This is the accessible text file for GAO report number GAO-09-732R 
entitled 'Defense Management: Observations on DOD's Fiscal Year 2010 
Budget Request for Corrosion Prevention and Control' which was released 
on June 1, 2009. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

GAO-09-732R: 

United States Government Accountability Office: 
Washington, DC 20548: 

June 1, 2009: 

Congressional Committees: 

Subject: Defense Management: Observations on DOD's Fiscal Year 2010 
Budget Request for Corrosion Prevention and Control: 

This report formally transmits the attached briefing in response to 
section 2228(e) of title 10 of the United States Code (see enclosure 
I). The statute requires the Comptroller General to provide an analysis 
of the Department of Defense's budget submission for corrosion 
prevention and control, as well as an analysis of the corrosion report 
accompanying defense budget materials, and provide the results to the 
congressional defense committees within 60 days after submission of the 
Department of Defense budget. On May 26, 2009, we provided the briefing 
to staff of your committees to satisfy the mandate and 60-day reporting 
requirement. 

We are sending copies of this report 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 report will also be available 
at no charge on our Web site at [hyperlink, http://www.gao.gov]. Should 
you or your staffs 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; Janine Prybyla; Matt Spiers; 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 Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate: 

The Honorable Ike Skelton:
Chairman:
The Honorable John M. McHugh:
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: Briefing on Fiscal Year 2010 Corrosion Budget: 

Observations on DODís Fiscal Year 2010 Budget Request for Corrosion 
Prevention and Control: 

Briefing for Congressional Defense Committees: 

May 26, 2009: 

Background: 

Corrosion can have a deleterious effect on military equipment and 
infrastructure in terms of cost, readiness, and safety. The Department 
of Defense (DOD), through its cost of corrosion studies, estimates that 
corrosion costs the military services nearly $12 billion a year (not 
including Air Force aviation and missiles). 

To target funding toward corrosion prevention and control (CPC),DOD 
established a separate funding CPC program element for Research, 
Development, Test & Evaluation funds and a separate corrosion line item 
within an existing program element for Operation & Maintenance funds in 
fiscal year 2006. 

The CPC program element and line item are managed by the Corrosion 
Policy and Oversight office within the Office of the Under Secretary of 
Defense for Acquisition, Technology, and Logistics (USD(AT&L)). 

DODís CPC funding goes towards projects proposed by the services and 
toward other activities aimed at reducing corrosion costs. The services 
contribute additional funding for the projects. 

Section 2228 of title 10, United States Code, requires the Secretary of 
Defense, for each fiscal year beginning with 2009, to submit with 
defense budget materials a report that includes: 

- Funding requirements for DODís long-term corrosion prevention and 
control strategy; 

- The return on investment (ROI) achieved by implementing this 
strategy; 

- Funds requested compared to funding requirements; and; 

- An explanation if requirements are not fully funded. 

GAO is required to provide an analysis of DODís budget submission for 
corrosion prevention and control and the related corrosion funding 
report. 

The Presidentís fiscal year 2010 budget for DOD, along with budget 
materials, was submitted on May 7, 2009. 

Engagement Objectives: 

In response to the mandate, GAO: 

1. Identified DODís process for developing its CPC budget submission; 

2. Determined the extent to which DODís fiscal year 2010 budget request 
for CPC met total estimated requirements; and; 

3. Calculated the potential cost avoidance for DODís estimated funded 
and unfunded CPC requirements. 

Scope and Methodology: 

Scope: DODís fiscal year 2010 budget submission and related budget 
materials, including estimated requirements, for the CPC program 
element and line item managed by the corrosion office. Requests for 
military service CPC funds were not included in our scope because of a 
lack of visibility over these funds within DODís budget. 

Methodology: Obtained and analyzed DOD budget and requirements data, as 
well as DODís corrosion strategy and other pertinent documents. 
Calculated the potential cost avoidance based on DODís projected ROI 
and its fiscal year 2010 budget submission. Interviewed officials at 
the DOD corrosion office, as well as service corrosion officials and 
Joint Staff officials. 

Limitations: DOD did not submit the required corrosion funding report 
with the defense budget materials. Therefore, we reviewed a draft of 
this report. In addition, we did not independently validate DODís CPC 
estimated requirements or projected ROI used to develop the CPC budget 
submission and draft corrosion funding report. 

We conducted this audit from February 2009 through May 2009 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. 

Summary: 

The DOD corrosion office develops its CPC budget by considering 
historical data on service corrosion project proposals as well as 
guidance from USD(AT&L). 

In its draft corrosion funding report, the corrosion officeís total 
estimated CPC requirements for fiscal year 2010 are $27.7 million. The 
fiscal year 2010 budget submission requests $13.1 million for CPC, 
including $9.5 million for projects and $3.6 million for activities. 
Therefore,estimated unfunded requirements are about $14.6 million. 

Based on the fiscal year 2010 budget and the projected ROI, DODís 
potential cost avoidance for its funded requirements is $484 million. 
By not funding all of its estimated requirements, DOD is missing an 
opportunity for additional cost avoidance totaling $506 million. 

