The Corps is one of the world’s largest public engineering, design, and construction management agencies. The Civil Works program employs about 23,000 full-time equivalents, with staff in headquarters; 8 divisions, which were established generally according to watershed boundaries and are headed by a division commander, who is a military officer; and 38 districts nationwide. The program covers hundreds of civil works projects nationwide and comprises water resource development activities, including flood risk management, navigation, recreation, and infrastructure and environmental stewardship. Headquarters and divisions generally establish policy and provide oversight, and districts implement projects. See fig. 1 for the locations of Corps civil works divisions and districts. More than 85 percent of Corps civil works staff work in the districts, which have a planning and executing role for Corps’ projects. Each district office is headed by a district commander, who is also a military officer, and each district has a number of administrative and technical offices. Administrative offices, such as resource management, security, and general counsel, provide general administrative support. Technical offices, such as engineering, construction, and real estate, provide technical services to customers on specific projects. Corps districts vary widely in the number of full-time equivalents they employ for civil works activities. Following are full-time equivalent data (in parentheses) for the two largest and two smallest districts, as well as two medium-sized districts, as reported by the Corps. The two largest districts: New Orleans (1,295) and Portland (1,155). Two medium-sized districts: Kansas City (530) and Fort Worth (515). The two smallest districts: Charleston (123) and Honolulu (64). Only district overhead is charged to projects; headquarters and division overhead is not. The Corps receives an appropriation that covers overhead expenses incurred by the Corps’ headquarters and divisions. Districts, however, do not receive an appropriation to fund their overhead, so to cover those costs, districts must include overhead as part of project costs and bill those costs directly to customers. Districts use the Corps’ revolving fund—a permanent appropriation established by the Civil Function Appropriations Act of 1954—to finance their overhead costs, then reimburse the fund with overhead payments received from project appropriations and customers. In this way, the revolving fund, which maintains a number of accounts to which district staff charge their time, allows the financing of agency activities because the Corps charges for services and uses the proceeds to finance its spending, usually on a self-sustaining basis. Corps-wide policy includes a goal that each division’s overhead account achieve a balance of zero at the end of each fiscal year. Corps policy states that a balance within plus or minus 1 percent of actual expenses is considered the equivalent of a zero balance and, therefore, acceptable. The Corps receives the bulk of its funding from Congress. The Corps’ fiscal year 2012 appropriations for the Civil Works program totaled about $6.7 billion—about $5 billion in regular appropriations and about $1.7 billion in disaster appropriations. The appropriation covering headquarters and division overhead expenses was $185 million. According to Corps officials, Congress provided about 73 percent of the Corps’ civil works funding in fiscal year 2012. The remaining 27 percent—about $2.5 billion—was provided by the Corps’ federal and nonfederal customers. Specifically, the Corps reported receiving about 17 percent of its fiscal year 2012 funding from federal customers on a reimbursable basis, about 6 percent from nonfederal customers on a cost share basis, and about 4 percent from federal customers on a direct fund basis, whereby the customer pays for Corps services in advance. Information on these federal and nonfederal customers is provided in table 1. The Corps uses a multistep process to build overhead costs into projects. First, Corps policy establishes two categories of costs to calculate overhead. Second, the Corps calculates annual overhead rates for the two cost categories as part of its annual budget process. Third, the Corps bills projects for overhead costs based on the number of hours its staff charge to projects. Finally, the Corps monitors overhead costs and makes any necessary adjustments to overhead rates. Corps policy establishes two categories of costs to calculate overhead— general and administrative (G&A) overhead expenses associated with district administrative offices and technical overhead expenses associated with district technical offices. These two categories serve as the foundation for building district overhead into projects. Corps policy defines G&A overhead as costs of a general or administrative nature, and all G&A overhead charges are based on a single rate per division. Examples of G&A overhead include costs to run the district resource management or security offices, such as employee salaries and benefits and utilities. Corps policy defines technical overhead as costs within a technical office—such as engineering or construction—that cannot be directly identified as part of or readily chargeable to a specific program or project. Examples of technical overhead are the hours spent by the head of the engineering office providing general supervision to engineering staff and the prorated portion of rent for the office space of the engineering staff. All technical overhead charges are based on four different rates per division—consolidated technical overhead, emergency management, operations, and regulatory. Corps headquarters officials said that the four technical overhead rates reflect four distinct types of services rendered as follows: Consolidated technical overhead: This rate applies to state, local, and tribal governments working with the Corps to build new water resource projects. Emergency management: This rate applies to services rendered to the Federal Emergency Management Agency and state and local emergency management entities. Operations: This rate applies to state, local, and tribal governments receiving Corps services for the operation and maintenance of existing water resource projects. Regulatory: This rate applies to customers seeking Corps’ permits to build on lands that might impact a wetland. Using calculations based on the G&A rate and the applicable technical rates, districts build overhead costs into projects. This multistep process is outlined in fig. 2. Using the two categories of overhead defined in Corps policy as its starting point, each district administrative and technical office—with assistance from district budget staff—develops its own operating budget with estimated overhead for the year. For administrative offices, officials estimate annual expenses, and most of their employees’ time is charged as G&A overhead. For technical offices, officials estimate annual revenues and expenses and also calculate the portion of technical office labor costs that will be charged directly to projects and the portion that will be charged to overhead. For example, a district’s construction office operating budget might estimate that a project manager would spend 85 percent of his/her time charging directly to projects and spend the remaining 15 percent of the time charging to overhead for activities such as attending training and staff meetings. The administrative and technical offices’ operating budgets also include costs for centrally provided services, such as information technology, as well as certain expenses with imposed caps, such as employee awards. Once each district administrative and technical office completes its operating budget, the offices forward them to the district resource manager—who essentially serves as the chief financial officer for the district. The district resource manager reviews and verifies information from each office and then consolidates the submissions into a single district operating budget. A district advisory committee—known as the Program Budget Advisory Committee—reviews and recommends the budget to the district commander for approval. District operating budgets include proposed G&A and technical overhead rates for the district. Each overhead rate is determined by dividing the total estimated overhead costs for the category of overhead, such as G&A, by the total estimated direct labor expected to be charged to projects. For example, if a division estimated that the total G&A costs for all of its districts would be $200 million and estimated that the total district labor charges expected to be directly billed to projects would be $1 billion, then the division’s G&A rate would be .20 ($200 million/$1 billion). Once district commanders approve their district’s operating budget, the district resource manager submits it to the division’s resource manager who reviews and verifies information and then consolidates all of the district operating budgets into a division-wide operating budget with a proposed single set of G&A and technical overhead rates for the division. As is the case with the districts, a division advisory committee—known as the Regional Program Budget Advisory Committee—reviews and recommends the budget to the division commander for approval. With limited exceptions, each division and district carries out this process annually, with the result being a single set of G&A and technical overhead rates charged each year for each Corps division. Overhead rates may vary from division to division due to a number of factors, such as cost of living (e.g., rent is higher for the San Francisco District than the Albuquerque District) and composition of the workforce (e.g., a district with more senior level staff has higher salaries than a district with more junior level staff). Once overhead rates have been calculated in the budget process, district staff perform their work and charge their time to various project and overhead revolving fund accounts. Those accounts are then reimbursed either through project appropriations or through bill payments from customers. Districts build overhead into projects using the rates provided in the approved division operating budget. Overhead charges are applied to each project based on the hours charged by Corps staff; overhead charges are not applied to hours worked by contracted labor, which can represent a substantial amount of work. The Corps reports that it contracts out most of its design work and all of its construction work to private sector entities, such as architectural and engineering firms and construction companies. Within each division, a single G&A rate is applied to all projects, whereas technical rates are applied depending on the technical office staff charging to the projects. For example, for an employee in the regulatory office, overhead charges would include both the technical overhead regulatory rate, along with the G&A rate, for each hour charged to a specific project. Fig.