Air Force Working Capital Fund:

Budgeting and Management of Carryover Work and Funding Could Be Improved

GAO-11-539: Published: Jul 7, 2011. Publicly Released: Jul 7, 2011.

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Three Air Force depots support combat readiness by providing repair services to keep Air Force units operating worldwide. To the extent that the depots do not complete work at year end, the work and related funding will be carried into the next fiscal year. Carryover is the reported dollar value of work that has been ordered and funded by customers but not completed at the end of the fiscal year. GAO was asked to determine the extent to which: (1) budget information on depot maintenance carryover approximated actual results from fiscal years 2006 through 2010 and, if not, any needed actions to improve budgeting for carryover; (2) depot maintenance carryover exceeded the allowable amount and any adjustments were made to the allowable amount; and (3) there was growth in carryover at the depots and the reasons for the growth. To address these objectives, GAO (1) reviewed relevant carryover guidance, (2) obtained and analyzed reported carryover and related data at the Air Logistics Centers (ALC), and (3) interviewed DOD and Air Force officials.

The Air Force consistently underestimated the dollar amount of carryover that would exceed the allowable amount in the Air Force Working Capital Fund (AFWCF) budgets from fiscal years 2006 through 2010. In 3 of the 5 years, the budgeted carryover amount underestimated the actual amount by over $250 million. The budget information on carryover is critical since decision makers use this information when reviewing the AFWCF budgets. The Air Force began implementing actions to improve budgeting for AFWCF such as including overseas contingency operations funded orders in the AFWCF fiscal year 2012 budget. These actions have the potential to improve the accuracy of budgeting for AFWCF, but their success will only be known when budgeted carryover information is compared to actual results. GAO analysis of AFWCF reports showed that in each year actual carryover exceeded the allowable amount from fiscal years 2006 through 2010. The allowable amount of carryover is based on the amount of new orders received and the outlay rate of customers' appropriations financing the work. The amount of carryover that exceeded the allowable ranged from $4 million to $568 million. Further, the Air Force increased the allowable amount for orders funded with multiyear appropriations by $115 million and $125 million in fiscal years 2009 and 2010, respectively. Without this adjustment, the AFWCF would have exceeded the allowable carryover by corresponding amounts. The DOD regulation on orders funded with multiyear appropriations only pertains to Army ordnance activities that perform a manufacturing function. Therefore, the provision on increasing the allowable amount of carryover for orders funded with multiyear appropriations does not apply to the Air Force. GAO analysis of ALC reports and discussions with Air Force officials identified four reasons for the increase in carryover from $1 billion at the end of fiscal year 2006 to $1.9 billion--nearly 7 months of work--at the end of fiscal year 2010 on depot maintenance work. First, Air Force underestimated its forecasted workload requirements on the number of hours of work to be performed. Second, because the Air Force believed its depot maintenance workload would decrease, it reduced its workforce in November 2007. While the ALCs reduced their workforce by about 2,000 civilian personnel, the actual workload increased instead of decreased--thus resulting in personnel shortages. Third, the Air Force budget underestimated the amount of funds on new orders received from customers, and the work performed by the ALCs did not keep pace with the increase in funding on new orders from year to year. Fourth, the ALCs could not obtain parts when needed to perform repair work that contributed to the growth of carryover. Air Force data showed that the average monthly outstanding backorders for spare parts at the ALCs grew by about 44 percent from fiscal year 2008 to fiscal year 2010. The Air Force is taking action to address these problems but still needs to compare budgeted to actual information, such as the number of hours of work to be performed, and identify the reasons for the differences. GAO makes five recommendations to DOD to improve the budgeting and management of carryover, such as comparing budgeted to actual information on carryover and clarifying DOD guidance on allowable carryover funded with multiyear appropriations. DOD concurred with GAO's recommendations and has actions planned or under way to implement them.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Air Force issued a memorandum directing AFMC to perform the recommended new order analysis on May 27, 2011. For the fiscal year 2013 budget cycle, AFMC performed a budgeted to actual new order analysis and determined the reasons for deviation between budgeted to actual new orders for fiscal years 2006 through 2011. Based on the analysis, the Air Force implemented several actions to improve the budgeted new order information included in the fiscal year 2013 AFWCF budget and beyond such as (1) including overseas contingency operation funds in the budget process and (2) accepting orders from customers monthly instead of quarterly as was the case under the old process. In future years, the requirement for this analysis will be included in the annual Working Capital Fund Budget Guidance provided by Air Force headquarters. Improved customer order information should better enable Congress to make well-informed decisions on AFWCF budgets.

