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entitled 'Defense Management: Observations on DOD's FY 2009 Budget 
Request for Corrosion Prevention and Control' which was released on 
April 15, 2008.

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GAO-08-663R: 

United States Government Accountability Office: 
Washington, DC 20548: 

April 15, 2008:

Congressional Committees:

Subject: Defense Management: Observations on DOD's FY 2009 Budget 
Request for Corrosion Prevention and Control:

This letter formally transmits the attached briefing in response to 
section 371 of the National Defense Authorization Act for Fiscal Year 
2008 (see enclosure 1). The act requires GAO to provide an analysis of 
DOD's budget submission for corrosion control and prevention and a DOD 
report that was to be submitted with defense budget materials to the 
congressional defense committees within 60 days after submission of the 
budget for a fiscal year. On April 3, 2008, we provided the briefing to 
staff of your committees to satisfy the mandate and 60-day reporting 
requirement.

We are sending copies of this letter to the appropriate congressional 
committees. We are also sending copies to the Secretary of Defense; the 
Deputy Secretary of Defense; the Under Secretary of Defense 
(Comptroller); the Under Secretary of Defense (Acquisition, Technology, 
and Logistics); the Secretaries of the Army, Navy, and Air Force; and 
the Commandant of the Marine Corps. This letter will also be available 
at no charge on our Web site at http://www.gao.gov. Should you or your 
staff have any questions concerning this report, please contact me at 
(202) 512-8365 or solisw@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Key contributors to this report were Tom Gosling, 
Assistant Director, and Allen Westheimer.

Signed by: 

William M. Solis:
Director, Defense Capabilities and Management:

List of Congressional Committees:

The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:

The Honorable Daniel Inouye:
Chairman:
The Honorable Ted Stevens:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:

The Honorable Ike Skelton:
Chairman:
The Honorable Duncan L. Hunter:
Ranking Member:
Committee on Armed Services:
House of Representatives:

The Honorable John P. Murtha:
Chairman:
The Honorable C.W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives: 

[End of section] 

Enclosure: 

Observations on DOD’s FY 2009 Budget Request for Corrosion Prevention 
and Control: 

Briefing for Congressional Defense Committees: 

April 3, 2008: 

Section 371 of the National Defense Authorization Act for Fiscal Year 
2008[A]: 

* Requires the Secretary of Defense, for each budget for a fiscal year 
beginning with FY09, to submit, with defense budget materials, a report 
on: 
- Funding requirements for DOD’s long-term corrosion prevention and 
control strategy. 
- Return on investment that would be achieved by implementing this 
strategy. 
- Funds requested in the budget compared with funding requirements.•An 
explanation if requirements are not fully funded in the budget. 

* Requires GAO to provide an analysis of DOD’s budget submission for 
corrosion control and prevention and an analysis of the report 
described above to the congressional defense committees within 60 days 
after submission of the budget for a fiscal year. 

[A] Pub. L. No. 110-181, §371 (2008) amended 10 U.S.C. §2228 to 
include, among other things, the reporting requirements for the 
Secretary of Defense and the Comptroller General. 

Engagement Objectives: 

In response to the mandate, GAO: 

1. Analyzed DOD’s fiscal year 2009 budget request for OSD’s Corrosion 
Prevention and Control Program Element (CPC PE). 

2. Compared the budget request with requirements and analyzed the 
projected return on investment (ROI) for funded and unfunded 
requirements. 

3. Obtained information on DOD’s process for developing its CPC PE 
budget submission.This briefing is intended to satisfy the mandate to 
review DOD’s FY09 budget request for corrosion prevention and control. 

Scope and Methodology: 

* Scope: DOD's fiscal year 2009 budget submission and requirements for 
the CPC PE. 

* Methodology: Analyzed DOD budget and requirements data, as well as 
corrosion strategy documents. We calculated the potential ROI for DOD’s 
funded and unfunded FY09 requirements based on DOD validated 
requirements data and overall ROI averages. Interviewed officials at 
the Under Secretary of Defense (Comptroller) and the Corrosion Policy 
and Oversight Office, within the Under Secretary of Defense for 
Acquisition, Technology, and Logistics (USD/ATL). 

* Limitations/data reliability: DOD had not yet submitted its required 
corrosion report. Also, we did not independently validate DOD’s CPC 
requirements or projected ROI. 

Generally Accepted Government Auditing Standards (GAGAS) Statement: 

We conducted this performance audit from February 2008 to April 2008 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Objective 1: DOD’s FY09 Budget Request for CPC PE: 

President’s FY09 budget request includes about $14.1 million for the 
CPC PE. This amount excludes any funding that the military services may 
contribute. 

