 through 2012. We also analyzed new orders for fiscal years 2006 

through 2015 to obtain trend data on differences between budgeted and 

actual new orders received from customers. We met with responsible 

officials from the Army to determine the reasons for variances between 

budgeted and actual new orders, revenue, and carryover amounts. We 

also met with these officials to discuss actions the Army is taking to 

improve budgeting of carryover, including reducing carryover amounts.

To determine the key drivers for orders with large carryover balances for 

fiscal years 2014 and 2015 and the extent to which the Army is taking 

 1

GAO, Army Industrial Operations: Budgeting and Management of Carryover Could Be 

Improved, GAO-13-499 (Washington, D.C.: June 27, 2013).

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 34 GAO-16-543 Army Industrial Operations Carryover

actions to reduce carryover, we met with responsible officials from Army 

headquarters, Army Materiel Command, and Army depots to identify 

contributing factors that led to carryover. We focused on fiscal years 2014 

and 2015 carryover balances to identify current issues contributing to 

carryover. We also performed walk-throughs of four depot maintenance 

operations to observe the work being performed and discussed with 

officials the causes for workload carrying over from one fiscal year to the 

next. Further, to corroborate the information provided by Army officials, 

we obtained and analyzed a total of 80 customer orders consisting of the 

40 orders that had the largest dollar amounts of carryover at the end of 

each of fiscal years 2014 and 2015. Carryover amounts associated with 

these orders represented 31 percent of the total carryover each year 

collectively at the four Army depots we visited for fiscal years 2014 and 

2015. Because we selected orders for review based on dollar size of 

carryover, they do not represent a statistical selection and the results 

cannot be projected to the population. We reviewed the orders and 

amendments for each of the orders and discussed the information in 

these documents with the officials from the four Army depots to determine 

the causes for the carryover. We summarized and categorized the 

results. We also discussed and obtained documentation on the actions 

the Army depots are taking to better manage and reduce carryover.

We obtained the financial and logistical data in this report from official 

budget documents and the Army’s logistical system used by the Army 

depots. To assess the reliability of the data, we (1) reviewed and 

analyzed the factors used in calculating carryover for the completeness of 

the elements included in the calculation, (2) interviewed Army officials 

knowledgeable about the carryover data, (3) reviewed GAO reports on 

depot maintenance activities, and (4) reviewed customer orders 

submitted to Industrial Operations to determine whether they were 

adequately supported by documentation. In reviewing these orders, we 

obtained the status of the carryover at the end of the fiscal year. On the 

basis of procedures performed, we have concluded that these data were 

sufficiently reliable for the purposes of this report. We performed our work 

at the Office of the Under Secretary of Defense (Comptroller), the Office 

of the Assistant Secretary of the Army (Acquisition, Logistics and 

Technology), and the Office of the Assistant Secretary of the Army 

(Financial Management and Comptroller), Washington, D.C.; Army 

Materiel Command, Huntsville, Alabama; the Tank-automotive and 

Armaments Command Life Cycle Management Command, Warren, 

Michigan; the Anniston Army Depot, Anniston, Alabama; the Corpus 

Christi Army Depot, Corpus Christi, Texas; the Letterkenny Army Depot, 

Chambersburg, Pennsylvania; the Red River Army Depot, Texarkana, 
Appendix I: Scope and Methodology

Page 35 GAO-16-543 Army Industrial Operations Carryover

Texas; and the Office of the Assistant Secretary of the Army (Acquisition, 

Logistics and Technology), Program Executive Office Combat Support & 

Combat Service Support, Warren, Michigan.

We conducted this performance audit from June 2015 to June 2016 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix II: Comments from the Department 

of Defense

Page 36 GAO-16-543 Army Industrial Operations Carryover

Appendix II: Comments from the Department 

of Defense
Appendix II: Comments from the Department 

of Defense

Page 37 GAO-16-543 Army Industrial Operations Carryover
Appendix II: Comments from the Department 

of Defense

Page 38 GAO-16-543 Army Industrial Operations Carryover
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 39 GAO-16-543 Army Industrial Operations Carryover

Asif A. Khan, (202) 512-9869 or khana@gao.gov

In addition to the contact named above, Greg Pugnetti (Assistant 

Director), John Craig, Steve Donahue, and Keith McDaniel made key 

contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(100173)
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