Defense Acquisitions: Better Information Could Improve Visibility over Adjustments to DOD's Research and Development Funds
Released: 2004-09-17T00:00:00

Letter

Background

The funds that DOD managers need for their research and development programs first must be considered by DOD for inclusion in the President’s Budget. If the President includes the funds in the budget he transmits to Congress, then Congress considers the request. If Congress approves the request, it appropriates funds for the programs in the annual DOD appropriations act that is signed into law by the President. Three years can lapse from the time a program manager begins formulating a research and development program budget request to the time that funds are included in an appropriations act that is signed into law and designated for the program in the accompanying conference report. Figure 1 shows a typical scenario for the research and development program budgeting process.

The resulting appropriations act typically specifies a lump sum for several different accounts, including the research, development, test and evaluation appropriation account of each of the military departments as well as separately for DOD-wide research and development activities.

The account for research, development, test, and evaluation (referred to in this report as research and development) is further broken down into budget activities, such as basic research and advanced technology development. Each budget activity is then subdivided into program elements, which we refer to as programs in this report. The conference report that accompanies the appropriations act lists the amounts Congress designated for each activity and program. An individual program can be further subdivided by DOD into projects or other activities. Following the annual enactment of the appropriations act, the Office of Management and Budget apportions the funds and DOD allots the funds and—except for those being withheld—makes the money available or releases it to managers for executing programs. Managers generally have 2 years to obligate research and development funds before the funds expire.

By the time the budget approval process is complete and the funds are made available, several things can be said about the appropriated amounts for the individual program: (1) they represent decisions by Congress to approve programs as requested, create new programs, and adjust the requested amounts for others; (2) because of the elapsed time from the point the program manager began formulating the budget request until enactment of the appropriations act, situations may have changed that cause a misalignment between the approved funds and the actual status of the program; (3) the inherent unknowns in research and development will result in some programs not being executed as contemplated by the budget; and (4) unanticipated events will develop during the execution year that were not anticipated in the budget.

It is for these and other reasons that Congress recognizes that DOD needs some flexibility to adjust research and development funds after they are appropriated. A primary vehicle for exercising this flexibility is reprogramming. DOD can also withhold funds from programs prior to reprogramming or releasing the funds. The Air Force and MDA restrict the authority to reprogram or withhold funds to their headquarters staffs, while the Army and Navy grant their subordinate commands and program executive offices this authority.

This report defines withheld funds—or a withhold—as appropriated DOD research and development funds that are not released by DOD to a designated program for part of the 2-year period of availability of those funds. Prior to being released for execution, funds may be withheld by the Office of the Secretary of Defense and the headquarters for the military departments and MDA. DOD withholds funds for a variety reasons and does not seek prior congressional approval for these transactions. While funds are withheld, the funds are still designated for the program but not yet released to that program.

In contrast, reprogramming of appropriated funds is a mechanism for which DOD has established a formal process for internal review and approval and, when necessary, congressional notification and approval. For fiscal year 2003, to implement congressional guidelines, DOD’s reprogramming policy required prior written approval from congressional defense committees for any research and development reprogramming increase of at least $10 million to an existing program and for any decrease of at least $10 million or 20 percent of the program’s appropriation, whichever was greater. In fiscal year 2002, the threshold for increases was $4 million, and, for decreases, $4 million or 20 percent of the appropriated amount, whichever was greater. These thresholds are applied at the program level of the budget. According to DOD’s Financial Management Regulation and congressional guidelines, DOD generally does not have to seek prior congressional approval for reprogrammings that do not exceed the threshold; hence, these are BTRs. The threshold applies to both individual BTRs and the cumulative amount of BTRs in each program element. Thus, multiple BTRs for the same program must not exceed the threshold in total. If congressional committees have denied a reprogramming request above the threshold, DOD policy prohibits the use of a series of BTRs to achieve the denied request.

DOD submits a number of reports to Congress each year to convey appropriations-related information for each research and development program. One of these reports, the DD 1416, is intended to capture all changes made to the amount designated by Congress for a program, including BTRs. The DD 1416 is Congress’s primary vehicle for information about BTR changes by DOD to the amount designated for a program. The annual DD 1416 report for Congress covers the entire fiscal year ending September 30. A DOD regulation requires that the annual report for Congress be sent by DOD components to the DOD Comptroller within 30 working days after September 30 for review prior to submission to Congress. However, the DOD regulation does not specify a date by which the report must be sent to Congress.

