Army Working Capital Fund: Actions Needed to Reduce Carryover at Army Depots
Published: 2008-07-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The five Army depot maintenance activities support combat readiness by providing services to keep Army units operating worldwide. From fiscal years 2004 through 2007, the amount of new orders received to perform work increased 100 percent from $2.6 billion to $5.2 billion. The number of new orders is a factor in the amount of work the depots carry over from one fiscal year to the next. While past congressional defense committees recognize the need for carryover, the committees have raised concerns that carryover may be more than needed. GAO was asked to determine (1) the growth in reported total carryover from fiscal years 2004 through 2007 and the actions the Army is taking to reduce the carryover, (2) whether reported carryover amounts exceeded carryover ceilings for fiscal years 2006 and 2007 and adjustments made to reduce those amounts, and (3) the primary reasons for the increased carryover at the five Army depots. GAO analyzed reported carryover and related data at the five depots.
section_title: What GAO Found
paragraphs: From fiscal years2004 through 2007, the Army depots' total carryover significantly increased from $1.1 billion to $2.7 billion--about 7.6 months of work. The amount of carryover increased because new orders received (about $9.5 billion) by the depots significantly outpaced the work performed (about $7.8 billion) in fiscal years 2006 and 2007. GAO analysis of the Army's plan to reduce carryover showed that the depots performed $293 million more work in the first 3 months of fiscal year 2008 than they performed during the same period a year earlier, but the depots missed their planned goal by $173 million. The Army depots reported that they were under the carryover ceiling by $67 million in fiscal year 2006 but over the ceiling by $96.8 million in fiscal year 2007. GAO identified two factors that affected reported carryover amounts. First, the Army Materiel Command directed the Tobyhanna Army Depot to deobligate $30 million at the end of fiscal year 2006 and reobligate the same amount at the beginning of the next fiscal year, which artificially lowered reported carryover and was not in accordance with existing DOD policy. Second, the Army excluded about $299.7 million in fiscal year 2007 orders from the carryover calculations. The exemptions for fourth quarter orders from other services and long lead time material did not provide the right incentives for DOD to resolve long-standing problems. GAO analysis of reports and discussions with Army officials identified four primary reasons for growth in carryover: (1) the Army depot maintenance budget underestimated the amount of new orders during fiscal years 2006 and 2007 by about $1.7 billion and $1.5 billion, respectively; (2) the depots accepted orders late in the fiscal year that generally could not be completed by the end of the fiscal year; (3) the depots experienced parts shortages; and (4) the depots did not receive assets that had been scheduled for repair.

section_title: Letter
paragraphs: The five Army depot maintenance activities support combat readiness by  providing services necessary to keep Army units operating worldwide.  From fiscal year 2004 through fiscal year 2007, the amount of new orders  received to perform work increased from approximately $2.6 billion to  $5.2 billion—about a 100 percent increase. These orders were to repair  and overhaul a wide range of assets, including helicopters, such as the  Apache and Blackhawk; combat vehicles such as the Abrams tank; air  defense systems, such as the Patriot missile; electronics; and inventory  items for the Army, other military services, and foreign governments.  Many of these weapons systems are used to support the Army’s current  effort in Iraq and Afghanistan. To perform the work needed in support of  the Global War on Terrorism, the number of employees at the five depots  increased from 12,983 to 15,717—a 21 percent increase—from fiscal year  2004 to fiscal year 2007 and the number of direct labor hours of work  increased from about 16.3 million in fiscal year 2004 to 24 million for fiscal  year 2007—a 47 percent increase.
The five Army depots operate under the working capital fund concept,  where customers are to be charged for the anticipated full cost of goods  and services. To the extent that the depots do not complete work at year- end, the funded work will be carried into the next fiscal year. Carryover is  the reported dollar value of work that has been ordered and funded  (obligated) by customers but not completed by working capital fund  activities at the end of the fiscal year. The congressional defense  committees recognize that some carryover is needed to ensure a smooth  flow of work during the transition from one fiscal year to the next.  However, past congressional defense committee reports raised concerns  that the level of carryover may be more than is needed. Excessive amounts  of carryover financed with customer appropriations are subject to  reductions by the Department of Defense (DOD) and the congressional  defense committees during the budget review process. Congress reduced  the Army’s budgets in fiscal years 2003 and 2006 because of concerns  about excess carryover.
As requested and agreed to with your office, our objectives were to  determine (1) the growth in reported total carryover from fiscal year 2004  through fiscal year 2007 and the actions the Army is taking to reduce the  carryover, (2) whether reported carryover amounts exceeded carryover  ceilings for fiscal years 2006 and 2007 and adjustments made to reduce  those amounts, and (3) the primary reasons for the increased carryover at  the five Army depots. We conducted this performance audit from July 2007  through July 2008 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. Most of the  financial information in this report was obtained from official Army  budget documents and accounting reports. To assess the reliability of the  data, we (1) reviewed and analyzed the factors used in calculating  carryover, (2) interviewed Army officials knowledgeable about the  carryover data, (3) reviewed GAO reports on Army depot maintenance  activities, and (4) reviewed orders customers submitted to the depots to  determine if they were adequately supported by documentation. Further  details on our scope and methodology are provided in appendix I. We  requested comments on a draft of this report from the Secretary of  Defense or his designee. Written comments from the Under Secretary of  Defense (Deputy Comptroller) are reprinted in appendix II.
subsections: section_title: Background
paragraphs: A working capital fund relies on sales revenue rather than direct  appropriations to finance its continuing operations. A working capital fund  is intended to (1) generate sufficient resources to cover the full costs of its  operations and (2) operate on a break-even basis over time—that is,  neither make a gain nor incur a loss. Customers use appropriated funds,  primarily operations and maintenance appropriations, to finance orders  placed with the working capital fund. According to the Army’s fiscal year  2008/2009 budget, the Army Working Capital Fund will earn about $15.3  billion in revenue during fiscal year 2008. The Army Working Capital Fund  includes an industrial operations activity group that provides the Army  with the in-house industrial capability to conduct depot-level maintenance,  repair, and upgrade; produce quality munitions and large- caliber weapons;  and store, maintain, and demilitarize material for all branches of DOD. For  example, the Anniston Army Depot (Anniston) repairs tanks for the  Marine Corps. The industrial operations activity group consists of 13  activities—five maintenance depots, three arsenals, two munitions  production facilities, and three storage sites. The preponderance of the  industrial operations workload and budget estimates relate to the depot- level maintenance work. Information on the five Army depots follows.
