Army Industrial Operations:

Budgeting and Management of Carryover Could Be Improved

GAO-13-499: Published: Jun 27, 2013. Publicly Released: Jun 27, 2013.

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Contact:

Asif A. Khan
(202) 512-9869
khana@gao.gocv

 

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What GAO Found

From fiscal years 2006 through 2012, Army's Industrial Operations' actual carryover was under the allowable amounts in 5 of the 7 fiscal years. However, carryover more than doubled during that period, reaching a high of $5.8 billion in fiscal year 2011. Army officials stated that fiscal year 2011 was an abnormal year because Industrial Operations (1) received more orders than it had ever received--$7.5 billion in new orders--and (2) implemented a system called the Logistics Modernization Program (LMP) that changed the business rules for recognizing revenue and therefore resulted in carryover being higher than it would have been under the prior system. Army officials anticipate carryover decreasing in fiscal year 2013. According to the Army fiscal year 2014 budget, the Army expects carryover to be under $4 billion at the end of fiscal year 2013.

The Army's budget estimates for carryover were less than the actual carryover amounts each year beginning in fiscal year 2006--at least $1.1 billion each year. GAO's analysis showed that the actual amounts of carryover exceeded budgeted amounts primarily because (1) the Army underestimated new orders to be received from customers for all 7 years reviewed, particularly with respect to procurement funded orders, and (2) for fiscal year 2011, Industrial Operations performed over $1 billion less work than budgeted because Army officials were unaware of the impact that LMP would have on revenue when developing the fiscal year 2011 budget. The Army is taking actions intended to better align the customers' budgets with Industrial Operations' budgets.

Industrial Operations' carryover grew significantly in fiscal years 2011 and 2012 to represent about 12.7 and 9.5 months of work, respectively. GAO found three causes for the carryover: (1) the scope of requested work was not well defined, (2) parts were not available to perform the work, and (3) revenue recognition business rules were changed as part of the implementation of LMP. The Army formed a working group in April 2012 that identified actions to help reduce carryover. However, these actions have not been implemented and no timetable for implementation has been set.

Why GAO Did This Study

The 13 Army Industrial Operations activities support combat readiness by providing depot maintenance and ordnance services to keep Army units operating worldwide. To the extent that Industrial Operations does not complete work at year-end, the work and related funding will be carried over into the next fiscal year. Carryover is the reported dollar value of work that has been ordered and funded by customers but not completed by Industrial Operations at the end of the fiscal year. As requested, GAO reviewed issues related to Army Industrial Operations’ carryover. GAO’s objectives were to determine whether, and to what extent, Army Industrial Operations’ (1) actual carryover exceeded allowable carryover for fiscal years 2006 through 2012; (2) budget information on carryover approximated actual information for fiscal years 2006 through 2012, and if not, whether the Army took actions to align the two; and (3) carryover increased during fiscal years 2011 and 2012 and causes for the carryover. To address these objectives, GAO reviewed relevant carryover guidance, analyzed carryover and related data for Industrial Operations, and interviewed Army officials.

What GAO Recommends

GAO is making three recommendations to the Department of Defense (DOD) that are aimed at implementing the planned actions identified by the Army's working group to improve the budgeting and management of carryover. DOD concurred with GAO's recommendations and cited related actions planned or under way.

For more information, contact Asif A. Khan at (202) 512-9869 or khana@gao.gov.

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: To improve the budgeting and management of Army Industrial Operations' carryover, the Secretary of Defense should direct the Secretary of the Army to issue the planned working group policy memos and establish a timetable for implementing these actions for improving the management of carryover.

    Agency Affected: Department of Defense

    Status: Open

    Comments: The Army plans to issue, by the end of fiscal year 2013, two policy memorandums with actions therein to be implemented by the beginning of second quarter fiscal year 2014. One memorandum will address the responsibilities and criteria of the organic industrial base activities to accept new orders, whether budgeted or unbudgeted. The other memorandum will specifically address new procurement-funded orders to better align the work to customer delivery schedules.

    Recommendation: To improve the budgeting and management of Army Industrial Operations' carryover, the Secretary of Defense should direct the Secretary of the Army to implement the working group's planned actions to improve the budgeting for new orders to be received by Army Industrial Operations.

    Agency Affected: Department of Defense

    Status: Open

    Comments: As coordinated with the Office of the Secretary of Defense, the Army is implementing the working group plan to improve the budgeting for new orders. The Army plans to continue to hold senior-level quarterly meetings to review Army Industrial Operation carryover, orders, and revenue status. The Army Materiel Command, the Life Cycle Management Commands, and the Army Industrial Operations activities will continue to coordinate with customers throughout the budget and requirements process to ensure the most current workload data is identified. Additionally, the Army's fiscal year 2014 budget guidance includes direction for program managers to identify planned depot workload clearly in procurement budgets beginning in the fiscal year 2014 budget cycle. The same direction will be included in subsequent budget cycles.

    Recommendation: To improve the budgeting and management of Army Industrial Operations' carryover, the Secretary of Defense should direct the Secretary of the Army to establish procedures, including required steps, to be followed by Army Industrial Operations activities in evaluating orders received from customers to ensure that the activities have resources (such as parts and materials, skilled labor, tools, equipment, technical data, and funding) to perform the work.

    Agency Affected: Department of Defense

    Status: Open

    Comments: As coordinated with the Office of the Secretary of Defense, the Army is in the process of establishing procedures to implement the policy memorandum on the acceptance of orders. By the beginning of the second quarter of fiscal year 2014, Army Industrial Operations activities will use the procedures to determine acceptance of new orders. Acceptance of new orders will be based on available resources such as parts and materials, skilled labor, tools, equipment, technical data, and funding to perform the work.

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