Table: CPC PE Funding (FY 2006-2009), Dollars in millions: 

O&M: 
FY06 (estimated): $8.136; 
FY07 (estimated): $7,346; 
FY08 (estimated): $7.869; 
FY09 (requested): $8.962. 

RDT&E: 
FY06 (estimated): $7.402; 
FY07 (estimated): $7.124; 
FY08 (estimated): $18,917; 
FY09 (requested): $5.102. 

Total: 
FY06 (estimated): $15.538; 
FY07 (estimated): %14.460; 
FY08 (estimated): $26.786; 
FY09 (requested): $14.064. 

[End of table] 

According to data provided by OSD,of the $14.1 million requested for 
FY09, about $10.7 million is expected to fund corrosion projects. The 
remaining $3.4 million is expected to fund corrosion activities. 

While DOD will not make final selections of CPC projects until summer 
2008, examples of potential projects include: 

* Air Force temporary corrosion barrier coatings; 

* Army primer and topcoat powder coatings; 

* Navy ultra high solids shipboard coatings; 

* Army non-metallic cooling towers. 

Activities may include such things as cost studies, development of a 
corrosion guidebook for acquisition programs, and training. 

In addition to the CPC PE funding provided by OSD, the military 
services provided an average of about $8.5 million for corrosion 
projects per year for FY06-08. 

Table: Military Service Contributions for CPC PE Projects (FY06-08), 
Dollars in millions: 

Army: 
FY06: $5.4; 
FY07: $5.0; 
FY08: $4.9; 
3-year average: $5.1. 

Navy: 
FY06: $2.4; 
FY07: $2.3; 
FY08: $2.7; 
3-year average: $2.5. 

Air Force: 
FY06: $1.6; 
FY07: $1.2; 
FY08: $0.1; 
3-year average: $1.0. 

Total: 
FY06: $9.4; 
FY07: $8.5; 
FY08: $7.7; 
3-year average: $8.5. 

[End of table] 

Objective 2: CPC Requirements and ROI: 

* Corrosion office updates and validates requirements annually. The 
office submitted FY09 requirements to USD/ATL in December 2007. 

* DOD validated total CPC PE requirements of $33.8 million for FY09. 
This amount includes $28.5 million for projects and $5.3 million for 
activities. 

* As part of the project selection process, DOD requires that an “ROI” 
cost-benefit analysis be submitted with project plans. Projects costs 
are to consist of the up-front investment cost and annual operating and 
support costs. Benefits are to consist of annual savings or cost 
avoidance over the useful life of the project. As of June 2007,the ROI 
calculations are required to use a net present value approach. 

* ROI varies by individual project and activity and may span several 
years. Based on historical averages for FY05-08, DOD calculates an 
overall ROI of 40-1 for projects and 2-1 for activities. 

Using DOD requirements data and overall ROI averages,[A] we calculate 
that: 

* FY09 budget request, if approved, would result in a total ROI of $435 
million. 

* If all FY09 validated requirements were funded, the total ROI would 
be $1.15 billion. 

* Therefore, the total ROI for unfunded requirements—that is, projects 
and activities not included in the budget request—is $715 million 
($1.15 billion minus $0.435 billion). 

[A] We did not validate DOD’s overall ROI averages. We noted that until 
last year, DOD allowed the submission of project plans to include ROI 
calculations that did not use a net present value approach in their ROI 
calculations. Using this approach would inflate the ROI since the time-
value of costs and savings are not considered. However, DOD corrosion 
officials told us that less than 5% of the projects did not use the net 
present value ROI approach. 

Objective 3: Process for Developing CPC PE Budget: 

* According to USD/ATL, global commitments, constrained budgets, and 
competing requirements preclude fully funding CPC requirements. 

* 2006 Program Objective Memorandum (POM) cycle included about $14 
million for the CPC PE in FY09. This funding level was set with the 
expectation that the services would provide more CPC funding in their 
budgets. 

* Corrosion officials told us they submitted a $14.1 million budget 
request in accordance with USD/ATL guidance capping FY09 funding 
requests at POM levels. 

* Comptroller officials told us that while program offices may consider 
ROI benefits in developing budget submissions, requirements for systems 
and services, rather than ROI, drive funding levels in DOD’s annual 
budget request. 

Agency Views: 

To obtain agency views, we discussed a draft of this briefing with 
officials from the Corrosion Policy and Oversight Office. They 
concurred with the facts presented. On the basis of their comments and 
supporting documentation they provided, we modified the briefing 
regarding their revised methodology for calculating ROI. 

[End of enclosure] 

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