Skip to main content

Defense Budget: Capital Asset Projects Undergo Significant Change Between Approval and Execution

NSIAD-95-20 Published: Dec 28, 1994. Publicly Released: Dec 28, 1994.
Jump To:
Skip to Highlights

Highlights

Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) capital budget, focusing on: (1) whether DOD carries out the projects identified in its capital budget; and (2) the effectiveness of the DOD capital budget preparation and review process.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense The Secretary of Defense should require that the new DBOF policy statement on capital budget investment projects include requirements to: (1) link capital investment projects to the DBOF activities long-range plans and missions; and (2) rely on net present value as the primary investment decision criterion for rank ordering competing capital investment projects.
Closed – Not Implemented
DOD indicated that guidance pertaining to capital investments has been revised, ensuring that selected projects match long-range plans. DOD planned to review project execution against budget plans during FY 1996 quarterly budget execution reviews, but believes that local DBOF managers must be permitted flexibility to alter plans to meet unforeseen contingencies. DOD does not concur that net present value should be used as the primary investment decision criterion for choosing among competing investment policies. Economic analysis policy requires analyses to be prepared on a net present value basis for investments equal to, or greater than, $100,000. However, DOD will use net present value in addition to other quantifiable and nonquantifiable factors. DOD believes that this approach ensures that a broad range of indicators will be used in the evaluation of the total investment package.
Department of Defense The Secretary of Defense should develop plans and schedules for training the key people responsible for implementing the new guidance.
Closed – Implemented
DOD concurred and indicated that the Defense Business Management University is incorporating economic analyses modules into training courses and will cycle its budget analysts, comptrollers and management analysts through these courses. Training modules are scheduled for delivery during FY 1995. A DBOF brochure and handbook, as well as DBOF basic and intermediate training courses, are under development and expected to be completed during FY 1995. DOD also believes that a wider awareness of the policy has resulted from the publication of the economic analyses requirements in the FMR in December 1994. Although these actions are an important component of training that is past due, Comptroller representatives estimate that it could take 2, 3, or more years to train key budget analysts, comptrollers, and management analysts. DOD needs to take more immediate action to ensure that managers responsible for developing the DBOF capital budget understand and implement the new policy.
Department of Defense The Secretary of Defense should develop mechanisms to track implementation of the new guidance and hold managers accountable for achieving the intent of the guidance.
Closed – Implemented
DOD believes that with the publication of capital budget program guidance in FMR and the quarterly budget execution reviews during FY 1996 provides the means to track implementation of the policies. DOD said that these reviews serve as mechanisms to ensure accountability for policy adherence. DOD components have been advised that approved policies are to be fully implemented. This action is not fully responsive to GAO's concerns. DOD has not identified any mechanism or performance measures it will develop to track implementation of the new guidance. Without this type of information, it will be difficult to know how well the new policy is being implemented or to identify the managers who are not adequately adhering to the new requirements.
Department of Defense The Secretary of Defense should include capital asset justification program deficiencies as a material weakness in the Federal Managers' Financial Integrity Act report.
Closed – Not Implemented
DOD did not concur that deficiencies in the capital asset justification program should be included in the DOD Federal Managers' Financial Integrity Act (FMFIA) report. DOD maintains that publication of a standardized set of capital program management policies in FMR, combined with an examination of their implementation during quarterly FY 1996 budget execution reviews, will provide the necessary improvements. DOD expects this to enhance internal controls, precluding the need to include them in the FMFIA report. The problems with DOD's capital investment program, however, are long-standing and have been reported many times by GAO, Inspectors General, and service audit agencies over the past 6 years. Although the new policy statement is a step in the right direction, GAO believes that DOD needs high-level management oversight and attention to achieve effective implementation.
Department of Defense The Secretary of Defense should identify, in its annual DBOF capital budget update projects: (1) cancelled or postponed since submission of the last budget; and (2) selected as replacements for those cancelled or postponed.
Closed – Implemented
DOD agreed to update the capital budget to identify projects cancelled or deferred since the last budget, but only for those projects over $500,000 that are shown as separate line items in the budget. As GAO pointed out in the report, the DBOF activities it visited cancelled or postponed 86 percent and 65 percent of their budgeted projects during fiscal years 1993 and 1994, respectively. Only 3.3 percent (15 of 456) of these projects were over $500,000. An alternative reporting method would be to report on a project-by-project basis for projects over $500,000 and to report in a summary manner the deletion, deferral, or substitution of projects under $500,000. This would give Congress necessary budget information and serve as an effective measure of DOD's progress in implementing its new capital investment policy.

Full Report

Office of Public Affairs

Topics

CapitalCongressional oversightCost effectiveness analysisDefense budgetsDefense procurementIndustrial fundsInvestmentsMission budgetingRevolving fundsStrategic planning