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entitled 'Defense Inventory: Better Reporting on Spare Parts Spending 
Will Enhance Congressional Oversight' which was released on October 24, 
2002.



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Report to the Chairman, Subcommittee on Defense, Committee on 

Appropriations, House of Representatives:



United States General Accounting Office:



GAO:



October 2002:



Defense Inventory:



Better Reporting on Spare Parts Spending Will Enhance Congressional 

Oversight:



Defense Inventory:



GAO-03-18:



Contents:



Letter:



Results in Brief:



Background:



Reports Do Not Provide Congress with Actual and Complete Information on 

Spare Parts Spending:



Conclusions:



Recommendations for Executive Action:



Agency Comments and Our Evaluation:



Scope and Methodology:



Appendix I: Army Exhibit OP-31 Report on Spares and Repair 

Parts Submitted to Congress in June 2001:



Appendix II: Army Exhibit OP-31 Report on Spares and Repair 

Parts Submitted to Congress in February 2002:



Appendix III: Air Force Exhibit OP-31 Report on Spares and 

Repair Parts Submitted to Congress in June 2001:



Appendix IV: Air Force Exhibit OP-31 Report on Spares and 

Repair Parts Submitted to Congress in 

February 2002:



Appendix V: Navy Department Exhibit OP-31 Report on Spares 

and Repair Parts Submitted to Congress in 

June 2001:



Appendix VI: Navy Department Exhibit OP-31 Report on Spares 

and Repair Parts Submitted to Congress in 

February 2002:



Appendix VII: Comments from the Under Secretary of Defense:



Appendix VIII: Staff Acknowledgments:



Figure:



Figure 1: DOD’s Exhibit OP-31 Template:



Abbreviations:



DOD: Department of Defense:



GAO: General Accounting Office:



Letter:



October 24, 2002:



The Honorable Jerry Lewis

Chairman

Subcommittee on Defense

Committee on Appropriations

House of Representatives:



This is the first in a series of reports that respond to your January 

31, 2002, request that we identify ways to improve the Department of 

Defense’s (DOD) availability of high-quality spare parts for aircraft, 

ships, vehicles, and weapons systems. It follows up on our June 2001 

recommendation that the Secretary of Defense routinely provide Congress 

with reliable and timely spare parts information as an integral part of 

DOD’s operations and maintenance budget submission.[Footnote 1] In 

concurring with the recommendation, DOD stated that it would revise its 

financial management regulation and begin routinely providing Congress 

with detailed spare and repair parts funding information in a report 

entitled Exhibit OP-31, Spares and Repair Parts as part of the 

President’s annual budget submission. As agreed with your office, this 

report specifically addresses the accuracy and completeness of DOD’s 

June 2001 and February 2002 reports to Congress on the services’ 

programmed and actual spending of operations and maintenance funds for 

spare parts to support active forces.[Footnote 2] Also as agreed, it 

does not address spending for spare parts from other sources, such as 

procurement appropriations and working capital funds.[Footnote 3]



To accomplish this review, we interviewed DOD and service officials 

responsible for providing the funding data for their June 2001 and 

February 2002 oversight reports and assessed the adequacy of the data 

supporting these reports. We also visited the logistics commands and a 

major operating command for each service to ascertain the funding data 

available at that level. We did not attempt to validate the accuracy of 

the commands’ funding data.



Results in Brief:



The Department of Defense’s recent reports do not provide an accurate 

and complete picture of spare parts funding as required by financial 

management regulation. As a result, the reports do not provide Congress 

with reasonable assurance about the amount of funds being spent on 

spare parts. Furthermore, the reports are of limited use to Congress as 

it makes decisions on how best to spend resources to reduce spare parts 

shortages and improve military readiness. The reports’ related guidance 

states that the services are to provide programmed and actual funding 

data for all spare parts in total and for such specific commodities as 

ships, aircraft engines, and combat vehicles. However, the reports did 

not always contain actual data. Instead of citing actual amounts of 

annual operations and maintenance appropriations spent for spare parts 

for the past fiscal year, all of the Army’s amounts and most of the 

services’ commodity amounts were estimates. The Department presented 

these estimates, which were derived from various service computations, 

modeling, and historical data, because the services do not have a 

reliable system to account for and track the needed information on 

their actual spending by commodity. According to comptroller officials 

in the Office of the Secretary of Defense, these estimates are all they 

have access to, given the absence of a comprehensive financial 

management system that reports accurate cost accounting information. 

