Air Force Depot Maintenance:

Budgeting Difficulties and Operational Inefficiencies

AIMD/NSIAD-00-185: Published: Aug 15, 2000. Publicly Released: Aug 15, 2000.

Contact:

Gregory D. Kutz
(202) 512-3000
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Pursuant to a legislative requirement, GAO provided information on the financial and management issues related to the depot maintenance activity group of the Air Force Working Capital Fund.

GAO noted that: (1) for years the depot maintenance activity group has experienced difficulties in accurately budgeting for material costs, workforce productivity, and savings to be achieved through productivity improvements and other reform initiatives; (2) these difficulties have adversely impacted the activity group's financial operations, resulting in hundreds of millions of dollars in operating losses and limited the grou'ps ability to provide timely support to its customers; (3) although actions are underway to improve some problems, it is uncertain to what extent the Air Force's long-standing problems are likely to be resolved in the short-term; (4) because of inaccurate pricing information from the Air Force's supply management activity group and ineffective internal controls over depot material costs and usage, the depot maintenance activity group's actual material costs per direct labor hour of work accomplished were $12.40 higher than the budgeted amount in fiscal year (FY) 1998, $7.13 higher in FY 1999, and $21.48 higher during the first 6 months of FY 2000; (5) the Air Force is acting to resolve the higher-than-budgeted material cost problem by: (a) stabilizing the supply management activity group's price-setting process; and (b) having the Air Force Audit Agency review the accuracy of the proposed prices that the supply management activity group will charge the depot maintenance activity group for material; (6) an 11.3 percent decline in reported worker productivity that occurred from FY 1992 through FY 1999 caused a corresponding increase in labor costs per unit of work accomplished; (7) additionally, because budget estimates for fiscal years 1994 through 1999 were repeatedly based on overly optimistic productivity assumptions, the workforce did not accomplish as much work as projected; (8) this, in turn: (a) caused labor costs for the work that was accomplished to be about $838 million higher than budget estimates; and (b) created a higher backlog of work which, in turn, limited the group's ability to provide timely support to customers; (9) the depot maintenance activity group budgeted to save an average of $77 million a year from fiscal years 1996 through 1999 through planned management reforms; (10) however, the activity group repeatedly revised the original budgeted savings downward to an average of $30 million a year a--61 percent reduction--in subsequent budget estimates; and (11) the Air Force has recently acted to better estimate savings by involving the air logistics centers in the estimation process.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Materiel Command to use the revised baseline cost estimates and actual operating results as a basis for updating projected savings and adjusting the activity group's future budgets.

    Agency Affected: Department of Defense: Department of the Air Force

    Status: Closed - Implemented

    Comments: The Air Force concurred with this recommendation. The Air Force is now tracking the baseline estimates, updated estimates, as well as actual revenue, cost, and net operating. This combined data is used to determine projected and actual savings, and to adjust future budgets. For example, the Air Force Materiel Command is tracking the revenue, costs, and net operating costs for the competed engine work on a quarterly basis.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Materiel Command to develop a mechanism that will enable the depot maintenance activity group to periodically revise the competed workload baseline cost estimates by taking into account any changes in the planned workload.

    Agency Affected: Department of Defense: Department of the Air Force

    Status: Closed - Implemented

    Comments: The Air Force concurred with this recommendation, and has taken action to develop a mechanism to better track whether savings targets were met. Specifically, the Air Force Materiel Command has established a mechanism to report quarterly on the status of the competed workloads including whether savings targets were met. For example, the Air Force reported on the financial status of the competed engine work as of the first quarter of fiscal year 2002. In doing so, Air Force has maintained the baseline, updated, and actual data for the entire award period for the engine work.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Materiel Command to use more realistic productivity assumptions by considering historical productivity data in developing future depot maintenance budgets and developing a detailed plan that specifies how, when, and by whom the productivity improvements will be achieved.

    Agency Affected: Department of Defense: Department of the Air Force

    Status: Closed - Implemented

    Comments: The Air Force concurred with this recommendation, and has taken action to improve the productivity assumptions used in preparing budgets. Specifically, the Air Force Materiel Command used the productivity information in GAO's report, and reduced the productivity assumptions used in preparing the fiscal year 2002 depot maintenance activity group's budget. Furthermore, the Air Force Materiel Command updated its fiscal year 2002 productivity plan and is in the process of developing a fiscal year 2003 plan.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Materiel Command to have an organization external to the air logistics centers, such as the Air Force Materiel Command Inspector General, Air Force Audit Agency, or the Directorate of Logistics, Air Force Materiel Command, periodically inspect the centers' compliance with Air Force material management policy.

