This is the accessible text file for GAO report number GAO-12-539 
entitled 'Marine Corps Depot Maintenance: Budgeting and Management of 
Carryover Could Be Improved' which was released on June 19, 2012. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United States Government Accountability Office: 
GAO: 

Report to the Chairman, Subcommittee on Readiness and Management 
Support, Committee on Armed Services, U.S. Senate: 

June 2012: 

Marine Corps Depot Maintenance: 

Budgeting and Management of Carryover Could Be Improved: 

GAO-12-539: 

GAO Highlights: 

Highlights of GAO-12-539, a report to the Chairman, Subcommittee on 
Readiness and Management Support, Committee on Armed Services, U.S. 
Senate. 

Why GAO Did This Study: 

The Marine Corps DMAG repairs and overhauls weapon systems and support 
equipment to battle-ready condition for deployed and soon-to-be 
deployed units. To the extent that DMAG 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 DMAG at the 
end of the fiscal year. GAO was asked to determine (1) if DMAG’s 
actual carryover exceeded the allowable amount and actions the Marine 
Corps is taking to reduce carryover; (2) if budget information on DMAG 
carryover approximated actual results; (3) if there was growth in 
carryover during the period of OIF/OEF and the reasons for any such 
growth; and (4) reasons for recent years’ carryover. To address these 
objectives, GAO (1) reviewed relevant carryover guidance, (2) obtained 
and analyzed reported carryover and related data for DMAG against 
requirements, and (3) interviewed DOD, Navy, and Marine Corps 
officials. 

What GAO Found: 

GAO’s analysis of Marine Corps depot maintenance activity group (DMAG) 
reports showed that from fiscal years 2004 through 2011, reported 
actual carryover exceeded the allowable amounts in the most recent 6 
years of the 8-year period, ranging from $59 million in fiscal year 
2007 to $7 million in fiscal year 2011. GAO’s analysis also showed 
that the amounts of carryover exceeding the allowable amounts have 
declined in each of the past 4 years. These reductions could be 
attributed to DMAG actions, including implementing production 
efficiencies that reduced the time required to repair weapon systems. 

In contrast, DMAG’s budgeted carryover amounts were less than the 
allowable amounts for all 8 years GAO reviewed. In the most recent 6 
years, DMAG’s reported actual carryover amounts exceeded budgeted 
carryover by at least $50 million. GAO’s analysis showed this occurred 
because the Marine Corps underestimated DMAG’s new orders every year 
during this 6-year period from a low of 51 percent to a high of 175 
percent. 

Table: Comparison of Budgeted and Reported Actual DMAG Carryover That 
Was Over or Under the Allowable Amounts (Fiscal Years 2004–2011): 

Fiscal year: 2004; 
Budgeted over (under) allowable: ($32 million); 
Actual over (under) allowable: ($6 million); 
Difference: $26 million. 

Fiscal year: 2005; 
Budgeted over (under) allowable: ($30 million); 
Actual over (under) allowable: ($26 million); 
Difference: $4 million. 

Fiscal year: 2006; 
Budgeted over (under) allowable: ($32 million); 
Actual over (under) allowable: $21 million; 
Difference: $53 million. 

Fiscal year: 2007; 
Budgeted over (under) allowable: ($19 million); 
Actual over (under) allowable: $59 million; 
Difference: $78 million. 

Fiscal year: 2008; 
Budgeted over (under) allowable: ($43 million); 
Actual over (under) allowable: $39 million; 
Difference: $82 million. 

Fiscal year: 2009; 
Budgeted over (under) allowable: ($58 million); 
Actual over (under) allowable: $38 million; 
Difference: $95 million. 

Fiscal year: 2010; 
Budgeted over (under) allowable: ($74 million); 
Actual over (under) allowable: $19 million; 
Difference: $93 million. 

Fiscal year: 2011; 
Budgeted over (under) allowable: ($68 million); 
Actual over (under) allowable: $7 million; 
Difference: $75 million. 

Source: GAO analysis of Marine Corps DMAG budgets. 

Note: Dollar amounts do not always add due to rounding. 

[End of table] 

The reported dollar value of DMAG carryover significantly increased 
during the initial years of Operation Iraqi Freedom/Operation Enduring 
Freedom (OIF/OEF) from $49 million in fiscal year 2002 to $271 million 
in fiscal year 2005. This increase could be primarily attributed to 
new orders from customers more than tripling over this period. GAO’s 
analysis found that the increase in new orders was the result of 
higher depot maintenance requirements supporting OIF/OEF. Since fiscal 
year 2005, reported actual carryover amounts have remained relatively 
stable, averaging $296 million or 6.4 months of work. 