The officials said that developing better estimates would be expensive 

and potentially difficult, factors that should be considered in 

deciding whether the current information, although not accurate, is 

acceptable. Our work shows, however, that, while unaudited, detailed 

information on spending is routinely available at the major 

commands.[Footnote 4] In addition to not citing available data on 

actual spending, the services’ reports were not complete. Two of the 

services omitted information on the supplemental operations and 

maintenance appropriations, two services did not include information on 

the quantities of spare parts purchased, and none of them explained the 

deviations between programmed and actual spending. According to service 

officials, the reporting deficiencies resulted from either the absence 

of clear departmental guidance or uncertainties about how to comply 

with the guidance that was available.



Given the importance of accurate and complete information on spare 

parts funding, we are recommending that the Secretary of Defense (1) 

improve the guidance for preparing its Exhibit OP-31 reports to ensure 

that the services provide actual and complete data on spare parts 

spending and (2) require the services to fully comply with the 

Secretary’s reporting guidance.



The Department of Defense partially concurred with our recommendations. 

Its primary concern was that our first recommendation focused 

exclusively on the adequacy of the Department’s reporting on operations 

and maintenance spending for spare parts without emphasizing the funds 

being spent on spare parts from all sources, such as working capital 

and investment accounts. Regarding the second recommendation, the 

Department also did not believe that reporting information on the 

quantities of spare parts purchased as currently required by its 

guidance added significant value to its report. As discussed in the 

agency comments section of this report, we continue to believe that our 

recommendations would enhance the Department’s reporting on spare parts 

spending from operations and maintenance funds. We also support the 

Department’s plans to provide additional budget information and 

analyses of actual spare parts spending from all funds sources in 

support of the budget.



Background:



Congress appropriates operations and maintenance funds for DOD, in 

part, for the purchase of spare and repair parts.[Footnote 5] DOD 

distributes operations and maintenance funding to major commands and 

military units. The latter use operations and maintenance funding to 

buy spare parts from the Department’s central supply system. By the end 

of fiscal year 2001, DOD reported in its supply system inventory report 

that it had an inventory of spare parts valued at about $63.3 

billion.[Footnote 6] Prior GAO reports have identified major risks 

associated with DOD’s ability to manage spare parts inventories and 

prompted a need for reporting on spare parts spending and the impact of 

spare parts shortages on military weapon systems’ readiness.[Footnote 

7]



In recent years, Congress has provided increased funding for DOD’s 

spare parts budget to enable military units to purchase spare parts 

from the supply system as needed. In addition, beginning with fiscal 

year 1999, Congress provided supplemental funding totaling $1.5 

billion, in part, to address spare parts shortages that were adversely 

affecting readiness. However, in making supplemental appropriations for 

fiscal year 2001, the Senate Committee on Appropriations voiced 

concerns about the Department’s inability to articulate funding levels 

for spare parts needed to support the training and deployment 

requirements of the armed services and provide any meaningful history 

of funds spent for spare parts.[Footnote 8]



In June 2001, we reported that DOD lacked the detailed information 

needed to document how much the military units were spending to 

purchase new and repaired spare parts from the central supply system. 

To increase accountability and visibility over spare parts funding, we 

recommended that DOD provide Congress with detailed reports on its past 

and planned spending for spare parts. In making the recommendation, we 

anticipated that such information, when developed through reliable and 

consistent data collection methods, would help Congress oversee DOD’s 

progress in addressing spare parts shortages.