DOD Collects and Provides BTR Information of Limited Quality for Congress and Does Not Provide Congress with Withhold Data

DOD’s primary vehicle for reporting BTRs to Congress, the DD 1416 report, has several limitations that reduce the report’s quality as a source of information. DOD provided the DD 1416s for fiscal years 2002 and 2003 to Congress several months after Congress began considering the new budget. Because the reports contained classified information, their distribution was limited. We found a number of discrepancies between the BTR data in the DD 1416s and the information on actual BTRs in DOD organizations’ data collection systems. Further, the reports did not include detailed information about BTR activity on a program-by-program level, such as whether programs gained or lost funding, and provided no withhold data.

Data on actual BTRs in DOD are not centralized but rather are contained in the individual data collection systems maintained by the military departments, MDA, and the Office of the Secretary of Defense. These systems range widely in their level of automation, detail, and accessibility. The data needed to determine the amount and volume of BTRs for fiscal years 2002 and 2003 were not readily available from some of the systems and some manual data collection was necessary. Information on actual BTRs did not always reconcile with the data contained in the DD 1416 report to Congress.

DOD’s Reports to Congress Have Shortfalls

For fiscal years 2002 and 2003, DOD delivered the DD 1416s to Congress several months after Congress began deliberations on the new budget year. Each report was dated in April the year following the end of the fiscal year, and was not delivered to Congress until May, according to a DOD official. Thus, the report covering the fiscal year ending September 30, 2002, was sent to Congress in May 2003, and the report for the fiscal year ending September 30, 2003, was sent to Congress in May 2004. It appears that until the reports were received, congressional committees were less informed about the funds that were moved from one research and development program to another when considering program budgets for the following year. In addition, the reports were classified because of the sensitive nature of some of the DOD programs. Classification restricts the ease with which reports can be accessed by and circulated among congressional staff.

The data contained in the DD 1416s to Congress for both years had several limitations. The reports listed a net amount intended to represent all BTRs for each program—after all BTR increases and decreases were calculated—that occurred in the fiscal year. We found that, except for the Air Force, the net amounts were not based on actual BTR transactions. Rather, the net amounts in the DD 1416s were derived by subtracting all adjustments from the balance of programs’ funds, whether the adjustments were BTRs or not. In addition, when we compared BTR information in the DD 1416s with the BTR data provided to us by the DOD organizations, we found that, except for MDA, the information did not match. The military departments were not able to reconcile the data. In addition, the reports did not contain detailed, continuous data on BTRs. For example, the DD 1416s did not contain the total number of BTRs for each program, whether funds were added or reduced, reasons for BTRs, or the donor or recipient programs. Thus, the reports could not be used to understand what changes occurred in an individual program during the year of execution.

Information about funds withheld from programs for some portion of their availability period was not reported to Congress.

Data Collection Systems and Quality of Source Data Vary Widely

DOD does not have a single, centralized, integrated data collection system to record, manage, and report on funds that have been reprogrammed through BTRs or withheld. Rather, such information is maintained by the individual organizations with responsibility for managing the funds appropriated for each program. To satisfy the requirements of the mandate, we developed a single database that contains information on research and development funds reprogrammed and withheld in fiscal years 2002 and 2003 from the three military departments and MDA.

These organizations employ different systems to track and monitor BTRs. Most but not all systems are centralized, and some organizations have separate systems for recording funds withheld from programs. The quality of BTR and withhold data varied across the three military departments and MDA. We found several features of data collection systems that appeared to be important to generating quality information. These included whether: a centralized record and approval system was in place to track changes within programs; reasons for changes were recorded; data on both donors and recipients were included; details on transactions were easily retrievable; and data reconciled with amounts reported in the DD 1416 report. Table 1 summarizes these features for the individual data collection systems.

Details on each of the systems follow.

