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entitled 'Depot Maintenance: Actions Needed to Provide More Consistent 
Funding Allocation Data to Congress' which was released on November 30, 
2006. 

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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

November 2006: 

Depot Maintenance: 

Actions Needed to Provide More Consistent Funding Allocation Data to 
Congress: 

GAO-07-126: 

GAO Highlights: 

Highlights of GAO-07-126, a report to congressional committees 

Why GAO Did This Study: 

Under 10 U.S.C. § 2466, the military departments and defense agencies 
may use no more than 50 percent of annual depot maintenance funding for 
work performed by private-sector contractors. The Department of Defense 
(DOD) must submit a report to Congress annually on the allocation of 
depot maintenance funding between the public and private sectors for 
the preceding fiscal year and projected distribution for the current 
and ensuing fiscal years for each of the armed forces and defense 
agencies. As required by Section 2466, GAO reviewed the report 
submitted in April 2006 and is, with this report, submitting its view 
to Congress on whether (1) the military departments and defense 
agencies complied with the 50-50 requirement for fiscal 2005 and (2) 
the projections for fiscal years 2006 and 2007 represent reasonable 
estimates. GAO obtained data used to develop the April 2006 report, 
conducted site visits, and reviewed supporting documentation. 

What GAO Found: 

Although DOD reported to Congress that it complied with the 50-50 
requirement for fiscal year 2005, GAO could not validate compliance due 
to weaknesses in DOD’s financial management systems and the processes 
used to collect and report 50-50 data. DOD’s April 2006 report provides 
an approximation of the depot maintenance funding allocation between 
the public and private sectors for fiscal year 2005. GAO identified 
errors in the reported data which, if adjusted, would increase the 
Army's private-sector funding allocation percentage from 49.4 percent 
to 50 percent. GAO found that 50-50 funding allocation data were not 
being consistently reported because some maintenance depots were 
reporting expenditures rather than following Office of the Secretary of 
Defense (OSD) guidance and reporting obligations. Combining obligations 
and expenditures produces an inaccurate accounting of 50-50 funding 
allocations. GAO also found amounts associated with interservice depot 
maintenance work may not accurately reflect the actual allocation of 
private- and public-sector funds because visibility over the allocation 
of these funds is limited. OSD guidance requires that the military 
departments establish measures to ensure correct accounting of 
interservice workloads. In prior years’ reports on DOD’s compliance 
with the 50-50 requirement, GAO discussed deficiencies limiting data 
accuracy and recommended specific corrective actions. While DOD has 
taken some additional actions to improve the quality of reported data 
for fiscal year 2005, it has not fully addressed the persistent 
deficiencies that have limited 50-50 data accuracy. 

Reported projections do not represent reasonable estimates of public- 
and private-sector depot maintenance funding allocations for fiscal 
years 2006 and 2007 due to data inaccuracies. Errors GAO identified for 
fiscal year 2005 could affect these projections. If the adjustments GAO 
made to the Army’s fiscal year 2005 data—increasing the private-sector 
percentage by about 0.6 percentage points—are carried forward, it could 
move the Army’s projection to within 2 percent of the 50 percent 
limitation for fiscal year 2007. GAO also found that the projected 
numbers often did not include supplemental funds, which could change 
the allocation percentages. These errors and omissions affect the 
reasonableness and accuracy of the reported projections. To avoid 
breaching the 50 percent threshold in future years, the Air Force is 
implementing its plan to ensure compliance with the 50-50 requirement 
until fiscal year 2010. The plan involves moving some maintenance 
workload, including the F-100 engine, from the private sector to the 
public sector. 

What GAO Recommends: 

GAO recommends that DOD improve the consistency and accuracy of depot 
maintenance workload allocation funding data in its 50-50 report to 
Congress. DOD should ensure that obligations rather than expenditures 
are reported, and that measures are established to ensure proper 
accounting of interservice workloads between the public and private 
sectors. DOD concurred with the recommendations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-126]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact William M. Solis (202) 
512-8365 or solisw@gao.gov. 

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

DOD's Compliance with the 50-50 Requirement for Fiscal Year 2005 Could 
Not Be Validated: 

Fiscal Year 2006 and 2007 Projections Are Not Reasonable Due to Data 
Inaccuracies: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: GAO Adjustments to Army Fiscal Year 2005 Reported Data: 

Appendix III: Comments from the Department of Defense: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: DOD's Reported Depot Maintenance Funding Allocations for 
Fiscal Year 2005: 

Table 2: DOD's Projected Allocations of Depot Maintenance Funds for 
Fiscal Years (FY) 2006 and 2007: 

Table 3: Adjustments to Army Fiscal Year 2005 Reported Data: 

United States Government Accountability Office: 

Washington, DC 20548: 

November 30, 2006: 

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

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

Each year the Department of Defense (DOD) spends billions of dollars 
for depot maintenance of its ships, aircraft, tanks, and other weapons 
systems.[Footnote 1] DOD reported total depot maintenance funding of 
more than $26 billion for fiscal year 2005. This maintenance is 
accomplished by both federal government workers in the public sector 
and contractor personnel in the private sector. Under 10 U.S.C. § 
2466(a), not more than 50 percent of funds made available in a fiscal 
year to a military department or defense agency for depot-level 
maintenance and repair may be used to contract for the performance by 
nonfederal government personnel of such workload for the military 
departments and defense agencies.[Footnote 2] Section 2466(b) states 
that the Secretary of Defense may waive the 50 percent limitation if he 
determines the waiver is necessary for national security and submits to 
Congress a notice of the waiver and the reasons for the waiver. Section 
2466(d)(1) directs the Secretary of Defense to submit an annual report 
to Congress identifying, for each of the armed forces and defense 
agencies, the percentage of the funds referred to in Section 2466(a) 
that was expended during the preceding fiscal year, and are projected 
to be expended during the current fiscal year and the ensuing fiscal 
year, for performance of depot-level maintenance and repair workloads 
by the public and private sectors. In its most recent annual report, 
dated April 6, 2006, DOD reported that depot maintenance allocations by 
the Departments of the Army, Navy,[Footnote 3] and Air Force were below 
the 50 percent threshold in fiscal year 2005, and all the departments 
except for the Air Force projected that they will remain below the 
threshold for fiscal years 2006 and 2007. According to DOD's report, 
the Air Force projected that it would exceed the 50 percent limit in 
fiscal year 2007. 

Section 2466(d)(2) also requires us to submit to Congress our views on 
whether DOD complied with Section 2466(a) during the preceding fiscal 
year and whether the expenditure projections for the current and 
ensuing fiscal years are reasonable. This is the ninth year that we 
have evaluated and reported on DOD's annual 50-50 report to 
Congress.[Footnote 4] Specifically, our objectives were to determine 
whether (1) the military departments complied with the 50-50 
requirement for fiscal year 2005 and (2) the projections for fiscal 
years 2006 and 2007 represent reasonable estimates. 

