Depot Maintenance: Actions Needed to Provide More Consistent Funding Allocation Data to Congress
Published: 2006-11-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Under 10 U.S.C. 2466, the military departments and defense agencies may use no more than 50 percent of annual depot maintenance funding for work performed by private-sector contractors. The Department of Defense (DOD) must submit a report to Congress annually on the allocation of depot maintenance funding between the public and private sectors for the preceding fiscal year and projected distribution for the current and ensuing fiscal years for each of the armed forces and defense agencies. As required by Section 2466, GAO reviewed the report submitted in April 2006 and is, with this report, submitting its view to Congress on whether (1) the military departments and defense agencies complied with the 50-50 requirement for fiscal 2005 and (2) the projections for fiscal years 2006 and 2007 represent reasonable estimates. GAO obtained data used to develop the April 2006 report, conducted site visits, and reviewed supporting documentation.
section_title: What GAO Found
paragraphs: Although DOD reported to Congress that it complied with the 50-50 requirement for fiscal year 2005, GAO could not validate compliance due to weaknesses in DOD's financial management systems and the processes used to collect and report 50-50 data. DOD's April 2006 report provides an approximation of the depot maintenance funding allocation between the public and private sectors for fiscal year 2005. GAO identified errors in the reported data which, if adjusted, would increase the Army's private-sector funding allocation percentage from 49.4 percent to 50 percent. GAO found that 50-50 funding allocation data were not being consistently reported because some maintenance depots were reporting expenditures rather than following Office of the Secretary of Defense (OSD) guidance and reporting obligations. Combining obligations and expenditures produces an inaccurate accounting of 50-50 funding allocations. GAO also found amounts associated with interservice depot maintenance work may not accurately reflect the actual allocation of private- and public-sector funds because visibility over the allocation of these funds is limited. OSD guidance requires that the military departments establish measures to ensure correct accounting of interservice workloads. In prior years' reports on DOD's compliance with the 50-50 requirement, GAO discussed deficiencies limiting data accuracy and recommended specific corrective actions. While DOD has taken some additional actions to improve the quality of reported data for fiscal year 2005, it has not fully addressed the persistent deficiencies that have limited 50-50 data accuracy. Reported projections do not represent reasonable estimates of public- and private-sector depot maintenance funding allocations for fiscal years 2006 and 2007 due to data inaccuracies. Errors GAO identified for fiscal year 2005 could affect these projections. If the adjustments GAO made to the Army's fiscal year 2005 data--increasing the private-sector percentage by about 0.6 percentage points--are carried forward, it could move the Army's projection to within 2 percent of the 50 percent limitation for fiscal year 2007. GAO also found that the projected numbers often did not include supplemental funds, which could change the allocation percentages. These errors and omissions affect the reasonableness and accuracy of the reported projections. To avoid breaching the 50 percent threshold in future years, the Air Force is implementing its plan to ensure compliance with the 50-50 requirement until fiscal year 2010. The plan involves moving some maintenance workload, including the F-100 engine, from the private sector to the public sector.

section_title: Letter
paragraphs: Each year the Department of Defense (DOD) spends billions of dollars for  depot maintenance of its ships, aircraft, tanks, and other weapons  systems. DOD reported total depot maintenance funding of more than $26  billion for fiscal year 2005. This maintenance is accomplished by both  federal government workers in the public sector and contractor personnel  in the private sector. Under 10 U.S.C. § 2466(a), not more than 50 percent  of funds made available in a fiscal year to a military department or defense  agency for depot-level maintenance and repair may be used to contract for  the performance by nonfederal government personnel of such workload  for the military departments and defense agencies. Section 2466(b) states  that the Secretary of Defense may waive the 50 percent limitation if he  determines the waiver is necessary for national security and submits to  Congress a notice of the waiver and the reasons for the waiver. Section  2466(d)(1) directs the Secretary of Defense to submit an annual report to  Congress identifying, for each of the armed forces and defense agencies,  the percentage of the funds referred to in Section 2466(a) that was  expended during the preceding fiscal year, and are projected to be  expended during the current fiscal year and the ensuing fiscal year, for  performance of depot-level maintenance and repair workloads by the  public and private sectors. In its most recent annual report, dated April 6,  2006, DOD reported that depot maintenance allocations by the  Departments of the Army, Navy, and Air Force were below the 50 percent  threshold in fiscal year 2005, and all the departments except for the Air  Force projected that they will remain below the threshold for fiscal years  2006 and 2007. According to DOD’s report, the Air Force projected that it  would exceed the 50 percent limit in fiscal year 2007.
