Air Force Working Capital Fund
Budgeting and Management of Carryover Work and Funding Could Be Improved Gao ID: GAO-11-539 July 7, 2011Three Air Force depots support combat readiness by providing repair services to keep Air Force units operating worldwide. To the extent that the depots do not complete work at year end, the work and related funding will be carried into the next fiscal year. Carryover is the reported dollar value of work that has been ordered and funded by customers but not completed at the end of the fiscal year. GAO was asked to determine the extent to which: (1) budget information on depot maintenance carryover approximated actual results from fiscal years 2006 through 2010 and, if not, any needed actions to improve budgeting for carryover; (2) depot maintenance carryover exceeded the allowable amount and any adjustments were made to the allowable amount; and (3) there was growth in carryover at the depots and the reasons for the growth. To address these objectives, GAO (1) reviewed relevant carryover guidance, (2) obtained and analyzed reported carryover and related data at the Air Logistics Centers (ALC), and (3) interviewed DOD and Air Force officials.
The Air Force consistently underestimated the dollar amount of carryover that would exceed the allowable amount in the Air Force Working Capital Fund (AFWCF) budgets from fiscal years 2006 through 2010. In 3 of the 5 years, the budgeted carryover amount underestimated the actual amount by over $250 million. The budget information on carryover is critical since decision makers use this information when reviewing the AFWCF budgets. The Air Force began implementing actions to improve budgeting for AFWCF such as including overseas contingency operations funded orders in the AFWCF fiscal year 2012 budget. These actions have the potential to improve the accuracy of budgeting for AFWCF, but their success will only be known when budgeted carryover information is compared to actual results. GAO analysis of AFWCF reports showed that in each year actual carryover exceeded the allowable amount from fiscal years 2006 through 2010. The allowable amount of carryover is based on the amount of new orders received and the outlay rate of customers' appropriations financing the work. The amount of carryover that exceeded the allowable ranged from $4 million to $568 million. Further, the Air Force increased the allowable amount for orders funded with multiyear appropriations by $115 million and $125 million in fiscal years 2009 and 2010, respectively. Without this adjustment, the AFWCF would have exceeded the allowable carryover by corresponding amounts. The DOD regulation on orders funded with multiyear appropriations only pertains to Army ordnance activities that perform a manufacturing function. Therefore, the provision on increasing the allowable amount of carryover for orders funded with multiyear appropriations does not apply to the Air Force. GAO analysis of ALC reports and discussions with Air Force officials identified four reasons for the increase in carryover from $1 billion at the end of fiscal year 2006 to $1.9 billion--nearly 7 months of work--at the end of fiscal year 2010 on depot maintenance work. First, Air Force underestimated its forecasted workload requirements on the number of hours of work to be performed. Second, because the Air Force believed its depot maintenance workload would decrease, it reduced its workforce in November 2007. While the ALCs reduced their workforce by about 2,000 civilian personnel, the actual workload increased instead of decreased--thus resulting in personnel shortages. Third, the Air Force budget underestimated the amount of funds on new orders received from customers, and the work performed by the ALCs did not keep pace with the increase in funding on new orders from year to year. Fourth, the ALCs could not obtain parts when needed to perform repair work that contributed to the growth of carryover. Air Force data showed that the average monthly outstanding backorders for spare parts at the ALCs grew by about 44 percent from fiscal year 2008 to fiscal year 2010. The Air Force is taking action to address these problems but still needs to compare budgeted to actual information, such as the number of hours of work to be performed, and identify the reasons for the differences. GAO makes five recommendations to DOD to improve the budgeting and management of carryover, such as comparing budgeted to actual information on carryover and clarifying DOD guidance on allowable carryover funded with multiyear appropriations. DOD concurred with GAO's recommendations and has actions planned or under way to implement them.
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: Asif A. Khan Team: Government Accountability Office: Financial Management and Assurance Phone: (202) 512-9869GAO-11-539, Air Force Working Capital Fund: Budgeting and Management of Carryover Work and Funding Could Be Improved
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United States Government Accountability Office:
GAO:
Report to the Subcommittee on Readiness and Management Support,
Committee on Armed Services, U.S. Senate:
July 2011:
Air Force Working Capital Fund:
Budgeting and Management of Carryover Work and Funding Could Be
Improved:
GAO-11-539:
GAO Highlights:
Highlights of GAO-11-539, a report to the Subcommittee on Readiness
and Management Support, Committee on Armed Services, U.S. Senate:
Why GAO Did This Study:
Three Air Force depots support combat readiness by providing repair
services to keep Air Force units operating worldwide. To the extent
that the depots do not complete work at year end, the work and related
funding will be carried into the next fiscal year. Carryover is the
reported dollar value of work that has been ordered and funded by
customers but not completed at the end of the fiscal year. GAO was
asked to determine the extent to which: (1) budget information on
depot maintenance carryover approximated actual results from fiscal
years 2006 through 2010 and, if not, any needed actions to improve
budgeting for carryover; (2) depot maintenance carryover exceeded the
allowable amount and any adjustments were made to the allowable
amount; and (3) there was growth in carryover at the depots and the
reasons for the growth. To address these objectives, GAO (1) reviewed
relevant carryover guidance, (2) obtained and analyzed reported
carryover and related data at the Air Logistics Centers (ALC), and (3)
interviewed DOD and Air Force officials.
What GAO Found:
The Air Force consistently underestimated the dollar amount of
carryover that would exceed the allowable amount in the Air Force
Working Capital Fund (AFWCF) budgets from fiscal years 2006 through
2010. In 3 of the 5 years, the budgeted carryover amount
underestimated the actual amount by over $250 million. The budget
information on carryover is critical since decision makers use this
information when reviewing the AFWCF budgets. The Air Force began
implementing actions to improve budgeting for AFWCF such as including
overseas contingency operations funded orders in the AFWCF fiscal year
2012 budget. These actions have the potential to improve the accuracy
of budgeting for AFWCF, but their success will only be known when
budgeted carryover information is compared to actual results.
GAO analysis of AFWCF reports showed that in each year actual
carryover exceeded the allowable amount from fiscal years 2006 through
2010. The allowable amount of carryover is based on the amount of new
orders received and the outlay rate of customers‘ appropriations
financing the work. The amount of carryover that exceeded the
allowable ranged from $4 million to $568 million. Further, the Air
Force increased the allowable amount for orders funded with multiyear
appropriations by $115 million and $125 million in fiscal years 2009
and 2010, respectively. Without this adjustment, the AFWCF would have
exceeded the allowable carryover by corresponding amounts. The DOD
regulation on orders funded with multiyear appropriations only
pertains to Army ordnance activities that perform a manufacturing
function. Therefore, the provision on increasing the allowable amount
of carryover for orders funded with multiyear appropriations does not
apply to the Air Force.
GAO analysis of ALC reports and discussions with Air Force officials
identified four reasons for the increase in carryover from $1 billion
at the end of fiscal year 2006 to $1.9 billion”nearly 7 months of work”
at the end of fiscal year 2010 on depot maintenance work. First, Air
Force underestimated its forecasted workload requirements on the
number of hours of work to be performed. Second, because the Air Force
believed its depot maintenance workload would decrease, it reduced its
workforce in November 2007. While the ALCs reduced their workforce by
about 2,000 civilian personnel, the actual workload increased instead
of decreased”thus resulting in personnel shortages. Third, the Air
Force budget underestimated the amount of funds on new orders received
from customers, and the work performed by the ALCs did not keep pace
with the increase in funding on new orders from year to year. Fourth,
the ALCs could not obtain parts when needed to perform repair work
that contributed to the growth of carryover. Air Force data showed
that the average monthly outstanding backorders for spare parts at the
ALCs grew by about 44 percent from fiscal year 2008 to fiscal year
2010. The Air Force is taking action to address these problems but
still needs to compare budgeted to actual information, such as the
number of hours of work to be performed, and identify the reasons for
the differences.
What GAO Recommends:
GAO makes five recommendations to DOD to improve the budgeting and
management of carryover, such as comparing budgeted to actual
information on carryover and clarifying DOD guidance on allowable
carryover funded with multiyear appropriations. DOD concurred with
GAO‘s recommendations and has actions planned or under way to
implement them.
View [hyperlink, http://www.gao.gov/products/GAO-11-539] or key
components. For more information, contact Asif A. Khan at (202) 512-
9095 or khana@gao.gov.
[End of section]
Contents:
Letter:
Background:
Air Force Underestimated Carryover in Its Budgets:
AFWCF Actual Carryover Consistently Exceeded the Allowable Carryover:
Carryover Increased at ALCs from Fiscal Years 2006 through 2010 on
Orders Received from External Customers:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Examples of Problems Experienced by Air Logistics Centers
Contributing to Carryover:
Appendix III: Comments from the Department of Defense:
Appendix IV: GAO Contact and Acknowledgments:
Tables:
Table 1: Air Logistics Centers' Locations and Principal Work:
Table 2: Amount of Budgeted and Actual AFWCF Carryover that was Over
or Under the Allowable Amount:
Table 3: AFWCF Actual Carryover, Allowable Carryover, and the Amount
Over Allowable Carryover for Fiscal Years 2006 through 2010:
Table 4: Actual and Budgeted New Orders for Work Performed by ALCs on
Orders Received from Customers Who Were External to AFWCF for Fiscal
Years 2006 through 2010:
Table 5: ALCs Average Monthly Number of Backorders Outstanding for
Fiscal Years 2008 through 2010:
Table 6: Aging of ALCs' Average Monthly Number of Backorders
Outstanding for Fiscal Years 2008 through 2010:
Figures:
Figure 1: ALCs New Orders, Revenue, and Carryover on Orders Received
from External Customers for Fiscal Years 2006 through 2010:
Figure 2: Air Force's 18-and 6-Month Forecast and Actual Workload
Requirements on the Number of Hours of Work to be performed for Fiscal
Years 2007 through 2010:
Figure 3: AFMC Monthly Civilian Workforce Totals for Fiscal Years 2006
through 2010:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 7, 2011:
The Honorable Claire McCaskill:
Chairman:
The Honorable Kelly Ayotte:
Ranking Member:
Subcommittee on Readiness and Management Support:
Committee on Armed Services:
United States Senate:
Three Air Force depots support combat readiness by providing services
necessary to keep Air Force units operating worldwide.[Footnote 1] The
depots repair and overhaul a wide range of assets, including fighter
aircraft such as the F-16, 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. In
fiscal year 2010, the Air Force reported that in-house work performed
at the three depots or Air Logistics Centers (ALC) included major
modifications on 698 aircraft, the overhaul of 320 aircraft engines,
and repairs of 330,000 inventory items.