To accomplish these objectives, we reviewed guidance for reporting 50- 
50 workload funding data and analyzed the military services' procedures 
and internal controls for collecting data and ensuring the accuracy and 
completeness of data included in the report. To determine whether the 
military departments complied with the 50-50 requirement, we obtained 
service data used to develop DOD's April 2006 report, conducted site 
visits at reporting commands and depots, interviewed officials involved 
in the 50-50 process, and reviewed documentation supporting reported 
funding data. Our work covered all four military services, but we 
placed greater emphasis on reviewing Army data because that service was 
close to the 50 percent threshold for fiscal year 2005. We reviewed a 
total of $2.7 billion of reported depot maintenance funding. We based 
our sample on previously identified areas of concern, varying program 
amounts, and selected locations for our site visits. Because we 
selected a nonprobability sample of data for our review, our results 
cannot be projected. To determine the reasonableness of fiscal year 
2006 and 2007 projections, we discussed with service officials how they 
developed their projections and whether historical funding information 
and known increases in funding were included in their projections. As 
discussed below, we have found that reported depot maintenance funding 
allocation data are not reliable because of weaknesses in DOD's 
financial systems[Footnote 5] and 50-50 data gathering and reporting 
processes. For the past several years, we have reported that DOD's 
report on the use of these funds cannot be relied upon as an accurate 
reflection of the distribution of these funds. We conducted our review 
from March 2006 to September 2006 in accordance with generally accepted 
government auditing standards. See appendix I for a more detailed 
discussion of our scope and methodology. 

Results in Brief: 

Although DOD reported to Congress that it complied with the 50-50 
requirement for fiscal year 2005, we could not validate compliance due 
to weaknesses in DOD's financial management systems and the processes 
used to collect and report 50-50 data. On the basis of our evaluation 
of selected 50-50 data, DOD's April 2006 report provides an 
approximation of the depot maintenance funding allocation between the 
public and private sectors for fiscal year 2005. However, we identified 
errors in the reported data which, if adjusted, would increase the 
Army's private-sector funding allocation percentage from 49.4 percent 
to 50 percent. During our current review, we determined that 50-50 
funding allocation data were not being consistently reported because 
some maintenance depots were reporting expenditures rather than 
following Office of the Secretary of Defense (OSD) guidance on 
reporting obligations. Combining obligations and expenditures produces 
an inaccurate accounting of 50-50 funding allocations, including 
accounting for workload that is carried over from one fiscal year to 
the next. For example, an Army depot official estimated that almost 
$1.5 million was expended in fiscal year 2006 on a fiscal year 2005 
contract obligation. The official stated that this obligation would not 
be reported in fiscal year 2005 because it was not yet expended, and it 
would not be reported in fiscal year 2006 because it was expended on a 
fiscal year 2005 obligation. Until reporting organizations consistently 
identify and report depot maintenance funding obligations, rather than 
a combination of expenditures and obligations, inaccurate allocation of 
depot maintenance funding between the public and private sectors will 
continue to be reported. We also found that amounts associated with 
interservice depot maintenance work may not accurately reflect the 
actual allocation of private-and public-sector funds because visibility 
over the allocation of these funds is limited. For example, we found 
instances where a military service awarded public depot maintenance 
work to another military service, which then contracted out a portion 
of that workload to the private sector. The military service awarding 
the work inaccurately reported this as public workload because it had 
not inquired whether all the awarded work was performed at the public 
depot. OSD guidance requires that the military departments establish 
measures to ensure correct accounting of interservice workloads, but 
the services have not established sufficient measures for complying 
with this guidance. Until the military services accurately account for 
and report their distribution of depot maintenance workload performed 
under interservice agreements, the 50-50 data reported by DOD will 
continue to be inaccurate. We also found several other errors that 
resulted in inaccuracies in reported 50-50 data for the Navy and Army. 
In prior years' reports on DOD's compliance with the 50-50 requirement, 
we have discussed deficiencies that have limited data accuracy and 
recommended specific corrective actions. While we found that DOD has 
taken some additional actions to improve the quality of reported data 
for fiscal year 2005, it has not fully addressed the persistent 
deficiencies that have limited 50-50 data accuracy. 

Reported projections do not represent reasonable estimates of public- 
and private-sector depot maintenance funding allocations for fiscal 
years 2006 and 2007 due to data inaccuracies. In the April 2006 report, 
the Army and Navy projected that they would remain below the 50-50 
threshold in fiscal years 2006 and 2007; while the Air Force projected 
that it would be below the threshold in fiscal year 2006 but would 
exceed the threshold in fiscal year 2007. However, data errors similar 
to those we identified for fiscal year 2005 could affect these 
projections. For example, some errors in DOD's fiscal year 2005 data 
are carried into the projected years. If the adjustments we made to the 
Army's fiscal year 2005 data--increasing the private-sector percentage 
by about 0.6 percentage points--are carried forward, it could move the 
Army's projection to within 2 percent of the 50 percent limitation for 
fiscal year 2007. Under OSD guidance, the 2 percent threshold triggers 
certain planning requirements to avoid breaching the 50 percent 
limitation. In addition, we found $1.6 million in errors in the Army's 
2006 projections, and the projected numbers do not include supplemental 
funds, which can change the allocation percentages. These errors and 
omissions affect the reasonableness and accuracy of the reported 
projections. To avoid breaching the 50 percent threshold in future 
years, the Air Force is implementing its plan to ensure compliance with 
the 50-50 requirement through fiscal year 2010. The plan involves 
moving some maintenance workload, including the F-100 engine, from the 
private sector to the public sector. 

To improve the consistency and accuracy of depot maintenance funding 
allocation data submitted to Congress, we are recommending that the 
components report obligations rather than expenditures, and establish 
measures to properly account for the allocation of interservice 
workloads. In commenting on the draft of this report, DOD concurred 
with our recommendations and cited actions it planned to take to 
implement them. 

Background: 

In addition to the 50-50 requirement in 10 U.S.C. § 2466, the following 
provisions directly affect the reporting of workload funding 
allocations to the public and private sectors: 

* Section 2460(a) of Title 10 defines "depot-level maintenance and 
repair" as material maintenance or repair requiring the overhaul, 
upgrading, or rebuilding of parts, assemblies, or subassemblies and the 
testing and reclamation of equipment as necessary, regardless of the 
source of funds for the maintenance or repair, or the location at which 
the maintenance or repair is performed. This term also includes: (1) 
all aspects of software maintenance classified by DOD as of July 1, 
1995 as depot-level maintenance and repair; and (2) interim contractor 
support or contractor logistics support (or any similar contractor 
support) to the extent that such support is for the performance of 
services described in the preceding sentence. Section 2460(b)(1) 
excludes from the definition of depot maintenance the nuclear refueling 
of an aircraft carrier, and the procurement of major modifications or 
upgrades of weapon systems that are designed to improve program 
performance, although a major upgrade program covered by this exception 
could continue to be performed by private-or public-sector entities. 
Section 2460(b)(2) also excludes from the definition of depot-level 
maintenance the procurement of parts for safety modifications, although 
the term does include the installation of parts for safety 
modifications. 

