Air Force Depot Maintenance

The Air Force's depot maintenance activity group, operating as a working capital fund that charges fees for services based on anticipated actual costs, provides depot repair services needed to keep Air Force units operating worldwide. For years, this activity has had difficulty accurately budgeting for material costs, workforce productivity, and savings to be achieved through productivity improvements and other reform initiatives. These difficulties have harmed financial operations, resulting in hundreds of millions of dollars in operating losses and limited delivery of timely support to customers. This report describes problems with inaccurate pricing, decline in worker productivity, and unrealized projected savings. GAO recommends ways for the Air Force to improve budget estimates and management of material costs and usage.

GAO noted that: (1) for years the depot maintenance activity group has experienced difficulties in accurately budgeting for material costs, workforce productivity, and savings to be achieved through productivity improvements and other reform initiatives; (2) these difficulties have adversely impacted the activity group's financial operations, resulting in hundreds of millions of dollars in operating losses and limited the grou'ps ability to provide timely support to its customers; (3) although actions are underway to improve some problems, it is uncertain to what extent the Air Force's long-standing problems are likely to be resolved in the short-term; (4) because of inaccurate pricing information from the Air Force's supply management activity group and ineffective internal controls over depot material costs and usage, the depot maintenance activity group's actual material costs per direct labor hour of work accomplished were $12.40 higher than the budgeted amount in fiscal year (FY) 1998, $7.13 higher in FY 1999, and $21.48 higher during the first 6 months of FY 2000; (5) the Air Force is acting to resolve the higher-than-budgeted material cost problem by: (a) stabilizing the supply management activity group's price-setting process; and (b) having the Air Force Audit Agency review the accuracy of the proposed prices that the supply management activity group will charge the depot maintenance activity group for material; (6) an 11.3 percent decline in reported worker productivity that occurred from FY 1992 through FY 1999 caused a corresponding increase in labor costs per unit of work accomplished; (7) additionally, because budget estimates for fiscal years 1994 through 1999 were repeatedly based on overly optimistic productivity assumptions, the workforce did not accomplish as much work as projected; (8) this, in turn: (a) caused labor costs for the work that was accomplished to be about $838 million higher than budget estimates; and (b) created a higher backlog of work which, in turn, limited the group's ability to provide timely support to customers; (9) the depot maintenance activity group budgeted to save an average of $77 million a year from fiscal years 1996 through 1999 through planned management reforms; (10) however, the activity group repeatedly revised the original budgeted savings downward to an average of $30 million a year a--61 percent reduction--in subsequent budget estimates; and (11) the Air Force has recently acted to better estimate savings by involving the air logistics centers in the estimation process.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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