Air Force Depot Maintenance
Improved Pricing and Cost Reduction Practices Needed Gao ID: GAO-04-498 June 17, 2004The Air Force depot maintenance activity group in-house operations generate about $5 billion in annual revenue principally by repairing aircraft, missiles, engines, and other assets. In doing so, the group operates under the working capital fund concept, where customers are to be charged the anticipated costs of providing goods and services to them. The group's average price for in-house work almost doubled between fiscal years 2000 and 2004 from $119.99 per hour to $237.84 per hour. GAO was asked to determine (1) what factors were primarily responsible for the price increase, (2) if the prices charged recovered the reported actual costs of performing the work, and (3) if the Air Force has taken effective steps to improve efficiency and control the activity group's costs.
GAO identified five primary factors that showed why the Air Force depot maintenance activity group's average price increased from $119.99 per direct labor hour of work in fiscal year 2000 to $237.84 per hour in fiscal year 2004. An increase in material costs accounted for about 67 percent of the total increase and was by far the most significant factor. The Air Force has identified some of the causes of the higher material costs such as aging aircraft, but has yet to complete an effective and comprehensive analysis of material cost increases. As a result, it (1) cannot quantify the extent to which individual causes contributed to higher costs and (2) does not know if it has identified all of the major causes. GAO's analysis of the other four factors showed that (1) the increase in labor costs was due largely to events beyond the group's control, such as annual salary increases, (2) the increase in business operations costs was due partly to costs related to implementing a new accounting system, (3) a surcharge intended to recoup anticipated losses on work carried over from the previous fiscal year may have been unnecessary, and (4) a surcharge intended to generate additional cash in fiscal year 2004 for the Air Force Working Capital Fund was unnecessary. GAO's analysis showed that due in part to these surcharges (1) the Air Force Working Capital Fund, which includes the depot maintenance and several other activity groups, had a $2.5 billion cash balance as of January 31, 2004 and (2) this balance was more than $1.3 billion higher than the maximum level allowed by DOD policy. Either the Office of the Secretary of Defense or the Congress could use this unneeded cash to satisfy other requirements. DOD officials told us that they are exploring options on what to do with the excess cash. GAO's analysis of the group's financial reports showed that prices charged customers were not set high enough to recover about $1.1 billion of the group's reported costs for fiscal years 2000 through 2003. The activity group is required by DOD policy to set prices to recoup the cost of doing work. However, Air Force officials informed us that the prices were artificially constrained to help ensure that the group's customers would be able to get needed work done with the amount of funds provided to them through the budget process. The Air Force changed its sales price development philosophy to bring prices charged customers in fiscal year 2004 more in line with operating costs. In addition, the Air Force allowed out-of-cycle price increases in fiscal years 2002 and 2003 to alleviate projected losses. Further, the Air Force Materiel Command has not been successful in its efforts to control costs. Although several promising initiatives are underway, the Command has not (1) developed a successful methodology for analyzing the reasons for the rapid material cost increase and (2) effectively utilized an established data repository for sharing cost-saving ideas among the three air logistics centers on process improvements and to demonstrate whether its cost savings initiatives have been successful.
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-04-498, Air Force Depot Maintenance: Improved Pricing and Cost Reduction Practices Needed
This is the accessible text file for GAO report number GAO-04-498
entitled 'Air Force Depot Maintenance: Improved Pricing and Cost
Reduction Practices Needed' which was released on June 17, 2004.
This text file was formatted by the U.S. General Accounting Office
(GAO) to be accessible to users with visual impairments, as part of a
longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to the Chairman, Subcommittee on Defense, Committee on
Appropriations, House of Representatives:
June 2004:
AIR FORCE DEPOT MAINTENANCE:
Improved Pricing and Cost Reduction Practices Needed:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-498]:
GAO Highlights:
Highlights of GAO-04-498, a report to the Chairman, Subcommittee on
Defense, Committee on Appropriations, House of Representatives
Why GAO Did This Study:
The Air Force depot maintenance activity group in-house operations
generate about $5 billion in annual revenue principally by repairing
aircraft, missiles, engines, and other assets. In doing so, the group
operates under the working capital fund concept, where customers are to
be charged the anticipated costs of providing goods and services to
them. The group‘s average price for in-house work almost doubled
between fiscal years 2000 and 2004 from $119.99 per hour to $237.84 per
hour. GAO was asked to determine (1) what factors were primarily
responsible for the price increase, (2) if the prices charged recovered
the reported actual costs of performing the work, and (3) if the Air
Force has taken effective steps to improve efficiency and control the
activity group‘s costs.
What GAO Found:
GAO identified five primary factors that showed why the Air Force depot
maintenance activity group‘s average price increased from $119.99 per
direct labor hour of work in fiscal year 2000 to $237.84 per hour in
fiscal year 2004. An increase in material costs accounted for about 67
percent of the total increase and was by far the most significant
factor. The Air Force has identified some of the causes of the higher
material costs such as aging aircraft, but has yet to complete an
effective and comprehensive analysis of material cost increases. As a
result, it (1) cannot quantify the extent to which individual causes
contributed to higher costs and (2) does not know if it has identified
all of the major causes.
GAO‘s analysis of the other four factors showed that (1) the increase
in labor costs was due largely to events beyond the group‘s control,
such as annual salary increases, (2) the increase in business
operations costs was due partly to costs related to implementing a new
accounting system, (3) a surcharge intended to recoup anticipated
losses on work carried over from the previous fiscal year may have been
unnecessary, and (4) a surcharge intended to generate additional cash
in fiscal year 2004 for the Air Force Working Capital Fund was
unnecessary. GAO‘s analysis showed that due in part to these surcharges
(1) the Air Force Working Capital Fund, which includes the depot
maintenance and several other activity groups, had a $2.5 billion cash
balance as of January 31, 2004 and (2) this balance was more than $1.3
billion higher than the maximum level allowed by DOD policy. Either the
Office of the Secretary of Defense or the Congress could use this
unneeded cash to satisfy other requirements. DOD officials told us that
they are exploring options on what to do with the excess cash.
GAO‘s analysis of the group‘s financial reports showed that prices
charged customers were not set high enough to recover about $1.1
billion of the group‘s reported costs for fiscal years 2000 through
2003. The activity group is required by DOD policy to set prices to
recoup the cost of doing work. However, Air Force officials informed us
that the prices were artificially constrained to help ensure that the
group‘s customers would be able to get needed work done with the amount
of funds provided to them through the budget process. The Air Force
changed its sales price development philosophy to bring prices charged
customers in fiscal year 2004 more in line with operating costs. In
addition, the Air Force allowed out-of-cycle price increases in fiscal
years 2002 and 2003 to alleviate projected losses.
Further, the Air Force Materiel Command has not been successful in its
efforts to control costs. Although several promising initiatives are
underway, the Command has not (1) developed a successful methodology
for analyzing the reasons for the rapid material cost increase and (2)
effectively utilized an established data repository for sharing cost-
saving ideas among the three air logistics centers on process
improvements and to demonstrate whether its cost savings initiatives
have been successful.
What GAO Recommends:
GAO is making recommendations to the Air Force to (1) set prices so
that the depot maintenance activity group recovers all estimated costs
and (2) control the activity group‘s costs and improve the coordination
and information on initiatives. GAO is also making a recommendation to
the Department of Defense to reduce excess cash in the Air Force
Working Capital Fund. GAO is also suggesting that the Congress consider
taking action to reduce the amount of excess cash in the Air Force
Working Capital Fund if DOD does not adequately reduce the cash
balance. DOD concurred with all the recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-498.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gregory D. Kutz at (202)
512-9505 or Kutzg@gao.gov or William M. Solis at (202) 512-8365.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Factors Causing Prices to Increase:
Prices Charged Customers Were Not Set High Enough to Recover Costs:
Air Force Depot Maintenance Needs More Systematic and Effective
Processes for Controlling Costs:
Conclusions:
Matter for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Acknowledgments:
Tables:
Table 1: Factors Responsible for the Increase in the Air Force Depot
Maintenance Activity Group's Composite Hourly Sales Price between
Fiscal Years 2000 and 2004:
Table 2: Air Force Depot Maintenance Activity Group's Budgeted Labor
Expense Rates for Fiscal Years 2000 through 2004:
Table 3: Activity Group's Reported Losses and Additional Funds Received
to Recoup Losses from Fiscal Years 2000 to 2003:
Table 4: Air Logistics Centers' Revised Fiscal Year 2003 Sales Prices
for Selected Workloads due to Out-of-Cycle Price Increases:
Figure:
Figure 1: Comparison of the Air Force Depot Maintenance Activity Group's
Budgeted and Reported Actual Material Expense Rates for Fiscal Years
2000 through 2004:
Letter June 17, 2004:
The Honorable Jerry Lewis:
Chairman, Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
Dear Mr. Chairman:
The Air Force depot maintenance activity group supports combat
readiness by providing services necessary to keep Air Force units
operating worldwide. The group's in-house operations[Footnote 1]
generate about $5 billion in annual revenue principally by repairing
and overhauling a wide range of assets, including fighter aircraft such
as the F-15, intercontinental ballistic missiles such as the Minuteman
and Peacekeeper missiles, jet aircraft engines, electronics, avionics,
software, and inventory items for the military services, other
government agencies, and foreign governments. For example, in fiscal
year 2002, the Air Force reported that the depot maintenance activity
group's three air logistics centers' in-house operations performed
major modifications on 852 aircraft, overhauled 515 aircraft engines,
and repaired 352,995 inventory items. In doing so, the group operates
under the working capital fund concept, where customers are to be
charged for the anticipated full cost of goods and services. The group
performs its in-house operations primarily at the three air logistics
centers--the Oklahoma City Air Logistics Center, Tinker Air Force Base,
Oklahoma; the Ogden Air Logistics Center, Hill Air Force Base, Utah;
and the Warner Robins Air Logistics Center, Robins Air Force Base,
Georgia.
