Department of the Interior
Office of Aircraft Services and Bureaus Can More Fully Recover and Further Reduce Aviation Program Costs Gao ID: GAO-02-460 April 17, 2002The Department of the Interior has cut its aviation accident rate in half since 1975--from 18.8 accidents to 8.7 per 100,000 flight hours. The department's lower accident rate can be attributed to the implementation of a standard aviation operating policy and to aviation safety standards that exceed the Federal Aviation Administration's requirements. The Office of Aircraft Services (OAS) has not fully recovered aviation program costs. From fiscal years 1999 to 2000, OAS has charged bureaus about $4 million less than actual costs, representing an undercharge of about two percent. OAS set rates that were based on flight hour projections of actual usage that turned out to be low, and OAS did not include all the cost elements that needed to be considered. Periodic monitoring of the rates and actual costs would ensure that all costs are recovered. OAS has yet to develop a more cost-effective approach for using aircraft. To cut costs, OAS has reduced its staffing levels by 24 percent since 1992.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-02-460, Department of the Interior: Office of Aircraft Services and Bureaus Can More Fully Recover and Further Reduce Aviation Program Costs
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United States General Accounting Office:
GAO:
Report to the Ranking Minority Member, Committee on Energy and Natural
Resources, U.S. Senate:
April 2002:
Department Of The Interior:
Office of Aircraft Services and Bureaus Can More Fully Recover and
Further Reduce Aviation Program Costs:
GA0-02-460:
Contents:
Letter:
Results in Brief:
Background:
Interior's Aviation Accident Rate Has Improved Dramatically Since
OAS's Safety Program Was Established:
Rates Charged to Users of Fleet Aircraft Have Not Fully Funded the
Cost of Fleet Operations:
OAS Has Taken Actions to Control Program Cost Increases, but Improved
Scheduling and Use of Aircraft Could Further Reduce Costs:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Scope and Methodology:
Appendix I: Comments from the Department of the Interior:
Appendix II: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Charges and Costs for Interior Bureaus by Business Line,
Fiscal Years 1997 through 2000:
Table 2: Potential Fixed Cost Savings Opportunities Resulting from
Increases in Utilization:
Table 3: Potential Variable Cost Savings Opportunities Resulting from
Increases in Utilization:
Figures:
Figure 1: Bureaus' Fiscal Year 2000 Contract and Fleet Flight Hours:
Figure 2: Decline in Interior's Accident Rate Per 100,000 Flight
Hours, 1975 through 2001:
[End of section]
United States General Accounting Office:
Washington, DC 20548:
April 17, 2002:
The Honorable Frank H. Murkowski:
Ranking Minority Member:
Committee on Energy and Natural Resources:
United States Senate:
Dear Senator Murkowski:
To fight fires, enforce laws, and conduct search and rescue operations
on federal lands in Alaska, Hawaii, and throughout the lower 48
states, the Department of the Interior's eight bureaus must obtain
aircraft and aviation-related services through the Office of Aircraft
Services (OAS). OAS administers the department's $102 million aviation
program and provides the bureaus with about 550 government-controlled
aircraft: about 100 owned by the government (fleet aircraft) and 450
obtained from the private sector through various long-term contracts
and leases (contract aircraft). OAS also has overall responsibility
for the department's aviation safety program: it reviews the bureaus'
aviation safety efforts, assists in training fleet pilots, develops
aviation safety and aircraft accident prevention programs, and
establishes aviation program standards.
Each bureau is responsible for deciding whether OAS should contract or
purchase aircraft for that bureau, and schedules or coordinates
aircraft use within its operations and with other Interior bureaus, as
well as with the U.S. Department of Agriculture's Forest Service. The
bureaus must reimburse OAS for aviation costs. For government-owned
aircraft, the bureaus' aviation managers meet annually to set the
fleet rates OAS will charge the bureaus in the upcoming fiscal years.
To provide a basis for these rate-setting decisions, OAS prepares cost
projections based on historical data and presents these estimates to
the bureaus at the annual fleet rate meeting. The factors that go into
setting the rates vary from year to year but include such
considerations as historical usage, changes to mission requirements,
and anticipated maintenance costs. For aircraft obtained through
contracts, OAS relies on a competitive bidding process, and the
bureaus reimburse OAS for the costs of the contracts and for OAS's
costs for servicing these agreements.
At the 2001 annual fleet rate meeting, OAS proposed a substantial
surcharge to the bureaus to recover a nearly $2 million shortfall in
its Alaskan operations over the previous 10 years. The bureaus were
surprised to learn that OAS had not recovered all fleet costs and
could go back as far as 10 years to assess these charges. Following
this meeting, several bureau officials expressed serious concerns
about OAS's overall operations, including the lack of a reliable
accounting system, questionable cost recovery practices, and the lack
of concern for cost-effectiveness. In addition, some bureau officials
believed that the escalating program costs and OAS's efforts to
control these costs could compromise aviation safety.
As a result of these concerns, you asked us to determine the (1) trend
in the accident rate of Interior's aviation safety program, (2) extent
to which OAS has recovered the costs associated with the aviation
program, and (3) extent to which OAS has implemented cost-reduction
efforts.
Results in Brief:
Interior's aviation accident rate has been cut in half since 1975,
from 18.8 accidents per 100,000 flight hours in fiscal year 1975 to
8.7 accidents per 100,000 flight hours in fiscal year 2001. OAS
officials attribute the department's reduced accident rate, in part,
to the implementation of a standard aviation operating policy for the
department and to aviation safety standards that exceed Federal
Aviation Administration's requirements. The program specifies
standards for pilot qualifications and proficiency requirements as
well as for aircraft maintenance and equipment inspections.
