ARMY INDUSTRIAL 

OPERATIONS

Budgeting and 

Management of 

Carryover Could Be 

Improved

Report to Congressional Requesters

June 2013

GAO-13-499

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-499, a report to 

congressional requesters

June 2013

ARMY INDUSTRIAL OPERATIONS

Budgeting and Management of Carryover Could Be 

Improved

Why GAO Did This Study

The 13 Army Industrial Operations 

activities support combat readiness by 

providing depot maintenance and 

ordnance services to keep Army units 

operating worldwide. To the extent that 

Industrial Operations does not 

complete work at year-end, the work 

and related funding will be carried over 

into the next fiscal year. Carryover is 

the reported dollar value of work that 

has been ordered and funded by 

customers but not completed by 

Industrial Operations at the end of the 

fiscal year. As requested, GAO 

reviewed issues related to Army 

Industrial Operations’ carryover. GAO’s 

objectives were to determine whether, 

and to what extent, Army Industrial 

Operations’ (1) actual carryover 

exceeded allowable carryover for fiscal 

years 2006 through 2012; (2) budget 

information on carryover approximated 

actual information for fiscal years 2006 

through 2012, and if not, whether the 

Army took actions to align the two; and 

(3) carryover increased during fiscal 

years 2011 and 2012 and causes for 

the carryover. To address these 

objectives, GAO reviewed relevant 

carryover guidance, analyzed 

carryover and related data for 

Industrial Operations, and interviewed 

Army officials. 

What GAO Recommends

GAO is making three 

recommendations to the Department of 

Defense (DOD) that are aimed at 

implementing the planned actions 

identified by the Army’s working group 

to improve the budgeting and 

management of carryover. DOD 

concurred with GAO’s 

recommendations and cited related 

actions planned or under way. 

What GAO Found

From fiscal years 2006 through 2012, Army’s Industrial Operations’ actual 

carryover was under the allowable amounts in 5 of the 7 fiscal years. However, 

carryover more than doubled during that period, reaching a high of $5.8 billion in 

fiscal year 2011. Army officials stated that fiscal year 2011 was an abnormal year 

because Industrial Operations (1) received more orders than it had ever 

received—$7.5 billion in new orders—and (2) implemented a system called the 

Logistics Modernization Program (LMP) that changed the business rules for 

recognizing revenue and therefore resulted in carryover being higher than it 

would have been under the prior system. Army officials anticipate carryover 

decreasing in fiscal year 2013. According to the Army fiscal year 2014 budget, 

the Army expects carryover to be under $4 billion at the end of fiscal year 2013.

Industrial Operations’ New Orders, Revenue, Carryover, and Months of Carryover 

The Army’s budget estimates for carryover were less than the actual carryover 

amounts each year beginning in fiscal year 2006—at least $1.1 billion each year. 

GAO’s analysis showed that the actual amounts of carryover exceeded budgeted 

amounts primarily because (1) the Army underestimated new orders to be 

received from customers for all 7 years reviewed, particularly with respect to 

procurement funded orders, and (2) for fiscal year 2011, Industrial Operations

performed over $1 billion less work than budgeted because Army officials were 

unaware of the impact that LMP would have on revenue when developing the 

fiscal year 2011 budget. The Army is taking actions intended to better align the 

customers’ budgets with Industrial Operations’ budgets.

Industrial Operations’ carryover grew significantly in fiscal years 2011 and 2012 

to represent about 12.7 and 9.5 months of work, respectively. GAO found three 

causes for the carryover: (1) the scope of requested work was not well defined, 

(2) parts were not available to perform the work, and (3) revenue recognition 

business rules were changed as part of the implementation of LMP. The Army 

formed a working group in April 2012 that identified actions to help reduce 

carryover. However, these actions have not been implemented and no timetable 

for implementation has been set. 

View GAO-13-499. For more information, 

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

khana@gao.gov.
Page i GAO-13-499 Army Industrial Operations

Letter 1 

Background 3

Adjusted Carryover Was under the Allowable Amount for 5 of the 

Last 7 Fiscal Years 6

Budgeted Information on Carryover Underestimated Actual 

Carryover Information, but the Army Began Taking Action to 

Align These in Fiscal Year 2012 10

Carryover Increased at the End of Fiscal Years 2011 and 2012 and 

Was Caused by Several Factors 15

Conclusions 28

Recommendations for Executive Action 28

Agency Comments 28

Appendix I Scope and Methodology 30

Appendix II Comments from the Department of Defense 33

Appendix III GAO Contact and Staff Acknowledgments 35

Tables

Table 1: Comparison of Army Industrial Operations’ Actual 

Adjusted Carryover and Allowable Carryover (Fiscal Years 

2006 through 2012) 7

Table 2: Comparison of Budgeted and Actual Army Industrial 

Operations’ Carryover (Fiscal Years 2006 through 2012) 10

Table 3: Army Industrial Operations’ Budgeted New Orders 

Compared to Actual New Orders (Fiscal Years 2006 

through 2012) 11

Table 4: Army Industrial Operations’ Budgeted New Orders 

Compared to Actual New Orders by Appropriation 

Category Funding the Orders (Fiscal Years 2006 through 

2012) 12

Table 5: Army Industrial Operations’ Budgeted Revenue Compared 

to Actual Revenue (Fiscal Years 2006 through 2012) 15

Table 6: Analysis of Key Causes for Carryover for Eight Army 

Industrial Operations Workloads 16

Contents 
Page ii GAO-13-499 Army Industrial Operations

Table 7: Key Dates and Contract Terms for Five Army Industrial 

Operations Workloads 20

Figures

Figure 1: Army Industrial Operations’ New Orders, Revenue, and 

Total Carryover (Fiscal Years 2006 through 2012) 8

Figure 2: Mine Resistant Ambush Protected Vehicle Being 

Converted to a Route Clearance Vehicle 18

Figure 3: Overview of Impact of Parts Shortages on Completing 

HMMWV Work Orders at Red River and Letterkenny 19

Figure 4: Assault Breacher Vehicle 21

Figure 5: Force Provider 23

Figure 6: High Mobility Multi-purpose Wheeled Vehicle 24

Figure 7: Black Hawk Helicopter 26

Abbreviations

ABV Assault Breacher Vehicle 

AMC Army Materiel Command

AWCF Army Working Capital Fund

DOD Department of Defense

HMMWV High Mobility Multi-purpose Wheeled Vehicle 

LCMC Life Cycle Management Command

LMP Logistics Modernization Program

OUSD Office of the Under Secretary of Defense 

RCV Route Clearance Vehicle

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Page 1 GAO-13-499 Army Industrial Operations

441 G St. N.W.

Washington, DC 20548

June 27, 2013

The Honorable Jeanne Shaheen

Chairman

The Honorable Kelly Ayotte

Ranking Member

Subcommittee on Readiness and Management Support

Committee on Armed Services

United States Senate

The Honorable Claire McCaskill

United States Senate

The Army operates 13 Industrial Operations activities that provide depot 

maintenance and ordnance services.1

When Army Industrial Operations work has been ordered and funded 

(obligated) by customers (such as the Army) but has not been completed 

at the end of a fiscal year, it is referred to as carryover. The congressional 

defense committees have recognized that some carryover is appropriate 

to facilitate a smooth flow of work during the transition from one fiscal 

The depot maintenance services 

include the repair and overhaul of a wide range of vehicles and other 

military assets, including helicopters, such as the Apache and Black 

Hawk; combat vehicles, such as the Abrams tank and High Mobility Multipurpose Wheeled Vehicles (HMMWV); and air defense systems, such as 

the Patriot missile. The ordnance services include manufacturing, 

renovating, and demilitarizing an array of defense-related munitions and 

components, such as howitzers, large-caliber ammunition, rockets, 

bombs, missiles, and incendiary devices. Many of these military assets 

and munitions were used to support the Army’s efforts in Iraq and 

Afghanistan.