The three Air Force depots operate under the working capital fund
concept, where customers are to be charged for the anticipated full
cost of goods and services. To the extent that the depots do not
complete work at year-end, the work and related funding will be
carried into the next fiscal year. Carryover is the reported dollar
value of work that has been ordered and funded (obligated) by
customers but not completed by working capital fund activities at the
end of the fiscal year. The congressional defense committees recognize
that some carryover is needed to ensure a smooth flow of work during
the transition from one fiscal year to the next. However, past
congressional defense committee reports have raised concerns that the
level of carryover may be more than is needed. Excessive amounts of
carryover financed with customer appropriations are subject to
reductions by DOD and the congressional defense committees during the
budget review process. Congress reduced the Air Force's fiscal year
2010 operation and maintenance appropriation by $85 million because of
concerns about excess carryover.
The Air Force made changes to the calculation of carryover that
reduced both the carryover and the allowable amount of carryover
starting in fiscal year 2009. These changes included the (1) removal
of contract depot maintenance from the Air Force Working Capital Fund
(AFWCF) at the end of fiscal year 2008 and (2) consolidation of the
AFWCF depot maintenance activity group with the material support
division of the supply management activity group at the end of fiscal
year 2008, which eliminated internal transactions between supply and
maintenance. As a result, starting in fiscal year 2009 the only
transactions affecting the AFWCF carryover are orders received from
customers that are not part of the AFWCF, called external customers,
to perform depot maintenance work such as overhauling an aircraft.
In response to your request, we determined the extent to which: (1)
budget information on Air Force depot maintenance carryover for fiscal
years 2006 through 2010 approximated actual results and, if not, any
needed actions the Air Force is taking to improve budgeting for
carryover; (2) the Air Force depot maintenance actual carryover
exceeded the allowable amount of carryover from fiscal years 2006
through 2010 and any adjustments were made to the allowable amount;
and (3) there was growth in carryover at the Air Force depot
maintenance in-house activities on orders received from customers that
were external to AFWCF and the reasons for the growth.
Financial information in this report was obtained from official Air
Force budget documents and accounting reports. To assess the
reliability of the data, we (1) reviewed and analyzed the factors used
in calculating carryover, (2) interviewed Air Force officials
knowledgeable about the carryover data, (3) reviewed GAO reports on
Air Force depot maintenance activities, and (4) reviewed orders
customers submitted to the depots to determine whether they were
adequately supported by documentation. On the basis of procedures
performed, we have concluded that these data were sufficiently
reliable for the purposes of this report. Further details on our scope
and methodology are provided in appendix I.
We conducted this performance audit from July 2010 through July 2011
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. We requested
comments on a draft of this report from the Secretary of Defense or
his designee. Written comments from the Office of the Under Secretary
of Defense (OUSD) (Comptroller) are reprinted in appendix III.
Background:
AFWCF relies on sales revenue rather than regular appropriations to
finance its continuing operations. AFWCF is intended to (1) generate
sufficient resources to cover the full costs of its operations and (2)
operate on a break-even basis over time--that is, neither make a gain
nor incur a loss. Customers use appropriated funds, primarily
operations and maintenance appropriations, to finance orders placed
with AFWCF. AFWCF includes a maintenance division that provides the
Air Force with the in-house industrial capability to repair and
overhaul a wide range of weapon systems and military equipment. The
Air Force maintains three ALCs which are designed to retain, at a
minimum, a ready, controlled source of technical competence and
resources to meet military requirements. Table 1 describes the
locations and principal work for each ALC.
Table 1: Air Logistics Centers' Locations and Principal Work:
Air Logistics Centers' location: Ogden Air Logistics Center, Hill Air
Force Base, Utah;
Principal work: aircraft and major commodities: A-10, C-130, and F-16
aircraft, landing gears, hydraulics, missiles, and software.
Air Logistics Centers' location: Oklahoma City Air Logistics Center,
Tinker Air Force Base, Oklahoma;
Principal work: aircraft and major commodities: KC-135, B-1, B-52, and
E-3 aircraft, engines, software, and instruments.
Air Logistics Centers' location: Warner Robins Air Logistics Center,
Robins Air Force Base, Georgia;
Principal work: aircraft and major commodities: F-15, C-5, C-130, and
C-17 aircraft, avionics, electronic warfare, software.
Source: Air Force.
[End of table]
Carryover and Its Use:
Carryover is the reported dollar value of work that has been ordered
and funded (obligated) by customers but not completed by working
capital fund activities at the end of the fiscal year. Carryover
consists of both the unfinished portion of work started but not
completed, as well as work that has not yet begun. Some carryover is
necessary at the end of the fiscal year if working capital funds are
to operate efficiently and effectively. For example, if customers do
not receive new appropriations at the beginning of the fiscal year,
carryover is necessary to ensure that working capital fund activities
have enough work to ensure a smooth transition between fiscal years.
Too little carryover could result in some personnel not having work to
perform at the beginning of the fiscal year. On the other hand, too
much carryover could result in an activity group receiving funds from
customers in one fiscal year but not performing the work until well
into the next fiscal year. By minimizing the amount of carryover, DOD
can use its resources in the most effective manner and minimize the
backlog of work and "banking" of related funding for work and programs
to be performed in subsequent years.
DOD's Carryover Policy:
DOD's carryover policy is included in DOD Financial Management
Regulation 7000.14-R, volume 2B, chapter 9. Under the policy, the
allowable amount of carryover is based on the amount of new orders
received in a given year and the outlay rate of the customers'
appropriations financing the work.[Footnote 2] For example, the Air
Force depots received about $1.4 billion in new orders funded with
operation and maintenance, Air Force appropriation--one of many
appropriations funding orders received in fiscal year 2010. The DOD
outlay rate for this appropriation was 66 percent. Therefore, the
amount of funds the AFWCF was allowed to carry over into fiscal year
2011 was $476 million ($1.4 billion multiplied by 34 percent, which
represents 1 minus the outlay rate for the underlying appropriation).
The DOD carryover policy provides that the work on these fiscal year
2010 orders is expected to be completed by the end of fiscal year
2011, and therefore, carryover is only allowed for the first year.
According to the DOD regulation, this carryover metric allows for an
analytical-based approach that holds working capital fund activities
to the same standard as general fund execution and allows for
meaningful budget execution analysis.
In accordance with the DOD Financial Management Regulation,[Footnote
3] (1) nonfederal orders, (2) non-DOD orders, (3) foreign military
sales, (4) work related to base realignment and closure, and (5) work-
in-progress are excluded from the carryover calculation. The reported
actual carryover (net of exclusions) is then compared to the amount of
allowable carryover using the above-described outlay-rate method to
determine whether the actual amount is over or under the allowable
carryover amount.
Changes to the AFWCF That Affected the Fiscal Years 2009 and 2010
Calculation of Carryover and the Allowable Amount of Carryover:
The Air Force made changes to the calculation of carryover that
reduced both the carryover and the allowable amount of carryover.
These changes included the (1) removal of contract depot maintenance
from AFWCF and (2) consolidation of the AFWCF depot maintenance
activity group with the material support division of the supply
management activity group, which eliminated internal transactions
between supply and maintenance.
Removal of Contract Depot Maintenance from AFWCF:
As stated previously, the AFWCF depot maintenance activity group
supports combat readiness by providing depot repair services necessary
to keep Air Force units operating worldwide. The activity group either
performed the work in-house at its three ALCs or through contracts
with private industry (referred to as contract depot maintenance).
Under the contract depot maintenance process, the activity group
accepted customer orders that obligated their funds. The customers
used the activity group as their purchasing agent when they needed a
contractor to perform depot-level maintenance work. The activity group
awarded the contracts and managed the work performed by the
contractors.
Beginning in fiscal year 2003, the Air Force began transitioning
contract depot maintenance out of AFWCF. According to the fiscal year
2010 AFWCF budget, the removal of contract depot maintenance from
AFWCF brings the user and provider of contract depot maintenance
services closer together and removes the working capital fund from its
current role as the "middleman." The action allows depot managers to
dedicate time and effort to in-house production. AFWCF stopped
accepting new contract depot maintenance orders at the end of fiscal
year 2008 and at the time of our review, expected to (1) complete work
on fiscal year 2008 and prior years' contract depot maintenance orders
and (2) close out all related accounting records by the end of fiscal
year 2011. As a result of the change, AFWCF no longer included
contract depot maintenance orders in its calculation of the allowable
carryover amounts starting in fiscal year 2009.
Consolidation of Depot Maintenance Activity Group and the Material
Support Division of the Supply Maintenance Activity Group:
In fiscal year 2009, AFWCF consolidated the depot maintenance activity
group with the material support division of the supply management
activity group to form a new activity group--Consolidated Sustainment
Activity Group--to manage depot-level repairable and consumable spares
unique to the Air Force as well as maintenance services. According to
the fiscal year 2010 AFWCF budget and Air Force officials, this
consolidation eliminated the recording of internal transactions such
as orders, revenue, and carryover amounts between depot maintenance
and supply within the AFWCF. The elimination of the recording of
orders reduced the amount of carryover as well as the allowable amount
of carryover since the orders were not included in the dollar amount
of work performed. The fiscal year 2011 AFWCF budget indicates that
the internal AFWCF transactions were eliminated beginning in fiscal
year 2009. As a result, starting in fiscal year 2009, the only
transactions affecting AFWCF carryover are orders received from
customers that are not part of the AFWCF, called external customers,
to perform depot maintenance work.
Air Force Underestimated Carryover in Its Budgets:
In its budget information, the Air Force consistently underestimated
the amount of carryover that would exceed the allowable amount from
fiscal year 2006 through fiscal year 2010. In 3 of the 5 years, the
actual amount of carryover exceeded the budgeted amount by over $250
million. In fiscal year 2010, Air Force headquarters and Air Force
Materiel Command (AFMC) began implementing actions to improve the
accuracy of budgeting for AFWCF carryover such as incorporating
overseas contingency operations (OCO)[Footnote 4] funded orders in the
fiscal year 2012 AFWCF budget. These actions have the potential to
improve the accuracy of budgeting for AFWCF carryover, but their
success can be determined only when budgeted carryover information is
compared to actual results.
Air Force Budgets Consistently Underestimated Carryover Amounts from
Fiscal Years 2006 through 2010:
From fiscal year 2006 through fiscal year 2010, the AFWCF budget
consistently underestimated the amount of carryover that would exceed
the allowable amount. Reliable budget information on carryover is
critical since decision makers use this information when reviewing the
AFWCF budgets. For example, as shown in table 2 below, the fiscal year
2010 AFWCF budget showed that the carryover would exceed the allowable
amount by $85 million for fiscal year 2010. Congressional defense
committees, relying on this information, reduced the AFWCF fiscal year
2010 customers' budgets by $85 million. Table 2 shows the amount of
budgeted and actual AFWCF carryover that was over or under the
allowable amount and the actual amount exceeding the budgeted amount
for fiscal years 2006 through 2010.