Army

The Army uses DOD’s computerized Program Budget Accounting System to record and track BTRs. The accounting system is accessible at Army headquarters and at all of the subordinate organizations. Although the system provides the net dollar amount of the BTRs for each program and project, the system has several limitations. For example, the system does not show the details of each BTR transaction, such as the donors and recipients of each transaction or the purpose. To identify the donors and recipients, the Army must resort to paper records produced by the system for each transaction. Furthermore, the system does not have the capability to electronically retrieve information about prior individual BTRs because the system only shows the cumulative net BTR balances. Prior individual balances are overwritten after 10 days. Once 10 days have passed, if budget officials do not print a record, the opportunity to save that data is lost. If paper records were printed, budget officials can manually assemble and analyze the records about individual BTR transactions. We found that nearly 41 percent of the Army’s BTR data contained in the DD 1416 for Army programs in fiscal year 2002 did not match the BTR data contained in the paper records produced by the Army’s data collection system, and nearly 46 percent of DD 1416 BTR data did not match for fiscal year 2003.

With regard to withholds, the data collection system provides some data on funds withheld from Army programs by the Office of the Secretary of Defense, Army headquarters, and subordinate organizations, but the system only shows the cumulative amount of the withheld funds, not the information for each BTR and withhold. Army Budget Office officials said a report is produced with this information each month. Also, a user of the system can, at any time, print a report that shows cumulative withhold amounts up to the date of printing. However, as with the individual BTR data, the individual withhold data gets overwritten after 10 days and cannot be retrieved afterward. Thus, the Army has to rely on paper-based reports to form an audit trail.

Navy

The Navy utilizes multiple systems to manage appropriated funds. Separate systems are used at the headquarters level to record and track BTRs and withholds. Another is used to allocate statutory obligations. Multiple subordinate organizations have developed similar systems to record the BTRs and withholds that they authorize. The Navy required about 10 weeks to gather information about BTRs and withholds from subordinate organizations and to consolidate that information with data maintained by headquarters.

The Navy data collection systems identified all funding level changes, as well as the programs from which funds were taken and added. The systems did not identify the reasons for these changes. The Navy had detailed records identifying the specific programs that were subject to BTRs and withholds, including the donor or recipient for each BTR transaction, but the reasons for reprogramming transactions were not available. While most of the totals provided to us matched those included in the DD 1416, there were discrepancies for some Navy programs.

Air Force

The Air Force uses a single, computer-based, data collection system to manage adjustments to the funding level for each program. This system was designed and is maintained by a contractor. The system is used to record, track, and manage all changes to Air Force research and development funding levels for headquarters and subordinate organizations, including system program offices and laboratories. The system maintains multiple years of information on research and development funds withheld and reprogrammed. For most reprogrammings, the system records the purpose of the changes and identifies the programs from which funds were decreased and increased. The system is updated about once a month and available principally to those in the headquarters management unit. The system maintains data for multiple years, and the data are easily retrievable. The Air Force had detailed electronic records identifying the specific programs that were subject to BTRs and withholds, including the donor or recipient for each BTR transaction and the reasons for most of them. The information on BTRs and withholds was not available below the program level, such as for a project within a program. Some of the BTR data did not match the data contained in the DD 1416s for fiscal years 2002 and 2003. Air Force officials attributed the discrepancies to adjustments that had been made to BTRs in its management information system and said the problem has been corrected for fiscal year 2004.

MDA utilizes a single, computerized data collection system to record and manage changes to program funding levels. The system records BTRs and withholds for all of its programs, including the donors and recipients for BTRs and the reasons for them. The system operates on a real-time basis and is available to all participants from the headquarters unit to the individual program offices. The system maintains multiple years of data, and the data are electronically retrievable. MDA’s BTR data reconciled with the DD 1416s for fiscal year 2003.

Office of the Secretary of Defense

The Office of the Secretary of Defense has data collection systems for tracking BTRs and withholds for the research and development programs it manages, but these systems were not available to record BTRs for fiscal years 2002 and 2003 appropriations. Consequently, the office did not provide records of individual BTRs. Officials managing these programs stated that a data collection system to record and manage appropriated funds would be helpful, and they are working to improve the system they installed for fiscal year 2004.