 

1

The 13 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. 

 
 

Page 2 GAO-13-499 Army Industrial Operations

year to the next. However, past congressional defense committee reports 

have raised concerns that the level of carryover in military service working 

capital funds may be more than is needed. Further, excessive amounts of 

carryover may result in future requests being subject to reductions by the 

Department of Defense (DOD) and the congressional defense 

committees during the budget review process.

You asked us to review issues related to the Army Industrial Operations’ 

carryover. Our objectives were to determine whether, and to what extent, 

Army Industrial Operations’ (1) actual carryover exceeded the allowable 

amount of carryover from fiscal years 2006 through 2012; (2) budget 

information on carryover from fiscal years 2006 through 2012 

approximated actual information, and if not, whether the Army took 

actions to align the two; and (3) carryover increased during fiscal years 

2011 and 2012 and causes for the carryover for those 2 fiscal years.

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

Army Industrial Operations reports that contained information on 

budgeted and actual carryover and the allowable amount of carryover for 

fiscal years 2006 through 2012. We analyzed carryover beginning with 

fiscal year 2006 because the Army’s fiscal year 2006 budget reported a 

consolidation of the Army Working Capital Fund’s (AWCF) depot 

maintenance and ordnance activity groups into a consolidated Industrial 

Operations activity group, making a comparison to prior fiscal years 

difficult. We met with responsible officials from the Army to obtain their 

views on the causes for variances between actual carryover and (1) the 

allowable amount and (2) budgeted carryover. We also met with these 

officials to discuss actions the Army has taken and is taking to reduce the 

amount of carryover. 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 DOD’s guidance for 

exceptions to the carryover policy and discussed any exceptions with the 

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

headquarters officials to obtain explanations for the exceptions.

To address the third objective, we met with responsible Army officials to 

identify contributing factors that caused the carryover. Further, to 

corroborate the information provided by these officials, we selected eight 

weapon system workloads with high dollar amounts of fiscal year 2011 

carryover from four Army depots. The carryover associated with these 

workloads represented about 35 percent of Industrial Operations’ 

carryover for fiscal year 2011 and was one of the top five workloads with 

carryover at each of the four depots. We obtained and analyzed orders 
 

Page 3 GAO-13-499 Army Industrial Operations

and amendments associated with these workloads and discussed the 

information in these documents with the depots to determine the causes 

for the carryover. Additionally, we discussed and obtained documentation 

on the actions the Army is taking to better manage and reduce carryover. 

A more detailed discussion of our scope and methodology is contained in 

appendix I.

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 

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

concluded that these data were sufficiently reliable for the purposes of 

this report. We conducted this performance audit from May 2012 to June 

2013 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. We requested comments 

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

Written comments from the Office of the Under Secretary of Defense 

(Comptroller) are reprinted in appendix II.

Army Industrial Operations provides 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. Industrial 

Operations relies on sales revenue from customers to finance its 

continuing operations. 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—that is, neither make a gain nor incur a loss. Customers, 

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

maintenance or procurement appropriations) to finance orders placed 

with Industrial Operations. Industrial Operations provides the Army an inhouse 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 operated installation 

activities, each with unique core competencies. These include five 

maintenance depots (Anniston, Alabama; Corpus Christi, Texas; 

Background 
 

Page 4 GAO-13-499 Army Industrial Operations

Letterkenny, Pennsylvania; Red River, Texas; and 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 preponderance of 

the workload performed by Industrial Operations relates to depot-level 

maintenance.

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), each 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 HMMWV and Abrams tank, whereas 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.

Carryover consists of both the unfinished portion of Army Industrial 

Operations work started but not completed and work that was accepted 

but has not yet begun. Some carryover is appropriate at the end of the 

fiscal year in order for working capital funds such as Industrial Operations 

to operate efficiently and effectively. For example, if customers do not 

receive new appropriations at the beginning of the fiscal year, carryover is 

necessary to ensure that Industrial Operations’ activities (1) have enough 

work to continue operations in 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 some personnel not 

having work to perform at the beginning of the fiscal year. On the other 

hand, too much carryover could result in an activity group receiving funds 

from customers in one fiscal year but not performing the work until well 

into the next fiscal year. 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 subsequent 

years.

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

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

Carryover and Its Use

DOD’s Carryover Policy
 

Page 5 GAO-13-499 Army Industrial Operations

based on the amount of new orders received that year and the outlay rate 

of the customers’ appropriations financing the work.2 The DOD carryover 

policy further provides that the work on the current fiscal year’s orders is 

expected to be completed by the end of the following fiscal year. 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 and (2) the reported actual carryover, net of 

exclusions (adjusted carryover), is then compared to the amount of 

allowable carryover using the above-described outlay rate method to 

determine whether the actual carryover amount is over or under the 

allowable carryover amount.3 To the extent that adjusted carryover 

exceeded the allowable carryover, DOD and the congressional defense 

committees may reduce future budgets. According to DOD Financial 

Management Regulation, this carryover policy allows for an analyticalbased 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 (i.e., 

waivers) must be submitted to the Director for Revolving Funds, OUSD 

(Comptroller) separate from the budget documents. OUSD (Comptroller) 

officials informed 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.

The Army implemented the Logistics Modernization Program (LMP) at 

two Army Industrial Operations activities in fiscal year 2009 and 10 Army 

Industrial Operations activities in fiscal year 2011.4

 

2

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

which are published each year. The outlay rate figures may vary from year to year. 

According to the 

Army’s budget, LMP provides the Army a modernized logistics and 

finance system that delivers a fully integrated suite of software and 

business processes, providing streamlined data on maintenance, repair 

and overhaul, finance, acquisition, spare parts, and materiel. LMP 

changed the point in time when Industrial Operations activities recognized 

3

See DOD Financial Management Regulation 7000.14-R, Defense Working Capital Fund 

Activity Group Analysis, vol. 2B, ch. 9, p. 9-43 (June 2010), for orders excluded from the 

carryover calculation. 

4

One Industrial Operations activity implemented LMP in fiscal year 2003.