Table 2: Amount of Budgeted and Actual AFWCF Carryover that was Over
or Under the Allowable Amount:
Budgeted over (under) allowable amount:
Fiscal year 2006: ($262 million)[A];
Fiscal year 2007: ($392 million);
Fiscal year 2008: $21 million;
Fiscal year 2009: ($5 million);
Fiscal year 2010: $85 million.
Actual over (under) allowable amount:
Fiscal year 2006: $4 million;
Fiscal year 2007: $102 million;
Fiscal year 2008: $90 million;
Fiscal year 2009: $568 million;
Fiscal year 2010: $101 million.
Difference between budgeted and actual:
Fiscal year 2006: $266 million;
Fiscal year 2007: $494 million;
Fiscal year 2008: $69 million;
Fiscal year 2009: $573 million;
Fiscal year 2010: $16 million.
Source: GAO analysis of AFWCF budgets.
Note: The Air Force increased the allowable amount of carryover by
$115 million and $125 million in fiscal years 2009 and 2010,
respectively, for orders funded with multiyear appropriations. Without
this action, the actual carryover would have exceeded the allowable
amount by corresponding amounts.
[A] The fiscal year 2006 AFWCF budget reported the months of carryover
based on a 3-month standard (old method) instead of the carryover
amount over or under the allowable amount based on the current DOD
outlay rate methodology. For comparability purposes, we used the
fiscal year 2006 revised amount contained in the fiscal year 2007
AFWCF budget.
[End of table]
We analyzed the carryover information for 3 years--fiscal years 2006,
2007, and 2009--to determine contributing factors for the differences
between budgeted and actual amounts because in these years the
budgeted amounts underestimated the actual amounts by the largest
amounts. According to Air Force headquarters officials, several
factors influenced the differences between budgeted and actual amounts
including (1) changes in the outlay rates used to compute the
allowable amount of carryover, (2) changes in customer orders, (3)
issues affecting production of work performed on external orders such
as personnel and parts shortages, and (4) removal of contract depot
maintenance from AFWCF. Specific examples of these factors are
discussed below.
* Since the actual outlay rates were higher than the outlay rates used
for budgeting for certain appropriations funding orders received by
AFWCF, the actual allowable carryover amount was less than the
budgeted amount. For example, our analysis of Air Force data
determined that the outlay rate used to compute the allowable amount
of carryover from customers that were internal to AFWCF changed from
61 percent to 75 percent for fiscal year 2006 between budget and
execution. Because the rate increased by 14 percentage points, the
allowable amount of carryover was less than the planned amount for
fiscal year 2006.
* The budgets underestimated the amount of new orders that would be
received from customers external to AFWCF for fiscal years 2006, 2007,
and 2009. For example, the actual new orders exceeded budgeted new
orders by $242 million in fiscal year 2009 due to the Air Force not
including OCO-funded orders in the AFWCF budget. This contributed to
carryover being higher than planned in fiscal year 2009.
* For fiscal year 2009, the AFWCF encountered several problems that
affected production (work performed) and contributed to carryover
being higher than planned. Specifically, the Air Force forecasted a
declining workload for the ALCs in fiscal year 2009. As a result, the
Air Force directed AFMC to reduce its workforce at the ALCs. However,
workload increased instead of decreased in fiscal year 2009.
Furthermore, work in several areas such as engines, was delayed
because the depots could not obtain the spare parts when needed to
perform the work. As a result, the ALCs generated less revenue than
customer orders received, thus increasing the carryover amount in
fiscal year 2009. These issues are discussed in more detail later in
the report.
* The Air Force's action to remove contract depot maintenance from the
AFWCF was delayed by one year after the Air Force developed the fiscal
year 2007 AFWCF budget. Because the contract work was not removed in
fiscal year 2007 as budgeted, the budgeted fiscal year 2007 carryover
information presented in the fiscal year 2007 budget was understated
compared to the actual amounts as reported in the fiscal year 2009
budget.
Actions Under Way to Improve Budgeting for AFWCF Carryover:
In fiscal year 2010, Air Force headquarters and AFMC began
implementing actions to improve the accuracy of budgeting for AFWCF
carryover. These actions are, in part, in response to a fiscal year
2009 carryover balance that exceeded its plan by about $573 million
and an $85 million reduction in the AFWCF fiscal year 2010 budget by
the congressional defense committees due to projected excess
carryover. First, the Air Force began including OCO-funded orders in
the fiscal year 2012 AFWCF budget. Second, in the summer of 2010, the
Air Force requested and received from OUSD (Comptroller) an exemption
that allowed AFWCF to use an alternative outlay rate for software
maintenance workloads when calculating the allowable amount of
carryover (discussed in the next section of the report). The Air Force
requested the alternative outlay rate for software workload because
the work is fully funded upfront but requires years to complete and,
in many cases, requires the procurement of hardware from vendors. The
Air Force stated that the alternative outlay rate is expected to
reduce future variances between budgeted and actual allowable
carryover. Third, AFMC is taking several steps aimed at improving
workload and budget forecasts. Specifically, in December 2010, the Air
Force developed a process which improves the coordination among
organizations (systems program office, maintenance wings, and supply
personnel) that affect the performance of depot maintenance work. As
workload requirements change, this initiative includes an approval
process to adjust future budgets and workload estimates. The Air Force
anticipates that these changes will improve on-time aircraft and
missile performance and reduce variances between budgeted and actual
carryover. The success of these actions can be determined only when
future AFWCF budgets are analyzed and compared to actual results.
AFWCF Actual Carryover Consistently Exceeded the Allowable Carryover:
Our analysis of AFWCF reports showed that in each year from fiscal
year 2006 through fiscal year 2010 actual carryover exceeded the
allowable carryover amounts. During the 5-year period, the amount of
carryover that exceeded allowable amounts ranged from $4 million to
$568 million. The Air Force began increasing the allowable amount of
carryover (1) for orders funding software work in fiscal year 2010 and
(2) for orders funded with multiyear appropriations in fiscal years
2009 and 2010. Concerning the software work, the Air Force requested
the exemption because large software upgrades require full funding
upfront and years to complete. In many instances, software development
is predicated on procuring hardware that can take many months to
obtain. The Air Force requested in writing and received approval in
writing from OUSD (Comptroller) an exemption to increase the allowable
amount of carryover for software work. Concerning the use of orders
funded with multiyear appropriations, the Air Force based this
decision on a revision to the carryover-allowance methodology in the
DOD Financial Management Regulation.[Footnote 5] However, the section
in this regulation cited by the Air Force pertains only to Army
ordnance working capital fund activities which perform a manufacturing
function. Furthermore, the Air Force did not request in writing or
receive approval in writing from OUSD (Comptroller) an exemption for
increasing the allowable amount of carryover for orders funded with
multiyear appropriations. Therefore, the Air Force decision to
increase the allowable amount of carryover for orders funded with
multiyear appropriations was not in accordance with the DOD Financial
Management Regulation.
Actual Carryover Consistently Exceeded Allowable Amounts from Fiscal
Year 2006 through Fiscal Year 2010:
Our analysis of the budgets and supporting data showed that AFWCF
carryover exceeded its allowable carryover each year for a 5-year
period from fiscal year 2006 through fiscal year 2010. The amount of
carryover exceeding the allowable amount ranged from $4 million in
fiscal year 2006 to $568 million in fiscal year 2009. Table 3 shows
AFWCF actual carryover, allowable carryover, and the amount over
allowable carryover for fiscal years 2006 through 2010.
Table 3: AFWCF Actual Carryover, Allowable Carryover, and the Amount
Over Allowable Carryover for Fiscal Years 2006 through 2010:
Actual carryover:
Fiscal year 2006: $1.824 billion;
Fiscal year 2007: $1.830 billion;
Fiscal year 2008: $1.625 billion;
Fiscal year 2009: $1.846 billion;
Fiscal year 2010: $1.877 billion.
Allowable carryover:
Fiscal year 2006: 1.819 billion;
Fiscal year 2007: 1.728 billion;
Fiscal year 2008: 1.534 billion;
Fiscal year 2009: 1.278 billion;
Fiscal year 2010: 1.775 billion.
Amount over allowable carryover:
Fiscal year 2006: $4 million;
Fiscal year 2007: $102 million;
Fiscal year 2008: $90 million;
Fiscal year 2009: $568 million;
Fiscal year 2010: $101 million.
Source: GAO analysis of AFWCF data.
Notes: Totals may not add due to rounding.
For fiscal years 2006 through 2008, carryover information in the AFWCF
budgets included external depot maintenance, internal depot
maintenance, and contract depot maintenance work. The fiscal years
2009 and 2010 carryover information only includes external depot
maintenance work.
In accordance with the DOD Financial Management Regulation, (1)
nonfederal orders, (2) non-DOD orders, (3) foreign military sales, (4)
work related to base realignment and closure orders, and (5) work-in-
progress were excluded from the actual carryover and allowable
carryover figures.
[End of table]
Since the actual carryover exceeded the allowable by $568 million at
the end of fiscal year 2009, Air Force headquarters and AFMC held
weekly meetings, beginning in January 2010 to discuss the reduction of
carryover. Topics discussed at these meetings included: (1)
identifying work that was driving the carryover, (2) hiring additional
personnel to perform work that would reduce carryover, (3) identifying
problems with the performance of work due to the shortage of parts,
and (4) reviewing workloads that had unusual problems. Also, the
carryover information was provided bimonthly to the Under Secretary of
the Air Force since the carryover data has budget and operational
implications.
After the carryover exceeded the allowable amount by $568 million at
the end of fiscal year 2009, AFMC and the ALCs took a more proactive
approach in the budgeting and management of carryover. The ALCs are
(1) reviewing and validating the amount of carryover on existing
customer orders and (2) reviewing customer orders prior to acceptance
to ensure that all project orders contain a specific description of
the work and deliverables, and period of performance. Based on their
reviews of prior years' customer orders, the ALCs either deobligated
or completed work on $72 million of orders between May and September
2010 which reduced carryover by that amount.
Exemptions Increased Allowable Carryover Amounts for Fiscal Years 2009
and 2010:
For fiscal years 2009 and 2010, the Air Force took $115 million and
$229 million, respectively, in additional exemptions that increased
the allowable carryover amounts that were not taken in previous years.
These exemptions were for (1) orders involving the development of
software for weapon systems and test equipment ($104 million in fiscal
year 2010) and (2) prior-year orders financed with multiple year funds
such as procurement and research, development, test, and evaluation
appropriations ($115 million in fiscal year 2009 and $125 million in
fiscal year 2010).
