Depot Maintenance:

Change in Reporting Practices and Requirements Could Enhance Congressional Oversight

GAO-03-16: Published: Oct 18, 2002. Publicly Released: Oct 18, 2002.

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Under 10 U.S.C. 2466, the military services and defense agencies can use no more than 50 percent of annual depot maintenance funding for work by private-sector contractors. The Department of Defense (DOD) is to submit two reports to the Congress annually on the costs of public- and private-sector depot maintenance workloads: a "prior-years" report on the past 2 fiscal years and a "future-years" report on the next 5. Section 2466 also requires GAO to report to the Congress on whether DOD complied with the so-called "50-50 requirement" in the prior-years report and whether the future-years projections are reasonable. This report fulfills that requirement.

While DOD's prior-years report for fiscal years 2000 and 2001 showed the U.S. Army and Navy to be below the 50-percent funding limitation on private sector workloads and the Air Force to be above it, continuing weaknesses in DOD's data gathering and reporting processes prevented GAO from determining with precision whether the services complied with the 50-50 requirement. As in past years, GAO found errors and omissions in the data. For example, the Army erroneously reported workloads at two commands in millions of dollars instead of thousands of dollars, resulting in a $414 million--or 8 percent--overstatement of both public- and private-sector obligations for the 2 years in total. Because of the changing nature of budget projections and supporting data deficiencies, the future-years report does not provide reasonable estimates of public- and private-sector depot maintenance funding allocations for fiscal years 2002 through 2006. The services tend to place less emphasis and priority on collecting and validating future-years data. The reported projections are based, in part, on incorrect data, questionable assumptions, and some inconsistencies with existing budgets and management plans. For example, the Navy did not report depot maintenance workloads for a missile system and a ship defensive system, understating funding for private-sector work each year by an estimated $162 million and public-sector work by about $80 million.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Because of limitations in the future years' report, the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 amended section 2466(d) to require only one annual report from DOD containing the percentage of funds expended during the preceding fiscal year and projected to be expended for the current and next fiscal years. The provision also provided for a later (April 1) reporting date for the consolidated report. Subsequently, DOD followed the streamlined format in its 2005 report to the Congress on the allocation of depot maintenance work between the public and private sectors.

    Matter: Because of the continuing limitations in the value of outyear information, inherent difficulties in projecting future requirements and capabilities and the volatility of such projections, Congress may wish to consider altering the 50-50 reporting requirement in 10 U.S.C. 2466 to recognize the current shortcomings in the future-years reporting. Possible alternatives are to (1) eliminate the requirement for the future-years report; (2) modify the future-years report to include only the current year and the next budget year (the 2 future-years projections that are generally more realistic); or (3) combine the prior- and future-year reports to include the prior, current, and the next budget years. The revised 50-50 report could also be required to include an explanation of actions each military department is taking to comply, or remain in compliance, with the 50-percent ceiling.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Air Force is revising its instructions regarding two-level maintenance and regional repair to address concerns with two- and three-level maintenance policy and to provide more definitive guidance to the field regarding the reporting of depot maintenance activities. The Air Force has revised its two- and three-level of maintenance and source, maintenance, and recoverability code change processes to allow individual units with an existing repair capability to more easily report their repair activities and remain compliant with applicable maintenance instructions.

    Recommendation: To improve the 50-50 data collection, validation, and reporting processes, the Secretary of Defense should require the Secretary of the Air Force to determine the extent and nature of depot maintenance and depot-like tasks accomplished at nondepot locations (including field and regional maintenance centers) and apart from Air Force Materiel Command reporting responsibility and, pending the outcome of that determination, revise Air Force 50-50 guidance and management processes for tasking, collecting, and validating data in order to ensure more complete and consistent reporting on 50-50 data.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: To improve management and controls over the 50-50 data collection and documentation process, the Army implemented the initial phase of its automated reporting system in fiscal year 2002. The system, referred to as the Depot Maintenance Operation Planning System, is for tracking depot maintenance financial requirements and to enhance the capability to monitor and track the distribution of the Army's depot maintenance workload. The Army's fiscal year 2002 data call included a comprehensive set of instructions for reporting depot maintenance work at non-depot locations.