The activity group's average price for in-house work almost doubled
between fiscal years 2000 and 2004. Specifically, according to the
activity group's budget documents, the average price per direct labor
hour of work accomplished (composite sales rate)[Footnote 2] increased
from $119.99 per hour for fiscal year 2000 to $237.84 per hour for
fiscal year 2004, or about 98 percent.[Footnote 3] Because the activity
group's customers are expected to request about 20.8 million hours of
in-house work in fiscal year 2004, this means that customers will have
to pay about $4.9 billion for work that they would have paid about $2.5
billion in fiscal year 2000.
As requested and agreed to with your office, this report discusses
three issues related to this large price increase. Our objectives were
to determine (1) what factors were primarily responsible for the price
increase, (2) if the prices charged customers during fiscal year 2000
through fiscal year 2003 recovered the reported actual costs of
performing the work, and (3) if the Air Force has taken effective steps
to improve efficiency and control the activity group's costs. Our
review was performed from June 2003 through April 2004 in accordance
with U.S. generally accepted government auditing standards. Most of the
financial information in this report is budget data obtained from
official Air Force budget documents. The accounting data used in this
report was obtained from official Air Force accounting reports.
Although we did not validate the accuracy of the underlying
transactions that made up the summary level data, the budget and
accounting information is used by the Air Force, the Department of
Defense (DOD), and congressional committees to make decisions regarding
the amount of funds customers receive to purchase goods and services
from the depot maintenance activity group. Further details on our scope
and methodology can be found in appendix I. We requested comments on a
draft of this report from the Secretary of Defense or his designee.
Written comments from the Deputy Comptroller for Program Budget are
reprinted in appendix II.
Results in Brief:
Our work showed that the sales price increase was due primarily to the
following five factors, in descending order of significance: (1) higher
material costs, (2) higher labor costs, (3) higher business operations
costs (non-labor, non-material overhead costs), (4) a surcharge
intended to recoup anticipated losses on work carried over from the
previous fiscal year (carryover surcharge), and (5) a surcharge to
generate additional cash (cash surcharge). By far the most significant
of these factors was higher material costs, which accounted for about
67 percent of the total increase. Air Force depot maintenance officials
provided anecdotal evidence to show that the higher material costs were
caused at least partly by (1) the need to replace component parts more
frequently because of both safety concerns and the aging of aircraft
and engines and (2) increases in the prices that the depot maintenance
activity group must pay its suppliers for component parts. However,
because Air Force depot maintenance officials have yet to complete an
effective and comprehensive analysis to determine the underlying causes
of why material costs have increased, they cannot fully quantify the
impact of the causes that they have identified and do not know if they
have identified all of the major causes.
Our analysis of the other four factors showed that (1) the increase in
labor costs was caused largely by things that were beyond the activity
group's control, such as annual salary increases and health care costs
for federal employees, (2) the increase in business operations costs
was for such things as the repair and modernization of equipment and
facilities and costs related to the implementation of a new accounting
system, (3) the fiscal year 2004 carryover surcharge was probably too
high and may have been unnecessary, and (4) the fiscal year 2004 cash
surcharge was unnecessary. Our analysis also showed that due in part to
these surcharges, the Air Force Working Capital Fund--which includes
the depot maintenance activity group and several other activity groups-
-had a cash balance of $2.5 billion as of January 31, 2004, which was
more than $1.3 billion higher than the maximum level allowed by DOD
policy. Either the Office of the Secretary of Defense or the Congress
could use this unneeded cash to satisfy other requirements.
Our analysis of the activity group's financial reports also showed that
prices charged customers were not set high enough to recover about $1.1
billion of the group's reported costs for fiscal years 2000 through
2003. The activity group, like other working capital fund activities,
is required by DOD policy to set the prices it charges customers to
recoup the cost of doing the work. However, Air Force officials
informed us that the prices were artificially constrained to help
ensure that the activity group's customers would be able to get needed
work done with the amount of funds provided to them through the budget
process. In part, because the sales prices were set too low during this
period, the activity group lost $1.1 billion. To recoup the losses,
customers paid about $1 billion of their existing funds (primarily
operation and maintenance funds) during fiscal years 2000, 2001, and
2002. The $1 billion was billed and collected by the activity group and
was not included in the prices. The Air Force changed its sales price
development philosophy in 2002 in an effort to bring prices charged
customers in fiscal year 2004 more in line with operating costs. In
addition, the Air Force allowed out-of-cycle price increases in fiscal
years 2002 and 2003 to alleviate projected losses.
The Air Force has not taken effective steps to control the activity
group's costs. Although several promising initiatives are underway, our
analysis showed that the Air Force Materiel Command has been unable to
develop an effective methodology for identifying and analyzing the
reasons for material cost increases. In addition, the Command has also
not effectively utilized the data repository established to enable the
three centers to share cost-saving ideas and to demonstrate whether its
cost saving initiatives have been successful.
We are making a recommendation to the Secretary of Defense to take
action to reduce the amount of excess cash in the Air Force Working
Capital Fund. We are also making recommendations to the Air Force to
(1) follow DOD's requirement to set prices so that the depot
maintenance activity group recovers all estimated costs, (2) develop
and complete a viable, systematic methodology for analyzing material
cost variances, and (3) enter all process improvement initiatives and
related data into the data repository so that the Air Force can track
the costs and savings associated with the initiatives to determine
whether they have been effective. We also suggest that the Congress
consider taking action to reduce the amount of excess cash in the Air
Force Working Capital Fund if DOD does not reduce the cash balance to
the 7 to 10 day requirement. In its comments on a draft of this report,
DOD concurred with all the recommendations. DOD has reduced the excess
cash in the Air Force Working Capital Fund by transferring $1.1 billion
of the excess cash out of the Fund in April 2004. However, the Air
Force Working Capital Fund still had about $400 million of excess cash
as of the end of April 2004. We still suggest that the Congress
continue to monitor the working capital fund cash balances and take
action to reduce the amount of excess cash if the balances continue to
be in excess of amounts necessary.
Background:
The Air Force depot maintenance activity group is part of the Air Force
Working Capital Fund, a revolving fund that relies on sales revenue
rather than direct congressional appropriations to finance its
operations. DOD policy requires working capital fund activity groups to
(1) establish sales prices that allow them to recover their expected
costs from their customers and (2) operate on a break-even basis over
time--that is, not make a profit nor incur a loss. DOD policy also
requires the activity group to establish its sales prices prior to the
start of each fiscal year and to apply these predetermined or
"stabilized" prices to most orders received during the year--regardless
of when the work is actually accomplished or what costs are actually
incurred. For the depot maintenance activity group, DOD policy also
requires the group to recoup unbudgeted losses of $10 million or more
in the year in which they occurred. In the case of losses that occur in
the fourth quarter, the losses are to be recovered in the first quarter
of the next fiscal year.
Developing accurate prices is challenging since the process to
determine the prices begins about 2 years in advance of when the work
is actually received and performed. In essence, the activity group's
budget development has to coincide with the development of its
customers' budgets so that they both use the same set of assumptions.
To develop prices, the activity group estimates (1) labor, material,
overhead, and other costs based on anticipated demand for work as
projected by customers, (2) total direct labor hours for each type of
work performed, such as aircraft, engines, and repairable inventory
items, (3) the workforce's productivity, and (4) savings due to
productivity and other cost avoidance initiatives. In order for an
activity group to operate on a break-even basis, it is extremely
important that the activity group accurately estimate the work it will
perform and the costs of performing the work. Higher-than-expected
costs or lower-than-expected customer demand for goods and services can
cause the activity group to incur losses. Conversely, lower-than-
expected costs or higher-than-expected customer demand for goods and
services can result in profits. With sales prices based on assumptions
that are made as long as 2 years before the prices go into effect, some
variance between expected and actual costs is inevitable.
The Activity Group's Financial Reports Are Not Accurate:
We have previously reported that DOD has had long-standing problems in
preparing accurate working capital fund financial reports. The DOD
Inspector General and/or the Air Force Audit Agency have not been able
to express an opinion on the reliability of the working capital fund's
financial statements for fiscal years 1993 through 2003. The auditors
reported that the financial information was unreliable and financial
systems and processes, as well as associated internal control
structures, were inadequate to produce reliable financial information.
The Air Force recognized that the existing legacy depot maintenance
accounting systems that were designed in the 1960s and 1970s did not
produce usable, complete, reliable, timely, consistent, and auditable
information. According to the Air Force, among other things, these
systems (1) were not transaction driven, (2) did not capture costs at
the task level, and (3) did not produce accurate financial statements.
To help improve the depot maintenance activity group's financial
management operations, in January 1998, the Assistant Secretary of the
Air Force for Financial Management approved the implementation of the
Depot Maintenance Accounting and Production System--which includes an
accounting system called the Defense Industrial Financial Management
System (DIFMS) that originally belonged to the Navy--at the depots
located at the air logistics centers. According to the Air Force, this
system is designed to provide the accurate task-level cost data that
are needed to support (1) financial analysis and cost management and
(2) the development of prices that more accurately reflect the cost of
providing goods and services to customers. The Air Force is in the
process of implementing this system and plans to complete the
implementation during fiscal year 2004.