GAO identified three factors that were key to DMAG’s carryover in 
fiscal years 2010 and 2011 including: (1) experiencing unanticipated 
increases in its workload requirements, (2) starting DMAG work on new 
orders later in the fiscal year because it was already performing work 
on other orders, and (3) accepting amendments on existing orders in 
the last quarter of the fiscal year that increased the scope of work. 

What GAO Recommends: 

GAO recommends that DOD improve the budgeting and management of DMAG 
carryover by comparing budgeted to actual information on carryover and 
orders and making adjustments to budget estimates as appropriate. DOD 
concurred with GAO’s recommendations and cited related actions planned. 

View GAO-12-539. For more information, contact Asif A. Khan at (202) 
512-9869 or khana@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

DMAG Reported Actual Carryover Exceeded the Allowable Amount Since 
Fiscal Year 2006, but Actions Are Under Way to Reduce Carryover: 

Marine Corps Underestimated Carryover in Its Budgets: 

DMAG Carryover Grew Significantly as a Result of OIF/OEF: 

Primary Reasons for Carryover at the End of Fiscal Years 2010 and 2011: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Comparison of DMAG Reported Actual Carryover and Allowable 
Carryover (Fiscal Years 2004-2011): 

Table 2: Comparison of Budgeted and Actual DMAG Carryover That Was 
Over or Under the Allowable Amounts (Fiscal Years 2004-2011): 

Table 3: DMAG Budgeted New Orders Compared to Actual New Orders 
(Fiscal Years 2004-2011): 

Table 4: Comparison of DMAG Financial Management Information during 
Pre-, Early Buildup, and Continuing OIF/OEF: 

Table 5: Summary of Primary Reasons for DMAG Carryover by Number of 
Orders in Each Category (Fiscal Years 2010-2011): 

Figures: 

Figure 1: DMAG Budgeted New Orders, Revenue, and Carryover (Fiscal 
Years 2004-2011): 

Figure 2: DMAG Actual New Orders, Revenue, and Carryover (as Shown in 
DMAG Budgets for Fiscal Years 2004-2011): 

Figure 3: DMAG Reported Actual New Orders, Revenue, Carryover, and 
Months of Carryover (Fiscal Years 1998-2011): 

Abbreviations: 

DMAG: depot maintenance activity group: 

DOD: Department of Defense: 

HMMWV: High Mobility Multi-purpose Wheeled Vehicle: 

LAV: Light Armored Vehicle: 

MCLC: Marine Corps Logistics Command: 

OIF/OEF: Operation Iraqi Freedom/Operation Enduring Freedom: 

SMC: Supply Management Center: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

June 19, 2012: 

The Honorable Claire McCaskill:
Chairman:
Subcommittee on Readiness and Management Support:
Committee on Armed Services:
United States Senate: 

Dear Madam Chairman: 

The Marine Corps depot maintenance activity group (DMAG) is part of 
the Navy Working Capital Fund. It provides for the repair and overhaul 
of weapon systems and support equipment to battle-ready condition for 
deployed and soon-to-be deployed Marine Corps units, including 
repairing and overhauling such Marine Corps ground combat vehicles and 
equipment as the High Mobility Multi-purpose Wheeled Vehicles (HMMWV) 
and Assault Amphibious Vehicles. 

DMAG operates two maintenance centers[Footnote 1] under the working 
capital fund concept, under which customers (such as the military 
services) are to be charged for the anticipated full cost of goods and 
services provided. To the extent that DMAG does not complete work at 
year-end, the work and related funding are to be carried into the next 
fiscal year. The term "carryover" refers to the reported dollar value 
of DMAG work that has been ordered and funded (obligated) by customers 
(such as the Marine Corps) but not completed by DMAG at the end of the 
fiscal year. The congressional defense committees have recognized that 
some carryover is appropriate to facilitate a smooth flow of work 
during the transition from one fiscal year to the next. However, past 
congressional defense committee reports have raised concerns that the 
level of carryover in military service working capital funds may be 
more than is needed. Excessive amounts of carryover financed with 
customer appropriations may result in future requests being subject to 
reductions by the Department of Defense (DOD) and the congressional 
defense committees during the budget review process. 

In response to your request, this report provides the results of our 
assessment to determine (1) if DMAG reported actual carryover exceeded 
the allowable amount of carryover from fiscal years 2004 through 2011 
and any actions the Marine Corps is taking to reduce carryover; (2) if 
budget information on DMAG carryover from fiscal years 2004 through 
2011 approximated reported actual results; (3) if there was growth in 
DMAG carryover during the period of Operation Iraqi Freedom/Operation 
Enduring Freedom (OIF/OEF)[Footnote 2] and the reasons for any such 
growth; and (4) the reasons for the fiscal years 2010 and 2011 
carryover. 