Concerning the orders for software, the Air Force requested the
exemption, in writing, from OUSD (Comptroller) on June 23, 2010, and
OUSD (Comptroller) approved the exemption, in writing, on July 12,
2010. The Air Force requested that it use alternative outlay rates for
calculating the allowable carryover for software projects based on
attributes of the work and historical information. The Air Force
requested the exemption because large software upgrades to (1) weapon
systems or (2) equipment to test weapon systems or parts, such as
avionic parts, requires full funding upfront but requires years to
complete. In many instances, software development is predicated on
procuring hardware that can take many months to obtain. Furthermore,
software work requires time needed to identify, code, test, flight
test, and document the work performed. This work could take up to 4 to
5 years to complete. Since the software work is predicated on the Air
Force obtaining equipment from vendors, we believe the Air Force's use
of alternative outlay rates based on historical information for
software projects is reasonable.
Concerning the prior-year orders financed with multiyear funds, Air
Force headquarters officials informed us that they consulted with the
OUSD (Comptroller) officials to discuss a revision to the carryover-
allowance methodology in the DOD Financial Management Regulation.
[Footnote 6] Based on verbal discussions with the OUSD (Comptroller)
officials, Air Force officials concluded that the DOD Financial
Management Regulation authorized the use of second-year outlay rates
for orders funded with multiyear appropriations, such as procurement
and research, development, test, and evaluation appropriations. The
Air Force first applied this exemption in its fiscal year 2011 budget
which increased the calculation of allowable carryover for fiscal year
2009 and therefore, decreased the amount of actual carryover that was
over the allowable amount for fiscal year 2009. The Air Force applied
this exemption again in its fiscal year 2012 AFWCF budget which
increased the allowable amount of carryover by $125 million, $74
million, and $90 million for fiscal years 2010, 2011, and 2012,
respectively. We requested the Air Force written request for this
exemption and the OUSD (Comptroller) written approval. The Air Force
and OUSD (Comptroller) could not provide us any documentation. The DOD
Financial Management Regulation requires the Air Force to request
approval for the exemption in writing from the Director for Revolving
Funds, OUSD (Comptroller). Furthermore, the Air Force's exemption for
multiyear appropriations was based on a provision added to the DOD
Financial Management Regulation on Army ordnance activities which
perform a manufacturing function. This provision in the regulation
does not pertain to the Air Force. Therefore, the Air Force decision
to increase the allowable amount of carryover for orders funded with
multiyear appropriations was not in accordance with the DOD Financial
Management Regulation.
Carryover Increased at ALCs from Fiscal Years 2006 through 2010 on
Orders Received from External Customers:
Carryover related to external depot maintenance work increased from $1
billion at the end of fiscal year 2006 to $1.9 billion at the end of
fiscal year 2010. Our analysis of ALC depot maintenance reports and
discussions with Air Force officials identified four primary reasons
for this increase. First, Air Force underestimated its forecasted
workload requirements on the number of hours of depot maintenance work
to be performed on repairing assets, such as aircraft. Second, because
the Air Force believed its depot maintenance workload would decrease,
the Air Force directed AFMC to reduce its workforce in November 2007.
While the ALCs reduced their workforce by about 2,000 civilian
personnel, the actual workload and related funding increased instead
of decreased--thus resulting in personnel shortages. Third, during the
5-year period, the Air Force budget underestimated the amount of funds
on new orders that would be received from customers and the work
performed by the ALCs did not keep pace with the increase in funds
received on new orders from year to year. Fourth, the ALCs could not
obtain parts when needed to perform repair work that contributed to
the growth of carryover. The Air Force is or has taken action to
address these problems such as hiring personnel to perform depot
maintenance work and including OCO-funded orders in the fiscal year
2012 AFWCF budget.
Carryover Significantly Increased from Fiscal Year 2006 through Fiscal
Year 2010 on Orders Received from External Customers:
From fiscal years 2006 through 2010, the ALCs in-house carryover
increased from $1 billion to $1.9 billion on orders received from
customers external to AFWCF. The carryover increased because the
dollar amount of new orders exceeded the dollar amount of work
performed (revenue) for every year from fiscal year 2006 through
fiscal year 2010. As a result, carryover increased from 4 months of
work at September 30, 2006, to 6.9 months of work at September 30,
2010. The carryover reached a high point of 7.1 months of work for
fiscal year 2009. Figure 1 shows the ALCs' new orders, revenue, and
carryover for fiscal years 2006 through 2010 on orders received from
customers external to AFWCF.
Figure 1: ALCs New Orders, Revenue, and Carryover on Orders Received
from External Customers for Fiscal Years 2006 through 2010:
[Refer to PDF for image: vertical bar graph]
Year: 2006;
New orders: $3.080 billion;
Revenue: $3.009 billion;
Carryover: $1.000 billion;
Months of carryover: 4.0.
Year: 2007;
New orders: $2.862 billion;
Revenue: $2.801 billion;
Carryover: $1.089 billion;
Months of carryover: 4.7.
Year: 2008;
New orders: $3.116 billion;
Revenue: $2.886 billion;
Carryover: $1.318 billion;
Months of carryover: 5.5.
Year: 2009;
New orders: $3.401 billion;
Revenue: $3.179 billion;
Carryover: $1.873 billion;
Months of carryover: 7.1.
Year: 2010;
New orders: $3.530 billion;
Revenue: $3.391 billion;
Carryover: $1.938 billion;
Months of carryover: 6.9.
Source: GAO analysis of Air Force data.
Notes: The carryover figures reflect the total amount of work to be
performed at fiscal year end.
The figure presents AFWCF's new orders, revenue, and carryover
information for work performed by ALCs on orders received from
customers who were external to AFWCF.
[End of figure]
In order for the ALCs to operate efficiently and effectively and to
accomplish depot maintenance work within planned time frames that
minimizes carryover, the Air Force needs to plan for several key
elements. First, the Air Force needs to accurately forecast workload
requirements on the number of hours of depot maintenance work to be
performed repairing assets such as aircraft, engines, and missiles.
Second, the ALCs need appropriate levels of facilities and support
equipment available to support the forecasted workload. Third, the
assets, such as aircraft, needing repair must be available at the ALC
as planned, to ensure that work can begin on the assets as scheduled.
Fourth, the ALCs need to have the right number of personnel with the
right skill mix to perform the work. Fifth, the DOD supply system must
maintain the right mix and sufficient quantities of spare parts to
satisfy the projected workload. Finally, Air Force depot maintenance
customers need to properly fund the work, as budgeted, to be
performed. For the process to work correctly and seamlessly, these
elements must occur and be properly synchronized. If the carryover
becomes too high or low, this is an indication that one or more of the
six elements may not be working properly.
Of the six elements above, we determined the ALCs encountered problems
that contributed to carryover for four of these elements including:
(1) forecasting workload requirements on the number of hours of depot
maintenance work to be performed, (2) determining the right number of
civilian personnel to perform the depot maintenance work, (3)
budgeting for new orders, and (4) obtaining parts to perform the work.
Specific examples of problems experienced by ALCs contributing to
carryover are provided in appendix II.
Air Force Underestimated its Forecasted Workload Requirements on the
Number of Hours of Work to be Performed:
Accurately forecasting workload requirements is essential for ensuring
that needed facilities and support equipment, personnel, and spare
parts are available to support the planned workload to keep the ALCs
operating efficiently. However, the Air Force underestimated its
forecasted workload requirements on the number of hours of depot
maintenance work to be performed from fiscal year 2007 through fiscal
year 2010, especially in fiscal year 2009. According to the Air
Force's Workload Review Guidance and AFMC officials, AFMC and ALCs
evaluate their future planned workload and develop workload forecasts
by converting anticipated customer funding into the number of hours
required to perform the work. The Air Force develops two forecasts for
a specific fiscal year. One forecast is 18 months before a fiscal year
and another forecast is 6 months before the fiscal year. Figure 2
shows the Air Force's 18-and 6-month forecast and actual depot
maintenance workload requirements for fiscal years 2007 through 2010.
Figure 2: Air Force's 18-and 6-Month Forecast and Actual Workload
Requirements on the Number of Hours of Work to be performed for Fiscal
Years 2007 through 2010:
[Refer to PDF for image: vertical bar graph]
Year: 2007;
18 month forecast: 22.2 million hours;
6 month forecast: 22.0 million hours;
Actual: 22.7 million hours.
Year: 2008;
18 month forecast: 21.2 million hours;
6 month forecast: 22.8 million hours;
Actual: 21.9 million hours.
Year: 2009;
18 month forecast: 21.1 million hours;
6 month forecast: 21.3 million hours;
Actual: 23.0 million hours.
Year: 2010;
18 month forecast: 20.2 million hours;
6 month forecast: 24.8 million hours;
Actual: 24.8 million hours.
Source: GAO analysis of Air Force data.
[End of figure]
As shown in figure 2, the Air Force anticipated in its 18-month
forecast that its workload requirements would steadily decrease from
22.2 million hours in fiscal year 2007 to 20.2 million hours in fiscal
year 2010--a reduction of 2 million hours. The reduction in workload
requirements was included in a November 2007 Air Force memorandum.
[Footnote 7] In that memorandum, the Air Force provided two reasons
for the anticipated workload decrease: (1) the ALCs were more
efficient due to the implementation of transformation efforts focused
on improving operational performance and reducing weapon system
sustainment costs that began in fiscal year 2003, and (2) approved
retirements of aircraft such as the KC-135 platforms would reduce
depot maintenance workload at the ALCs. In addition, Air Force
headquarters officials informed us that at the beginning of fiscal
year 2008, the Air Force had not seen an increase in depot maintenance
work as a result of OCO. As a result, the Air Force directed AFMC to
reduce its total workforce to support the forecasted workload.
(Workforce reductions are discussed in the next section.)
The Air Force anticipated a decrease in workload requirements in its
18-month forecast, but the actual workload requirements increased by
2.1 million hours from fiscal year 2007 to fiscal year 2010. Over the
same 4-year period, carryover increased from $1.1 billion in fiscal
year 2007 to $1.9 billion in fiscal year 2010. About 65 percent of the
increase occurred in fiscal year 2009 (see figure 1). Specifically,
the fiscal year 2009 actual workload requirements exceeded the 18-and
6-month forecasts by 1.9 million and 1.7 million hours, respectively,
due to (1) additional depot maintenance work on aircraft that were not
retired as planned and (2) the 2009 actual inductions for aircraft and
engines exceeding forecasted inductions. For example, the Air Force
forecasted that it would induct 596 aircraft for depot maintenance
work at the ALCs in fiscal year 2009, but 691 aircraft were actually
inducted--an increase of 95 aircraft or 16 percent.