Implementation of the 

Logistics Modernization 

Program
 

Page 6 GAO-13-499 Army Industrial Operations

revenue. The point in time when revenue is recognized is important 

because when an Industrial Operations activity performs work it earns 

revenue and the carryover is reduced. Prior to the implementation of 

LMP, the Army activities recognized revenue on parts and material when 

the activities received the items and assigned them to orders. This 

procedure led, in some cases, to Industrial Operations activities buying 

material or spare parts and recognizing revenue and reducing carryover 

before the parts and material were actually used in repairing weapon 

systems. Under LMP, revenue is recognized when the material and parts 

are brought to the assembly area for installation on the weapon 

systems—much later in the repair process for weapon systems that have 

long repair cycle times.

From fiscal years 2006 through 2012, the Army reported that Industrial 

Operations’ actual carryover, adjusted for waivers/exclusions (adjusted 

carryover), was under the allowable amounts in 5 of the 7 fiscal years.5

From fiscal years 2006 through 2012, Industrial Operations’ total actual 

carryover increased from $2.3 billion to $5 billion, reaching a high of 

$5.8 billion—12.7 months of work—at the end of fiscal year 2011.6 Table 

1 shows the Army Industrial Operations actual adjusted carryover, 

allowable carryover, and the amount over (or under) the allowable 

carryover for fiscal years 2006 through 2012.

 

5

Actual carryover adjusted for waivers/exclusions will be referred to as adjusted carryover 

in this report. The adjusted carryover amount is used when comparing it to the allowable 

amount. Also, waivers/exclusions will be referred to as waivers in this report.

6

The number of months of work is a calculation to show the average time required to work 

off the year-end carryover amount. It is calculated by dividing total revenue earned during 

the year by 12 months to determine the average revenue earned by month. The total 

carryover at year-end is then divided by the average revenue earned by month to 

determine the number of months of carryover. The calculated amount represents the total 

number of months to perform the work, which includes labor, material, and overhead 

costs.

Adjusted Carryover 

Was under the 

Allowable Amount for 

5 of the Last 7 Fiscal 

Years 
 

Page 7 GAO-13-499 Army Industrial Operations

Table 1: Comparison of Army Industrial Operations’ Actual Adjusted Carryover and 

Allowable Carryover (Fiscal Years 2006 through 2012)

Dollars in millions

Fiscal year

Actual adjusted 

carryover

Allowable 

carryover

Actual over (under)

allowable amount

2006 $2,141 $2,115 $26

2007 3,030 2,752 277

2008 2,862 3,654 (792)

2009 3,146 3,327 (181)

2010 3,452 4,076 (624)

2011 4,321 4,684 (363)

2012 4,573 4,768 (194)

Source: GAO analysis of Army Industrial Operations data.

Note: Actual over (under) allowable dollar amounts for fiscal years 2007 and 2012 do not add 

because of rounding.

While actual adjusted carryover was under the allowable amount in the 

most recent 5-year period, total carryover increased by about 117 percent 

from fiscal years 2006 through 2012. The total carryover increased from 

about 6 months of work in fiscal year 2006 to 9.5 months in fiscal year 

2012, and reached its highest point in fiscal year 2011 at 12.7 months of 

work. Figure 1 depicts Army Industrial Operations’ actual new orders, 

revenue, and total carryover and shows the total amount of work that 

carried over without the adjustments.
 

Page 8 GAO-13-499 Army Industrial Operations

Figure 1: Army Industrial Operations’ New Orders, Revenue, and Total Carryover 

(Fiscal Years 2006 through 2012)

Note: The carryover amounts are the total carryover amounts and are not adjusted for waivers.

In September 2011, the Army requested and OUSD (Comptroller) 

approved three waivers that had not been requested by the Army in prior 

years. The Army and OUSD (Comptroller) followed the procedures for 

requesting and approving waivers contained in the DOD Financial 

Management Regulation. The Army provided OUSD (Comptroller) a 

memo requesting the waivers and provided justifications for the waivers. 

OUSD (Comptroller) approved the Army’s waiver request. The effect of 

these waivers was that the Army reported that its Industrial Operations’ 

adjusted carryover was under the allowable amount by $363 million at the 

end of fiscal year 2011. Absent these waivers, Industrial Operations 

would have been over the allowable amount by about $1 billion for fiscal 

year 2011. The Army requested and OUSD (Comptroller) approved two 

similar waivers in fiscal year 2012, and the Army reported that Industrial 
 

Page 9 GAO-13-499 Army Industrial Operations

Operations was under the allowable amount by $194 million for fiscal year 

2012. Without the new waivers that it received in fiscal year 2012, 

Industrial Operations would have been over the allowable amount by 

$1.2 billion for fiscal year 2012.

According to the Army’s waiver request and OUSD (Comptroller) approval 

memorandums, the new waivers consisted of (1) excluding the HMMWV 

fiscal year 2011 orders and related carryover from the carryover 

calculation for fiscal year 2011 because Industrial Operations did not 

receive the HMMWV orders until late in the fiscal year, precluding the 

Army from executing any significant amount of work during fiscal year 

2011; (2) using outlay rates published in the Inflation Guidance instead of 

the outlay rates published in the DOD Financial Summary Tables for 

operation and maintenance-funded orders for calculating the allowable 

carryover for fiscal years 2011 and 2012 because the outlay rates in the 

Inflation Guidance more accurately reflect the nature of the carryover 

work; and (3) allowing the Army to use second year outlay rates for all 

procurement-funded orders for calculating the allowable carryover for 

fiscal years 2011 and 2012 because the scope and complexity of 

procurement-funded orders require longer lead time to perform the work.

We discussed the new waivers with Army headquarters officials and the 

circumstances that led to the requests for the new waivers. According to 

these officials, fiscal year 2011 was an abnormal year. Specifically, in 

fiscal year 2011, Industrial Operations received more orders than it had 

ever received in a single year—$7.5 billion in new orders. Further, 

Industrial Operations received $839 million in orders for the HMMWV 

work late in the fiscal year—June 2011—allowing little time to perform 

work on these orders by the end of the fiscal year. The Army also 

implemented LMP at 10 Industrial Operations activities in fiscal year 

2011, which changed the business rules for recognizing revenue and 

therefore resulted in carryover being higher than it would have been 

under the prior system. However, Army officials could not tell us the dollar 

impact that the implementation of LMP had on carryover. Because new 

orders increased and revenue decreased due to the change in business 

rules, carryover grew to $5.8 billion, or 12.7 months of work, at the end of 

fiscal year 2011. It was for these reasons that the Army requested the 

new waivers.

Army officials stated that fiscal year 2012 was also an abnormal year 

because Industrial Operations needed to work off the $5.8 billion 

carryover balance that existed at the end of fiscal year 2011. To reduce 

the carryover, Industrial Operations worked multiple shifts and overtime 
 

Page 10 GAO-13-499 Army Industrial Operations

on some production lines during fiscal year 2012. As a result, the amount 

of carryover decreased to just under $5 billion at the end of fiscal year 

2012—9.5 months of work. Army officials also informed us that they 

anticipate carryover further decreasing at the end of fiscal year 2013. 

According to Industrial Operations’ fiscal year 2014 budget, the amount of 

carryover at the end of fiscal year 2013 is expected to be under $4 billion.

