Description of the AFWCF

During fiscal year 2013, the AFWCF earned $21.2 billion in revenue. First, the monthly cash balances were generally high in  fiscal years 2009 and 2010 because the Air Force charged more than it  cost for spare parts. Second, the monthly cash balances fluctuated  because of the cyclical nature of events, such as the DOD operating  under a continuing resolution. Finally, large-dollar transactions, such as  transfers in and out of the AFWCF, affected the monthly cash balances. AFWCF Monthly Cash Balances Are Projected to Be Above the Maximum Requirement in Fiscal Year 2014 but to Fall Below the Minimum Requirement by the End of Fiscal Year 2015

The AFWCF’s fiscal year 2015 budget information shows that the fund’s  projected monthly cash balances are only expected to fall within the  minimum and maximum cash requirements about 25 percent of the time  in fiscal years 2014 and 2015. Our analysis of AFWCF financial documents and interviews with AFWCF  headquarters officials identified two reasons for the fiscal year 2014  projected AFWCF cash balances being above the projected maximum  cash requirement: (1) the AFWCF entered fiscal year 2014 with a cash  balance ($1,458 million) that was above the projected maximum cash  requirement for fiscal year 2014 by about $260 million or 22 percent and  (2) the AFWCF is building or maintaining a higher cash balance in  preparation for the October 1, 2014, implementation of a Treasury  initiative to provide visibility over daily cash balances for all  appropriations, including the AFWCF. The higher cash balance is needed  to cover the volatility in the daily cash balance. To enable it to better  compete with commercial providers, USTRANSCOM’s airlift rates are set  to compete with private sector rates and do not cover the full cost of the  Air Force’s readiness requirements for military airlift operations. The  difference between the full cost and the revenue received from airlift  customers is to be provided to USTRANSCOM in the ARA through the  use of Air Force appropriated funds. Achieving Expected Savings from AFWCF Initiatives Is Necessary to Meet AFWCF Fiscal Years 2014 and 2015 Projected Monthly Cash Balances

As stated previously, our analysis of fiscal year 2015 AFWCF budget  information that contains the AFWCF cash management plans for fiscal  years 2014 and 2015 showed that the projected monthly cash balances  are expected to be above the maximum cash requirement in fiscal year  2014 and decline in fiscal year 2015 and fall below the minimum cash  requirement in September 2015. Conclusions

The work that the AFWCF performs supports military readiness by  repairing aircraft and engines; selling inventory items (spare parts); and  providing air, land, and sea transportation for DOD in times of peace and  war. Second, the Air Force did  not fully fund the ARA requirement in its operations and maintenance  budget for fiscal year 2015, which increases the risk of a cash shortfall in  fiscal year 2015. We recommend that the Secretary of Defense direct the Secretary of the  Air Force and the Commander of USTRANSCOM to take the following  action:
Take steps to help ensure that the AFWCF receives the appropriate  funding if a cash shortfall occurs because of (1) the implementation of  the daily cash requirement, (2) a lack of fiscal year 2015 ARA funding,  and (3) fiscal year 2015 budgeted savings not being realized. In its comments,  which are reprinted in appendix III, DOD concurred with the three  recommendations and cited actions planned or under way to address  them. Appendix I: Scope and Methodology

To determine to what extent the Air Force Working Capital Fund  (AFWCF) monthly cash balances were within the Department of Defense  (DOD) minimum and maximum cash requirements for fiscal years 2009  through 2013, we (1) obtained the DOD regulation on calculating the  minimum and maximum cash requirements, (2) calculated the cash  requirements for fiscal years 2009 through 2013 based on the regulation,  and (3) obtained monthly cash balances for fiscal years 2009 through  2013. If the cash balances were  above the maximum amount or were below the minimum amount, we met  with Air Force and United States Transportation Command  (USTRANSCOM) officials and reviewed AFWCF budgets and other Air  Force and USTRANSCOM documentation to ascertain the reasons. Beginning  in the April and May time frame each year, AFWCF monthly cash  balances generally increased because the AFWCF generated more  revenue from customers for spare parts that result from the Air Force  flying more training mission hours during the spring and summer months  because of better weather conditions.
Why GAO Did This Study

The AFWCF earned revenue of $21.2 billion in fiscal year 2013 by, among other things, (1) repairing aircraft and engines; (2) selling inventory items (parts); and (3) providing air, land, and sea transportation. Cash generated from the sale of goods and services is used by the AFWCF to cover its expenses, such as paying employees. As requested, GAO reviewed issues related to AFWCF cash management.
GAO's objectives were to determine to what extent (1) the AFWCF monthly cash balances were within the DOD minimum and maximum cash requirements for fiscal years 2009 through 2013 and (2) the AFWCF projected monthly cash balances were within the minimum and maximum cash requirements for fiscal years 2014 and 2015 and if not why. To address these objectives, GAO reviewed relevant DOD cash management guidance, analyzed AFWCF actual and projected cash balances and related data, and interviewed Air Force and United States Transportation Command officials.

What GAO Found

GAO's analysis of Air Force Working Capital Fund (AFWCF) cash data showed that monthly cash balances fell within the minimum and maximum cash requirements about one-third of the time in fiscal years 2009 through 2013. GAO identified three reasons why monthly cash balances were above the maximum or below the minimum cash requirements. First, the cash balance began fiscal year 2009 above the maximum requirement and generally remained above the maximum requirement in fiscal years 2009 and 2010 because the AFWCF charged more than it cost for spare parts. Second, cash balances fluctuated each year because of the cyclical nature of events. For example, in the spring and summer months, the Air Force flies more training missions, which increases revenue for parts and thus the cash balance. Finally, large-dollar transactions caused cash balances to fluctuate above and below cash requirements. These transactions were used to increase cash to pay for costs such as fuel price increases or reduce cash if it was above the maximum requirement.
AFWCF projected monthly cash balances are expected to fall within cash requirements about 25 percent of the time in fiscal years 2014 and 2015. In managing cash for those fiscal years, the AFWCF faces three challenges:
The AFWCF plans to implement a Department of the Treasury initiative to provide daily cash balances, instead of monthly balances, in October 2014. Because daily balances are more volatile, the AFWCF faces a greater risk that a cash shortfall would occur. However, the Department of Defense (DOD) has not updated its regulation on receiving daily cash balances.
Because airlift rates are set to compete with private sector rates, they do not cover the full cost. The difference between the full cost and revenue received is to be provided by the Airlift Readiness Account (ARA) funded by the Air Force. The projected cash balance declines in fiscal year 2015 because the Air Force did not fully fund the ARA by $927 million. If a cash shortfall materializes, the Air Force stated its intent to fund the requirement from other programs. Without sufficient ARA funding, the AFWCF cash balance is at risk of falling below the minimum cash requirement in fiscal year 2015.
The AFWCF has included $620 million in savings from Air Force and United States Transportation Command initiatives in its fiscal year 2015 projected monthly cash balances. If these saving are not realized, the Air Force may need to take action to reduce the risk of a cash shortfall.

What GAO Recommends

GAO is making three recommendations to DOD that are aimed at implementing the Department of the Treasury's daily cash balance initiative and ensuring that the AFWCF receives the appropriate funding if a cash shortfall occurs because of a lack of ARA funding or estimated savings not being realized. DOD concurred with GAO's recommendations and cited related actions planned or under way.