In response to our recommendation, in June 2001 and February 2002, DOD 

provided Congress with Exhibit OP-31 reports as an integral part of the 

fiscal year 2002 and 2003 budget requests for operations and 

maintenance funding. These reports, which the services had previously 

submitted to DOD for internal use only, were to summarize the amounts 

each military service and reserve component planned to spend on spare 

parts in the future and the actual amount spent the previous fiscal 

year. Figure 1 shows the Exhibit OP-31 template as it appears in DOD’s 

Financial Management Regulation. The regulation requires the military 

services to report the quantity and dollar values of actual and 

programmed spending for spare parts in total and by specific commodity 

groups, such as ships, aircraft engines, and combat vehicles and 

explain any changes from year to year as well as between actual and 

programmed amounts. (See apps. I through VI for each service’s June 

2001 and February 2002 exhibits.):



Figure 1: DOD’s Exhibit OP-31 Template:



[See PDF for image]



Legend:



BY1 = budget year 1:



BY2 = budget year 2:



CY = current year:



FY = fiscal year:



M = millions:



MISC. = miscellaneous:



O&M = operations and maintenance:



OSD = Office of the Secretary of Defense:



PY = prior year:



PB = President’s budget:



Qty = quantity:



Source: DOD Financial Management Regulation, Volume 2A, Chapter 3.



[End of figure]



Reports Do Not Provide Congress with Actual and Complete Information on 

Spare Parts Spending:



DOD’s June 2001 and February 2002 reports did not provide Congress with 

an actual and complete picture of spare parts spending. The actual 

amounts reported as spent by the Army in total on spare parts and by 

all services for most of the commodities were estimates. The services’ 

budget offices had computed these estimates using various methods 

because they do not have a reliable system to account for and track 

such information.[Footnote 9] In addition, all the services did not 

include information on the supplemental operations and maintenance 

funding they received in their totals, include the quantities of parts 

purchased, or explain deviations between planned and actual spending as 

required on the template. These deficiencies limit the potential value 

of DOD’s reports to Congress and other decision makers.



Services Reported Estimates--Not Actual Spending:



Some of DOD’s purported actual spending data were estimates. All of the 

Army’s spending amounts and most of the other services’ commodity 

amounts for prior years were estimates derived from various service 

methods--not actual obligations to purchase spare parts. The services’ 

headquarters budget offices provided these estimates because they did 

not have a process for tracking and accumulating information on actual 

spending by commodity in their accounting and logistics data systems.



The services’ budget offices were to develop the Exhibit OP-31 data 

using the guidance shown on the template as published in DOD’s 

Financial Management Regulation. The Department did not provide the 

services with any other guidance on how to develop information required 

for Exhibit OP-31 reports. The guidance directed the services to 

prepare reports showing planned and actual funding and quantities of 

repairable and consumable spare parts purchases by commodity for 

multiple fiscal years. Each service employed its own methodology to 

estimate the amount of money spent for spare parts as described below:



* The Army used estimates to report its total spending for spare parts 

and the breakout of spare parts spending for all commodity groups. The 

Army based its estimates on computer-generated forecasts of the spare 

parts needed to support the current and planned operations. Information 

from cost data files, logistics files, and the Operating and Support 

Management Information System was used to develop a consumption rate 

for spare parts on the basis of anticipated usage, considering such 

factors as miles driven and hours flown. The consumption factor was 

entered in the Army’s Training Resources Model, which contains force 

structure, planned training events, and the projected operating tempo. 

The model used the consumption factor to estimate the total cost and 

quantities of spare parts that would be consumed. The model also 

provided the estimated spending for each of the commodities cited in 

the exhibit.