Significant variance to forecasted workload on the number of hours of
work to be performed and the effect it has on other decisions, such as
determining personnel levels, has a direct effect on carryover
balances. When forecasts are significantly different from results,
carryover can increase significantly as was the case in fiscal year
2009.
ALCs Reduced Workforce Led to Personnel Shortages:
Having the right number of personnel with the right skill mix to
perform depot maintenance work is essential for the ALCs to operate in
an efficient and effective manner. However, the ALCs reduced their
workforce in fiscal year 2008 and the first 4 months of fiscal year
2009 which caused personnel shortages and contributed to growth in
carryover amounts for fiscal years 2008, 2009, and 2010. Personnel are
a critical component in the ALCs' ability to repair and maintain an
aging Air Force fleet of fighters, bombers, and cargo aircraft. In a
November 2007 Air Force memorandum, the Air Force stated that "while
overall workload is decreasing, we are seeing manpower growth
instead." As a result, the Air Force directed AFMC to reduce its total
workforce to support the forecasted workload. The following figure
provides AFMC monthly civilian workforce totals for fiscal years 2006
through 2010.
Figure 3: AFMC Monthly Civilian Workforce Totals for Fiscal Years 2006
through 2010:
[Refer to PDF for image: vertical bar graph]
Date: October 2005;
Number of AFWCF civilian workforce: 22,693.
Date: November 2005;
Number of AFWCF civilian workforce: 22,688.
Date: December 2005;
Number of AFWCF civilian workforce: 22,660.
Date: January 2006;
Number of AFWCF civilian workforce: 22,680.
Date: February 2006;
Number of AFWCF civilian workforce: 22,753.
Date: March 2006;
Number of AFWCF civilian workforce: 22,846.
Date: April 2006;
Number of AFWCF civilian workforce: 23,022.
Date: May 2006;
Number of AFWCF civilian workforce: 23,191.
Date: June 2006;
Number of AFWCF civilian workforce: 23,387.
Date: July 2006;
Number of AFWCF civilian workforce: 23,609.
Date: August 2006;
Number of AFWCF civilian workforce: 23,656.
Date: September 2006;
Number of AFWCF civilian workforce: 23,381.
Date: October 2006;
Number of AFWCF civilian workforce: 23,413.
Date: November 2006;
Number of AFWCF civilian workforce: 23,442.
Date: December 2006;
Number of AFWCF civilian workforce: 23,540.
Date: January 2007;
Number of AFWCF civilian workforce: 23,392.
Date: February 2007;
Number of AFWCF civilian workforce: 23,424.
Date: March 2007;
Number of AFWCF civilian workforce: 23,244.
Date: April 2007;
Number of AFWCF civilian workforce: 23,290.
Date: May 2007;
Number of AFWCF civilian workforce: 23,372.
Date: June 2007;
Number of AFWCF civilian workforce: 23,389.
Date: July 2008;
Number of AFWCF civilian workforce: 23,397.
Date: August 2007;
Number of AFWCF civilian workforce: 23,403.
Date: September 2007;
Number of AFWCF civilian workforce: 23,078.
Date: October 2007;
Number of AFWCF civilian workforce: 22,763.
Date: November 2007;
Number of AFWCF civilian workforce: 22,786.
Date: December 2007;
Number of AFWCF civilian workforce: 22,746.
Date: January 2008;
Number of AFWCF civilian workforce: 22,656.
Date: February 2008;
Number of AFWCF civilian workforce: 22,238.
Date: March 2008;
Number of AFWCF civilian workforce: 22,050.
Date: April 2008;
Number of AFWCF civilian workforce: 21,924.
Date: May 2008;
Number of AFWCF civilian workforce: 21,604.
Date: June 2008;
Number of AFWCF civilian workforce: 21,501.
Date: July 2008;
Number of AFWCF civilian workforce: 21,248.
Date: August 2008;
Number of AFWCF civilian workforce: 21,177.
Date: September 2008;
Number of AFWCF civilian workforce: 21,055.
Date: October 2008;
Number of AFWCF civilian workforce: 20,975.
Date: November 2008;
Number of AFWCF civilian workforce: 20,947.
Date: December 2008;
Number of AFWCF civilian workforce: 20,914.
Date: January 2009;
Number of AFWCF civilian workforce: 20,768.
Date: February 2009;
Number of AFWCF civilian workforce: 20,804.
Date: March 2009;
Number of AFWCF civilian workforce: 21,049.
Date: April 2009;
Number of AFWCF civilian workforce: 21,082.
Date: May 2009;
Number of AFWCF civilian workforce: 21,127.
Date: June 2009;
Number of AFWCF civilian workforce: 21,268.
Date: July 2009;
Number of AFWCF civilian workforce: 21,296.
Date: August 2009;
Number of AFWCF civilian workforce: 21,458.
Date: September 2009;
Number of AFWCF civilian workforce: 21,628.
Date: October 2009;
Number of AFWCF civilian workforce: 21,765.
Date: November 2009;
Number of AFWCF civilian workforce: 22,020.
Date: December 2009;
Number of AFWCF civilian workforce: 22,149.
Date: January 2010;
Number of AFWCF civilian workforce: 22,297.
Date: May 2010;
Number of AFWCF civilian workforce: 22,486.
Date: March 2010;
Number of AFWCF civilian workforce: 22,806.
Date: April 2010;
Number of AFWCF civilian workforce: 23,062.
Date: February 2010;
Number of AFWCF civilian workforce: 23,309.
Date: June 2010;
Number of AFWCF civilian workforce: 23,683.
Date: July 2010;
Number of AFWCF civilian workforce: 23,789.
Date: August 2010;
Number of AFWCF civilian workforce: 23,962.
Date: September 2010;
Number of AFWCF civilian workforce: 24,161.
Source: GAO analysis of AFMC report on personnel.
[End of figure]
In the 14 months immediately following the issuance of the November
2007 memorandum, AFMC reduced its workforce by about 2,000 civilian
personnel--primarily through attrition and buy-out incentives.
According to AFMC and ALC officials, these personnel reductions
significantly reduced the operational capabilities at the ALCs and
coupled with the increase in orders led directly to increased
carryover amounts from fiscal years 2008 through 2010.
In the first half of fiscal year 2009, the Air Force determined that
the workforce reductions were not warranted because the dollar amount
of external new orders (workload) received by the ALCs increased
instead of decreasing. For example, the ALCs received $3.4 billion of
external new orders in fiscal year 2009--about a $285 million increase
over fiscal year 2008 orders. In order to meet higher workload demands
and limit the growth in fiscal years 2009 and 2010 carryover amounts,
the ALCs began hiring personnel in fiscal year 2009. Most of the
hiring occurred at the Oklahoma City and Warner Robins ALCs. For
example, the Oklahoma City ALC increased civilian personnel from 7,073
to 8,848 in a 20-month period beginning in February 2009--a 25 percent
increase. While increasing the workforce has helped the ALCs to reduce
the growth in carryover, ALC officials informed us that the new
personnel lacked the experience of the personnel who left in fiscal
year 2008 and the first half of fiscal year 2009. As a result, the new
personnel were not always as efficient and required experienced
workers to train them, reducing the productivity of the existing
workforce. Further, the ALCs required time to ramp up hiring and train
new personnel to be certified to repair weapon systems. AFMC and ALC
officials stated that the ALCs should reach their projected personnel
levels in fiscal year 2011.
External New Orders Consistently Exceeded Budget Estimates:
Accurate budgets on the amount of external new orders to be received
are essential for the ALCs to plan their work such as determining the
right number of personnel needed. However, from fiscal year 2006
through fiscal year 2010, the Air Force consistently underestimated
its new orders when developing its AFWCF budgets for work performed by
ALCs on orders received from customers that were external to AFWCF.
Further, for fiscal years 2009 and 2010, actual new orders exceeded
budgeted orders by $242 million and $597 million, respectively--the
largest differences in the 5-year period. Table 4 shows the dollar
amount of actual and budgeted new orders for fiscal years 2006 through
2010.
Table 4: Actual and Budgeted New Orders for Work Performed by ALCs on
Orders Received from Customers Who Were External to AFWCF for Fiscal
Years 2006 through 2010:
Actual new orders:
Fiscal year 2006: $3.080 billion;
Fiscal year 2007: $2.862 billion;
Fiscal year 2008: $3.116 billion;
Fiscal year 2009: $3.401 billion;
Fiscal year 2010: $3.530 billion.
Budgeted new orders:
Fiscal year 2006: $2.862 billion[A];
Fiscal year 2007: $2.788 billion;
Fiscal year 2008: $3.025 billion;
Fiscal year 2009: $3.159 billion;
Fiscal year 2010: $2.933 billion.
Amount of actual orders exceeding budgeted orders:
Fiscal year 2006: $218 million;
Fiscal year 2007: $74 million;
Fiscal year 2008: $91 million;
Fiscal year 2009: $242 million;
Fiscal year 2010: $597 million.
Source: GAO analysis of AFWCF data.
Note: Actual and budgeted new order amounts for fiscal years 2006
through 2010 were not reduced for exclusions in order to show the
total amount of work to be performed on external new orders.
[A] We used the fiscal year 2006 revised amount in the AFWCF fiscal
year 2007 budget carryover worksheets because the fiscal year 2006
budget worksheets were not available.
[End of table]
When developing its budget for new orders for fiscal year 2006 through
fiscal year 2010, Air Force officials informed us they did not include
orders for work financed with OCO funds. However, for fiscal years
2006 through 2010, the ALCs received $1.7 billion in work financed
with OCO funds. The majority of the funded orders were received in
fiscal years 2009 and 2010 when the ALCs received $1 billion in OCO-
funded orders over this 5-year period. Air Force officials told us
that they did not include OCO orders in the budget for two reasons:
* Customers' OCO budgets were finalized and submitted later in the
calendar year than the base budget. Thus, the amount of OCO orders was
not fully determined when the AFWCF budget was completed and submitted.
* For fiscal years 2006 through 2008, the actual orders varied by
about $218 million or less than the budgeted orders. Air Force
officials said that there was enough flexibility with the AFWCF to
perform the additional amount of work, such as having employees work
overtime.
While the difference between actual and budgeted orders ranged from
$74 million to $218 million from fiscal years 2006 through 2008, the
difference grew in fiscal years 2009 and 2010 primarily due to an
increase in OCO-funded orders. To correct this problem, the Air Force
began including OCO-funded orders in the fiscal year 2012 AFWCF budget.
