	Background

In addition to the 50-50 requirement in 10 U.S.C. DOD’s Compliance with the 50-50 Requirement for Fiscal Year 2005 Could Not Be Validated

Although DOD reported that the military departments complied with the  50-50 requirement for fiscal year 2005, we could not validate compliance  because of systemic weaknesses in DOD’s financial management systems  and persistent deficiencies in the processes used to collect and report 50- 50 data. Our current review showed that 50-50 funding  data were not being consistently reported because some maintenance  depots were reporting expenditures rather than obligations as directed by  OSD guidance. We also found that amounts associated with interservice  depot maintenance work and certain contract agreements between depots  and private contractors may not accurately reflect the distribution  reported for private- and public-sector funds because visibility over the  allocation of these funds is limited. DOD Reported Compliance with the 50-50 Requirement in Fiscal Year 2005, but Reported Data Contained Inaccuracies

In DOD’s April 2006 report to Congress on funding allocations for depot  maintenance, all three military departments reported that their private- sector depot maintenance allocation was below the 50 percent limitation  for fiscal year 2005. Table 1 shows the reported allocation between the public  and private sectors and the exempted workload funding. On the basis of our evaluation of selected 50-50 data, DOD’s April 2006  report provides an approximation of depot maintenance funding  allocations between the public and private sectors for fiscal year 2005. The net  effects of correcting the data inaccuracies we identified would increase  the Army’s private-sector funding allocation from 49.4 percent to 50  percent. OSD guidance requires that  the military departments establish measures to ensure correct accounting  of interservice workloads; however the allocation of these funds may not  always be accurately reported. Fiscal Year 2006 and 2007 Projections Are Not Reasonable Due to Data Inaccuracies

DOD’s reported projections for fiscal years 2006 through 2007 do not  represent reasonable estimates of public- and private-sector depot  maintenance funding allocations, in part because some errors in DOD’s  fiscal year 2005 data are carried into the projected years. If the adjustments  we made to the Army’s fiscal year 2005 data—increasing the private-sector  percentage by about 0.6 percentage points—are carried forward into fiscal  year 2007 projections, it could cause the Army to come within 2 percent of  the 50 percent limitation on contracting for depot-level maintenance and  repair. To avoid  breaching the 50 percent threshold, the Air Force is implementing a plan  to ensure compliance in fiscal years 2007 through 2010. Under this plan,  the Air Force is identifying and evaluating candidate weapon system  programs for shifting maintenance workload from the private sector to the  public sector. Our current review shows that while DOD has taken  some additional actions to improve the quality of reported data for fiscal  year 2005, it has not fully addressed the persistent deficiencies that have  limited 50-50 data accuracy in the past. Recommendations for Executive Action

To improve the consistency and accuracy of depot maintenance funding  allocation data in DOD’s annual 50-50 report to Congress, we recommend  that the Secretary of Defense take the following two actions:    Direct the Secretaries of the Army, Navy, and Air Force and the  Commandant of the Marine Corps to follow OSD guidance and report  funding obligations rather than expenditures. Our reasons for including these adjustments are discussed in  this report.
Why GAO Did This Study

Under 10 U.S.C. 2466, the military departments and defense agencies may use no more than 50 percent of annual depot maintenance funding for work performed by private-sector contractors. The Department of Defense (DOD) must submit a report to Congress annually on the allocation of depot maintenance funding between the public and private sectors for the preceding fiscal year and projected distribution for the current and ensuing fiscal years for each of the armed forces and defense agencies. As required by Section 2466, GAO reviewed the report submitted in April 2006 and is, with this report, submitting its view to Congress on whether (1) the military departments and defense agencies complied with the 50-50 requirement for fiscal 2005 and (2) the projections for fiscal years 2006 and 2007 represent reasonable estimates. GAO obtained data used to develop the April 2006 report, conducted site visits, and reviewed supporting documentation.

What GAO Found

Although DOD reported to Congress that it complied with the 50-50 requirement for fiscal year 2005, GAO could not validate compliance due to weaknesses in DOD's financial management systems and the processes used to collect and report 50-50 data. DOD's April 2006 report provides an approximation of the depot maintenance funding allocation between the public and private sectors for fiscal year 2005. GAO identified errors in the reported data which, if adjusted, would increase the Army's private-sector funding allocation percentage from 49.4 percent to 50 percent. GAO found that 50-50 funding allocation data were not being consistently reported because some maintenance depots were reporting expenditures rather than following Office of the Secretary of Defense (OSD) guidance and reporting obligations. Combining obligations and expenditures produces an inaccurate accounting of 50-50 funding allocations. GAO also found amounts associated with interservice depot maintenance work may not accurately reflect the actual allocation of private- and public-sector funds because visibility over the allocation of these funds is limited. OSD guidance requires that the military departments establish measures to ensure correct accounting of interservice workloads. In prior years' reports on DOD's compliance with the 50-50 requirement, GAO discussed deficiencies limiting data accuracy and recommended specific corrective actions. While DOD has taken some additional actions to improve the quality of reported data for fiscal year 2005, it has not fully addressed the persistent deficiencies that have limited 50-50 data accuracy. Reported projections do not represent reasonable estimates of public- and private-sector depot maintenance funding allocations for fiscal years 2006 and 2007 due to data inaccuracies. Errors GAO identified for fiscal year 2005 could affect these projections. If the adjustments GAO made to the Army's fiscal year 2005 data--increasing the private-sector percentage by about 0.6 percentage points--are carried forward, it could move the Army's projection to within 2 percent of the 50 percent limitation for fiscal year 2007. GAO also found that the projected numbers often did not include supplemental funds, which could change the allocation percentages. These errors and omissions affect the reasonableness and accuracy of the reported projections. To avoid breaching the 50 percent threshold in future years, the Air Force is implementing its plan to ensure compliance with the 50-50 requirement until fiscal year 2010. The plan involves moving some maintenance workload, including the F-100 engine, from the private sector to the public sector.