OAS has not fully recovered the costs associated with the aviation
program. From fiscal years 1997 through 2000, OAS had charged bureaus
about $4 million less than actual costs. This represented an
undercharge of about 2 percent. The undercharge resulted from several
factors. First, the rates OAS set were based on flight hour
projections of actual usage that turned out to be low. This occurred
because the bureaus did not consistently provide OAS with the
information necessary to make more accurate projections. Consequently,
OAS had to rely on 5-year historical averages, which turned out to be
less than declining actual use in recent years. Second, OAS did not
include in its calculations all the cost elements that needed to be
considered in setting rates. For example, in the Alaskan operations,
OAS omitted the overhead cost for aircraft maintenance from the rate
calculation, which resulted in significantly lower rates than needed
to recover the costs. OAS has since taken actions to recoup the costs
of the Alaskan fleet maintenance operations and now includes these
costs in its rate calculations. Periodic monitoring of the rates and
actual costs incurred would help ensure that all costs are recovered.
OAS's failure to recover all its costs from the bureaus was not due to
any faults in OAS's accounting system. Although some bureaus raised
concerns about the reliability of the system, we found the accounting
system capable of producing reasonably complete, reliable, and useful
financial information to management for rate-setting purposes. We are
making recommendations to the secretary of the Department of the
Interior aimed at ensuring that OAS fully recovers its program costs
and improves the rate-setting process.
OAS has taken a number of actions to reduce the aviation program's
costs, but it has yet to develop a more cost-effective approach for
using aircraft, which could potentially lead to additional cost
savings. Among the actions OAS has taken to reduce costs, OAS has
reduced its staffing levels by about 24 percent since 1992. OAS also
conducted cost comparisons and determined it to be more cost effective
to maintain aircraft under government ownership than to contract for
aircraft. Additional savings are possible, however. For example, in
1995, Interior's inspector general reported that the department
unnecessarily spent $2.3 million throughout 1992 and 1993 because the
bureaus did not coordinate the scheduling and use (utilization) of the
government-owned fleet. Our analysis confirms that moderate
improvements in aircraft utilization can translate into a savings of
several million dollars annually. Although OAS has attempted to
control its costs, it has not established performance measures to
evaluate its program outcomes. We are making a recommendation to the
secretary of the Department of the Interior that OAS and the bureaus
work together to improve aircraft scheduling and usage and establish
performance measures to monitor and assess progress toward improved
aircraft utilization.
We provided a draft of this report to the Department of the Interior
for review and comment. Interior agreed with the information presented
in the draft, and stated that our findings and recommendations are
reasonable. They stated that the department's aviation program is
complex and multi-faceted due to the widely diverse mission of the
bureaus. Further, they stated that our report recognizes that
successful aviation management depends on a partnership between OAS
and the bureaus to seek more efficient and cost-effective ways to
manage the program.
Background:
The secretary of the Department of the Interior created OAS in 1973 to
resolve several aviation program problems: numerous accidents,
improper budgeting and financial management, and poor utilization of
aircraft. A 1973 task force, comprising representatives from across
the Interior bureaus, attributed these problems to the decentralized
aviation program”with each bureau responsible for all aviation
functions. The secretary of the Department of the Interior charged OAS
with responsibility for (1) coordinating and directing all fleet and
contract aircraft; (2) establishing and maintaining standards for
safety, procurement, and utilization; (3) budgeting for and
financially controlling fleet and contract aircraft; and (4) providing
technical aviation services to the bureaus. As the program evolved,
OAS assumed responsibility for policy oversight and aviation services,
while the bureaus became responsible for implementing safety
requirements, deciding on whether to use fleet or contract aircraft,
and the scheduling and use of their aircraft.
OAS works with the Aviation Management Board of Directors to involve
the bureaus in formulating policy and managing aviation activities. In
addition, since 1996, the bureaus' aviation managers have also
participated with OAS in setting fleet rates and planning for aircraft
replacement and projected aviation program requirements.[Footnote 1]
Eight Interior bureaus use OAS's services in varying degrees to carry
out their respective missions as shown in figure 1.[Footnote 2] The
Bureau of Land Management”which accounted for over one-third of the
OAS program in flight hours for fiscal year 2000”uses aircraft to
carry out its fire-fighting and resource management missions. The Fish
and Wildlife Service and the National Park Service depend heavily on
OAS to manage fleet aircraft to achieve their respective missions.
Figure 1: Bureaus' Fiscal Year 2000 Contract and Fleet Flight Hours:
[Refer to PDF for image: stacked vertical bar graph]
Bureaus' fiscal year 2000 Contract and Fleet flight hours are
indicated on the graph for the following bureaus:
BLM;
FWS;
NPS;
MMS;
BIA;
BOR;
USGS.
[End of figure]
OAS is headquartered in Boise, Idaho, with significant operations
located in Anchorage, Alaska. It has additional offices in Boise;
Atlanta, Georgia; and Phoenix, Arizona. OAS operated with
approximately 94 FIT in fiscal year 2000, 63 located in the lower 48
states and 31 located in the Anchorage office. In fiscal year 2000,
OAS managed 95 government-owned aircraft, 42 based in the lower 48
states and 53 based in Alaska. OAS contracts for aircraft maintenance
of fleet aircraft in the lower 48 states. In Alaska, OAS contracts for
maintenance of fleet aircraft with private vendors, but maintains an
in-house core maintenance staff.