Factors Causing Prices to Increase:
We identified five factors that accounted for about 95 percent of the
sales price increase from $119.99 per direct labor hour[Footnote 4] in
fiscal year 2000 to $237.84 per hour in fiscal year 2004.[Footnote 5]
By far the most significant of these factors was material costs, which
accounted for about 67 percent of the total increase. Air Force depot
maintenance officials have yet to complete an effective and
comprehensive analysis to determine the underlying causes of the
material cost increases. Our analysis of the other four factors
identified a variety of underlying causes, some of which were beyond
the activity group's control, such as rising health care costs and
maintenance and modernization of equipment and facilities. However, our
analysis of the two factors that involved surcharges determined that
the carryover surcharge (based on anticipated losses on work carried
over from the previous fiscal year) was probably too high for fiscal
year 2004 and may have been unnecessary, while the fiscal year 2004
cash surcharge was unnecessary and should not have been added to the
depot's composite hourly sales price. Details on the five factors
follow.
* Higher budgeted material costs accounted for about 67 percent of the
total increase in the composite hourly sales price. Air Force depot
maintenance officials provided anecdotal evidence to show that the
higher material costs were caused at least partly by (1) the need to
replace component parts more frequently because of both safety concerns
and the aging of aircraft and engines and (2) increases in the prices
that the depot maintenance activity group must pay its suppliers for
component parts. However, because Air Force depot maintenance officials
have not completed a comprehensive analysis to determine the underlying
causes of why their material costs have increased, they cannot quantify
the impact of the identified causes and are unsure if they have
identified all of the major causes.
* Higher budgeted labor costs accounted for about 10 percent of the
increase in the activity group's composite hourly sales price. Our
analysis showed that the higher labor costs were caused largely by
factors beyond the activity group's control, such as annual salary
increases for federal employees and rising health care costs.
* Higher non-labor, non-material overhead costs, which the Air Force
calls business operations costs, accounted for about 8 percent of the
total increase. Our analysis showed that the primary causes were (1)
costs related to the implementation of a new accounting system and (2)
the fact that the fiscal year 2004 budget provided significant
increases in several areas where expenditures had been constrained for
several years, such as the maintenance and modernization of equipment
and facilities.
* An increase in the surcharge included in the composite hourly sales
prices to recoup anticipated losses on work carried over from the
previous fiscal year (carryover surcharge) accounted for about 7
percent of the total increase in the sales price. Our analysis showed
that the fiscal year 2004 carryover surcharge was probably too high and
may have been unnecessary.
* An increase in the surcharge included in the composite hourly sales
prices to generate additional cash (cash surcharge) accounted for about
3 percent of the total increase in the sales price. Our analysis also
showed that the fiscal year 2004 cash surcharge was unnecessary because
the Air Force Working Capital Fund's $2.5 billion cash balance as of
January 31, 2004, was already more than $1.3 billion higher than the
maximum level allowed by DOD policy. Either the Office of the Secretary
of Defense or the Congress could use this unneeded cash to satisfy
other requirements.
Table 1 shows the impact these factors had on the group's composite
sales price. As table 1 also shows, about 5 percent of the price
increase was due to factors we either did not identify or could not
quantify.
Table 1: Factors Responsible for the Increase in the Air Force Depot
Maintenance Activity Group's Composite Hourly Sales Price between
Fiscal Years 2000 and 2004:
Factor: Higher material costs;
Impact on the composite sales price: $78.50;
Percent of total: 67%.
Factor: Higher labor costs;
Impact on the composite sales price: 11.86;
Percent of total: 10%.
Factor: Higher business operations costs;
Impact on the composite sales price: 9.64;
Percent of total: 8%.
Factor: Higher carryover surcharge;
Impact on the composite sales price: 8.00;
Percent of total: 7%.
Factor: Higher cash surcharge;
Impact on the composite sales price: 3.55;
Percent of total: 3%.
Factor: Other;
Impact on the composite sales price: 6.30;
Percent of total: 5%.
Total increase;
Impact on the composite sales price: $117.85;
Percent of total: 100%.
Source: Air Force Materiel Command.
[End of table]
Spiraling Material Costs Are Primary Cause of Price Increases, but
Further Analysis Is Needed to Fully Identify Underlying Causes:
As shown in table 1, although many factors contributed to the increase
that occurred in the composite hourly sales price for fiscal years 2000
through 2004, higher budgeted material costs were, by far, the most
significant. Further, our analysis showed that higher budgeted material
costs had an even greater impact on some workloads. For example, the
sales price for the repair of E-3 airborne warning and control system
(AWACS) aircraft increased from $119.69 per hour in fiscal year 2000 to
$330.06 per hour in fiscal year 2004, about 176 percent, and the price
for the repair of F108-100 engines used in the KC-135 aircraft
increased from $183,240 per engine in fiscal year 2000 to $1,214,124
per engine in fiscal year 2004, about 563 percent. Figure 1 shows the
activity group's budgeted and reported actual material costs per direct
labor hour of work accomplished (material expense rate) for fiscal
years 2000 through 2004. While Air Force depot maintenance officials
can provide anecdotal evidence on why the activity group's overall
material costs have increased, they have yet to complete an effective
and comprehensive analysis to determine why material costs have
increased.
Figure 1: Comparison of the Air Force Depot Maintenance Activity
Group's Budgeted and Reported Actual Material Expense Rates for Fiscal
Years 2000 through 2004:
[See PDF for image]
Note: Based on Air Force Materiel Command data.
[A] Reported actual material expense rate for fiscal year 2004 is as of
December 31, 2003.
[End of figure]
The Air Force Has Identified Some of the Causes of Material Cost
Increases:
Air Force depot maintenance officials believe the activity group's
higher material costs can be attributed, to a large extent, to
increased material usage that has been caused by (1) the aging of the
Air Force's aircraft and engine inventory and (2) safety concerns.
Further, they can provide anecdotal evidence to support their views.
For example:
* Material costs related to the F-15 aircraft, which is more than 30
years old, have increased significantly over the past several years, in
part, due to its age. For example, the Air Force is in the process of
replacing the aircraft's structural surfaces with a material--called
gridlock--that is more expensive than the material that was used in the
past to make structural repairs. According to Air Force officials at
the air logistics center making the repairs, the new material is not
prone to the problems that plagued the old material. As a result, the
new material should allow for longer intervals between structural
surface repairs and reduce structural repair costs in the future. For
fiscal year 2003, the gridlock material added $24.5 million to the
estimated cost of material to be used to repair the F-15 and $20.47 to
the hourly rate charged customers for maintenance work on the aircraft.
* Due primarily to actions taken in response to safety concerns, the
depot maintenance activity group raised the sales price for the repair
of F101-GE-102 high-pressure turbine rotor assemblies from $144,464 in
fiscal year 2003 to $261,872 in fiscal year 2004, an increase of
$117,408 or 81 percent. From 1999 through 2002, three F-16 aircraft
crashed due to engine failures caused by metal fatigue on the engine's
high-pressure turbine rotor. To address this safety problem, the
Oklahoma City air logistics center began replacing the rotors on
similar aircraft engines more frequently and started using more
expensive rotors that were made of a stronger, more heat resistant
metal alloy.
Depot maintenance officials have also determined that another major
cause of their higher material costs is price growth. The activity
group pays various suppliers for component parts[Footnote 6] that it
uses to repair aircraft, engines, and other items. Depot maintenance
officials stated that their analysis showed that the amount they had to
pay for repairable component parts in fiscal year 2003 was about 9
percent higher than the price they had to pay for the same component
parts in fiscal year 2002. Similarly, the activity group's fiscal year
2004 budget and, in turn, its fiscal year 2004 prices were based on the
assumption that the prices it would have to pay its suppliers for
repairable component parts would increase an additional 14 percent.
Another major cause of the activity group's higher material costs
relates to the workloads that were transferred from two closing air
logistics centers (Sacramento and San Antonio) to the three remaining
centers (Ogden, Oklahoma City, and Warner Robins) in the late 1990s.
Depot maintenance officials acknowledged that when workloads were moved
from the closing air logistics centers to the remaining centers in the
late 1990s, millions of dollars of material were also transferred.
Officials at one center acknowledged that this material was never
recorded in the center's accounting records. When the maintenance shops
needed component parts to accomplish the transferred workloads, they
used the transferred material and did not record an expense in their
financial records. This caused their reported material expenses to be
understated in fiscal year 2000. However, since most of the transferred
material has now been consumed, they now have to record the new
material being purchased as expenses in their financial records.
Consequently, part of what appears to be higher material costs is a
more accurate reflection of actual costs.
Efforts to Develop an Effective and Systematic Methodology for
Analyzing Material Cost Variances Have Been Ongoing for Several Years:
In August 2000, we reported[Footnote 7] that the Air Force depot
maintenance activity group did not have an effective, systematic
process for identifying and analyzing variances between planned and
actual material costs. The report noted that such an analysis is
frequently used for manufacturing processes to determine if material
usage has increased and, if so, to determine the impact on material
costs. The report also pointed out that such an analysis could be used
to validate Air Force officials' view that increased material usage is
caused by external factors beyond the Air Force Materiel Command's
control, such as the aging of the Air Force's aircraft and engine
inventory. The report recommended that the Secretary of the Air Force
direct the Commander, Air Force Materiel Command, to develop a
systematic process to identify and analyze variances between depot
maintenance activities' planned and actual material usage. In its
comments on our report, the Department of Defense concurred with our
recommendation and stated, among other things, that the Air Force
Materiel Command planned to develop a database that could be used to
analyze material usage.