    Recommendation: To improve the budgeting and management of carryover, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to require Air Force headquarters and Air Force Materiel Command to routinely compare budgeted orders to actual orders to identify the differences and reasons for the differences, and consider them in developing future years' budget estimates on new orders to be received from customers.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The Air Force issued a memorandum directing AFMC to perform the recommended carryover analysis on May 27, 2011. For the fiscal year 2013 budget cycle, AFMC performed a budgeted to actual carryover analysis and determined the reasons for deviation between budgeted to actual carryover for fiscal years 2006 through 2011. Based on the analysis, the Air Force implemented several actions to improve the budgeted carryover information included in the fiscal year 2013 AFWCF budget and beyond such as (1) providing guidance to the Air Force depots on identifying unplanned future workload and (2) fully utilizing DOD outlay rates in the carryover calculations. Improved carryover information in AFWCF budgets should better inform Congress when reviewing and making decisions on the AFWCF budget.

    Recommendation: To improve the budgeting and management of carryover, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to require Air Force headquarters and Air Force Materiel Command to routinely compare budgeted carryover that is over or under the allowable amount to the actual amount to identify the differences and reasons for the differences, and consider these trends in developing future budget estimates on carryover.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: The Air Force issued a memorandum directing the Air Force Materiel Command to comply with DOD regulation on May 27, 2011. An increased emphasis on correctly applying criteria in the DOD Financial Management Regulation for determining the allowable carryover amounts should help increase the reliability of such estimates.

    Recommendation: To improve the budgeting and management of carryover, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to take actions to ensure that requests for exemption from the carryover policy are made in writing and approved by the Director for Revolving Funds as required by the DOD Financial Management Regulation.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: DOD issued a revised Volume 2B Chapter 9 of the Financial Management Regulation (FMR) in April 2012 in draft to clarify this provision. Further, even though changes to the FMR were not finalized as of February 2013, DOD directed its working capital fund activities to use the current draft of the FMR Volume 2B Chapter 9 for the fiscal year 2015 budget submission. With the clarified FMR provision, Congress and DOD decision makers should have more reliable carryover information for budget decisions.

    Recommendation: To improve the budgeting and management of carryover, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to clarify the existing guidance in the DOD Financial Management Regulation that allows Army ordnance activities to use multiyear appropriations in the calculation of allowable carryover to ensure that other working capital fund activities do not use this provision as a basis for their calculation of allowable carryover.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: The Air Force issued a memorandum directing AFMC to perform the recommended workload requirements analysis on May 27, 2011. For the fiscal year 2013 budget cycle, AFMC performed a budgeted to actual workload requirements analysis and determined the reasons for deviation between budgeted to actual results for fiscal years 2006 through 2011. Based on the analysis, the Air Force issued guidance to its air logistics centers and Air Force program offices to include unplanned workload in future years' workload requirements based on past performance. Improved workload requirements information should better ensure that needed facilities and support equipment, personnel, and spare parts are available to support the planned workload to keep the Air Force air logistics centers operating efficiently and, in turn, reduce the amount of carryover.

    Recommendation: To improve the budgeting and management of carryover, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to require Air Force headquarters and Air Force Materiel Command to routinely compare the forecasted workload requirements on the number of hours of depot maintenance work to be performed to the actual number and consider these trends in developing future years' depot maintenance workload requirements.

    Agency Affected: Department of Defense

 

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