To fulfill its responsibilities, OAS set up functional divisions,
including financial and information management, acquisition, and
technical services. However, OAS accounts for and reports costs across
four lines of business: fleet, contract, rental, and other. Of the
$117 million spent on aviation services in fiscal year 2000, OAS
received an appropriation of only $800,000 (or approximately seven
FTE) to provide oversight of OAS department-wide aviation policies and
procedures. Most of OAS's costs are financed through a working capital
fund, established in the Office of the Department of the Interior
Secretary to finance a continuing cycle of operations, and must be
repaid to the fund by the bureaus and others using the services based
on rates determined by OAS.[Footnote 3]
Interior's Aviation Accident Rate Has Improved Dramatically Since
OAS's Safety Program Was Established:
Since 1975 Interior's aviation accident rate has been cut in half,
from 18.8 accidents per 100,000 flight hours in fiscal year 1975 to
8.7 accidents per 100,000 flight hours in fiscal year 2001. A number
of OAS efforts have contributed to this reduction. Prior to the
establishment of OAS's aviation safety efforts, safety standards
varied from bureau to bureau and between regions within bureaus; in
some cases, standards did not exist at all. According to the 1973 task
force, virtually no control over aviation operations existed within
the department, which resulted in a high accident rate and higher
operational costs. OAS officials attribute the department's reduced
accident rate, in part, to the implementation of a standard aviation
operating policy. OAS sets pilot qualifications and proficiency
standards as well as standards for aircraft maintenance and equipment
inspections. These standards exceed the Federal Aviation
Administration's (FAA) requirements. In addition, OAS periodically
evaluates the bureaus' implementation of the aviation program, with a
special emphasis on safe operations.
The OAS Aviation Safety Management Office, reporting to the OAS
director, is responsible for policy development, implementation, and
review of the department's (1) aviation safety management and aircraft
accident/incident prevention programs; (2) accident and incident
investigation; (3) management of the department's reporting system for
aircraft accidents, incidents, and hazards; and (4) management of the
OAS aviation and occupational safety and health programs. Since April
1995, OAS is required to report accidents involving fatalities,
serious injuries, or substantial damage to the National Transportation
Safety Board and to assist the board with accident investigations when
appropriate. The OAS Division of Technical Services oversees many day-
to-day safety concerns, such as pilot training, aircraft engineering
and maintenance, and technical policy development. The bureau
directors are ultimately responsible for adherence to standards and
the implementation of an effective accident prevention program.
Since safety oversight was centralized under OAS, Interior has seen a
dramatic decline in the rate of accidents, as shown in figure 2.
Figure 2: Decline in Interior's Accident Rate per 100,000 Flight
Hours, 1975 through 2001:
[Refer to PDF for image: line graph]
The graph depicts Interior's Historical Accident Rate for fiscal years
1975 through 2001.
[End of figure]
OAS accepts applicable FAA regulations as baseline criteria for its
aviation operations and then applies additional standards in order to
reduce accidents that occur during hazardous flying conditions and
specialized operations required by the bureaus' unique missions. These
standards are published in the department's manual and in OAS's
operational procedures memoranda. Additional policy directives issued
by the bureaus may be more restrictive but may never be less
restrictive than OAS's standards.
These manuals specify more stringent pilot qualifications than those
required by federal aviation regulations. For example, FAA requires
pilots who fly passengers on commuter aircraft to have a commercial
pilot certificate, which requires a minimum of 250 flight hours.
However, OAS requires its contract pilots to have 1,500 flight hours
to be eligible to fly missions for Interior. OAS also requires most of
its fleet pilots to have a minimum of 500 hours of time commanding an
aircraft to operate government-controlled aircraft, although there is
no similar requirement in the federal aviation regulations.
OAS has also developed additional aircraft maintenance standards for
all Interior-owned aircraft and all contract aircraft that operate for
Interior. For example, OAS requires a flight test following an
aircraft overhaul, a major repair, or a replacement of engine or
propeller. In addition to requirements for flight tests and 100-hour
inspections, OAS developed standards for the inspection and
maintenance of special use and mission-related equipment that is not
covered by FAA regulations.
Although OAS strives to meet or exceed all FAA regulatory standards on
manufacturer requirements, OAS has granted exceptions to
manufacturers' weight requirements for certain aircraft”eight Cessna
206 Amphibians and one De Havilland DHC-2T Beaver aircraft. OAS
granted these exceptions to the Fish and Wildlife Service to allow the
aircraft to exceed the manufacturers' weight limitations when the
service conducts surveys of migratory birds. The exceptions were
required to compensate for special equipment needed to conduct these
surveys and to carry extra fuel during long flights over remote areas.
OAS granted the exceptions with several stipulations designed to
enhance the safety of these operations. Furthermore, to verify that
the aircraft are operating under safe conditions, OAS had an
engineering analysis conducted on the eight Cessna aircraft and has an
engineering analysis in progress on the De Havilland Beaver. OAS also
awarded a development contract on June 5, 2001, to provide a
replacement aircraft that will meet all migratory bird mission
requirements, thereby eliminating the need for all overweight
exceptions to policy.