* Depot maintenance funding involving certain public-private 
partnerships is exempt from the 50 percent limitation. Section 2474(f) 
of Title 10 provides that amounts expended for the performance of depot-
level maintenance and repair by nonfederal government personnel at 
Centers of Industrial and Technical Excellence[Footnote 6] under any 
contract entered into during fiscal years 2003 through 2009 shall not 
be counted when applying the 50 percent limitation in Section 2466(a) 
if the personnel are provided by entities outside DOD pursuant to a 
public-private partnership. In its annual 50-50 report to Congress, DOD 
identifies this funding as a separate category called "exempt." 

* Section 2466(b) allows the Secretary of Defense to waive the 50 
percent limitation if he determines the waiver is necessary for 
national security, and he submits the notification of waiver together 
with the reasons for the waiver to Congress. Waivers were previously 
submitted for the Air Force for fiscal years 2000 and 2001. 

OSD issues guidance to the military departments for reporting public- 
private workload funding allocations. The guidance's definition of 
"depot level maintenance and repair" is consistent with the definition 
of "depot-level maintenance and repair" in 10 U.S.C. § 2460. The 
military services have also issued internal instructions to manage the 
data collection and reporting process, tailored to their individual 
organizations and operating environments. 

DOD's Compliance with the 50-50 Requirement for Fiscal Year 2005 Could 
Not Be Validated: 

Although DOD reported that the military departments complied with the 
50-50 requirement for fiscal year 2005, we could not validate 
compliance because of systemic weaknesses in DOD's financial management 
systems[Footnote 7] and persistent deficiencies in the processes used 
to collect and report 50-50 data. DOD's report provides an 
approximation of the depot maintenance funding allocation between the 
public and private sectors but contains some inaccuracies. Our current 
review showed that 50-50 funding data were not being consistently 
reported because some maintenance depots were reporting expenditures 
rather than obligations as directed by OSD guidance. We also found that 
amounts associated with interservice depot maintenance work and certain 
contract agreements between depots and private contractors may not 
accurately reflect the distribution reported for private-and public- 
sector funds because visibility over the allocation of these funds is 
limited. In addition, we found several other errors that resulted in 
inaccuracies in reported 50-50 data for the Navy and Army. DOD took 
some actions this year to improve 50-50 reporting. However, our work 
over the last several years has identified a number of persistent 
deficiencies, such as inadequate management attention and review, which 
have affected the quality of reported 50-50 data. While DOD took 
actions to improve 50-50 reporting this year, DOD has not implemented 
recommendations we made last year to address these deficiencies. 

DOD Reported Compliance with the 50-50 Requirement in Fiscal Year 2005, 
but Reported Data Contained Inaccuracies: 

In DOD's April 2006 report to Congress on funding allocations for depot 
maintenance, all three military departments reported that their private-
sector depot maintenance allocation was below the 50 percent limitation 
for fiscal year 2005. However, we found that the reported data 
contained inaccuracies. Table 1 shows the reported allocation between 
the public and private sectors and the exempted workload funding. 

Table 1: DOD's Reported Depot Maintenance Funding Allocations for 
Fiscal Year 2005: 

Dollars in millions. 

Private; 
Army: 2,861; (49.4%); 
Navy: 4,709; (43.2%); 
Air Force: 4,592; (47.3%); 
Total: 12,162; (46.1%). 

Public; 
Army: 2,908; (50.2%); 
Navy: 5,936; (54.5%); 
Air Force: 5,106; (52.6%); 
Total: 13,950; (52.9%). 

Exempt; 
Army: 28; (0.5%); 
Navy: 245; (2.3%); 
Air Force: 8; (0.1%);
Total: 281; (1.0%). 

Total; 
Army: 5,796; (100%); 
Navy: 10,890; (100%); 
Air Force: 9,706; (100%); 
Total: 26,393; (100%). 

Sources: GAO analysis of DOD data. 

Notes: Based on data and analysis of DOD's April 6, 2006, reported 50- 
50 data. The numbers in the table may not add due to rounding. The 
Department of the Navy includes the Marine Corps. 

[End of table] 

On the basis of our evaluation of selected 50-50 data, DOD's April 2006 
report provides an approximation of depot maintenance funding 
allocations between the public and private sectors for fiscal year 
2005. However, we identified errors in reported workload funding data. 
The net effects of correcting the data inaccuracies we identified would 
increase the Army's private-sector funding allocation from 49.4 percent 
to 50 percent. Identified errors in the Army's data resulted in a total 
decrease in public-sector funding of $5.9 million and a total increase 
in private-sector funding of $68.1 million. Appendix II provides 
additional information on these adjustments. We could not quantify the 
errors that we identified for the Air Force regarding direct sales 
agreements. We continue to identify areas that continue to be excluded 
from the Navy's 50-50 reporting. While we found an error in the Marine 
Corps data, correcting this inaccuracy would not result in changes to 
the Department of the Navy's funding allocation percentages. We did not 
conduct a review of all reported 50-50 data; therefore, there may be 
additional errors, omissions, and inconsistencies that were not 
identified. 

DOD's 50-50 Report Included Both Expenditures and Obligations: 

Depot maintenance funding data for fiscal year 2005 were not being 
consistently reported because some maintenance depots were reporting 
expenditures, rather than obligations as directed by OSD guidance. The 
reporting of expenditures instead of obligations by some depots 
presents an inaccurate picture of depot maintenance allocations since 
the amounts may differ. For the most part, the allocation percentages 
for public funds represent obligation amounts obtained from the 
military department's financial accounting systems. However, in 
reporting the amount of depot maintenance funds allocated to the 
private sector, some reporting organizations used expenditures rather 
than obligations as required by OSD guidance.[Footnote 8] For example, 
three depots we visited reported their subcontracted depot-level 
maintenance work as expenditures rather than obligations. Reasons given 
by depot officials for reporting expenditures rather than obligations 
include the following: (1) the workload against obligated funds may not 
have been fully performed during the fiscal year, and therefore they 
believed reporting expenditures was a better reflection of the actual 
workload; (2) they did not know that obligations were to be reported 
instead of expenditures; and (3) many work orders can be associated 
with a multiyear contract, so they believed that reporting expenditures 
would be a better representation of the costs associated with multiyear 
contracts for the fiscal year in question. 