Section 2466(d)(2) also requires us to submit to Congress our views on  whether DOD complied with Section 2466(a) during the preceding fiscal  year and whether the expenditure projections for the current and ensuing  fiscal years are reasonable. This is the ninth year that we have evaluated  and reported on DOD’s annual 50-50 report to Congress. Specifically, our  objectives were to determine whether (1) the military departments  complied with the 50-50 requirement for fiscal year 2005 and (2) the  projections for fiscal years 2006 and 2007 represent reasonable estimates.
To accomplish these objectives, we reviewed guidance for reporting 50-50  workload funding data and analyzed the military services’ procedures and  internal controls for collecting data and ensuring the accuracy and  completeness of data included in the report. To determine whether the  military departments complied with the 50-50 requirement, we obtained  service data used to develop DOD’s April 2006 report, conducted site visits  at reporting commands and depots, interviewed officials involved in the  50-50 process, and reviewed documentation supporting reported funding  data. Our work covered all four military services, but we placed greater  emphasis on reviewing Army data because that service was close to the 50  percent threshold for fiscal year 2005. We reviewed a total of $2.7 billion of  reported depot maintenance funding. We based our sample on previously  identified areas of concern, varying program amounts, and selected  locations for our site visits. Because we selected a nonprobability sample  of data for our review, our results cannot be projected. To determine the  reasonableness of fiscal year 2006 and 2007 projections, we discussed with  service officials how they developed their projections and whether  historical funding information and known increases in funding were  included in their projections. As discussed below, we have found that  reported depot maintenance funding allocation data are not reliable  because of weaknesses in DOD’s financial systems and 50-50 data  gathering and reporting processes. For the past several years, we have  reported that DOD’s report on the use of these funds cannot be relied  upon as an accurate reflection of the distribution of these funds. We  conducted our review from March 2006 to September 2006 in accordance  with generally accepted government auditing standards. See appendix I for  a more detailed discussion of our scope and methodology.
subsections: section_title: Background
paragraphs: In addition to the 50-50 requirement in 10 U.S.C. § 2466, the following  provisions directly affect the reporting of workload funding allocations to  the public and private sectors:    Section 2460(a) of Title 10 defines “depot-level maintenance and repair” as  material maintenance or repair requiring the overhaul, upgrading, or  rebuilding of parts, assemblies, or subassemblies and the testing and  reclamation of equipment as necessary, regardless of the source of funds  for the maintenance or repair, or the location at which the maintenance or  repair is performed. This term also includes: (1) all aspects of software  maintenance classified by DOD as of July 1, 1995 as depot-level  maintenance and repair; and (2) interim contractor support or contractor  logistics support (or any similar contractor support) to the extent that  such support is for the performance of services described in the preceding  sentence. Section 2460(b)(1) excludes from the definition of depot  maintenance the nuclear refueling of an aircraft carrier, and the  procurement of major modifications or upgrades of weapon systems that  are designed to improve program performance, although a major upgrade  program covered by this exception could continue to be performed by  private- or public-sector entities. Section 2460(b)(2) also excludes from  the definition of depot-level maintenance the procurement of parts for  safety modifications, although the term does include the installation of  parts for safety modifications.
Depot maintenance funding involving certain public-private partnerships is  exempt from the 50 percent limitation. Section 2474(f) of Title 10 provides  that amounts expended for the performance of depot-level maintenance  and repair by nonfederal government personnel at Centers of Industrial  and Technical Excellence under any contract entered into during fiscal  years 2003 through 2009 shall not be counted when applying the 50  percent limitation in Section 2466(a) if the personnel are provided by  entities outside DOD pursuant to a public-private partnership. In its annual  50-50 report to Congress, DOD identifies this funding as a separate  category called “exempt.”
Section 2466(b) allows the Secretary of Defense to waive the 50 percent  limitation if he determines the waiver is necessary for national security,  and he submits the notification of waiver together with the reasons for the  waiver to Congress. Waivers were previously submitted for the Air Force  for fiscal years 2000 and 2001.