Rates Charged to Users of Fleet Aircraft Have Not Fully Funded the
Cost of Fleet Operations:
From fiscal year 1997 through fiscal year 2000, OAS did not recover
about $4 million from Interior's bureaus. We found two primary reasons
why OAS set rates too low to fully recover its costs: (1) actual
flight hours were lower than the projected hours based on historical
usage and (2) all costs were not included in the estimates. As a
result, OAS had to subsidize the costs of the aircraft used by
Interior bureaus in part with funds from its reserve accounts,
collected in prior years, such as the reserve fund for replacing
aircraft. OAS's failure to recover all its costs from the bureaus was
not attributable to any faults in OAS's accounting system but to
deficiencies in the fleet rate model and rate process. We found the
accounting system capable of producing financial information that is
reasonably complete, reliable, and useful to OAS management for the
purposes of setting rates.
OAS recovers its costs from users by charging for its services. Costs
for fleet aircraft are recovered based on fleet rates, and costs for
contract aircraft are recovered based on agreements for the cost of
the contract plus OAS's costs for servicing these agreements. OAS
provides four lines of services”fleet, contract, rental, and
miscellaneous (other)”to Interior's bureaus and other agencies, such
as those within the Departments of Defense and of Agriculture. For
fiscal years 1997 through fiscal year 2000, OAS failed to recover
about $4 million from the Interior sector of its business while
realizing a slight overcharge of approximately $400,000 from agencies
outside Interior. Table 1 shows, by business line, where these
unrecovered costs occurred.
Table 1: Charges and Costs for Interior Bureaus by Business Line,
Fiscal Years 1997 through 2000 (Dollars in thousands):
Total charges:
Fleet: $24,406;
Contract: $169,355;
Rental: $50,049;
Miscellaneous reimbursable: $11,462;
Total: $255,272.
Total costs:
Fleet: $27,512;
Contract: $169,673;
Rental: $50,877;
Miscellaneous reimbursable: $11,367;
Total: $259,429.
(Under)/overcharge:
Fleet: ($3,106);
Contract: ($318);
Rental: ($828);
Miscellaneous reimbursable: $95;
Total: ($4,157).
Percentage of (under)/overcharge to costs:
Fleet: (11.3%);
Contract: (0.2%);
Rental: (1.6%);
Miscellaneous reimbursable: 0.8%;
Total: (1.6%).
[End of table]
As table 1 shows, the majority of unrecovered costs were in the fleet
business line. The fleet business recovered less of its costs because
OAS and the bureaus' aviation managers had not correctly determined
and set the appropriate rates. To determine the rates it needs to
charge its users to recover the costs of its services, OAS captures
the historical costs associated with each aircraft. OAS then projects
the future costs based on its analysis of the historical costs,
adjusted for inflation, and determines a means by which to allocate
projected costs to the appropriate user. Based on this allocation, OAS
calculates the hourly and monthly rates of the fleet rates using a
fleet rate model. OAS then meets with the bureaus' aviation managers
to get their input on the rates and makes subsequent adjustments to
its projections of future costs if necessary. Finally, the aviation
managers and OAS agree to the fleet rates, and OAS and each bureau
sign an interagency agreement that sets the rate. In order to allow
the bureaus lead time to budget for future costs, rates are set 2
years in advance and adjusted, if necessary. OAS and the aviation
managers do not have a process to monitor rates periodically to
determine if the rates fully recover costs.
Using this process for setting the fleet aircraft rates, OAS has not
recovered all costs because it relies on 5-year historical averages of
flight hours in its calculation of rates and has no provision for
projecting flight hours in its rate-setting process. If OAS had
solicited the bureaus for projected flight hours, which may change
from year to year because of changes in mission requirements, it would
have had a more accurate projection of usage and therefore could have
set the rates more precisely. The use of 5-year historical averages
has resulted in an overestimation of the number of flight hours when
compared to declining actual usage in recent years. According to an
OAS official, the bureaus accept this higher projection of flight
hours based on 5-year historical usage, because it results in lower
rates. For example, if an aircraft has (1) an estimated cost of
$100,000 based on historical costs and (2) an estimated usage of 200
flight hours based on the historical averages, the resulting rate
would be $500 per flight hour. However, if the actual usage were
reduced to 100 flight hours, the actual cost recovery for that
aircraft would only be $50,000 or one-half of the projected recovery.
As a result, the rate set would not fully recover the costs. While it
is to be expected that flight hours vary to some degree from the
projected usage, the use of more accurate projections and resulting
rates would result in more accurate recovery of the costs.
Additionally, OAS did not include in its calculations all the costs
that needed to be considered in setting rates. From 1991 through 2000,
in the Alaskan operations, OAS omitted from its rate calculation
approximately $1.9 million in costs for aircraft maintenance. Fleet
rates were therefore significantly lower than needed to recover the
costs. OAS did not have a process in place to recognize the error and
the resulting underrecovery of costs in a timely fashion. OAS has
since taken actions to recoup the costs of the Alaska fleet
maintenance operations and now includes these costs in its rate
calculations. OAS has also not included in its projection all the
costs of employees' postretirement health benefits and of the Civil
Service Retirement System employee pension plan for current OAS
employees engaged in work directly related to aviation services and
therefore is not recovering these costs from its users.
OAS Has Taken Actions to Control Program Cost Increases, but Improved
Scheduling and Use of Aircraft Could Further Reduce Costs:
OAS has taken steps to control increases in program costs, but could
potentially save several million dollars more annually if it
implemented a more cost-effective approach to using aircraft. In an
effort to control costs, OAS has reduced staff and implemented
strategies to operate more efficiently. As a further effort, OAS
conducted cost comparisons and determined that it was more cost
effective to maintain aircraft under government ownership than to
contract for aircraft. Despite these efforts, OAS has not managed the
use and scheduling of aircraft, a major factor of the aviation
program's cost. We analyzed the savings attributable to improvements
in fleet and contract utilization and found that a moderate increase
in average annual flight hours per aircraft could translate into
savings of several million dollars annually. However, until OAS sets
results-oriented performance goals and measures as part of a strategic
aviation planning process and monitors its performance on an ongoing
basis, it cannot track its progress in achieving additional program
savings.