To address the first and second objectives, we obtained and analyzed 
DMAG reports that contained information on budgeted and reported 
actual carryover against the allowable amount of carryover for fiscal 
years 2004 through 2011. We analyzed carryover since fiscal year 2004 
because prior to fiscal year 2004 DOD had a different policy for 
determining the allowable amount of carryover. We met with responsible 
officials from the Navy and Marine Corps to determine the reasons for 
significant variances between (1) reported actual carryover and the 
allowable amount or (2) budgeted and reported actual carryover. We 
also met with these officials to discuss the actions the Marine Corps 
has and is taking to reduce the amount of carryover. 

To address the third objective, we analyzed reported order, revenue, 
and carryover amounts and months of carryover from fiscal years 1998 
through 2011 to determine the extent to which OIF/OEF impacted DMAG 
workload and carryover. We selected the period from fiscal years 1998 
through 2011 to highlight any changes in reported actual carryover 
information from the period before and during OIF/OEF. We reviewed and 
analyzed Marine Corps documentation, including the DMAG budgets, to 
determine the reasons for the growth in carryover. 

To address the fourth objective, we met with responsible officials 
from the Navy and Marine Corps to identify contributing factors that 
led to the carryover. We also performed walkthroughs of the Albany and 
Barstow maintenance centers' operations and discussed with officials 
reasons for fiscal years 2010 and 2011 carryover. In order to more 
fully understand the reasons for carryover at the maintenance centers, 
we obtained and analyzed 60 orders (30 orders for fiscal year 2010 and 
30 orders for fiscal year 2011) that had the largest dollar amount of 
carryover. Carryover amounts associated with these orders represented 
49 percent and 68 percent of DMAG's total carryover for fiscal years 
2010 and 2011, respectively. We selected 60 orders because they were 
the largest and most recent orders at the time of our audit. We 
reviewed the orders and related amendments and discussed the 
information in these documents with Marine Corps and DMAG maintenance 
center officials at Albany and Barstow to determine the reasons for 
the carryover. Further details on our scope and methodology are 
provided in appendix I. 

We conducted this performance audit from July 2011 through June 2012 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. We requested 
comments on a draft of this report from the Secretary of Defense or 
his designee. Written comments from the Office of the Under Secretary 
of Defense (Comptroller) are reprinted in appendix II. 

Background: 

The Marine Corps Logistics Command (MCLC) (Programs and Resources 
Department), in conjunction with the Office of the Marine Corps Deputy 
Commandant (Programs and Resources) are responsible for developing 
DMAG's budget. The budget is then submitted to the Office of the 
Assistant Secretary of the Navy (Financial Management and Comptroller) 
for review and inclusion in the Navy Working Capital Fund budget 
submission to Congress. 

DMAG relies on sales revenue rather than direct appropriations to 
finance its continuing operations. DMAG is intended to (1) generate 
sufficient resources to cover the full costs of its operations and (2) 
operate on a break-even basis over time--that is, neither make a gain 
nor incur a loss. Customers, such as the Marine Corps, use 
appropriated funds, (primarily operations and maintenance and to a 
lesser extent procurement appropriations), to finance orders placed 
with DMAG. DMAG repairs, overhauls, and modifies all types of ground 
combat and combat support equipment, including such major-end items as 
the HMMWV, Medium Tactical Vehicle Replacement, Assault Amphibious 
Vehicle, and the Light Armored Vehicle (LAV). 

Carryover and Its Use: 

DOD uses the term "carryover" to refer to the reported dollar value of 
working capital fund activities work that has been ordered and funded 
(obligated) by customers but not completed by the end of the fiscal 
year. As such, carryover consists of both the unfinished portion of 
working capital fund activities work started but not completed, as 
well as work that was accepted, but that has not yet begun. Both DOD 
and congressional defense committees have agreed that some carryover 
is appropriate at the end of the fiscal year in order for working 
capital funds to operate efficiently and effectively. For example, if 
customers do not receive new appropriations at the beginning of the 
fiscal year, carryover is necessary to ensure that working capital 
fund activities (1) have enough work to continue operations in the new 
fiscal year and (2) retain the appropriate number of personnel with 
sufficient skill sets to perform depot maintenance work. Too little 
carryover could result in some personnel not having work to perform at 
the beginning of the fiscal year. On the other hand, too much 
carryover could result in an activity group receiving funds from 
customers in one fiscal year but not performing the work until well 
into the next fiscal year. By limiting the amount of carryover, DOD 
can use its resources in the most efficient and effective manner and 
minimize the backlog of work and "banking" of related funding for work 
and programs to be performed in subsequent years. 