Anniston performs maintenance on both heavy- and light-tracked  combat vehicles and their components, such as the M1 Abrams tank.
Corpus Christi Army Depot (Corpus Christi) overhauls, repairs,  modifies, tests, and modernizes helicopters, engines, and components  for all services and foreign military customers.
Letterkenny Army Depot (Letterkenny) has tactical missile repair  capabilities supporting a variety of DOD missile systems including the  Patriot and its ground support and radar equipment. In response to the  Global War on Terrorism, Letterkenny is rebuilding the High Mobility  Multi-Purpose Wheeled Vehicles (HMMWV) that are returning from  theater and is rebuilding them to a configuration that will support add- on armor.
Red River Army Depot (Red River) performs maintenance,  certification, and related support services on ground combat systems,  air defense systems, and tactical wheeled vehicles. Systems supported  include the Bradley Infantry Fighting Vehicle, Multiple Launch Rocket  System, Small Emplacement Excavator, 5-ton dump truck, and  HMMWVs.
Tobyhanna uses advanced technologies to ensure the readiness of U.S.  armed forces and is a full-service repair, overhaul, and fabrication  facility for communications-electronics systems, and equipment and  select missile guidance systems.
Carryover is the reported dollar value of work that has been ordered and  funded (obligated) by customers but not completed by working capital  fund activities at the end of the fiscal year. Carryover consists of both the  unfinished portion of work started but not completed, as well as requested  work that has not yet begun. Some carryover is necessary at the end of the  fiscal year if working capital funds are 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 the  working capital fund activities have enough work to ensure a smooth  transition between fiscal years. Too little carryover could result in some  personnel not having work to perform at the beginning of the fiscal year.  On the other hand, too much carryover could result in an activity group  receiving funds from customers in one fiscal year but not performing the  work until well into the next fiscal year or subsequent years. By optimizing  the amount of carryover, DOD can use its resources in the most effective  manner and minimize the “banking” of funds for work and programs to be  performed in subsequent years.
In 1996, DOD established a 3-month carryover standard for working  capital fund activities. In May 2001, we reported that DOD did not have a  basis for its carryover standard and recommended that DOD determine the  appropriate carryover standard for depot maintenance, ordnance, and  research and development activity groups. DOD included its revised  carryover policy in DOD Financial Management Regulation 7000.14-R,  volume 2B, chapter 9. Under the new policy, the allowable amount of  carryover is based on the outlay rate of the customers’ appropriations  financing the work. According to the DOD regulation, this carryover  metric allows for an analytical-based approach that holds working capital  fund activities to the same standard as general fund execution and allows  for meaningful budget execution analysis.
In accordance with DOD policy, (1) nonfederal orders, (2) non-DOD  orders, (3) foreign military sales, and (4) work related to base realignment  and closure are excluded from the carryover calculation. Further, the  Army has requested and OUSD (Comptroller) has approved an exemption  of crash and battle damaged aircraft from the carryover ceilings during  wartime operations for the past few years. This has resulted in tens of  millions of dollars of orders and carryover being excluded from the  carryover calculation. The reported actual carryover (net of exclusions) is  then compared to the amount of allowable carryover using the above- described outlay rate method to determine if the reported actual amount is  over or under the allowable carryover amount.
In 2005, we reported that the Army depot maintenance activities  consistently exceeded the carryover ceiling from fiscal years 1996 through  2003. Tables 1 and 2 show that the Army depot maintenance activities’  actual reported carryover (1) consistently exceeded DOD’s 3-month  carryover standard from fiscal year 1996 through fiscal year 2001 and (2)  continued to exceed the allowable amount of carryover as calculated  under DOD’s revised carryover policy for fiscal years 2002 and 2003.
Decision makers, including OUSD (Comptroller) and congressional  defense committees, use reported carryover information to make  decisions concerning whether working capital fund activities, such as the  Army depots, have too much carryover. If the Army depots have too much  carryover, the decision makers may reduce the customers’ budgets and  use these resources for other purposes. For example, Congress has  reduced the services’ budgets because of excessive carryover, including a  reduction in the Army’s fiscal years 2003 and 2006 operation and  maintenance appropriations by $48 million and $94.7 million, respectively.
section_title: Army Depots’ Carryover Significantly Increased
paragraphs: The Army depots’ total carryover significantly increased from $1.1 billion  in fiscal year 2004 to $2.7 billion in fiscal year 2007—a $1.6 billion  increase. In order to reduce the fiscal year 2007 carryover, the Army  developed a plan to perform $5.5 billion of work in fiscal year 2008—$1.4  billion more than the Army depots performed in fiscal year 2007. Our  analysis of the plan and first quarter fiscal years 2007 and 2008 execution  data show that the depots performed significantly more work than they  performed during the same period in the prior year but the depots missed  their goal by $173 million at the end of December 2007. Further, while the  Army depot maintenance carryover amount had more than doubled over  the past 4 years, this increase has not been specifically identified in the  Army Working Capital Fund budgets to Congress because the Army  consolidated the depot maintenance and ordnance activity groups under a  single activity group called the Industrial Operations activity group in  fiscal year 2005.
subsections: section_title: Army Depots’ Carryover Significantly Increased in Fiscal Years 2006 and 2007
paragraphs: From fiscal years 2004 through 2007, the Army depots’ total carryover  significantly increased from $1.1 billion to $2.7 billion. The dollar amount  of new orders received in fiscal years 2006 and 2007 (about $9.5 billion) by  the depots significantly exceeded the dollar amount of work performed  (about $7.8 billion) by the depots during those same years. The depots  carried over about 7.6 months of work into fiscal year 2008. Figure 1  illustrates how changes in fiscal years 2004 through 2007 new orders and  work performed (revenue) have affected depot carryover.
As shown in figure 1, the new orders and work performed (revenue)  increased from fiscal year 2004 through fiscal year 2007. However, the  dollar amount of new orders increased at a greater pace than the dollar  amount of work performed (revenue). New orders increased from about  $2.6 billion to about $5.2 billion (about 100 percent increase) while the  amount of revenue earned increased from $2.7 billion to about $4.2 billion  (56 percent increase).
section_title: Army Developed a Plan in Fiscal Year 2008 to Reduce Carryover
paragraphs: In the first quarter of fiscal year 2008, the Army developed a plan to reduce  the level of carryover at the Army depots. According to the plan, the Army  depots would perform $5.5 billion of work in fiscal year 2008—$1.4 billion  more than the Army depots performed in fiscal year 2007. In order to meet  the revenue increases, the depots plan to take a number of actions,  including hiring additional maintenance personnel and requiring  maintenance personnel to work overtime. Our analysis of the five Army  depots’ revenue for the first quarter of fiscal years 2007 and 2008 showed  that the depots increased their revenue by about $293 million in the first  quarter of fiscal year 2008 (about $1.1 billion) compared to the same  quarter the prior year ($817 million). Even though the depots increased  their revenue, the depots missed their fiscal year 2008 first quarter revenue  targets by about $173 million ($1.282 billion target less $1.109 billion actual  revenue). By missing the first quarter target, the Army is at risk of not  meeting the carryover reduction plan goals for fiscal year 2008.
