GAO

United States General Accounting Office

Report to the Chairmen, Committee on 

Appropriations, and the Subcommittee 

on Defense, Committee on 

Appropriations, House of 

Representatives

June 2001 DEFENSE 

INVENTORY

Information on the 

Use of Spare Parts 

Funding Is Lacking

GAO-01-472

Page i GAO-01-472 Defense Inventory

Letter 1

Results in Brief 1

Background 2

Funds Were Largely Used for Operation and Maintenance

Activities, but Not Necessarily for Spare Parts 4

Department Plans to Develop Detailed Information on Spare Parts

Funding, but Does Not Plan to Provide It to the Congress 6

Conclusions 7

Recommendation for Executive Action 7

Agency Comments 7

Scope and Methodology 8

Appendix I Comments From the Department of Defense 10

Tables

Table 1: Transfers of Funds Specifically Earmarked for Spare Parts

and Associated Logistical Support 5

Contents
Page 1 GAO-01-472 Defense Inventory

June 11, 2001

The Honorable Bill Young

Chairman, Committee on Appropriations

House of Representatives

The Honorable Jerry Lewis

Chairman, Subcommittee on Defense

Committee on Appropriations

House of Representatives

In recent years, the military services have been reporting that a shortage of

spare parts has caused a decline in military readiness. Despite additional

funding provided by the Congress to address this issue, the services are

still reporting concerns about spare parts shortages. You expressed

concern about whether the added funding had been used to reduce spare

parts shortages and asked that we review how the Department of Defense

had used the funds.1

 In response to your request, this report addresses (1)

what the Department and the military services did with the funds the

Congress specifically provided for spare parts and (2) what plans the

Department has to improve financial management information on spare

parts funding. As agreed with your staff, we focused this review on the

funds, totaling about $1.1 billion, that were specifically earmarked for

spare parts and associated logistical support in the Emergency

Supplemental Appropriations Act for Fiscal Year 1999.

The funds earmarked specifically for spare parts and associated logistical

support, totaling about $1.1 billion, were largely placed in the military

services’ operation and maintenance accounts. However, current financial

information does not show the extent to which the Department used these

funds for spare parts. Available documentation shows that the

Department of Defense transferred 92 percent of these funds to the

military services’ operation and maintenance accounts. The remaining 8

percent was transferred to a Navy procurement account related to spare

 1

 This is one in a series of reviews related to concerns you raised about spare parts issues.

We have other reviews in progress that deal with such issues as spare parts shortages in

each of the services, spare parts requirements for Army war reserves, and quality of spare

parts. We are reporting separately on each of these issues.

United States General Accounting Office

Washington, DC 20548

Results in Brief
Page 2 GAO-01-472 Defense Inventory

parts for new equipment. Once the funds were transferred into the

operation and maintenance accounts, the Department did not separately

track the use of these funds. They could have been used for a variety of

purposes, including obtaining new or repaired spare parts. Funds within

the services’ operation and maintenance accounts are tracked in over 200

subactivity groups, ranging from 27 in the Marine Corps to 63 in the Air

Force, but spare parts is not one of them. Instead, funding for spare parts

is included in numerous subactivity groups and not separately tracked

within such subactivity groups.

The Department of Defense plans to annually develop detailed financial

management information on spare parts funding uses. However, the

Department has indicated that it does not plan to report the information to

the Congress. According to a June 2000 regulation, the Department and

the military services are to develop information annually on the quantity

and funding for all spare parts. The information is to be developed for the

first time in conjunction with the fiscal year 2002 operation and

maintenance budget request. The information is to include all spare parts

by groupings, such as ships, aircraft, and combat vehicles.

Continuing concerns about the impact of spare parts shortages on

readiness make reliable and timely information about the use of funds for

spare parts essential for effective congressional oversight. Consequently,

we are recommending to the Secretary of Defense that the information

required by the June 2000 regulation routinely be provided to the Congress

as an integral part of the Department’s annual budget submission. The

Department of Defense agreed with our recommendation.

Spare parts are repair parts and components, including kits, assemblies,

and subassemblies (both reparable and nonreparable items) required for

the maintenance of all equipment. Reparable items are those that are

returned to the supply system to be repaired when they are no longer in

working condition. Nonreparable items are called consumables, which

means they are consumed in use or can not be economically repaired.