DOD's Carryover Policy: 

DOD's carryover policy is provided in DOD Financial Management 
Regulation 7000.14-R, volume 2B, chapter 9. Under the policy, the 
allowable amount of carryover each year is based on the amount of new 
orders received in a given year and the outlay rate of the customers' 
appropriations financing the work.[Footnote 3] For example, DMAG 
received about $462 million in new orders funded with the Marine Corps 
operation and maintenance appropriation--one of several appropriations 
funding orders DMAG received in fiscal year 2010. The DOD outlay rate 
for this appropriation was 57.5 percent. Therefore, the amount of 
funds DMAG was allowed to carry over into fiscal year 2011 was $196 
million ($462 million multiplied by 42.5 percent, which represents 1 
minus the 57.5 percent outlay rate for the operation and maintenance, 
Marine Corps appropriation). The DOD carryover policy provides that 
the work on the fiscal year 2010 orders is expected to be completed by 
the end of fiscal year 2011. According to the DOD regulation, this 
carryover metric allows for an analytical-based approach that holds 
working capital fund activities to the same standard as general fund 
execution and allows for meaningful budget execution analysis. 

In accordance with the DOD Financial Management Regulation,[Footnote 
4] (1) nonfederal orders, (2) non-DOD orders, (3) foreign military 
sales, (4) work related to base realignment and closure, and (5) work-
in-progress are to be excluded from the carryover calculation. The 
reported actual carryover (net of exclusions) is then compared to the 
amount of allowable carryover using the above-described outlay-rate 
method to determine whether the actual carryover amount is over or 
under the allowable carryover amount. 

DMAG Reported Actual Carryover Exceeded the Allowable Amount Since 
Fiscal Year 2006, but Actions Are Under Way to Reduce Carryover: 

Our analysis of DMAG reports showed that from fiscal year 2004 through 
fiscal year 2011, reported actual carryover exceeded the allowable 
amounts in 6 of the 8 years. During the most recent 6-year period, the 
reported amounts of actual carryover exceeded the allowable amounts 
each year, ranging from a high of $59 million in fiscal year 2007 to a 
low of $7 million in fiscal year 2011. Our analysis also showed that 
the extent to which DMAG carryover exceeded the allowable amounts 
declined each year since fiscal year 2007. Table 1 shows the reported 
DMAG actual carryover, allowable carryover, and the amount over (or 
under) the allowable carryover for fiscal years 2004 through 2011. 

Table 1: Comparison of DMAG Reported Actual Carryover and Allowable 
Carryover (Fiscal Years 2004-2011): 

Fiscal year: 2004; 
Actual carryover: $166 million; 
Allowable carryover: $171 million; 
Actual over (under) allowable amount: ($6 million). 

Fiscal year: 2005; 
Actual carryover: $263 million; 
Allowable carryover: $288 million; 
Actual over (under) allowable amount: ($26 million). 

Fiscal year: 2006; 
Actual carryover: $274 million; 
Allowable carryover: $254 million; 
Actual over (under) allowable amount: $21 million. 

Fiscal year: 2007; 
Actual carryover: $270 million; 
Allowable carryover: $211 million; 
Actual over (under) allowable amount: $59 million. 

Fiscal year: 2008; 
Actual carryover: $324 million; 
Allowable carryover: $284 million; 
Actual over (under) allowable amount: $39 million. 

Fiscal year: 2009; 
Actual carryover: $281 million; 
Allowable carryover: $244 million; 
Actual over (under) allowable amount: $38 million. 

Fiscal year: 2010; 
Actual carryover: $315 million; 
Allowable carryover: $296 million; 
Actual over (under) allowable amount: $19 million. 

Fiscal year: 2011; 
Actual carryover: $281 million; 
Allowable carryover: $274 million; 
Actual over (under) allowable amount: $7 million. 

Source: GAO analysis of DMAG data. 

Note: Actual over (under) allowable dollar amounts do not always add 
due to rounding. 

[End of table] 

According to MCLC (Programs and Resources Department) officials, DMAG 
has implemented actions to reduce carryover, and actions taken have 
contributed to recent declines in the carryover amounts that exceeded 
the allowable amounts. Specifically, these officials cited the 
following four actions: 

* Beginning in the second quarter of each fiscal year, MCLC evaluates 
new orders for their impact on the amount of workload that will carry 
over to the next fiscal year that potentially could exceed the 
allowable amount. Considering the impact that new orders have on 
carryover, in 2008 MCLC established criteria for the acceptance of new 
orders including (1) determining if the customer order supports 
OIF/OEF workload and if there are viable alternatives to the scope of 
the order and/or source of repair for which the customer is able to 
mitigate, and (2) determining whether there are alternatives that DMAG 
can use to avoid carrying over workload into the new fiscal year 
(i.e., increase overtime, augment personnel, and/or subcontract 
portions of the workload). 