OSD issues guidance to the military departments for reporting public- private workload funding allocations. The guidance’s definition of “depot  level maintenance and repair” is consistent with the definition of “depot- level maintenance and repair” in 10 U.S.C. § 2460. The military services  have also issued internal instructions to manage the data collection and  reporting process, tailored to their individual organizations and operating  environments.
section_title: DOD’s Compliance with the 50-50 Requirement for Fiscal Year 2005 Could Not Be Validated
paragraphs: Although DOD reported that the military departments complied with the  50-50 requirement for fiscal year 2005, we could not validate compliance  because of systemic weaknesses in DOD’s financial management systems  and persistent deficiencies in the processes used to collect and report 50- 50 data. DOD’s report provides an approximation of the depot  maintenance funding allocation between the public and private sectors but  contains some inaccuracies. Our current review showed that 50-50 funding  data were not being consistently reported because some maintenance  depots were reporting expenditures rather than obligations as directed by  OSD guidance. We also found that amounts associated with interservice  depot maintenance work and certain contract agreements between depots  and private contractors may not accurately reflect the distribution  reported for private- and public-sector funds because visibility over the  allocation of these funds is limited. In addition, we found several other  errors that resulted in inaccuracies in reported 50-50 data for the Navy and  Army. DOD took some actions this year to improve 50-50 reporting.  However, our work over the last several years has identified a number of  persistent deficiencies, such as inadequate management attention and  review, which have affected the quality of reported 50-50 data. While DOD  took actions to improve 50-50 reporting this year, DOD has not  implemented recommendations we made last year to address these  deficiencies.
subsections: section_title: DOD Reported Compliance with the 50-50 Requirement in Fiscal Year 2005, but Reported Data Contained Inaccuracies
paragraphs: In DOD’s April 2006 report to Congress on funding allocations for depot  maintenance, all three military departments reported that their private- sector depot maintenance allocation was below the 50 percent limitation  for fiscal year 2005. However, we found that the reported data contained  inaccuracies. Table 1 shows the reported allocation between the public  and private sectors and the exempted workload funding.
On the basis of our evaluation of selected 50-50 data, DOD’s April 2006  report provides an approximation of depot maintenance funding  allocations between the public and private sectors for fiscal year 2005.  However, we identified errors in reported workload funding data. The net  effects of correcting the data inaccuracies we identified would increase  the Army’s private-sector funding allocation from 49.4 percent to 50  percent. Identified errors in the Army’s data resulted in a total decrease in  public-sector funding of $5.9 million and a total increase in private-sector  funding of $68.1 million. Appendix II provides additional information on  these adjustments. We could not quantify the errors that we identified for  the Air Force regarding direct sales agreements. We continue to identify  areas that continue to be excluded from the Navy’s 50-50 reporting. While  we found an error in the Marine Corps data, correcting this inaccuracy  would not result in changes to the Department of the Navy’s funding  allocation percentages. We did not conduct a review of all reported 50-50  data; therefore, there may be additional errors, omissions, and  inconsistencies that were not identified.
section_title: DOD’s 50-50 Report Included Both Expenditures and Obligations
paragraphs: Depot maintenance funding data for fiscal year 2005 were not being  consistently reported because some maintenance depots were reporting  expenditures, rather than obligations as directed by OSD guidance. The  reporting of expenditures instead of obligations by some depots presents  an inaccurate picture of depot maintenance allocations since the amounts  may differ. For the most part, the allocation percentages for public funds  represent obligation amounts obtained from the military department’s  financial accounting systems. However, in reporting the amount of depot  maintenance funds allocated to the private sector, some reporting  organizations used expenditures rather than obligations as required by  OSD guidance. For example, three depots we visited reported their  subcontracted depot-level maintenance work as expenditures rather than  obligations. Reasons given by depot officials for reporting expenditures  rather than obligations include the following: (1) the workload against  obligated funds may not have been fully performed during the fiscal year,  and therefore they believed reporting expenditures was a better reflection  of the actual workload; (2) they did not know that obligations were to be  reported instead of expenditures; and (3) many work orders can be  associated with a multiyear contract, so they believed that reporting  expenditures would be a better representation of the costs associated with  multiyear contracts for the fiscal year in question.
