Depot Maintenance: Persistent Deficiencies Limit Accuracy and Usefulness of DOD's Funding Allocation Data Reported to Congress
Released: 2005-11-18T00:00:00

Letter

Background

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 defines depot maintenance to include material maintenance or repair requiring the overhauling, upgrading, or rebuilding of parts, assemblies, or subassemblies and the testing and reclamation of equipment, regardless of the source of funds or where maintenance or repair is performed. Depot maintenance also encompasses software maintenance, interim contractor support, and contractor logistics support to the extent that work performed in these categories is for depot maintenance. The statute excludes from depot maintenance the nuclear refueling of an aircraft carrier; the procurement of major modifications or upgrades of weapon systems that are designed to improve program performance; and the procurement of parts for safety modifications, although the term does include the installation of parts for safety modifications.

Section 2474 directs DOD to designate public depots as Centers of Industrial and Technical Excellence and to improve their operations to serve as recognized leaders in their core competencies. Section 342 of the National Defense Authorization Act for Fiscal Year 2002 (Pub. L. No. 107-107, Dec. 28, 2001) amended this statute to exclude qualifying public-private partnerships, referred to as private exempt, from the 50 percent funding limitation on contracting in section 2466. Specifically, section 342 provides that the funds expended for the performance of depot-level maintenance by nonfederal government personnel located at the Centers of Industrial and Technical Excellence shall not be counted when applying the 50 percent limitation if the personnel are provided pursuant to a public-private partnership. This exclusion initially applied to depot maintenance funding for fiscal years 2002 through 2005. The exclusion later was extended to fiscal year 2006, and recently to fiscal year 2009.

Section 2466 allows the Secretary of Defense to waive the 50 percent limitation if he determines the waiver is necessary for national security. The Secretary 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.

The Office of the Secretary of Defense (OSD) issues guidance to the military departments for reporting public-private workload funding allocations. The guidance 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.

Summary of Data in DOD’s 50-50 Report Submitted in April 2005

Figure 1 summarizes DOD’s April 2005 report to Congress on public- and private-sector funding allocations for depot maintenance. All three departments reported that their private-sector depot maintenance allocation fell below the 50 percent funding limitation for fiscal year 2004 and will remain below the 50 percent limitation for fiscal years 2005 and 2006. The amounts shown are from DOD’s record of actual obligations incurred for depot maintenance work in fiscal year 2004 and projected obligations for fiscal years 2005 and 2006. The percentages show the department’s record of the relative allocations between the public and private sectors and the exempted workload funding.

Limitations on Use of 50-50 Data as Reported by DOD

DOD’s 50-50 data, with our adjustments, only provide a rough approximation of the allocation of depot maintenance funding between the public and private sectors. Our prior reports on depot maintenance workload funding allocations have recognized systemic weaknesses in DOD’s financial systems, operations, and internal controls that impede the department’s ability to provide useful, reliable, and timely financial information for day-to-day management and decision making. In the financial management systems area, DOD continues to struggle in its efforts to implement systems to support managerial decision making. To date, none of the military services have passed the test of an independent financial audit. Nonetheless, the data used to develop the 50-50 report are the only data available and are accepted by DOD and used as input to Congress for its congressional oversight.

Management Control Weaknesses Prevent Determination of Military Departments’ Compliance with 50-50 Requirement for Fiscal Year 2004

As in previous years, management control weaknesses in DOD’s financial systems and persistent deficiencies in 50-50 data reporting processes continue to prevent us from determining whether the military departments complied with the 50-50 requirement for public- and private-sector depot maintenance funding allocations for fiscal year 2004. DOD’s April 1, 2005, report to Congress contained data errors, omissions, and inconsistencies due to persistent deficiencies, such as inadequate management attention and review to ensure accurate and complete reporting, limited independent review and validation of 50-50 data by audit services or other third parties, and inadequate training for those responsible for data gathering and reporting. As a result, the data reported for the prior year cannot be relied on to provide an accurate measure of the balance of funding between the public and private sectors or to determine if the military departments complied with the statutory limitation set by Congress for private-sector depot-level maintenance funding allocations. The recurring nature of these deficiencies indicates a management control weakness in DOD’s 50-50 data reporting processes significant enough to be reported in DOD’s annual performance and accountability report. This weakness has not been disclosed in DOD’s annual accountability reports to Congress, even though the issues have been identified in prior audits.

DOD’s April 2005 Report to Congress Contained Data Errors, Omissions, and Inconsistencies

DOD’s April 1, 2005, report to Congress contained errors, omissions, and inconsistencies in the depot maintenance funding allocation data for fiscal year 2004. The net effects of correcting the data inaccuracies we identified would increase the Army’s and Navy’s percentages of funding allocations going to the private sector, causing both military departments to come very close to the 50 percent private-sector limitation. Although we also found inaccuracies in the Air Force data, adjusting for them does not change the funding allocation distribution percentages. Table 1 summarizes the amounts and effects of our adjustments to DOD’s reported depot funding allocation data for fiscal year 2004.

