Navy Did Not Provide Data and Other Supporting Evidence for Its Overall Assessment

The Navy’s March 2006 report to Congress included sections  corresponding to each of the matters specified in Section 322(b)(2) of the  National Defense Authorization Act for Fiscal Year 2006. However,  although the report addressed the Navy’s assessment of the conversion of  Puget Sound to direct funding, it did not provide data and other supporting  evidence for the Navy’s overall assessment that direct funding was more  advantageous than working capital funding and can best satisfy fleet  maintenance priorities. More specifically, the report did not provide evidence that direct funding  had provided for a more agile workforce—the ability to more easily move  workers among maintenance projects in response to fleet priorities— which was a key benefit the Navy claimed was achieved by converting to  direct funding. Moreover, it did not  provide data to support the overall conclusion that direct funding can best  satisfy fleet maintenance priorities without sacrificing cost visibility,  performance accountability, or quality of work. Navy Did Not Address Unresolved Issues Identified in Prior Studies

The Navy’s March 2006 report did not show data that adequately  addressed issues identified as unresolved in prior studies. Navy Did Not Identify Methodologies for Total Cost Visibility

The Navy’s report did not discuss the Navy’s approach and methodology  for achieving total cost visibility at the consolidated facility. Prior reviews have raised issues about the Navy’s ability to provide data  showing total cost visibility. Determining the total cost of delivering  specific ship maintenance is important for other reasons as well. Consequently, OSD and Navy officials do not yet have  complete and reliable cost and related data needed for making fully  informed decisions related to ship maintenance activities. Navy Did Not Identify Performance Metrics Demonstrating Improved Results Achieved by Consolidating Maintenance Facilities and Converting to Direct Funding

The Navy’s report did not provide performance metrics demonstrating  improved results associated with consolidating ship maintenance facilities  at Puget Sound and converting the shipyard to direct funding. Without performance metrics to measure progress toward  meeting goals and objectives, the Navy lacks data needed for evaluating  the changes it has made and making fully informed decisions related to the  management of consolidated ship maintenance activities. Navy Report Did Not Identify Problems with Information Systems Not Designed for Direct Funding

The Navy’s report did not disclose shortcomings in its information systems  at Puget Sound Naval Shipyard that have hindered its ability to efficiently  and reliably meet its financial and business operations reporting  requirements. Our review verified that the information systems at Puget Sound Naval  Shipyard consolidated facility were not designed to provide the types of  cost and operational data being requested under direct funding. As a  result, the systems have required extensive changes and manual  administrative efforts by shipyard personnel to support the consolidated  facility’s financial and business operations reports being requested under  direct funding. Navy officials in headquarters and Puget Sound recognized the need for  improved information systems to support the Puget Sound Naval Shipyard  consolidated facility and other East Coast shipyards converting from  working capital funding to direct funding. Recommendations for Executive Action

To improve the Navy’s management of consolidated maintenance facilities  and the conversion of shipyards to direct funding, we recommend that the  Secretary of Defense direct the Secretary of the Navy to take the following  three actions:  Implement a method to routinely and systematically provide for total cost  visibility of ship maintenance work performed. Scope and Methodology

To assess the Navy’s March 2006 report to Congress, we reviewed the  Navy’s reporting requirements established in Section 322(b)(2) of the  National Defense Authorization Act for Fiscal Year 2006. F. Operational and financial flexibility and responsiveness of funding on a  direct basis compared to funding through the working capital fund of the  Navy.
Why GAO Did This Study

To improve fleet support activities, the Navy is consolidating maintenance facilities and converting its shipyards from financing under the Navy Working Capital Fund to funding through direct appropriations (direct funding). Puget Sound Naval Shipyard was converted to direct funding in 2003. The National Defense Authorization Act for Fiscal Year 2006 directed the Navy to assess the impact of converting Puget Sound to direct funding and directed that GAO review the Navy's report. The Navy submitted its report to Congress in March 2006, confirming its position that direct funding was more advantageous than working capital funding and can best satisfy fleet maintenance priorities. GAO's objectives were to evaluate the extent to which the Navy's report (1) provided data and other supporting evidence for its overall assessment of the impact of converting Puget Sound to direct funding, (2) addressed unresolved issues that had been identified in prior studies, and (3) disclosed any other issues that have affected the implementation of direct funding.

What GAO Found

The Navy's March 2006 report to Congress did not provide data and other supporting evidence for its overall assessment of the impact of converting Puget Sound Naval Shipyard to direct funding. While the Navy reported on the matters specified in the defense authorization act, it did not provide data needed to support the Navy's position that direct funding was more advantageous than working capital funding and can best satisfy fleet maintenance priorities. More specifically, the report did not provide evidence that direct funding had provided for a more agile workforce--the ability to more easily move workers among maintenance projects in response to fleet priorities--which was a key benefit the Navy claimed was achieved by converting to direct funding. The Navy's March 2006 report did not show data that adequately addressed two key issues--cost visibility and performance metrics--which had been identified as unresolved in prior studies by GAO and others. First, the report did not present the Navy's approach and methodology for achieving total cost visibility for specific work performed. Determining the total cost of delivering specific ship maintenance work is recommended by federal accounting standards and is a key metric for evaluating a consolidated facility's productivity and performance. Although the Navy was attempting to gather cost data to show the full costs of operations at its shipyards, GAO found that the Navy has not developed policies and procedures to routinely and systematically accumulate these total cost data. Second, with respect to performance metrics, the Navy's report did not provide data that demonstrated improved results, such as increased productivity, of consolidating ship maintenance facilities at Puget Sound and converting the shipyard to direct funding. Prior reviews have raised issues related to total cost visibility and performance metrics as unresolved issues and recommended the Navy take corrective actions. While the Department of Defense concurred, it has not yet resolved these issues. Consequently, complete and reliable cost data are lacking for making fully informed decisions related to ship maintenance activities. Further, without performance metrics to measure progress toward meeting goals and objectives, the Navy lacks data needed for evaluating the changes it has made and making fully informed decisions related to the management of consolidated ship maintenance activities. The Navy's March 2006 report did not disclose shortcomings in its information systems at Puget Sound Naval Shipyard that have hindered its ability to efficiently and reliably meet its financial and business operations reporting requirements. The information systems at the consolidated facility were not designed to provide the types of cost and operational data being requested under direct funding. As a result, the systems have required extensive changes and manual administrative efforts by shipyard personnel to support the consolidated facilities' financial and business operations reports being requested.