* The Navy Department used unaudited actual obligation data from the 

major commands as its basis for reporting total spending for spare 

parts and for some commodity groups. However, the breakout of actual 

spending data for the aircraft engine and airframe commodities were 

estimates. The Navy Department’s headquarters budget office developed 

its reports on the basis of information contained in price and program 

change reports submitted by the major commands. The Navy Department’s 

accounting system tracked obligations and developed pricing information 

for spare parts purchased under numerous subactivity groupings, some of 

which were tied to the categories listed on the OP-31 Exhibit. For 

example, codes have been established to track obligations for 

consumable and repairable spare parts purchased to support ship 

operations. The budget office prepared summary schedules accumulating 

these obligations from each command and transferred this information to 

the appropriate line of the OP-31 Exhibit. While the system provided 

accounting codes to summarize spare parts spending to support air 

operations and air training exercises, separate codes had not been 

established to distinguish spare parts purchased for aircraft engines 

and airframes--two separate and distinct commodity groupings on the 

exhibit. Lacking a separate breakout for aircraft engines and 

airframes, the budget office estimated the amounts for each commodity 

from historical trends.



* The Air Force used unaudited actual obligation data from its 

accounting system to identify and report its total spending, but its 

breakout of spending for the commodity groupings used estimates. The 

Air Force calculated estimates for each commodity by applying budget 

factors to the total actual obligation data shown in its accounting 

system. The accounting system provided these data by expense code, 

which designated depot-level repairables and consumables by “fly” and 

“non-fly” obligations.[Footnote 10] The Air Force allocated all “fly” 

obligations to airframes and left the engine commodity blank, even 

though some of the obligations were for engines. The Air Force selected 

this approach because spare parts for airframes and engines are 

budgeted together. To estimate the amount spent on the missiles, 

communications equipment, and other miscellaneous commodities, the Air 

Force allocated the total “non-fly” obligations on the basis of ratios 

derived from the amounts previously budgeted for these categories.



While DOD had no reliable system to account for and track all of the 

needed information on actual spending, some of the services’ major 

commands have data that can be compiled for this purpose. Our visits to 

selected major operating commands for each military service revealed 

that they maintain automated accounting and logistics support data 

systems that could be used to provide unaudited data on spare parts 

funding allocations and actual obligations to purchase repairable and 

consumable spare parts in significant detail. For example, at the 

Army’s Training and Doctrine Command, we found that the Integrated 

Logistics Analysis Program provided information to monitor and track 

obligation authority by individual stock number and federal supply 

class. Personnel at that location used these data to develop a sample 

report documenting spending in the format requested by Exhibit OP-31. 

The Air Force’s Air Combat Command and the Navy’s Commander in Chief 

Atlantic Fleet each had systems that also could be used to provide 

information on spending.



We discussed these reporting deficiencies with Office of the Secretary 

of Defense comptroller officials, who concurred that some figures on 

the service’s Exhibit OP-31 reports were estimates and that DOD did not 

have a comprehensive financial management system that would routinely 

provide actual spending information. They said that estimates are all 

they have access to, given the absence of a comprehensive financial 

management system that reports accurate cost-accounting information. 

Furthermore, they stated that even though detailed information on such 

spending is available at the major commands, developing better 

estimates would entail an expensive and potentially difficult reporting 

requirement that should be considered in deciding whether the current 

information is acceptable.



Some Key Management Information Omitted from Services’ Exhibits:



DOD’s exhibits were also not complete in that they did not show all of 

the key information required by the template. DOD’s guidance directed 

the services to report total operations and maintenance spare parts 

funding, the spare parts quantities bought, and the reasons for 

deviations between actual and programmed funding. However, two of the 

services did not provide information on the quantities of spare parts 

they had purchased, and none of the services explained variances 

between actual and initially programmed funding. Service officials 

commented that these reporting omissions were generally due to DOD’s 

vague data collection guidance on the template and uncertainties about 

how to comply.