* Beginning in 2008, DMAG formed a working group to engage its 
customers and the Defense Finance and Accounting Service to reduce 
times for closing completed orders. In addition, DMAG closed out 
orders with small remaining balances that reduced the unobligated 
balances on the orders. For example, DMAG has earned an additional 
$2.3 million in revenue in fiscal year 2011 due to an August 2011 
change to the Defense Industrial Financial Management System to 
automatically bill to revenue the residual dollar amounts left on 
customer orders. This reduced the customers' outstanding unliquidated 
obligation balances to zero--thus eliminating $2.3 million in fiscal 
year 2011 that would carry over to the next fiscal year. 

* Twice annually, DMAG formally meets with its major customers to 
validate the current and upcoming fiscal year workload requirements 
and modify plans at the MCLC maintenance centers to address current 
bona fide need of the orders. Beginning in the 2007-2008 time frame, 
MCLC began developing mitigating strategies for controlling or 
reducing carryover due to the elevated carryover levels (i.e., 
schedule realignments or alternate sources of repair or supply). 

* MCLC's two maintenance centers have implemented production and 
workflow efficiencies, including new concepts of operations intended 
to streamline operations, that are expected to reduce repair cycle 
times for damaged weapon systems. For example, efforts to improve the 
efficiency of production processes for a variant of the HMMWV at the 
Barstow maintenance center reduced repair cycle time by 45 days from 
86 days in fiscal year 2010 to 41 days in fiscal year 2011. Reduced 
repair cycle times allow the centers to perform more work in the same 
period of time, generating more revenue by the centers and thus 
reducing carryover. 

Marine Corps Underestimated Carryover in Its Budgets: 

DMAG budget estimates for carryover were consistently less than 
allowable amounts each year from fiscal year 2004 through fiscal year 
2011. However, in contrast, for the most recent 6 years, DMAG's actual 
reported amount of carryover exceeded budgeted carryover amounts by at 
least $50 million each year. Our analysis showed the actual amounts of 
reported carryover exceeded budgeted amounts primarily because the 
Marine Corps underestimated DMAG's new orders received from customers. 
Reliable budget information on carryover is critical because decision 
makers use this information when reviewing DMAG's budgets. Table 2 
summarizes the dollar amounts of budgeted and actual DMAG carryover 
that was over or under the allowable dollar amounts and the difference 
as shown in DMAG budgets for fiscal years 2004 through 2011. 

Table 2: Comparison of Budgeted and Actual DMAG Carryover That Was 
Over or Under the Allowable Amounts (Fiscal Years 2004-2011): 

Fiscal year: 2004; 
Budgeted over (under) allowable: ($32 million); 
Actual over (under) allowable: ($6 million); 
Difference: $26 million. 

Fiscal year: 2005; 
Budgeted over (under) allowable: ($30 million); 
Actual over (under) allowable: ($26 million); 
Difference: $4 million. 

Fiscal year: 2006; 
Budgeted over (under) allowable: ($32 million); 
Actual over (under) allowable: $21 million; 
Difference: $53 million. 

Fiscal year: 2007; 
Budgeted over (under) allowable: ($19 million); 
Actual over (under) allowable: $59 million; 
Difference: $78 million. 

Fiscal year: 2008; 
Budgeted over (under) allowable: ($43 million); 
Actual over (under) allowable: $39 million; 
Difference: $82 million. 

Fiscal year: 2009; 
Budgeted over (under) allowable: ($58 million); 
Actual over (under) allowable: $38 million; 
Difference: $95 million. 

Fiscal year: 2010; 
Budgeted over (under) allowable: ($74 million); 
Actual over (under) allowable: $19 million; 
Difference: $93 million. 

Fiscal year: 2011; 
Budgeted over (under) allowable: ($68 million); 
Actual over (under) allowable: $7 million; 
Difference: $75 million. 

Source: GAO analysis of DMAG budgets. 

Note: Dollar amounts do not always add due to rounding. 

[End of table] 

Our analysis of DMAG budget documents showed that for fiscal years 
2004 through 2011, the Marine Corps budgeted DMAG's revenue (work to 
be performed) to be more than the budgeted dollar value of new orders 
to be received each year. Specifically, during the 8-year period, the 
DMAG budgets showed revenue would be approximately $2.5 billion. This 
revenue estimate was almost $400 million more than the budgeted $2.1 
billion for expected new orders. As a result, planned carryover would 
remain relatively stable and under $100 million. Figure 1 shows the 
DMAG budgeted new orders, revenue, and carryover amounts for fiscal 
years 2004 through 2011. 