In January and February 2008, we met with officials at the five Army  depots to determine why some of the depots missed their revenue targets  for the first quarter of fiscal year 2008. For the depots that missed their  revenue targets, the officials stated that (1) the depots performed a  different mix of workload than originally planned, generating less revenue;  (2) unserviceable assets did not arrive as planned and the depots could not  perform the planned workload; and (3) spare parts were not available to  perform the planned workload. Even though several of the depots missed  their first quarter revenue targets, officials at all but one of the depots— Anniston—stated that they expected to meet their end of fiscal year 2008  revenue targets. Anniston officials stated that they believed they would  miss their revenue target by about $200 million, but they were attempting  to identify additional work they could perform to increase revenue in  fiscal year 2008. While officials at four of the five depots believed that they  would meet their revenue targets and thus reduce carryover by the end of  fiscal year 2008, the reduction of the carryover amount will largely depend  on the amount of new orders accepted by the depots in fiscal year 2008  and the ability of the depots to perform their fiscal year 2008 workloads as  planned.
section_title: Army Depot Maintenance Activities’ Carryover Is Not Separately Identified in Budgets to Congress
paragraphs: Although the Army depot maintenance carryover amount had more than  doubled over the past 4 years, this increase in Army depot maintenance  activities’ carryover amount has not been specifically identified in the  Army’s Working Capital Fund budgets to Congress because the Army  consolidated the depot maintenance and ordnance activity groups under a  single activity group called the Industrial Operations activity group in  fiscal year 2005. Prior to the consolidation, the Army Working Capital  Fund budgets provided carryover information, such as the dollar amount  of carryover and the carryover ceiling for the depot maintenance activities.  Without detailed data on the Army depot maintenance activity groups’  carryover, Congress cannot make informed decisions about the  appropriate size of the Army depot maintenance budget and whether the  depots are making significant progress in reducing their carryover  amounts. In light of the significant increase in new orders and carryover at  the Army depots because of ongoing wartime operations, it is even more  important for the Army to report carryover information to Congress  separately to provide visibility of the Army depot maintenance activities.
section_title: Reported Carryover Amounts for Fiscal Years 2006 and 2007 Were Artificially Lowered
paragraphs: Reported Army depot maintenance activities’ carryover was reduced by  tens of million of dollars by (1) funds being deobligated at the end of fiscal  year 2006 and then reobligated in the beginning of fiscal year 2007 and (2)  amounts that were exempted from carryover calculations in fiscal year  2007. The deobligations of funds at the end of fiscal year 2006 and the  fiscal year 2007 exemptions affected the amount of reported carryover as  well as the amount of carryover that was over/under the carryover ceiling  for fiscal years 2006 and 2007.
subsections: section_title: Deobligating Selected Orders Reduced Reported Carryover Amounts for Fiscal Year 2006
paragraphs: In fiscal year 2006, the Army depot maintenance activities reported that  carryover work and related funding was under the ceiling by $67 million.  In order to reduce the Army’s Industrial Operations fiscal year 2006  carryover, the Army Materiel Command directed Army activities to  deobligate selected procurement-funded orders totaling $83 million.  Specifically, Tobyhanna was directed to deobligate $30 million, and an  Army ordnance activity (Pine Bluff Arsenal) was directed to deobligate  $53 million by September 29, 2006, for work that they still planned to  perform. The guidance stated that the orders would be reobligated on  October 2, 2006. Further, the guidance stated that (1) the Industrial  Operations carryover estimate increased by $388 million since the summer  budget submission to OUSD (Comptroller) and (2) the Army did not want  to exceed its carryover ceiling and give OUSD (Comptroller) “an excuse to  doubt our ability to execute the fiscal year 2007 or fiscal year 2008  supplemental funding.” Our review of Tobyhanna records showed that  customers deobligated $30 million against six orders on September 28 and  September 29, 2006. The funds were then reobligated within the next 2  weeks.
The action directed by the Army Materiel Command artificially lowered  the reported carryover balances for Army’s Industrial Operations and  more specifically the Army depot maintenance activities in fiscal year  2006. As discussed previously, congressional decision makers receive an  aggregated report on carryover balances that covers the Army’s Industrial  Operations activities. We have previously reported on a similar year-end  deobligation problem related to Navy research and development activities.  In response to our recommendation on this issue, OUSD (Comptroller)  issued guidance on July 28, 2003, to the military services and DOD  components prohibiting the manipulation of customer order balances in  an attempt to reduce reported carryover. The guidance directed  components to conduct internal reviews of accounting procedures  currently in use, to include year-end adjustments, to ensure that this type  of manipulation of carryover levels is not occurring.
section_title: Exemptions Reduced Reported Carryover Amounts for Fiscal Year 2007
paragraphs: For fiscal year 2007, OUSD (Comptroller) approved about $299.7 million in  additional exemptions from the carryover calculations that were not  excluded in previous years. Without the exemptions, the depots would  have exceeded the carryover ceiling by $251.2 million. However, with the  exemptions, the depots exceeded the carryover ceiling by $96.8 million.  These exemptions were for (1) a public-private partnership involving  Anniston ($194.2 million); (2) fourth quarter orders received by Anniston,  Corpus Christi, and Tobyhanna from other services ($77.4 million); and (3)  long lead time material at Anniston ($28.1 million). In discussing the  exemptions with OUSD (Comptroller) officials, the officials stated that  they approved all carryover exemptions requested by the depots for orders  received from other services in the fourth quarter of fiscal year 2007 and  the public-private partnership arrangement involving Anniston. The  officials stated that they denied some of the depots’ carryover exemption  requests for long lead time material. Further, the officials stated that the  exemption requests that were granted for fiscal year 2007 carryover and  their associated new orders resulted from the large increase in  supplemental funding provided to the depots in support of ongoing  wartime operations. The officials stated that the Army would have to  request the exemptions next year if similar circumstances exist.