The Army was the only service that reported spare parts quantity 

purchases each fiscal year. However, the Army’s quantities were 

estimates that were based on applying historical usage rates to such 

factors as miles driven and hours flown, even when actual quantities 

were required. The Navy and Air Force did not report quantities 

because, according to service officials, such information was not 

readily available to them. Furthermore, they said that DOD’s data 

collection guidance did not adequately explain how this information was 

to be developed.



None of the services explained changes between actual and programmed 

spending in the exhibits as required. In comparing the June 2001 and 

February 2002 exhibits, we noted that each service’s fiscal year 2001 

actual spending deviated from the amount programmed and that some 

differences were significant. For example, in the February 2002 

exhibits, the Navy showed an increase for fiscal year 2001 of 

approximately $400 million, and the Air Force showed a decrease of 

approximately $93 million in the actual amounts spent for spare parts 

versus the amount programmed in the June 2001 exhibits. Neither service 

provided a reason for the change.



While DOD guidance requires the services to report total programmed and 

actual spending amounts, the services do not identify and report 

pending supplemental funding requests in their programmed spending 

totals until after the supplemental funds are received. For example, 

the Navy’s June 2001 exhibit did not include supplemental funding of 

about $299 million in its reported fiscal year 2001 programmed funding 

estimate, which totaled approximately $3.5 billion. However, the Navy’s 

February 2002 exhibit included the additional funding in the actual 

fiscal year 2001 actual spending totals. Similarly, the Army’s June 

2001 exhibit, which reported programmed funding of approximately $2.1 

billion for fiscal year 2002, did not include $250 million in 

supplemental funding for the purchase of additional spare parts to 

improve readiness. The supplemental funding was later included in the 

spending estimates reflected on the February 2002 exhibit. Service 

officials commented that these reporting omissions were generally due 

to uncertainties about requirements for reporting changes to spare 

parts spending estimates that result from supplemental funding.



Conclusions:



Weaknesses in DOD’s accounting and reporting practices hinder the 

usefulness of the data to decision makers. Providing actual data on 

spare parts spending is important to Congress and decision makers 

because, when linked to factors such as spare parts shortages and 

readiness, it can help serve as a baseline for evaluating the impact of 

funding decisions. Because the reports have not cited actual spending 

and have not been complete, they do not provide Congress with 

reasonable assurance about the amount of funds being spent on spares. 

As a result, they have less value to Congress and other decision makers 

in the Department during their annual deliberations about (1) how best 

to allocate future operations and maintenance resources to reduce spare 

parts shortages and improve military readiness and (2) when to make 

future resource allocation decisions about modernizing the force.



Recommendations for Executive Action:



Given the importance of spare parts to maintaining force readiness, and 

as justification for future budget requests, actual and complete 

information would be important to DOD as well as Congress. Therefore, 

we recommend that the Secretary of Defense:



* issue additional guidance on how the services are to identify, 

compile, and report on actual and complete spare parts spending 

information, including supplemental funding, in total and by commodity, 

as specified by Exhibit OP-31 and:



* direct the Secretaries of the military departments to comply with 

Exhibit OP-31 reporting guidance to ensure that complete information is 

provided to Congress on the quantities of spare parts purchased and 

explanations of deviations between programmed and actual spending.



Agency Comments and Our Evaluation:



In written comments on a draft of this report, DOD partially concurred 

with both recommendations. DOD’s written comments are reprinted in 

their entirety in appendix VII. DOD expressed concern that the first 

recommendation focused only on improving the reporting of operations 

and maintenance appropriations spending for spare parts but did not 

address other appropriations used for these purposes or working capital 

fund purchases. DOD stated that in order to have a comprehensive 

picture of spare parts spending, information on spare parts purchased 

with working capital funds and other investment accounts needs to be 

reported. The Department offered to work with Congress to facilitate 

this kind of analysis. As our report makes clear, we focused our 

analysis on the information the Department reported--operations and 

maintenance funding--and our recommendation was directed at improving 

the accuracy of the information. We continue to believe it is important 

that the Congress receive accurate actual spending data for these 

appropriations. Furthermore, as we point out in the report, operations 

and maintenance funding is the principal source of funds used by the 

military services to purchase new or repaired spare parts from the 

working capital funds, and as such, is a key indicator of the priority 

being placed on spares needs. Lastly, our report recognizes that there 

are other sources of funds for spare parts purchases, and we support 

DOD’s statement that it will work with Congress to provide more 

comprehensive reporting on actual and programmed spending from all 

sources.