For several years, the military services have, to varying degrees, expressed

concern that a lack of spare parts has reduced their ability to carry out

their missions. In the Quarterly Readiness Report to the Congress for

October -December 2000, the Department reported the following:

• The Department continues to face challenges in the readiness of aviation

assets, in part, because of spare parts shortages.

Background
Page 3 GAO-01-472 Defense Inventory

• Most Army equipment was at or above readiness goals, but prepositioned

war reserves still had spare parts shortages.

• Nondeployed Navy units had aviation spare parts shortages.

• Funding for Air Force spare parts was on track, and previous spare parts

funding initiatives were beginning to improve the availability of parts and

consequently were helping to curb the declining trend in aircraft

readiness. However, engine readiness had declined since it peaked in May

2000, and a reason for the decline was continuing parts problems.

In response to such concerns, the Congress has provided additional

funding. Funding for spare parts is typically provided as part of the

appropriations for operation and maintenance.2

 During fiscal years 1996-

2000, the Congress consistently funded the President’s Defense operation

and maintenance budget request and provided additional funding.

In the Emergency Supplemental Appropriations Act for Fiscal Year 1999

(P.L. 106-31 sec. 2007), the Congress provided the Department of Defense

with about $1.1 billion specifically for use for spare parts and associated

logistical support. That act indicated that funds were to be available for

obligation3

 until the end of fiscal year 2000 and could be transferred only

to the operation and maintenance or procurement accounts. Section 8170

of the Department of Defense Appropriations Act for Fiscal Year 2000

(P.L. 106-79) reduced fiscal year 2000 funding for spare parts and

associated logistical support by $550 million. The act then directed that

the unobligated funds available from section 2007 of the fiscal year 1999

emergency supplemental be made available to finance spares and

logistical support activities in the exact amounts that were reduced in the

fiscal year 2000 act.

We have reported recently on the Department’s difficulties in financial and

inventory management as high-risk areas that are vulnerable to waste,

 2

 Besides funding for spare parts, the operation and maintenance appropriations are

intended to cover the costs associated with many diverse Department of Defense items and

activities, such as the pay and benefits for most of the Department’s 700,000 civilian

employees, fuel, other supplies, operations at military bases, training and education of

individual service members, and medical care.

3

 Obligations are financial amounts associated with orders placed, contracts awarded,

services rendered, and other transactions occurring during a given period that would

require payments during the same period or in the future.
Page 4 GAO-01-472 Defense Inventory

fraud, abuse, and mismanagement.4 We also recently testified5 that none of

the military services or the Department as a whole passed the test of an

independent financial audit for fiscal year 2000 because of pervasive

weaknesses in its financial management systems, operations, and controls.

We pointed out that, despite progress, ineffective asset accountability and

the lack of internal controls continue to adversely affect visibility over

inventories. Furthermore, unreliable cost and budget information

undermines the Department’s ability to effectively measure performance,

maintain adequate fund control, and reliably report on how much money it

has spent and for what purposes.6

We further testified that the Department continued to spend more than

necessary to procure and manage inventory. The Department’s records

showed that, as of September 30, 1999, inventory on order, valued at about

$1.6 billion, would not have been ordered based on current requirements.

However, we also pointed out that at the same time the Department had

experienced equipment readiness problems because of a lack of spare

parts.

The vast majority of the funds provided specifically for spare parts were

placed in the military services’ operation and maintenance accounts.

However, the Department of Defense financial management information

does not show the extent to which this funding was used for spare parts.

Once the funds are in these accounts, the Department does not routinely

track the amount of funds that are used for spare parts. They could have

been used for a variety of purposes including spare parts.

The Department of Defense transferred 92 percent of the funds specifically

earmarked for spare parts and associated logistical support to operation

and maintenance accounts. The remaining 8 percent was transferred to a

 4

 These difficulties in the financial management and inventory management areas are

discussed in our reports entitled Major Management Challenges and Program Risks:

Department of Defense (GAO-01-244, Jan. 2001) and High-Risk Series: An Update

(GAO-01-263, Jan. 2001).