As summarized below, the Air Force Materiel Command has subsequently
taken numerous actions to gain a better understanding of its material
cost and usage increases.
* From September through November 2000, material analysis teams were
established at Air Force Materiel Command headquarters and at each air
logistics center.
* In November 2000, Air Force Materiel Command headquarters developed a
material analysis plan that (1) identified some of the material
problems that would be addressed by the material analysis teams and (2)
indicated that one of the key functions of the material analysis teams
would be to link ongoing and planned material studies--thereby helping
to reduce duplication of effort and increase coordination on ongoing
studies.
* From January 2001 through February 2002, Air Force Materiel Command
conducted a comprehensive analysis of the material cost and usage
increases that occurred between fiscal years 1999 and 2000. However,
for a variety of reasons, the Command concluded that its analysis of
these data was inadequate; for example, because it did not include all
work. Consequently, from March 2002 through November 2003, the Command
developed a database to facilitate its material analyses.
In November 2003, the Air Force Materiel Command initiated an analysis
of the material cost and usage increases that occurred between fiscal
years 2002 and 2003. Air Force Materiel Command officials believe, and
we agree, that the revised methodology for analyzing material cost
variances should provide more reliable results than the one they used
to analyze the depot maintenance activity group's fiscal year 1999 and
fiscal year 2000 material cost and usage data. However, when they
completed their preliminary analysis, they determined that additional
work was needed on their methodology. According to the activity group's
fiscal year 2005 budget estimate, the revised model should be fully
functional in November 2004.
Labor Cost Contributed to Price Increases:
As shown in table 1, higher budgeted labor costs per direct labor hour
of work accomplished (labor expense rate) accounted for $11.86, or
about 10 percent, of the total increase that occurred in the activity
group's composite sales price between fiscal years 2000 and 2004. This
increase, which is shown in table 2, was due to both an increase in the
budgeted average cost of civilian labor and a decline in budgeted
productivity.
Table 2: Air Force Depot Maintenance Activity Group's Budgeted Labor
Expense Rates for Fiscal Years 2000 through 2004:
Budgeted labor rate;
Fiscal year: 2000: $53.32;
Fiscal year: 2001: $52.64;
Fiscal year: 2002: $56.55;
Fiscal year: 2003: $63.58;
Fiscal year: 2004: $65.18;
Increase: $11.86.
Source: Air Force Materiel Command.
[End of table]
Although the increase in the labor expense rate was the second most
significant reason for the composite sales price's increase during this
period, the labor costs' relative impact on the overall composite sales
price declined significantly during this 5-year period. Specifically,
in fiscal year 2000, the budgeted labor expense rate ($53.32) was $5.49
higher than the budgeted material expense rate ($47.83), but by fiscal
year 2004, it was more than $60 per hour less.
Further, our analysis showed that about 61 percent of the higher labor
cost was due to factors that are largely beyond the activity group's
control, such as annual cost-of-living increases and increased costs
for health benefits for federal employees. Specifically, our analysis
showed that about $7.25 of the $11.86 increase in the budgeted labor
expense rate was due to an increase in the average cost of civilian
labor from about $57,434 per work year per employee in fiscal year 2000
to about $65,132 in fiscal year 2004. This increase, in turn, was due
to two factors: (1) budget estimates for the average annual cost of
employee compensation (for basic salary and such variables as holiday
and overtime pay) increased by $5,649 per work year per employee, or
about 3 percent per year, and (2) budget estimates for the average
annual cost of employee benefits (employer contributions for such
things as health and life insurance) increased by about $2,049, or
about 5 percent per year.
The rest of the increase in the budgeted labor expense rate--about
$4.61 per hour--was the result of a 7 percent decline in budget
estimates for worker productivity. Our analysis showed that this
decline was not the result of an actual decline in reported actual
worker productivity, but rather was due to overly optimistic
productivity assumptions for fiscal years 2000 through 2003 and what
appears to be an overly pessimistic productivity assumption for fiscal
year 2004.
Specifically, our analysis showed that (1) the activity group's
reported actual productivity increased about 4 percent between fiscal
year 2000 and fiscal year 2003, but was consistently less than the
budget estimate and (2) the fiscal year 2004 budget estimate was based
on the assumption that the fiscal year 2004 productivity would be 3
percent less than the reported actual level for fiscal year 2003.
When we asked Air Force Materiel Command officials why the activity
group's fiscal year 2004 budget estimate was based on the assumption
that the workforce's productivity would decline, they acknowledged that
the budget assumption was probably too pessimistic. However, they also
stated that they still believe that several initiatives that the
Command is implementing will cause some decline in reported actual
productivity during fiscal year 2004. For example, they indicated that
the workforce's overall productivity is likely to decline, at least in
the short term, because they plan to add about 167 overhead positions
in order to implement a more effective process improvement strategy,
improve the activity group's management of its infrastructure, and
develop a methodology and tool to improve financial forecasting.
We attempted to review reported actual productivity data for the first
part of fiscal year 2004 to determine if the fiscal year 2004 budget
estimate was based on an overly pessimistic productivity assumption.
However, we were unable to do so because, as of February 2004, problems
related to the implementation of a new accounting system prevented the
activity group from producing reliable productivity data. This data
reliability problem is discussed later in this report.
Business Operations Costs Contributed to Price Increase, Especially
between Fiscal Years 2003 and 2004:
Business operations costs are non-labor, non-material overhead costs
for such things as the repair and modernization of equipment and
facilities and accounting automated data processing services. An
increase in business operations costs accounted for $9.64, or about 8
percent, of the total sales price increase as shown in table 1. Most
($7.99, or 83 percent) of this increase occurred between the fiscal
year 2003 and fiscal year 2004 budget estimates. An Air Force Materiel
Command official stated that the large increase in business operations
funding for fiscal year 2004 was due largely to the Air Force's
realization that infrastructure support and other essential support
services had been budgeted too low for several years and needed to be a
higher priority in fiscal year 2004. For example, Air Force
Headquarters reduced business operations cost projections that were
included in the activity group's initial fiscal year 2003 budget
estimate by about $92 million because of concern about the projected
large price increase and a desire to hold down costs, if possible. This
reduction, in turn, forced the activity group to cut back on certain
requirements, such as the repair and modernization of facilities and
equipment. The Air Force Materiel Command official stated that the
fiscal year 2004 budget estimate considered the years of deferred
maintenance and modernization and allowed for significant increases in
these areas.
Another major cause of the large increase in business operations costs
from fiscal year 2000 to 2004 is the activity group's ongoing
conversion of its legacy accounting systems to the Depot Maintenance
Accounting and Production System. According to Air Force depot
maintenance officials, this conversion is the primary reason why
budgeted costs for automated data processing and software support
increased from about $63.6 million in 2000 to about $115.5 million in
2004. Similarly, Air Force depot maintenance officials stated that the
decision to phase out their old legacy systems is the primary reason
why depreciation costs for automated data systems and equipment
increased from about $92.2 million in fiscal year 2000 to about $122.7
million in fiscal year 2004.
Work Carried Over from Previous Fiscal Year Contributed to Price
Increase:
During periods of increasing costs, the depot maintenance activity
group generally incurs financial losses on work that is carried over
from one fiscal year to the next. The reason for this is that DOD's
stabilized price policy requires working capital fund activities to
establish sales prices prior to the start of each fiscal year and to
apply these predetermined or "stabilized" prices to most orders
received during the year--regardless of when the work is accomplished
or what costs are actually incurred. In other words, the activity group
generally incurs financial losses on its "carryover" work because (1)
the cost of doing the work generally goes up from one year to the next
and (2) the stabilized price policy prevents the activity group from
increasing its prices to cover the higher costs. If losses are expected
on carryover work, the activity group adds a surcharge to the price of
its new work in order to recoup the losses that are anticipated on its
carryover work. Conversely, in the rare instance where costs are
expected to decrease from one year to the next, a negative surcharge
can be added.
As shown in table 1, about $8.00, or 7 percent, of the increase in the
depot maintenance activity group's composite hourly sales price can be
attributed to an increase in the carryover surcharge. Our analysis
showed that the fiscal year 2004 carryover surcharge added about $164
million to activity group customers' fiscal year 2004 depot maintenance
costs. Our analysis also indicated that the fiscal year 2004 carryover
surcharge was probably too high and may have been unnecessary.
Specifically, since most of the work carried over from fiscal year 2003
should have been accomplished during the first quarter of fiscal year
2004 and most of the work on fiscal year 2004 orders (which had the
carryover surcharge) should have been accomplished in subsequent
quarters, carryover losses should have occurred during the first
quarter of fiscal year 2004. However, the activity group reported a
profit of about $80 million for the first quarter. When we discussed
this inconsistency with depot maintenance officials, they agreed that
most of the carryover losses should have occurred in the first quarter,
but they also indicated that they did not know if the reported profit
(1) indicated that the carryover surcharge was unnecessary or (2) was
unreliable due to problems related to the implementation of a new
accounting system which, as discussed later in this report, has
adversely affected the reliability of the activity group's reported
accounting data.