The Army’s budget estimates for its Industrial Operations carryover were 

consistently less than the actual carryover amounts each year from fiscal 

years 2006 through 2012. For the 7-year period, the Industrial Operations 

actual carryover exceeded budgeted carryover by at least $1.1 billion 

each year. This was primarily because (1) the Army underestimated its 

Industrial Operations new orders received from customers for each of the 

7 years and (2) for fiscal year 2011, Industrial Operations performed over 

$1 billion less work than budgeted. Reliable budget information on 

carryover is critical because decision makers use this information when 

reviewing Industrial Operations budgets. Table 2 compares the dollar 

amounts of the Army’s budgeted and actual Industrial Operations 

carryover and the difference between these amounts for fiscal years 2006 

through 2012.

Table 2: Comparison of Budgeted and Actual Army Industrial Operations’ Carryover 

(Fiscal Years 2006 through 2012)

Dollars in millions

Fiscal year Budgeted carryover Actual carryover Difference 

2006 $1,149 $2,281 ($1,132)

2007 1,282 3,800 (2,519)

2008 2,370 3,900 (1,530)

2009 2,811 3,919 (1,109)

2010 2,602 3,984 (1,382)

2011 3,295 5,776 (2,481)

2012 2,968 4,960 (1,992)

Source: GAO analysis of Army’s Industrial Operations budgets.

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

Budgeted Information 

on Carryover 

Underestimated 

Actual Carryover 

Information, but the 

Army Began Taking 

Action to Align These 

in Fiscal Year 2012
 

Page 11 GAO-13-499 Army Industrial Operations

One factor we found that contributed to actual carryover exceeding 

budgeted carryover by over $1 billion annually over the 7-year period was 

that the Army significantly underestimated the amount of new orders to be 

received from its Industrial Operations customers. As shown in table 3, 

from fiscal years 2006 through 2012, Army Industrial Operations 

budgeted to receive about $35.6 billion in new orders, but Industrial 

Operations reports showed that it actually received about $45.7 billion in 

new orders. As a result, Industrial Operations underestimated new orders 

received from customers by about $10.1 billion over the 7-year period.

Table 3: Army Industrial Operations’ Budgeted New Orders Compared to Actual 

New Orders (Fiscal Years 2006 through 2012)

Dollars in millions

Fiscal year

Budgeted 

new orders 

Actual new 

orders 

Dollar

variance 

Percentage 

variance

2006 $3,188 $5,425 $2,237 70

2007 4,562 6,850 2,288 50

2008 6,300 6,991 691 11

2009 5,016 6,393 1,377 27

2010 5,715 6,340 625 11

2011 6,163 7,529 1,366 22

2012 4,672 6,189 1,517 32

Total $35,616 $45,718 $10,102 28

Source: GAO analysis of Army Industrial Operations budgets.

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

We analyzed the appropriations funding new orders to determine which 

appropriation had the largest variance. The Army’s total budgeted new 

order amounts for the 7-year period were within 15 percent of the total 

actual new order amounts for the operation and maintenance and other 

appropriations categories. The largest differences for these two 

appropriation categories occurred in fiscal years 2006 and 2007, when 

Industrial Operations budget assumptions in support of the Global War on 

Army’s Budget 

Significantly 

Underestimated New 

Orders
 

Page 12 GAO-13-499 Army Industrial Operations

Terrorism underestimated the amount of orders actually received.7

Table 4: Army Industrial Operations’ Budgeted New Orders Compared to Actual New Orders by Appropriation Category 

Funding the Orders (Fiscal Years 2006 through 2012)

However, over the same period, our analysis of budgeted and actual 

orders showed that actual new orders funded by the procurement 

appropriation category exceeded budgeted new orders by about 

$5.8 billion, or 118 percent. Actual amounts funded by the procurement 

appropriation category exceeded budgeted amounts by over 50 percent 

in all but one year, with actual amounts exceeding budgeted amounts by 

more than 100 percent in 4 of the 7 years. Table 4 shows Army Industrial 

Operations’ budgeted new orders compared to actual new orders by 

appropriation category funding the orders for fiscal years 2006 through 

2012.

Dollars in million

Operation and Maintenance Procurement Other appropriations

Fiscal year Budget Actual

Percentage 

variance Budget Actual

Percentage 

variance Budget Actual

Percentage 

variance

2006 $1,599 $2,502 57 $284 $1,182 316 $1,305 $1,741 33

2007 2,264 3,474 53 767 1,462 91 1,532 1,914 25

2008 3,828 3,056 (20) 642 1,726 169 1,831 2,209 21

2009 2,671 2,909 9 573 1,543 169 1,771 1,942 10

2010 2,866 3,130 9 1,034 1,238 20 1,815 1,972 9 

2011 2,783 3,299 19 1,283 2,295 79 2,097 1,936 (8) 

2012 2,723 3,076 13 352 1,338 280 1,596 1,774 11

Total $18,734 $21,446 14 $4,936 $10,784 118 $11,946 $13,487 13

Source: GAO analysis of Army Industrial Operations budgets.

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

Army headquarters and AMC officials stated that they recognized that 

Army Industrial Operations had difficulty in accurately budgeting for new 

orders, particularly for procurement-funded orders and carryover. In 

 

7

Our analysis of the AWCF budget guidance for fiscal year 2006 showed that the Army 

assumed that the fiscal year 2006 new orders amount would approximate 50 percent of 

the fiscal year 2005 operation and maintenance supplemental budget. For fiscal year 

2007, the Army assumed that the fiscal year 2007 orders would be approximately 25 

percent less than the fiscal year 2006 program. These assumptions resulted in the 

budgeted orders for fiscal years 2006 and 2007 being lower than the actual reported 

orders for these 2 fiscal years. 
 

Page 13 GAO-13-499 Army Industrial Operations

discussing this matter with Army headquarters officials, the officials stated 

that Industrial Operations develops its budgets based on information from 

customers. However, Industrial Operations underestimated the amount of 

new orders because (1) the customers did not always notify Industrial 

Operations of their plans to provide some orders, (2) the customers did 

not always commit to providing some orders, and (3) customer 

requirements subsequently changed from the time they prepared their 

budgets to the time the orders were placed with Industrial Operations. 

The Army officials we spoke with stated that improved communications 

between Industrial Operations and customers is needed to help better 

ensure that budgeted orders approximate actual orders. Specifically, they 

stated that customers and Industrial Operations need to work together so 

that Industrial Operations receives reliable new order information to be 

included in its budgets.

To improve the management of carryover, the Army formed a working 

group in April 2012. Among other things, the working group identified that 

improved planning and communication was needed on budgeting for 

orders. The working group identified a number of actions that have the 

potential for remedying the budgeting and actual carryover and order 

variances, including the following:

• Holding a series of monthly or quarterly meetings to better manage 

carryover, including issues related to orders received from customers. 

For example, beginning in July 2012, AMC and the LCMCs and their 

individual activities began to hold quarterly meetings that provide 

information on the status of Industrial Operations’ carryover, orders, 

and revenue. Production issues for specific workloads and strategies 

to reduce carryover are discussed at these meetings. Strategies 

aimed at increasing revenue and reducing carryover include working a 

second shift at the activities or actions to obtain long lead time parts.