Figure 1: DMAG Budgeted New Orders, Revenue, and Carryover (Fiscal 
Years 2004-2011): 

[Refer to PDF for image: multiple line graph] 

Fiscal year: 2004; 
New Orders (Budgeted): $180 million; 
Revenue (Budgeted): $195 million; 
Carryover (Budgeted): $27 million. 

Fiscal year: 2005; 
New Orders (Budgeted): $213 million; 
Revenue (Budgeted): $225 million; 
Carryover (Budgeted): $48 million. 

Fiscal year: 2006; 
New Orders (Budgeted): $187 million; 
Revenue (Budgeted): $234 million; 
Carryover (Budgeted): $50 million. 

Fiscal year: 2007; 
New Orders (Budgeted): $190 million; 
Revenue (Budgeted): $286 million; 
Carryover (Budgeted): $49 million. 

Fiscal year: 2008; 
New Orders (Budgeted): $259 million; 
Revenue (Budgeted): $327 million; 
Carryover (Budgeted): $42 million. 

Fiscal year: 2009; 
New Orders (Budgeted): $361 million; 
Revenue (Budgeted): $380 million; 
Carryover (Budgeted): $81 million. 

Fiscal year: 2010; 
New Orders (Budgeted): $404 million; 
Revenue (Budgeted): $470 million; 
Carryover (Budgeted): $92 million. 

Fiscal year: 2011; 
New Orders (Budgeted): $295 million; 
Revenue (Budgeted): $356 million; 
Carryover (Budgeted): $63 million. 

Total: 
New Orders (Budgeted): $2.088 billion; 
Revenue (Budgeted): $2.473 billion; 

Source: GAO analysis of DMAG budgets. 

Note: Dollar amounts do not always add due to rounding. 

[End of figure] 

Although the Marine Corps budgeted for DMAG's revenue to exceed new 
orders and carryover to remain relatively stable as shown in figure 1, 
subsequent DMAG reporting showed that for fiscal years 2004 through 
2011, it actually received more new orders than revenue as shown in 
figure 2. In fact, for 5 of the 8 years, reported actual new orders 
received exceeded actual revenue. For the 8-year period, actual 
reported revenue was about $4.1 billion or $156 million less than the 
$4.3 billion in actual reported new orders received. As a result, 
reported actual carryover increased from a low of $168 million in 
fiscal year 2004 to a high of $326 million in fiscal year 2008 during 
the 8-year period. Figure 2 shows the actual new orders, revenue, and 
carryover amounts shown in DMAG budgets for fiscal years 2004 through 
2011. 

Figure 2: DMAG Actual New Orders, Revenue, and Carryover (as Shown in 
DMAG Budgets for Fiscal Years 2004-2011): 

[Refer to PDF for image: multiple line graph] 

Fiscal year: 2004; 
New Orders (Budgeted): $364 million; 
Revenue (Budgeted): $330 million; 
Carryover (Budgeted): $168 million. 

Fiscal year: 2005; 
New Orders (Budgeted): $583 million; 
Revenue (Budgeted): $480 million; 
Carryover (Budgeted): $271 million. 

Fiscal year: 2006; 
New Orders (Budgeted): $515 million; 
Revenue (Budgeted): $507 million; 
Carryover (Budgeted): $279 million. 

Fiscal year: 2007; 
New Orders (Budgeted): $462 million; 
Revenue (Budgeted): $470 million; 
Carryover (Budgeted): $271 million. 

Fiscal year: 2008; 
New Orders (Budgeted): $607 million; 
Revenue (Budgeted): $553 million; 
Carryover (Budgeted): $326 million. 

Fiscal year: 2009; 
New Orders (Budgeted): $551 million; 
Revenue (Budgeted): $589 million; 
Carryover (Budgeted): $288 million. 

Fiscal year: 2010; 
New Orders (Budgeted): $612 million; 
Revenue (Budgeted): $580 million; 
Carryover (Budgeted): $320 million. 

Fiscal year: 2011; 
New Orders (Budgeted): $609 million; 
Revenue (Budgeted): $638 million; 
Carryover (Budgeted): $291 million. 

Total: 
New Orders (Budgeted): $4.303 billion; 
Revenue (Budgeted): $4.147 billion; 

Source: GAO analysis of DMAG budgets. 