    Recommendation: To improve the 50-50 data collection, validation, and reporting processes, the Secretary of Defense should require the Secretary of the Army to (1) initiate steps to improve management and controls of the 50-50 data collection and documentation process and (2) finalize and issue guidance concerning the reporting of depot maintenance at nondepot locations.

    Agency Affected: Department of Defense

  3. Status: Closed - Not Implemented

    Comments: The Naval Audit Service did participate in the 2003 50-50 reporting process to a limited degree--suspending its 50-50 audit in January 2004 because of higher priority work. The Naval Audit Service did identify errors and inconsistencies in prior-year 50-50 data at three commands, resulting in changes to the reported data. The Navy has also encouraged internal management review offices to perform independent data verification. DOD and the Navy did not agree that non-nuclear related depot maintenance and modification work accomplished on aircraft carriers in conjunction with nuclear refueling overhauls should be included in the Navy's 50-50 report based on 10 U.S.C. 2460(b)(1) that explicitly excludes "the nuclear refueling of an aircraft carrier". Thus, the Navy has treated all costs associated with the nuclear refueling of an aircraft carrier as subject to this exclusion. GAO continues to believe that depot repairs not directly associated with refueling tasks should be reported because these kinds of repair actions are reported by other organizations and funding for these tasks is identifiable in contracts and financial systems.

    Recommendation: To improve the 50-50 data collection, validation, and reporting processes, the Secretary of Defense should require the Secretary of the Navy to (1) direct the use of the Naval Audit Service to review and validate 50-50 processes and data during next year's and subsequent reporting cycles and (2) revise its guidance in order to report nonnuclear-related depot maintenance and modification work accomplished on aircraft carriers in conjunction with nuclear refueling overhauls as discussed in this report.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: In December 2002, DOD issued additional guidance to expand and clarify the exemption of partnering workloads from the 50-50 requirements. DOD took no action on our recommendation for guidance on the treatment of component repair costs to prevent the double counting in 50-50 reports when the repaired items are used in higher level assemblies. DOD's position was that its treatment of component repair costs, when repaired items are used in higher level assemblies, is not inconsistent with statutory requirements. According to DOD, the repair of exchangeables and the use of exchangeables during system and subsystem overhaul and repair are two separate transactions that must be reported in accordance with the requirements of 10 U.S.C. 2466(e), based on the application of the definition contained in U.S.C. 2466.

    Recommendation: To improve the 50-50 data collection, validation, and reporting processes, the Secretary of Defense should require the Assistant Deputy Under Secretary of Defense for Maintenance Policy, Programs, and Resources, in conjunction with the secretaries of the military departments, to clarify guidance on (1) the exemption of partnering workloads from the 50-50 requirement and (2) the treatment of component repair costs to prevent the double counting in 50-50 reports when the repaired items are used in higher level assemblies.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: In March 2004, the Marine Corps implemented its first iteration of process improvements for the fiscal year 2003 50-50 report--automated processes to reduce the potential for errors and to better document each step of the process. Additional improvements are planned by December 2004. The Marine Corps also plans to have internal audits of the 50-50 reports prior to submission in use by December 2004. Also, the Marine Corps distributed OSD 50-50 reporting instructions to all reporting organizations and held instructional classes in August 2003 and January 2004 for personnel responsible for the fiscal year 2003 50-50 input. A revision of the Depot Level Maintenance Handbook to include definitions, standardized procedures, assigned roles and responsibilities, and reporting timelines is scheduled for completion by December 2004.

    Recommendation: To improve the 50-50 data collection, validation, and reporting processes, the Secretary of Defense should require the Commandant of the Marine Corps to (1) initiate steps to improve management and controls of the 50-50 data collection and documentation process and (2) ensure that 50-50 reporting guidance is disseminated and understood by all potential reporting organizations.

    Agency Affected: Department of Defense

 

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