Adjusting the Army’s data on the basis of the specific inaccuracies we identified would reduce its total depot maintenance funding by $347.1 million for fiscal year 2004. The net effect of correcting for these inaccuracies would increase the private-sector percentage allocation by about 4.2 percentage points for an overall allocation of 49.2 percent. (See table 3 in app. II for a detailed breakout of these adjustments.)

The Army’s most significant data inaccuracies generally were due to overreported public depot funding and underreported or unreported private depot funding. Adjustments to the Army’s reported public work amounted to a $397 million decrease. The most significant of the errors in public-sector depot maintenance reporting, $399.4 million, was due to a transcription error. The Army also overreported an additional $9.6 million due to double-counting and $7.8 million for misclassifying private-sector workload as public. Additionally, the Army underreported $18.4 million in public-sector depot maintenance funding at the Aviation and Missile Command and the Communications and Electronics Command and did not report nearly $0.9 million in depot maintenance funding for the FOX vehicle. Adjustments to the Army’s private sector workload resulted in a net increase of $49.6 million mostly due to unreporting or underreporting. The Army did not report private depot work for onetime repairs at a nondepot aviation location in the amount of $20.7 million. The Army also failed to report $2.2 million in private depot work at Anniston Army Depot and $6.2 million in private depot work at a National Guard aviation classification and repair depot. It also did not report $6.9 million in private depot work for the Stryker vehicle and $5.9 million for the FOX vehicle. For fiscal year 2004, the Army included amounts for its National Maintenance Program, one of the two areas the Army previously estimated made up the majority of its unreported depot-level maintenance work performed at nondepot facilities; however, $5.7 million was underreported because planned funding was reported instead of the amounts actually obligated. Finally, the Army underreported $7.8 million through a misclassification of private work as public work.

Department of the Navy

Adjusting the Navy’s and Marine Corps’ data on the basis of the specific inaccuracies we identified would reduce their total depot maintenance funding by $251.7 million for fiscal year 2004, the net effect of correcting for these inaccuracies would increase the private-sector percentage allocation by 2.4 percentage points for an overall allocation of 48.5 percent. (See table 4 in app. II for a detailed breakout of these adjustments.)

The Navy’s most significant data inaccuracies generally were due to unreported private depot funding and overreported public depot funding. For example, as we reported in past years, the Navy did not report $80.3 million in depot maintenance funding for work accomplished during the nuclear refueling of aircraft carriers, citing the exclusion of nuclear refueling from the 10 U.S.C. § 2460 definition of “depot maintenance.” We continue to believe that depot maintenance repairs not directly associated with the task of nuclear refueling should be reported because these types of repair actions are reported by other organizations and it is possible to identify the funding for these tasks in Navy contracts and financial systems. The Navy also, as in prior years, inconsistently reported on inactivation activities related to the servicing and preservation of systems and equipment prior to their placement in storage or on inactive status. Specifically, the Navy did not report $14.4 million of private-sector allocations for inactivation work on non-nuclear ships, even though it reported private-sector funding for the inactivation for nuclear ships. The Navy contends that the work for nuclear ship inactivation is complex while the work for non-nuclear ships is not. We maintain that all such depot-level work should be reported, since the statute and implementing guidance do not make a distinction based on complexity. Additionally, the Navy’s public-sector depot maintenance allocation was overreported by $357.6 million because of errors in reporting obligations for funds available to be spent over multiple years. Navy and OSD guidance requires that commands only report the funds actually obligated in the fiscal year. We found that some Naval Sea Systems Command activities incorrectly reported the funds available for obligation for depot maintenance in fiscal year 2004 instead of the funds that were actually obligated. As a result, some of the amounts included in the Navy’s 50-50 report were not obligated during fiscal year 2004. Additionally, multiyear funds from a prior year appropriation that were obligated in fiscal year 2004 were not, but should have been, included.

Our review of the Marine Corps’ 2004 data found that it underreported the public-sector total by about $1.3 million for maintenance work performed at other military service depots. In previous years, the Marine Corps’ error rate was relatively high compared to that of the other services despite its smaller depot maintenance program. Based on our recommendation from last year, the Marine Corps addressed a key contributor to its high error rate by appointing a 50-50 focal point for the Marine Corps Systems Command, the command responsible for acquiring and upgrading weapon systems. The focal point is responsible for preparing and submitting a consolidated report for the command’s depot maintenance funding allocation between the public and private sectors.

Department of the Air Force

Adjusting the Air Force’s data on the basis of the specific inaccuracies we identified would increase its total depot maintenance funding by $0.3 million but would not change the percentage allocation between the public and private sectors. (See table 5 in app. II for a detailed breakout of these adjustments.)

Additionally, we were unable to verify some of the private depot maintenance amounts reported because the Air Force had no supporting data. For example, we were unable to verify the total amount in private- sector workload funding allocation for air crew training devices used to train active duty air crews. According to the Air Force, all air crew training devices are operated and maintained through contractor logistics support contracts. The depot maintenance portion for these contracts is computed by taking a percentage of the cost incurred against a selected contract line item or, in some instances, a percentage of the entire amount obligated for the year. DOD’s 50-50 guidance allows algorithms to be used when precise determinations cannot be made; however, the line items included and the percentages used are largely determined by the contractor, and the Air Force lacks access to the data needed to validate the percentages used.