ALCs Could Not Obtain Parts Needed to Perform Repair Work on External
Orders:
Without the DOD supply system maintaining the right mix and sufficient
quantities of spare parts, the ALCs cannot complete funded workload in
a timely and efficient manner. However, our analysis of Air Force data
and interviews with ALC officials found that parts shortages at the
ALCs have contributed to the growth of carryover. Air Force operations
have grown significantly in support of OCO. These higher operational
levels have resulted in increased wear on the Air Force's aging fleet
of aircraft such as the KC-135 and C-130 and engines, such as the F110-
100 and F108-100, resulting in a greater demand for spare parts to
repair them. When shortages of parts occur, the ALCs (1) work may be
delayed until the parts are available in the supply system or are
manufactured by the ALCs, potentially increasing the carryover amounts
at year end, or (2) costs increase from the time-consuming efforts
taken to obtain (cannibalize) parts from other aircraft or engines to
continue the repair process.
Our analysis of Air Force data showed that the average monthly
backorders for spare parts at the ALCs have grown significantly in
recent years. From fiscal years 2008 to 2010, average backorders at
the ALCs grew by 44 percent. The Defense Logistics Agency and the Air
Force's Global Logistics Support Center were the ALCs' primary supply
sources for acquiring spare parts. Table 5 provides the ALCs average
monthly backorders.
Table 5: ALCs Average Monthly Number of Backorders Outstanding for
Fiscal Years 2008 through 2010:
Air Force ALC: Oklahoma City, OK;
Fiscal year 2008: 7,019;
Fiscal year 2009: 7,456;
Fiscal year 2010: 12,363;
3-year percentage growth: 76%.
Air Force ALC: Warner Robins, GA;
Fiscal year 2008: 8,353;
Fiscal year 2009: 9,013;
Fiscal year 2010: 11,212;
3-year percentage growth: 34%.
Air Force ALC: Ogden, UT;
Fiscal year 2008: 10,713;
Fiscal year 2009: 10,547;
Fiscal year 2010: 14,020;
3-year percentage growth: 31%.
Air Force ALC: Total average monthly backorders;
Fiscal year 2008: 26,086;
Fiscal year 2009: 27,016;
Fiscal year 2010: 37,595;
3-year percentage growth: 44%.
Source: Air Force data.
Note: Totals may not add due to rounding.
[End of table]
According to ALC officials, backorders for spare parts grew because
the supply system did not maintain the right mix or sufficient
quantities of spare parts on hand to meet the higher-than-projected
workload requirements experienced in fiscal years 2009 and 2010. For
example, Oklahoma City Center officials informed us that the F108-100
engine program experienced a 60 percent increase for the overhaul of
these engines from fiscal years 2008 to 2009, creating shortages of
parts such as the engine mounts and compressor discharge nozzle cases.
In addition, over the 3-year period the average age of backorders for
spare parts grew in all age categories. Spare parts on backorder can
delay work and potentially increase the carryover amounts. Table 6
provides the average monthly backorders for the three ALCs by age
category.
Table 6: Aging of ALCs' Average Monthly Number of Backorders
Outstanding for Fiscal Years 2008 through 2010:
Age category as number of days outstanding: Above 180;
Fiscal year 2008: 6,085;
Fiscal year 2009: 5,879;
Fiscal year 2010: 7,760;
3-year percentage growth: 28%.
Age category as number of days outstanding: 91 to 180;
Fiscal year 2008: 4,778;
Fiscal year 2009: 4,798;
Fiscal year 2010: 6,454;
3-year percentage growth: 35%.
Age category as number of days outstanding: 61 to 90;
Fiscal year 2008: 2,705;
Fiscal year 2009: 2,916;
Fiscal year 2010: 4,017;
3-year percentage growth: 49%.
Age category as number of days outstanding: 31 to 60;
Fiscal year 2008: 4,091;
Fiscal year 2009: 4,475;
Fiscal year 2010: 6,410;
3-year percentage growth: 57%.
Age category as number of days outstanding: 0 to 30;
Fiscal year 2008: 8,428;
Fiscal year 2009: 8,948;
Fiscal year 2010: 12,955;
3-year percentage growth: 54%.
Source: Air Force data.
[End of table]
In order to perform the required repair work and to minimize the
impact of parts shortages, the ALCs have used other methods to obtain
needed parts such as obtaining parts from other aircraft (known as
cannibalization), fabricating parts, or obtaining parts through the
use of their local procurement authority. While the alternative
methods allowed work to continue, obtaining the needed parts this way
was inefficient. For example, if the aircraft mechanic does not
receive the spare parts from the supply system, the mechanic may
cannibalize parts from other aircraft. According to reports, the three
ALCs cannibalized 5,189, 5,447, and 5,667 items in fiscal years 2008,
2009, and 2010, respectively. According to officials, the ALCs can
cannibalize parts in the short term to resolve spare part shortages;
however, in the long term, the ALCs need the supply system to obtain
the needed parts to continue operations.
We reported in March 2007 that the basic challenge of inventory
management is having the proper amount of items on hand when required.
[Footnote 8] If inventory levels are too low, DOD and its components
may experience supply shortages and be unable to satisfy customer
demands. If inventory levels are too high, money is invested on items
that may never be used. Because of ineffective and inefficient
inventory management practices and procedures, since 1990 we have
identified DOD supply chain management as a high-risk area.[Footnote 9]
DOD has acknowledged the longstanding problems concerning its
inventory management and has actions under way to address them. With
the objective of reducing the acquisition and storage of secondary
item inventory that is excess to requirements, section 328 of the
National Defense Authorization Act for Fiscal Year 2010[Footnote 10]
required the Secretary of Defense to submit to congressional defense
committees a comprehensive plan for improving the inventory management
systems of the military departments and the Defense Logistics Agency.
On November 8, 2010, DOD submitted its Comprehensive Inventory
Management Improvement Plan to the congressional defense committees.
[Footnote 11] Section 328 also requires GAO to submit to the
congressional defense committees an assessment of the extent to which
the plan meets the specified requirements no later than 60 days after
the plan's submission. We assessed the plan and found that DOD's plan
addressed each of the eight required elements in section 328.[Footnote
12] Section 328 also requires GAO to submit another report to the
congressional defense committees not later than 18 months after DOD's
plan is submitted. The second report is to document our assessment of
the extent to which the plan has been effectively implemented by each
military department and by the Defense Logistics Agency.
Since DOD recently issued its plan in November 2010 to improve the
management of inventory and we will be assessing the implementation of
the plan, we are not making any recommendations in this report on the
parts shortages. However, until DOD resolves its inventory problems,
the ALCs will likely continue to be affected by parts shortages or
other supply chain management problems that affect their efficiency as
well as the dollar amount of carryover.
Conclusions:
Reliable carryover information is essential for Congress and DOD to
perform their oversight responsibilities, including reviewing and
making well-informed decisions on DOD's budget. However, the Air Force
underestimated the work to be performed and the related resources
needed, thereby impacting its ability to complete the work in an
efficient and effective manner and causing carryover to exceed the
allowable amounts in the AFWCF annual budgets. Budget estimates could
be improved by implementing effective controls to properly consider
and address the major factors that caused variations between budgeted
and actual carryover amounts. Also, correctly interpreting and
applying criteria in the DOD Financial Management Regulation for
determining the allowable carryover amounts would increase the
reliability of such estimates. While the carryover metric is a
management tool for controlling the amount of work that can carry over
from one fiscal year to the next, the metric can also be used as a
tool to identify problems in other areas such as (1) developing
workload requirements on the number of hours of depot maintenance work
to be performed, (2) establishing personnel levels to perform the
depot maintenance work, (3) developing budgets on the amount of new
orders for depot maintenance work, and (4) obtaining spare parts to
perform depot maintenance work. For example, in fiscal year 2009,
AFWCF carryover exceeded the allowable amount by over a half a billion
dollars. This was largely due to the ALCs' reducing their personnel by
about 2,000 shortly after the Air Force issued a memorandum in
November 2007 directing them to do so in anticipation of workload
reductions that did not materialize. The Air Force has initiated
actions to improve the budgeting and management of carryover. These
actions have the potential to improve the accuracy of budgeting for
AFWCF carryover. However, the Air Force needs to routinely compare the
budgeted carryover information with the actual results and determine
the reasons for the differences and consider this information in
formulating future budgets.
Recommendations for Executive Action:
We are making five recommendations to the Secretary of Defense to
improve the budgeting and management of carryover.
We recommend that the Secretary of Defense direct the Under Secretary
of Defense (Comptroller) to take the following action:
* Clarify the existing guidance in the DOD Financial Management
Regulation that allows Army ordnance activities to use multiyear
appropriations in the calculation of allowable carryover to ensure
that other working capital fund activities do not use this provision
as a basis for their calculation of allowable carryover.
We recommend that the Secretary of Defense direct the Secretary of the
Air Force to take the following actions:
* Take actions to ensure that requests for exemption from the
carryover policy are made in writing and approved by the Director for
Revolving Funds as required by the DOD Financial Management Regulation.
* Require Air Force headquarters and Air Force Materiel Command to
routinely compare budgeted carryover that is over or under the
allowable amount to the actual amount to identify the differences and
reasons for the differences, and consider these trends in developing
future budget estimates on carryover.
* Require Air Force headquarters and Air Force Materiel Command to
routinely compare budgeted orders to actual orders to identify the
differences and reasons for the differences, and consider them in
developing future years' budget estimates on new orders to be received
from customers.
* Require Air Force headquarters and Air Force Materiel Command to
routinely compare the forecasted workload requirements on the number
of hours of depot maintenance work to be performed to the actual
number and consider these trends in developing future years' depot
maintenance workload requirements.
Agency Comments and Our Evaluation:
DOD provided written comments on a draft of this report. In its
comments, DOD concurred with the five recommendations and cited
actions planned or under way to address them. For example, DOD stated
that the DOD Financial Management Regulation will be updated to
clarify that the intent of existing guidance is to permit Army
ordnance activities to use multiyear appropriations in the calculation
of allowable carryover, and that other working capital fund activities
cannot use this provision without prior approval in writing from the
OUSD (Comptroller) Director for Revolving Funds. DOD also stated that
before DOD direction could be given, Air Force headquarters had
already notified AFMC that written approval from the OUSD
(Comptroller) Director for Revolving Funds is required for exemptions
to the allowable carryover calculation. Further, DOD stated that Air
Force headquarters has tasked AFMC to submit its analyses comparing
budgeted and actual information on carryover, orders, and workload
requirements on the number of hours of depot maintenance work to be
performed to improve the budgeting and management of carryover in
future years. DOD also stated that it is the Air Force's intent to
include the requirement to perform these analyses in its annual
working capital fund budget guidance.
We are sending copies of this report to the appropriate congressional
committees. We are also sending copies to the Secretary of Defense;
the Under Secretary of Defense (Comptroller); and the Secretary of the
Air Force. The report also is available at no charge on the GAO Web
site at [hyperlink, http://www.gao.gov].