• Establishing a policy on acceptance of unscheduled new orders.

• Requiring the program managers (customers) to clearly identify 

planned depot work in their procurement budgets so Industrial 

Operations can better determine the dollar amount of budgeted orders 

funded with procurement appropriations.

In addition, AMC has taken or plans to take the following actions intended 

to improve the management and budgeting of Industrial Operations’ 

carryover and orders.
 

Page 14 GAO-13-499 Army Industrial Operations

• AMC reviewed orders received by Industrial Operations from 

customers in the fourth quarter of fiscal year 2012 and disapproved 

some orders that were unplanned and not included in the Industrial 

Operations fiscal year 2012 budget because the orders would 

increase fiscal year 2012 carryover. Specifically, AMC disapproved 

$97 million of orders received from Industrial Operations’ customers.

• During fiscal year 2013, the Army plans to better align the customers’ 

budgets with the Industrial Operations budgets. AMC identified three 

points during the budget and requirements process at which budget 

information on orders can be updated with the most current workload 

data. At these points, AMC, the LCMCs, and the Industrial Operations 

activities will meet with their customers, including the Office of the 

Assistant Secretary of the Army (Acquisition, Logistics and 

Technology), the Army National Guard, and the Army Reserve, and 

review the customers’ requirements and update the Industrial 

Operations budgets for any orders to be received.

If fully and effectively implemented, these actions should help address the 

order and carryover budgeting issues. However, the Army has not yet 

developed a timetable for implementing the actions identified by the 

working group.

Our analysis of Army Industrial Operations budget documents showed 

that Industrial Operations earned less revenue than budgeted in fiscal 

year 2011, contributing to actual carryover exceeding the budgeted 

amount by $2.5 billion for fiscal year 2011. Even though the total 

budgeted and actual revenue was nearly equal from fiscal years 2006 

through 2012, Industrial Operations’ budget data also showed that 

Industrial Operations’ actual revenue for fiscal year 2011 fell below 

budgeted revenue by about $1 billion and below the previous year’s 

results by $688 million. Table 5 shows a comparison between budgeted 

and actual revenue for fiscal years 2006 through 2012.

Army Earned Less 

Revenue Than Budgeted in 

Fiscal Year 2011
 

Page 15 GAO-13-499 Army Industrial Operations

Table 5: Army Industrial Operations’ Budgeted Revenue Compared to Actual 

Revenue (Fiscal Years 2006 through 2012)

Dollars in millions

Fiscal year

Budgeted 

revenue 

Actual

revenue

Dollar

variance

Percentage

variance

2006 $3,992 $4,592 $600 15

2007 4,784 5,286 502 10

2008 6,673 6,471 (202) (3) 

2009 5,930 6,229 299 5 

2010 6,309 6,157 (152) (2) 

2011 6,505 5,469 (1,035) (16)

2012 5,134 6,283 1,149 22

Total $39,325 $40,486 $1,161 3 

Source: GAO analysis of Army Industrial Operations budgets.

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

Army officials stated that the implementation of LMP at the Industrial 

Operations activities in fiscal years 2009 and 2011 contributed to the 

fiscal year 2011 actual revenue falling below the prior year and budgeted 

amounts. First, in the first quarter of fiscal year 2011, LMP was 

implemented at 10 of the 13 Industrial Operations activities. At the 

deployment activities, revenue was lower in fiscal year 2011 because of 

production delays caused by the workforce being unfamiliar with the

revised LMP requirements. Second, when the fiscal year 2011 Industrial 

Operations budget was developed in the summer of 2009, 2 of the 13 

Industrial Operations activities had just deployed LMP and 10 of the 13 

had not yet deployed LMP. The LCMCs and the activities did not fully 

understand the impact LMP would have on revenue recognition at the 

time of their budget submissions, resulting in actual revenue being less 

than budgeted.

Much of the growth in Army Industrial Operations’ carryover occurred in 

the past 2 fiscal years. During this period, carryover grew from $2.3 billion 

at the end of fiscal year 2006 to a high of $5.8 billion at the end of fiscal 

year 2011. Carryover grew in fiscal year 2011 because Industrial 

Operations received more orders ($7.5 billion) than work it performed 

($5.5 billion). At the end of fiscal year 2012, carryover totaled about 

$5 billion. 

We analyzed eight workloads that accounted for $2 billion of the 

$5.8 billion in carryover at the end of fiscal year 2011. The carryover 

Carryover Increased 

at the End of Fiscal 

Years 2011 and 2012 

and Was Caused by 

Several Factors
 

Page 16 GAO-13-499 Army Industrial Operations

associated with these workloads represented about 35 percent of 

Industrial Operations’ carryover for fiscal year 2011. In analyzing these 

workloads, we found three primary causes for the carryover: (1) the scope 

of work was not well defined, (2) parts needed to perform the work were 

not available, and (3) revenue recognition business rules were changed 

as part of the implementation of LMP. As an additional cause, the 

Industrial Operations activities accepted some orders in the third and 

fourth quarters of fiscal year 2011, which provided them little time to 

resolve any scope of work or parts issues in fiscal year 2011. Table 6 

summarizes the results of our analysis of the key causes of carryover 

related to the eight workloads we analyzed.

Table 6: Analysis of Key Causes for Carryover for Eight Army Industrial Operations 

Workloads

Key causes for carryover 

Workloads

Scope of work not 

well defined

Parts not 

available

Change in 

revenue 

recognition 

rules

Ammunition Rack 

Assault Breacher Vehicle 

Aviation Ground Power 

Unit 

 

Black Hawk 

Force Provider  

High Mobility Multi-purpose 

Wheeled Vehicle 



Patriot Radar 

Route Clearance Vehicle  

Source: GAO analysis of eight Army Industrial Operations workloads.

In order for the Army Industrial Operations activities to perform work in a 

timely manner and minimize carryover, the activities should have a welldefined scope of work, including approved technical data and 

documented processes. Industrial Operations officials informed us that 

the lack of a well-defined scope of work was one of the causes of 

carryover. Our analysis of eight Industrial Operations workloads 

corroborated the information provided by Industrial Operations officials 

and found that work on two workloads was delayed and carryover 

increased because the scope of work was not well defined.

Scope of Work Not Well 

Defined
 

Page 17 GAO-13-499 Army Industrial Operations

For example, in July 2010, Letterkenny accepted its first order to convert 

3 Mine Resistant Ambush Protected vehicles to a different operational 

purpose. The converted vehicle is referred to as a Route Clearance 

Vehicle (RCV).8

Moreover, the depot had a total of three pilot vehicles and 292 production 

vehicles on order at the end of fiscal year 2012.