OAS Has Acted to Control Program Cost Increases:
OAS has taken several actions to control the cost of operations to
maintain fleet rate cost increases consistent with the producer price
index for transportation since 1995. In particular:
* OAS decreased staffing levels from 124 staff in fiscal year 1992 to
94 staff in fiscal year 2000, a 24-percent decrease. Because most OAS
costs are personnel-related, this reduction significantly decreased
OAS's costs.
* The OAS Acquisition Management Division implemented new contracting
procedures to streamline the contracting process and established
interdepartmental agreements with the Department of Agriculture's
Forest Service to facilitate aircraft sharing arrangements.
* OAS is developing Web-based training for bureau aviation personnel,
reducing training cost by more than $100,000 during the first 6 months
of program implementation.
OAS's Cost Comparisons Showed Fleet Operations to Be Cost Effective:
To examine the cost effectiveness of government ownership, OAS
compared the costs of fleet aircraft with the costs of contracted
aircraft. OAS found that, given the existing fleet aircraft,
equipment, locations, and missions, retaining the fleet under
government ownership to be $243 per flight hour less, on average, than
contract aircraft. In making these comparisons, OAS contracted for two
comprehensive studies”one in 1996 and one in 2001”that were to follow
the standard requirements laid out in Office of Management and Budget
Circular A-76, "Performance of Commercial Activities," for ensuring
that the cost comparisons between government and contracted operations
were conducted appropriately. The 1996 study concluded that all but 2
of the 84 aircraft examined were, on average, significantly more cost
effective under government ownership. The 2001 study found that all
but 1 of the 89 aircraft reviewed to be cost effective.
OAS also contracted for a cost comparison of aviation maintenance
costs and solicited bids from private vendors to maintain the fleet in
Alaska during 1995. As part of the A-76 process, OAS also prepared a
bid proposing a streamlined government operation that would lower its
maintenance costs by reducing the number of maintenance personnel.
While several vendors expressed interest, none ultimately bid on the
contract to assume maintenance operations for the Alaskan service.
Some bidders took exception with the minimum wage provisions issued by
the Department of Labor that were included in the solicitation. OAS
requested a clarification regarding wage determination rates, but did
not receive a reply; therefore, the wage provisions remained in the
solicitation as issued. OAS won the bid to continue in-house
maintenance and implemented the streamlined organization, reducing the
number of maintenance personnel from 13 to 9.
OAS Has Not Acted to Improve Use and Scheduling of Aircraft to Reduce
Costs:
Although OAS was organized in 1973 to help improve the utilization of
government-controlled aircraft, the use of fleet aircraft declined
from about 350 hours per aircraft in fiscal year 1973 to 246 hours per
aircraft in fiscal year 2000.[Footnote 4] The task force and several
recent reports recommended more centralization of scheduling; however,
OAS has not been able to fully implement these recommendations because
the bureaus determine the aviation resources needed to accomplish
their missions.
In 1995, the inspector general of the Department of the Interior
estimated that Interior spent $2.3 million throughout 1992 and 1993 in
unnecessary costs because the bureaus did not schedule flights when
fleet aircraft were available and did not coordinate these aircraft
either within each bureau or among the bureaus. The report suggested
that OAS could be a focal point for scheduling and use of the
government-owned fleet, or designate a bureau as the schedule
coordinator within specified regional areas.
In 1996, the General Services Administration also reviewed the
Interior aviation program and identified the potential for significant
savings related to utilization. At the time, the Interior average of
252 hours was significantly less than the federal average of 350 hours
per year, according to the report. The report estimated that
increasing the average hours per aircraft to the federal average of
350 hours per year would result in an annual savings of $715,000 in
fixed costs and more than $4 million from the disposal of multiple
fleet aircraft. The General Services Administration did not estimate
any savings for variable costs.
We also analyzed the potential for program savings resulting from
improved aircraft utilization. Our analysis is meant to illustrate the
potential for savings”not to identify what utilization improvements
should be made by OAS and the bureaus. We considered two strategies to
increase the fleet's average number of flight hours per year”either
reduce the size of the fleet or increase the total hours flown.
Reducing the number of fleet aircraft could reduce fixed program
costs, while increasing the total number of hours flown by fleet
aircraft could reduce the variable program costs.
If fewer fleet aircraft could fly the required missions, then the
utilization of the fleet could be increased and the fixed cost
associated with some fleet aircraft could be eliminated. As shown in
table 2, a 30-percent reduction in the size of the fleet increases
average flight hours per aircraft per year from 221 to 316 hours per
year based on actual fiscal year 2000 fleet flight hours.
Table 2: Potential Fixed Cost Savings Opportunities Resulting from
Increases in Utilization:
Potential for savings under three scenarios:
Number of fleet aircraft:
Fiscal year 2000: 100;
Reduction in fleet size of 10 percent: 90;
Reduction in fleet size of 20 percent: 80;
Reduction in fleet size of 30 percent: 70.