Objective 1: Process for Developing CPC Budget: 

In developing its fiscal year 2010 CPC budget and the information for 
the related corrosion report, the DOD corrosion office followed a 
process similar to that used to develop the fiscal year 2009 budget. 

According to DOD officials, in 2008 the corrosion office asked the 
military services for preliminary estimates of the total number of 
projects that would need funding in fiscal year 2010, along with the 
cost of these projects. 

The corrosion office assumed, based on historical trends, that it would 
eventually accept about 60 percent of the total number of projects 
submitted by the services. By multiplying the total cost of projects 
submitted in the servicesí preliminary estimates by 60 percent, 
corrosion officials determined the total estimated requirements for CPC 
projects. 

Total estimated project requirements for fiscal year 2010 were $21.5 
million. This total does not include other non-project-related 
corrosion activities funded by the corrosion office. The corrosion 
officeís estimated requirements for these activities amounted to $6.2 
million. 

The DOD corrosion office submitted a budget request of $24.4 million to 
USD(AT&L). This amount represented an additional $10.3 million over the 
fiscal year 2009 amount to address unfunded requirements. According to 
corrosion officials, USD(AT&L) denied the increase because an offset 
within AT&L could not be identified. 

According to DODís draft corrosion funding report, global commitments, 
constrained budgets, and competing requirements preclude full funding 
of CPC requirements. 

Comptroller officials previously 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 
DODís annual budget request. 

Although the services submitted their preliminary estimates in 2008, 
they will submit their actual project proposals in the summer of 2009. 
The corrosion office goes through a project selection process to make 
final selections of projects it will fund from the CPC program element 
and line item. 

DODís current methodology for estimating CPC funding requirements may 
result in an inaccurate estimate of unfunded requirements. 

* The servicesí preliminary cost estimates can differ significantly 
from the total costs in their subsequent project proposals. For fiscal 
year 2009óthe first year this process was implementedóthe preliminary 
estimates totaled $47.6 million compared with $20.3 million for the 
actual project proposals. It is unclear why this difference occurred. 

* If the estimated requirements significantly differ from actual 
project proposals, DOD may not be in a position to accurately report 
unfunded requirements in its annual budget reports to Congress.For 
example, DOD estimated unfunded requirements of $17.8 million for 
fiscal year 2009, but it subsequently determined that it had $3.9 
million in actual unfunded requirements following the project selection 
process. 

Table: CPC Project Funding (Fiscal Years 2005 through 2010) (Dollars in 
thousands): 

Fiscal year: FY 2005 actual; 
Cost of all submitted projects: $56,581; 
Cost of projects accepted(DOD requirements): $29,559; 
Amount budgeted for projects: $17,955; 
Unfunded project requirements[A]: $11,604. 

Fiscal year: FY 2006 actual; 
Cost of all submitted projects: $37,079; 
Cost of projects accepted(DOD requirements): $21,733; 
Amount budgeted for projects: $10,710; 
Unfunded project requirements[A]: $11,023. 

Fiscal year: FY 2007 actual; 
Cost of all submitted projects: $36,197; 
Cost of projects accepted(DOD requirements): $20,590; 
Amount budgeted for projects: $8,136; 
Unfunded project requirements[A]: $12,454. 

Fiscal year: FY 2008 actual; 
Cost of all submitted projects: $25,114; 
Cost of projects accepted(DOD requirements): $12,128; 
Amount budgeted for projects: $9,238; 
Unfunded project requirements[A]: $2,890. 

Fiscal year: FY 2009 Preliminary estimates[B]; 
Cost of all submitted projects: $47,563; 
Cost of projects accepted(DOD requirements): $28,538; 
Amount budgeted for projects: $10,749; 
Unfunded project requirements[A]: $17,789. 

Fiscal year: FY 2009 actual; 
Cost of all submitted projects: $20,266; 
Cost of projects accepted(DOD requirements): $13,698; 
Amount budgeted for projects: $9,803; 
Unfunded project requirements[A]: $3,895. 

Fiscal year: FY 2010 Preliminary estimates[B]; 
Cost of all submitted projects: $35,831; 
Cost of projects accepted(DOD requirements): $21,499; 
Amount budgeted for projects: $9,543; 
Unfunded project requirements[A]: $11,956. 

Source: GAO analysis of DOD data. 

[A] Unfunded requirements are projects that are accepted but not funded 
and represent the difference between the ďDOD requirementsĒ column and 
the ďAmount budgeted for projectsĒ column. 

[B] The preliminary estimates for fiscal years 2009 and 2010 were 
developed for DODís reports to Congress, pursuant to 10 USC ß 2228(e). 
Fiscal year 2009 was the first year that the corrosion office estimated 
CPC requirements. 

[End of table] 

Objective 2: DODís Fiscal Year 2010 Budget Request for CPC: 

In its draft corrosion funding report, DOD estimated total CPC 
requirements of $27.7 million for fiscal year 2010. DODís fiscal year 
2010 budget request includes $13.1 million for CPC, which leaves 
estimated unfunded corrosion requirements of $14.6 million. These 
amounts exclude funding that the services contribute. 