Based on our review of the Army’s exemption request and our findings in  prior reports, as well as discussions with OUSD (Comptroller) and Army  officials, we found that these exemptions do not provide the right  incentives to the depots, customers, Defense Logistics Agency (DLA), and  Army Supply to correct long-standing problems with receiving orders from  other services late in the fiscal year and program delays caused by long  lead time material. Because these issues are exempted, they are not  subject to the level of scrutiny and possible corrective actions that would  be provided if these problem areas were reflected in higher reported  carryover balances. We reported in May 2001 and again in June 2005 that  Army depots exceeded their carryover ceiling because some depots  received and accepted work late in the fiscal year, and some depots could  not obtain the material needed in a timely manner so that less work was  performed than planned. As discussed in the next section, our current  review found similar problems with late year orders and the lack of spare  parts available for repair.
section_title: Four Primary Reasons for Significant Growth in Fiscal Years 2006 and 2007 Carryover
paragraphs: Our analysis of depot reports and discussions with Army officials  identified four primary reasons for the growth in carryover. First, during  fiscal years 2006 and 2007, the Army depot maintenance budget  significantly underestimated the amount of new orders actually received  from customers. While the depots performed more work than budgeted,  they could not keep pace with the increases in new orders. Second, we  found that the depots accepted orders late in the fiscal year that  reasonably could not be completed, and in some cases could not even be  started, prior to the end of the fiscal year. Third, we found that parts  shortages prevented work from being performed. Fourth, unserviceable  assets (assets that need to be repaired) scheduled for repair did not arrive  at the depots as planned. While some of these reasons are under the  control of other DOD activities, such as customers not sending assets  needing repair to the depots as planned, other reasons are within the  depots’ control.
subsections: section_title: Army’s Budget Underestimated Significant Growth in New Orders
paragraphs: For fiscal years 2006 and 2007, the Army depot maintenance budget  significantly underestimated the amount of new orders actually received  from customers by about $1.7 billion and $1.5 billion, respectively. For  example, while the budget shows that the depots expected to receive  about $3.7 billion in new orders and perform about $3.8 billion of work  (revenue) in fiscal year 2007, the depots actually received about $5.2  billion in new orders and performed $4.2 billion of work. To perform more  work during fiscal year 2007, the depots increased the number of  employees and the direct labor hours performed by 630 employees and  about 2.8 million direct labor hours over their fiscal year 2006 totals.  However, while the work performed by the depots (revenue) increased  from fiscal year 2006 to fiscal year 2007, it did not increase at the pace of  the orders received from customers, resulting in the large growth of  carryover.
Our analysis of the Army budget guidance for fiscal year 2006 showed that  the Army assumed that the fiscal year 2006 new orders would amount to  approximately 50 percent of the fiscal year 2005 operation and  maintenance budget, Army supplemental workload. 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 budget  assumptions resulted in the reported actual orders significantly exceeding  budgeted orders for fiscal years 2006 and 2007. For example, at Anniston,  our analysis showed that the depot originally budgeted to receive about  $1.1 billion of new orders for fiscal year 2007. During the midyear review  in March 2007, Anniston revised its estimate to about $1.4 billion.  However, the depot actually received about $1.5 billion of new orders for  fiscal year 2007—a difference of about $400 million or 36 percent from the  original amount budgeted.
In discussing this matter with Army headquarters officials, they told us  that budgeting for new orders was affected by the continuing Global War  on Terrorism and the anticipated supplemental appropriations to finance  the war. Army headquarters officials said that the Army underestimated  the amount of new orders received by the depots because (1) the Army did  not have any historical information on the amount of funds the depots  would receive in the supplemental appropriations for depot maintenance  work and (2) of the uncertainty related to the amount of funds the Army  would receive in the supplemental appropriations for this depot  maintenance work. Without reliable budget estimates, the Army depots  cannot make the necessary adjustments to their manpower and material to  ensure that the depots can meet the Army’s maintenance requirements.
section_title: Carryover Increased Because of Army Depots Receiving Orders Late in the Fiscal Year
paragraphs: In June 2006, we reported that carryover is greatly affected by orders  accepted late in the fiscal year that generally cannot be completed, and in  some cases cannot even be started, prior to the end of the fiscal year. As a  result, almost all orders accepted late in the fiscal year increase the  amount of carryover. DOD Financial Management Regulation 7000.14-R,  volume 11A, chapters 2 and 3, prescribes regulations governing the use of  orders placed with working capital fund activities. The DOD regulation  identifies a number of requirements before a working capital fund activity  accepts an order. For example, work to be performed under the order  shall be expected to begin within a reasonable amount of time after the  order is accepted by the performing DOD activity. As a minimum  requirement, it should be documented that when an order is accepted, the  work is expected to (1) begin without delay (usually within 90 days) and  (2) be completed within the normal production period for the specific  work ordered. Our analysis of fiscal years 2006 and 2007 orders showed  that orders received in the fourth quarter continued to be a problem. For  example, two of the five depots accepted more than 20 percent of their  new fiscal year 2006 orders in the last 3 months of the fiscal year. The  following examples illustrate orders that were accepted by Army depot  maintenance activities late in fiscal year 2006.
In September 2006, Tobyhanna accepted an order from Tinker Air  Force Base totaling approximately $3.3 million financed with operation  and maintenance funds that would expire on September 30, 2006. The  order was for the overhaul of an Air Force landing control radar that  was located at Ramstein Air Base, Germany. According to an Air Force  official and documentation, the Air Force identified the maintenance  requirement in March 2006; however, funds were not made available  until the end of fiscal year 2006, when additional funds were identified  from other programs. As a result, the depot carried over the entire $3.3  million into fiscal year 2007. In addition, depot officials stated that the  depot experienced several delays in performing the work on the radar  because of the initial unavailability of the asset (2-month delay),  reconfiguration and resheltering of the asset, and the unavailability of  long lead time parts. Because of these problems, the depot carried over  approximately $1.8 million from fiscal year 2007 into fiscal year 2008  and expects to complete the overhaul of the landing control radar on  January 30, 2009.