In partially concurring with the second recommendation, the Department 

agreed that the services need to explain deviations between programmed 

and actual spending but believed that reporting spare parts quantities 

purchased as required by the financial management regulation does not 

add significant value to the information being provided to Congress 

because of the wide range in the unit costs for parts. While we 

recognize that the costs of parts vary significantly, continuing to 

include such information by commodity provides some basis for 

identifying parts procurement trends over time and provides valuable 

information about why shortages may exist for certain parts. Therefore, 

we continue to believe that our recommendation is appropriate.



Scope and Methodology:



To determine the accuracy, completeness, and consistency of the 

oversight reports to Congress on spare parts spending for the active 

forces under the operations and maintenance appropriation, we obtained 

copies of and analyzed data reflected on OP-31 exhibits submitted by 

the Departments of the Army, Navy, and Air Force for the June 2001 and 

February 2002 budget submissions. We compared data and narrative 

explanations on the reports with reporting guidelines and templates 

contained in the DOD Financial Management Regulation. We analyzed and 

documented the data collection and reporting processes followed by each 

of the military departments through interviews with officials and 

reviews of available documentation at DOD’s Office of the Comptroller 

and budget offices within the Departments of the Army, Navy, and the 

Air Force. To determine the availability of alternative systems for 

tracking and documenting information on actual obligations for spare 

parts purchases, we visited selected major commands in each of the 

military departments. These major commands included the Army’s Training 

and Doctrine Command; the Navy’s Commander in Chief, Atlantic Fleet; 

and the Air Force’s Air Combat Command. However, we did not attempt to 

validate the commands’ detailed funding data. We also reviewed our 

prior reports outlining expectations for enhanced oversight reporting 

on the use of spare funds and high-risk operations within the 

Department of Defense.



We performed our review from February through August 2002 in accordance 

with generally accepted government auditing standards.



We are sending copies of this report to John P. Murtha, the Ranking 

Minority Member of the Subcommittee on Defense, House Committee on 

Appropriations; other interested congressional committees; the 

Secretary of Defense; Secretaries of the Army, Air Force, and Navy; and 

the Director, Office of Management and Budget. We will also make copies 

available to others upon request. In addition, the report will be 

available at no charge on the GAO Web site at http://www.gao.gov.



Please contact me on (202) 512-8412 if you or your staff have any 

questions concerning this report. Staff acknowledgments are listed in 

appendix VIII.



David R. Warren, Director

Defense Management Issues:



Signed by David R. Warren:



[End of section]



Appendix I: Army Exhibit OP-31 Report on Spares and Repair Parts 

Submitted to Congress in June 2001:



[See PDF for image]



Legend:



FY = fiscal year:



M = millions:



MISC. = miscellaneous:



Qty = quantity:



Source: Department of the Army Fiscal Year 2002 Amended Budget 

Submission.



[End of figure]



[End of section]



Appendix II: Army Exhibit OP-31 Report on Spares and Repair Parts 

Submitted to Congress in February 2002:



[See PDF for image]



Legend:



FY = fiscal year:



M = millions:



MISC. = miscellaneous:



Qty = quantity:



Source: Department of the Army Fiscal Year 2003 Budget Estimates 

Submitted to Congress, February 2002.



