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Defense Management: Processes to Estimate and Track Equipment Reconstitution Costs Can Be Improved

GAO-05-293 Published: May 05, 2005. Publicly Released: May 05, 2005.
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Highlights

The high pace of military operations in Iraq and elsewhere has generated a multibillion dollar equipment maintenance requirement that must be addressed after units return home. Upon returning from deployments, active, reserve, and National Guard units reconstitute, or restore, their equipment to a condition that enables them to conduct training and prepare for future deployments. The Department of Defense (DOD) uses a two-phased process to develop equipment reconstitution supplemental budget estimates. GAO reviewed this process for the fiscal year 2004 supplemental budget to determine (1) the extent to which the process produced reliable estimates of reconstitution requirements in the fiscal year 2004 supplemental budget, and (2) whether DOD is accurately tracking and reporting reconstitution costs.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense To correct the weaknesses identified in the equipment reconstitution cost estimating process the department used when developing its fiscal year 2004 supplemental budget request, the Secretary of Defense should direct the OSD comptroller to revise its contingency operations support tool (COST) model to ensure that costs covered by the model's operating tempo cost elements are not duplicated by costs in the model's reconstitution cost elements.
Closed – Implemented
During our review, we determined that the COST model contains an error that can result in a duplication of reconstitution cost estimates. In our report, GAO-05-293, we explained that all services support their aircraft through a flying-hour program that covers costs associated with operating aircraft, such as petroleum, oil and lubricants, consumables (supplies), and spare parts. As a result, all organizational- and intermediate-level maintenance and repair requirements are met through the flying-hour program. Since the operations cost section of the COST model already includes flying- hour program funding, the inclusion of an equation for aircraft reconstitution in the equipment reconstitution section of the model is redundant. Air Force officials told us that due to their flying-hour program, additional funding specifically addressing organizational- and intermediate-level reconstitution of aircraft was not needed. However, the Air Force's fiscal year 2004 supplemental budget request included about $1.2 billion in the equipment reconstitution section for aircraft maintenance that was also covered by the operations cost section of the COST model. According to Air Force officials, they were unaware that the equipment reconstitution section duplicated the aircraft maintenance costs that are covered in the operations cost section of the COST model. The Air Force officials told us that in developing their cost estimates for fiscal year 2004, they did not effectively eliminate the duplication discussed above. As a result of GAO bringing the duplication to their attention, Air Force budget officials eliminated the duplication by using the COST model's override function. As a result, the Air Force did not duplicate the aircraft maintenance costs for fiscal year 2005 as they had the previous year, fiscal year 2004. In total, the Air Force eliminated $464.0 million from their COST model calculations, thereby reducing their budget estimate for fiscal year 2005 by the same amount.
Department of Defense To correct the weaknesses identified in the equipment reconstitution cost estimating process the department used when developing its fiscal year 2004 supplemental budget request, the Secretary of Defense should direct the OSD comptroller to clearly establish what equipment maintenance requirements should be covered by the COST model and communicate this information to IDA to ensure that the model calculations reflect only these maintenance costs.
Closed – Implemented
Representatives of the Department of the Air Force, the Office of the Under Secretary of Defense-Comptroller (OUSDC) and the Institute for Defense Analysis (IDA) met in fall 2005 (beginning of FY 2006) to discuss, explore, and resolve the flying hour calculation duplication existent in IDA's model that GAO identified and which formed the basis for this recommendation. As a result of that meeting, the methodology used for Air Force calculations was enhanced to better capture their requirement. While OUSD(C) did not task IDA to update USAF cost factors, IDA instead corrected the duplication systemically by changing the standard procedure used by IDA to prepare for the supplemental building process. In the months leading up to the supplemental submission, IDA now contacts the Services directly for cost factor approval, and OUSD(C) also maintains contact with the USAF analyst along with the analysts from the other Services, and reviews and stresses accuracy of supplemental cost factors.
Department of Defense To correct the weaknesses identified in the equipment reconstitution cost estimating process the department used when developing its fiscal year 2004 supplemental budget request, the Secretary of Defense should direct the Secretary of the Army to establish a step in its supplemental estimating process to offset the estimate with the baseline budget to improve future contingency funding estimates.
Closed – Not Implemented
DOD did not concur with this recommendation and also stated that it did not plan to take any action regarding this recommendation.
Department of Defense To correct the weaknesses identified in the equipment reconstitution cost estimating process the department used when developing its fiscal year 2004 supplemental budget request, the Secretary of Defense should direct the OSD comptroller to clarify its supplemental budget guidance to the services on what types of maintenance requirements should and should not be included as equipment reconstitution when developing the supplemental budget.
Closed – Implemented
DOD concurred with our recommendation and took action to implement it in OSD's call for FY 2006 supplemental requirements from the services. Specifically, OSD's requirements call delineated and defined the levels of maintenance that the services were to consider and include when preparing submissions to current and future GWOT supplemental equipment reconstitution requirements.
Department of Defense To correct the weaknesses identified in the equipment reconstitution cost estimating process the department used when developing its fiscal year 2004 supplemental budget request, the Secretary of Defense should direct the OSD comptroller to ensure that all potential equipment reconstitution requirements are considered when developing supplemental budget requests by allowing the services to include anticipated equipment losses--both operational losses and maintenance washouts--in their supplemental budgeting process.
Closed – Implemented
In response to our recommendation, the Office of the Under Secretary Defense/Comptroller (OUSD(C)) modified its annual instructions to the services regarding the services' development of GWOT supplemental requirements vis-a-vis equipment reconstitution. Specifically, the OUSD(C) instructions specified that Services are allowed to request funding for replacing equipment that has reached the end of its useful life, or is beyond economical repair.
Department of Defense To ensure that Congress has a clear insight into the cost of equipment reconstitution, the Secretary of Defense should direct the services, in conjunction with DFAS, to develop comprehensive and consistent methods for tracking and reporting equipment reconstitution obligations. This includes (1) developing a mechanism within the Air Force for identifying, accumulating, and reporting its equipment reconstitution obligations; and (2) refining the Navy and Army processes for identifying obligations that are incurred for equipment reconstitution.
Closed – Implemented
DOD concurred with and took action to implement our recommendation by creating new categories of costs within the GWOT reporting structure and cost accumulation processes. Specifically, DOD first revised its Financial Management Regulation (Volume 12, Chapter 23) to create a separate cost category for recording and reporting equipment reconstitution costs. The new category included breakdowns for each by the traditional three levels of equipment maintenance potentially used to reconstitute equipment. As a result, the DOD GWOT cost reports now provide insight into the funds used for equipment reconstitution.

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Topics

Cost analysisCost controlEquipment maintenanceMaintenance costsReporting requirementsSpare partsCost estimatesU.S. ArmyTerrorismU.S. Air Force