Total fleet hours:
Fiscal year 2000: 22,125;
Reduction in fleet size of 10 percent: 22,125;
Reduction in fleet size of 20 percent: 22,125;
Reduction in fleet size of 30 percent: 22,125.
Average flight hours per fleet aircraft:
Fiscal year 2000: 221;
Reduction in fleet size of 10 percent: 246;
Reduction in fleet size of 20 percent: 277;
Reduction in fleet size of 30 percent: 316.
Potential reduction in fixed cost:
Fiscal year 2000: $0;
Reduction in fleet size of 10 percent: $170,510;
Reduction in fleet size of 20 percent: $370,529;
Reduction in fleet size of 30 percent: $610,070.
Note: The potential for fixed cost reductions is based on OAS's cost
data and assumes that the least utilized fleet aircraft would be among
the first considered during any fleet streamlining decision process.
[End of table]
We also looked at the potential to realize variable cost savings.
These savings could be achieved by using fleet aircraft instead of
contract aircraft when fleet costs are less than contract costs. For
example, according to the OAS 2001 cost comparison study, certain
contract aircraft are 100 to 235 percent more expensive to operate.
For these aircraft, the OAS's estimated average net variable cost
savings between the fleet and contract aircraft was $778 per flight
hour. As shown in table 3, if it were possible to convert 4,425 flight
hours to fleet operations, then the average utilization per fleet
aircraft would increase by 20 percent, and the potential variable cost
saving would be about $3.4 million annually. However, in order to
determine the actual savings potential, OAS and the bureaus would need
to conduct a detailed review of opportunities on an aircraft-by-
aircraft basis.
Table 3: Potential Variable Cost Savings Opportunities Resulting from
Increases in Utilization:
Potential for savings under three scenarios:
Contract hours converted to fleet hours:
Fiscal year 2000: 0;
Increase in utilization by 10 percent: 2,213;
Increase in utilization by 15 percent: 3,319;
Increase in utilization by 20 percent: 4,425.
Net savings per converted contract hour:
Fiscal year 2000: 0;
Increase in utilization by 10 percent: $778;
Increase in utilization by 15 percent: $778;
Increase in utilization by 20 percent: $778.
Total fleet hours:
Fiscal year 2000: 22,125;
Increase in utilization by 10 percent: 24,338;
Increase in utilization by 15 percent: 25,444;
Increase in utilization by 20 percent: 26,550.
Number of fleet aircraft:
Fiscal year 2000: 100;
Increase in utilization by 10 percent: 100;
Increase in utilization by 15 percent: 100;
Increase in utilization by 20 percent: 100.
Average flight hours per fleet aircraft:
Fiscal year 2000: 221;
Increase in utilization by 10 percent: 243;
Increase in utilization by 15 percent: 254;
Increase in utilization by 20 percent: 266.
Potential reduction in variable cost:
Fiscal year 2000: $0;
Increase in utilization by 10 percent: $1,721,325;
Increase in utilization by 15 percent: $2,581,988;
Increase in utilization by 20 percent: $3,442,650.
Note: The potential for converted contract hours of 4,425 (a 20-
percent increase in utilization) is based on actual FY 2000 contract
hours flown by 74 Bell 206 and 412 helicopters. Since OAS operates
only a few Bell aircraft, the potential variable cost savings would be
contingent upon the acquisition of additional aircraft.
[End of table]
OAS and the bureaus have not been able to improve aircraft
utilization. Citing its history and relationship with the bureaus, OAS
did not implement all the utilization recommendations made in the
prior studies because it believes it lacks the authority and
responsibility to mandate bureau program and mission requirements”and
hence, utilization”under departmental regulations. While bureau
aviation managers point to some examples in which improved utilization
has resulted in savings, they have not attempted to make a systemwide
improvement in utilization. Bureau aviation managers noted that
improvements in utilization are difficult to implement because of
other factors: weather, high-priority or time-critical missions,
workload peaks, mission-required equipment, and the aircraft's
physical location.
OAS Cannot Demonstrate How Its Cost Reductions Have Affected Program
Outcomes:
OAS does not set results-oriented performance goals and measures as
part of a strategic aviation planning process and does not monitor its
performance on an ongoing basis. As a result, it cannot effectively
track its performance or measure its results on a consistent basis.
OAS has tracked its performance on a sporadic basis in response to
requests for information, legislative requirements, or, most recently,
as part of the rate-setting process, but it has not linked performance
measurement to results-oriented goals. For example, OAS tracked the
cost and performance of the Alaskan operations as part of the
reorganization, but discontinued monitoring the operations'
performance after 2 years.
Conclusions:
Rate setting is a critical component of OAS's program operations
because OAS must recover its costs and maintain adequate funding for
operations, future aircraft replacement, and accident reserves.
Shortfalls in program costs, such as those resulting from inaccurately
setting rates, would have been less likely to occur year after year if
the bureaus had evaluated whether their reliance on historical
averages correctly predicted future costs and usage. Consideration of
both historical and projected data would help OAS bring the best
available information to bear in estimating usage and setting rates.
Periodic comparisons of the rates set with the actual costs incurred
would have helped ensure that all costs were recovered.
OAS acting alone cannot improve the utilization of aircraft.
Traditionally, the bureaus have not coordinated their efforts to use
their aviation resources in a more cost-effective manner. As a result,
fleet aircraft are not being fully utilized; better utilization could
lead to significant savings. Absent a strategic aviation plan for the
department, it is difficult to analyze future requirements by mission
and flight hours. OAS and the bureaus could begin the process for
fuller utilization if they established a strategic aviation plan that,
among other things, sets results-oriented performance goals and
measures for the department and then, following that plan, analyzed
future requirements for the department. Such an analysis could help
them identify new opportunities to reduce cost, maintain the quality
of services, and maximize the value of the aviation program for the
department.