[End of figure]



[End of section]



Appendix III: Air Force Exhibit OP-31 Report on Spares and Repair Parts 

Submitted to Congress in June 2001:



[See PDF for image]



Legend:



AF = Air Force:



AVPOL = aviation petroleum oils lubricants:



CY = calendar year:



FY = fiscal year:



IMPAC = international merchant purchase authorization card:



Misc. = miscellaneous:



NA = not available:



Qty = quantity:



Source: Department of the Air Force Fiscal Year 2002 Amended Budget 

Submissions to Congress, June 2001.



[End of figure]



[End of section]



Appendix IV: Air Force Exhibit OP-31 Report on Spares and Repair Parts 

Submitted to Congress in February 2002:



[See PDF for image]



Legend:



AF = Air Force:



AVPOL = aviation petroleum oils lubricants:



CY = calendar year:



FY = fiscal year:



IMPAC = international merchant purchase authorization card:



M = millions:



Misc. = miscellaneous:



NA = not available:



Qty = quantity:



Source: Department of the Air Force Fiscal Year 2003 Budget Estimates 

to Congress, February 2002.



[End of figure]



[End of section]



Appendix V: Navy Department Exhibit OP-31 Report on Spares and Repair 

Parts Submitted to Congress in June 2001:



[See PDF for image]



Legend:



FY = fiscal year:



O&M = operations and maintenance:



Source: Department of the Navy Fiscal Year 2002 Amended Budget 

Submission Justification of Estimates, June 2001.



[End of figure]



[End of section]



Appendix VI Navy Department Exhibit OP-31 Report on Spares and Repair 

Parts Submitted to Congress in February 2002:



[See PDF for image]



Legend:



FY = fiscal year:



Source: Department of the Navy Fiscal Year 2003 Budget Estimates 

Justification of Estimates, February 2002.



[End of figure]



[End of section]



Appendix VII Comments from the Under Secretary of Defense:



UNDER SECRETARY OF DEFENSE 1100 DEFENSE PENTAGON WASHINGTON, DC 20301-

1100:



SEP 30 2002:



COMPTROLLER.



Mr. David R. Warren:



Director, Defense Capabilities and Management:



U.S. General Accounting Office Washington, D.C. 20548:



Dear Mr. Warren:



This is the Department of Defense (DoD) response to the General 

Accounting Office (GAO) draft report, “DEFENSE INVENTORY: Better 

Reporting on Spare Parts Spending Will Enhance Congressional 

Oversight,” dated August 30, 2002 (GAO Code 350153).



I reiterate the Department’s commitment to providing the Congress with 

information that facilitates the thorough analysis of spares funding. 

In addition to the OP-31 exhibit, which the GAO analyzes in their 

report, the Department also provides in the President’s Budget 

submission, supplemental material on spares and repair parts purchased 

in the Supply Management Business Area of the Defense Working Capital 

Fund (DWCF). The draft report, by focusing as it does on the Operation 

and Maintenance funding for spares, does not adequately emphasize the 

Working Capital Fund side of the total spares equation. The Department 

stands ready to work with the Congress to provide additional budget 

information and analyses that support the budget request. Detailed 

comments on the draft report recommendations are included in the 

enclosure. The DoD appreciates the opportunity to comment on the draft 

report.



Dov S. Zakheim:



Signed by Dov S. Zakheim:



Enclosure:



GAO-03-18/GAO CODE 350153:



“DEFENSE INVENTORY: BETTER REPORTING ON SPARE PARTS SPENDING WILL 

ENHANCE CONGRESSIONAL OVERSIGHT”:



DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:



RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 

issue additional guidance on how the Services are to identify, compile 

and report on actual and complete spare parts spending information, 

including supplemental funding, in total and by commodity as specified 

by the Exhibit OP-31. (Page 13/Draft Report).