    Agency Affected: Department of Defense: Department of the Air Force

    Status: Closed - Implemented

    Comments: The Air Force concurred with this recommendation. Specifically, Air Force Materiel Command Instruction 21-130 now requires each air logistics center to conduct internal audits related to material management. Furthermore, during its unit compliance inspections, the Air Force Materiel Command Inspector General will evaluate the air logistics centers' compliance with material management policy.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Materiel Command to develop material management metrics that will allow Air Force depot maintenance officials to monitor and determine the causes of material cost variances which will, in turn, help reduce material cost. At a minimum, the metrics should provide information on unplanned material issues, issues in excess of maximum quantities, the accuracy of the Bill of Materials, and variances from budget estimates.

    Agency Affected: Department of Defense: Department of the Air Force

    Status: Closed - Implemented

    Comments: The Air Force concurred with this recommendation, and has taken several actions to implement this recommendation. First, the Air Force added guidance to Air Force Materiel Command Instruction 21-130 that requires the air logistics centers to institute a metrics program to (1) ensure that management in each product directorate is kept informed of bill of material accuracy, (2) identify, investigate, and take timely corrective action on low-accuracy bills of materials, (3) track the amount of unplanned issues, and (4) identify and investigate over standard/over maximum issues. Second, the Air Force will track compliance with the above guidance by having the Air Force Materiel Command Inspector General review this area during annual inspections.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Materiel Command to develop a systematic process to identify and analyze variances between depot maintenance activities' expected and actual material usage.

    Agency Affected: Department of Defense: Department of the Air Force

    Status: Closed - Implemented

    Comments: Air Force concurred with this recommendation, and it has taken several actions to implement this recommendation. First, the Air Force added guidance in the Air Force Materiel Command Instruction 21-130 that requires the air logistics centers to monitor material usage and conduct investigations on variances from budget targets. Second, the Air Force Materiel Command has developed a usage price variance model that is being used to isolate the production and price components of material variances. Third, the Air Force Materiel Command (1) has established depot maintenance material analysis teams at the Air Force Materiel Command and the air logistics centers to look at the various aspects of its material management problem, and (2) is also using a contractor to help with the analysis of its material management problem.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Materiel Command to develop a methodology that will allow the supply management activity group to reliably estimate the impact of price changes on the funding requirements of individual customers, such as the depot maintenance activity group, during the budget process.

    Agency Affected: Department of Defense: Department of the Air Force

    Status: Closed - Implemented

    Comments: The Air Force concurred with this recommendation, and has implemented procedures for use in determining the impact on customers' funding requirements when Air Force Materiel Command develops prices that the supply management activity group charges its customers. These procedures will allow the supply management activity group to determine if prices charged customers for individual supply items (1) when aggregated, are consistent with the overall composite price change approved in the President's budget and (2) have a disproportionately large or small impact on individual customers. In addition, the procedures include a final step that allows the Air Force Air Staff to use the results of the analysis performed under (1) and (2) above to re-allocate funding resources among the Air Force's Major Commands (that purchase items from the supply management activity group), if necessary.

    Recommendation: The Secretary of the Air Force should direct the Commander, Air Force Materiel Command to reach agreement with the Air Force Audit Agency and Defense Contract Audit Agency on the methodology and factors to be used in calculating overhead savings attributable to the C-5 aircraft maintenance workload being performed at the Warner Robins Air Logistics Center.

    Agency Affected: Department of Defense: Department of the Air Force

    Status: Closed - Implemented

    Comments: The Air Force concurred with this recommendation. In November 2000, meetings were held during which all organizations agreed that the savings would be calculated using the actual cost method as opposed to the previous source selection method. As of February 2002, the air logistics centers have all recalculated their center savings using the actual cost method as directed.

    Jul 31, 2014

    Jul 30, 2014

    Jul 28, 2014

    Jul 17, 2014

    Jul 14, 2014

    Jul 11, 2014

    Looking for more? Browse all our products here