Accurately reporting carryover work is a problem when the services' 
data contain both expenditures and obligations. Carryover is work that 
a depot may "carry over" from one fiscal year to another to ensure a 
smooth flow of work during the transition between fiscal years. This 
means that while the funds are obligated in one fiscal year, a certain 
portion may not be expended until the next fiscal year. When 
expenditures rather than obligations are reported, we found that the 
carryover work that is performed in the following year may not be 
included in either year's 50-50 report. For example, an Army depot 
official provided us with an estimate of almost $1.5 million that was 
expended in fiscal year 2006 on a fiscal year 2005 contract obligation. 
The official stated that this portion of the obligation was not 
reported in fiscal year 2005 because it was not yet expended, and it 
would not be reported in fiscal year 2006 because it was expended on a 
fiscal year 2005 obligation. As a result, the private portion of the 
service's depot maintenance funds was underreported in the year of the 
obligation, while the public portion was overreported. Until depot 
maintenance funding obligations are consistently reported, rather than 
a combination of expenditures and obligations, inaccurate reporting of 
the allocation of depot maintenance funding between the public and 
private sectors will continue. 

Depot Maintenance Allocations Involving Some Interservice and Direct 
Sales Agreements May Not Be Properly Reported: 

Because DOD has limited visibility over the allocation of private-and 
public-sector funds in some interservice agreements and direct sales 
agreements, inaccurate reporting of the depot maintenance workload 
allocation may result. Interservice workload agreements refer to work 
that is performed by one component for another. OSD guidance requires 
that the military departments establish measures to ensure correct 
accounting of interservice workloads; however the allocation of these 
funds may not always be accurately reported. We found instances where a 
military service awarded public depot maintenance work to another 
military service, which then contracted out a portion of that workload 
to the private sector. The military service awarding the work, as 
principal owner of the funds, inaccurately reported this as public 
workload because it had not inquired whether all the awarded work was 
performed at the public depot. For example, we identified approximately 
$172,000 of private-sector work that may have been inaccurately 
reported as public-sector work because the principal owner of the funds 
did not follow up to determine whether all of the work was performed by 
the public depot. While we were unable to fully evaluate the extent of 
inaccurate reporting associated with interservice agreements, until the 
military departments establish sufficient measures to accurately 
account for and report their distribution of depot maintenance 
workload, the 50-50 data reported by DOD may continue to be inaccurate. 

The limited visibility over direct sales agreements is another reason 
why the depot maintenance workload allocation may be inaccurately 
reported to Congress. A direct sales agreement involves private vendors 
contracting back to a DOD maintenance facility for labor to be 
performed by DOD employees. OSD guidance requires that sales of 
articles and services by DOD maintenance depots to entities outside of 
DOD, when work is accomplished by DOD employees, shall be reported as 
public-sector work. However, we found that the reporting of the 
distribution of private-and public-sector workload for direct sales 
agreements may not be accurate. With a direct sales agreement, there is 
no requirement for the private vendor to identify and break out the 
contract costs, such as materials and other factors of production, and 
allocate them to expenses performed by the private vendor or the public 
depot. We found the use of direct sales agreements by the Air Force may 
have resulted in an overstatement of private-sector funds, with a 
corresponding understatement of public-sector funds. In addition, we 
found similar instances in the Army where work performed by the public 
sector under a direct sales agreement with a private vendor may have 
been misreported as being performed by the private sector. Although we 
were unable to fully evaluate the extent to which costs associated with 
these types of contract agreements were misreported, until private 
vendors break out direct sales agreement costs by the private and 
public sectors, DOD's reporting of 50-50 funding allocation may remain 
inaccurate. 

Other Identified Errors: 

We identified several other errors that resulted in inaccurate reported 
50-50 data for the Navy and Army. As we reported in previous 
years,[Footnote 9] we identified two areas that continue to be excluded 
from the Navy's 50-50 reporting. First, the Navy did not report any 
depot maintenance work on aircraft carriers performed while nuclear 
refueling. Navy officials cited the exclusion of nuclear refueling in 
10 U.S.C. § 2460(b)(1) and guidance from the General Counsel's office 
in the Department of the Navy as reasons for not including $115 million 
in depot maintenance work performed on aircraft carriers while nuclear 
refueling. However, we continue to believe that depot repairs not 
directly associated with the task of nuclear refueling should be 
reported. Second, the Navy, as in prior years, continues to 
inconsistently report ship-inactivation activities related to the 
servicing and preservation of systems and equipment before ships are 
placed in storage or in an inactive status. The Navy did not report 
$14.4 million of private-sector allocations for inactivation work on 
nonnuclear ships, even though it reported inactivation activities on 
nuclear ships. The Navy contends that the work for nuclear ship 
inactivation is complex while the work for nonnuclear ships is not. We 
continue to maintain that all such depot-level work should be reported, 
since the statute and implementing guidance do not make a distinction 
based on complexity. In addition, our review of the Marine Corps data 
found that it underreported the private-sector total and overreported 
the public-sector total by about $1.5 million. This amount was for 
depot-level maintenance that was performed in a public depot by 
contractor personnel, which was misreported as public sector rather 
than private sector. 

We also identified several data inaccuracies in the Army's 50-50 data. 
For example, one Army depot failed to include approximately $31 million 
of private contract work it had outsourced for depot maintenance in its 
50-50 report. An Army official said that they had not known that this 
type of contract work should be included in 50-50 reporting, but they 
now plan to include it in future submissions. Our review also 
determined that several Army omissions, totaling approximately $53 
million, were due to misinterpretation of the guidance regarding 
modifications and remanufacturing. The OSD guidance provides 
information about what to include and not to include in reporting depot 
maintenance with regard to upgrades, modifications, and 
remanufacturing. An Army official acknowledged that there has been 
confusion over what to report for 50-50 depot maintenance and stated 
the Army is in the draft stages of updating the Army's Depot 
Maintenance Workload Distribution Reporting Procedures. In addition, 
the Army's 50-50 data contained errors totaling approximately $4 
million due to changes in program costs. Finally, our review of the 
Army's data found miscellaneous errors, including one instance of 
double counting and the transposition of numbers in some entries. 

DOD Took Actions to Improve 50-50 Reporting, but Deficiencies Affecting 
Data Accuracy Have Persisted: 

During our review we noted actions taken by OSD and the military 
services that, while not fully implemented, provided some improvement 
in the 50-50 reporting process. For example, OSD, in its 50-50 
guidance, added a new requirement that the military services include 
variance analyses in their submissions of 50-50 data. The services 
performed variance analyses; however, these were at a very high level 
and provided little detail on how the fiscal year 2005 allocations 
differed from the prior year's data. OSD guidance also included a new 
requirement that the services maintain records and reports for 50-50 
data for at least 2 years, although we did find two instances where 
reporting locations could not provide backup documentation for their 50-
50 data. In addition, as in previous years, OSD instructed the services 
to use a third-party reviewer, such as a service audit agency, to 
validate their data prior to submission. However, due to time 
constraints, each service audit agency performed only a limited review 
of the service's data. For example, the Air Force directed its audit 
service to perform a limited review that focused on two issues. 
Additionally, each service headquarters continued to provide some form 
of training for its 50-50 reporting activities, although no service 
required attendance by all individuals involved in 50-50 data gathering 
and reporting. Guidance issued by OSD emphasized, but did not require, 
training for individuals involved in the 50-50 process. In one 
instance, an official who was responsible for querying the 50-50 
information from the service's data systems was unaware that any 
training was ever offered for 50-50 reporting. 

