The Army transferred $2.1 billion out of AWCF during  the 25 months to pay for unfunded operational expenses associated with  Operation Iraqi Freedom/Operation Enduring Freedom. Billions of Dollars Transferred out of AWCF Did Not Result in a Cash Balance below the Minimum Cash Requirement Except for a 6-Month Period

To fund other critical Army requirements, or as directed by Congress, the  Army transferred $4.8 billion out of AWCF from fiscal year 2004 through  fiscal year 2009. 3). 3). For Fiscal Years 2010 and 2011, AWCF- Projected Monthly Cash Balances Generally Exceed the Minimum Cash Requirement

Our analysis of the AWCF fiscal year 2011 budget and cash plan showed  that the projected monthly cash balances are expected to generally exceed  the minimum cash requirement for fiscal years 2010 and 2011 under the  Army’s assumptions. However, using the current DOD  guidance, our analysis shows that the Army’s projected cash balance is  expected to be above the minimum cash requirement for 22 out of             24 months. The actions  are (1) limiting the AWCF Supply Management Activity Group’s  obligations to less than the total amount of inventory sold to customers,  (2) reducing the AWCF industrial operations’ inventory, (3) collecting  funds from the Defense Logistics Agency (DLA) for consumable inventory  items transferred from AWCF to DLA, and (4) retaining the AWCF’s  accumulated gains instead of returning the amounts to customers. These actions are discussed below. While the Army does not expect a cash  shortfall in fiscal years 2010 and 2011 due primarily to an increase in  military build-up activities (sending more troops to Afghanistan), a cash  shortfall may occur if (1) the Supply Management Activity Group’s sales  are significantly lower than the wartime assumptions, or (2) the Army’s  management actions to improve the AWCF cash position are not  implemented and monitored effectively. Further, the  relevant DOD Financial Management Regulation lacks sufficient clarity to  determine the appropriate level of inventory to be held at industrial  operations activities. Appendix I: Scope and Methodology

To determine whether the Army Working Capital Fund (AWCF) monthly  cash balances fell within Department of Defense’s (DOD) cash  requirements for fiscal year 2000 through fiscal year 2009, we (1) obtained  the DOD regulation on calculating the minimum and maximum cash  requirements, (2) calculated the cash requirements for the period based on  the regulation, and (3) obtained monthly cash balances for the period. To determine whether the cash transfers for fiscal years 2000 through 2009  resulted in the AWCF’s monthly cash balances falling below the minimum  cash requirement, we (1) analyzed DOD budget and accounting reports to  determine the dollar amount of transfers made for the period, and            (2) obtained journal vouchers from the Defense Finance and Accounting  Service that documented the dollar amount of the cash transfers. Most of the financial information in this report was obtained from official  Army budget documents and accounting reports.
Why GAO Did This Study

The Army Working Capital Fund (AWCF) collected over $16 billion for goods and services provided to customers in fiscal year 2009. Cash generated from sales is used by AWCF to cover its expenses such as paying employees. In light of the Army's changing role in the Middle East, GAO was asked to determine whether (1) AWCF's monthly cash balances fell within the Department of Defense's (DOD) cash requirements for fiscal years 2000 through 2009, (2) the cash transfers resulted in AWCF's monthly cash balances falling below the minimum amount required by DOD, and (3) the AWCF's projected monthly cash balances are expected to fall below DOD's minimum cash requirement for fiscal years 2010 and 2011 and actions the Army can take to manage those balances. To address these objectives, GAO (1) reviewed relevant DOD guidance, (2) obtained and analyzed AWCF budget and accounting reports containing cash information, and (3) interviewed DOD and Army officials.

What GAO Found

GAO analysis showed that the AWCF monthly cash balance fluctuated significantly between fiscal years 2000 and 2009 and exceeded the maximum cash requirement prescribed by DOD regulation for 94 out of 120 months. The fluctuations were due to differences between receipts and disbursements, including the (1) receipt of collections from AWCF operations, (2) appropriations received in support of the wars, (3) disbursements made to pay for AWCF expenses, and (4) transfers made to fund other Army requirements. The Army transferred $4.8 billion out of AWCF from fiscal years 2004 through 2009. Most of the transfers funded requirements of Operation Iraqi Freedom, Operation Enduring Freedom, or military personnel costs. These transfers helped to reduce the cash balance, but also resulted in the AWCF cash falling below the minimum cash requirement for a 6-month period in fiscal year 2006. GAO analysis of the AWCF fiscal year 2011 budget and cash plan showed that the projected monthly cash balances for fiscal years 2010 and 2011 would exceed DOD's minimum cash requirement for 22 out of 24 months. While the Army does not expect a cash shortfall due primarily to an increase in military build-up activities in Afghanistan, a cash shortfall may occur if certain Army actions are not implemented and monitored effectively. These actions include (1) reducing AWCF obligations to less than the amount of inventory sold, (2) collecting funds from Defense Logistics Agency (DLA) for inventory items transferred from AWCF to DLA, and (3) reducing the amount of inventory at industrial operations activities. Further, the relevant DOD Financial Management Regulation lacks sufficient clarity to determine the appropriate level of inventory to be held at these activities.