Accurately reporting carryover work is a problem when the services’ data  contain both expenditures and obligations. Carryover is work that a depot  may “carry over” from one fiscal year to another to ensure a smooth flow  of work during the transition between fiscal years. This means that while  the funds are obligated in one fiscal year, a certain portion may not be  expended until the next fiscal year. When expenditures rather than  obligations are reported, we found that the carryover work that is  performed in the following year may not be included in either year’s 50-50  report. For example, an Army depot official provided us with an estimate  of almost $1.5 million that was expended in fiscal year 2006 on a fiscal  year 2005 contract obligation. The official stated that this portion of the  obligation was not reported in fiscal year 2005 because it was not yet  expended, and it would not be reported in fiscal year 2006 because it was  expended on a fiscal year 2005 obligation. As a result, the private portion  of the service’s depot maintenance funds was underreported in the year of  the obligation, while the public portion was overreported. Until depot  maintenance funding obligations are consistently reported, rather than a  combination of expenditures and obligations, inaccurate reporting of the  allocation of depot maintenance funding between the public and private  sectors will continue.
section_title: Depot Maintenance Allocations Involving Some Interservice and Direct Sales Agreements May Not Be Properly Reported
paragraphs: Because DOD has limited visibility over the allocation of private- and  public-sector funds in some interservice agreements and direct sales  agreements, inaccurate reporting of the depot maintenance workload  allocation may result. Interservice workload agreements refer to work that  is performed by one component for another. OSD guidance requires that  the military departments establish measures to ensure correct accounting  of interservice workloads; however the allocation of these funds may not  always be accurately reported. We found instances where a military  service awarded public depot maintenance work to another military  service, which then contracted out a portion of that workload to the  private sector. The military service awarding the work, as principal owner  of the funds, inaccurately reported this as public workload because it had  not inquired whether all the awarded work was performed at the public  depot. For example, we identified approximately $172,000 of private- sector work that may have been inaccurately reported as public-sector  work because the principal owner of the funds did not follow up to  determine whether all of the work was performed by the public depot.  While we were unable to fully evaluate the extent of inaccurate reporting  associated with interservice agreements, until the military departments  establish sufficient measures to accurately account for and report their  distribution of depot maintenance workload, the 50-50 data reported by  DOD may continue to be inaccurate.
The limited visibility over direct sales agreements is another reason why  the depot maintenance workload allocation may be inaccurately reported  to Congress. A direct sales agreement involves private vendors contracting  back to a DOD maintenance facility for labor to be performed by DOD  employees. OSD guidance requires that sales of articles and services by  DOD maintenance depots to entities outside of DOD, when work is  accomplished by DOD employees, shall be reported as public-sector work.  However, we found that the reporting of the distribution of private- and  public-sector workload for direct sales agreements may not be accurate.  With a direct sales agreement, there is no requirement for the private  vendor to identify and break out the contract costs, such as materials and  other factors of production, and allocate them to expenses performed by  the private vendor or the public depot. We found the use of direct sales  agreements by the Air Force may have resulted in an overstatement of  private-sector funds, with a corresponding understatement of public- sector funds. In addition, we found similar instances in the Army where  work performed by the public sector under a direct sales agreement with a  private vendor may have been misreported as being performed by the  private sector. Although we were unable to fully evaluate the extent to  which costs associated with these types of contract agreements were  misreported, until private vendors break out direct sales agreement costs  by the private and public sectors, DOD’s reporting of 50-50 funding  allocation may remain inaccurate.
section_title: Other Identified Errors
paragraphs: We identified several other errors that resulted in inaccurate reported 50- 50 data for the Navy and Army. As we reported in previous years, we  identified two areas that continue to be excluded from the Navy’s 50-50  reporting. First, the Navy did not report any depot maintenance work on  aircraft carriers performed while nuclear refueling. Navy officials cited the  exclusion of nuclear refueling in 10 U.S.C. § 2460(b)(1) and guidance from  the General Counsel’s office in the Department of the Navy as reasons for  not including $115 million in depot maintenance work performed on  aircraft carriers while nuclear refueling. However, we continue to believe  that depot repairs not directly associated with the task of nuclear refueling  should be reported. Second, the Navy, as in prior years, continues to  inconsistently report ship-inactivation activities related to the servicing  and preservation of systems and equipment before ships are placed in  storage or in an inactive status. The Navy did not report $14.4 million of  private-sector allocations for inactivation work on nonnuclear ships, even  though it reported inactivation activities on nuclear ships. The Navy  contends that the work for nuclear ship inactivation is complex while the  work for nonnuclear ships is not. We continue to maintain that all such  depot-level work should be reported, since the statute and implementing  guidance do not make a distinction based on complexity. In addition, our  review of the Marine Corps data found that it underreported the private- sector total and overreported the public-sector total by about $1.5 million.  This amount was for depot-level maintenance that was performed in a  public depot by contractor personnel, which was misreported as public  sector rather than private sector.