[End of figure] 

Our further analysis of DMAG budget documents showed that the Marine 
Corps significantly underestimated the amount of new orders to be 
received from DMAG's customers. As shown in figure 1, from fiscal 
years 2004 through 2011, DMAG budgeted to receive about $2.1 billion 
in new orders, but as shown in figure 2, subsequent DMAG records 
showed that it actually received about $4.3 billion in new orders. As 
a result, DMAG's budget underestimated new orders received from 
customers by a cumulative total of about $2.2 billion over the 8-year 
period we reviewed. Furthermore, DMAG records showed that actual new 
orders received from customers exceeded budgeted orders ranging from 
51 percent in fiscal year 2010 to 175 percent in fiscal year 2006 over 
the 8-year period. Table 3 shows a comparison between budgeted and 
actual new orders for fiscal years 2004 through 2011 based on DMAG 
budget documentation. 

Table 3: DMAG Budgeted New Orders Compared to Actual New Orders 
(Fiscal Years 2004-2011): 

Fiscal year: 2004; 
New orders budget: $180 million; 
New orders actual: $364 million; 
Percent increase: 102%. 

Fiscal year: 2005; 
New orders budget: $213 million; 
New orders actual: $583 million; 
Percent increase: 174%. 

Fiscal year: 2006; 
New orders budget: $187 million; 
New orders actual: $515 million; 
Percent increase: 175%. 

Fiscal year: 2007; 
New orders budget: $190 million; 
New orders actual: $462 million; 
Percent increase: 143%. 

Fiscal year: 2008; 
New orders budget: $259 million; 
New orders actual: $607 million; 
Percent increase: 134%. 

Fiscal year: 2009; 
New orders budget: $361 million; 
New orders actual: $551 million; 
Percent increase: 53%. 

Fiscal year: 2010; 
New orders budget: $404 million; 
New orders actual: $612 million; 
Percent increase: 51%. 

Fiscal year: 2011; 
New orders budget: $295 million; 
New orders actual: $609 million; 
Percent increase: 106%. 

Source: GAO analysis of DMAG budgets. 

[End of table] 

According to MCLC (Programs and Resources Department) officials, the 
Marine Corps formulates its budgets for new orders based on documented 
customer requirements--that is, for which the customers provide DMAG 
with letters of intent. Letters of intent documents the dollar amount 
of work the customers intend to provide to DMAG for various weapon 
systems and equipment repair and overhaul. These estimated amounts are 
used by the Marine Corps for forecasting DMAG workload as well as for 
budgeting. 

In September 2009, the Marine Corps DMAG budget analyst from the 
Office of the Under Secretary of Defense (Comptroller) stated that 
DMAG needed more reliable information on budgeted new orders. In 
information exchanges between the office's budget analyst and the 
Marine Corps, the analyst suggested that the Marine Corps increase 
fiscal year 2011 budgeted new orders to approximate the fiscal year 
2009 levels assuming the new orders are still expected to be near the 
fiscal year 2009 level, even if DMAG did not have letters of intent to 
support this workload. However, the Marine Corps did not increase the 
budgeted new order amount because it was not documented in letters of 
intent. As shown in table 3, DMAG's actual new orders for fiscal year 
2011 exceeded budgeted new orders by $314 million or 106 percent. 

In developing the DMAG budgets for fiscal years 2004 through 2011, the 
Marine Corps did not consider recent years' trends and consistently 
underestimated (1) the amounts of carryover that would exceed the 
allowable amounts and (2) the amounts of new orders to be received 
from customers. Specifically, the Marine Corps did not compare 
budgeted to actual data and consider this data in determining whether 
adjustments should be made to the estimated amounts of DMAG carryover 
and order data in its future budgets. Until the Marine Corps considers 
all future work (including work for which DMAG has not yet received 
letters of intent) in developing its budgets, its (1) budgeted amounts 
of carryover that are over or under the allowable amounts and (2) 
budgeted new orders will continue to be of limited value for 
managerial decision making. 

DMAG Carryover Grew Significantly as a Result of OIF/OEF: 

Our analysis of documents and interviews with Marine Corps officials 
disclosed that DMAG carryover significantly increased from $49 million 
in fiscal year 2002 to $271 million in fiscal year 2005. We determined 
this increase was primarily because new orders from DMAG customers 
more than tripled from $188 million in fiscal year 2002 to $583 
million in fiscal year 2005. Available Marine Corps documentation, 
including DMAG's budgets, showed that new orders increased to 
facilitate higher depot maintenance requirements in support of OIF/OEF 
operations. Since fiscal year 2005, available records show carryover 
remained at about the fiscal year 2005 level--averaging 6.4 months of 
workload. To assess the extent of growth in carryover due to OIF/OEF, 
we analyzed data for the period before and during the period of 
OIF/OEF operations.[Footnote 5] Figure 3 depicts DMAG actual new 
orders, revenue, carryover, and months of carryover beginning in 
fiscal year 1998 for a 14-year period based on available Marine Corps 
documentation. 