Additionally, the Air Force incorrectly reported amounts for depot maintenance warranties in its fiscal year 2004 50-50 data. The Air Force’s guidance states that onetime obligations for warranties over extended periods will be prorated for each year over the life of the warranty. However, OSD guidance states that although warranty support that occurs prior to initial operating capability shall not be reported as depot maintenance and repair, warranty support that is contracted for prior to initial operating capability but occurs after initial operating capability shall be reported. Also, the total warranty costs for depot maintenance and repair services are to be reported in the year in which the obligation occurs. Therefore, consistent with OSD guidance, the Air Force should have reported all amounts obligated for warranties for depot maintenance repair that cover periods after initial operating capability in the year the obligations were made.

Although we found the aforenoted inaccuracies, overall the Air Force’s data had the least problems. Additionally, the Air Force correctly included contract administrative and oversight costs in its fiscal year 2004 data. In previous years, the Air Force adjusted its reported amounts for contract administration and oversight costs, which decreased the amount of funding for the private sector and increased funding for the public sector. We repeatedly reported that this adjustment was not consistent with 50-50 guidance, which states that costs should be associated with the end product (i.e., the repaired item), and that the costs should be treated as contracting expenses.

Persistent Deficiencies Continue to Limit Accuracy of Reported Data

Systemic weakness in DOD’s financial systems and persistent deficiencies, such as inadequate management attention and review to ensure accurate and complete reporting, limited independent review and validation of 50-50 data by audit agencies or other third parties, and inadequate training for those responsible for data collection and reporting continue to limit the accuracy of the 50-50 data provided to Congress. For these reasons, the reported data cannot be relied on to provide an accurate measure of the balance of funding between the public and private sectors or to determine whether the military departments complied with the 50 percent statutory limitation set by Congress for private-sector depot-level maintenance.

Moreover, during the past 7 years, we have made 33 recommendations for improving the depot maintenance reporting process for 50-50 purposes, addressing both DOD and individual service reporting issues and concerns. Of these recommendations 19 have been officially closed by GAO. The 14 recommendations that remain open contain several recurring themes. Table 2 summarizes the number of times these themes are mentioned in the 14 open recommendations as well as the number of times these themes have been recommended throughout the course of the past 7 years of reviewing DOD’s 50-50 depot maintenance report.

The problems in DOD’s 50-50 data reporting processes have not been disclosed in DOD’s annual accountability reports to Congress, even though the problems have been previously identified in prior audits, and in our view result in more than a remote risk that significant misstatements will not be prevented or detected. As a result, managers or oversight officials’ decisions based on this reporting—to include workload or funding allocation decisions—may be adversely affected. Title 31 U.S.C. § 3512(c) requires that management controls be in place to reasonably ensure that obligations and costs comply with the applicable law; all assets are safeguarded against waste, loss, unauthorized use, and misappropriation of assets; and revenues and expenditures are properly reported and accounted for. Management controls are the organization, policies, and procedures that help managers achieve results and safeguard the integrity of their programs. Title 31 U.S.C. § 3512(c) also requires agency heads to provide an annual statement of assurance on the effectiveness of the management controls and to identify and report on material weaknesses. As defined in Office of Management and Budget Circular A-123, Management’s Responsibility for Internal Control, December 21, 2004 (effective for Fiscal Year 2006), materiality for financial reporting is risk of error or misstatement that could occur in a financial report that would affect management’s or users’ decisions or conclusions based on such report. An official from OSD’s Materiel Readiness and Maintenance Policy, the office responsible for submitting the 50-50 report to Congress each year, told us they had never evaluated whether DOD’s 50-50 reporting should be included in DOD’s annual accountability report.

Inadequate Management Attention and Review

One of the primary reasons for the recurring inaccuracies in the military services’ 50-50 data was inadequate management attention and review to ensure accurate and complete reporting. Generally, we found that personnel collecting the data at the various reporting centers or program offices did not review or verify the data before submitting them up the reporting chain to the service representative responsible for compiling and forwarding the data to OSD. Additionally, little documentation is provided to the military service’s 50-50 data focal points or the reporting commands’ focal points to support the data included in the 50-50 report. In prior reports we recommended that the Secretary of Defense direct the military services to provide more management review at all levels in DOD to ensure accurate and complete reporting. Despite these recommendations, the services have limited policies and procedures for such management review. For example, an Army official told us that no one checks the accuracy of the data or performs a variance analysis with previously reported data. Our variance analysis of the Army’s fiscal year 2004 data compared with the fiscal year 2003 data resulted in identifying nearly $400 million in overreported public-sector workload funding allocations due to a transcription error. The same location reported only about $2.3 million the previous fiscal year. This error may have been identified and corrected if the Army emphasized reviewing, analyzing, and questioning variances from year to year.