We also identified several data inaccuracies in the Army’s 50-50 data. For  example, one Army depot failed to include approximately $31 million of  private contract work it had outsourced for depot maintenance in its 50-50  report. An Army official said that they had not known that this type of  contract work should be included in 50-50 reporting, but they now plan to  include it in future submissions. Our review also determined that several  Army omissions, totaling approximately $53 million, were due to  misinterpretation of the guidance regarding modifications and  remanufacturing. The OSD guidance provides information about what to  include and not to include in reporting depot maintenance with regard to  upgrades, modifications, and remanufacturing. An Army official  acknowledged that there has been confusion over what to report for 50-50  depot maintenance and stated the Army is in the draft stages of updating  the Army’s Depot Maintenance Workload Distribution Reporting  Procedures. In addition, the Army’s 50-50 data contained errors totaling  approximately $4 million due to changes in program costs. Finally, our  review of the Army’s data found miscellaneous errors, including one  instance of double counting and the transposition of numbers in some  entries.
section_title: DOD Took Actions to Improve 50-50 Reporting, but Deficiencies Affecting Data Accuracy Have Persisted
paragraphs: During our review we noted actions taken by OSD and the military  services that, while not fully implemented, provided some improvement in  the 50-50 reporting process. For example, OSD, in its 50-50 guidance,  added a new requirement that the military services include variance  analyses in their submissions of 50-50 data. The services performed  variance analyses; however, these were at a very high level and provided  little detail on how the fiscal year 2005 allocations differed from the prior  year’s data. OSD guidance also included a new requirement that the  services maintain records and reports for 50-50 data for at least 2 years,  although we did find two instances where reporting locations could not  provide backup documentation for their 50-50 data. In addition, as in  previous years, OSD instructed the services to use a third-party reviewer,  such as a service audit agency, to validate their data prior to submission.  However, due to time constraints, each service audit agency performed  only a limited review of the service’s data. For example, the Air Force  directed its audit service to perform a limited review that focused on two  issues. Additionally, each service headquarters continued to provide some  form of training for its 50-50 reporting activities, although no service  required attendance by all individuals involved in 50-50 data gathering and  reporting. Guidance issued by OSD emphasized, but did not require,  training for individuals involved in the 50-50 process. In one instance, an  official who was responsible for querying the 50-50 information from the  service’s data systems was unaware that any training was ever offered for  50-50 reporting.
Our work over the last several years has identified a number of persistent  deficiencies, such as inadequate management attention and review, which  have affected the quality of reported 50-50 data. DOD has not implemented  recommendations we made last year to address these deficiencies. In prior  years’ reports, we have identified problems in 50-50 data accuracy  attributable to deficiencies in management attention, controls, and  oversight; documentation of procedures and retention of records;  independent validation of data; training for staff involved in the 50-50  process; and guidance. DOD has taken steps over the years to improve 50- 50 reporting in response to our recommendations, but we have found that  some deficiencies have persisted, including inadequate management  attention and review, limited review and validation of data by independent  third parties, and inadequate staff training. In our November 2005 report,  we concluded that the recurring nature of deficiencies in 50-50 reporting  indicates a management control weakness that DOD should disclose in its  annual performance and accountability report to Congress. By doing so,  DOD would increase the level of management attention and help focus  improvement efforts so that the data provided to Congress are accurate  and complete. DOD partially concurred with this recommendation, stating  that systemic changes to the 50-50 reporting process had already been  made in response to previous recommendations. DOD did not disclose 50- 50 reporting as a management control weakness in its most recent  performance and accountability report. An OSD official responsible for  developing the annual 50-50 report to Congress noted that completion of  the department’s Enterprise Transition Plan would result in more  accurate 50-50 reporting.