Fiscal Year 2004 Cash Surcharge Will Generate Excess Cash:
Working capital funds are required to maintain cash balances[Footnote
8] that are sufficient to finance the operations of their activity
groups, but are not to tie up resources. DOD policy[Footnote 9]
requires working capital funds to maintain cash balances at sufficient
levels to cover 7 to 10 days of operational costs and 6 months of
capital disbursements. For the Air Force Working Capital Fund, which
includes several activity groups including depot maintenance and the
U.S. Transportation Command, this equates to a cash balance of between
$924 million and $1,221 million. It is important to note that (1) this
cash requirement applies to the total working capital fund and (2)
there is no requirement for individual activity groups to maintain a
specific cash balance (for example, a cash surplus in one activity
group can offset a deficit in another).
If projections of cash disbursements and collections indicate that cash
balances will drop below prescribed levels, the Air Force Working
Capital Fund can generate additional cash by adding a surcharge to one
or more of its activity groups' composite sales prices. Additionally,
if for some reason the cash balance becomes too low and there is a
possibility of an Antideficiency Act[Footnote 10] violation, the
working capital funds are required to generate additional cash. One way
to raise cash is by advance billing customers for work not yet
performed. Conversely, if the cash balances are too high, customer
prices can be reduced or possibly either the Office of the Secretary
of Defense or the Congress can transfer the unneeded funds to other
appropriations to either reduce budget requests or finance additional
requirements.
About $3.55, or 3 percent, of the increase in the depot maintenance
activity group's composite hourly sales price can be attributed to an
increase in the cash surcharge. Our work showed that Air Force
Headquarters decided to include a cash surcharge in the depot
maintenance activity group's fiscal year 2004 sales price. Our work
also showed that the depot maintenance activity group's fiscal year
2004 cash surcharge is unnecessary and, more importantly, that the Air
Force Working Capital Fund will have a substantial amount of excess
cash on hand at the end of fiscal year 2004 unless either the Office of
the Secretary of Defense or the Congress uses this unneeded cash to
satisfy other requirements. As noted previously, DOD policy guidance
requires the Air Force Working Capital Fund to maintain a cash balance
of 7 to 10 days of operational costs and 6 months of capital
disbursements, which equates to $924 million and about $1.2 billion.
Our analysis showed that the Air Force Working Capital Fund's end-of-
month cash balance was at least $2.2 billion for each of the first 4
months of fiscal year 2004 and was more than $2.5 billion as of January
31, 2004. The $2.5 billion amount was more than $1.3 billion higher
than the maximum allowed by DOD policy. Most of the excess cash was
generated by the work performed by the U.S. Transportation Command,
whose cash is included in the Air Force Working Capital Fund.
When we contacted Office of the Secretary of Defense officials in March
2004 about the Air Force Working Capital Fund's excess cash, in
general, and the depot maintenance activity group's fiscal year 2004
cash surcharge, in particular, they stated that they allowed the Air
Force to include a cash surcharge in its depot maintenance activity
group's fiscal year 2004 sales prices because (1) problems related to
ongoing efforts to implement a new accounting system made the
reliability of the activity group's accounting data questionable and
(2) uncertainty related to ongoing actions to remove contract depot
maintenance operations from the Air Force Working Capital Fund made it
difficult to reliably project future cash collections and
disbursements. However, they also acknowledged that the Air Force
Working Capital Fund has had a substantial amount of excess cash
throughout fiscal year 2004 and stated that they would be exploring
possible uses for the excess cash over the next few months.
Prices Charged Customers Were Not Set High Enough to Recover Costs:
Prices that the depot maintenance activity group charged customers were
not set high enough to recover the group's reported costs of performing
the work. Air Force officials at the three air logistics centers and
the Air Force Materiel Command informed us that the activity group's
prices were not set high enough because the Air Force artificially
constrained the activity group's prices for fiscal years 2000 through
2003 by not including all anticipated costs in the prices. In part,
because the sales prices were set too low during this period, the
activity group reported losing about $1.1 billion, as shown in table 3.
Table 3: Activity Group's Reported Losses and Additional Funds Received
to Recoup Losses from Fiscal Years 2000 to 2003:
Dollars in millions.
2000;
Reported actual profit or (loss) before additional funds received:
($369);
Additional funds received to recoup losses: $266.
2001;
Reported actual profit or (loss) before additional funds received:
($310);
Additional funds received to recoup losses: $224.
2002;
Reported actual profit or (loss) before additional funds received:
($279);
Additional funds received to recoup losses: $516.
2003;
Reported actual profit or (loss) before additional funds received:
($117);
Additional funds received to recoup losses: $0.
Total;
Reported actual profit or (loss) before additional funds received:
($1,075);
Additional funds received to recoup losses: $1,006.
Source: Air Force budget reports.
[End of table]
To help recoup the losses, the activity group billed and collected more
than $1 billion from customers outside the pricing structure. As a
result, the effective prices actually paid by customers were
significantly higher during fiscal years 2000, 2001, and 2002.
The Air Force changed its sales price development philosophy in 2002 in
an effort to bring prices charged customers in fiscal year 2004 more in
line with operating costs. In addition, the Air Force allowed out-of-
cycle price increases in fiscal years 2002 and 2003 to alleviate
projected losses. Even though the activity group made out-of-cycle
price increases, the activity group still reported losses for those two
fiscal years.
Customer Sales Prices Constrained:
Air Force officials told us the prices were constrained to help ensure
that the activity group's customers would be able to get needed work
done with the amount of funds provided them through the budget process.
Our work at the air logistics centers showed that customer sales prices
were in fact constrained. For example, at one center we found that
sales prices for work on inventory items performed by the avionics shop
were constrained by not including all estimated costs of materials to
be used in accomplishing the work. In developing its fiscal year 2003
customer prices, this shop estimated that its material costs would be
about $160 million. However, because of the pricing constraints levied
by the Air Force, the avionics shop was only allowed to include about
$123 million of material costs in its prices, a difference of about $37
million. However, constraining prices is contrary to DOD policy (DOD
Financial Management Regulation, 7000.14-R, Volume 2B, Chapter 9) that
requires activity groups to set prices to recover the full cost of
providing goods and services to customers so that the working capital
fund activity group would operate on a break-even basis--that is, not
make a profit or incur a loss.
Air Force Changed Its Sales Price Development Philosophy:
During fiscal year 2002, Air Force headquarters reversed its philosophy
of constraining customer sales prices when it was developing the depot
maintenance activity group's fiscal year 2004 prices to reduce the risk
of future financial losses. In addition, the Air Force allowed the
activity group to impose out-of-cycle customer price increases in
fiscal years 2002 and 2003 to lessen projected losses resulting, in
part, from its price constraining philosophy that had been in place
when these fiscal year prices were developed for the budget.
Specifically, in June 2002, the Office of the Assistant Secretary of
the Air Force directed the Air Force Materiel Command to direct each
air logistics center to increase the sales (repair) prices on 20
inventory items that it estimated were going to lose the most dollars.
These price increases were effective beginning July 1, 2002--the last
quarter of fiscal year 2002. Our analysis of data provided by the three
air logistics centers showed that this action increased the activity
group's revenue by about $23 million, thus avoiding additional losses
by this same amount.
By authority of the same June 2002 directive, the three air logistics
centers were also directed to increase their fiscal year 2003 sales
prices to avoid an estimated $443 million loss that was being projected
for fiscal year 2003 at that time. This out-of-cycle increase resulted
in the prices charged customers increasing from $179.42 an hour to
$199.66 an hour, approximately $20 per hour. The air logistics centers
were not provided guidance regarding how the price increase was to be
applied to their individual workloads. One center applied the increase
"across the board" to all workloads. Another center applied the
increase primarily to its aircraft workload. The third center applied
the increase primarily to its aircraft workload and also increased the
sales price for one of its engines. As shown in table 4, how this
increase was implemented had a profound impact on some of the fiscal
year 2003 prices charged customers, resulting in price increases
significantly higher than the average $20 per hour. In some cases the
prices increased by more than 50 percent.
Table 4: Air Logistics Centers' Revised Fiscal Year 2003 Sales Prices
for Selected Workloads due to Out-of-Cycle Price Increases:
Workload: F110-100B engine; Original fiscal year 2003 sales price[A]:
$1,325,410.00; Revised fiscal year: 2003 sales price[A]: $1,808,900.00;
Dollar increase: $483,490.00; Percent increase: 37.
Workload: B-1 aircraft;
Original fiscal year 2003 sales price[A]: $200.77;
Revised fiscal year: 2003 sales price[A]: $332.23;
Dollar increase: $131.46;
Percent increase: 65%.
Workload: B-52 aircraft;
Original fiscal year 2003 sales price[A]: $159.70;
Revised fiscal year: 2003 sales price[A]: $215.50;
Dollar increase: $55.80;
Percent increase: 35%.
Workload: KC-135 aircraft;
Original fiscal year 2003 sales price[A]: $174.80;
Revised fiscal year: 2003 sales price[A]: $199.81;
Dollar increase: $25.01;
Percent increase: 14%.
Workload: E-3 aircraft;
Original fiscal year 2003 sales price[A]: $194.72;
Revised fiscal year: 2003 sales price[A]: $317.28;
Dollar increase: $122.56;
Percent increase: 63%.
Workload: F-15 aircraft;
Original fiscal year 2003 sales price[A]: $202.15;
Revised fiscal year: 2003 sales price[A]: $285.98;
Dollar increase: $83.83;
Percent increase: 42%.
Workload: C-5 aircraft;
Original fiscal year 2003 sales price[A]: $203.00;
Revised fiscal year: 2003 sales price[A]: $236.98;
Dollar increase: $33.98;
Percent increase: 17%.