DoD RESPONSE: Partially concur. In making the case that the Services 

should provide “real actuals” in their budget exhibits rather than 

estimates, this recommendation ignores the fact that there is more to 

the question of what the Department is spending on spares than just the 

Operation & Maintenance (O&M) account purchases. The DoD procures 

spares and repair parts in many appropriations. The OP-31 exhibit was 

designed as an internal DoD working document to just track customer O&M 

expenditures for spares and repair parts. Since the OP-31 exhibit does 

not include Working Capital Fund or Investment account purchases, it 

does not present comprehensive information on spare and repair parts 

purchases. The Department’s position is that a superior way to get to 

the heart of the question of “what does the Department spend on 

spares?” is to review both WCF funding and customer account (i.e., O&M 

and investment account) purchases. The Department will work with the 

Congress to facilitate this kind of analysis.



RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 

direct the Secretaries of the Military Departments to comply with 

Exhibit OP-31 reporting guidance to endure that complete information is 

provided to the Congress on the quantities of spare parts purchased and 

explanations of deviations between programmed and actual spending. 

(Page 13/Draft Report).



DoD RESPONSE: Partially concur. The DoD Financial Management Regulation 

(DoDFMR) directs the Components to provide an explanation for 

deviations between the amount presented as Prior Year Actuals and 

program requests. The Department, however, does not share the belief 

that inclusion of quantities in the OP-31 exhibit adds significant 

value to the information provided. Spare and repair parts range in 

value from a few hundred dollars to tens of thousands of dollars. 

Because of this wide-range of unit costs, including quantities, the 

exhibit does not provide useful information for analytical purposes.



[End of section]



Appendix VIII: Staff Acknowledgments:



Acknowledgments:



Key contributors to this report were Richard Payne,

Glenn Knoepfle, Alfonso Garcia, George Morse, Gina Ruidera,

Connie Sawyer, George Surosky, Kenneth Patton, and

Nancy Benco.



FOOTNOTES



[1] See U.S. General Accounting Office, Defense Inventory: Information 

on the Use of Spare Parts Funding Is Lacking, GAO-01-472 (Washington, 

D.C.: June 11, 2001).



[2] For the purpose of this report, “spending” means an administrative 

“obligation” of appropriated funds to purchase spare parts, rather than 

the expenditure of funds to purchase spare parts.



[3] A working capital fund is a revolving fund. Revolving funds create 

permanent authorization for a program to be financed, in whole or in 

part, through the use of its collections to carry out future 

operations, such as to finance inventories of supplies and other stores 

or to provide working capital for industrial-type activities.



[4] We did not verify the accuracy of the data at the major commands.



[5] Spare parts are the repair parts and components, including kits, 

assemblies, and subassemblies (both repairable and nonrepairable) 

required for the maintenance of DOD’s weapons systems. Repairable items 

are those that are returned to the supply system to be repaired when 

they are no longer in working condition. Nonrepairable items are called 

“consumables,” which means they are consumed in use or cannot be 

economically repaired.



[6] DOD’s Supply System Inventory Report indicates that the cost of 

inventory is calculated under the DOD Comptroller’s acquisition cost 

methodology mandated for all DOD annual reports and financial 

statements.



[7] See U.S. General Accounting Office, Major Management Challenges and 

Program Risks: Department of Defense, GAO-01-244 (Washington, D.C.: 

Jan. 1, 2001).



[8] Senate Committee on Appropriations, Making Supplemental 

Appropriations, for the Fiscal Year Ending September 30, 2001, and for 

Other Purposes, 107TH Cong., 1ST sess., 2001, S. Rept. 107-33, 6.



[9] As discussed in our recent testimony concerning DOD’s financial 

management operations, the Department has long-standing problems in 

ensuring basic accountability and maintaining funds control. See U.S. 

General Accounting Office, DOD Financial Management: Integrated 

Approach, Accountability, Transparency, and Incentives Are Keys to 

Effective Reform, GAO-02-537T (Washington, D.C.: Mar. 20, 2002).



[10] “Fly” refers to items directly attached or related to an aircraft. 

“Non-fly” refers to items not directly attached or related to an 

aircraft.



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