Should you or your staff have any questions concerning this report,
please contact Asif A. Khan at (202) 512-9095 or khana@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. Key contributors
to this report are listed in appendix IV.
Signed by:
Asif A. Khan:
Director, Financial Management and Assurance:
[End of section]
Appendix I: Scope and Methodology:
To determine the extent to which (1) budget information on Air Force
depot maintenance carryover for fiscal years 2006 through 2010
approximated actual results and, if not, any needed actions the Air
Force is taking to improve budgeting for carryover, and (2) the Air
Force depot maintenance actual carryover exceeded the allowable amount
of carryover from fiscal years 2006 through 2010 and any adjustments
were made to the allowable amount, we obtained and analyzed Air Force
depot maintenance reports that contained information on budgeted and
actual carryover and the allowable amount of carryover for fiscal
years 2006 through 2010. We met with responsible officials from Air
Force headquarters, Air Force Materiel Command (AFMC), and the Air
Logistics Centers (ALC) to determine the reasons for significant
variances between budgeted and actual carryover or actual carryover
and the allowable amount. We also met with these officials to discuss
the actions the Air Force was taking to improve budgeting and
management of carryover. Further, we identified and analyzed any
adjustments made by the Air Force that increased the allowable
carryover amounts for fiscal years 2009 and 2010. We discussed the
adjustments with Office of the Under Secretary of Defense
(Comptroller) and Air Force headquarters officials to obtain their
explanations for making the adjustments and reviewed requirements
contained in the DOD Financial Management Regulation for making
adjustments to the carryover policy.
To determine the extent to which there was growth in carryover at the
Air Force depot maintenance in-house activities on orders received
from customers that were external to Air Force Working Capital Fund
(AFWCF) and the reasons for the growth, we met with responsible
officials from the three ALCs, AFMC, and Air Force headquarters. Based
on those discussions, we obtained information that affected carryover.
First, we analyzed planned versus actual workload requirement
information to determine if the Air Force developed reliable
forecasted workload requirements. When differences occurred between
planned and actual requirements, we met with Air Force headquarters
officials to determine the reasons for the differences. Second, we
analyzed reports that provided information on personnel levels at the
ALCs to determine if they had reduced their workforce. We met with
officials at the three ALCs, AFMC, and Air Force headquarters to
discuss the reduction of personnel at the ALCs as well as the
subsequent hiring and training of personnel. Third, we analyzed
budgeted and actual new orders from fiscal years 2006 through 2010 to
determine if the Air Force underestimated the ALCs budgeted orders.
When differences occurred between budgeted and actual new orders, we
met with Air Force headquarters officials to determine the reasons for
these differences. Fourth, we analyzed information on the ALCs ability
to obtain spare parts to perform work to determine if parts shortages
contributed to carryover. We met with AFMC and ALC officials to
discuss parts shortages and what actions the ALCs could take to
alleviate the shortages. Fifth, we identified all high-dollar
carryover orders received by the ALCs in fiscal years 2009 and 2010 to
determine the reasons for the carryover. We focused on these orders
because (1) carryover exceeded the allowable amount by over a half a
billion dollars in fiscal year 2009 and (2) fiscal year 2010 orders
were the most recent orders at the time of our audit.
Financial information in this report was obtained from official Air
Force budget documents and accounting reports. To assess the
reliability of the data, we (1) reviewed and analyzed the factors used
in calculating carryover for the completeness of the elements included
in the calculation, (2) interviewed Air Force officials knowledgeable
about the carryover data, (3) reviewed GAO reports on depot
maintenance activities, and (4) reviewed orders customers submitted to
the depots to determine whether they were adequately supported by
documentation. In reviewing these orders, we obtained the status of
the carryover at the end of the fiscal year. On the basis of
procedures performed, we have concluded that these data were
sufficiently reliable for the purposes of this report. We performed
our work at the headquarters of the 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, Wright-Patterson
Air Force Base, Ohio; the depot maintenance wing at the Oklahoma City
Air Logistics Center, Tinker Air Force Base, Oklahoma; the depot
maintenance wing at the Ogden Air Logistics Center, Hill Air Force
Base, Utah; and the depot maintenance wing at the Warner Robins Air
Logistics Center, Robins Air Force Base, Georgia. We conducted this
performance audit from July 2010 through July 2011 in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings
and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Examples of Problems Experienced by Air Logistics Centers
Contributing to Carryover:
This appendix contains specific examples showing those problems
experienced by the Air Logistics Centers (ALC) in performing depot
maintenance work that contributed to work carrying over from one
fiscal year to the next. These problems include (1) the lack of
personnel, (2) difficulties encountered in obtaining parts from the
Department of Defense supply system, and (3) changing or increasing
workload requirements. Most of the examples discussed below include
two or three of the problems cited above.
F110-100 Engine:
The Oklahoma City ALC repairs Air Force F110-100 engines used on the F-
16 Fighting Falcon aircraft. Beginning in fiscal year 2008, the Air
Force began experiencing delays in the engine program due to personnel
and parts shortages that resulted in higher carryover in fiscal years
2009 and 2010. These personnel and parts shortages resulted in the
average number of days necessary to complete an engine from the date
the engine was inducted (flow days) increasing from 135 days at the
end of fiscal year 2008 to 371 days at the end of fiscal year 2010--a
175 percent increase. The personnel and parts shortages are discussed
below.
* ALC officials told us that personnel shortages occurred because 7 of
their 14 experienced mechanics were transferred to another engine
repair line beginning in fiscal year 2008 even though orders for
repairing the engine did not decline. The ALC transferred the
mechanics because (1) the serviceable engines in Air Force's worldwide
inventory exceeded its wartime requirements and (2) there was an
urgent need for the mechanics on another engine repair line.
* ALC officials also told us that work on the engines was delayed
because parts were not always available in the supply system. At the
end of fiscal years 2009 and 2010, program office officials estimated
that there were about 129 and 137 backorders for parts, respectively.
For example, the production unit could not obtain enough service life
extension packages to overhaul the engines. According to officials and
documentation, another delay occurred when some of the engines' front
stator assemblies were identified as having excessive wear--a new
failure mode. The ALC could not repair the assemblies because it did
not have a certified process for repairing the parts. Thus, the ALC
negotiated and awarded a contract to a vendor. The process to
competitively award the contract and have the parts repaired by the
vendor created delays in the program during fiscal years 2009 and
2010. ALC personnel now have a certified process for repairing the
parts.
Due to the personnel and parts shortages, ALC officials stated that
they did not complete work on their fiscal year 2009 orders and work
did not start on their fiscal year 2010 orders as of November 2010. As
a result, carryover was higher than planned at the end of fiscal years
2009 and 2010. Specifically, the ALC planned to carry over $56 million
on 19 engines into fiscal year 2010. Instead, it carried over $120
million on 43 engines into fiscal year 2010--about $64 million and 24
engines more than planned. The personnel and parts shortages continued
on these engines into fiscal year 2010. The ALC planned to carry over
$21 million on 7 engines into fiscal year 2011. Instead, it carried
over $81 million on 29 engines into fiscal year 2010--$60 million and
22 engines more than planned.
F108-100 Engine:
Beginning in fiscal year 2009, the requirement for repairing F108-100
engines used on the KC-135 refueling aircraft grew significantly
because the Air Force did not have enough serviceable engines to
satisfy its wartime requirement. Thus, the Oklahoma City ALC began
expanding its production capacity to produce upwards of 120 engines
annually--more than doubling the 53 engines produced in fiscal year
2008. To perform the additional workload, the ALC transferred 7
mechanics from another engine repair line and hired an additional 30
mechanics in fiscal years 2009 and 2010. According to our analysis of
data and discussions with F108-100 program and production officials,
the increased requirement created significant parts shortages in
fiscal year 2010 because the demand for parts needed to repair these
engines exceeded the availability of inventory in some cases. For
example, due to a lack of high pressure compressors and fan booster
assemblies, work on several engines stopped periodically until
replacement parts were obtained. Data showed that the engine program
had 160 backorders at the end of fiscal year 2010--almost doubling 81
backorders at the end of the previous year. Production of the engine
dropped from 85 in fiscal year 2009 to 67 in fiscal year 2010
primarily due to the parts shortages according to Oklahoma City ALC
officials even though they planned to produce 90 engines in fiscal
year 2010. The ALC planned to carry over $11 million on 5 engines into
fiscal year 2011. Instead, it carried over $78 million on 37 engines
into fiscal year 2011--$67 million more than planned.
B-52 Aircraft:
Prior to fiscal year 2006, Oklahoma City ALC officials stated that the
Air Force maintained a B-52 fleet size of 93 aircraft. To maintain the
B-52s, it inducted and performed depot maintenance work on about 21 or
22 aircraft annually and retained a workforce of almost 480 personnel
to perform the work. According to a fiscal year 2006 budget document,
the Air Force planned to reduce its fleet size to 56 aircraft in order
to transform its "total force" into a smaller, more lethal and agile
force by eliminating the most expensive, least effective systems. By
January 2007, the Air Force reduced its planned funding for depot-
level repairs and maintenance of B-52 aircraft to 13 annually.
Moreover, the B-52 workforce was reduced to just over 300 personnel--a
reduction of about 180.
The National Defense Authorization Act for Fiscal Year 2008 required
the Air Force to retain a larger fleet size of B-52 aircraft than
previously required.[Footnote 13] According to production officials,
when the Air Force increased its targeted fleet size from 56 to 76 to
comply with congressional direction, the ALC had to increase its
workforce to satisfy a higher production requirement of 17 aircraft
annually. The workforce shortage, according to these officials,
created a backlog of work in the B-52 program that contributed to (1)
the average number of days to complete an aircraft increasing by 76
days between fiscal years 2008 and 2010 from 227 to 303 and (2) $73.3
million of the $75.6 million of orders received in the last 4 months
in fiscal year 2009 carried over from fiscal year 2009 into fiscal
year 2010. The ALC increased its workforce to 492 personnel in fiscal
year 2010 to handle the additional workload.
C-5 Aircraft:
Because of increasing requirements in the C-5 aircraft program, the
Warner Robins ALC encountered problems with a lack of parts and
personnel to perform the work. The C-5 program fiscal year 2010
requirements increased from 677,103 hours to 1,046,434 hours, or an
increase of 369,331 hours from the initial budget. However, because of
a previous hiring freeze, the C-5 program was understaffed by 145
employees, or about 27 percent of its planned direct labor workforce
at the beginning of fiscal year 2010. Officials informed us that it
takes about 2 years before a new hire becomes highly productive. As a
result of the lack of parts and personnel associated with increased
requirements, the average flow days increased from 286 days in fiscal
year 2009 to 340 days in fiscal year 2010. The following example
illustrates how the work was affected by a lack of parts and personnel
due to increasing requirements.