As in previous years, we found that the Marine Corps officials responsible for compiling and submitting the Marine Corps’ final report to OSD performed no review to ensure the completeness or accuracy of the reported data. Moreover, during our review of the Navy’s U.S. Pacific Fleet, we found the Southwest Regional Maintenance Facility did not maintain documentation to support the amounts it reported. It took the facility more than a month to recreate a list of the transactions to support the $339.3 million in workload funding allocation data reported for fiscal year 2004. Additionally, the Naval Audit Service could not verify the amount of public-sector depot maintenance workload funding allocation for the Puget Sound Naval Shipyard and Intermediate Maintenance Facility. Moreover, the Air Force often lacks access to the documentation needed to validate the completeness or accuracy of the data associated with its contractor logistics support/interim contractor support programs and the algorithms used to determine the amount of depot maintenance for each contract.

Independent Review and Validation of Data Limited by Time and Scope

Although each of the military departments obtained some level of independent review and validation of its 50-50 data, the reviews were constrained by time and limited in scope. Moreover, not all of the errors were corrected prior to submission to Congress. In prior reports we repeatedly recommended that to further enhance 50-50 data accuracy, the Secretary of Defense require the secretaries of the military departments to direct the use of service audit agencies, or an agreed-upon alternate method, for third-party review and validation of depot maintenance workload funding allocation data and to ensure that auditor-identified errors in the data are rectified before reports are submitted to Congress. DOD guidance for this year’s 50-50 report directed the military departments to implement this recommendation.

Concerning fiscal year 2004 depot maintenance allocation data, the Army Audit Agency evaluated whether the Army implemented or planned to implement selected recommendations made based on prior audits of depot- level maintenance workload allocation reporting, and whether the Army accurately reported the status of implementation to the Office of the Army Deputy Chief of Staff for Logistics. The Army Audit Agency did not review the accuracy of the 50-50 data submitted to Congress. The Army hired a consulting firm to review and validate its 50-50 data for fiscal year 2004. The firm selected a statistical sample of the reported allocations to review. However, due to time constraints, the Army did not correct several of the errors identified by the consulting firm prior to submitting the report to Congress. Naval Audit Service identified errors in the Navy’s data, which were corrected before the 50-50 report went to Congress. However, the Naval Audit Service’s review was limited to two activities, which accounted for only 6 percent of the Navy’s reported depot maintenance funding for fiscal year 2004. Furthermore, although it did not review 100 percent of transactions, the results and errors found during the review were considered an indicator that similar errors might exist at the other eight Navy reporting organizations. Due to time constraints, the Naval Audit Service did not attempt to determine the underlying cause for the errors identified. Air Force Audit Agency focused its review on contractor logistics support/interim contractor support maintenance programs, an area where problems in 50-50 reporting had been identified in the past. The contracts reviewed by the audit agency represented about three-fourths of the contractor logistics support/interim contractor support programs. Errors identified by the Air Force Audit Agency were corrected prior to submitting the report to Congress. Air Force officials acknowledge that even with improvements, errors still occur and accurate reporting remains an ongoing concern. However, they do not believe additional errors that may be found would threaten compliance with the 50-50 statute.

Inadequate Staff Training

Inadequate training for those responsible for collecting, aggregating, and reporting 50-50 data continues to be a problem. In two prior reports we recommended that the Secretary of Defense require the secretaries of the military departments to ensure that the 50-50 guidance is properly disseminated and that staff are properly and promptly trained in the application of the 50-50 guidance. During our review we found that although the reporting activities generally received the 50-50 data call guidance, several reporting activities did not report 50-50 data accurately. Additionally, we found that although the Army, Marine Corps, and Air Force provide some training, not all staff responsible for 50-50 reporting attended this training. According to a Navy official, no formal training on procedural requirements or Navy guidance to develop and report the 50-50 data is provided to the personnel responsible for compiling the data. Rather, the reporting activity coordinators are expected to provide guidance on reporting requirements as questions arise from the reporting activities. According to an Air Force official, program managers have not had sufficient training to prepare and maintain documentation to ensure that 50-50 data are accurate.

Fiscal Year 2005 and 2006 Projections Do Not Represent Reasonable Estimates of Public- and Private- Sector Funding

DOD’s reported projections for fiscal years 2005 through 2006 do not represent reasonable estimates of public- and private-sector depot maintenance funding allocations. The usefulness of the reported projections to congressional and DOD decision makers is limited because errors, omissions, and inconsistencies in DOD’s reported prior-year data are carried into future years and because of the difficulty in projecting out- year data due to factors such as changing depot maintenance requirements, consolidating maintenance facilities, and the trend toward more contractor logistics support for new and existing weapon systems. We reported these shortcomings with the future years’ projections in the past. While limitations affect the usefulness of the data reported as a predictor of funding allocations, the reported projection data show that all of the military services are predicting a greater percentage of funds for the private sector and less for the public sector.

Recurring errors, omissions, and inconsistencies similar to those we identified for the fiscal year 2004 reported data could affect this trend, as all of the services are moving closer to the threshold for private-sector funding. For example, while the Army projects that its private-sector depot maintenance workload allocation will be around 46 percent, the magnitude of the adjustments we made to the Army’s fiscal year 2004 data—increasing the private-sector percentage by about 4.2 percentage points—when carried forward, could cause the Army to exceed the 50-50 limitation. Similarly, the Navy projects that its private-sector depot maintenance workload allocation for fiscal year 2006 will be around 48 percent. The magnitude of the adjustments we made to the Navy’s fiscal year 2004 data—increasing the private-sector percentage by about 2.4 percentage points—when carried forward, could cause the Navy to exceed the 50-50 limitation.

DOD has agreed that 50-50 data within 2 percentage points of exceeding the 50 percent threshold is a reasonable trigger for additional oversight and management to ensure compliance with the 50 percent threshold. Last year, we recommended that the Secretary of Defense direct each military department’s secretary, within 30 days of reporting 50-50 data indicating that past, current, or budget year data are within 2 percentage points of exceeding the 50 percent threshold, to submit a plan to OSD that identifies actions the military department shall take to ensure continued compliance, including the identification of decisions on candidate maintenance workload sourcing that could be made to support remaining within the 50 percent threshold. To date, none of the services have provided such plans because their reported data did not indicate that such submissions were necessary.

Additionally, increasing contractor maintenance support for military operations and increasing the number of new weapon systems scheduled to reach initial operational capability in fiscal year 2007 and beyond could result in all the military departments exceeding the 50 percent threshold. During our review, the Air Force provided evidence that it has integrated 50-50 reporting requirements into its source of repair decisions for new weapon systems and major system modifications.

DOD’s Current 50-50 Report Satisfies the Annual Mandate but Could Provide More Useful Data and Analysis

Although DOD’s current 50-50 report to Congress satisfies the annual mandate, it lacks additional detail that might be useful to Congress as it exercises its oversight role. For example, the report provides no analysis of the data to show how the fiscal year 2004 funding allocations compared to prior years’ figures. Furthermore, the reported data are aggregated at the service level. The report also does not identify funding allocation variances from year to year, nor explain the reasons behind them. Additionally, the report does not contain analysis of long-term trends; historical trend data must be calculated using previous 50-50 reports. Finally, DOD’s 50-50 report to Congress does not contain information about the methodologies used to prepare the current and future year projections or the reasons for projected funding variances and changes in workload distribution.

Because of the limited data provided in DOD’s 50-50 report, we have developed these types of information as part of our mandated work over the past 8 years to better meet Congress’s needs in exercising its oversight role. Our analysis of trend data shows that although reported depot maintenance funding for fiscal year 2004 increased by about $700 million over fiscal year 2003, only the Army’s total funding and private-sector workload allocation increased significantly. Compared to the other services, the Army reported the largest increase in total funding (almost $1.8 billion) and the largest jump in workload funding allocation to the private sector. With this increase, the Army’s reported private sector allocation is on par with those of the other services. The Navy shows the biggest overall decrease in depot workload funding allocation (almost $1.3 billion), and the Air Force shows little change. Figure 3 shows a historical trend for private-sector reported allocations for fiscal years 1998 through 2004.

Conclusions

Year after year we continue to see the same persistent deficiencies in DOD’s 50-50 report to Congress. As a result, the reported 50-50 data cannot be relied on to provide an accurate measure of the balance of funding between the public and private sectors or to determine if the military services exceeded the statutory limitations set by Congress for private- sector depot-level maintenance funding allocations. By disclosing the persistent deficiencies in the 50-50 reporting processes as a management control weakness, along with planned corrective actions, in future accountability reports, DOD will increase the level of management attention and help focus improvement efforts so that the data provided to Congress are accurate and complete.

The data DOD provides in its annual 50-50 report to Congress satisfy the annual mandate but lack additional detail that may well be useful to Congress as it exercises its oversight role. Until DOD provides additional information and analysis on changes in depot maintenance funding and allocations, significant variances from the prior year’s report, and methodologies used to estimate workload allocation projections for the current and ensuing fiscal years in its annual 50-50 report, Congress will continue to be hindered in its ability to exercise effective oversight. Additionally, the extent of the percentage adjustments we find each year, coupled with the persistent lack of progress by the Army and the Navy toward improving their reporting processes and data quality, indicate that DOD cannot afford to wait until the services reach the 50 percent limit before formulating and providing a plan that identifies actions the military departments will take to avoid exceeding the threshold for private-sector funding.

Recommendations for Executive Action

To improve the accuracy and reliability of depot maintenance funding allocation data submitted to Congress and to provide congressional decision makers with better information on funding allocations, we recommend that the Secretary of Defense take the following two actions.

We recommend that the Secretary, in future accountability reports, disclose a management control weakness in DOD’s 50-50 data reporting processes along with planned corrective actions to improve management control in the following areas: Management review, attention, and policies sufficient to ensure accurate and complete 50-50 reporting.

Independent review and validation of 50-50 data by service audit agencies or other third parties, with auditor-identified data inaccuracies corrected prior to submission of the annual report to Congress.

Annual training on 50-50 policies and procedures for all individuals participating in data gathering and reporting.

We also recommend that the Secretary enhance DOD’s annual 50-50 report submitted to Congress. This enhanced reporting should include the following types of information: Variance analyses that identify significant changes in depot maintenance workload allocations from the prior year’s report and the reasons for these variances.

Analysis of historical trends in depot maintenance workload allocations.

Explanation of the methodologies used to estimate workload allocation projections for the current and ensuing fiscal years.

The military departments’ plans to ensure continued compliance with the 50-50 requirement, including the identification of decisions on new weapon systems maintenance workload sourcing that could be made to support remaining within the 50 percent threshold.

Matter for Congressional Consideration

If Congress determines, for oversight purposes, that improvements are needed in the reliability and usefulness of DOD’s annual report on depot maintenance funding allocations, Congress should require the Secretary of Defense to enhance its annual 50-50 report to Congress as stated in our recommendations. Specifically, this enhanced reporting should include (1) variance analyses of significant changes in depot maintenance workload allocations from the prior year’s report and the reasons for these variances; (2) analysis of historical workload allocation trends; (3) explanation of the methodologies used to estimate workload allocation projections; and (4) plans to ensure continued compliance with the 50-50 requirement, including the identification of decisions on new weapon systems maintenance workload sourcing that could be made to support remaining within the 50 percent threshold. Additionally, the enhanced reporting should address the corrective actions DOD is taking to improve the persistent deficiencies we have identified in DOD’s 50-50 data reporting processes.

Agency Comments and Our Evaluation

In commenting on a draft of this report, DOD partially concurred with our recommendations but did not indicate specific actions it would take address the persistent deficiencies we identified in its 50-50 reporting processes or to improve the usefulness of the information provided to Congress. DOD agreed there were errors in the 50-50 report and stated that it is committed to providing accurate data in its annual report to Congress, has made improvements in its reporting over the past several years, and will continue to improve.

DOD partially concurred with our recommendation that the Secretary of Defense, in future accountability reports, disclose a management control weakness in DOD’s 50-50 data reporting processes along with planned corrective actions to improve management control. However, DOD did not indicate that it would disclose its 50-50 data reporting processes as a management control weakness in future accountability reports. Instead, DOD stated that it currently reports internal management control weaknesses in its annual accountability reports. The currently reported weaknesses, however, are not specific to DOD’s 50-50 data reporting processes, and we continue to believe that the recurring nature of the deficiencies we have found in DOD’s 50-50 reporting processes indicates a management control weakness significant enough to be reported separately in DOD’s annual accountability reports. Neither DOD nor the military services have consistently implemented corrective actions sufficient to resolve the deficiencies. As discussed in the report, during the past 7 years we have made 33 recommendations for improving 50-50 reporting. Of these recommendations, 19 have been officially closed by GAO. The 14 recommendations that remain open contain several recurring themes, which include the need for increased management attention to ensure accurate and complete 50-50 reporting, independent review, and validation of data and annual training on 50-50 policies and procedures for all individuals participating in data gathering and reporting. Nevertheless, in its comments DOD stated that systemic changes to the reporting process have already been made in response to previous recommendations. DOD noted that it instituted third-party review of data by service audit agencies and corrected auditor-identified data inaccuracies prior to submission of the annual report to Congress. While we agree that DOD has made improvements in its reporting processes over the past several years, our work nevertheless has identified persistent deficiencies in these processes that continue to prevent us from determining whether the military departments complied with the 50-50 requirement. For example, as we reported, although each of the military services obtained some level of independent review and validation this year, the reviews were constrained by time and limited in scope. Moreover, not all of the errors were corrected prior to submission to Congress. Disclosing 50-50 reporting processes as a management control weakness in future accountability reports could increase DOD management emphasis on addressing the persistent deficiencies that continue to limit the accuracy and usefulness of the depot maintenance funding allocation data reported to Congress.

DOD also partially concurred with our recommendation that the Secretary of Defense enhance DOD’s annual 50-50 report submitted to Congress. However, DOD stated that producing the types of information suggested in our recommendation would require a massive undertaking and may be of limited value. We disagree. We have developed these types of information as part of our annual mandated review of DOD’s 50-50 report, and the information has been valuable in understanding and evaluating DOD’s depot maintenance funding allocations. For example, we compared fiscal year 2004 reported allocations for specific programs and reporting centers with fiscal year 2003 allocations, and followed up with the military services to determine the reasons for significant differences. The goal of this recommendation is not to place an unnecessary burden on the department but to provide additional information on depot maintenance funding that would make the annual 50-50 report to Congress more informative and useful as an oversight tool. Furthermore, we believe that if DOD would provide more detailed and analytical information to Congress, it would place additional emphasis on assuring the accuracy of the data provided in its annual 50-50 report.

Because it does not appear to us that DOD’s actions will address the persistent deficiencies we identified in its 50-50 reporting processes or improve the usefulness of the information provided to Congress, we have 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.

DOD also stated in its written comments that its 50-50 data quality has improved, as shown by reductions in the Navy’s and the Air Force’s private- sector corrections. DOD further noted that the Army’s one transcription error accounted for 99.3 percent of its private sector corrections. Our report does not conclude that the department’s data quality has improved. On the contrary, we state as in past years that DOD’s 50-50 data, with our adjustments, provide only a rough approximation of the allocation of depot maintenance funding between the public and private sectors. We reported that DOD’s April 1, 2005, report to Congress contained errors, omissions, and inconsistencies that if corrected, would increase the Army’s and Navy’s percentages of funding allocations going to the private sector. Additionally, we did not conduct a detailed review of all reported 50-50 data; therefore, there may be additional errors, omissions, and inconsistencies that were not identified during our review. We agree that the Army’s $399.4 million transcription error was the single largest correction we identified. However, this error involved a public-sector correction rather than a private-sector correction as DOD stated. We noted several other errors in the Army’s data for both the public and private sectors, as shown in table 3 of this report. We continue to believe that adequate management attention and review of 50-50 data to ensure accurate and complete reporting would have helped identify the transcription error and other errors prior to submitting the data to DOD and Congress.

DOD believes, based on guidance from the General Counsel’s office in the Department of the Navy, that it has properly excluded depot maintenance associated with nuclear carrier refueling and inactivation work performed on non-nuclear ships. We have disagreed in prior years with DOD’s decision to exclude these types of depot maintenance repairs from its 50-50 reports. As discussed in our report, we continue to believe that depot maintenance repairs not directly associated with the task of refueling of nuclear aircraft carriers should be included in DOD’s annual report to Congress. We also continue to believe that inactivation work performed on non-nuclear ships should be included in DOD’s report.

DOD’s written comments are reprinted in appendix III.

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 staff 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.

Scope and Methodology

To determine the accuracy of the military services’ reporting of their depot maintenance allocations and whether they met the 50-50 requirement for fiscal year 2004, we analyzed each service’s procedures and internal management controls for collecting and reporting its depot maintenance allocations. Certain programs, reporting centers, and maintenance activities were identified for in-depth reviews. In particular, we focused on those reporting locations, programs, and issues that Department of Defense (DOD) personnel and we identified as problem areas in current and past reviews as well as those that had experienced significant funding variances over time. We did not conduct a detailed review of all reported 50-50 data; therefore there may be additional errors, omissions, and inconsistencies that were not identified.

As part of these in-depth reviews, we conducted site visits to departmental headquarters, major commands, selected maintenance activities, and reporting centers; interviewed the service officials involved with the data collection; and reviewed the data utilized for accuracy and completeness. Our data verification efforts included examining summary records, accounting reports, budget submissions, and contract documents. We also reviewed DOD, military service, and command-specific guidance for collecting and aggregating 50-50 data. We also compared this year’s instructions with last year’s to identify any changes and additions and reviewed service efforts to identify reporting sources and to distribute guidance and tasks to develop and report the 50-50 data.

To determine what actions the services took to improve the quality of reported 50-50 data and implementation of GAO’s prior year’s recommendations, we reviewed the results of internal studies conducted by the service audit agencies or other third parties, and reconciled areas of concern identified during prior years’ audits. Additionally, we reviewed prior years’ recommendations to determine whether known problem areas were being addressed and resolved. We applied this knowledge to identify additional areas for improving the reporting process and management controls. We examined the process used to compile the reports and the data reported to determine that it was consistent and in compliance with legislative requirements and to identify any errors, omissions, or inconsistencies in the data reported. We discussed with officials managing and coordinating the reporting process their efforts to address known problem areas and respond to recommendations by internal audit agencies and GAO.

Our analysis of the data for fiscal years 2005 and 2006 was limited because our audit efforts identified significant recurring problems in this area of the report. To determine whether DOD’s projected allocations for the current fiscal year and ensuing fiscal year were reasonable, we performed certain checks and tests, including variance analyses, to judge the consistency of this information with data from prior years and with the future years’ budgeting and programming data used in DOD’s budget submissions and reports to Congress. We found repeated and significant changes, even though the estimates were prepared only about 1 year apart.

We used the results of our analysis of fiscal year 2005 and 2006 projections to further discuss with officials, and analyze the reasons behind, changes in reported data and percentage allocations between the 2004 and 2005 50-50 reports submitted to Congress. 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 the allocation of depot maintenance funds between the public and private sectors. However, the mandate in 10 U.S.C. § 2466 requires (1) DOD to report the data, which are the only data available and accepted and used for DOD decision making and for congressional oversight, and (2) us to submit our views on whether DOD has complied with the 50-50 requirement to Congress. While DOD’s data cannot be relied upon to provide a precise measure of the funding between the public and private sectors, the data, along with our adjustments, provide a rough approximation of the allocations and some trends that may be useful to Congress in exercising its oversight role and to DOD officials in managing the depot maintenance program. Concerns about the accuracy and completeness of the 50-50 data available were considered and incorporated into our methodology and approach to reviewing the fiscal year 2004 report. Along with the limitations on the 50-50 data available from DOD, the constrained time frame for our review limited the extent to which our analysis could be relied upon to identify all the errors, inconsistencies, and omissions in DOD’s data. We recognize that we have not been able to comprehensively identify all of the errors and omissions in the 50-50 report for fiscal year 2004. However, we were able to conclude that the reported depot maintenance workload funding allocations were not sufficiently reliable for accurately determining whether the military departments complied with the 50-50 requirement for fiscal year 2004. As a result, we developed recommendations for improving the 50-50 data collection, verification, and reporting processes.

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, Alabama; Army Materiel Command in Alexandria, Virginia; National Guard Bureau Aviation Classification Repair Activity Depot in Gulfport, Mississippi; Tank Automotive Command in Warren, Michigan; Naval Air Systems Command in Patuxent River, Maryland; Naval Sea Systems Command in Washington, D.C.; Naval Inventory Control Point in Philadelphia, Pennsylvania; U.S. Fleet Forces Command in Norfolk, Virginia; Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility in Honolulu, Hawaii; U.S. Pacific Fleet Command in Honolulu, Hawaii; Air Force Materiel Command in Dayton, Ohio; Ogden Air Logistics Center in Ogden, Utah; Marine Corps Logistics Command in Albany, Georgia; Marine Corps Logistics Command in Barstow, California; Marine Corps Systems Command in Quantico, Virginia; Army, Naval, and Air Force Audit Services; several public depots managed by the military departments’ materiel commands; and selected operating bases. We conducted our review from April 2005 through September 2005 in accordance with generally accepted government auditing standards.

GAO Adjustments for Inaccuracies Found in the Military Departments’ 50-50 Data for Fiscal Year 2004

Our review of the data supporting DOD’s 50-50 report identified errors, omissions, and inconsistencies that if corrected, would revise the total workload funding allocations and increase the private-sector allocations for each of the military departments. (See tables 3, 4, and 5.)

Comments from the Department of Defense

GAO Contacts and Staff Acknowledgments

GAO Contact

Acknowledgments

Key contributors to this report include Thomas Gosling, Assistant Director; Claudia Dickey; Frank Smith; Andy Marek; Janine Prybyla; Oscar Mardis; Jennifer Jebo; Bathsheba Everett; Michael Zola; Renee McElveen; and Renee Brown.

Related GAO Products

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.

Depot Maintenance: Key Unresolved Issues Affect the Army Depot System's Viability. GAO-03-682. Washington, D.C.: July 7, 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.

Defense Logistics: Actions Needed to Overcome Capability Gaps in the Public Depot System. GAO-02-105. Washington, D.C.: October 12, 2001.

Defense Maintenance: Sustaining Readiness Support Capabilities Requires a Comprehensive Plan. GAO-01-533T. Washington, D.C.: March 23, 2001.

Depot Maintenance: Key Financial Issues for Consolidations at Pearl Harbor and Elsewhere Are Still Unresolved. GAO-01-19. Washington, D.C.: January 22, 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 Waiver to 10 U.S.C. 2466. GAO/NSIAD-00- 152R. Washington, D.C.: May 22, 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: Army Report Provides Incomplete Assessment of Depot-Type Capabilities. GAO/NSIAD-00-20. Washington, D.C.: October 15, 1999.

Depot Maintenance: Status of the Navy's Pearl Harbor Project. GAO/NSIAD-99-199. Washington, D.C.: September 10, 1999.

Depot Maintenance: Workload Allocation Reporting Improved, but Lingering Problems Remain. GAO/NSIAD-99-154. Washington, D.C.: July 13, 1999.

Navy Ship Maintenance: Allocation of Ship Maintenance Work in the Norfolk, Virginia, Area. GAO/NSIAD-99-54. Washington, D.C.: February 24, 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: DOD Shifting More Workload for New Weapon Systems to the Private Sector. GAO/NSIAD-98-8. Washington, D.C.: March 31, 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: Uncertainties and Challenges DOD Faces in Restructuring Its Depot Maintenance Program. GAO/T-NSIAD-97-112. Washington, D.C.: May 1, 1997. Also GAO/T-NSIAD-97-111. Washington, D.C.: March 18, 1997.

Defense Depot Maintenance: More Comprehensive and Consistent Workload Data Needed for Decisionmakers. GAO/NSIAD-96-166. Washington, D.C.: May 21, 1996.

Defense Depot Maintenance: DOD’s Policy Report Leaves Future Role of Depot System Uncertain. GAO/NSIAD-96-165. Washington, D.C.: May 21, 1996.

Defense Depot Maintenance: Privatization and the Debate over the Public-Private Mix. GAO/T-NSIAD-96-148. Washington, D.C.: April 17, 1996. Also GAO/T-NSIAD-96-146. Washington, D.C.: April 16, 1996.

Depot Maintenance: Issues in Allocating Workload Between the Public and Private Sectors. GAO/T-NSIAD-94-161. Washington, D.C.: April 12, 1994.