Under the accepted work order, Letterkenny was 

expected to design and engineer 3 prototype vehicles, establish a 

technical data package to convert the vehicles, and develop a statement 

of work and a bill of materials. The 3 vehicles were expected to be 

completed by December 2010—about 6 months later. However, the depot 

experienced problems designing the modified vehicle, reaching 

agreement with its customer on the new design, and performing tests on 

the first vehicle. The final technical data package to convert the additional 

vehicles and the development of the statement of work and the bill of 

materials were delayed until the new design was agreed upon and the 

first vehicle was tested. As the depot continued to work with its customer 

on the design of the 3 pilot vehicles, in July 2011, Letterkenny accepted 

its second order under this program for the production of 10 vehicles. One 

month later, the depot accepted a third order for over 300 production 

vehicles for $211 million. Because of the delays in completing the 3 

prototype vehicles that were to identify the specifications of the work to be 

performed, the depot carried over about $211 million in work orders into 

fiscal year 2012.

9

 

8

The RCV is a vehicle for route clearance and explosive ordnance disposal.

One pilot vehicle 

ordered was almost complete as of September 30, 2012. The depot 

carried over about $209 million in work orders into fiscal year 2013. A 

photo of a Mine Resistant Ambush Protected vehicle that is being 

converted to an RCV is shown in figure 2.

9

The production vehicle quantities decreased from fiscal years 2011 through 2012 

because the unit funded cost per vehicle increased. 
 

Page 18 GAO-13-499 Army Industrial Operations

Figure 2: Mine Resistant Ambush Protected Vehicle Being Converted to a Route 

Clearance Vehicle

Without the right mix and sufficient quantity of spare parts, the Army 

Industrial Operations activities are impaired in their ability to complete 

their funded workloads in a timely and efficient manner. Industrial 

Operations officials informed us that parts shortages was one of the 

causes of carryover. Our analysis of Industrial Operations data 

corroborated these officials’ views and found that parts shortages at the 

activities contributed to carryover for seven of the eight workloads we 

reviewed. Parts were not available for work to proceed in a timely manner 

because (1) the depots accepted orders funded with procurement 

appropriations in fiscal year 2011 but contracts to purchase parts needed 

to perform the work were not awarded until fiscal years 2012 or 2013 and 

(2) the HMMWV work outpaced the ability of the supply chain to provide 

the parts. The delay in receipt of parts extended the time needed for the 

activities to complete work on the orders which, in turn, increased the 

amount of work that carried over into the following fiscal year or fiscal 

years. For example, as summarized in figure 3 and discussed in more 

detail below, parts shortages impaired Industrial Operations’ depots at 

Red River and Letterkenny from completing their HMMWV work orders.

Parts Not Readily Available 

to Perform Repair Work
 

Page 19 GAO-13-499 Army Industrial Operations

Figure 3: Overview of Impact of Parts Shortages on Completing HMMWV Work Orders at Red River and Letterkenny
 

Page 20 GAO-13-499 Army Industrial Operations

Our analysis of Army order and contract data associated with five 

workloads found that contracts for critical parts were not awarded until 1 

or 2 fiscal years after the orders were accepted by the depots. This 

resulted in almost all the fiscal year 2011 funds carrying over on these 

workloads at the end of fiscal year 2011 and funds on these orders 

continuing to carry over at the end of fiscal year 2012. Table 7 shows the 

workload, description of the parts ordered, date the first fiscal year 2011 

order was accepted, contract award date for buying critical parts, and key 

contract terms.

Table 7: Key Dates and Contract Terms for Five Army Industrial Operations Workloads 

Workload

Description of parts 

ordered

Order acceptance 

datea Contract award 

date Key contract terms

Ammunition Rack Ammunition rack upgrade 

kits

April 2011 September 2012 Six months to first delivery

Assault Breacher Vehicle Conversion assembly kits August 2011 December 2011 Production of three per 

month

Aviation Ground Power Unit Engines June 2011 June 2012 Production of eight per 

month

Force Provider Storage and transportation 

containers

January 2011 August 2012 Delivery begins within 30 

days 

Route Clearance Vehicle Conversion parts July 2011 November 2012 First delivery February 

2013

Source: GAO analysis of Army order and contract data.

a

Date the first fiscal year 2011 order was accepted by the depot. Some workloads had multiple orders 

in fiscal year 2011.

Work on the five fiscal year 2011 workloads shown above was delayed to 

fiscal year 2012 or 2013 because of the timing of the award of contracts 

for critical parts needed to complete the Army Industrial Operations work 

orders. For four of the five workloads, the award of the contracts to 

purchase parts occurred 1 or more years after the depot received the 

order to perform the work. Further, as illustrated in the following 

examples, work was delayed in fiscal year 2012 on some of these fiscal 

year 2011 orders because of the terms of the contracts—the contractor 

can only produce a certain number per month.

• In August 2011, Anniston accepted five orders totaling $44 million for 

the conversion of 20 M1A1 Abrams tanks to Assault Breacher 

Vehicles (ABV). In order to perform the work, Anniston had to remove 

the old turrets, fabricate new turrets, and convert the tank hulls to 

address the vehicles’ new function—to breach mine fields and barrier 

obstacles. Anniston officials told us that they could not begin work on 

Contracts to Purchase Parts 

Were Awarded 1 or 2 Fiscal 

Years after Depots Accepted 

Orders
 

Page 21 GAO-13-499 Army Industrial Operations

the orders until they received material (government-furnished 

equipment) that was being procured by the program manager. 

However, the contract to procure the government-furnished 

equipment was not awarded until December 2011—fiscal year 2012—

and the contractor could only produce three kits per month. Anniston 

began work on the ABV orders in May 2012 so that the work fell in 

line with the delivery of the government-furnished equipment. As a 

result, the first vehicle on the order was not completed until October 

2012—fiscal year 2013—and the production of the vehicles at 

Anniston was limited to three per month to match the supplier’s ability 

to manufacture the needed kits. The depot carried over the entire 

amount into fiscal year 2012 and $25 million into fiscal year 2013.

During fiscal year 2012, Anniston accepted five more ABV Army 

orders totaling $48.3 million to produce 22 ABVs and almost all the 

work—$46.3 million—carried over into fiscal year 2013. Similar to the 

orders accepted in fiscal year 2011, Anniston had to maintain a low 

monthly production quantity because one of the contractors could only 

deliver three material kits per month. A photo of an ABV is shown in 

figure 4.

Figure 4: Assault Breacher Vehicle
 

Page 22 GAO-13-499 Army Industrial Operations

• Letterkenny received four orders in the second quarter of fiscal year 

2011 totaling $156 million for 17 Force Provider modules.10

In fiscal year 2012, Letterkenny accepted three more orders totaling 

$18 million for six new Force Providers. However, a contract was not 

awarded to buy containers until August 2012—over a year after 

receiving the first fiscal year 2011 order. Letterkenny received about 

700 containers from August through December 2012. In the 

meantime, work essentially stopped on the new build program in July 

and August 2012 because of the lack of sufficient containers to 

complete 13 of the 17 modules on the fiscal year 2011 orders and 6 

modules on the fiscal year 2012 orders. Without the containers, the 

depot could not complete work on the fiscal years 2011 and 2012 

orders and reduce carryover on the orders. The depot carried over 

$79 million into fiscal year 2013 associated with the fiscal year 2011 

and 2012 new build orders. A photo of a Force Provider is shown in 

figure 5.

Letterkenny procures equipment to fill approximately 43 of the 101 

containers that make up each new build module. The 43 containers 

hold approximately 346 different types of new equipment comprising 

thousands of individual components. Letterkenny carried over almost 

the entire amount into fiscal year 2012—$156 million.

 

10The Force Provider is a transportable base camp system that provides housing and 

operational space for a variety of missions.
 

Page 23 GAO-13-499 Army Industrial Operations

Figure 5: Force Provider

The work that Red River and Letterkenny performed on the HMMWV in 

fiscal years 2011 and 2012 outpaced the ability of the supply chain to 

provide the parts. In June 2011, Red River and Letterkenny accepted 

orders to overhaul 7,971 HMMWVs.11

 

11The customer reduced the quantity from 7,971 to 6,957 HMMWVs in October 2012.

At the end of fiscal year 2011, the 

amount of the orders was $839 million, and of that amount, $837 million 

carried over into fiscal year 2012. In order to perform the work on these 

vehicles, Letterkenny had to reestablish its production line since it was 

previously shut down because of the lack of HMMWV work. Further, both 

depots had to hire contractor personnel to staff the production line and 

establish a supply chain so that the depots could obtain the parts to 

perform the work. Both depots encountered problems with obtaining 

sufficient quantities of parts, such as doors, gunner protection kits, 

windshields, turret bearings, and half shafts, to perform the work. This 

parts problem was exacerbated at Red River when the depot went to a 

Required Parts Exceeded 

Available Supplies, Which 

Impaired Depots’ Ability to 

Perform HMMWV Work
 

Page 24 GAO-13-499 Army Industrial Operations

double shift on disassembling and assembling HMMWVs in April 2012. 

As a result of the parts shortage, at the end of fiscal year 2012, Red River 

and Letterkenny completed 767 of the vehicles ordered in fiscal year 

2011. In addition, the depots assembled another 4,254 vehicles but the 

vehicles were missing parts. The depots carried over $356 million of 

these orders into fiscal year 2013. A photo of a HMMWV is shown in 

figure 6.

Figure 6: High Mobility Multi-purpose Wheeled Vehicle

As discussed previously, the implementation of LMP changed the 

revenue recognition business rules and resulted in increased carryover in 

fiscal years 2011 and 2012. The point in time when revenue is recognized 

is important because when an Army Industrial Operations activity 

performs work, it earns revenue, thereby reducing carryover. As 

discussed earlier, the Army implemented LMP at two Industrial 

Operations activities in fiscal year 2009 and 10 Industrial Operations 

activities in fiscal year 2011. While the Army could not determine the 

extent of the change on Industrial Operations’ carryover resulting from 

Changed Revenue 

Recognition Business 

Rules under LMP
 

Page 25 GAO-13-499 Army Industrial Operations

implementation of LMP, officials at Army headquarters, LCMCs, and the 

depots stated that they believed carryover increased because of the 

change in revenue recognition rules.

For example, Corpus Christi reported in fiscal year 2011 that it accepted 

orders totaling about $455 million to repair and upgrade 57 Black Hawk 

helicopters. The established repair process time for the UH-60L Black 

Hawk averaged approximately 1 year in fiscal year 2011. The change in 

the business rules for recognizing revenue on parts and material because 

of the implementation of LMP in May 2009 caused revenue on the fiscal 

year 2011 orders to be recognized, or earned, in fiscal year 2012. Prior to 

the implementation of LMP, the depot’s business rules recognized 

revenue on parts and material on the Black Hawk when they were turned 

into the supply system during the disassembly process and replacement 

parts were requisitioned and received—usually within the first 90 days. 

Under LMP, revenue for parts and material is not recognized until parts 

and material are brought to the assembly area for installation on the 

aircraft. Final assembly of the aircraft occurs about 266 days after 

acceptance of the orders. As a result, at least in part due to the change in 

revenue recognition rules under LMP, at the end of fiscal year 2011, 

Corpus Christi documentation showed that it carried over into the next 

fiscal year $425 million associated with these orders—93 percent of the 

order amounts. A photo of a Black Hawk helicopter is shown in figure 7.
 

Page 26 GAO-13-499 Army Industrial Operations

Figure 7: Black Hawk Helicopter

Because of the size of the carryover at the end of fiscal year 2011, the 

Army recognized that it needed to improve its management of carryover, 

and in April 2012, the Army formed a working group. The working group 

identified, among other things, that it was the Army Industrial Operations 

activities’ responsibility to ensure that they have the necessary resources 

for performing the work. The working group identified the following six 

elements that the Industrial Operations activities should review when 

receiving orders for work to be performed:

• Skilled labor. Are there adequate labor hours available with the 

required skills to execute the work?

• Parts. Is there sufficient stock on hand or in the supply pipeline to 

complete the program schedule on time?

• Tools and equipment. Are all required special tools, fixtures, jigs, and 

stands on hand or being acquired?

Army Has Actions Under 

Way and Planned to 

Improve Management of 

Carryover
 

Page 27 GAO-13-499 Army Industrial Operations

• Process. Is there approved technical data, including a defined scope 

of work, documented processes, and internal process capacity, 

available to complete the work?

• Requirements. Is there an understanding of the total Army 

requirements as well as the required depot production for the 

workload after considering back orders, average monthly demand, 

potential surge requirements, and alternate source of repair?

• Funding. Is there available funding and rate of required funding to 

support production?

Further, the working group determined that if the Industrial Operations 

activities determine that they do not have the capability to perform any of 

the six elements, the activities should be required to send orders to their 

management for review and approval. Also, for any areas for which 

resources are not available, the activities should be required to develop a 

plan on how they will resolve the issue, such as obtaining parts that are 

not in the supply system.

To convey the working group’s results, the Army plans to issue two policy 

memos during fiscal year 2013. According to Army officials and 

documentation we reviewed, one policy memo will address (1) the 

LCMCs’ and activities’ responsibilities for acceptance of orders and 

performing the work (regardless of the appropriation funding the orders) 

and (2) the six elements discussed above. The second policy memo will 

address orders funded with procurement appropriations. According to 

Army officials, this second policy memo will discuss various aspects of 

procurement-funded orders, including different types of work such as pilot 

programs, prototypes, fabrication, and data requirements. According to 

the Army, this action should result in a better alignment of the work to the 

customer delivery schedule and prevent the acceptance of workloads that 

are not executable in a specific fiscal year. We agree that these actions 

are needed for orders placed with Industrial Operations. If properly 

implemented, the Army’s actions should help address our concerns that 

(1) the scope of work was not well defined and (2) parts were not 

available to perform the work. However, the Army has not issued the 

planned policy memos. The memos should contain specific timetables for 

implementing their planned actions and establish procedures to include 

steps to be followed by Industrial Operations in evaluating orders 

received from customers.
 