As we have previously reported, DOD’s April 2006 report satisfies the  annual mandate as required by 10 U.S.C. § 2466(d). In our November 2005  report, we stated that DOD could enhance the usefulness of its report for  congressional oversight by providing additional information. For example,  we recommended that DOD add information such as variance analyses  that identify significant changes from the prior year’s report and the  reasons for these variances, longer term trend analyses, an explanation of  methodologies used to estimate workload allocation projections for the  current and ensuing fiscal years, and plans to ensure continued  compliance with the 50-50 requirement, including decisions on new  weapon systems maintenance workload sourcing that could be made to  support remaining within the 50 percent threshold. DOD partially  concurred with this recommendation and stated that producing the types  of information we suggested would require a massive undertaking and  may be of limited value. We disagreed and, on the basis of DOD’s  response, added a matter for congressional consideration suggesting that  Congress require the Secretary of Defense to enhance the department’s  annual 50-50 report as stated in our recommendations. In the April 2006  report, DOD did not make changes consistent with our recommendations,  nor has Congress acted.
section_title: Fiscal Year 2006 and 2007 Projections Are Not Reasonable Due to Data Inaccuracies
paragraphs: DOD’s reported projections for fiscal years 2006 through 2007 do not  represent reasonable estimates of public- and private-sector depot  maintenance funding allocations, in part because some errors in DOD’s  fiscal year 2005 data are carried into the projected years. As shown in table  2, the Army and the Navy projected that their private-sector depot  maintenance allocations will remain below the 50 percent limitation for  fiscal years 2006 and 2007. The Air Force projected that it will remain  below the limitation for fiscal year 2006, but will exceed the limitation for  fiscal year 2007.
Errors similar to those we identified in fiscal year 2005 reported data  could affect these projections, as the Air Force is moving closer to the  threshold for private-sector funding in fiscal year 2006 (48.4 percent) and  beyond the threshold in fiscal year 2007 (50.2 percent). If the adjustments  we made to the Army’s fiscal year 2005 data—increasing the private-sector  percentage by about 0.6 percentage points—are carried forward into fiscal  year 2007 projections, it could cause the Army to come within 2 percent of  the 50 percent limitation on contracting for depot-level maintenance and  repair. When spending projections reflect data within 2 percent of the 50  percent limitation in a fiscal year, OSD guidance directs the components to  submit a plan that identifies actions to be taken to ensure continued  compliance. This plan shall include identification of decisions on  candidate maintenance workload sourcing that could be made to support  remaining within compliance with the 50 percent limitation. In addition,  we found an error of approximately $1.6 million in the Army’s fiscal year  2006 projections, which further limits the accuracy of reported  projections. Furthermore, DOD’s projected fiscal year 2006 and fiscal year  2007 allocations are based on the President’s budget numbers and often  did not include supplemental funds, which can change the percentage  allocations. However, in the case of some Air Force depot projections,  supplemental funds are included in the projections if the amounts are  already known. These limitations affect the reasonableness of the data  reported as projections of future funding allocations.
While the Army and Navy project compliance with the 50-50 requirement  through fiscal year 2007, the Air Force’s fiscal year 2006 projections are  within 2 percent of the 50 percent limitation and its fiscal year 2007  projections exceed the 50 percent limitation by 0.2 percent. To avoid  breaching the 50 percent threshold, the Air Force is implementing a plan  to ensure compliance in fiscal years 2007 through 2010. Under this plan,  the Air Force is identifying and evaluating candidate weapon system  programs for shifting maintenance workload from the private sector to the  public sector. The Air Force has committed resources and approved  shifting some maintenance associated with the F-100 engine beginning in  fiscal year 2006. The Air Force plan shows that a total workload of $68  million associated with the F-100 engine could be shifted to the public  sector, enabling the Air Force to achieve compliance with the 50-50  requirement in fiscal year 2007. The Air Force is also evaluating workload  associated with the KC-135 aircraft, the C-17 aircraft, the B-2 aircraft, the  F-119 engine, and the F-117 engine that may be shifted to the public sector.
section_title: Conclusions
paragraphs: The errors we identified in DOD’s April 2006 50-50 report—while not  extensive—are indicative of the long-standing problems DOD has  encountered in providing accurate depot maintenance funding allocation  data to Congress. We have previously observed that the usefulness of the  annual 50-50 report to Congress is limited because of data reliability  concerns. Our prior reports identified data inaccuracies and recommended  corrective actions aimed at addressing deficiencies that limited the  accuracy of 50-50 reporting. In addition, we have recommended actions  that Congress could take to improve the reliability and usefulness of  DOD’s annual report. Our current review shows that while DOD has taken  some additional actions to improve the quality of reported data for fiscal  year 2005, it has not fully addressed the persistent deficiencies that have  limited 50-50 data accuracy in the past. DOD’s report presented an  inaccurate measure of the balance of funding between the public and  private sectors due to inconsistencies in reporting expenditures rather  than obligations, and inaccurate distribution of reporting of allocations  from interservice and direct sales agreements. Without consistent  reporting of depot maintenance funding obligations, rather than a  combination of expenditures and obligations, inaccurate reporting of the  funding allocation between the public and private sectors will continue.  Moreover, without accurate reporting of the allocation of depot  maintenance workload performed by the private and public sectors under  interservice and direct sales agreements, the 50-50 data reported by DOD  will continue to be inaccurate.