In August 2006, Letterkenny accepted an order totaling about $8.4  million that was financed with operation and maintenance funds for the  repair of 15 Patriot launching stations. According to the production  controller, the initial inspection and teardown work on the Patriot  launching stations began when the order was accepted. Since repair  work on the Patriot launching stations did not begin until August 2006,  about $7.1 million of funded workload was carried over into fiscal year  2007. According to the production controller, if the repair work for the  Patriot launching stations was funded earlier in the fiscal year, then the  carryover amount would have been a lot lower. All of the repair work  for the 15 Patriot launching stations was completed by February 2007.
section_title: Depots Could Not Obtain Parts Needed to Perform Repair Work as Scheduled
paragraphs: Our analysis of depot data and interviews with depot officials found that  the depots experienced shortages of parts needed to perform their repair  work in fiscal years 2006 and 2007. Our analysis of data in the critical  maintenance repair parts reactive system at four depots showed that in  733 and 605 instances, repair parts shortages resulted in work stoppage in  fiscal years 2006 and 2007, respectively. DLA and to a lesser extent Army  Supply were the sources of supply for most of the repair parts. DLA  officials told us that a major difficulty DLA faces as a supplier is  forecasting the amount of repair parts needed when the depots’ types and  numbers of repairs keep changing. Having a firm requirement (quantity of  items to be repaired) early in the process is critical if DLA is to provide the  spare parts to the depots when they need them. However, this has not  always been the case. For example, as discussed later in this report, in  November 2006, Red River accepted an order to overhaul 200 HMMWVs.  Over the next 4 months, the order was amended first to decrease the  quantity to 106 and then increase the quantity to 344. According to DLA  officials, changing requirements, similar to this example, make it  extremely difficult to forecast the spare parts needed for repairs. If DLA  waits to buy the parts until the depot has a firm requirement, the parts  might not be available when the depot needs them. On the other hand, if  DLA buys the parts before the requirement is firm, DLA is at risk for  excess inventory of parts when requirements for parts are significantly  reduced.
In order to perform the required repair work and help minimize the impact  of parts shortages on depot operations, the depots have taken a number of  actions to obtain parts when they were not available, including using parts  from other assets, commonly referred to as robbing parts; fabricating the  parts; and obtaining parts through the use of their local procurement  authority, including the government purchase card. The following are  examples of actions taken by the depots.
In October 2006, Anniston accepted a $5.6 million order financed with  fiscal year 2007 operation and maintenance appropriated funds to  overhaul 1,200 M2 machine guns. The work was originally scheduled to  begin in March 2007. Because of the lack of parts, the work did not  begin until July 2007 which resulted in more carryover than originally  planned. About $5.4 million of the $5.6 million carried over from fiscal  year 2007 into fiscal year 2008.
Because of the Global War on Terrorism and the surge in production of  the M2s, Anniston had problems with obtaining parts to overhaul the  machine guns since 2004. Because the depot could not get the needed  parts from DLA or Army Supply, it used parts from other M2 machine  guns. Some of these parts included the barrels, buffer body assemble,  bolt, barrel extensions, breech locks, and receivers. Since the depot  used parts from these 1,200 machine guns to repair machine guns in  previous years, these 1,200 machine guns were missing parts. By the  time the depot overhauled the 1,200 M2 machine guns, about half of the  M2s had been totally stripped of their parts. An Army official stated  that the machine guns going through overhaul were the “worst of the  worst.” To perform the work, the depot had to buy new parts and have  the Picatinny Arsenal fabricate barrel extensions in order to obtain the  parts needed to complete the overhaul. This extra work increased the  costs to about $10.4 million and the work was completed in December  2007.
In November 2005, Tobyhanna accepted an order totaling about $18.4  million to produce 3,954 light sets for the Army Communications- Electronics Life Cycle Management Command. The light sets are used  to illuminate temporary facilities, such as tents and buildings. In order  to produce the 3,954 light sets, the depot had to assemble almost 1  million new parts. According to depot officials and documentation, the  order was originally expected to be completed by September 30, 2006,  but the completion date was delayed by approximately 13 months  because of problems obtaining parts from DLA. In order to meet the  parts requirement, DLA ordered the parts from its suppliers with  approximately 2 years delivery. Since the expected delivery dates did  not meet the customer’s delivery requirements, the depot canceled its  order with DLA and ordered the parts directly from vendors to meet its  production schedule. However, the vendor that produces  approximately 80 percent of the parts could only provide enough parts  for the production of 300 light sets a month. As a result, the depot  carried over approximately $16 million from fiscal year 2006 into fiscal  year 2007 and $1 million from fiscal year 2007 into fiscal year 2008.
In October 2006, the depot accepted another order from the Army  Communications-Electronics Life Cycle Management Command  totaling about $5.9 million for an additional 1,069 light sets. Because of  the unavailability of a sufficient quantity of parts from the vendor to  satisfy the fiscal years 2006 and 2007 orders, the depot could not begin  work on the October 2006 order until August 2007—approximately 10  months after the order was accepted. As noted previously, the DOD  Financial Management Regulation includes requirements for accepting  an order, including limiting acceptances to those orders that are  expected to begin without delay (usually within 90 days). The depot  carried over $5.4 million from fiscal year 2007 into fiscal year 2008. As  of February 2008, the depot expected to complete the order by March  2008.
In November 2006, Red River accepted an order totaling approximately  $24.8 million to overhaul 200 M1114 up armor HMMWVs from the Army  TACOM Life Cycle Management Command. The order was financed  with fiscal year 2007 operation and maintenance appropriated funds  and was modified twice. In January 2007, the order was reduced to  overhaul 106 HMMWVs for about $13.1 million. Two months later in  March 2007, the order was increased to 344 HMMWVs for about $56.1  million. In performing this work, the depot encountered two problems.  First, the HMMWVs were not always available, resulting in changes to  scheduling the performance of work. Second, the depot encountered  problems in obtaining the material it needed to perform the repairs. For  example, in May 2007, there was a shortage or potential parts shortage  of 45 different parts to perform this work. To obtain the parts needed  to perform the work, depot officials stated that they used parts from  other vehicles at the depot or purchased parts via local procurement,  including using government purchase cards. In August 2007, there was  a shortage or potential parts shortage of 30 different parts. Since most  of the work was not completed in fiscal year 2007, about $37.5 million  carried over into fiscal year 2008. As of December 2007, documents  showed that the depot anticipated completing work on this order in  April 2008.
In discussing the M1114 up armor HMMWV work with Red River  officials, they told us that the problems encountered in performing the  fiscal year 2007 work also occurred in the previous fiscal year. First,  the quantity to be repaired kept changing. Specifically, in January 2006  they accepted an order to repair 37 HMMWVs. In March 2006, the order  was amended to 108 HMMWVs. Then in July 2006 the order was  amended to repair 58 HMMWVs. Finally, in August, 2006, the order was  amended back to 108 HMMWVs. Second, the depot also encountered  problems on obtaining parts to perform the work. According to depot  officials, because the last amendment increasing the order to 108  HMMWVs occurred in August 2006 and the HMMWVs to be repaired  were in poor condition, the carryover amount was high. The amount of  work that carried over from fiscal year 2006 into fiscal year 2007 was  $8.6 million of this $18.9 million order.
