Our  analysis of the plan and first quarter fiscal years 2007 and 2008 execution  data show that the depots performed significantly more work than they  performed during the same period in the prior year but the depots missed  their goal by $173 million at the end of December 2007. Army Depots’ Carryover Significantly Increased in Fiscal Years 2006 and 2007

From fiscal years 2004 through 2007, the Army depots’ total carryover  significantly increased from $1.1 billion to $2.7 billion. The dollar amount  of new orders received in fiscal years 2006 and 2007 (about $9.5 billion) by  the depots significantly exceeded the dollar amount of work performed  (about $7.8 billion) by the depots during those same years. The depots  carried over about 7.6 months of work into fiscal year 2008. New orders increased from about  $2.6 billion to about $5.2 billion (about 100 percent increase) while the  amount of revenue earned increased from $2.7 billion to about $4.2 billion  (56 percent increase). Reported Carryover Amounts for Fiscal Years 2006 and 2007 Were Artificially Lowered

Reported Army depot maintenance activities’ carryover was reduced by  tens of million of dollars by (1) funds being deobligated at the end of fiscal  year 2006 and then reobligated in the beginning of fiscal year 2007 and (2)  amounts that were exempted from carryover calculations in fiscal year  2007. However, with the  exemptions, the depots exceeded the carryover ceiling by $96.8 million. Four Primary Reasons for Significant Growth in Fiscal Years 2006 and 2007 Carryover

Our analysis of depot reports and discussions with Army officials  identified four primary reasons for the growth in carryover. Fourth, unserviceable  assets (assets that need to be repaired) scheduled for repair did not arrive  at the depots as planned. Army headquarters officials said that the Army underestimated  the amount of new orders received by the depots because (1) the Army did  not have any historical information on the amount of funds the depots  would receive in the supplemental appropriations for depot maintenance  work and (2) of the uncertainty related to the amount of funds the Army  would receive in the supplemental appropriations for this depot  maintenance work. We recommend that the Secretary of Defense direct the Secretary of the  Army to take the following actions:    Direct the Army headquarters budget office to compare the amounts  contained in the Army’s carryover reduction plan to reported actual  execution data on a monthly basis to determine (1) if the depots met  established targets and (2) if the overall plan’s execution has the  desired effect of reducing fiscal year 2008 year-end carryover, and  work with the Army Materiel Command and the Army depots to  identify ways to further reduce fiscal year 2008 carryover if monthly  revenue goals are not met. However, as discussed in our  draft report, the exemptions do not provide the right incentives to correct  long-standing problems associated with receiving orders from other  services late in the fiscal year and program delays caused by long lead  time material. Appendix I: Scope and Methodology

To determine the growth in reported total carryover from fiscal year 2004  through fiscal year 2007 and the actions the Army is taking to reduce the  carryover, we obtained and analyzed Army depot maintenance reports that  contained information on new order, revenue, and carryover data for the  4-year period.
Why GAO Did This Study

The five Army depot maintenance activities support combat readiness by providing services to keep Army units operating worldwide. From fiscal years 2004 through 2007, the amount of new orders received to perform work increased 100 percent from $2.6 billion to $5.2 billion. The number of new orders is a factor in the amount of work the depots carry over from one fiscal year to the next. While past congressional defense committees recognize the need for carryover, the committees have raised concerns that carryover may be more than needed. GAO was asked to determine (1) the growth in reported total carryover from fiscal years 2004 through 2007 and the actions the Army is taking to reduce the carryover, (2) whether reported carryover amounts exceeded carryover ceilings for fiscal years 2006 and 2007 and adjustments made to reduce those amounts, and (3) the primary reasons for the increased carryover at the five Army depots. GAO analyzed reported carryover and related data at the five depots.

What GAO Found

From fiscal years2004 through 2007, the Army depots' total carryover significantly increased from $1.1 billion to $2.7 billion--about 7.6 months of work. The amount of carryover increased because new orders received (about $9.5 billion) by the depots significantly outpaced the work performed (about $7.8 billion) in fiscal years 2006 and 2007. GAO analysis of the Army's plan to reduce carryover showed that the depots performed $293 million more work in the first 3 months of fiscal year 2008 than they performed during the same period a year earlier, but the depots missed their planned goal by $173 million. The Army depots reported that they were under the carryover ceiling by $67 million in fiscal year 2006 but over the ceiling by $96.8 million in fiscal year 2007. GAO identified two factors that affected reported carryover amounts. First, the Army Materiel Command directed the Tobyhanna Army Depot to deobligate $30 million at the end of fiscal year 2006 and reobligate the same amount at the beginning of the next fiscal year, which artificially lowered reported carryover and was not in accordance with existing DOD policy. Second, the Army excluded about $299.7 million in fiscal year 2007 orders from the carryover calculations. The exemptions for fourth quarter orders from other services and long lead time material did not provide the right incentives for DOD to resolve long-standing problems. GAO analysis of reports and discussions with Army officials identified four primary reasons for growth in carryover: (1) the Army depot maintenance budget underestimated the amount of new orders during fiscal years 2006 and 2007 by about $1.7 billion and $1.5 billion, respectively; (2) the depots accepted orders late in the fiscal year that generally could not be completed by the end of the fiscal year; (3) the depots experienced parts shortages; and (4) the depots did not receive assets that had been scheduled for repair.