Carryover and Its Use

Carryover is the reported dollar value of work that has been ordered and  funded (obligated) by customers but not completed by working capital  fund activities at the end of the fiscal year. Under the policy, the  allowable amount of carryover is based on the amount of new orders  received in a given year and the outlay rate of the customers’  appropriations financing the work. Changes to the AFWCF That Affected the Fiscal Years 2009 and 2010 Calculation of Carryover and the Allowable Amount of Carryover

The Air Force made changes to the calculation of carryover that reduced  both the carryover and the allowable amount of carryover. Air Force Underestimated Carryover in Its Budgets

In its budget information, the Air Force consistently underestimated the  amount of carryover that would exceed the allowable amount from fiscal  year 2006 through fiscal year 2010. In 3 of the 5 years, the actual amount of  carryover exceeded the budgeted amount by over $250 million. In fiscal  year 2010, Air Force headquarters and Air Force Materiel Command  (AFMC) began implementing actions to improve the accuracy of budgeting  for AFWCF carryover such as incorporating overseas contingency  operations (OCO) funded orders in the fiscal year 2012 AFWCF budget. These actions have the potential to improve the accuracy of budgeting for  AFWCF carryover, but their success can be determined only when  budgeted carryover information is compared to actual results. Reliable budget information on carryover is critical  since decision makers use this information when reviewing the AFWCF  budgets. AFWCF Actual Carryover Consistently Exceeded the Allowable Carryover

Our analysis of AFWCF reports showed that in each year from fiscal year  2006 through fiscal year 2010 actual carryover exceeded the allowable  carryover amounts. Therefore, the Air Force decision to increase the allowable  amount of carryover for orders funded with multiyear appropriations was  not in accordance with the DOD Financial Management Regulation. This provision in the  regulation does not pertain to the Air Force. Carryover Increased at ALCs from Fiscal Years 2006 through 2010 on Orders Received from External Customers

Carryover related to external depot maintenance work increased from $1  billion at the end of fiscal year 2006 to $1.9 billion at the end of fiscal year  2010. Our analysis of ALC depot maintenance reports and discussions with  Air Force officials identified four primary reasons for this increase. First,  Air Force underestimated its forecasted workload requirements on the  number of hours of depot maintenance work to be performed on repairing  assets, such as aircraft. Second, because the Air Force believed its depot  maintenance workload would decrease, the Air Force directed AFMC to  reduce its workforce in November 2007. While the ALCs reduced their  workforce by about 2,000 civilian personnel, the actual workload and  related funding increased instead of decreased—thus resulting in  personnel shortages. Third, during the 5-year period, the Air Force budget  underestimated the amount of funds on new orders that would be received  from customers and the work performed by the ALCs did not keep pace  with the increase in funds received on new orders from year to year. Fourth, the ALCs could not obtain parts when needed to perform repair  work that contributed to the growth of carryover. From fiscal years 2008 to 2010, average backorders at the ALCs  grew by 44 percent. While the carryover metric is a management tool for controlling  the amount of work that can carry over from one fiscal year to the next,  the metric can also be used as a tool to identify problems in other areas  such as (1) developing workload requirements on the number of hours of  depot maintenance work to be performed, (2) establishing personnel  levels to perform the depot maintenance work, (3) developing budgets on  the amount of new orders for depot maintenance work, and (4) obtaining  spare parts to perform depot maintenance work. In its comments,  DOD concurred with the five recommendations and cited actions planned  or under way to address them. Appendix I: Scope and Methodology

To determine the extent to which (1) budget information on Air Force  depot maintenance carryover for fiscal years 2006 through 2010  approximated actual results and, if not, any needed actions the Air Force  is taking to improve budgeting for carryover, and (2) the Air Force depot  maintenance actual carryover exceeded the allowable amount of  carryover from fiscal years 2006 through 2010 and any adjustments were  made to the allowable amount, we obtained and analyzed Air Force depot  maintenance reports that contained information on budgeted and actual  carryover and the allowable amount of carryover for fiscal years 2006  through 2010.
Why GAO Did This Study

Three Air Force depots support combat readiness by providing repair services to keep Air Force units operating worldwide. To the extent that the depots do not complete work at year end, the work and related funding will be carried into the next fiscal year. Carryover is the reported dollar value of work that has been ordered and funded by customers but not completed at the end of the fiscal year. GAO was asked to determine the extent to which: (1) budget information on depot maintenance carryover approximated actual results from fiscal years 2006 through 2010 and, if not, any needed actions to improve budgeting for carryover; (2) depot maintenance carryover exceeded the allowable amount and any adjustments were made to the allowable amount; and (3) there was growth in carryover at the depots and the reasons for the growth. To address these objectives, GAO (1) reviewed relevant carryover guidance, (2) obtained and analyzed reported carryover and related data at the Air Logistics Centers (ALC), and (3) interviewed DOD and Air Force officials.

What GAO Found

The Air Force consistently underestimated the dollar amount of carryover that would exceed the allowable amount in the Air Force Working Capital Fund (AFWCF) budgets from fiscal years 2006 through 2010. In 3 of the 5 years, the budgeted carryover amount underestimated the actual amount by over $250 million. The budget information on carryover is critical since decision makers use this information when reviewing the AFWCF budgets. The Air Force began implementing actions to improve budgeting for AFWCF such as including overseas contingency operations funded orders in the AFWCF fiscal year 2012 budget. These actions have the potential to improve the accuracy of budgeting for AFWCF, but their success will only be known when budgeted carryover information is compared to actual results. GAO analysis of AFWCF reports showed that in each year actual carryover exceeded the allowable amount from fiscal years 2006 through 2010. The allowable amount of carryover is based on the amount of new orders received and the outlay rate of customers' appropriations financing the work. The amount of carryover that exceeded the allowable ranged from $4 million to $568 million. Further, the Air Force increased the allowable amount for orders funded with multiyear appropriations by $115 million and $125 million in fiscal years 2009 and 2010, respectively. Without this adjustment, the AFWCF would have exceeded the allowable carryover by corresponding amounts. The DOD regulation on orders funded with multiyear appropriations only pertains to Army ordnance activities that perform a manufacturing function. Therefore, the provision on increasing the allowable amount of carryover for orders funded with multiyear appropriations does not apply to the Air Force. GAO analysis of ALC reports and discussions with Air Force officials identified four reasons for the increase in carryover from $1 billion at the end of fiscal year 2006 to $1.9 billion--nearly 7 months of work--at the end of fiscal year 2010 on depot maintenance work. First, Air Force underestimated its forecasted workload requirements on the number of hours of work to be performed. Second, because the Air Force believed its depot maintenance workload would decrease, it reduced its workforce in November 2007. While the ALCs reduced their workforce by about 2,000 civilian personnel, the actual workload increased instead of decreased--thus resulting in personnel shortages. Third, the Air Force budget underestimated the amount of funds on new orders received from customers, and the work performed by the ALCs did not keep pace with the increase in funding on new orders from year to year. Fourth, the ALCs could not obtain parts when needed to perform repair work that contributed to the growth of carryover. Air Force data showed that the average monthly outstanding backorders for spare parts at the ALCs grew by about 44 percent from fiscal year 2008 to fiscal year 2010. The Air Force is taking action to address these problems but still needs to compare budgeted to actual information, such as the number of hours of work to be performed, and identify the reasons for the differences.

What GAO Recommends

GAO makes five recommendations to DOD to improve the budgeting and management of carryover, such as comparing budgeted to actual information on carryover and clarifying DOD guidance on allowable carryover funded with multiyear appropriations. DOD concurred with GAO's recommendations and has actions planned or under way to implement them.