BTRs and Withholds Used Frequently to Adjust or Control Programs’ Funding Levels

We found that the Air Force, Army, Navy, and MDA executed 1,927 BTRs in fiscal year 2003, totaling about $1 billion. This amounted to about 2 percent of their research and development funds. These transactions either reduced or added to most research and development programs’ funding. Although we did not observe any instances in which DOD’s use of BTRs exceeded the thresholds, our work was not conclusive on this point as we did not design steps to assess compliance with thresholds. Of the programs affected by BTRs, 48 percent experienced a net loss in funding after accounting for additions and reductions. The effect of BTRs on some programs was so significant that the programs were essentially redirected. With regard to withheld funds, the Army, Navy, and Air Force, and the Office of the Secretary of Defense withheld a total of about $2.8 billion in fiscal year 2003. The Office of the Secretary of Defense withheld 56 percent of the funds, while the military departments withheld the rest. MDA did not report withhold data except for those funds withheld from MDA by the Office of the Secretary of Defense. Because DOD organizations have learned to expect a volume of changes each year—although the specifics are unpredictable—they have developed strategies to anticipate possible DOD decisions to reprogram or withhold portions of their funding. Officials noted that one strategy involves increasing programs’ budget requests to cover anticipated BTRs and withholds so programs can continue to perform at planned levels. Officials from the military departments, MDA, and the Office of the Secretary of Defense cited several reasons for implementing BTRs and withholds, including accommodating unanticipated changes or events, implementing congressional mandates, and, in the case of some withholds, controlling the execution of individual programs.

Wide Use of BTRs and Withholds

In fiscal year 2003, DOD reprogrammed about $1.7 billion in research and development funds. About $1 billion of this money—59 percent—was reprogrammed by the Air Force, Army, Navy, and MDA using BTRs. This amounted to about 2 percent of the research and development funds for these organizations. The number and amount of BTRs executed in fiscal year 2003 varied by organization, as shown in table 2. Additional details for fiscal years 2002 and 2003 are contained in the appendixes.

MDA, which has a total of 12 programs (or 2 percent of the total), accounted for 34 percent of the total dollar value of BTRs and 21 percent of the total number of BTRs. MDA programs generally have larger research and development budgets than other DOD organizations’ programs. MDA programs in fiscal year 2003 ranged in size from about $7.5 million to about $3.2 billion, while the smallest program among the three military departments amounted to $313,000 and the largest was about $1.7 billion. Additional details are shown in appendix III, table 9.

Of the programs that experienced BTRs in fiscal year 2003, 48 percent had BTRs that resulted in a net loss of funds, while 28 percent had BTRs that resulted in a net gain, as figure 2 shows. The percentage of programs gaining and losing funds through BTRs varied across organizations. These percentages—and the specific programs involved—also varied from year to year. (App. III, fig. 5, shows percentages for fiscal year 2002.)

Some programs lost or gained such a substantial portion of their designated funding that they were essentially redirected. For example, in fiscal year 2003, the Air Force’s KC-10S aircraft program was increased by 92 percent through four BTRs. In contrast, the Air Force’s C-130J aircraft program was reduced by 81 percent through four BTRs. More details on these programs are shown in table 3.

The five programs in each of the three military departments and MDA with the largest funding reductions and additions through BTRs during fiscal year 2003 are shown in tables 4 and 5. Additional details are shown in appendix III, tables 10-17. Again, patterns vary from year to year, as a comparison of these appendix tables shows.

Funds taken from programs through BTRs may be applied to multiple other programs. For example, in 2003, the Air Force and the Navy reprogrammed a combined total of about $29 million from the Joint Strike Fighter to 15 other programs. Additional details are provided in appendix III, tables 18-21. Similarly, the Army reprogrammed almost $8.7 million from the Logistics and Engineer Equipment Program to 12 other programs in fiscal year 2003, and the Navy reprogrammed almost $21.5 million from the V-22 aircraft program to 8 other programs.

Overall, 76 percent of all research and development programs had at least 1 BTR, and 54 percent had more than 1, and 14 percent had 6 or more in fiscal year 2003, as table 6 shows. The Navy and MDA had more programs with substantial numbers of BTRs than did the Air Force or the Army. Specifically, 27 percent of Navy programs and 66 percent of MDA programs had 6 to 35 or more BTRs. Only 3 percent and 6 percent of Air Force and Army programs, respectively, had this many. Additional details are shown in table 7 and in appendix III, tables 22 and 23.

As figure 3 shows, 42 percent of programs had both BTR reductions and additions in fiscal year 2003. The percent of such programs ranged from 28 percent in the Army to 80 percent in MDA. Additional details are shown in appendix III, figure 5 and tables 24-32. Patterns vary from year to year, as those tables show.

In fiscal year 2003, the DOD organizations we reviewed withheld a total of about $2.8 billion in appropriated funds. The amounts withheld varied widely, as table 8 shows. MDA officials said that while MDA does not always release all appropriated funds immediately to its programs, MDA does not consider such non-releases to be withholds and did not provide this data to us. The Office of the Secretary of Defense, which withheld substantially more than other organizations, accounted for 56 percent of the total amount withheld. Withholds amounts for fiscal year 2002 are in appendix III, table 33.

DOD’s Rationale for BTRs and Withholds

The military departments, MDA, and Office of the Secretary of Defense officials cited several reasons for implementing BTRs and withholds. Generally, the reasons involved accommodating unanticipated changes or events, implementing congressional mandates, and, in the case of some withholds, controlling the execution of individual programs.

Unanticipated Changes or Events

Officials from each of the DOD organizations noted that because they need to estimate research and development program needs and budgets 2 or more years in advance of receiving appropriated funds, by the time the funds are actually received, factors upon which estimates are based may have changed and unforeseen events may have occurred. Officials also noted that current levels of flexibility are too limited given the adjustments that may be needed to deal with such changes. For example, testing on a program may have been accelerated or delayed; new requirements may have arisen; design changes may be required; a program’s costs may have increased; new technologies may have emerged; priorities may have shifted; and unexpected events, such as operations in Afghanistan and Iraq, may have occurred. Consequently, funding changes may be needed after funds are appropriated.

Military department and MDA officials stated that having the flexibility to adjust funding in such circumstances allows them to make better use of available funds by fixing a problem promptly, taking advantage of an opportunity, or responding to an unexpected contingency. For example, in fiscal year 2003, the Air Force reprogrammed almost $10 million to the KC-10S program to address unexpected cost increases in the cockpit modernization program. According to Air Force officials, obtaining these funds when they were needed avoided contract and schedule issues that would have been detrimental to the program. Ultimately in this case, the cockpit modernization program continued to experience unexpected cost increases and schedule slippages, and the Air Force later cancelled the program. In another example, Army officials stated that the presence of improvised explosive devices in the Iraq conflict has made explosive disposal robots more important than the budget preparation process anticipated 3 years ago. They noted that the Army is using some of its BTR flexibility to address this higher priority need.

Military department officials told us they also withhold funds for unexpected events or opportunities that may arise during the fiscal year. These withheld funds are then available for reprogramming as needed. For example, the Army withheld and subsequently reprogrammed about 2.3 percent of funds from most programs in fiscal year 2003 to cover expenses of ongoing operations. Officials said that this is the only year the Army instituted a general withhold on its programs. The Navy withheld 2 percent from most research and development programs in fiscal year 2002 and 1 percent in fiscal year 2003. These funds were used to address unexpected contingencies and emerging technological requirements. While Air Force officials stated that they do not routinely withhold funds from all programs, the Air Force Research Laboratory withholds about 5 percent from all laboratory programs to provide for its headquarters unit. The Office of the Secretary of Defense, Research and Development, withholds and subsequently reprograms as necessary about 10 percent from the research and development programs it manages to provide for contingencies and to cover reductions resulting from statutory requirements.

Implementing Statutory Obligations

Military department officials also use withholds to fund statutory obligations. For example, DOD is required by statute to set aside research and development funds for small business concerns to conduct research projects that have the potential for commercialization. Two programs are supported with these funds: the Small Business Innovation Research Program, which stimulates early-stage research and development by small business concerns; and the Small Business Technology Transfer Program, which funds cooperative research and development projects involving a small business and a research institution. The military departments and MDA vary in the way they set aside the funds for these statutory obligations. This variation provides these organizations with additional flexibility in adjusting appropriated research and development funds. In 2003, the Army and the Navy exempted some intelligence programs from the Small Business Innovation Research and the Small Business Technology Transfer assessments. They then withheld the funds needed to cover these assessments from the remaining programs. Air Force officials informed us that they reallocate the assessments during the fiscal year to adjust funds available to programs. For example, in fiscal year 2002, the Air Force used a BTR to restore the Small Business Innovation Research assessment it had earlier made against the B-2 program, to provide the program with more money. Other programs were assessed a higher amount to make up the difference.

In addition, military department officials use withholds to allocate rescissions and reductions that are included in appropriations acts and cancel appropriated funding. Rescissions or reductions may apply specifically to some or all research and development accounts or across- the-board to other appropriations accounts. For example, for fiscal year 2003, because of a change in projected inflation estimates, Congress directed a reduction of $1.4 billion across all operations and maintenance, procurement, and research and development appropriations accounts, with the reduction to be applied proportionally to each program within each account. To implement this reduction, the Air Force and Navy used withholds to reduce research and development programs’ appropriations by $105.6 million and $78.2 million, respectively.

Officials from the Office of the Secretary of Defense noted that they withhold funds from research and development programs to make certain programs achieve a particular milestone or other event and to assure that additional funds appropriated by Congress beyond the program’s requested budget reach the intended program and can be used effectively. For example, the Office of the Secretary of Defense sometimes withholds a portion of a program’s appropriation to assure the program completes a report, accomplishes a test, or complies in some other way with headquarters’ direction. Often, these withholds are in response to a congressional directive contained in authorization or appropriations report language. Funds are usually released once the program has accomplished the required task. Each year, Congress adds funds to certain programs’ requested budgets. Officials observed that there is often some uncertainty as to which program Congress intended these funds to benefit and whether those programs can effectively use the funds. Consequently, they withhold the funds until they can determine which programs are to receive the additional funds and to ensure that those programs can use the money effectively before releasing the funds. In fiscal year 2002, these types of withholds represented a large percentage of the Office of the Secretary of Defense withholds, amounting to nearly $2.7 billion. However, the Office of the Secretary of Defense has subsequently reduced its withholds of congressional additions, while some of the departments have increased theirs.

Managers Have Adopted Strategies for Anticipating BTRs and Withholds

DOD, military department, MDA, and program officials informed us that while they can expect with some confidence that reprogramming and withholds will occur during the budget year, they cannot predict the timing or amount. In anticipation of these funding adjustments, program and military department officials noted that program budgets are often increased during preparation. While this does not appear to be an unusual practice, we did not assess its extent or magnitude. This practice allows programs to perform at planned levels if and when these actions actually occur. Program officials stated that in cases for which anticipated reductions were underestimated, schedules are sometimes slowed down in response to BTRs and withholds. For example, tests or other scheduled events may be delayed until withheld funds are released or the funds lost through BTRs are paid back. If funds are not paid back, program schedules may be permanently slowed. For example, according to Air Force officials, when the Air Force reduced the C-130 avionics modernization program’s by $35 million in fiscal year 2003, the program manager extended the development program and renegotiated the development contract.

Funds also may be informally held back after they have been released to programs. That is, program managers may be told not to spend some portion of the funds that have actually been released to their programs in order to provide funds for later reprogramming. This differs from withholds because withholds can only be implemented before funds are released to programs. The informal holding back of funds occurs after funds are released, is done verbally, and is not recorded. This essentially creates a pool of reserved funds that can be used to meet anticipated but not fully identified requirements. MDA officials informed us that the Office of the Secretary of Defense requires them to informally hold millions of dollars each year in anticipation of the annual omnibus reprogramming. Omnibus reprogramming is a compilation of several above-threshold reprogrammings sent to Congress late in the fiscal year. For example, in fiscal year 2003, the Office of the Secretary of Defense required MDA to informally hold about $23 million and later used about $6 million of this money for omnibus reprogramming. The remaining funds were then released to MDA.