section_title: Recommendations for Executive Action
paragraphs: To improve the consistency and accuracy of depot maintenance funding  allocation data in DOD’s annual 50-50 report to Congress, we recommend  that the Secretary of Defense take the following two actions:    Direct the Secretaries of the Army, Navy, and Air Force and the  Commandant of the Marine Corps to follow OSD guidance and report  funding obligations rather than expenditures.
Direct the Under Secretary of Defense for Acquisition, Technology, and  Logistics, in conjunction with the Secretaries of the Army, Navy, and Air  Force, and the Commandant of the Marine Corps, to establish measures to  ensure proper accounting of the allocation of interservice workloads  between the public and private sectors.
section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on a draft of this report, DOD concurred with our  recommendations. Regarding our recommendation that the military  services follow guidance and report funding obligations rather than  expenditures, DOD stated that it will be specific in its guidance on 50-50  reporting and require organizations to report obligations rather than  expenditures. Also, DOD stated that Army guidance and training will  address our findings. Consistent with our recommendation, we believe  that the Air Force, Navy, and Marine Corps also should take appropriate  steps to ensure that obligations are reported. Regarding our  recommendation that measures be established to ensure proper  accounting of the allocation of interservice workloads, DOD said that its  guidance will require component audit agencies to specifically validate  interservice data prior to submitting the 50-50 report to the department.  Validation of interservice data would meet the intent of our  recommendation.
DOD also stated that it did not agree with our adjustments to the work  accomplished during the nuclear refueling of aircraft carriers and for  inactivation work on nonnuclear ships. DOD stated that all costs during  nuclear aircraft carrier refueling are properly excluded and conventional  ship inactivation workload is not considered depot-level maintenance. We  have had a long-standing disagreement with DOD on including funding for  these two areas in its 50-50 report. For the past several years we have  maintained that DOD should include these funds, while DOD has  disagreed. Our reasons for including these adjustments are discussed in  this report.
DOD’s written comments are reprinted in appendix III. DOD also provided  technical comments which we have incorporated as appropriate.
We are sending copies of this report to appropriate congressional  committees; the Secretary of Defense; the Secretaries of the Army, Navy,  and Air Force; the Commandant of the Marine Corps; and the Director,  Office of Management and Budget. We will make copies 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. If you or your staffs have any  questions on the matters discussed in this report, please contact me 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 IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine whether the military departments provided accurate data in  reporting depot maintenance funding allocations and whether they met the  50-50 requirement for fiscal year 2005, we reviewed military services’  procedures and internal management controls for collecting and reporting  their depot maintenance allocations. We discussed with key officials the  process used to identify and report depot maintenance workload  allocation between the public and private sectors. We selected a  nonprobability sample of reported 50-50 obligations totaling $2.7 billion of  the reported $26.4 billion reported in the Department of Defense’s (DOD)  report to Congress on depot maintenance funding allocation. We based  our sample on previously identified areas of concern, varying program  amounts, and selected locations for our site visits. We also contacted  service audit agencies and third-party officials at service headquarters to  discuss their verification review of the fiscal year 2005 50-50 obligation  data. We did not conduct a review of all reported 50-50 data; therefore,  there may be additional errors, omissions, and inconsistencies that were  not identified. Because we used a nonprobability sample, our results  cannot be projected.
We visited departmental headquarters, major commands, and selected  maintenance activities. We interviewed service officials responsible for  data collection, and we reviewed the reported data for accuracy and  completeness. We compared reported amounts to funding documents,  contracts, and accounting reports for selected programs for all the military  services, but we placed greater emphasis on the Army data because the  Army was close to the 50 percent threshold for fiscal year 2005.
To determine the actions taken by the Office of the Secretary of Defense  (OSD) and military departments to improve the quality of the reported 50- 50 data and implementation of GAO’s prior year’s recommendations, we  reviewed the results of studies conducted by the service audit agencies  and reconciled areas of concern identified during prior years’ audits. We  also reviewed prior years’ recommendations to find out whether known  problem areas were being addressed and resolved. We discussed with  officials actions they took to improve 50-50 data gathering and reporting  processes.
