DOD’s Equipment Reconstitution Estimating Process Contained Weaknesses That Produced Errors

The two-phased process DOD used to develop its fiscal year 2004  supplemental budget equipment reconstitution requirements contained  weaknesses that produced errors that may result in misstatements of  future-year budget estimates if not corrected. We observed two problems  with the COST model associated with the first phase of DOD’s process that  have generated unreliable estimates. First, the COST model can overstate  reconstitution costs related to aircraft and ship costs because these costs  are covered in both the operations and reconstitution sections of the  model. Second, there is uncertainty in DOD over the maintenance  requirements covered by the model. We also noted problems with the  second phase of DOD’s process. In one instance, the Army did not consider  funding in its baseline peacetime operation and maintenance budget that  would be available for equipment reconstitution. In another  instance, the services included requirements in their reconstitution  estimates that appear to be inconsistent with equipment reconstitution  activities established by OSD’s supplemental budget preparation guidance. Duplication of Cost Requirements Overstates Reconstitution Estimate

The model that OSD and the services used in the first phase of the process  to calculate reconstitution requirements for fiscal year 2004 resulted in an  overstatement of about $1.2 billion. Consequently, the  department cannot have confidence in its equipment reconstitution budget  estimate. DOD Not Accurately Reporting Equipment Reconstitution Costs

DOD has not accurately tracked and reported its equipment reconstitution  costs because the services are unable to segregate equipment  reconstitution from other maintenance requirements, as required. Our analysis of the DFAS report showed that 1) the Air  Force is not separately reporting equipment reconstitution obligations  because it does not have a mechanism within its current accounting system  to track them, 2) the Army is including unit reconstitution obligations that  are above and beyond equipment reconstitution and other maintenance  costs, and 3) the Navy is unable to segregate regular maintenance from  reconstitution maintenance for ship overhauls. As a result, the equipment  reconstitution obligations are being inconsistently reported by the services  and the report data are not reliable for accurately determining how much  the services are actually obligating for the reconstitution of equipment  returning from deployments in support of the global war on terrorism. Specifically, the Air Force does not have a  mechanism nor has it established codes that can track the dollar amounts  obligated on equipment reconstitution in fiscal years 2003 and 2004, which  the guidance does not require. For example, units reconstituting  after returning from Iraq may be including maintenance obligations  generated during training exercises. As a result,  the Army’s equipment reconstitution amounts are likely overstated. Recommendations for Executive Action

To correct the weaknesses we identified in the equipment reconstitution  cost estimating process the department used when developing its fiscal  year 2004 supplemental budget request, we recommend that the Secretary  of Defense take the following five actions:  Direct the OSD comptroller to revise its COST model to ensure that  costs covered by the model’s operating tempo cost elements are not  duplicated by costs in the model’s reconstitution cost elements;   Direct the OSD comptroller to clearly establish what equipment  maintenance requirements should be covered by the COST model and   communicate this information to IDA to ensure that the model  calculations reflect only these maintenance costs;   Direct the Secretary of the Army to establish a step in its  supplemental estimating process to offset the estimate with the  baseline budget to improve future contingency funding estimates;  Direct the OSD comptroller to clarify its supplemental budget  guidance to the services on what types of maintenance requirements  should and should not be included as equipment reconstitution when  developing the supplemental budget; and  Direct the OSD comptroller to ensure that all potential equipment  reconstitution requirements are considered when developing  supplemental budget requests by allowing the services to include  anticipated equipment losses—both operational losses and  maintenance washouts—in their supplemental budgeting process.
Why GAO Did This Study

The high pace of military operations in Iraq and elsewhere has generated a multibillion dollar equipment maintenance requirement that must be addressed after units return home. Upon returning from deployments, active, reserve, and National Guard units reconstitute, or restore, their equipment to a condition that enables them to conduct training and prepare for future deployments. The Department of Defense (DOD) uses a two-phased process to develop equipment reconstitution supplemental budget estimates. GAO reviewed this process for the fiscal year 2004 supplemental budget to determine (1) the extent to which the process produced reliable estimates of reconstitution requirements in the fiscal year 2004 supplemental budget, and (2) whether DOD is accurately tracking and reporting reconstitution costs.

What GAO Found

DOD's two-phased process to develop its fiscal year 2004 equipment reconstitution cost estimates contained weaknesses that produced errors, which may result in misstatements of future-year reconstitution cost requirements. The model DOD used to estimate costs in the first phase of the process generated unreliable estimates due to two main reasons. First, the model can overstate aircraft and ship reconstitution costs because these costs are covered in two different sections of the model. As a result, the model's estimate for Air Force aircraft reconstitution was overstated by over $1 billion. Second, there is uncertainty over what maintenance requirements the model covered. The Office of the Secretary of Defense (OSD) and the services developed their requirements with the understanding that the model did not calculate all maintenance requirements. GAO learned that the model may duplicate some requirements that the services manually calculated and included in their cost estimates. Consequently, DOD cannot have confidence that its equipment reconstitution budget estimate is reliable. There are also reconstitution estimating and guidance problems associated with the second phase of the process, where the services may develop alternative estimates outside of the model. For instance, the Army failed to consider funding in its baseline budget that would be available for equipment reconstitution. In another instance, the services included requirements in their reconstitution estimates that appear to go beyond equipment reconstitution as established by OSD's guidance. Nonetheless, GAO found an accumulation of unfulfilled equipment reconstitution requirements, because OSD guidance excluded the services from requesting funds for projected battle and other expected losses. The effect of losses not recognized in OSD's supplemental budget requirements have not yet been quantified and may be significant. GAO believes these problems are creating a backlog of equipment reconstitution requirements that will eventually need to be addressed in future budgets. DOD has not accurately tracked and reported its equipment reconstitution cost because the services are unable to segregate equipment reconstitution from other maintenance requirements as required. As a result, DOD cannot accurately report the cost of equipment reconstitution and, consequently, the total cost of the global war on terror. The Air Force does not break out its equipment reconstitution obligations from other global war-on-terrorism obligations in a DOD monthly cost report because it does not have a mechanism that can track the amounts obligated on equipment reconstitution and delineate such obligations from routine maintenance. Further, Army- and Navy-reported equipment reconstitution obligations are likely overstated in the monthly report because they include other maintenance costs--such as those related to equipment used in training exercises--that do not fall within DOD's description of equipment reconstitution.