Table: CPC Funding (Fiscal Years 2006 through 2010) (Dollars in 
thousands): 

Appropriations account: Operation & Maintenance; 
FY 2006 (actual): $8,136; 
FY 2007 (actual): $7,346; 
FY 2008 (actual): $7,869; 
FY 2009 (estimated): $8,962; 
FY 2010 (requested): $8,239. 

Appropriations account: Research, Development, Test & Evaluation; 
FY 2006 (actual): $7,402; 
FY 2007 (actual): $7,124; 
FY 2008 (actual): $18,253; 
FY 2009 (estimated): $22,279; 
FY 2010 (requested): $4,887. 

Appropriations account: Total; 
FY 2006 (actual): $15,538; 
FY 2007 (actual): $14,470; 
FY 2008 (actual): $26,122; 
FY 2009 (estimated): $31,241; 
FY 2010 (requested): $13,126. 

Source: GAO analysis of DOD data. 

Note: Congress appropriated additional CPC funding above the amounts 
requested in fiscal years 2008 and 2009. 

[End of table] 

Of the $13.1 million requested for fiscal year 2010, about $9.5 million 
is expected to fund corrosion projects, and $3.6 million is expected to 
fund corrosion activities. 

While projects for fiscal year 2010 will not be accepted until summer 
2009, examples of potential projects include: 

* Air Force temporary corrosion barrier coatings; 

* Army corrosion resistant coatings for air conditioning coils; 

* Navy coating deterioration analysis and forecasting system; and; 

* Marine Corps abrasion, chip, and wear resistant coatings for 
wheeled/tracked weapon systems. 

Activities may include such things as cost studies, training, and 
development and operation of the corrosion Web site. In the past, the 
corrosion office has funded the majority of its corrosion-related 
activities, but for fiscal year 2010 there is a $2.6 million estimated 
shortfall due to an increased effort by the corrosion office to provide 
training opportunities. 

In addition to CPC funding provided by the corrosion office, the 
military services provided an average of $9.318 million in funds for 
corrosion projects per year for fiscal years 2006 through 2009. 
According to corrosion officials, these service contributions do not 
reduce the estimated unfunded requirements for DODís CPC. Service 
contributions for fiscal year 2010 will be determined as part of DODís 
project selection process. 

Table: Military Service Contributions for CPC Projects (Fiscal Years 
2006 through 2009) (Dollars in thousands): 

Service: Army; 
FY 2006: $6,030; 
FY 2007: $4,983; 
FY 2008: $5,262; 
FY 2009: $4,985; 
4-year average: $5,315. 

Service: Navy; 
FY 2006: $2,807; 
FY 2007: $2,301; 
FY 2008: $3,219; 
FY 2009: $5,128; 
4-year average: $3,364. 

Service: Air Force; 
FY 2006: $1,640; 
FY 2007: $468; 
FY 2008: $275; 
FY 2009: $173; 
4-year average: $639. 

Service: Total; 
FY 2006: $10,477; 
FY 2007: $7,752; 
FY 2008: $8,756; 
FY 2009: $10,286; 
4-year average: $9,318. 

Source: GAO analysis of DOD data. 

Objective 3: CPC Requirements and ROI: 

As part of the project selection process, the corrosion office requires 
that an ROI cost-benefit analysis be submitted with project plans. 

ROIs vary by individual project and may span many years. 

ROI is calculated as the ratio of the present value of benefits to the 
present value of costs. Corrosion office guidance directs the use of a 
7 percent annual discount rate in calculating the present value of 
benefits and costs. According to corrosion officials, this is a 
conservative estimate to avoid overstating the ROI. 

According to corrosion officials, beginning in September 2009 they plan 
to review service ROI status reports for corrosion projects funded in 
fiscal year 2005, the first year CPC funds were provided. According to 
corrosion office guidance, the services should track ROI for several 
years after project completion to validate the assumptions and costs 
used to estimate the pre-implementation projected ROI. 

Based on historical averages, the corrosion office projects an ROI of 
50-1 for fiscal year 2010 projects and 2-1 for activities. Based on the 
projected ROI, if all estimated fiscal year 2010 requirements were 
funded, the total cost avoidance would be approximately $990 million. 

The fiscal year 2010 budget request, if approved, would result in a 
potential cost avoidance of approximately $484 million. 

Based on historical averages, the corrosion office projects an ROI of 
about 42-1 for projects that were accepted but not funded from fiscal 
years 2005 through 2009. Given the corrosion officeís fiscal year 2010 
estimated unfunded requirements of $14.6 million, the potential cost 
avoidance for these requirements (projects and activities) would be 
$506 million. 

Views of Agency Officials: 

To obtain agency views, we discussed a draft of the briefing with 
officials from the Corrosion Policy and Oversight Office, the military 
services, and the Joint Staff. 

They concurred with the facts presented and provided some clarifying 
comments that we have incorporated. 

[End of enclosure] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAOís actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAOís Web site, 
[hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional 
information. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Ralph Dawn, Managing Director, dawnr@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: