Defense Inventory
Better Reporting on Spare Parts Spending Will Enhance Congressional Oversight Gao ID: GAO-03-18 October 24, 2002GAO was asked by the Department of Defense (DOD) to identify ways to improve DOD's availability of high-quality spare parts for aircraft, ships, vehicles, and weapons systems. DOD's recent reports do not provide an accurate and complete picture of spare parts funding as required by financial management regulation. As a result, the reports do not provide Congress with reasonable assurance about the amount of funds being spent on spare parts. Furthermore, the reports are of limited use to Congress as it makes decisions on how best to spend resources to reduce spare parts shortages and improve military readiness.
RecommendationsOur 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.
Director: Team: Phone:GAO-03-18, Defense Inventory: Better Reporting on Spare Parts Spending Will Enhance Congressional Oversight
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Report to the Chairman, Subcommittee on Defense, Committee on
Appropriations, House of Representatives:
United States General Accounting Office:
GAO:
October 2002:
Defense Inventory:
Better Reporting on Spare Parts Spending Will Enhance Congressional
Oversight:
Defense Inventory:
GAO-03-18:
Contents:
Letter:
Results in Brief:
Background:
Reports Do Not Provide Congress with Actual and Complete Information on
Spare Parts Spending:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Scope and Methodology:
Appendix I: Army Exhibit OP-31 Report on Spares and Repair
Parts Submitted to Congress in June 2001:
Appendix II: Army Exhibit OP-31 Report on Spares and Repair
Parts Submitted to Congress in February 2002:
Appendix III: Air Force Exhibit OP-31 Report on Spares and
Repair Parts Submitted to Congress in June 2001:
Appendix IV: Air Force Exhibit OP-31 Report on Spares and
Repair Parts Submitted to Congress in
February 2002:
Appendix V: Navy Department Exhibit OP-31 Report on Spares
and Repair Parts Submitted to Congress in
June 2001:
Appendix VI: Navy Department Exhibit OP-31 Report on Spares
and Repair Parts Submitted to Congress in
February 2002:
Appendix VII: Comments from the Under Secretary of Defense:
Appendix VIII: Staff Acknowledgments:
Figure:
Figure 1: DOD‘s Exhibit OP-31 Template:
Abbreviations:
DOD: Department of Defense:
GAO: General Accounting Office:
Letter:
October 24, 2002:
The Honorable Jerry Lewis
Chairman
Subcommittee on Defense
Committee on Appropriations
House of Representatives:
This is the first in a series of reports that respond to your January
31, 2002, request that we identify ways to improve the Department of
Defense‘s (DOD) availability of high-quality spare parts for aircraft,
ships, vehicles, and weapons systems. It follows up on our June 2001
recommendation that the Secretary of Defense routinely provide Congress
with reliable and timely spare parts information as an integral part of
DOD‘s operations and maintenance budget submission.[Footnote 1] In
concurring with the recommendation, DOD stated that it would revise its
financial management regulation and begin routinely providing Congress
with detailed spare and repair parts funding information in a report
entitled Exhibit OP-31, Spares and Repair Parts as part of the
President‘s annual budget submission. As agreed with your office, this
report specifically addresses the accuracy and completeness of DOD‘s
June 2001 and February 2002 reports to Congress on the services‘
programmed and actual spending of operations and maintenance funds for
spare parts to support active forces.[Footnote 2] Also as agreed, it
does not address spending for spare parts from other sources, such as
procurement appropriations and working capital funds.[Footnote 3]
To accomplish this review, we interviewed DOD and service officials
responsible for providing the funding data for their June 2001 and
February 2002 oversight reports and assessed the adequacy of the data
supporting these reports. We also visited the logistics commands and a
major operating command for each service to ascertain the funding data
available at that level. We did not attempt to validate the accuracy of
the commands‘ funding data.
Results in Brief:
The Department of Defense‘s recent reports do not provide an accurate
and complete picture of spare parts funding as required by financial
management regulation. As a result, the reports do not provide Congress
with reasonable assurance about the amount of funds being spent on
spare parts. Furthermore, the reports are of limited use to Congress as
it makes decisions on how best to spend resources to reduce spare parts
shortages and improve military readiness. The reports‘ related guidance
states that the services are to provide programmed and actual funding
data for all spare parts in total and for such specific commodities as
ships, aircraft engines, and combat vehicles. However, the reports did
not always contain actual data. Instead of citing actual amounts of
annual operations and maintenance appropriations spent for spare parts
for the past fiscal year, all of the Army‘s amounts and most of the
services‘ commodity amounts were estimates. The Department presented
these estimates, which were derived from various service computations,
modeling, and historical data, because the services do not have a
reliable system to account for and track the needed information on
their actual spending by commodity. According to comptroller officials
in the Office of the Secretary of Defense, these estimates are all they
have access to, given the absence of a comprehensive financial
management system that reports accurate cost accounting information.
The officials said that developing better estimates would be expensive
and potentially difficult, factors that should be considered in
deciding whether the current information, although not accurate, is
acceptable. Our work shows, however, that, while unaudited, detailed
information on spending is routinely available at the major
commands.[Footnote 4] In addition to not citing available data on
actual spending, the services‘ reports were not complete. Two of the
services omitted information on the supplemental operations and
maintenance appropriations, two services did not include information on
the quantities of spare parts purchased, and none of them explained the
deviations between programmed and actual spending. According to service
officials, the reporting deficiencies resulted from either the absence
of clear departmental guidance or uncertainties about how to comply
with the guidance that was available.
Given the importance of accurate and complete information on spare
parts funding, we are recommending that the Secretary of Defense (1)
improve the guidance for preparing its Exhibit OP-31 reports to ensure
that the services provide actual and complete data on spare parts
spending and (2) require the services to fully comply with the
Secretary‘s reporting guidance.
The Department of Defense partially concurred with our recommendations.
Its primary concern was that our first recommendation focused
exclusively on the adequacy of the Department‘s reporting on operations
and maintenance spending for spare parts without emphasizing the funds
being spent on spare parts from all sources, such as working capital
and investment accounts. Regarding the second recommendation, the
Department also did not believe that reporting information on the
quantities of spare parts purchased as currently required by its
guidance added significant value to its report. As discussed in the
agency comments section of this report, we continue to believe that our
recommendations would enhance the Department‘s reporting on spare parts
spending from operations and maintenance funds. We also support the
Department‘s plans to provide additional budget information and
analyses of actual spare parts spending from all funds sources in
support of the budget.
Background:
Congress appropriates operations and maintenance funds for DOD, in
part, for the purchase of spare and repair parts.[Footnote 5] DOD
distributes operations and maintenance funding to major commands and
military units. The latter use operations and maintenance funding to
buy spare parts from the Department‘s central supply system. By the end
of fiscal year 2001, DOD reported in its supply system inventory report
that it had an inventory of spare parts valued at about $63.3
billion.[Footnote 6] Prior GAO reports have identified major risks
associated with DOD‘s ability to manage spare parts inventories and
prompted a need for reporting on spare parts spending and the impact of
spare parts shortages on military weapon systems‘ readiness.[Footnote
7]
In recent years, Congress has provided increased funding for DOD‘s
spare parts budget to enable military units to purchase spare parts
from the supply system as needed. In addition, beginning with fiscal
year 1999, Congress provided supplemental funding totaling $1.5
billion, in part, to address spare parts shortages that were adversely
affecting readiness. However, in making supplemental appropriations for
fiscal year 2001, the Senate Committee on Appropriations voiced
concerns about the Department‘s inability to articulate funding levels
for spare parts needed to support the training and deployment
requirements of the armed services and provide any meaningful history
of funds spent for spare parts.[Footnote 8]
In June 2001, we reported that DOD lacked the detailed information
needed to document how much the military units were spending to
purchase new and repaired spare parts from the central supply system.
To increase accountability and visibility over spare parts funding, we
recommended that DOD provide Congress with detailed reports on its past
and planned spending for spare parts. In making the recommendation, we
anticipated that such information, when developed through reliable and
consistent data collection methods, would help Congress oversee DOD‘s
progress in addressing spare parts shortages.
In response to our recommendation, in June 2001 and February 2002, DOD
provided Congress with Exhibit OP-31 reports as an integral part of the
fiscal year 2002 and 2003 budget requests for operations and
maintenance funding. These reports, which the services had previously
submitted to DOD for internal use only, were to summarize the amounts
each military service and reserve component planned to spend on spare
parts in the future and the actual amount spent the previous fiscal
year. Figure 1 shows the Exhibit OP-31 template as it appears in DOD‘s
Financial Management Regulation. The regulation requires the military
services to report the quantity and dollar values of actual and
programmed spending for spare parts in total and by specific commodity
groups, such as ships, aircraft engines, and combat vehicles and
explain any changes from year to year as well as between actual and
programmed amounts. (See apps. I through VI for each service‘s June
2001 and February 2002 exhibits.):
Figure 1: DOD‘s Exhibit OP-31 Template:
[See PDF for image]
Legend:
BY1 = budget year 1:
BY2 = budget year 2:
CY = current year:
FY = fiscal year:
M = millions:
MISC. = miscellaneous:
O&M = operations and maintenance:
OSD = Office of the Secretary of Defense:
PY = prior year:
PB = President‘s budget:
Qty = quantity:
Source: DOD Financial Management Regulation, Volume 2A, Chapter 3.
[End of figure]
Reports Do Not Provide Congress with Actual and Complete Information on
Spare Parts Spending:
DOD‘s June 2001 and February 2002 reports did not provide Congress with
an actual and complete picture of spare parts spending. The actual
amounts reported as spent by the Army in total on spare parts and by
all services for most of the commodities were estimates. The services‘
budget offices had computed these estimates using various methods
because they do not have a reliable system to account for and track
such information.[Footnote 9] In addition, all the services did not
include information on the supplemental operations and maintenance
funding they received in their totals, include the quantities of parts
purchased, or explain deviations between planned and actual spending as
required on the template. These deficiencies limit the potential value
of DOD‘s reports to Congress and other decision makers.
Services Reported Estimates--Not Actual Spending:
Some of DOD‘s purported actual spending data were estimates. All of the
Army‘s spending amounts and most of the other services‘ commodity
amounts for prior years were estimates derived from various service
methods--not actual obligations to purchase spare parts. The services‘
headquarters budget offices provided these estimates because they did
not have a process for tracking and accumulating information on actual
spending by commodity in their accounting and logistics data systems.
The services‘ budget offices were to develop the Exhibit OP-31 data
using the guidance shown on the template as published in DOD‘s
Financial Management Regulation. The Department did not provide the
services with any other guidance on how to develop information required
for Exhibit OP-31 reports. The guidance directed the services to
prepare reports showing planned and actual funding and quantities of
repairable and consumable spare parts purchases by commodity for
multiple fiscal years. Each service employed its own methodology to
estimate the amount of money spent for spare parts as described below:
* The Army used estimates to report its total spending for spare parts
and the breakout of spare parts spending for all commodity groups. The
Army based its estimates on computer-generated forecasts of the spare
parts needed to support the current and planned operations. Information
from cost data files, logistics files, and the Operating and Support
Management Information System was used to develop a consumption rate
for spare parts on the basis of anticipated usage, considering such
factors as miles driven and hours flown. The consumption factor was
entered in the Army‘s Training Resources Model, which contains force
structure, planned training events, and the projected operating tempo.
The model used the consumption factor to estimate the total cost and
quantities of spare parts that would be consumed. The model also
provided the estimated spending for each of the commodities cited in
the exhibit.
* The Navy Department used unaudited actual obligation data from the
major commands as its basis for reporting total spending for spare
parts and for some commodity groups. However, the breakout of actual
spending data for the aircraft engine and airframe commodities were
estimates. The Navy Department‘s headquarters budget office developed
its reports on the basis of information contained in price and program
change reports submitted by the major commands. The Navy Department‘s
accounting system tracked obligations and developed pricing information
for spare parts purchased under numerous subactivity groupings, some of
which were tied to the categories listed on the OP-31 Exhibit. For
example, codes have been established to track obligations for
consumable and repairable spare parts purchased to support ship
operations. The budget office prepared summary schedules accumulating
these obligations from each command and transferred this information to
the appropriate line of the OP-31 Exhibit. While the system provided
accounting codes to summarize spare parts spending to support air
operations and air training exercises, separate codes had not been
established to distinguish spare parts purchased for aircraft engines
and airframes--two separate and distinct commodity groupings on the
exhibit. Lacking a separate breakout for aircraft engines and
airframes, the budget office estimated the amounts for each commodity
from historical trends.
* The Air Force used unaudited actual obligation data from its
accounting system to identify and report its total spending, but its
breakout of spending for the commodity groupings used estimates. The
Air Force calculated estimates for each commodity by applying budget
factors to the total actual obligation data shown in its accounting
system. The accounting system provided these data by expense code,
which designated depot-level repairables and consumables by ’fly“ and
’non-fly“ obligations.[Footnote 10] The Air Force allocated all ’fly“
obligations to airframes and left the engine commodity blank, even
though some of the obligations were for engines. The Air Force selected
this approach because spare parts for airframes and engines are
budgeted together. To estimate the amount spent on the missiles,
communications equipment, and other miscellaneous commodities, the Air
Force allocated the total ’non-fly“ obligations on the basis of ratios
derived from the amounts previously budgeted for these categories.
While DOD had no reliable system to account for and track all of the
needed information on actual spending, some of the services‘ major
commands have data that can be compiled for this purpose. Our visits to
selected major operating commands for each military service revealed
that they maintain automated accounting and logistics support data
systems that could be used to provide unaudited data on spare parts
funding allocations and actual obligations to purchase repairable and
consumable spare parts in significant detail. For example, at the
Army‘s Training and Doctrine Command, we found that the Integrated
Logistics Analysis Program provided information to monitor and track
obligation authority by individual stock number and federal supply
class. Personnel at that location used these data to develop a sample
report documenting spending in the format requested by Exhibit OP-31.
The Air Force‘s Air Combat Command and the Navy‘s Commander in Chief
Atlantic Fleet each had systems that also could be used to provide
information on spending.
We discussed these reporting deficiencies with Office of the Secretary
of Defense comptroller officials, who concurred that some figures on
the service‘s Exhibit OP-31 reports were estimates and that DOD did not
have a comprehensive financial management system that would routinely
provide actual spending information. They said that estimates are all
they have access to, given the absence of a comprehensive financial
management system that reports accurate cost-accounting information.
Furthermore, they stated that even though detailed information on such
spending is available at the major commands, developing better
estimates would entail an expensive and potentially difficult reporting
requirement that should be considered in deciding whether the current
information is acceptable.
Some Key Management Information Omitted from Services‘ Exhibits:
DOD‘s exhibits were also not complete in that they did not show all of
the key information required by the template. DOD‘s guidance directed
the services to report total operations and maintenance spare parts
funding, the spare parts quantities bought, and the reasons for
deviations between actual and programmed funding. However, two of the
services did not provide information on the quantities of spare parts
they had purchased, and none of the services explained variances
between actual and initially programmed funding. Service officials
commented that these reporting omissions were generally due to DOD‘s
vague data collection guidance on the template and uncertainties about
how to comply.
The Army was the only service that reported spare parts quantity
purchases each fiscal year. However, the Army‘s quantities were
estimates that were based on applying historical usage rates to such
factors as miles driven and hours flown, even when actual quantities
were required. The Navy and Air Force did not report quantities
because, according to service officials, such information was not
readily available to them. Furthermore, they said that DOD‘s data
collection guidance did not adequately explain how this information was
to be developed.
None of the services explained changes between actual and programmed
spending in the exhibits as required. In comparing the June 2001 and
February 2002 exhibits, we noted that each service‘s fiscal year 2001
actual spending deviated from the amount programmed and that some
differences were significant. For example, in the February 2002
exhibits, the Navy showed an increase for fiscal year 2001 of
approximately $400 million, and the Air Force showed a decrease of
approximately $93 million in the actual amounts spent for spare parts
versus the amount programmed in the June 2001 exhibits. Neither service
provided a reason for the change.
While DOD guidance requires the services to report total programmed and
actual spending amounts, the services do not identify and report
pending supplemental funding requests in their programmed spending
totals until after the supplemental funds are received. For example,
the Navy‘s June 2001 exhibit did not include supplemental funding of
about $299 million in its reported fiscal year 2001 programmed funding
estimate, which totaled approximately $3.5 billion. However, the Navy‘s
February 2002 exhibit included the additional funding in the actual
fiscal year 2001 actual spending totals. Similarly, the Army‘s June
2001 exhibit, which reported programmed funding of approximately $2.1
billion for fiscal year 2002, did not include $250 million in
supplemental funding for the purchase of additional spare parts to
improve readiness. The supplemental funding was later included in the
spending estimates reflected on the February 2002 exhibit. Service
officials commented that these reporting omissions were generally due
to uncertainties about requirements for reporting changes to spare
parts spending estimates that result from supplemental funding.
Conclusions:
Weaknesses in DOD‘s accounting and reporting practices hinder the
usefulness of the data to decision makers. Providing actual data on
spare parts spending is important to Congress and decision makers
because, when linked to factors such as spare parts shortages and
readiness, it can help serve as a baseline for evaluating the impact of
funding decisions. Because the reports have not cited actual spending
and have not been complete, they do not provide Congress with
reasonable assurance about the amount of funds being spent on spares.
As a result, they have less value to Congress and other decision makers
in the Department during their annual deliberations about (1) how best
to allocate future operations and maintenance resources to reduce spare
parts shortages and improve military readiness and (2) when to make
future resource allocation decisions about modernizing the force.
Recommendations for Executive Action:
Given the importance of spare parts to maintaining force readiness, and
as justification for future budget requests, actual and complete
information would be important to DOD as well as Congress. Therefore,
we recommend that the Secretary of Defense:
* issue additional guidance on how the services are to identify,
compile, and report on actual and complete spare parts spending
information, including supplemental funding, in total and by commodity,
as specified by Exhibit OP-31 and:
* direct the Secretaries of the military departments to comply with
Exhibit OP-31 reporting guidance to ensure that complete information is
provided to Congress on the quantities of spare parts purchased and
explanations of deviations between programmed and actual spending.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, DOD partially concurred
with both recommendations. DOD‘s written comments are reprinted in
their entirety in appendix VII. DOD expressed concern that the first
recommendation focused only on improving the reporting of operations
and maintenance appropriations spending for spare parts but did not
address other appropriations used for these purposes or working capital
fund purchases. DOD stated that in order to have a comprehensive
picture of spare parts spending, information on spare parts purchased
with working capital funds and other investment accounts needs to be
reported. The Department offered to work with Congress to facilitate
this kind of analysis. As our report makes clear, we focused our
analysis on the information the Department reported--operations and
maintenance funding--and our recommendation was directed at improving
the accuracy of the information. We continue to believe it is important
that the Congress receive accurate actual spending data for these
appropriations. Furthermore, as we point out in the report, operations
and maintenance funding is the principal source of funds used by the
military services to purchase new or repaired spare parts from the
working capital funds, and as such, is a key indicator of the priority
being placed on spares needs. Lastly, our report recognizes that there
are other sources of funds for spare parts purchases, and we support
DOD‘s statement that it will work with Congress to provide more
comprehensive reporting on actual and programmed spending from all
sources.
In partially concurring with the second recommendation, the Department
agreed that the services need to explain deviations between programmed
and actual spending but believed that reporting spare parts quantities
purchased as required by the financial management regulation does not
add significant value to the information being provided to Congress
because of the wide range in the unit costs for parts. While we
recognize that the costs of parts vary significantly, continuing to
include such information by commodity provides some basis for
identifying parts procurement trends over time and provides valuable
information about why shortages may exist for certain parts. Therefore,
we continue to believe that our recommendation is appropriate.
Scope and Methodology:
To determine the accuracy, completeness, and consistency of the
oversight reports to Congress on spare parts spending for the active
forces under the operations and maintenance appropriation, we obtained
copies of and analyzed data reflected on OP-31 exhibits submitted by
the Departments of the Army, Navy, and Air Force for the June 2001 and
February 2002 budget submissions. We compared data and narrative
explanations on the reports with reporting guidelines and templates
contained in the DOD Financial Management Regulation. We analyzed and
documented the data collection and reporting processes followed by each
of the military departments through interviews with officials and
reviews of available documentation at DOD‘s Office of the Comptroller
and budget offices within the Departments of the Army, Navy, and the
Air Force. To determine the availability of alternative systems for
tracking and documenting information on actual obligations for spare
parts purchases, we visited selected major commands in each of the
military departments. These major commands included the Army‘s Training
and Doctrine Command; the Navy‘s Commander in Chief, Atlantic Fleet;
and the Air Force‘s Air Combat Command. However, we did not attempt to
validate the commands‘ detailed funding data. We also reviewed our
prior reports outlining expectations for enhanced oversight reporting
on the use of spare funds and high-risk operations within the
Department of Defense.
We performed our review from February through August 2002 in accordance
with generally accepted government auditing standards.
We are sending copies of this report to John P. Murtha, the Ranking
Minority Member of the Subcommittee on Defense, House Committee on
Appropriations; other interested congressional committees; the
Secretary of Defense; Secretaries of the Army, Air Force, and Navy; and
the Director, Office of Management and Budget. 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.
Please contact me on (202) 512-8412 if you or your staff have any
questions concerning this report. Staff acknowledgments are listed in
appendix VIII.
David R. Warren, Director
Defense Management Issues:
Signed by David R. Warren:
[End of section]
Appendix I: Army Exhibit OP-31 Report on Spares and Repair Parts
Submitted to Congress in June 2001:
[See PDF for image]
Legend:
FY = fiscal year:
M = millions:
MISC. = miscellaneous:
Qty = quantity:
Source: Department of the Army Fiscal Year 2002 Amended Budget
Submission.
[End of figure]
[End of section]
Appendix II: Army Exhibit OP-31 Report on Spares and Repair Parts
Submitted to Congress in February 2002:
[See PDF for image]
Legend:
FY = fiscal year:
M = millions:
MISC. = miscellaneous:
Qty = quantity:
Source: Department of the Army Fiscal Year 2003 Budget Estimates
Submitted to Congress, February 2002.
[End of figure]
[End of section]
Appendix III: Air Force Exhibit OP-31 Report on Spares and Repair Parts
Submitted to Congress in June 2001:
[See PDF for image]
Legend:
AF = Air Force:
AVPOL = aviation petroleum oils lubricants:
CY = calendar year:
FY = fiscal year:
IMPAC = international merchant purchase authorization card:
Misc. = miscellaneous:
NA = not available:
Qty = quantity:
Source: Department of the Air Force Fiscal Year 2002 Amended Budget
Submissions to Congress, June 2001.
[End of figure]
[End of section]
Appendix IV: Air Force Exhibit OP-31 Report on Spares and Repair Parts
Submitted to Congress in February 2002:
[See PDF for image]
Legend:
AF = Air Force:
AVPOL = aviation petroleum oils lubricants:
CY = calendar year:
FY = fiscal year:
IMPAC = international merchant purchase authorization card:
M = millions:
Misc. = miscellaneous:
NA = not available:
Qty = quantity:
Source: Department of the Air Force Fiscal Year 2003 Budget Estimates
to Congress, February 2002.
[End of figure]
[End of section]
Appendix V: Navy Department Exhibit OP-31 Report on Spares and Repair
Parts Submitted to Congress in June 2001:
[See PDF for image]
Legend:
FY = fiscal year:
O&M = operations and maintenance:
Source: Department of the Navy Fiscal Year 2002 Amended Budget
Submission Justification of Estimates, June 2001.
[End of figure]
[End of section]
Appendix VI Navy Department Exhibit OP-31 Report on Spares and Repair
Parts Submitted to Congress in February 2002:
[See PDF for image]
Legend:
FY = fiscal year:
Source: Department of the Navy Fiscal Year 2003 Budget Estimates
Justification of Estimates, February 2002.
[End of figure]
[End of section]
Appendix VII Comments from the Under Secretary of Defense:
UNDER SECRETARY OF DEFENSE 1100 DEFENSE PENTAGON WASHINGTON, DC 20301-
1100:
SEP 30 2002:
COMPTROLLER.
Mr. David R. Warren:
Director, Defense Capabilities and Management:
U.S. General Accounting Office Washington, D.C. 20548:
Dear Mr. Warren:
This is the Department of Defense (DoD) response to the General
Accounting Office (GAO) draft report, ’DEFENSE INVENTORY: Better
Reporting on Spare Parts Spending Will Enhance Congressional
Oversight,“ dated August 30, 2002 (GAO Code 350153).
I reiterate the Department‘s commitment to providing the Congress with
information that facilitates the thorough analysis of spares funding.
In addition to the OP-31 exhibit, which the GAO analyzes in their
report, the Department also provides in the President‘s Budget
submission, supplemental material on spares and repair parts purchased
in the Supply Management Business Area of the Defense Working Capital
Fund (DWCF). The draft report, by focusing as it does on the Operation
and Maintenance funding for spares, does not adequately emphasize the
Working Capital Fund side of the total spares equation. The Department
stands ready to work with the Congress to provide additional budget
information and analyses that support the budget request. Detailed
comments on the draft report recommendations are included in the
enclosure. The DoD appreciates the opportunity to comment on the draft
report.
Dov S. Zakheim:
Signed by Dov S. Zakheim:
Enclosure:
GAO-03-18/GAO CODE 350153:
’DEFENSE INVENTORY: BETTER REPORTING ON SPARE PARTS SPENDING WILL
ENHANCE CONGRESSIONAL OVERSIGHT“:
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
issue additional guidance on how the Services are to identify, compile
and report on actual and complete spare parts spending information,
including supplemental funding, in total and by commodity as specified
by the Exhibit OP-31. (Page 13/Draft Report).
DoD RESPONSE: Partially concur. In making the case that the Services
should provide ’real actuals“ in their budget exhibits rather than
estimates, this recommendation ignores the fact that there is more to
the question of what the Department is spending on spares than just the
Operation & Maintenance (O&M) account purchases. The DoD procures
spares and repair parts in many appropriations. The OP-31 exhibit was
designed as an internal DoD working document to just track customer O&M
expenditures for spares and repair parts. Since the OP-31 exhibit does
not include Working Capital Fund or Investment account purchases, it
does not present comprehensive information on spare and repair parts
purchases. The Department‘s position is that a superior way to get to
the heart of the question of ’what does the Department spend on
spares?“ is to review both WCF funding and customer account (i.e., O&M
and investment account) purchases. The Department will work with the
Congress to facilitate this kind of analysis.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the Secretaries of the Military Departments to comply with
Exhibit OP-31 reporting guidance to endure that complete information is
provided to the Congress on the quantities of spare parts purchased and
explanations of deviations between programmed and actual spending.
(Page 13/Draft Report).
DoD RESPONSE: Partially concur. The DoD Financial Management Regulation
(DoDFMR) directs the Components to provide an explanation for
deviations between the amount presented as Prior Year Actuals and
program requests. The Department, however, does not share the belief
that inclusion of quantities in the OP-31 exhibit adds significant
value to the information provided. Spare and repair parts range in
value from a few hundred dollars to tens of thousands of dollars.
Because of this wide-range of unit costs, including quantities, the
exhibit does not provide useful information for analytical purposes.
[End of section]
Appendix VIII: Staff Acknowledgments:
Acknowledgments:
Key contributors to this report were Richard Payne,
Glenn Knoepfle, Alfonso Garcia, George Morse, Gina Ruidera,
Connie Sawyer, George Surosky, Kenneth Patton, and
Nancy Benco.
FOOTNOTES
[1] See U.S. General Accounting Office, Defense Inventory: Information
on the Use of Spare Parts Funding Is Lacking, GAO-01-472 (Washington,
D.C.: June 11, 2001).
[2] For the purpose of this report, ’spending“ means an administrative
’obligation“ of appropriated funds to purchase spare parts, rather than
the expenditure of funds to purchase spare parts.
[3] A working capital fund is a revolving fund. Revolving funds create
permanent authorization for a program to be financed, in whole or in
part, through the use of its collections to carry out future
operations, such as to finance inventories of supplies and other stores
or to provide working capital for industrial-type activities.
[4] We did not verify the accuracy of the data at the major commands.
[5] Spare parts are the repair parts and components, including kits,
assemblies, and subassemblies (both repairable and nonrepairable)
required for the maintenance of DOD‘s weapons systems. Repairable items
are those that are returned to the supply system to be repaired when
they are no longer in working condition. Nonrepairable items are called
’consumables,“ which means they are consumed in use or cannot be
economically repaired.
[6] DOD‘s Supply System Inventory Report indicates that the cost of
inventory is calculated under the DOD Comptroller‘s acquisition cost
methodology mandated for all DOD annual reports and financial
statements.
[7] See U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Defense, GAO-01-244 (Washington, D.C.:
Jan. 1, 2001).
[8] Senate Committee on Appropriations, Making Supplemental
Appropriations, for the Fiscal Year Ending September 30, 2001, and for
Other Purposes, 107TH Cong., 1ST sess., 2001, S. Rept. 107-33, 6.
[9] As discussed in our recent testimony concerning DOD‘s financial
management operations, the Department has long-standing problems in
ensuring basic accountability and maintaining funds control. See U.S.
General Accounting Office, DOD Financial Management: Integrated
Approach, Accountability, Transparency, and Incentives Are Keys to
Effective Reform, GAO-02-537T (Washington, D.C.: Mar. 20, 2002).
[10] ’Fly“ refers to items directly attached or related to an aircraft.
’Non-fly“ refers to items not directly attached or related to an
aircraft.
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