Recent Congressional Direction for Better Information

Congress has continued to express concerns about how DOD is adjusting funding for research and development programs and about the adequacy of information from DOD about such actions. Congress recently revised its guidance to DOD on reprogramming and withholding appropriated funds for research and development and on keeping Congress adequately informed about such actions.

For fiscal year 2004, congressional guidelines had tightened the threshold for decreases to $10 million or 20 percent of the program’s appropriation, whichever was less, rather than the greater provision of fiscal year 2003. For fiscal year 2005, Congress maintained the tightened thresholds of 2004 and added new direction on the reprogramming and withholding of appropriated funds for research and development programs.

Furthermore, Congress directed DOD to provide better information on reprogrammings and withholds both in the short- and the long-term. Specifically, Congress directed: the Secretary of Defense to provide data by January 31, 2005, on the adequacy and use of the DOD’s current reprogramming and withholding practices; DOD to work with congressional defense committees on a method providing timely and accurate data on reprogramming activity (both below and above the threshold) and the application of statutory and administrative withholds; that reprogramming data be available on a least a monthly basis, potentially in conjunction with DOD’s DD 1002 reports; and that DOD should transmit the data electronically, if feasible, to congressional defense committees.

Conclusions

DOD has a legitimate need for a degree of flexibility to adjust the funding levels designated for individual research and development programs. Congress has a legitimate need to maintain oversight over the funds it has appropriated. Ideally, both sets of needs can be met through a combination of approval thresholds for adjusting funding levels and reports on how funds have been adjusted. However, DOD has not provided information of sufficient quality and detail to Congress on how it adjusts appropriated research and development funds through BTRs and withholds. In reaction, Congress has tightened thresholds to a level of flexibility DOD officials believe is too limited.

In passing the fiscal year 2005 DOD Appropriations Act, Congress has directed DOD to take several actions to improve the information it provides to Congress regarding DOD’s use of reprogrammings and withholds. The direction for DOD and the congressional defense committees to work together provides an excellent opportunity for DOD to make changes that can serve the needs of both Congress and DOD. These changes may not be difficult to make, as much of the desired information already exists within DOD and some of the existing data collection systems are already automated and contain more detailed information than currently reported. How DOD responds to this direction will be critical to realizing this opportunity.

Agency Comments and Our Evaluation

DOD provided us with written comments on a draft of this report. The comments appear in appendix II.

DOD commented that our report should note more prominently that we found no evidence the department violated existing congressionally approved reprogramming thresholds. DOD expressed concern that Congress had a misconception that the department had violated existing threshholds and policies and had used the BTR process to initiate new start programs. DOD disagreed that its recent reports to Congress provide BTR information of limited quality and cited other information it provides to Congress in addition to the DD 1416. It pointed out that the formats for the information were developed with and approved by committee staff to satisfy Congress’s needs. DOD did note that the issues we raised on the quality of information it provides can be addressed, and that DOD was open to suggestions and will gladly work with the committee staff to satisfy its needs.

DOD offered several suggestions to put the findings of the report more in context. These included providing the percentage value of BTRs along with the dollar value, and noting the reasons DOD uses BTRs. DOD also noted that the issue of withholds is separate from BTRs and that they are used primarily to temporarily hold funding from execution until adequate justification is provided that the resources will be executed efficiently and effectively as intended by Congress. DOD stated that it was unaware of the practice of increasing of budget requests to cover anticipated BTRs and withholds and that this was against DOD policy.

DOD’s willingness to work with Congress is a constructive response that can lead to reporting changes that can meet the needs of both Congress and DOD. While current reporting formats may have been developed with committee staff to meet its needs, recent congressional direction suggest these needs have changed. Congress has required DOD to provide better and more timely information on reprogramming and withhold activities. We have clarified the language in the report that we did not observe any instances in which DOD’s use of BTRs exceeded thresholds, but we cannot be conclusive on this point as we did not design steps to assess compliance with thresholds. The same observation and qualification applies to whether BTRs were used to start new programs.