Recommendations for Executive Action:
To ensure that all program costs are fully recovered and to improve
the rate-setting process, we recommend that the secretary of the
Department of the Interior:
* direct OAS to obtain forecasts of future usage from the bureaus and
use these forecasts, as well as other relevant information, to set
rates; and;
* direct OAS and the bureaus, upon completion of the rate-setting
process and calculation of associated payments, to determine whether
the rates recovered all costs and, if not, whether adjustments in the
process used to calculate the rates are necessary.
We also recommend that the secretary of the Department of the Interior
instruct the directors of the Office of Aircraft Services and of each
bureau to improve scheduling and use of aircraft and establish
performance measures to monitor and assess progress.
Agency Comments:
We provided the Department of the Interior with a draft of this report
for review and comment. Interior agreed with the information presented
in the draft, and stated that our findings and recommendations are
reasonable. It stated that the department's aviation program is
complex and multi-faceted due to the widely diverse missions of the
bureaus. Further, it stated that our report recognizes that successful
aviation management within the department depends on a partnership
between OAS and the bureaus to seek more efficient and cost-effective
ways to manage the program. The comments of the Department of the
Interior and our responses to those comments are included in appendix
I.
Scope and Methodology:
We performed our review at OAS's headquarters in Boise, Idaho, and at
OAS, Fish and Wildlife Service, and the National Park Service offices
located in Anchorage, Alaska. We discussed the OAS aviation program
with aviation managers and others from Interior's Bureau of Land
Management, Fish and Wildlife Service, and National Park Service. For
additional perspective, we interviewed private-sector maintenance
vendors in Alaska and representatives of the state of Alaska aviation
program.
We reviewed OAS's and bureaus' aviation program documents and prior
audit reports, including laws, regulations, program plans, financial
data, fleet rate meeting minutes, and other documents. Although we did
not conduct audit procedures designed to completely evaluate or give
an opinion on the OAS accounting system and corresponding internal
controls, we did review work conducted by the Office of the Inspector
General and also performed limited testing of data reliability. We
examined OAS's cost comparisons as part of the A-76 process; we did
not, however, evaluate the bureaus' future mission needs or flight
hour forecasts on which the study was based. To illustrate the
potential improvements in aircraft utilization, we relied on OAS's
most recent comparison of contract and fleet costs and applied the
estimated costs to actual OAS fiscal year 2000 aircraft and flight
hours.
We conducted our work from July 2001 through April 2002 in accordance
with generally accepted government auditing standards.
As we agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution of it
until 30 days from the date of this letter. We will then send copies
to other interested parties and make copies available to others who
request them.
If you or your staff has any questions about this report, please call
me or Peg Reese at (202) 512-3841. Key contributors to this report are
listed in appendix II.
Sincerely yours,
Signed by:
Barry T. Hill
Director, Natural Resources and Environment:
[End of section]
Appendix I: Comments from the Department of the Interior:
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
United States Department of the Interior:
Office Of The Secretary:
Washington, D.C. 20240:
March 27, 2002:
Barry T. Hill, Director:
Natural Resources and Environment:
United States General Accounting Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Director Hill:
Thank you for the opportunity to review the draft of GAO-02-460,
entitled "Department of the Interior: Office of Aircraft Services and
the Bureaus Can More Fully Recover and Further Reduce Aviation Program
Costs."
In general, the Department of the Interior finds the report to be
factual, and the findings and recommendations to be reasonable.
We appreciate that you highlighted several positive aspects of the
Department's aviation activities. Your recognition of the dramatic
improvement in our aviation safety record is an example. You also
noted the actions taken by the Office of Aircraft Services (OAS) to
reduce costs, and you found that the OAS accounting system is capable
of producing reasonably complete, reliable, and useful information.
We also appreciate your recognition that successful aviation
management within the Department depends on a partnership between OAS
and the bureaus. We agree with that approach. The Department believes
that placing safety-related oversight at the Department level, and
placing day-to-day operational control of resources at the bureau
field level is the right formula. We view this report as an
opportunity to refine a basically sound system.
A few comments are offered:
Fleet flight hour projections: The report implies that fleet aircraft
flight hour projections might be intentionally overestimated in an
effort to reduce planned hourly rates. We do not agree. It is likely
that increased hourly rates cause field locations to fly less simply
due to fixed budget constraints. The report recommends considering
both historical and projected data to estimate usage and to set rates.
We agree and will work with the bureaus to more accurately define
flight hour projections. [See comment 1]
Monitoring fleet rates and costs: The report indicates that periodic
monitoring of fleet costs and subsequent adjustment of rates would
result in more complete recovery of costs. While we agree with this
theory, it is important to understand that fleet rates are established
two years in advance, enabling the bureaus to insert estimated costs
into the normal budget process. Increasing rates after budget
allocation would reduce flying hours, which in turn adversely impacts
cost recovery. This is a self-perpetuating domino effect of decreasing
flight hours and increasing fleet rate. As noted in your report, the
true solution will be found in controlling costs by increasing fleet
efficiency. We will work with the bureaus to periodically compare the
rates set with actual costs incurred, examine usage and establish a
methodology that will assist us to more fully recover fleet costs.