In April 2009, the ALC accepted a $20.4 million order that was
financed with fiscal year 2009 Air Force Reserve operation and
maintenance appropriated funds to perform depot maintenance on one C-5
aircraft. Because the aircraft was inducted on September 30, 2009, the
entire $20.4 million carried over into fiscal year 2010. According to
ALC officials, aging of the aircraft increased labor and parts
requirements, which affected the ALCs ability to perform the depot
maintenance work. This further contributed to the carryover problem
and resulted in $2.9 million being carried over into fiscal year 2011.
For this C-5 aircraft, labor requirements increased from 47,965 hours
to 58,274 hours, or an increase of 10,309 hours, to perform the depot
maintenance work. Our review of documentation found that there were
five backorders of parts and material associated with the depot
maintenance work on the C-5 aircraft. In addition, in order to perform
the required depot maintenance work and help minimize the impact of
part shortages on the C-5 program, the ALC either obtained parts from
other aircraft (cannibalized) to use on this aircraft or removed parts
from this aircraft to use on other aircraft. Documentation showed that
a total of 94 parts were either obtained from other aircraft or
removed from this aircraft to alleviate part shortages.
C-130 Aircraft:
Because of increasing requirements in the C-130 program, the Warner
Robins ALC encountered problems with a lack of parts and personnel to
perform the work. The C-130 program fiscal year 2010 requirements
increased from 1,277,855 hours to 1,324,476 hours, or an increase of
46,621 hours from the initial budget. However, because of a previous
hiring freeze, the C-130 program was understaffed by 186 employees, or
about 22 percent of its planned direct labor workforce at the
beginning of fiscal year 2010. Officials informed us that it takes
about 2 years before a new hire becomes highly productive. The
following example illustrates how the work was affected by a lack of
parts and personnel due to increasing requirements.
In June 2009, the ALC accepted a $4.8 million order that was financed
with fiscal year 2009 Air Force operation and maintenance appropriated
funds to perform depot maintenance work on one C-130 aircraft.
According to officials, increased requirements in the C-130 program
required the ALC to use more labor and parts than planned to perform
the depot maintenance work. As a result, the ALC carried over $3.9
million into fiscal year 2010. For this C-130 aircraft, labor
requirements increased from 27,959 hours to 30,405 hours, or an
increase of 2,446 hours, to perform the depot maintenance work. In
addition, in order to perform the required depot maintenance work and
help minimize the impact of part shortages on the C-130 program, the
ALC either obtained parts from other aircraft to use on this aircraft
or removed parts from this aircraft to use on other aircraft.
Documentation showed that a total of 31 parts were either obtained
from other aircraft or removed from this aircraft to alleviate part
shortages.
A-10 Aircraft:
In fiscal year 2010, the Ogden ALC performed depot maintenance work on
Air Force A-10 aircraft to extend its service life. According to Ogden
ALC officials and documentation on the A-10 service life extension
program, the A-10 aircraft was originally designed to fly
approximately 8,000 hours and be replaced by a newer, more modern
aircraft. The aircraft was originally expected to fly through fiscal
year 2005; however, the Air Force decided to extend the aircraft's
service life to fiscal year 2028 due to its unique mission
capabilities. This decision required the aircraft to undergo a major
overhaul including its wings, fuselage, and fuel cells. According to A-
10 officials, the lack of a sufficient number of serviceable aircraft
wings in Air Force supply created significant program delays in fiscal
year 2010 that increased the ALCs carryover above plan. The officials
informed us they planned to complete work on A-10 aircraft, on
average, in about 180 days in fiscal year 2010; however, maintenance
on the wings alone took, on average, about 220 days. The ALC planned
to carry over $53 million into fiscal year 2011. Instead, it carried
over $64 million--$11 million more than planned.
[End of section]
Appendix III: Comments from the Department of Defense:
Office of The Under Secretary Of Defense:
Comptroller:
1100 Defense Pentagon:
Washington, DC 20301-1100:
June 7, 2011:
Mr. Asif A. Khan:
Director:
Financial Management and Assurance:
Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Khan:
This is the Department of Defense (DoD) response to the GAO draft
report (GAO-11-539), "Air Force Working Capital Fund: Budgeting and
Management of Carryover Work and Funding Could be Improved," dated May
2011, (GAO Code 197093).
Actions to improve the budgeting for and management of carryover noted
in the draft report are underway.
Sincerely,
Signed by:
John P. Roth:
[End of letter]
GAO Draft Report Dated May 13, 2011:
GA0-11-539 (GAO Code 197093):
"Air Force Working Capital Fund: Budgeting And Management Of Carryover
Work And Funding Could Be Improved"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
direct the Under Secretary of Defense (Comptroller) to clarify the
existing guidance in the DoD Financial Management Regulation that
allows Army ordnance activities to use multiyear appropriations in the
calculation of allowable carryover to ensure that other working
capital find activities do not use this provision as a basis for their
calculation of allowable carryover.
DoD Response: The DoD concurs; the DoD Financial Management
Regulation will be updated to clarify that the intent of the existing
guidance is to permit Army ordnance activities to use multiyear
appropriations in the calculation of allowable carryover. Other
working capital fund activities cannot use this provision -- to apply
the 2nd Year Procurement outlay rate to the allowable carryover
calculation -- without prior approval in writing from the OUSD(C)
Director for Revolving Funds.
Recommendation 2: The GAO recommends that the Secretary of Defense
direct the Secretary of the Air Force to take actions to ensure that
requests for exemption from the carryover policy are made in writing
and approved by the Director for Revolving Funds as required by the
DoD Financial Management Regulation.
DoD Response: The DoD concurs, but before DoD direction could be given,
Air Force Headquarters had already notified Air Force Material Command
(AFMC) that written approval from OUSD(C) Director for Revolving Funds
is required for the use of the 2nd Year Procurement outlay rate in
allowable carryover calculations.
Recommendation 3: The GAO recommends that the Secretary of Defense
direct the Secretary of the Air Force to require Air Force
headquarters and Air Force Materiel Command to routinely compare
budgeted carryover that is over or under the allowable amount to the
actual amount to identify the differences and reasons for the
differences, and consider these trends in developing future years'
budget estimates on carryover.
DoD Response: The DoD concurs, but before DoD direction could be given,
Air Force Headquarters had officially tasked Air Force Material Command
(AFMC) to submit analysis of variances between budgeted and actual
carryover allowance and to consider results in developing future
years' budget estimates on carryover. In future years, the requirement
for this analysis will be included in the annual Working Capital Fund
Budget Guidance provided by Air Force Headquarters.
Recommendation 4: The GAO recommends that the Secretary of Defense
direct the Secretary of the Air Force to require Air Force
headquarters and Air Force Materiel Command to routinely compare
budgeted orders to actual orders to identify the differences and
reasons for the differences, and consider them in developing future
years' budget estimates on new orders to be received from customers.
DoD Response: The DoD concurs, but before DoD direction could be
given, Air Force Headquarters had officially tasked Air Force Material
Command (AFMC) to submit analysis of variances between budgeted and
actual orders and to consider results in developing future years'
budget estimates of new customer orders. In future years, the
requirement for this analysis will be included in the annual
Working Capital Fund Budget Guidance provided by Air Force
Headquarters.
Recommendation 5: The GAO recommends that the Secretary of Defense
direct the Secretary of the Air Force to require Air Force
headquarters and Air Force Materiel Command to routinely compare the
forecasted workload requirements on the number of hours of depot
maintenance work to be performed to the actual number and consider
these 'trends in developing future years' depot maintenance workload
requirements.
DoD Response: The DoD concurs, but before DoD direction could be given,
Air Force Headquarters had officially tasked Air Force Material Command
(AFMC) to compare the forecasted workload requirements on the number
of hours of depot maintenance work to be performed to the actual
number and to consider results in developing future years' depot
maintenance workload requirements. In future years, the requirement
for this analysis will be included in the annual Working Capital Fund
Budget Guidance provided by Air Force Headquarters.
[End of section]
Appendix IV: GAO Contact and Acknowledgments:
GAO Contact:
Asif A Khan, (202) 512-9095 or khana@gao.gov:
Acknowledgments:
In addition to the contact named above, Greg Pugnetti, Assistant
Director; Steve Donahue; Keith McDaniel; and Hal Santarelli made key
contributions to this report.
[End of section]
Footnotes:
[1] The three depots are 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.
[2] The outlay rate for appropriations is contained in the DOD
Financial Summary Tables, which are published each year. The outlay
rate figures may vary from year to year.
[3] See DOD Financial Management Regulation 7000.14-R, vol. 2B, ch. 9,
p. 9-43, for orders excluded from carryover calculation.
[4] In 2009, we reported that starting with the fiscal year 2009
supplemental request in April 2009, the administration now refers to
funds for the operations in Iraq and Afghanistan as Overseas
Contingency Operations funds. GAO, Overseas Contingency Operations:
Reported Obligations for the Department of Defense, GAO-09-791R
(Washington, D.C.: July 10, 2009).
[5] See DOD Financial Management Regulation 7000.14-R, vol. 2B, ch. 9,
p. 9-43.
[6] See DOD Financial Management Regulation 7000.14-R, vol. 2B, ch. 9,
sec. 090204.
[7] Department of Air Force Office of the Assistant Secretary
Memorandum, Depot Maintenance Activity Group Manpower, (Washington,
D.C.: Nov. 21, 2007).
[8] GAO, Defense Inventory: Opportunities Exist to Improve the
Management of DOD's Acquisition Lead Times for Spare Parts,
[hyperlink, http://www.gao.gov/products/GAO-07-281] (Washington, D.C.:
Mar. 2, 2007).
[9] GAO, High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February
2011).
[10] Pub. L. No. 111-84, div. A, title III, § 328, 123 Stat. 2190,
2255 (Oct. 28, 2009).
[11] DOD, Comprehensive Inventory Management Improvement Plan, (Nov.
8, 2010). The objective of the plan is to reduce the acquisition and
storage of secondary item inventory that is excess to requirements.
For example, the plan reported that 13.1 percent of Air Force's
inventory is excess in fiscal year 2009.
[12] GAO, DOD's 2010 Comprehensive Inventory Management Improvement
Plan Addressed Statutory Requirements, But Faces Implementation
Challenges, [hyperlink, http://www.gao.gov/products/GAO-11-240R]
(Washington, D.C.: Jan. 7, 2011).
[13] Pub. L. No. 110-181, div. A, title I, § 137, 122 Stat. 3, 32
(Jan. 28, 2008). Previously the John Warner National Defense
Authorization Act for Fiscal Year 2007 required that DOD maintain an
inventory of at least 44 combat-coded B-52s.
[End of section]
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