Workload: C-130 aircraft;
Original fiscal year 2003 sales price[A]: $115.83;
Revised fiscal year: 2003 sales price[A]: $136.92;
Dollar increase: $21.09;
Percent increase: 18%.
Workload: C-141 aircraft;
Original fiscal year 2003 sales price[A]: $249.11;
Revised fiscal year: 2003 sales price[A]: $383.03;
Dollar increase: $133.92;
Percent increase: 54%.
Source: Air Force air logistics centers.
[A] Aircraft sales prices are charged per hour, whereas the sales price
for engine work is per engine.
[End of table]
The $20 per hour average sales price increase for fiscal year 2003 was
intended to make the activity group break even at the end of fiscal
year 2003 based on projected losses at the time the decision was made
to increase prices. Even though sales prices were increased--
significantly in some cases as shown in table 4--the activity group
still reported a financial loss at the end of the fiscal year.
According to an Air Force Materiel Command official, when the estimated
price increase was developed they did not consider that some of the
revenue from the fiscal year 2003 price increase would be realized in
fiscal year 2004 because of work started and/or accepted in fiscal year
2003 that had to be carried over and completed in fiscal year 2004.
Further, we found that the amount of the reported loss at the end of
fiscal year 2003 was questionable. Based on our analysis of the
financial data and discussions with activity group officials, the Air
Force's implementation of the new accounting system, DIFMS, resulted in
wide swings in the group's reported net operating results during fiscal
year 2003. For example, one air logistics center's net operating
results went from a $1 million loss to a $94 million loss over a period
of 1 month due to the implementation of DIFMS. Another center reported
a profit throughout most of fiscal year 2003, including a reported
profit of $137 million at the end of August 2003. However, the center
ended the fiscal year with a reported loss of $17 million--a $154
million shift in 1 month--due to the implementation of the new
accounting system. Air Force officials told us that implementing DIFMS
was a major effort and were aware of system implementation problems and
were working to resolve them.
Air Force Depot Maintenance Needs More Systematic and Effective
Processes for Controlling Costs:
The Air Force lacks systematic and effective processes for controlling
costs. In an effort to better control cost growth, the Air Force
Materiel Command has (1) been trying since 2000 to develop a systematic
methodology to better understand the reasons for the rapidly increasing
material costs and (2) implemented a depot maintenance process
improvement program. Although these efforts represent a positive step
in trying to better understand and control its depot maintenance costs,
the Command has not (1) completed a successful methodology for
analyzing the reasons for the rapid material cost increases and (2)
entered data into a data repository[Footnote 11] that is to be used to
share cost-saving ideas among the three air logistics centers on
process improvements and track the costs and savings for these
improvements. These actions are necessary in order for management to
control the increasing depot maintenance costs.
Efforts to Develop an Effective and Systematic Methodology for
Analyzing Material Cost Variances Have Been Ongoing for Several Years:
In August 2000, we reported[Footnote 12] that the Air Force depot
maintenance activity group did not have an effective, systematic
process for identifying and analyzing variances between planned and
actual material costs. In its comments on our report, the DOD concurred
with our recommendation and stated, among other things, that the Air
Force Materiel Command planned to develop a database that could be used
to analyze material usage. However, as discussed earlier in this
report, the Command still has not completed the methodology for
analyzing material cost increases.
It is imperative that the Air Force Materiel Command complete this
methodology for analyzing material costs since material costs have
increased significantly over the past few years. Specifically, budgeted
material costs for fiscal year 2004 are about $2.8 billion and are
expected to account for about 57 percent of the activity group's total
fiscal year 2004 costs. A second reason is the fact that, as discussed
previously, higher material costs account for about 67 percent of the
total sales rate increase that occurred between fiscal years 2000 and
2004.
Air Logistics Centers Initiated Process Improvement Initiatives:
The Air Force has recognized the need to make its depot maintenance
activities more effective and efficient by incorporating best business
practices that commercial companies used. The three air logistics
centers undertook various process improvement initiatives designed to
improve the efficiency and effectiveness of their operations. However,
as discussed in the next section, the activity group does not have an
effective mechanism for tracking costs and documenting savings that may
have resulted from these initiatives. According to Air Force depot
maintenance documentation, these initiatives are intended to eliminate
waste or non-value-added processes for selected business lines, thereby
reducing the number of flow days,[Footnote 13] improving the usage of
available workspace, and reducing the overtime worked. In implementing
these initiatives, Air Force officials visited over 35 private industry
companies to gather information to improve their processes. For
example, officials at the Oklahoma City Air Logistics Center consulted
with Standard Aero (San Antonio), Inc. to reengineer its constant speed
drive repair process. According to the center's documentation, this
initiative, to date, has reduced flow days by 20, reduced the part
rejection rate by 25 percent, and resulted in an additional $2.9
million in revenue over pre-2002 levels. When we visited Standard Aero
(San Antonio), Inc. we found that these efficiencies were obtained by
applying a cellular approach[Footnote 14] to depot maintenance repair
work that differed significantly from the traditional functional
approach.[Footnote 15] Other process improvement initiatives included
the following.
* The Oklahoma City Air Logistics Center's initiative for the KC-135
aircraft cut in half the number of aircraft awaiting scheduled depot
maintenance according to center documentation and officials. Further,
the center reported that this effort reduced the number of flow days
from 421 days in fiscal year 2000 to 221 days in fiscal year 2003 with
a goal to have it down to 178 days by fiscal year 2005. This initiative
(1) included the renovation of nine depot maintenance docks and the
associated support areas and (2) implemented the "continuous flow"
concept that consists of having as many aspects of the job in one area
as possible and arranged so that the work flows from one step to the
next without unnecessary movement to create more effective cells of
productivity. Project officials noted that these changes have enabled
the center to become much more efficient and put the needed aircraft
back into the warfighter's hands more quickly.
* The Ogden Air Logistics Center reported that its central gearbox
initiative--which is one of six projects initiated to improve the
processes it uses to repair brakes, gearboxes, pylons, struts,
actuators, and wheels--has increased both the efficiency and
effectiveness of the gearbox repair process. Specifically, according to
the center's process improvement manager, the gearbox project has
allowed the center to (1) reduce gearbox's average shop flow days from
90 days to 52 days, (2) reduce the average number of gearbox assemblies
in work at any given time from 46 to 21, and (3) reduce the gearbox's
average labor standard from 236 hours per gear box to 68 hours. The
initiative is also expected to reduce annual direct labor costs by
about $5 million, beginning in fiscal year 2005. The process
improvement manager stated that the Ogden Air Logistics Center achieved
the reduction in labor costs by streamlining processes under the
cellular repair concept, which eliminated bottlenecks in staging areas
and cut out wasteful, unneeded repair steps.
Air Force Materiel Command Has Not Effectively Implemented Its Data
Repository for Process Improvement Initiatives:
The Air Force Materiel Command has not effectively implemented its data
repository, which is a key part of its Process Improvement Program.
Because the air logistics centers did not enter all the process
improvement initiative data into the data repository, the Command (1)
has been unable to properly document and implement a shared, standard
process improvement program to continuously measure, analyze, and
improve its depot maintenance processes and (2) does not have an
effective mechanism for tracking costs and documenting savings that
could have resulted from these initiatives.
Recognizing the need for better oversight of its process improvement
efforts, the Air Force Materiel Command issued Instruction 21-137 on
August 20, 2003, which established the policies and procedures for
process improvements within all maintenance divisions at the centers.
The instruction points out that process improvement within the Command
is vital to becoming "World Class Depots providing the world's best
warfighter support." It goes on to add that leveraging process
improvement initiatives across the command requires standardized
guidance, integration, and tracking. Accordingly, the instruction
established a standard methodology by which the three centers would
accomplish process improvement and become "World Class." This was to be
done by documenting and implementing a shared, standard process
improvement program to continuously measure, analyze, and improve the
Command depot maintenance processes. A key component was the
establishment of the Command data repository to enable the Command to
track process improvement results and to share the lessons learned
among the centers. As of October 2003, the data repository contained
108 process improvement initiatives.
We found three problems with the implementation of this instruction and
the creation of the Command data repository. First, we found that
several large process improvement initiatives were not included in the
data repository. For example, the process improvement projects that
make up the Oklahoma City Air Logistics Center's initiative to
transform the largest industrial facility in the DOD--its building
3001--into a world class depot maintenance facility were not included
in the Command data repository. According to Command Depot Maintenance
Transformation officials, this initiative is beyond what they were
targeting to document and capture in the data repository, but they
agreed that the individual projects resulting from this initiative
should be included. These officials also acknowledged that the major
projects that currently make up their F-15 Trailblazer initiative--to
evaluate, test, and redefine business processes for repairing the Air
Force's F-15 aircraft--were not in the data repository. Air Force
Materiel Command officials stated that the projects from these two
large initiatives need to be included in the data repository in order
for the Command to oversee the process improvement initiatives at each
of the centers. The officials added that they plan to add these
initiatives to the data repository as they become better defined. The
Command officials also stated that the data repository has not been as
fully used as envisioned and that not all process improvement
initiatives have been entered as required by the Air Force Materiel
Command Instruction 21-137.
Second, while the Air Force Materiel Command created a data repository
of ongoing initiatives to provide needed oversight of its improvement
initiatives, the information in the data repository has not proved
useful because in many cases the centers failed to fill in the data
fields for each initiative. As a result, we found that some of the
required data fields were missing important information needed to
centrally manage the process improvement initiatives. For example, 51
of the 108 initiatives had no title clearly describing the initiative.