5 Major Management Challenges and Program Risks: Departments of Defense, State, and

Veterans Affairs (GAO-01-492T, Mar. 7, 2001), testimony delivered before the

Subcommittee on National Security, Veterans Affairs, and International Relations, House

Committee on Government Reform.

6

 Recent financial audits show that obligated balances were not always correct or

supported.

Funds Were Largely

Used for Operation

and Maintenance

Activities, but Not

Necessarily for Spare

Parts
Page 5 GAO-01-472 Defense Inventory

Navy procurement account associated with spare parts for new weapon

systems or equipment. Of the $1.1249 billion earmarked specifically for

spare parts and associated logistical support, as authorized, $1.0372 billion

was transferred by the Department to the services’ operation and

maintenance accounts (see table 1). At that point, the vast majority of the

funds earmarked for spare parts and associated logistical support became

indistinguishable from other operation and maintenance funds. Officials

of the Department of Defense and the military services explained that

obligations incurred for spare parts were included with obligations

incurred with various operation and maintenance subactivities and were

not tracked separately. They advised us that, consequently, they could not

readily provide information to show how those funds were used.

Table 1: Transfers of Funds Specifically Earmarked for Spare Parts and Associated

Logistical Support

Dollars in thousands

Service

Operation and

maintenance Procurement Total

Army $170,000 $170,000

Navy 312,400 $87,700 400,100

Marine Corps 40,000 40,000

Air Force 466,800 466,800

 Air Force Reserve 23,000 23,000

 Air National Guard 25,000 25,000

Total $1,037,200 $87,700 $1,124,900

Source: GAO analysis based on Department of Defense transfer documents.

The services’ operation and maintenance accounts typically contain four

budget activities: (1) operating forces, (2) mobilization, (3) training and

recruiting, and (4) administration and servicewide activities.7 Budget

activities are in turn divided into activity groups, which are further divided

into subactivity groups. The number of activity groups and subactivity

groups varies for each service.

In total, these operation and maintenance accounts comprise over 200

subactivity groups and range from 27 in the Marine Corps to 63 in the Air

Force. They include some major programs such as Army divisions, fleet

ballistic missiles, and Air Force primary combat forces and smaller

 7

 The Marine Corps is an exception with only three budget activities and does not include

the mobilization budget activity.
Page 6 GAO-01-472 Defense Inventory

programs such as real property maintenance for accession training at the

service academies, junior reserve officers training corps, and off-duty and

voluntary education program.

Funding for spare parts is spread across various subactivity groups. For

example, a portion of the Air Force’s operation and maintenance funds

goes to its eight major commands for use in their flying hour programs.

These major commands use such funds to pay for fuel, maintenance, and

spare parts. The flying hour program is not separately identified in the

operation and maintenance account; flying hour costs are charged to

numerous subactivity groups, and funds for spare parts are included in

those costs.

The Department of Defense plans to annually develop detailed financial

management information on spare parts funding, but does not plan to

provide it to the Congress as part of its budget submission. Starting with

the budget request for fiscal year 2002, the Department and the sevices are

to develop information that will show the amount of operation and

maintenance appropriations used for spare parts and the quantity of

consumable and reparable spare parts used.8

 

The regulation that deals with specific backup material requirements

associated with the justification for operation and maintenance

appropriations was revised in June 2000. The revision calls for the

development of information on the quantity of parts involved and funding

for each grouping, such as ships, aircraft, and combat vehicles, within the

Department’s and each service’s operation and maintenance account.

According to the revised regulation, the information is also to include an

explanation of changes in the quantity and funding between years and

deviations between actual and program data.

In the past, the Department asked the services to provide information

designed to show the funding used to purchase reparable parts. However,

the information did not show the funding for consumable parts and did not

reflect the quantities of reparable parts involved. In addition, there was no

explanation of changes in funding used between years and deviations

between actual and program data.

 8

 The Department of Defense Financial Management Regulation (vol. 2A, ch. 3) requires the

Department and each service to prepare backup material on spare parts, identified as

exhibit OP-31.

Department Plans to

Develop Detailed

Information on Spare

Parts Funding, but

Does Not Plan to

Provide It to the

Congress
Page 7 GAO-01-472 Defense Inventory

The revised regulation states that the information on spare parts is not to

be included in the Department’s budget request submitted to the Congress.