To determine the reasonableness of fiscal year 2006 and 2007 projections,  we discussed with service officials how they developed their projections  and whether historical funding information and known increases in  funding were included in their projections. Our analysis of the data for  fiscal years 2006 and 2007 was limited because our current and past work  on this issue has shown that DOD’s 50-50 data cannot be relied upon as a  precise measure of allocation of depot maintenance funds between the  public and private sectors. We discussed with Air Force officials reasons  for the increase in their fiscal year 2007 projection and their plans to avoid  breaching the 50 percent limitation.
In accomplishing our objectives, we interviewed officials, examined  documents, and obtained data at the Office of the Secretary of Defense,  Army, Navy, Marine Corps, and Air Force headquarters in the Washington,  D.C., area; Anniston Army Depot in Anniston, Ala.; Red River Army Depot  in Texarkana, Tex.; Army Material Command in Alexandria, Va.; Tank- automotive and Armaments Command (TACOM) Life Cycle Management  Command in Warren, Mi.; Naval Air Systems Command in Patuxent River,  Md.; U.S. Fleet Forces Command in Norfolk, Va.; Air Force Materiel  Command in Wright-Patterson Air Force Base, Oh.; Marine Corps Logistics  Command in Albany, Ga.; and Army, Navy, and Air Force Audit Services.  We conducted our work from March 2006 to September 2006 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: GAO Adjustments to Army Fiscal Year 2005 Reported Data
paragraphs: Our review of the Army’s data supporting the Department of Defense’s  (DOD) fiscal year 2005 50-50 report identified the following adjustments.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contacts and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: Key contributors to this report include Thomas Gosling, Assistant  Director; Connie W. Sawyer, Jr.; Janine Cantin; Clara Mejstrik; Stephanie  Moriarty; and Renee Brown.
section_title: Related GAO Products
paragraphs: Depot Maintenance: Persistent Deficiencies Limit Accuracy and  Usefulness of DOD’s Funding Allocation Data Reported to Congress.   GAO-06-88. Washington, D.C.: November 18, 2005.
Depot Maintenance: DOD Needs Plan to Ensure Compliance with Public-  and Private-Sector Funding Allocation. GAO-04-871. Washington, D.C.:  September 29, 2004.
Depot Maintenance: Army Needs Plan to Implement Depot Maintenance  Report’s Recommendations. GAO-04-220. Washington, D.C.: January 8,  2004.
Depot Maintenance: DOD’s 50-50 Reporting Should Be Streamlined.   GAO-03-1023. Washington, D.C.: September 15, 2003.
Department of Defense: Status of Financial Management Weaknesses  and Progress Toward Reform. GAO-03-931T. Washington, D.C.: June 25,  2003.
Depot Maintenance: Change in Reporting Practices and Requirements  Could Enhance Congressional Oversight. GAO-03-16. Washington D.C.:  October 18, 2002.
Depot Maintenance: Management Attention Needed to Further Improve  Workload Allocation Data. GAO-02-95. Washington, D.C.: November 9,  2001.
Depot Maintenance: Action Needed to Avoid Exceeding Threshold on  Contract Workloads. GAO/NSIAD-00-193. Washington, D.C.: August 24,  2000.
Depot Maintenance: Air Force Faces Challenges in Managing to 50-50  Threshold. GAO/T-NSIAD-00-112. Washington, D.C.: March 3, 2000.
Depot Maintenance: Future Year Estimates of Public and Private  Workloads Are Likely to Change. GAO/NSIAD-00-69. Washington, D.C.:  March 1, 2000.
Depot Maintenance: Workload Allocation Reporting Improved, but  Lingering Problems Remain. GAO/NSIAD-99-154. Washington, D.C.: July  13, 1999.
Defense Depot Maintenance: Public and Private Sector Workload  Distribution Reporting Can Be Further Improved. GAO/NSIAD-98-175.  Washington, D.C.: July 23, 1998.
Defense Depot Maintenance: Information on Public and Private Sector  Workload Allocations. GAO/NSIAD-98-41. Washington, D.C.: January 20,  1998.
Defense Depot Maintenance: More Comprehensive and Consistent  Workload Data Needed for Decisionmakers. GAO/NSIAD-96-166.  Washington, D.C.: May 21, 1996.