	Background

In addition to the 50-50 requirement in 10 U.S.C. Recurring Weaknesses in Data Preclude Determinations of Compliance in Prior-Years Report with Precision

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 reporting requirement for  fiscal years 2002 and 2003. DOD’s prior-years report for fiscal years 2002  and 2003 as submitted to the Congress in February 2004 shows the  Departments of the Army, Navy, and Air Force to be below the 50 percent  funding limitation on private-sector workloads for both years. Increase in Depot Maintenance Funding Did Not Result in Large Increase in Work at Army Depots

While there was an over $700 million increase in depot maintenance  funding in the Army from fiscal year 2002 to fiscal year 2003, this increase  did not translate into a significant increase in the amount of work  performed in Army depots. Navy Reported Private-Sector Funding below 50 Percent Limit

Although the Navy (including the Marine Corps) reported that its  private-sector funding was below the 50 percent limit for both fiscal years,  we found errors in the Navy’s and Marine Corps’ data, and we found that  the total dollar amount of errors affected the data for the private sector  more than the public sector. Correcting for the errors we found increased  the percentage share in fiscal year 2003 for the private sector from  44.5 percent to 47.9 percent—a gain of 3.4 percent. Future-Year Projections Do Not Provide Reasonable Estimates of Public- and Private-Sector Funding

As in the past, DOD’s latest future-years report does not provide  reasonable estimates of public- and private-sector depot maintenance  funding allocations for fiscal years 2004 through 2008 because the  future-year projections were based on (1) incorrect data and questionable  assumptions and (2) internal and external factors, which create  fluctuations in reported data. Services Moving Closer to Threshold for Private- Sector Funding

While the reported data have limitations that affect their usefulness as a  predictor of actual funding allocations, our analysis of DOD’s 50-50 data  for fiscal years 2004-8 shows that the services are predicting that they  would not reach the threshold for private-sector funding. But  changes, errors, or omissions could change this trend. Proposed Legislation Would Require a Single Report

Because of the limitations of the future-years report as an accurate  predictor of depot maintenance funding allocation, we recommended last  year that the Congress consider amending 10 U.S.C. 2466 to require only  one 50-50 report. The single report would cover a 3-year period (prior  year, current year, and budget year), for which data are more reliable and  the potential affects more immediate. Several Key Limitations Affect the Quality of DOD’s 50-50 Reporting

DOD’s improvements in 50-50 guidance and operating processes have not  advanced significantly in recent years, and key limitations remain in the  50-50 process that affect the quality of DOD’s 50-50 reporting. First, three  of the four military services did not have an independent review and  validation of their 50-50 data prior to submission to the Office of the  Secretary of Defense, while the fourth had only a limited review. Third, management emphasis regarding the  need for accurate and complete reporting was lacking. 2466. Limited and sporadic training for those responsible for collecting,  aggregating, and reporting 50-50 data and the lack of management  attention regarding the need for accurate and complete reporting present  continued challenges to the services in their ability to make significant  improvements to their collection, documentation, and reporting processes. Regarding its partial concurrence with our recommendation that would  require the military departments, within 30 days of reporting 50-50 data  within 2 percent of exceeding the 50 percent threshold, to submit a plan to  the Office of the Secretary of Defense identifying actions the military  departments shall take to ensure continued compliance with the 50-50  reporting requirements, DOD agreed that the 2 percent threshold is a  reasonable trigger point for additional oversight and management to  ensure compliance with the 50 percent threshold. Depot Maintenance: Action Needed to Avoid Exceeding Threshold on  Contract Workloads.
Why GAO Did This Study

Under 10 U.S.C. 2466, the military departments and defense agencies can use no more than 50 percent of annual depot maintenance funding for work performed by private-sector contractors. 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 2004 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 2002-3 and (2) the projections for fiscal years 2004-8 are reasonable estimates. GAO also identified key limitations in the 50-50 process that affect the department's ability to comply with the 50-50 requirement.

What GAO Found

Recurring 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 2002-3. DOD data show all the services 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 limit on contract maintenance. For example, for fiscal year 2003, the Navy did not include about $410 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 44.5 percent reported to 47.9 percent. DOD reported significant increases in depot maintenance funding from 2002 to 2003, but these did not result in significant increases in the amount of work performed in DOD depots during that period. Because some data errors and omissions in DOD's prior-years report are carried into future years, and changing depot maintenance requirements and fluctuations in budget estimates make projecting out-year data difficult, the future-years report does not represent reasonable estimates of public- and private- sector maintenance funding for fiscal years 2004-8, thereby limiting its usefulness to congressional and DOD decision makers. GAO recommended last year that the Congress consider amending 10 U.S.C. 2466 to require only one report that would cover 50-50 data for the prior year, current year, and budget year. In 2004 the Armed Services Committees proposed changes in title 10 that would adopt GAO's recommendation. Despite the limitations in the 50-50 data, the trend for this period shows that the services are moving close to the 50 percent threshold, yet they have no plan of action in place to prevent exceeding it. Such a plan would allow for timely actions to be taken to mitigate the potential for exceeding the 50 percent limit for private-sector funding. Several limitations in the 50-50 process affect the quality of DOD's 50-50 reporting. First, three of the four military services did not have an independent review and validation of their 50-50 data. Second, training for those who are responsible for collecting, aggregating, and reporting 50-50 data was limited and sporadic. Third, management emphasis regarding the need for accurate and complete 50-50 reporting was lacking.