An official from the Department’s Office of the Comptroller told us that

this information is only for internal Department use and that the

Department is not required to provide the information to the Congress.

This official also said that as of May 2001, the Department had not started

to develop the information on spare parts required by the revised

regulation because of the Department–wide strategic review by the

Secretary of Defense.

Implementation of the Department’s plan to develop detailed information

on spare parts funding should increase visibility and accountability for the

use of spare parts funds. The plan should also help to determine the

extent to which progress is being made in addressing spare parts

shortages. Such information, when developed through a reliable and

consistent methodology, would also be useful for congressional decisionmaking and oversight. However, the Department does not plan to provide

it to the Congress.

Continuing concerns about the impact of spare parts shortages on

readiness make reliable and timely information about the use of funds for

spare parts essential for effective congressional oversight. Therefore, we

are recommending that the Secretary of Defense routinely provide to the

Congress, as an integral part of the operation and maintenance budget

submission, the spare parts information required by the Department’s

revised regulation associated with the justification for operation and

maintenance appropriations.

In commenting on a draft of this report, the Acting Deputy Under

Secretary of Defense for Logistics and Materiel Readiness indicated that

the Department of Defense generally agreed with the report and concurred

with the recommendation. Specifically, the Acting Deputy Under

Secretary indicated that copies of the Department’s and the military

services’ detailed spare parts information required by the Department’s

revised regulation would routinely be provided to the Congress as part of

the annual budget submission. Moreover, the Department will incorporate

this new congressional reporting requirement in its financial management

regulation when it is updated. The Department’s comments are reprinted

in their entirety in appendix I.

Conclusions

Recommendation for

Executive Action

Agency Comments
Page 8 GAO-01-472 Defense Inventory

To determine what the Department and the services did with the funding

specifically provided for spare parts and associated logistical support, we

reviewed the legislative history and the provisions of relevant

appropriations acts and documented the amount and purpose of

supplemental funding provided by the Congress. We obtained information

from the Department of Defense and the military services on the transfer

of supplemental funding from the Department of Defense to the services.

We asked officials from the Department’s Office of the Comptroller and

the individual services and their major commands for information on how

they tracked the status of obligations for spare parts at their respective

levels. We discussed with officials of the Department of Defense and

individual services whether they had procedures to determine whether the

earmarked funds were obligated for spare parts. We also obtained

documentation on the extent to which the Department of Defense tracks

funding for spare parts embedded in the normal operation and

maintenance accounts. We also reviewed our prior reports dealing with

high-risk operations within the Department of Defense.

To ascertain what plans the Department has to improve financial

management information on spare parts funding, we contacted the

Department’s Office of the Comptroller. We also reviewed the revised

chapter of the Department’s Financial Management Regulation that deals

with specific backup material requirements associated with the budget

formulation and justification for operation and maintenance

appropriations. We also compared the provisions related to spare parts in

the revised regulation with the provisions in the regulation just prior to the

revision. We discussed the differences in the regulation requirements with

an official in the Office of the Comptroller and obtained information about

the status of efforts to implement the revised requirements dealing with

spare parts.

We performed our work from June 2000 to May 2001 in accordance with

generally accepted U.S. government auditing standards.

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

Members of the Senate Committee on Appropriations and the Senate

Committee on Armed Services; the Chairman and Ranking Minority

Member, House Committee on Armed Services; the Secretaries of Defense,

the Army, the Air Force, and the Navy; the Commandant of the Marine

Corps; and the Director of the Office of Management and Budget. We will

also make copies available to others upon request.

Scope and

Methodology
Page 9 GAO-01-472 Defense Inventory

Please contact David Warren on (202) 512-8412 or Gregory Kutz on (202)

512-9505 if you or your staff have any questions concerning this report.

Key contributors to this report were Jeffrey L. Overton, John C. Wren,

Jeanett H. Reid, and Joseph F. Murray.

David R. Warren

Director, Defense Capabilities

and Management

Gregory D. Kutz

Director, Financial Management

and Assurance
Appendix I: Comments From the Department

of Defense

Page 10 GAO-01-472 Defense Inventory

Appendix I: Comments From the Department

of Defense
Appendix I: Comments From the Department

of Defense

(709508) Page 11 GAO-01-472 Defense Inventory

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