[See comment 2]
Personnel costs: The report finds that OAS is not recovering costs
associated with employee post-retirement health benefits and pension
plans. OAS is recovering all personnel costs for which it is currently
directly responsible; we agree, however, that post-retirement costs
are a part of the actual full cost of our services. With the passage
of the reform in this area proposed in the FY 2003 President's budget,
OAS will incorporate these items into its costing model. [See comment
3]
Use and scheduling of aircraft: The review finds that OAS and the
bureaus have not been able to improve aircraft utilization. While
finding further efficiencies in the use of aircraft can yield
significant savings, it is important to understand that, especially in
Alaska, elements such as remote basing of aircraft and time-critical
missions requiring dedicated aircraft make sharing difficult. Aircraft
must be available when needed to perform the bureau's mission. Fleet
efficiency will be reviewed, including the size of the fleet, in an
attempt to find savings in areas that will not adversely impact
mission accomplishment. Regarding centralized aircraft scheduling, the
Department sees this as an operational function that rightly belongs
in the field. Within that framework, we will explore the possibility
of consolidating bureau scheduling. We will also seek new information
technology tools that may be available to assist with this effort. The
report recommends that OAS and the bureaus jointly develop performance
measures and a strategic plan to implement and gauge progress in these
areas. We will attempt to do that. [See comment 3]
Variable cost savings: The report suggests that the Department should
consider using fleet aircraft instead of contract aircraft when
savings maybe realized. OAS has placed considerable emphasis on
evaluating fleet aircraft ownership using OMB Circular A-76 criteria.
Reliance has been placed on the competitive acquisition process for
private sector savings. Your report indicates that we should more
critically compare vendor prices to fleet aircraft costs. Overall, the
Department believes that we have the right mix of fleet and contract
aircraft, providing quality service and best value to the taxpayers.
We agree, however, that there may be opportunities to improve the
efficiency of our use of fleet aircraft. As indicated above, we will
be reviewing our scheduling policies to identify such opportunities.
[See comment 4]
The Department's aviation program is complex and multi-faceted due to
the widely diverse missions of the bureaus. We place mission
accomplishment and safety first and foremost in priority. Within this
framework, we have and will continue to aggressively partner with the
bureaus to seek more efficient and cost-effective ways to manage this
critical support activity. Thank you for highlighting some of these
possibilities. [See comment 5]
Signed by:
P. Lynn Scarlett:
Assistant Secretary for Policy, Management and Budget:
[End of letter]
The following are GAO comments on the Department of the Interior's
letter dated March 27, 2002.
1. Interior agreed with our recommendation that historical and
projected data should be used to set rates but stated that our report
implies that fleet aircraft flight hour projections might be
intentionally overestimated in an effort to reduce planned hourly
rates. We disagree. Our report describes the process for making
projections and attributes comments about projections to OAS, but
draws no conclusions about the intent on the part of OAS or the
bureaus. During our review, we noted that when total flight hours
decline year after year, projections based on historical averages will
inherently result in over-estimating future flight hour requirements.
2. Interior agrees with our findings and recommendation that periodic
monitoring of fleet cost and subsequent adjustment of rates would
result in more complete recovery of costs. Interior points out that,
once rates are established for budgeting purposes, increasing rates
after budget allocation would reduce flying hours, which in turn could
adversely impact cost recovery. We agree. Our report, however,
recommends that actual costs be compared with estimated costs and that
adjustments be made as needed. We acknowledge Interior's concurrence
to work with the bureaus and periodically compare the rates set with
actual cost incurred, examine usage, and establish a methodology that
will assist in more fully recovering fleet costs.
3. We support Interior's proposed actions to recover personnel costs,
and its actions to improve use and scheduling of aircraft.
4. Interior agrees that there may be opportunities to improve the
efficiency of its use of fleet aircraft. Interior stated that it will
be reviewing its scheduling policies to identify such opportunities.
We support this initiative.
5. Interior emphasizes that the department's aviation program is
complex and multi-faceted due to the diverse missions of the bureaus
and the high priority of safety and mission accomplishment. We agree
with this assessment. Aviation program responsibility is shared by OAS
and the bureaus. We support OAS and bureau partnerships to seek more
efficient and cost-effective ways to manage the aviation program.
[End of Appendix I]
Appendix II: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Barry T. Hill (202) 512-3841:
Peg Reese (202) 512-9695:
Acknowledgments:
In addition to those named above, Mark Connelly, Robert E. Kigerl,
Lisa Knight, Dawn Shorey, and Carol Herrnstadt Shulman made key
contributions to this report.
[End of Appendix II]
Footnotes:
[1] Bureaus must usually request additional appropriations for
aircraft replacement because bureaus contribute to the replacement
reserve based on the depreciated value, not the replacement value, of
the aircraft. Bureaus use their reserve balances and additional
appropriations to purchase replacement aircraft.
[2] The eight bureaus include the Bureau of Land Management (BLM),
Fish and Wildlife Service (FWS), National Park Service (NPS), Minerals
Management Service (MMS), Bureau of Indian Affairs (BIA), Bureau of
Reclamation (BOR), U.S. Geological Survey (USGS), and Office of
Surface Mining (OSM). The OSM relied on short-term aircraft rental
agreements to meet its aviation needs. Since OSM did not use fleet or
contract aircraft in FY 2000, the flight hours are not reflected in
figure 1.
[3] 43 U.S.C. 1467.
[4] The actual fiscal year 2000 average hours of 224 has been
increased by 10 percent for comparison purposes due to a change in the
method of recording flight hours in 1996.
[End of section]
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