We did analyze the additional information DOD provides to Congress on BTRs, specifically budget exhibits and monthly accounting reports. However, in their current format, these reports do not provide detailed information on individual BTRs or any information on withholds. To provide additional context for our findings, we have added the percentage value of BTRs in addition to their total dollar value, however, we do not believe it is necessary for individual programs. While the draft report does present the reasons DOD uses BTRs and withholds, we have added language earlier in the report to highlight these reasons. We believe the distinction between BTRs and withholds is adequately clear in the report.

We note that while withholds are used to ensure programs are properly executed, we did find instances in which withholds were used to make funds available for reprogramming.

We are sending copies of this report to the Secretary of Defense; the Secretaries of the Army, the Navy, and the Air Force; the Director, Missile Defense Agency; and interested congressional committees. We will also 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 has any questions concerning this report, please contact me at (202) 512-4841 or D. Catherine Baltzell at (202) 512-8001. Other contacts and key contributors are listed in appendix IV.

Scope and Methodology

To determine the quality of the information available about the Department of Defense’s (DOD) use of below-threshold reprogrammings (BTR) and withholds, we reviewed the DOD Financial Management Regulation and recent congressional guidelines on reprogramming and withholds; various DOD internal reports and reports to Congress; and data from financial management systems recorded for the research and development programs from the Army, Air Force, Navy, and Missile Defense Agency (MDA). We reviewed DOD policy and interviewed decision makers to gain an understanding of how various reports are prepared and to obtain information about BTRs and withholds. Our interviews included officials in the research and development and financial management offices of the Air Force, Army, Navy and MDA; financial management and acquisition policy decision maker offices including the Office of the Secretary of Defense (Comptroller); Office of the Director of Defense Research and Engineering, Director of Plans and Programs; Assistant Secretary of the Air Force for Acquisition; Office of the Naval Research Controller; Aeronautical Systems Command Financial Management office; Air Force Research Labs Headquarters, Propulsion Directorate, and Sensors Directorate; Assistant Secretary of the Army for Financial Management and Comptroller, Investment Division-Army Budget Office; Deputy Assistant Secretary of the Army, for Plans, Programs, and Resources Office; Army Science and Technology Integration Office; and Army Research Laboratory Headquarters. In accordance with federal internal control standards, we defined quality of information as measured by such factors as timeliness, accessibility, accuracy, and appropriateness of content.

In addition, we interviewed program officials and collected data from 13 research and development programs: Air Force (5), Army (4), and Navy (4). The programs were selected on the basis of three criteria: a laboratory, a program with significant net reduction or addition of funds through BTRs, and a program with a relatively high number of both reductions and additions of funds through BTRs. We interviewed program officials for the Air Force’s C-130 Airlift and C-130J, and KC-10S; the Air Force Research Lab’s Aerospace Propulsion and Aerospace Sensor’s Labs; the Army’s Tactical Unmanned Aerial Vehicles, and Line-of-Sight Anti-Tank Missile program offices; the Army’s Research Lab’s Weapons and Materials Research, and Survivability/Lethality Directorates; the Navy’s Ocean Engineering Technology Development, and Consolidated Training Systems Development Program; the Office of Naval Research Systems Advanced Technology program; and the Naval Ship and Aircraft Support program.

To determine the amount and volume of BTRs and withheld funds, we obtained available data from the Air Force, Army, Navy, and MDA data collection systems on actual BTRs and withholds and developed an integrated, electronic database on adjustments to designated funding levels for each research and development program. In developing our database, we assessed the reliability of the available data, which includes recognizing the limitations of the data as we have discussed in this report. We performed electronic testing of required data elements, reviewed existing information about the data and the systems that produced them, and interviewed agency officials knowledgeable about the data. We determined that the data were sufficiently reliable for the purpose of this report. We conducted multiple analyses of BTR amounts and volume. We used readily available, off-the-shelf commercial software to develop and analyze our database. We performed our review from November 2003 to July 2004 in accordance with generally accepted government auditing standards.

Comments from the Department of Defense

GAO Contacts and Staff Acknowledgments

GAO Contacts

Acknowledgments

In addition, key contributors to the report include Lily J. Chin, Christopher A. Deperro, Joseph E. Dewechter, Alan Frazier, Ivy Hubler, Matthew R. Mongin, Bonita J.P. Oden, Katrina D. Taylor, Bradley L. Terry, and Adam Vodraska.

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