Army and DLA officials stated that in order to improve parts availability  and reduce parts shortages, the Army and DLA are taking a number of  actions. First, the Army depots and DLA are using a new tool that allows  them to forecast spare parts requirements earlier in the process. Thus,  they can better predict spare parts shortages and resolve them before the  spare parts problems result in costly work-arounds or work stoppages at  the depots. Second, DLA is establishing a greater presence at the depots to  provide the depots and DLA greater visibility of spare parts requirements  and to improve overall support to the depots. For example, DLA has added  or is in the process of adding between two to eight personnel at each of  the five depots to improve the forecasting of spare parts requirements and  to expedite procurement of DLA- managed parts needed to meet the  depots’ immediate production requirements. Finally, DLA is working with  its suppliers to identify alternative procurement sources and expedite  parts delivery to avoid parts shortages at the depots. While these are  good first steps to help resolve the spare parts problems, it is too early to  determine if they will succeed. Furthermore, the Army does not have  quantifiable measures, such as comparing information in the critical  maintenance repair parts reactive system from one period to another  period, to determine the effectiveness of its actions to reduce the depots’  critical spare parts problems.
section_title: Unserviceable Assets Scheduled for Repair Did Not Arrive at the Depots as Planned
paragraphs: One of the reasons cited in depot reports and by depot officials for  carryover is that unserviceable assets (assets that need to be repaired)  scheduled for repair did not arrive at the depots as planned. Our review of  53 depot reports issued in fiscal years 2006 and 2007 found that over two- thirds of the reports from the five depots cited deficiencies related to the  lack of unserviceable assets for repair. For example, a Letterkenny report  cited 115 fiscal year 2007 projects that were either delayed or canceled  because of the lack of unserviceable assets for repair. In some cases, the  lack of unserviceable assets either stopped or delayed depot production  operations, resulting in increased carryover. The scope of our work did  not include researching the customers’ reasons for not sending the assets  for repair as planned. However, Army officials informed us that in some  cases the assets remained in-theatre (for example, in Iraq) for longer  periods than planned.
While the depots have taken a number of actions to minimize production  delays and carryover associated with the lack of unserviceable assets, the  depots continue to report a lack of unserviceable assets. The following  examples illustrate the impact on carryover when work was not  performed because assets did not arrive at the depots as scheduled.
In November 2005, Anniston accepted an order to overhaul 7 M1 tanks  totaling about $6.4 million, which was financed with fiscal year 2006  Marine Corps Operations and Maintenance appropriated funds. The  order was amended 9 times, increasing the quantity to 88 M1 tanks and  increasing the amount of the order to about $86.6 million. During fiscal  year 2006, the depot ordered about $8.8 million of material for this  order with the first order for material occurring in April 2006. However,  the first tank was not available for induction into the depot until  December 2006, or 3 months into fiscal year 2007. Our analysis of  production documents on this order showed that the production  schedule for performing the tank work continuously changed.  Specifically, during fiscal years 2006 and 2007, depot production  documents show that the production schedule changed 10 times  because of customer requirements changing or the tanks not arriving at  the depot as scheduled. Because the tanks were not available until  fiscal year 2007, about $77.8 million of work (the amount of the order— $86.6 million—less the amount of material—$8.8 million) was carried  over into fiscal year 2007. Although all the work was originally  scheduled to be completed during fiscal year 2007, 17 tanks were not  available for the depot to begin work on until fiscal year 2008, which  resulted in almost $6.9 million being carried over into fiscal year 2008.
The problem of production schedules changing that Anniston  experienced in performing the tank work on the fiscal year 2006 order  continued on a fiscal year 2007 order. In November 2006, the depot  accepted another order totaling about $39 million, which was financed  with fiscal year 2007 Marine Corps Operations and Maintenance  appropriated funds to overhaul 36 M1 tanks. The order was amended  five times during fiscal year 2007 increasing the quantity to 75 M1 tanks  and increasing the amount of the order to about $81.4 million. The  amendments increased the quantities of tanks to be overhauled from 36  to 75 and amount of funding from $39 million to $81.4 million. To  perform work on this order, during fiscal year 2007, the depot ordered  material with the first order for material occurring in January 2007.  However, the first tank was not available to be inducted into the depot  until September 2007—the last month of the fiscal year. Our analysis of  production documents on this tank order showed that the production  schedule changed five times because of customer requirements  changing or the tanks not arriving at the depot as scheduled. Because  work on the tanks did not begin until the end of fiscal year 2007, about  $71.3 million of work was carried over into fiscal year 2008. As of  January 2008, the work is scheduled to be completed in May 2008 on  this fiscal year 2007 order received in November 2006.
In March 2006, Letterkenny accepted an order totaling about $12.3  million that was financed with fiscal year 2006 Army procurement  aircraft funds for the repair of 100 aviation ground power units.  Initially, the Aviation and Missile Life Cycle Management Command  programmed the repair of the 100 aviation ground power units in fiscal  year 2006. However, in March, April, and May 2006, the depot had  received only 5 of the 100 unserviceable assets. The production  controller stated that the power units were shipped to the depot in  small quantities from many locations all over the world, which delayed  the receipt of all 100 units. Thus, the depot production department  revised its repair scheduled to complete 10 power units a month  through March 2007. According to the production controller, many of  the power units were not repaired in accordance with the revised  schedule because (1) not all of the power units were received in time to  meet the revised production schedule and (2) there was a lack of  power units in inventory to exchange with the deploying units. As a  result, about $6.3 million and $1.1 million carried over into fiscal years  2007 and 2008, respectively.
In February 2004, Anniston accepted three orders totaling about  $296,000 that were financed with fiscal year 2004 Procurement of  Weapons and Tracked Combat Vehicles appropriated funds to overhaul  39 hydraulic cylinders on each order. Although the work was originally  scheduled to be completed in June 2004, the work was not completed  because some of the unserviceable assets did not arrive at the depot.  As of August 2007, or about 3.5 years later, 36 hydraulic cylinders had  not arrived at the depot for repair. Consequently, about $83,000 of the  $296,000 carried over into fiscal year 2008 on work that was originally  planned to be completed in fiscal year 2004. In discussing this matter  with the customer, TACOM Life Cycle Management Command, we  asked them why it had not canceled the order since the depot did not  receive some of the hydraulic cylinders after the appropriation  financing the order had expired. Officials said that they did not want to  cancel the order because they would lose the funds. After our  discussion, the depot received 25 cylinder heads for two of the orders  in the December 2007 and January 2008 time frame, and the depot  completed the work on those assets in December 2007 or January 2008.  As of January 2008, the depot has still not received 11 cylinder heads  on this fiscal year 2004 order.
In October 2006, Corpus Christi accepted an order from the Army  Aviation and Missile Life Cycle Management Command to repair 150  T700 engine cold section modules totaling about $15.6 million. A depot  official stated that the depot planned to complete the order by the end  of October 2007. The depot initially expected to carryover 15 T700  engine cold section modules from fiscal year 2007 into fiscal year 2008  at an estimated value of approximately $1.6 million. However, primarily  because of the lack of unserviceable assets to repair, the depot carried  over 46 T700 engine cold section modules at an estimated value of $4.7  million—an increase in the depot’s carryover of approximately $3.1  million. The depot completed the order in December 2007.
In order to manage unserviceable assets and minimize carryover, the  depots took a number of actions on a daily, weekly, monthly, and quarterly  basis. For example, on a daily basis, (1) programs were reviewed for asset  availability and (2) if it was determined that there was a shortage of assets,  the item manager was notified. On a weekly basis, schedules were  adjusted based on requirements and asset availability. On a quarterly basis,  in-process reviews were held with the depots and the life cycle  management commands, and issues affecting production were discussed.
section_title: Conclusions
paragraphs: Continuing problems in the Army depot maintenance group’s ability to  control the growth of carryover has resulted in excess carryover amounts  that tie up customer appropriations for long periods of time. Further, we  noted the lack of transparency with the level of detail of carryover data  reported to Congress for oversight purposes. Without increased  management attention, Army depot maintenance carryover amounts will  continue to escalate, as illustrated by the significant growth in carryover in  fiscal years 2006 and 2007. Much of the growth in carryover results from  the growth in new orders brought on by increased federal expenditures  related to the war effort in Iraq and Afghanistan. Nonetheless, some of the  factors that led to increased carryover are, in part, within DOD’s and, more  specifically, the Army depots’ control. Most notably, the Army depots have  not started orders within a few months of acceptance and completed them  in a timely manner. While the Army’s initial actions in fiscal year 2008 to  reduce carryover at the Army depots resulted in some improvement, these  actions have not yet fully met the goals included in its carryover reduction  plan.
section_title: Recommendations for Executive Action
paragraphs: In order to (1) improve the reliability and level of detail of carryover  amounts reported to Congress and DOD decision makers and (2) reduce  carryover associated with the Army depot maintenance working capital  fund activities, we are making eight recommendations to the Secretary of  Defense.
We recommend that the Secretary of Defense direct the Under Secretary  of Defense (Comptroller) to take the following actions:    Establish a mechanism to monitor whether activities are not following  the existing July 2003 policy that prohibits the deobligating and  reobligating of funds at year-end for the sole purpose of reducing  carryover balances and take appropriate actions, such as reducing  future funding designated for these activities, if they do not follow the  policy.
Establish procedures requiring evaluations of future exemption  requests on carryover to consider the impact these requests have on  the actual carryover balances reported to Congress and whether  granting such exemptions substantially reduces the visibility over and  financial incentive to resolve long-standing issues, such as spare parts  problems.
We recommend that the Secretary of Defense direct the Secretary of the  Army to take the following actions:    Direct the Army headquarters budget office to compare the amounts  contained in the Army’s carryover reduction plan to reported actual  execution data on a monthly basis to determine (1) if the depots met  established targets and (2) if the overall plan’s execution has the  desired effect of reducing fiscal year 2008 year-end carryover, and  work with the Army Materiel Command and the Army depots to  identify ways to further reduce fiscal year 2008 carryover if monthly  revenue goals are not met.
Establish procedures for separately identifying the allowable and  reported actual amounts of carryover for the Army depot maintenance  activities in the Army’s annual budget to Congress (as was done prior  to fiscal year 2005).
Issue guidance, in accordance with existing DOD-wide guidance, that  prohibits the Army Industrial Operations activity group from  deobligating reimbursable customer orders at the end of the fiscal year  and reobligating them in the next fiscal year for the sole purpose of  reducing carryover balances that are ultimately reported to Congress.
Develop a mechanism to monitor the Army depot maintenance  activities’ compliance with the requirements in DOD Financial  Management Regulation 7000.14-R governing acceptance of orders,  particularly when work is not expected to (1) begin without delay  (usually within 90 days of acceptance) and (2) be completed within the  normal production period for the specific work ordered.
Establish procedures requiring Army headquarters and Army Materiel  Command to compare budgeted orders to actual orders that the depots  received from customers and consider these trends in developing the  following year’s budget estimates on new orders to be received from  customers.
Develop quantifiable measures to determine the effectiveness of  actions taken by the Army and DLA to resolve spare parts shortages,  such as analyzing the information on customer orders with insufficient  spare parts in the critical maintenance repair parts reactive system at  the end of fiscal year 2008 and comparing the results to those of prior  fiscal years.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided written comments on a draft of this report. DOD concurred  with six recommendations and partially concurred with the specific  aspects of recommended actions for two. However, in its response, DOD  cited actions under way, or planned, related to all eight recommendations,  including    establishing an Army program to monitor carryover information  throughout the fiscal year;    providing separate carryover rates for depot maintenance and  ordnance in upcoming budgets of the President; issuing an Army memorandum emphasizing the department’s policy  prohibiting the deobligating of funds late in the fiscal year and then  reobligating the same funds in the following fiscal year in order to  reduce carryover amounts; and   developing a method that will identify the amount of carryover  resulting from spare parts shortages.
DOD partially concurred with two of our recommendations with respect  to whether (1) it can establish a mechanism to detect manipulation of  carryover balances and (2) that additional procedures are required to  ensure that evaluations of future exemption requests consider the impact  of granting such requests will have on congressional reporting.
DOD agreed that the Army must comply with the departmental financial  policy that prohibits deobligating and reobligating funds at year-end to  reduce carryover balances, but stated that there is no cost-effective  method to detect non-compliance. DOD stated it plans to reiterate its  existing policy and re-instruct the components to verify compliance with  this policy as part of their internal control reviews. It stated the Office of  the Under Secretary of Defense (Comptroller) will require the Army to  certify compliance with DOD regulations and will evaluate and take  appropriate actions on any future violations of the regulations. These  additional planned DOD actions are consistent with the intent of our  recommendation to establish an oversight mechanism.
On DOD’s partial concurrence with our recommendation to establish  procedures requiring evaluations of future exemptions requests on  carryover and to consider the impact these requests have on actual   carryover balances, DOD stated that it partially concurred because it  already has procedures in place. It stated that exemptions are given on a  case-by-case basis and only for limited periods. In addition, DOD stated it  plans to monitor and take appropriate actions on the Army’s efforts to  reduce carryover caused by parts shortages. However, as discussed in our  draft report, the exemptions do not provide the right incentives to correct  long-standing problems associated with receiving orders from other  services late in the fiscal year and program delays caused by long lead  time material. Consequently, we continue to believe that DOD should  direct the Under Secretary of Defense (Comptroller) to establish  procedures requiring carryover-reporting exemption-request evaluations  to consider the impact of granting such requests will have on carryover  amounts reported to the Congress.
Finally, exceeding the annual carryover ceilings has been a long-standing  problem at DOD. The department and the services have policies,  procedures, and regulations that, in our view, adequately establish  carryover ceilings and how to stay within those limits. Effective service  implementation and timely DOD monitoring of service action shortly  before, immediately after, and throughout each fiscal year are key to  achieving compliance with established carryover policies and procedures.  Unless DOD implements effective controls to monitor the services’  actions, the Congress can not be assured that the department is truly  committed to reducing the growth of excessive carryover.
We are sending copies of this report to the Chairmen and Ranking  Members of the Senate Committee on Armed Services; the Subcommittee  on Defense, Senate Committee on Appropriations; the House Committee  on Armed Services; the Subcommittee on Readiness, House Committee on  Armed Services; the House Committee on Appropriations; and the  Subcommittee on Defense, House Committee on Appropriations. We are  also sending copies to the Secretary of Defense, Secretary of the Army,  and other interested parties. Copies will be made available to others upon  request. In addition, the report will be available at no charge on the GAO  Web site at http://www.gao.gov.
Should you or your staff have any questions concerning this report, please  contact Paula M. Rascona at (202) 512-9095 or rasconap@gao.gov or  William M. Solis at (202) 512-8365 or solisw@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.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine the growth in reported total carryover from fiscal year 2004  through fiscal year 2007 and the actions the Army is taking to reduce the  carryover, we obtained and analyzed Army depot maintenance reports that  contained information on new order, revenue, and carryover data for the  4-year period. We also met with Army officials to discuss its plans for  reducing carryover in fiscal year 2008 and obtained and analyzed the  Army’s plans for reducing carryover. Further, we analyzed the Army’s plan  and first quarter fiscal years 2007 and 2008 execution data to determine if  the depots met their first quarter fiscal year 2008 targets. Finally, we met  with officials at the five Army depots to determine (1) what specific  actions the depots took to reduce carryover in the first quarter of fiscal  year 2008; (2) if the depots did not meet the planned targets for the first  quarter of fiscal year 2008, the reasons for missing the targets; and (3)  whether the depots’ officials believe that they will meet production targets  for the fiscal year.
To determine whether reported carryover amounts exceeded carryover  ceilings for fiscal years 2006 and 2007 and adjustments made to reduce  those amounts, we obtained and analyzed the allowable amount of  carryover and reported actual year-end carryover for those years. We  focused on fiscal years 2006 and 2007 because this is the time period when  the carryover significantly increased. We also identified and analyzed the  amount of carryover the Army exempted from its carryover calculation  that was approved by the Office of the Under Secretary of Defense  (Comptroller) for fiscal years 2006 and 2007. When the reported actual  carryover exceeded the carryover ceiling, we met with responsible  officials at the Army depots, the Army Materiel Command, and Army  headquarters to ascertain why the depots exceeded the ceiling. We  reviewed our prior reports (GAO-01-559, GAO-05-441, and GAO-06-530) on  carryover, which provided information on the allowable amount of  carryover as well as reported actual year-end carryover data. Finally, we  identified year-end transactions that reduced the dollar amount of  reported actual carryover in September 2006 and reobligated these funds  in the beginning of October.
To determine the primary reasons for the increased carryover at the five  Army depots, we met with Army headquarters budget officials and  responsible budgeting, accounting, or production officials at the Army  depots. Based on those discussions, we obtained information that affected  carryover. First, we analyzed budgeted and reported actual new orders to  determine if the Army underestimated the depots’ fiscal years 2006 and  2007 workloads. When large differences occurred between budgeted and  reported actual new orders, we met with Army headquarters officials to  determine the reasons for these differences. Second, we identified orders  received by the depots late in the fiscal year to determine if these orders  were contributing to the carryover. Third, we analyzed reports and data  files that provide information on the status of production work at the  depots to determine if there were parts shortages resulting in carryover. In  performing this work, we met with Defense Logistics Agency officials at  the depots to discuss problems with the Defense Logistics Agency  providing spare parts to the depots. Fourth, we analyzed reports that  provide information on the status of production work at the depots to  determine if the lack of unserviceable assets to be repaired at the depots  contributed to carryover.
We performed our work at the headquarters of the Office of the Under  Secretary of Defense (Comptroller) and the Office of the Secretary of the  Army, Washington, D.C.; Army Materiel Command, Fort Belvoir, Virginia;  the Tobyhanna Army Depot, Tobyhanna, Pennsylvania; the Letterkenny  Army Depot, Chambersburg, Pennsylvania; the Corpus Christi Army  Depot, Corpus Christi, Texas; the Anniston Army Depot, Anniston,  Alabama; and the Red River Army Depot, Texarkana, Texas. We  conducted this performance audit from July 2007 through July 2008 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. Most of the financial information in this  report was obtained from official Army budget documents and accounting  reports. To assess the reliability of the data, we (1) reviewed and analyzed  the factors used in calculating carryover, (2) interviewed Army officials  knowledgeable about the carryover data, (3) reviewed GAO reports on  Army depot maintenance activities, and (4) reviewed orders customers  submitted to the depots to determine if they were adequately supported by  documentation. We requested comments on a draft of this report from the  Secretary of Defense or his designee. The Under Secretary of Defense  (Deputy Comptroller) provided written comments, which are presented in  the Agency Comments and Our Evaluation section of this report and are  reprinted in appendix II.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to the contacts named above, Greg Pugnetti, Assistant  Director; Richard Cambosos; Francine DelVecchio; Steve Donahue; Keith  McDaniel; and Hal Santarelli made key contributions to this report.