Page 28 GAO-13-499 Army Industrial Operations

The work that Army Industrial Operations performs supports combat 

readiness by restoring equipment to a level of combat capability 

commensurate with a unit’s future mission. Reliable budgeted information 

on Industrial Operations, including carryover information, is essential for 

Congress and DOD to perform their oversight responsibilities, including 

reviewing and making well-informed decisions on Industrial Operations 

budgets. The Army reported in its budgets to Congress that Industrial 

Operations’ adjusted carryover was under the allowable amount at the 

end of fiscal years 2011 and 2012. However, budget estimates for 

carryover were consistently less than the actual amounts each year from 

fiscal years 2006 through 2012 primarily because of Industrial Operations 

underestimating new orders from customers, particularly procurementfunded orders. Budget estimates could be improved by addressing the 

major factors that caused variations between budgeted and actual 

amounts, including improved communication between customers and 

Industrial Operations. The Army recognized that it needed to improve the 

budgeting and management of carryover and formed a working group in 

April 2012. The working group identified a number of actions that are 

under way and planned to help remedy this situation. However, the Army 

has not yet implemented these planned actions and does not have a 

timetable for implementation.

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

Army to take the following three actions to improve the budgeting and 

management of Army Industrial Operations’ carryover:

• Issue the planned working group policy memos and establish a 

timetable for implementing these actions for improving the 

management of carryover.

• Implement the working group’s planned actions to improve the 

budgeting for new orders to be received by Army Industrial 

Operations.

• Establish procedures, including required steps, to be followed by 

Army Industrial Operations activities in evaluating orders received 

from customers to ensure that the activities have resources (such as 

parts and materials, skilled labor, tools, equipment, technical data, 

and funding) to perform the work.

DOD provided written comments on a draft of this report. In its comments, 

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

Conclusions 

Recommendations for 

Executive Action

Agency Comments 
 

Page 29 GAO-13-499 Army Industrial Operations

recommendations and cited actions planned or under way to address 

them. Specifically, DOD commented that by the end of fiscal year 2013, 

the Army will issue policy memorandums with actions to be implemented 

by the beginning of the second quarter of fiscal year 2014. The 

memorandums will address the following: (1) the responsibilities and 

criteria of the Industrial Operations activities to accept new orders

whether budgeted or unbudgeted and (2) new procurement-funded orders 

to better align the work to customer delivery schedules. Further, DOD 

stated that the Army’s fiscal year 2014 budget guidance included direction 

for program managers to identify planned depot workload in procurement 

budgets beginning in the fiscal year 2014 President’s Budget cycle and 

that the same direction will be included in subsequent budget cycle 

guidance. Finally, DOD indicated that the Army will establish procedures 

to implement the policy memorandum on the acceptance of new orders

beginning with the second quarter of fiscal year 2014. 

We are sending copies of this report to the appropriate congressional 

committees, the Secretary of Defense, and the Secretary of the Army. 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 30 GAO-13-499 Army Industrial Operations

To determine whether, and to what extent, Army Industrial Operations’ 

actual carryover exceeded the allowable amount of carryover from fiscal 

years 2006 through 2012, we obtained and analyzed Industrial 

Operations reports that contained information on actual carryover and the 

allowable amount of carryover for fiscal years 2006 through 2012. We 

analyzed carryover beginning with fiscal year 2006 because the Army’s 

fiscal year 2006 budget reported a consolidation of the Army Working 

Capital Fund’s depot maintenance and ordnance activity groups into 

Industrial Operations, making a comparison to prior fiscal years difficult. 

We met with responsible officials from Army headquarters and Army 

Materiel Command (AMC) to obtain their views on the causes 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 guidance for 

exceptions to the carryover policy and discussed any exceptions with 

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

headquarters officials to obtain explanations for the exceptions.

To determine whether, and to what extent, Army Industrial Operations’ 

budget information on carryover from fiscal years 2006 through 2012 

approximated actual information, and if not, whether the Army took 

actions to align the two, we obtained and analyzed Industrial Operations 

reports that contained information on budgeted and reported actual new 

orders, revenue, and actual carryover data for fiscal years 2006 through 

2012. We also analyzed the new order data by the appropriations 

financing the orders to determine whether there were variances by 

appropriations for budgeted and reported actual new order amounts for 

the 7-year period. We met with responsible officials from Army 

headquarters and AMC to obtain their views on causes for variances 

between budgeted and reported actual new order, revenue, and carryover 

amounts. We also met with these officials to discuss actions the Army 

was taking to improve budgeting and management of carryover.

To determine whether, and to what extent, Army Industrial Operations’ 

carryover increased during fiscal years 2011 and 2012, and causes for 

the carryover for those 2 fiscal years, we met with responsible officials 

from Army headquarters, AMC, the Office of the Assistant Secretary of 

the Army (Acquisition, Logistics and Technology), the Life Cycle 

Management Commands (LCMC), and four depots that had orders with 

high dollar amounts of fiscal year 2011 carryover to identify contributing 

factors that caused the carryover. We also performed walk-throughs of 

the Army’s Anniston, Corpus Christi, Letterkenny, and Red River depots’ 

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

Page 31 GAO-13-499 Army Industrial Operations

operations to observe the work being performed by the depots and 

discussed with officials causes for workload carrying over from one fiscal 

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

Industrial Operations officials, we selected eight weapon system 

workloads with high dollar amounts of fiscal year 2011 carryover from four 

Army depots. The carryover associated with these workloads represented 

about 35 percent of Industrial Operations’ total carryover at the end of 

fiscal year 2011 and was one of the top five workloads with carryover at 

each depot. We followed up on the status of carryover on these eight 

workloads at the end of fiscal year 2012. We obtained and analyzed 

orders and amendments associated with these workloads and discussed 

the information in these documents with the depots to determine the 

causes for the carryover. We discussed the carryover information on 

these workloads with officials in the program management offices at the 

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

Technology) to determine their roles and responsibilities in providing 

orders to the depots and their impact on carryover. We also discussed 

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 (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. We also reviewed the 

Commander’s Critical Item Reports for fiscal years 2011 and 2012 that 

provide information on inventory items (spare parts) needed by the 

depots. In reviewing the reports, we determined whether needed 

inventory items were associated with customer orders that had carryover 

for the workloads that we reviewed. 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 

headquarters of the OUSD (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.; AMC, Huntsville, Alabama; the Aviation 

and Missile Command LCMC, Huntsville, Alabama; the Tank, Automotive 

and Armaments Command LCMC, Warren, Michigan; the Anniston Army 
Appendix I: Scope and Methodology

Page 32 GAO-13-499 Army Industrial Operations

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

Christi, Texas; the Letterkenny Army Depot, Chambersburg, 

Pennsylvania; the Red River Army Depot, Texarkana, Texas; and the

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

Technology) at Huntsville, Alabama, and Warren, Michigan.

We conducted this performance audit from May 2012 to June 2013 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 33 GAO-13-499 Army Industrial Operations

Appendix II: Comments from the Department 

of Defense
Appendix II: Comments from the Department 

of Defense

Page 34 GAO-13-499 Army Industrial Operations
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 35 GAO-13-499 Army Industrial Operations

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

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

Director), Steve Donahue, Keith McDaniel, and Hal Santarelli made key 

contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(197119)
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