Carryover and Its Use

DOD uses the term “carryover” to refer to the reported dollar value of  working capital fund activities work that has been ordered and funded  (obligated) by customers but not completed by the end of the fiscal year. During the most recent 6-year period, the  reported amounts of actual carryover exceeded the allowable amounts  each year, ranging from a high of $59 million in fiscal year 2007 to a low  of $7 million in fiscal year 2011. However, in contrast, for the most recent 6 years, DMAG’s actual  reported amount of carryover exceeded budgeted carryover amounts by at  least $50 million each year. Our analysis showed the actual amounts of  reported carryover exceeded budgeted amounts primarily because the  Marine Corps underestimated DMAG’s new orders received from  customers. Our analysis of DMAG budget documents showed that for fiscal years  2004 through 2011, the Marine Corps budgeted DMAG’s revenue (work  to be performed) to be more than the budgeted dollar value of new orders  to be received each year. DMAG Carryover Grew Significantly as a Result of OIF/OEF

Our analysis of documents and interviews with Marine Corps officials  disclosed that DMAG carryover significantly increased from $49 million in  fiscal year 2002 to $271 million in fiscal year 2005. Available Marine Corps documentation, including DMAG’s  budgets, showed that new orders increased to facilitate higher depot  maintenance requirements in support of OIF/OEF operations. As shown in table 4, the  DMAG carryover averaged $296 million and represented about 6.4  months of workload since fiscal year 2005. Primary Reasons for Carryover at the End of Fiscal Years 2010 and 2011

Our analysis of 60 orders (and related amendments) with the largest  amounts of carryover for fiscal years 2010 and 2011 (the most recent  data available) identified three primary reasons for carryover: (1)  unanticipated increases in quantities or workload requirements to  customer orders, (2) starting work on new orders later in the fiscal year  because the centers had not yet completed work on other existing orders  from the current and prior fiscal year, and (3) accepting amendments to  existing orders in the last quarter of the fiscal year that increased order  quantities or the scope of work. Recommendations for Executive Action

We recommend that the Secretary of Defense direct the Secretary of the  Navy and Commandant of the Marine Corps to take the following two  actions to improve the budgeting and management of Marine Corps’  DMAG carryover:
Augment DMAG budget development and review procedures to  require a comparison of recent years’ trends in budgeted carryover  amounts that are over or under the allowable amounts to the actual  carryover amounts to identify any differences, reasons for any such  differences, and make any appropriate adjustments to budget  estimates on carryover. In its comments,  DOD concurred with both of our recommendations and cited actions  planned to address them. Appendix I: Scope and Methodology

To determine if (1) the depot maintenance activity group (DMAG)  reported actual carryover exceeded the allowable amount of carryover  from fiscal years 2004 through 2011 and any actions the Marine Corps is  taking to reduce carryover, and (2) budget information on DMAG  carryover from fiscal years 2004 through 2011 approximated reported  actual results, we obtained and analyzed DMAG reports that contained  information on budgeted and reported actual carryover and the allowable  amount of carryover for fiscal years 2004 through 2011. To determine if there was growth in DMAG carryover during the period of  Operation Iraqi Freedom/Operation Enduring Freedom (OIF/OEF) and the  reasons for any such growth, we analyzed reported order, revenue, and  carryover amounts and months of carryover from fiscal years 1998  through 2011 to determine the extent to which OIF/OEF impacted DMAG  workload and carryover.
Why GAO Did This Study

The Marine Corps DMAG repairs and overhauls weapon systems and support equipment to battle-ready condition for deployed and soon-to-be deployed units. To the extent that DMAG does not complete work at year-end, the work and related funding will be carried over into the next fiscal year. Carryover is the reported dollar value of work that has been ordered and funded by customers but not completed by DMAG at the end of the fiscal year. GAO was asked to determine (1) if DMAGs actual carryover exceeded the allowable amount and actions the Marine Corps is taking to reduce carryover; (2) if budget information on DMAG carryover approximated actual results; (3) if there was growth in carryover during the period of OIF/OEF and the reasons for any such growth; and (4) reasons for recent years carryover. To address these objectives, GAO (1) reviewed relevant carryover guidance, (2) obtained and analyzed reported carryover and related data for DMAG against requirements, and (3) interviewed DOD, Navy, and Marine Corps officials.

What GAO Found

GAOs analysis of Marine Corps depot maintenance activity group (DMAG) reports showed that from fiscal years 2004 through 2011, reported actual carryover exceeded the allowable amounts in the most recent 6 years of the 8- year period, ranging from $59 million in fiscal year 2007 to $7 million in fiscal year 2011. GAOs analysis also showed that the amounts of carryover exceeding the allowable amounts have declined in each of the past 4 years. These reductions could be attributed to DMAG actions, including implementing production efficiencies that reduced the time required to repair weapon systems.
In contrast, DMAGs budgeted carryover amounts were less than the allowable amounts for all 8 years GAO reviewed. In the most recent 6 years, DMAGs reported actual carryover amounts exceeded budgeted carryover by at least $50 million. GAOs analysis showed this occurred because the Marine Corps underestimated DMAGs new orders every year during this 6-year period from a low of 51 percent to a high of 175 percent.
The reported dollar value of DMAG carryover significantly increased during the initial years of Operation Iraqi Freedom/Operation Enduring Freedom (OIF/OEF) from $49 million in fiscal year 2002 to $271 million in fiscal year 2005. This increase could be primarily attributed to new orders from customers more than tripling over this period. GAOs analysis found that the increase in new orders was the result of higher depot maintenance requirements supporting OIF/OEF. Since fiscal year 2005, reported actual carryover amounts have remained relatively stable, averaging $296 million or 6.4 months of work.
GAO identified three factors that were key to DMAGs carryover in fiscal years 2010 and 2011 including: (1) experiencing unanticipated increases in its workload requirements, (2) starting DMAG work on new orders later in the fiscal year because it was already performing work on other orders, and (3) accepting amendments on existing orders in the last quarter of the fiscal year that increased the scope of work.

What GAO Recommends

GAO recommends that DOD improve the budgeting and management of DMAG carryover by comparing budgeted to actual information on carryover and orders and making adjustments to budget estimates as appropriate. DOD concurred with GAOs recommendations and cited related actions planned.