Another important required data field to identify the root causes of
the problem to be corrected or improved was not completed for 54 of the
108 initiatives. Command officials agreed that the data repository has
not been as useful as envisioned because many of the initiatives
entered have not been fully documented since the centers have not
completed the needed or required data fields.
Third, the Air Force Materiel Command Instruction 21-137 also requires
that the process improvement results be recorded and tracked in the
Command data repository including the costs and benefits associated
with each initiative. However, the Command's input guidance to record
process improvements in the data repository does not require that the
data fields for costs, return on investment, and quantifiable results
be completed. This contradicts the Command Instruction 21-137, which
requires this information. As a result, we found the following:
* Cost information to implement the initiative was not recorded in the
data repository for 89 of the 108 initiatives. Of the 19 initiatives
containing some cost information, only 10 initiatives had recorded
costs totaling $6,328,000. The remaining 10 initiatives had recorded
costs as "minimal" or "not applicable."
* Return on investment information--such as dollar savings--was not
recorded in the data repository for 93 of the 108 initiatives. Of the
15 initiatives containing some return on investment information, only
two initiatives had recorded a return on investment totaling $828,000.
The remaining 13 initiatives had recorded return on investment
information with no dollar savings identified or as not applicable.
* Quantifiable results information--such as flow days reduced--was not
recorded in the data repository for 64 of the 108 initiatives. We
analyzed the recorded information for the remaining initiatives
containing quantifiable results and found that they did report
improvements such as reducing the number of flow days and man days and
improving the usage of available workspace.
An official at one air logistics center pointed out that in addition to
reporting their improvement initiatives in the Command data repository,
they maintain their projects on two additional local databases. Since
none of these databases can communicate with one another, each database
is separately maintained and updated by the program managers and the
process improvement office. This is difficult to do in a timely manner
and leads to differences among the databases. The center has approved a
process improvement initiative to standardize these databases.
Additionally, a Command depot maintenance transformation official
stated that in preparing for a presentation to the Command's depot
maintenance management team he had to contact the three air logistics
centers directly to obtain complete project information for his
presentation. He emphasized that this would not have been necessary if
the three centers had been updating the data repository with complete
and useful information as required. Without complete and useful
information, the data repository cannot serve as an effective tool for
management to oversee these initiatives and the Command runs the risk
of the centers duplicating efforts and developing stovepipe processes
that hinder the Command's efforts to provide world class depot
maintenance services.
Conclusions:
The Air Force depot maintenance activity group has not always operated
like a business entity and thus, has not achieved the goals envisioned
under the working capital fund concept--that is, to operate like a
business by developing and using effective methods to control operating
costs, charging customers prices that recover operating costs, and
ensuring that established management tools to measure the results of
operational improvement efforts are used as intended. Specifically, the
group has been unable to develop an analytical methodology to
effectively identify the causes of and take corrective actions, as
appropriate, on its continuously upward spiraling material costs.
Further, working capital fund activities are to establish sales prices
that allow them to recover their expected costs from their customers.
However, the activity group intentionally set its sales prices lower
than what was required to recover its operating costs and, as a result,
incurred operating losses. Although several promising improvement
initiatives are underway at the three centers, these efforts are stove
piped and management has been unable to clearly show that the benefits
of the initiatives exceed their costs.
Matter for Congressional Consideration:
The congressional defense committees have shown interest in the amount
of cash in the Defense Working Capital Fund in past years. The Air
Force Working Capital Fund cash balance has exceeded the maximum cash
requirement by over $1.3 billion for each of the first four months of
fiscal year 2004. If DOD does not take action to reduce the cash
balance to the 7 to 10 day requirement, the Congress may wish to take
action to reduce the amount of excess cash in the Air Force Working
Capital Fund.
Recommendations for Executive Action:
To improve the business operations of the Air Force Working Capital
Fund including cash management and the setting of prices and efforts to
control costs of the depot maintenance activity group, we are making
two recommendations to the Secretary of Defense and four
recommendations to the Secretary of the Air Force.
We recommend that the Secretary of Defense:
* take action to reduce the amount of excess cash in the Air Force
Working Capital Fund.
* direct the Secretary of the Air Force to develop prices that cover
the total costs of providing goods and services to customers and not
constrain prices as has been done in the past.
We recommend that the Secretary of the Air Force direct the Commander,
Air Force Materiel Command to:
* develop and complete a viable, systematic methodology for analyzing
material cost variances that encompasses both the price paid for
material and material usage that would enable the Air Force Materiel
Command to better understand the underlying causes of the rapidly
increasing material costs and take actions to control material costs,
as appropriate.
* hold the air logistics centers' managers accountable for compliance
with the Command's mandatory Instruction 21-137 requiring the centers
to enter all initiatives and related data into the data repository
completely and accurately. This should include initiative information
on costs, return on investment, and quantifiable results for all
process improvement initiatives. At a minimum, the Command needs to
issue a memorandum to the air logistics centers reiterating their
responsibilities for compliance with the instruction.
* periodically review the data contained in the data repository to (1)
determine whether the data provided by the air logistics centers is
complete and useful and (2) identify ways to consolidate initiatives
and share lessons learned from the initiatives with the three centers.
* summarize and determine the actual savings and/or real benefits as
compared to the costs from the improvement initiatives already
contained in the repository.
Agency Comments and Our Evaluation:
DOD provided written comments on a draft of this report. In its
comments, DOD concurred with the six recommendations in the draft
report and is taking action to implement them. In fact, DOD has already
taken action to help eliminate the excess cash in the Air Force Working
Capital Fund by transferring $1.1 billion of the excess cash to the
Army and Navy Operation and Maintenance appropriation accounts in April
2004. However, the Air Force Working Capital Fund had about $400
million of excess cash as of the end of April 2004. Recognizing that
cash balances fluctuate from month to month, we continue to believe
that it would be appropriate for the Congress to monitor the working
capital fund cash balances and take action to reduce the amount of
excess cash if the balances continue to be in excess of amounts
necessary. Concerning our recommendation on the Air Force developing
prices that cover the total costs of providing goods and services to
customers, DOD stated that the DOD Comptroller will perform a more
intensive review of the Air Force depot maintenance billing rates to
ensure that the proposed pricing structure is adequate to cover the
costs of operations.
We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Armed Services; the
Subcommittee on Readiness and Management Support, Senate Committee on
Armed Services; the Subcommittee on Defense, Senate Committee on
Appropriations; the House Committee on Armed Services; the Subcommittee
on Readiness, House Committee on Armed Services; and the Ranking
Minority Member, Subcommittee on Defense, House Committee on
Appropriations. We are also sending copies to the Secretary of Defense,
Secretary of the Air Force, and other interested parties. Copies will
be made available to others upon request. Should you or your staff have
any questions concerning this report, please contact Gregory D. Kutz,
Director, at (202) 512-9505 or [Hyperlink, kutzg@gao.gov] or William M.
Solis, Director, at (202) 512-8365 or [Hyperlink, solisw@gao.gov]. An
additional contact and key contributors to this report are listed in
appendix III.
Sincerely yours,
Signed by:
Gregory D. Kutz,
Director, Financial Management and Assurance:
Signed by:
William M. Solis, Director, Defense Capabilities and Management:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To determine what factors were primarily responsible for causing the
composite sales price to increase from $119.99 per hour in fiscal year
2000 to $237.84 per hour in fiscal year 2004, we obtained and analyzed
budget documents that provided information on cost factors, such as
material costs, overhead costs, and salaries used in developing the
prices. We determined which factors caused the prices to increase the
most and discussed the reasons for the price increases with officials
at the Air Force Materiel Command and the three air logistics centers.
In addition, we obtained information on the impact of the price
increases on certain aircraft and engines such as the F-15 and E-3
aircraft. We also reviewed and analyzed the Air Force February 2002
report on depot maintenance material usage and cost analysis study to
determine why prices have increased. Finally, we met with Air Force
Materiel Command officials to determine what actions they were taking
to identify the causes for increasing material costs--a significant
factor causing prices to increase--since the Air Force issued its
February 2002 report.
To determine if the prices charged customers during fiscal year 2000
through fiscal year 2003 recovered the reported actual costs of
performing the work, we obtained and analyzed budget documents and
accounting data that provided information on budgeted and actual
revenue, direct costs, overhead costs, and net operating losses. When
the activity group reported losses, we met with officials to determine
(1) why the prices charged customers did not recover costs incurred in
providing them the goods and services and (2) how the Air Force
recovered these losses.
To determine if the Air Force has taken effective steps to improve
efficiency and control the activity group's costs, we obtained the
Command's depot maintenance database that contained 108 initiatives
aimed at improving depot maintenance operations. We analyzed the
database to determine if each initiative had information on the (1)
cost to implement the initiative and (2) the amount of dollar savings
associated with implementing the initiative. Information on cost and
savings is critical to determine if the initiative is cost beneficial.
We also analyzed the database to determine if there was sufficient
information that would enable the air logistics centers to share
information with each other on the initiatives thereby reducing or
eliminating redundant efforts. We also met with officials from Air
Force Materiel Command and the air logistics centers to discuss (1)
process improvement initiatives, especially information on initiative
costs, savings, and the sharing of information and (2) whether all
initiatives were included in the database.