Our work over the last several years has identified a number of 
persistent deficiencies, such as inadequate management attention and 
review, which have affected the quality of reported 50-50 data. DOD has 
not implemented recommendations we made last year to address these 
deficiencies. In prior years' reports, we have identified problems in 
50-50 data accuracy attributable to deficiencies in management 
attention, controls, and oversight; documentation of procedures and 
retention of records; independent validation of data; training for 
staff involved in the 50-50 process; and guidance. DOD has taken steps 
over the years to improve 50-50 reporting in response to our 
recommendations, but we have found that some deficiencies have 
persisted, including inadequate management attention and review, 
limited review and validation of data by independent third parties, and 
inadequate staff training. In our November 2005 report, we concluded 
that the recurring nature of deficiencies in 50-50 reporting indicates 
a management control weakness that DOD should disclose in its annual 
performance and accountability report to Congress.[Footnote 10] By 
doing so, DOD would increase the level of management attention and help 
focus improvement efforts so that the data provided to Congress are 
accurate and complete. DOD partially concurred with this 
recommendation, stating that systemic changes to the 50-50 reporting 
process had already been made in response to previous recommendations. 
DOD did not disclose 50-50 reporting as a management control weakness 
in its most recent performance and accountability report. An OSD 
official responsible for developing the annual 50-50 report to Congress 
noted that completion of the department's Enterprise Transition 
Plan[Footnote 11] would result in more accurate 50-50 reporting. 

As we have previously reported, DOD's April 2006 report satisfies the 
annual mandate as required by 10 U.S.C. § 2466(d). In our November 2005 
report, we stated that DOD could enhance the usefulness of its report 
for congressional oversight by providing additional information. For 
example, we recommended that DOD add information such as variance 
analyses that identify significant changes from the prior year's report 
and the reasons for these variances, longer term trend analyses, an 
explanation of methodologies used to estimate workload allocation 
projections for the current and ensuing fiscal years, and plans to 
ensure continued compliance with the 50-50 requirement, including 
decisions on new weapon systems maintenance workload sourcing that 
could be made to support remaining within the 50 percent threshold. DOD 
partially concurred with this recommendation and stated that producing 
the types of information we suggested would require a massive 
undertaking and may be of limited value. We disagreed and, on the basis 
of DOD's response, added a matter for congressional consideration 
suggesting that Congress require the Secretary of Defense to enhance 
the department's annual 50-50 report as stated in our recommendations. 
In the April 2006 report, DOD did not make changes consistent with our 
recommendations, nor has Congress acted. 

Fiscal Year 2006 and 2007 Projections Are Not Reasonable Due to Data 
Inaccuracies: 

DOD's reported projections for fiscal years 2006 through 2007 do not 
represent reasonable estimates of public-and private-sector depot 
maintenance funding allocations, in part because some errors in DOD's 
fiscal year 2005 data are carried into the projected years. As shown in 
table 2, the Army and the Navy projected that their private-sector 
depot maintenance allocations will remain below the 50 percent 
limitation for fiscal years 2006 and 2007. The Air Force projected that 
it will remain below the limitation for fiscal year 2006, but will 
exceed the limitation for fiscal year 2007. 

Table 2: DOD's Projected Allocations of Depot Maintenance Funds for 
Fiscal Years (FY) 2006 and 2007: 

Army; 
Private sector: FY 2006: 40.3%; 
Private sector: FY 2007: 47.5%; 
Public sector: FY 2006: 59.4%; 
Public sector: FY 2007: 52.2%; 
Exempt: FY 2006: 0.3%; 
Exempt: FY 2007: 0.4%. 

Navy; 
Private sector: FY 2006: 45.1%; 
Private sector: FY 2007: 41.2%; 
Public sector: FY 2006: 53.1%; 
Public sector: FY 2007: 58.8%; 
Exempt: FY 2006: 1.8%; 
Exempt: FY 2007: 0.0%. 

Air Force; 
Private sector: FY 2006: 48.4%; 
Private sector: FY 2007: 50.2%; 
Public sector: FY 2006: 51.6%; 
Public sector: FY 2007: 49.6%; 
Exempt: FY 2006: 0.1%; 
Exempt: FY 2007: 0.2%. 

Source: DOD. 

Notes: Based on data from DOD's April 6, 2006, reported 50-50 data. The 
Department of the Navy includes the Marine Corps. 

[End of table] 

Errors similar to those we identified in fiscal year 2005 reported data 
could affect these projections, as the Air Force is moving closer to 
the threshold for private-sector funding in fiscal year 2006 (48.4 
percent) and beyond the threshold in fiscal year 2007 (50.2 percent). 
If the adjustments we made to the Army's fiscal year 2005 data-- 
increasing the private-sector percentage by about 0.6 percentage 
points--are carried forward into fiscal year 2007 projections, it could 
cause the Army to come within 2 percent of the 50 percent limitation on 
contracting for depot-level maintenance and repair. When spending 
projections reflect data within 2 percent of the 50 percent limitation 
in a fiscal year, OSD guidance directs the components to submit a plan 
that identifies actions to be taken to ensure continued compliance. 
This plan shall include identification of decisions on candidate 
maintenance workload sourcing that could be made to support remaining 
within compliance with the 50 percent limitation. In addition, we found 
an error of approximately $1.6 million in the Army's fiscal year 2006 
projections, which further limits the accuracy of reported projections. 
Furthermore, DOD's projected fiscal year 2006 and fiscal year 2007 
allocations are based on the President's budget numbers and often did 
not include supplemental funds, which can change the percentage 
allocations. However, in the case of some Air Force depot projections, 
supplemental funds are included in the projections if the amounts are 
already known. These limitations affect the reasonableness of the data 
reported as projections of future funding allocations. 

While the Army and Navy project compliance with the 50-50 requirement 
through fiscal year 2007, the Air Force's fiscal year 2006 projections 
are within 2 percent of the 50 percent limitation and its fiscal year 
2007 projections exceed the 50 percent limitation by 0.2 percent. To 
avoid breaching the 50 percent threshold, the Air Force is implementing 
a plan to ensure compliance in fiscal years 2007 through 2010. Under 
this plan, the Air Force is identifying and evaluating candidate weapon 
system programs for shifting maintenance workload from the private 
sector to the public sector. The Air Force has committed resources and 
approved shifting some maintenance associated with the F-100 engine 
beginning in fiscal year 2006. The Air Force plan shows that a total 
workload of $68 million associated with the F-100 engine could be 
shifted to the public sector, enabling the Air Force to achieve 
compliance with the 50-50 requirement in fiscal year 2007. The Air 
Force is also evaluating workload associated with the KC-135 aircraft, 
the C-17 aircraft, the B-2 aircraft, the F-119 engine, and the F-117 
engine that may be shifted to the public sector. 

Conclusions: 

The errors we identified in DOD's April 2006 50-50 report--while not 
extensive--are indicative of the long-standing problems DOD has 
encountered in providing accurate depot maintenance funding allocation 
data to Congress. We have previously observed that the usefulness of 
the annual 50-50 report to Congress is limited because of data 
reliability concerns. Our prior reports identified data inaccuracies 
and recommended corrective actions aimed at addressing deficiencies 
that limited the accuracy of 50-50 reporting. In addition, we have 
recommended actions that Congress could take to improve the reliability 
and usefulness of DOD's annual report. Our current review shows that 
while DOD has taken some additional actions to improve the quality of 
reported data for fiscal year 2005, it has not fully addressed the 
persistent deficiencies that have limited 50-50 data accuracy in the 
past. DOD's report presented an inaccurate measure of the balance of 
funding between the public and private sectors due to inconsistencies 
in reporting expenditures rather than obligations, and inaccurate 
distribution of reporting of allocations from interservice and direct 
sales agreements. Without consistent reporting of depot maintenance 
funding obligations, rather than a combination of expenditures and 
obligations, inaccurate reporting of the funding allocation between the 
public and private sectors will continue. Moreover, without accurate 
reporting of the allocation of depot maintenance workload performed by 
the private and public sectors under interservice and direct sales 
agreements, the 50-50 data reported by DOD will continue to be 
inaccurate. 

Recommendations for Executive Action: 

To improve the consistency and accuracy of depot maintenance funding 
allocation data in DOD's annual 50-50 report to Congress, we recommend 
that the Secretary of Defense take the following two actions: 

* Direct the Secretaries of the Army, Navy, and Air Force and the 
Commandant of the Marine Corps to follow OSD guidance and report 
funding obligations rather than expenditures. 

* Direct the Under Secretary of Defense for Acquisition, Technology, 
and Logistics, in conjunction with the Secretaries of the Army, Navy, 
and Air Force, and the Commandant of the Marine Corps, to establish 
measures to ensure proper accounting of the allocation of interservice 
workloads between the public and private sectors. 

Agency Comments and Our Evaluation: 

In commenting on a draft of this report, DOD concurred with our 
recommendations. Regarding our recommendation that the military 
services follow guidance and report funding obligations rather than 
expenditures, DOD stated that it will be specific in its guidance on 50-
50 reporting and require organizations to report obligations rather 
than expenditures. Also, DOD stated that Army guidance and training 
will address our findings. Consistent with our recommendation, we 
believe that the Air Force, Navy, and Marine Corps also should take 
appropriate steps to ensure that obligations are reported. Regarding 
our recommendation that measures be established to ensure proper 
accounting of the allocation of interservice workloads, DOD said that 
its guidance will require component audit agencies to specifically 
validate interservice data prior to submitting the 50-50 report to the 
department. Validation of interservice data would meet the intent of 
our recommendation. 

DOD also stated that it did not agree with our adjustments to the work 
accomplished during the nuclear refueling of aircraft carriers and for 
inactivation work on nonnuclear ships. DOD stated that all costs during 
nuclear aircraft carrier refueling are properly excluded and 
conventional ship inactivation workload is not considered depot-level 
maintenance. We have had a long-standing disagreement with DOD on 
including funding for these two areas in its 50-50 report. For the past 
several years we have maintained that DOD should include these funds, 
while DOD has disagreed. Our reasons for including these adjustments 
are discussed in this report. 

DOD's written comments are reprinted in appendix III. DOD also provided 
technical comments which we have incorporated as appropriate. 

We are sending copies of this report to appropriate congressional 
committees; the Secretary of Defense; the Secretaries of the Army, 
Navy, and Air Force; the Commandant of the Marine Corps; and the 
Director, Office of Management and Budget. We will make copies 
available to others upon request. In addition, the report will be 
available at no charge on the GAO Web site at [Hyperlink, 
http://www.gao.gov]. If you or your staffs have any questions on the 
matters discussed in 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 are listed in appendix IV. 

Signed by: 

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

[End of section] 

Appendix I: Scope and Methodology: 

To determine whether the military departments provided accurate data in 
reporting depot maintenance funding allocations and whether they met 
the 50-50 requirement for fiscal year 2005, we reviewed military 
services' procedures and internal management controls for collecting 
and reporting their depot maintenance allocations. We discussed with 
key officials the process used to identify and report depot maintenance 
workload allocation between the public and private sectors. We selected 
a nonprobability sample of reported 50-50 obligations totaling $2.7 
billion of the reported $26.4 billion reported in the Department of 
Defense's (DOD) report to Congress on depot maintenance funding 
allocation. We based our sample on previously identified areas of 
concern, varying program amounts, and selected locations for our site 
visits. We also contacted service audit agencies and third-party 
officials at service headquarters to discuss their verification review 
of the fiscal year 2005 50-50 obligation data. We did not conduct a 
review of all reported 50-50 data; therefore, there may be additional 
errors, omissions, and inconsistencies that were not identified. 
Because we used a nonprobability sample, our results cannot be 
projected. 

We visited departmental headquarters, major commands, and selected 
maintenance activities. We interviewed service officials responsible 
for data collection, and we reviewed the reported data for accuracy and 
completeness. We compared reported amounts to funding documents, 
contracts, and accounting reports for selected programs for all the 
military services, but we placed greater emphasis on the Army data 
because the Army was close to the 50 percent threshold for fiscal year 
2005. 

To determine the actions taken by the Office of the Secretary of 
Defense (OSD) and military departments to improve the quality of the 
reported 50-50 data and implementation of GAO's prior year's 
recommendations, we reviewed the results of studies conducted by the 
service audit agencies and reconciled areas of concern identified 
during prior years' audits. We also reviewed prior years' 
recommendations to find out whether known problem areas were being 
addressed and resolved. We discussed with officials actions they took 
to improve 50-50 data gathering and reporting processes. 

To determine the reasonableness of fiscal year 2006 and 2007 
projections, we discussed with service officials how they developed 
their projections and whether historical funding information and known 
increases in funding were included in their projections. Our analysis 
of the data for fiscal years 2006 and 2007 was limited because our 
current and past work on this issue has shown that DOD's 50-50 data 
cannot be relied upon as a precise measure of allocation of depot 
maintenance funds between the public and private sectors. We discussed 
with Air Force officials reasons for the increase in their fiscal year 
2007 projection and their plans to avoid breaching the 50 percent 
limitation. 

In accomplishing our objectives, we interviewed officials, examined 
documents, and obtained data at the Office of the Secretary of Defense, 
Army, Navy, Marine Corps, and Air Force headquarters in the Washington, 
D.C., area; Anniston Army Depot in Anniston, Ala; Red River Army Depot 
in Texarkana, Tex; Army Material Command in Alexandria, Va; Tank- 
automotive and Armaments Command (TACOM) Life Cycle Management Command 
in Warren, Mi; Naval Air Systems Command in Patuxent River, Md; U.S. 
Fleet Forces Command in Norfolk, Va; Air Force Materiel Command in 
Wright-Patterson Air Force Base, Oh; Marine Corps Logistics Command in 
Albany, Ga; and Army, Navy, and Air Force Audit Services. We conducted 
our work from March 2006 to September 2006 in accordance with generally 
accepted government auditing standards. 

[End of section] 

Appendix II: GAO Adjustments to Army Fiscal Year 2005 Reported Data: 

Our review of the Army's data supporting the Department of Defense's 
(DOD) fiscal year 2005 50-50 report identified the following 
adjustments. 

Table 3: Adjustments to Army Fiscal Year 2005 Reported Data: 

Site: Anniston Army Depot; 
Public adjustment (+/-): $35,779.00; 
Private adjustment (+/-):  -$35,779.00; 
Description: Contract amount overreported. 

Site: Anniston Army Depot; 
Public adjustment (+/-): $33,212.93; 
Private adjustment (+/-): -$33,212.93; 
Description: Contract amount overreported.  

Site: Red River Army Depot; 
Public adjustment (+/-): -$1,482,178.10; 
Private adjustment (+/- ): $1,482,178.10; 
Description: Private carryover work misreported. 

Site: Red River Army Depot; 
Public adjustment (+/-): -$30,823,990.55; 
Private adjustment (+/
-): Site: $30,823,990.55; 
Description: Outsourced contract work misreported. 

Site: Red River Army Depot; 
Public adjustment (+/-): $245,011.00; 
Private adjustment (+/-): -$245,011.00; 
Description: Miscellaneous math errors in report. 

Site: U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command; 
Public adjustment (+/-): $742,490.00; 
Private adjustment (+/-): [Empty]; 
Description: Reset work underreported due to changes in program costs. 

Site: U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command; 
Public adjustment (+/-): [Empty]; 
Private adjustment (+/-): -$5,156,575.00; 
Description: Reset work overreported due to double counting. 

Site: U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command; 
Public adjustment (+/-): $11,170,845.00; 
Private adjustment (+/-): [Empty]; 
Description: M9 Armored Combat Earthmover (M9 ACE) work unreported due 
to not reporting all applicable amounts. 

Site: U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command; 
Public adjustment(+/-): [empty]; 
Private adjustment (+/-): $39,445,735.53; 
Description: Heavy Expanded Mobility Tactical Truck (HEMTT) work 
unreported due to guidance misinterpretation. 

Site: U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command;
Public adjustment (+/-): -$127,738.97; 
Private adjustment (+/-): [Empty]; 
Description: High Mobility Multipurpose Wheeled Vehicle (HMMWV) work 
overreported due to changes in program costs. 

Site: U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command;
Public adjustment(+/-): [Empty]; 
Private adjustment (+/-): $1,848,952.51;
Description: High Mobility Multipurpose Wheeled Vehicle (HMMWV) work 
underreported due to changes in program costs. 

Site: U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command; 
Public adjustment (+/-): $13,953,000.00; 
Private adjustment (+/- ): [Empty]; 
Description: Bradley work unreported due to guidance misinterpretation. 

Site: U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command; 
Public adjustment (+/-): -$500,580.00; 
Private adjustment (+/-): [Empty]; 
Description: Abrams work overreported due to changes in program costs. 

Site: U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command; 
Public adjustment (+/-): $504,278.50; 
Private adjustment (+/-): [Empty]; 
Description: Bradley work underreported due to changes in program 
costs. 

Site: U.S. Army Tank-automotive and Armaments Command (TACOM) Life 
Cycle Management Command; 
Public adjustment (+/-): $302,546.90; 
Private adjustment (+/-): [Empty]; 
Description: Bradley work underreported due to changes in program 
costs. 

Total Army adjustments; 
Public adjustment (+/-): -$5,947,324.19;
Private adjustment (+/-): $68,130,278.66; 
Description: [Empty]. 

Source: GAO analysis of DOD data. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Defense: 

Deputy Under Secretary Of Defense For Logistics And Materiel Readiness: 
3500 Defense Pentagon: 
Washington, DC 20301-3500: 

November 16, 2006: 

Mr. William M. Solis: 
Director, Defense Capabilities and Management: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Solis: 

This is the Department of Defense (DoD) response to the GAO draft 
report, GAO-07-126, `Depot Maintenance: Actions Needed to Provide More 
Consistent Funding Allocation Data to Congress,' dated October 13, 2006 
(GAO Code 350818). 

The Department is committed to providing accurate data in its annual 
report on depot maintenance funding allocation and has made significant 
improvements over the last several years. Many of those improvements 
are as a result of GAO recommendations. These improvements include: 

* Performance of variance analyses at each reporting activity level to 
preclude report omissions, data transcription errors, and correct over- 
reported data. 

* Third party review of Service data prior to submission to OSD. 

As in previous years, the DoD does not agree with the two GAO 
adjustments to the work accomplished during the nuclear refueling of 
aircraft carriers, and private-sector allocations for inactivation work 
on non-nuclear ships. As reported in previous years, DoD states that 
all costs during nuclear aircraft carrier refueling are properly 
excluded, and conventional ship inactivation workload is not considered 
depot level maintenance, therefore properly excluded, and not omitted. 

The Department's comments on the GAO recommendations are enclosed. 

Sincerely, 

Signed by: Jack Bell: 

Enclosure: 
As stated: 

GAO Draft Report -Dated October 13, 2006 GAO Code 3508181GAO-07-126: 

"Depot Maintenance: Actions Needed to Provide More Consistent Funding 
Allocation Data to Congress" 

Department Of Defense Comments To The Recommendations: 

Recommendation 1: The GAO recommended that the Secretary of Defense 
direct the Secretaries of the Army, Navy, Air Force and the Commandant 
of the Marine Corps to follow OSD guidance and report funding 
obligations rather than expenditures. 

DOD Response: Concur. The DoD has made steady progress over the years 
in improving the 50-50 reporting process and quality of data reported 
to the Congress. To further improve this quality the data call guidance 
from the Secretary of Defense for Distribution of DoD Depot Maintenance 
Workloads will be specific to require obligations rather than 
expenditures, and the Army guidance and training will specifically 
address the GAO findings. 

Recommendation 2: The GAO recommended that the Secretary of Defense 
direct the Under Secretary of Defense for Acquisition, Technology, and 
Logistics in conjunction with the Secretaries of the Army, Navy, Air 
Force, and the Commandant of the Marine Corps, to establish measures to 
ensure proper accounting of the allocation of interservice workloads 
between the public and private sectors. 

DOD Response: Concur. The data call guidance from the Secretary of 
Defense for Distribution of DoD Depot Maintenance Workloads will 
require DoD component audit agencies to specifically validate 
interservice data prior to submission to the department for the next 
50150 report to Congress. 

[End of section] 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contact: 

William M. Solis (202) 512-8365: 

Acknowledgments: 

Key contributors to this report include Thomas Gosling, Assistant 
Director; Connie W. Sawyer, Jr; Janine Cantin; Clara Mejstrik; 
Stephanie Moriarty; and Renee Brown. 

[End of section] 

Related GAO Products: 

Depot Maintenance: Persistent Deficiencies Limit Accuracy and 
Usefulness of DOD's Funding Allocation Data Reported to Congress. GAO- 
06-88. Washington, D.C.: November 18, 2005. 

Depot Maintenance: DOD Needs Plan to Ensure Compliance with Public-and 
Private-Sector Funding Allocation. GAO-04-871. Washington, D.C.: 
September 29, 2004. 

Depot Maintenance: Army Needs Plan to Implement Depot Maintenance 
Report's Recommendations. GAO-04-220. Washington, D.C.: January 8, 
2004. 

Depot Maintenance: DOD's 50-50 Reporting Should Be Streamlined. GAO-03- 
1023. Washington, D.C.: September 15, 2003. 

Department of Defense: Status of Financial Management Weaknesses and 
Progress Toward Reform. GAO-03-931T. Washington, D.C.: June 25, 2003. 

Depot Maintenance: Change in Reporting Practices and Requirements Could 
Enhance Congressional Oversight. GAO-03-16. Washington D.C.: October 
18, 2002. 

Depot Maintenance: Management Attention Needed to Further Improve 
Workload Allocation Data. GAO-02-95. Washington, D.C.: November 9, 
2001. 

Depot Maintenance: Action Needed to Avoid Exceeding Threshold on 
Contract Workloads. GAO/NSIAD-00-193. Washington, D.C.: August 24, 
2000. 

Depot Maintenance: Air Force Faces Challenges in Managing to 50-50 
Threshold. GAO/T-NSIAD-00-112. Washington, D.C.: March 3, 2000. 

Depot Maintenance: Future Year Estimates of Public and Private 
Workloads Are Likely to Change. GAO/NSIAD-00-69. Washington, D.C.: 
March 1, 2000. 

Depot Maintenance: Workload Allocation Reporting Improved, but 
Lingering Problems Remain. GAO/NSIAD-99-154. Washington, D.C.: July 13, 
1999. 

Defense Depot Maintenance: Public and Private Sector Workload 
Distribution Reporting Can Be Further Improved. GAO/NSIAD-98-175. 
Washington, D.C.: July 23, 1998. 

Defense Depot Maintenance: Information on Public and Private Sector 
Workload Allocations. GAO/NSIAD-98-41. Washington, D.C.: January 20, 
1998. 

Defense Depot Maintenance: More Comprehensive and Consistent Workload 
Data Needed for Decisionmakers. GAO/NSIAD-96-166. Washington, D.C.: May 
21, 1996. 

FOOTNOTES 

[1] Depot maintenance is the highest level of maintenance within DOD 
and generally refers to major maintenance and repair actions such as 
the overhauling, upgrading, or rebuilding of parts, assemblies, or 
subassemblies. 

[2] This limitation is sometimes referred to as the "50-50" 
requirement, although the limitation applies only to the allocation of 
funds for work that may be performed by nonfederal government 
personnel. 

[3] The Marine Corps is part of the Department of the Navy. 

[4] A list of related GAO products is provided at the end of this 
report. 

[5] DOD has had long-standing weaknesses in its financial management 
that affect its ability to produce auditable financial information as 
well as provide accurate and timely information for management and 
Congress to use in making informed decisions. We have previously 
reported on these problems and have identified DOD financial management 
as one of the federal government's high-risk programs. See GAO, High- 
Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005). 

[6] Section 2474(a) states that the Secretary concerned (or the 
Secretary of Defense in the case of a defense agency) shall designate 
depot-level activities of the military departments and defense agencies 
(other than facilities approved for closure or major realignment under 
the Defense Base Closure and Realignment Act of 1990) as Centers of 
Industrial and Technical Excellence in their recognized core 
competencies. The Secretary of Defense was also directed to establish a 
policy to encourage the secretary of each military department and the 
head of each defense agency to reengineer industrial processes and 
adopt best business practices at the Centers of Industrial and 
Technical Excellence in connection with their core competency 
requirements so as to serve as recognized leaders in their core 
competencies. 

[7] For a recent discussion of weaknesses in DOD financial management, 
see GAO, Department of Defense: Sustained Leadership Is Critical to 
Effective Financial and Business Management Transformation, GAO-06-
1006T (Washington, D.C.: Aug. 3, 2006). 

[8] Although 10 U.S.C. § 2466(d) specifies that the Secretary of 
Defense report the percentage of funds referred to in § 2466(a) that 
were expended in the preceding fiscal year and projected to be expended 
in the current and ensuing fiscal years, DOD's past and current 50-50 
reports are generally based on obligation data. A DOD official 
explained that obligation data are considered to be more appropriate 
because of the statutory requirement to report funds made available in 
a given fiscal year and because expenditure data may not be completely 
recognized in the accounting records for a year or more following the 
funds' obligation. 

[9] For the two most recent reports, see GAO, Depot Maintenance: 
Persistent Deficiencies Limit Accuracy and Usefulness of DOD's Funding 
Allocation Data Reported to Congress, GAO-06-88 (Washington, D.C.: Nov. 
18, 2005), and Depot Maintenance: DOD Needs Plan to Ensure Compliance 
with Public-and Private-Sector Funding Allocation, GAO-04-871 
(Washington, D.C.: Sept. 29, 2004). 

[10] For a discussion of this issue, see GAO, Depot Maintenance: 
Persistent Deficiencies Limit Accuracy and Usefulness of DOD's Funding 
Allocation Data Reported to Congress, GAO-06-88 (Washington, D.C.: Nov. 
18, 2005). 

[11] In September 2005, DOD issued the Enterprise Transition Plan as 
part of its program to modernize business systems. 

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