In addition to the 50-50 requirement in 10 U.S.C. 2466, two other title 10 provisions directly affect the reporting of workload allocations to the public and private sectors. Section 2460 defines depot maintenance to encompass 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 from the 50 percent funding limitation on contracting in section 2466. Section 342 provides that the funds expended for the performance of depot-level maintenance by nonfederal government personnel located at the centers 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. Section 334 of the National Defense Authorization Act for Fiscal Year 2003 (Pub. L. No. 107-314, Dec. 2, 2002) extended this period to include all contracts entered into through fiscal year 2006. Proposed legislation (S. 2400, section 333, as reported by the Senate) would, if adopted, extend the period for the exclusion of the reporting of this contractor work through 2009. The Office of the Secretary of Defense (OSD) has issued guidance to the military departments for reporting public-private workload allocations. The guidance is consistent with the definition of “depot-level maintenance and repair” in 10 U.S.C. 2460. The military departments have also issued internal instructions to manage the data collection and reporting process, tailored to their individual organizations and operating environments. Pursuant to the congressional mandate regarding the DOD 50-50 requirement, this is the 7th year that we have reported on the prior-year numbers and the 5th year reporting on the future-year numbers. In past years, we have reported on continuing data errors and inconsistencies in reporting by the military departments and problems in documenting and independently validating 50-50 data. Table 1 provides a consolidated summary of DOD’s 2004 prior-years and future-years reports to the Congress on public- and private-sector funding allocations for depot maintenance. The amounts shown are DOD’s record of actual obligations incurred for depot maintenance work in fiscal years 2002 and 2003 and projected obligations for fiscal years 2004-8 based on the defense budget and service funding baselines. The percentages show the department’s record of the relative allocations between the public and private sectors and the exempted workloads. Adding the public, private, and private-exempted percentages together provides a total picture of DOD’s depot maintenance funding. Also, adding the private and private- exempted percentages shows what the private-sector amount would have been reported as, absent the recent legislation to exempt qualified partnership workload. DOD’s 50-50 data with GAO’s adjustments provide a rough approximation of the allocation of depot maintenance funding between the public and private sectors. In this regard, it is useful information to the Congress in exercising its oversight role and to DOD officials in managing the depot maintenance program. However, our prior reports have recognized the limitations of DOD’s financial systems, operations, and controls. Our audits of DOD’s financial management operations have routinely identified pervasive weaknesses in 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. As we have reported, DOD can ill afford to invest in systems that are not capable of providing DOD management with more accurate, timely, and reliable information on the results of the department’s business operations. To date, none of the military services have passed the test of an independent financial audit. A continuing inability to capture and report the full cost of its programs represents one of the most significant impediments facing DOD. Nonetheless, the data used to develop the 50-50 report are the only data available and are accepted and used for DOD’s decision making and for congressional oversight. Recurring weaknesses in DOD’s data gathering, reporting processes, and financial systems prevented us from determining with precision whether the services were in compliance with the 50-50 reporting requirement for fiscal years 2002 and 2003. DOD’s prior-years report for fiscal years 2002 and 2003 as submitted to the Congress in February 2004 shows the Departments of the Army, Navy, and Air Force to be below the 50 percent funding limitation on private-sector workloads for both years. The net effects of correcting for the errors and omissions we identified would increase the percentages of workload going to the private sector and move each department closer to the contract limit. Appendix I shows the amounts and effects of our adjustments to the reported data submitted by the military departments for fiscal year 2003 and provides a description of the major deficiencies we found. Our analysis of DOD’s reported depot maintenance funding for 2003 when compared with the previous year revealed interesting information about the mix of funding and workload. While there were significant increases in depot maintenance funding for each of the services over this period, this large funding increase did not result in significant increases in the amount of work performed in the military depots, as discussed in each of our discussions of the services’ data. Although the Army reported that its private-sector funding was below the 50 percent limit for both fiscal years 2002 and 2003, as in prior years, we continued to find errors, omissions, and inconsistencies in the Army’s data. On the basis of the specific errors we identified, these errors would add about $408 million in total to the Army’s public- and private-sector workloads in fiscal year 2003; the net effect of correcting for these errors would add 5.8 percent to the private-sector percentage allocation in fiscal year 2003. (See table 2 in app. I.) For the prior-years report, the Army underreported funds received for depot maintenance in the supplemental appropriations for fiscal year 2003. Also, the Army continued to underreport public- and private-sector depot- level maintenance work at field locations, as it continued unfinished efforts to consolidate maintenance activities and better control the proliferation of depot-level tasks at nondepot locations. A unit from the European Command, deployed to support the war in Iraq, did not report any 50-50 data. Staff turnover continued at the reporting commands, and unfamiliarity with the 50-50 requirements contributed to increased errors. For example, the errors we found in the Training and Doctrine Command’s 50-50 data were directly related to a staff change in late 2003 after the Command’s longtime reporting official retired and was replaced with a new person who was unfamiliar with 50-50 reporting requirements. While there was an over $700 million increase in depot maintenance funding in the Army from fiscal year 2002 to fiscal year 2003, this increase did not translate into a significant increase in the amount of work performed in Army depots. The Army’s data for fiscal year 2003 showed an increase of $710.6 million over the amount of funding reported for fiscal year 2002. About 81 percent of this funding increase was reported as going to the Army depots, suggesting that the depots might have received a substantial workload increase. Our analysis of direct labor hours executed at the depots, including overtime, during fiscal years 2002 and 2003 showed only a 6.3 percent increase. The price charged for depot maintenance work increased 7.4 percent. Army depot managers told us that the primary factors increasing the depots’ work were the Army’s recapitalization program and support for the war in Iraq. However, as one Army depot manager pointed out, the supplemental appropriation for fiscal year 2003 was received too late in the year to have a significant affect on the depots’ workload during that year. The additional funding late in 2003 allowed the depots to order parts for work that would be done during 2004. Army depot managers also said that factors such as increased costs for material and depot revenues that exceeded budget plans in prior years affected the price charged for depot maintenance. Although the Navy (including the Marine Corps) reported that its private-sector funding was below the 50 percent limit for both fiscal years, we found errors in the Navy’s and Marine Corps’ data, and we found that the total dollar amount of errors affected the data for the private sector more than the public sector. Correcting for the errors we found increased the percentage share in fiscal year 2003 for the private sector from 44.5 percent to 47.9 percent—a gain of 3.4 percent. (See table 3 in app. I.) We evaluated the Navy’s and Marine Corps’ data separately, since these services have different processes. For the Navy, we identified several problems that carried over from prior years’ 50-50 efforts.