Weaknesses in Data Preclude Determinations of Compliance in Prior- Years Report

DOD’s prior-years report for fiscal years 2001 and 2002 as submitted to the  Congress shows the Departments of the Army and Navy to be below the  50-percent funding limitation on private sector workloads for both years. The net effects of correcting for the errors and  omissions we identified would increase the percentages of workload going  to the private sector and move each department closer to the contract  limit. Overall,  however, recurring weaknesses in DOD’s data gathering, reporting  processes, and financial systems prevented us from determining with  precision whether the services were in compliance with the 50-50  requirement for fiscal years 2001 and 2002. For example, as in past years, the Army underreported public and private  sector depot-level maintenance work at field locations as it continues  unfinished efforts to consolidate maintenance activities and better control  the proliferation of depot-level tasks at nondepot locations. Other Army  work was not reported because some commands did not receive 50-50  instructions and others misapplied the guidance. These two examples would add about $401 million to the  private sector workloads in fiscal year 2002. Correcting for the errors we found substantially increases  the private sector percentage share in fiscal year 2002 from 42.6 percent to  46.9 percent, a gain of over 4 percent. Future-Year Projections Are Not Reasonable and Not Very Useful

Because of the changing nature of budget projections and supporting data  deficiencies, the future-years report does not provide reasonable estimates  of public and private sector depot maintenance funding allocations for  fiscal years 2003 through 2007. Finally, there are opportunities to improve  the data development process. Streamlining the 50-50 Report

As previously discussed, the future-years dataparticularly that estimated  for the years beyond the current year and budget yeardo not provide a  reasonable estimate of the future balance of funding for depot  maintenance between the public and private sectors. Participation of Service Audit Agencies

While we continue to believe that the service audit agencies could help the  military departments improve 50-50 reporting, their future involvement is  uncertain. However, this year the Air Force Audit  Agency did not participate; while the Army did participate, some of the  errors they identified were not corrected in the reports to the Congress;  and the Navy audit was not done in time to result in changes to the 50-50  data submitted to the Congress. Notwithstanding these constraints, opportunities still exist to improve the  reporting, including continued use of the audit services and renewed  efforts to ensure guidance is appropriately disseminated and staff trained  in its use. Appendix I: GAO Adjustments for Errors, Omissions, and Inconsistencies in Military Departments 50-50 Data for Fiscal Year 2002

Our review of the data supporting the Department of Defense’s (DOD)  prior-years report identified errors, omissions, and inconsistencies that, if  corrected, would revise the total workloads and increase the private- sector allocations for each of the military departments. Errors we found included the following examples:    Unreported depot work on nuclear aircraft carriers. GAO Comments

1. 2. 2466(e) and 10 U.S.C. Depot Maintenance: Status of the Navy’s Pearl Harbor Project.
Why GAO Did This Study

Under 10 U.S.C. 2466, not more than 50 percent of each military department's annual depot maintenance funding can be used for work done by private-sector contractors. The Department of Defense (DOD) also must submit two reports to the Congress annually on the division of depot maintenance funding between the public and private sectors--one about the percentage of funds spent in the previous 2 fiscal years (prior-years report) and one about the current and 4 succeeding fiscal years (future-years report). As required, GAO reviewed the two DOD reports submitted in early 2003 and is, with this report, submitting its views to the Congress on whether (1) the military services met the so-called "50-50 requirement" for fiscal years 2001-2 and (2) the projections for fiscal years 2003-7 are reasonable estimates. GAO also identified opportunities to improve the reporting process.

What GAO Found

Continuing weaknesses in DOD's data gathering, reporting processes, and financial systems prevented GAO from determining with precision if the military services complied with the 50-50 requirement in fiscal years 2001-2. DOD data show all the services, except the Air Force in fiscal year 2001, to be below the 50-percent funding limit on private sector work. However, as before, GAO found errors in the data that, if corrected, would overall increase funding of the private sector and move each service closer to the contract limit. For example, for fiscal year 2002, the Navy did not include about $401 million in private sector maintenance work on aircraft carriers and surface ships. Correcting for these and other errors would increase the Navy's percentage of private sector depot maintenance funds for that year from the 42.6 percent reported to 46.9 percent. Such data weaknesses show that prior-years reports do not precisely measure the division of maintenance funding. At best, over time these results provide rough approximations and indicate trends that may be useful to decision makers. Because of data deficiencies and changing budget projections, the futureyears report does not provide reasonable estimates of public and private sector maintenance funding for fiscal years 2003-7 and limits its usefulness to decision makers. GAO reported this shortcoming in the past, and problems continue. For example, the Army underreported maintenance work at nondepot locations as it continues to consolidate the work and better control it at such locations. Other Army work was not reported because some commands did not receive guidance and others misapplied it. These errors would add about $200 million annually to the Army's future estimate and increase the percent of projected funding in the private sector. Opportunities still exist for improvements, including for streamlining the 50- 50 reports, continued service audit agency support, and data development. Streamlining the 50-50 reports could help address problems caused by, among other factors, inexact program estimates. Second, although DOD is concerned that recent revisions to federal audit standards could keep service auditors from further participation in the 50-50 process, GAO believes that a way can be developed to enable auditors' continued support yet ensure their independence. Third, data development could be helped by better disseminating guidance and training participating personnel.