We performed our work at the headquarters, Office of the Under
Secretary of Defense (Comptroller) and the Office of the Secretary of
the Air Force, Washington, D.C.; Air Force Materiel Command, Ohio; the
Oklahoma City Air Logistics Center, Tinker Air Force Base, Oklahoma;
the Ogden Air Logistics Center, Hill Air Force Base, Utah; and the
Warner Robins Air Logistics Center, Robins Air Force Base, Georgia. We
also visited Standard Aero (San Antonio) Inc. and discussed with
company officials the Oklahoma City Air Logistics Center's initiative
to reengineer its constant speed drive repair process. We did not
verify the accuracy of the accounting and budget information used in
the tables in this report, all of which was provided by the Air Force
in then-year dollars. We conducted our work from June 2003 through
April 2004 in accordance with U.S. generally accepted government
auditing standards. We requested comments on a draft of this report
from the Secretary of Defense or his designee. DOD provided written
comments, and these comments are presented in the Agency Comments and
Our Evaluation section of this report and are reprinted in appendix II.
[End of section]
Appendix II: Comments from the Department of Defense:
COMPTROLLER:
UNDER SECRETARY OF DEFENSE:
1100 DEFENSE:
PENTAGON
WASHINGTON, DC 20301-1100:
MAY 10:
Mr. Gregory Kutz,
Director,
Financial Management and Assurance:
Mr. William Solis,
Director,
Defense Capabilities and Management:
U.S. General Accounting Office:
Washington D.C. 20548:
Dear Mr. Kutz and Mr. Solis:
This is the Department of Defense (DoD) response to the General
Accounting Office (GAO) draft report, "AIR FORCE DEPOT MAINTENANCE:
IMPROVED PRICING AND COST REDUCTION PRACTICES NEEDED" dated April 14,
2004 (GAO Code 04-498). I concur with the recommendations identified in
the draft report and am taking action to comply with them. Additional
comments are provided in the enclosure.
While the report identifies significant problems in estimating cost and
establishing pricing for this activity group, our internal reviews have
indicated that FY 2004 pricing and performance shows significant
improvements over past practices.
Enclosure As stated:
Signed by:
John P. Roth:
Deputy Comptroller for Program Budget:
GAO DRAFT REPORT DATED APRIL 14, 2004 GAO-04-489 (GAO CODE 192098):
"AIR FORCE DEPOT MAINTENANCE: IMPROVED PRICING AND COST REDUCTION
PRATICES NEEDED":
DEPARTMENT OF DEFENSE COMMENTS TO THE GAO RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
take action to reduce the amount of excess cash in the Air Force
Working Capital Fund. (p. 38/GAO Draft Report):
DOD RESPONSE: Concur. The Department periodically reviews DWCF cash
balances and takes appropriate action to correct both excess cash
balances and cash shortfalls in its DWCF activities. In April 2004 the
Department took steps to eliminate excess cash balances in the Air
Force Working Capital Fund by transferring excess cash balances to
Service Operation and Maintenance appropriations.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the Secretary of the Air Force to develop prices that cover the
total costs of providing goods and services to customers and not
constrain prices as has been done in the past. (p. 38/Draft Report):
DOD RESPONSE: Concur. In our instructions for the upcoming FY 2006
budget review the Air Force will be directed to comply with this
recommendation. Additionally, OSD (Comptroller) will perform a more
intensive review of the Air Force Depot Maintenance billing rates to
ensure that their proposed pricing structure is adequate to cover the
total cost of operations.
RECOMMENDATION 3: The GAO recommended that the Secretary of the Air
Force direct the Commander, Air Force Materiel Command, to develop and
complete a viable, systematic methodology for analyzing material cost
variances that encompasses both the price paid for material and
materiel usage that would enable the Air Force Materiel Command to
better understand the underlying causes of the rapidly increasing
material costs and take actions to control material costs, as
appropriate. (p. 38/Draft Report):
DOD RESPONSE: Concur. The Air Force completed implementation of their
cost accounting system at the end of FY 2003 and is currently
conducting reviewing the data to determine if additional corrective
actions are required. The Air Force will continue to brief OSD (C)
quarterly on this issue.
RECOMMENDATION 4: The GAO recommended that the Secretary of the Air
Force direct the Commander, Air Force Materiel Command, to hold the Air
Logistics Center managers accountable for compliance with the Command's
mandatory Instruction 21-137 requiring the centers to enter all
initiatives and related data
into the data repository completely and accurately. The GAO suggests
that this include the initiative information on costs, return on
investment, and quantifiable results for all process improvement
initiatives. At a minimum, the GAO states that the Command needs to
issue a memorandum to the Air Logistics Centers reiterating their
responsibilities for compliance with the instructions. (p. 39/Draft
Report):
DOD RESPONSE: Concur. Starting with FY 2004 data the Air Force will
hold the Air Logistics Center managers accountable for compliance with
Air Force Instruction 21-137.
RECOMMENDATION 5: The GAO recommended that the Secretary of the Air
Force direct the Commander, Air Force Materiel Command, to periodically
review the data contained in the data repository to (1) determine
whether the data provided by the Air Logistic Centers is complete and
useful and (2) identify ways to consolidate initiatives and share
lessons learned from the initiatives with the three centers. (p. 39/
Draft Report):
DOD RESPONSE: Concur. The Air Force will establish a schedule to
periodically review the data repository and brief OSD (C) quarterly on
the status of this initiative.
RECOMMENDATION 6: The GAO recommended that the Secretary of the Air
Force direct the Commander, Air Force Materiel Command, to summarize
and determine the actual savings and/or real benefits as compared to
the costs from the improvement initiatives already contained in the
repository. (p. 39/Draft Report):
DOD RESPONSE: Beginning with the FY 2006 Budget review the Air Force
will brief OSD (C) quarterly on the status of this initiative.
Enclosure to Memo, GAO Draft Report, Page 2 of 2:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Greg Pugnetti, (703) 695-6922:
Acknowledgments:
Staff who made key contributions to this report were Francine
DelVecchio, Karl Gustafson, Keith E. McDaniel, Christopher Rice, Harold
P. Santarelli, Ron Tobias, and Eddie Uyekawa.
(192098):
FOOTNOTES
[1] In providing goods and services to customers, the Air Force depot
maintenance activity group performs work in-house at its depots using
federal employees or through contracts with private industry or other
government agencies. The Air Force is removing the contract portion of
the activity group from the working capital fund.
[2] The composite sales rate is the average price that customers must
pay for a direct labor hour of work and is used for budgeting purposes.
The average price includes labor, material, and overhead costs. For
actual work performed, the activity group develops individual sales
prices, such as the price per hour to perform repair work on the F-15
aircraft, and bills customers based on those individual prices.
[3] Using the Gross Domestic Product price index updated in January
2004, if the fiscal year 2000 composite sales rate is converted to
fiscal year 2004 dollars, the composite sales rate would be $128.53,
and the increase would be 85 percent.
[4] Unless otherwise indicated, the use of the term "direct labor hour"
in this report will refer to a direct product standard hour, which is
the amount of acceptable quality work that can be accomplished in 1
hour by a qualified worker, following prescribed methods, working at a
normal pace, and experiencing normal fatigue and delays.
[5] Using the Gross Domestic Product price index updated in January
2004, if the fiscal year 2000 composite rate is converted to fiscal
year 2004 dollars, the composite rate would be $128.53 and the increase
would be 85 percent.
[6] The Air Force depot maintenance activity group uses two types of
component parts: (1) repairable items which are generally managed by
the Air Force supply management activity group and include parts that
are repaired when they become broken and (2) non-repairable items which
are discarded when they become broken and which are generally managed
by the Defense Logistics Agency.
[7] U.S. General Accounting Office, Air Force Depot Maintenance:
Budgeting Difficulties and Operational Inefficiencies GAO/AIMD/NSIAD-
00-185 (Washington, D.C.: Aug. 15, 2000).
[8] The cash balance is the fund balance with Treasury which is the
cash on hand at Treasury used to pay liabilities when due.
[9] DOD Financial Management Regulation 7000.14-R, Volume 2B, Chapter
9.
[10] The Antideficiency Act, 31 U.S.C. 1341(a)(1) provides that no
officer or employee of the government shall make or authorize an
expenditure or obligation exceeding the amount of an appropriation of
funds available for the expenditure or obligation.
[11] The Air Force Materiel Command Instruction 21-137, Depot
Maintenance Process Improvement, August 20, 2003, established a
standard Command database and all process improvement initiatives and
results must be recorded and tracked in this database. This database
has standardized data fields and metrics input forms to ensure data are
entered in a consistent manner.
[12] U.S. General Accounting Office, Air Force Depot Maintenance:
Budgeting Difficulties and Operational Inefficiencies, GAO/AIMD/NSIAD-
00-185 (Washington, D.C.: Aug. 15, 2000).
[13] The number of days it takes an item to go from initial inspection
to delivery back to the warfighter.
[14] An approach that arranges the work into cells that have the
equipment and workstations in a sequence that supports a smooth flow of
materials and components through the process, with minimal transport or
delay (such as, equipment is located where needed to perform the work).
[15] A traditional manufacturing approach that is organized
functionally with similar machines in one area (such as, all molding
machines in the molding department and any molding work is transported
to that location).
GAO's Mission:
The General Accounting Office, the investigative arm of Congress,
exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability
of the federal government for the American people. GAO examines the use
of public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through the Internet. GAO's Web site ( www.gao.gov ) contains
abstracts and full-text files of current reports and testimony and an
expanding archive of older products. The Web site features a search
engine to help you locate documents using key words and phrases. You
can print these documents in their entirety, including charts and other
graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document
files. To have GAO e-mail this list to you every afternoon, go to
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order
GAO Products" heading.
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. General Accounting Office
441 G Street NW,
Room LM Washington,
D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 U.S.
General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.
20548:
