Industrial Operations performed less  work because it reduced personnel by more than 5,000 over the 2-year  period for fiscal years 2013 and 2014 due to budgetary uncertainty based  on the continuing resolution that extended throughout much of fiscal year  2013 and across-the-board spending reductions referred to as  sequestration. We also found that the Army’s calculations of the  allowable carryover amounts for fiscal years 2013 and 2014 were  incorrect as specified by DOD’s Financial Management Regulation  because it did not use data from the most recent DOD Financial  Summary Tables to perform the calculations. Based on our calculations,  Industrial Operations exceeded the allowable amounts by $44 million less  in fiscal year 2013 and $27 million more in fiscal year 2014 than reported  in its budgets. Work Performed by Industrial Operations Was Less Than Orders Accepted for Fiscal Years 2013 and 2014, Resulting in Adjusted Carryover Exceeding the Allowable Amounts

Our analysis of Industrial Operations reports showed that Industrial  Operations actual adjusted carryover amounts for fiscal years 2013  through 2015 exceeded the allowable amounts for each fiscal year  because Industrial Operations performed significantly less work than  orders accepted in fiscal years 2013 and 2014. If the Army had used the most recent DOD Financial  Summary Tables issued at the time of its calculations, our analysis  determined that (1) the fiscal year 2013 allowable carryover amount  would have been $44 million higher and correspondingly the amount of  actual adjusted carryover that exceeded the allowable carryover amount  in fiscal year 2013 would be lower by the same amount and (2) the  allowable carryover amount would have been $27 million lower for fiscal  year 2014 and correspondingly the amount of actual adjusted carryover  that exceeded the allowable carryover amount in fiscal year 2014 would  be higher by the same amount. This occurred because Industrial Operations accepted more  orders than budgeted and performed less work (and thus earned less  revenue) than budgeted all 3 years. Industrial Operations budgeted for adjusted carryover to fall below the  allowable carryover amounts by $174 million and $1.2 billion in fiscal  years 2013 and 2014, respectively, and to exceed the allowable carryover  amount by $186 million in fiscal year 2015. The Army Has Actions Under Way to Improve Budgeted Information, but Problems Remain

To address budgeting concerns, the Army has implemented actions  intended to improve budget information. Reliable budget estimates on carryover are  critical because decision makers use this information when reviewing  Industrial Operations’ budgets. These were (1) orders for work that was scheduled to carry over at the  end of the fiscal year, (2) orders for work on crash-damaged aircraft,   (3) orders for work that did not have a well-defined scope of work for  repairing the assets, and (4) orders affected by parts shortages that  delayed the performance of work. Parts were not always available to perform the work because the DOD  supply system did not maintain sufficient parts in the right mix to meet  demand. Parts. Requirements. Funding. However, the draft AMC regulation, which aims to  provide such policies and procedures, has not been completed. Conclusions

The Army’s 13 Industrial Operations activities provide crucial depot  maintenance and ordnance services to support a wide range of military  assets and programs. The ongoing development of a new  regulation on Industrial Operations will be key to improving the  management of carryover. In its written  comments, which are reprinted in appendix II, DOD concurred with the  four recommendations and cited actions planned or under way to address  them. To determine the extent to which Industrial Operations’ budgeted  carryover differed from actual carryover from fiscal years 2013 through  2015, reasons for any differences, and the actions the Army is taking to  improve related budgeting, we obtained and analyzed Industrial  Operations reports and Army Working Capital Fund budget estimates  submitted to Congress that contained information on budgeted and actual  new orders, revenue, and carryover data for fiscal years 2013 through  2015. To determine the key drivers for orders with large carryover balances for  fiscal years 2014 and 2015 and the extent to which the Army is taking  actions to reduce carryover, we met with responsible officials from Army  headquarters, Army Materiel Command, and Army depots to identify  contributing factors that led to carryover.
Why GAO Did This Study

Industrial Operations' activities support combat readiness by providing depot maintenance and ordnance services to keep Army units operating worldwide. To the extent that these activities do not complete work ordered and funded by fiscal year-end, the work and related funding will be carried over into the next fiscal year. DOD established a formula based on new orders from customers for determining the allowable carryover as defined by DOD's Financial Management Regulation. GAO was asked to review issues related to carryover.
GAO's objectives were to determine (1) the extent to which Industrial Operations' actual carryover differed from allowable amounts and reasons for differences; (2) the extent to which Industrial Operations' budgeted carryover differed from actual carryover, reasons for differences, and actions Army is taking to improve related budgeting; and (3) the key drivers for orders with large carryover balances and the extent to which the Army is taking actions to reduce carryover. GAO reviewed carryover guidance, analyzed carryover and related data, and interviewed Army officials.

What GAO Found

GAO's analysis of Army Industrial Operations (Industrial Operations) reports showed that Industrial Operations actual adjusted carryover exceeded its allowable carryover amount from fiscal years 2013 through 2015 by $195 million, $1.1 billion, and $854 million, respectively. This occurred because Industrial Operations performed less work (i.e., earned less revenue) than orders accepted due to staff reductions of more than 5,000 over the 2-year period for fiscal years 2013 and 2014 caused by budgetary uncertainty and the across-the-board spending reductions referred to as sequestration. GAO also determined that the Army did not correctly calculate the allowable carryover amounts for fiscal years 2013 and 2014 as specified by the Department of Defense (DOD) Financial Management Regulation because the Army did not use the most recent data available to perform the calculations. Based on GAO's calculations, Industrial Operations exceeded the allowable amounts by $44 million less in fiscal year 2013 and $27 million more in fiscal year 2014 than reported.
Industrial Operations' actual adjusted carryover also significantly exceeded budgeted adjusted carryover from fiscal years 2013 through 2015. While its budgeted adjusted carryover would have been under the allowable amount by $174 million and $1.2 billion for fiscal years 2013 and 2014, respectively, and over the allowable amount by $186 million for fiscal year 2015, the actual adjusted carryover amount exceeded the allowable amounts all 3 fiscal years because Industrial Operations (1) accepted more new orders than budgeted and (2) performed less work (earned less revenue) than budgeted.
To address budget concerns, the Army has implemented actions intended to improve budget information. However, Industrial Operations has not been able to provide reliable budget information on carryover to decision makers from fiscal years 2013 through 2015.
GAO identified four key drivers for large Industrial Operations carryover balances: (1) work was scheduled to carry over at the end of the fiscal year as part of the normal course of business, (2) work on crash-damaged aircraft was difficult to predict and required nonstandard repairs that necessitated long lead time parts to perform the work, (3) work did not have a well-defined scope of work for repairing the assets, and (4) parts were not available to perform work. The Army is taking actions to reduce carryover. One of those actions is to develop a regulation that consolidates and updates guidance for Industrial Operations. However, this regulation has not yet been completed, issued, and implemented.

What GAO Recommends

GAO recommends that DOD improve the budgeting and management for carryover by establishing procedures for correctly calculating the allowable carryover, improving budget estimates on carryover, and addressing in its draft regulation scope of work and parts issues that affect carryover. DOD concurred with GAO's recommendations and cited related actions planned or under way.