Figure 3: DMAG Reported Actual New Orders, Revenue, Carryover, and 
Months of Carryover (Fiscal Years 1998-2011): 

[Refer to PDF for image: multiple line graph] 

Fiscal year: 1998; 
New Orders: $183 million; 
Revenue: $212 million; 
Carryover: $58 million; 
Months of carryover: 3.3. 

Fiscal year: 1999; 
New Orders: $178 million; 
Revenue: $173 million; 
Carryover: $64 million; 
Months of carryover: 4.4. 

Fiscal year: 2000; 
New Orders: $223 million; 
Revenue: $216 million; 
Carryover: $71 million; 
Months of carryover: 3.9. 

Fiscal year: 2001; 
New Orders: $212 million; 
Revenue: $209 million; 
Carryover: $75 million; 
Months of carryover: 4.3. 

Fiscal year: 2002; 
New Orders: $188 million; 
Revenue: $212 million; 
Carryover: $49 million; 
Months of carryover: 2.8. 

Fiscal year: 2003; 
New Orders: $313 million; 
Revenue: $228 million; 
Carryover: $134 million; 
Months of carryover: 7.0. 

Fiscal year: 2004; 
New Orders: $364 million; 
Revenue: $330 million; 
Carryover: $168 million; 
Months of carryover: 6.1. 

Fiscal year: 2005; 
New Orders: $583 million; 
Revenue: $480 million; 
Carryover: $271 million; 
Months of carryover: 6.8. 

Fiscal year: 2006; 
New Orders: $515 million; 
Revenue: $507 million; 
Carryover: $279 million; 
Months of carryover: 6.6. 

Fiscal year: 2007; 
New Orders: $462 million; 
Revenue: $470 million; 
Carryover: $271 million; 
Months of carryover: 6.9. 

Fiscal year: 2008; 
New Orders: $607 million; 
Revenue: $553 million; 
Carryover: $326 million; 
Months of carryover: 7.1. 

Fiscal year: 2009; 
New Orders: $551 million; 
Revenue: $589 million; 
Carryover: $288 million; 
Months of carryover: 5.9. 

Fiscal year: 2010; 
New Orders: $612 million; 
Revenue: $580 million; 
Carryover: $320 million; 
Months of carryover: 6.6. 

Fiscal year: 2011; 
New Orders: $609 million; 
Revenue: $638 million; 
Carryover: $291 million; 
Months of carryover: 5.5. 

Source: GAO analysis of DMAG budgets. 

[End of figure] 

To illustrate the impact that changes in new orders and revenue had on 
carryover during the 14-year period, table 4 summarizes the data into 
three segments aligned with workload supporting peacetime operations 
(fiscal years 1998 through 2002), workload supporting the initial 
years of OIF/OEF (fiscal years 2003 through 2005), and workload 
supporting continuing elevated military operations under OIF/OEF 
(fiscal years 2006 through 2011). 

Table 4: Comparison of DMAG Financial Management Information during 
Pre-, Early Buildup, and Continuing OIF/OEF: 

Cumulative new orders: 
Pre-OIF/OEF Fiscal years 1998-2002: $983 million; 
Early OIF/OEF Fiscal years 2003-2005: $1.261 billion; 
Continuing OIF/OEF Fiscal years 2006-2011: $3.356 billion. 

Cumulative revenue: 
Pre-OIF/OEF Fiscal years 1998-2002: $1.022 billion; 
Early OIF/OEF Fiscal years 2003-2005: $1.038 billion; 
Continuing OIF/OEF Fiscal years 2006-2011: $3.337 billion. 

Cumulative difference: 
Pre-OIF/OEF Fiscal years 1998-2002: ($38 million); 
Early OIF/OEF Fiscal years 2003-2005: $223 million; 
Continuing OIF/OEF Fiscal years 2006-2011: $19 million. 

Average dollar amount of carryover: 
Pre-OIF/OEF Fiscal years 1998-2002: $63 million; 
Early OIF/OEF Fiscal years 2003-2005: $191 million; 
Continuing OIF/OEF Fiscal years 2006-2011: $296 million. 

Average months of carryover: 
Pre-OIF/OEF Fiscal years 1998-2002: 3.7; 
Early OIF/OEF Fiscal years 2003-2005: 6.6; 
Continuing OIF/OEF Fiscal years 2006-2011: 6.4. 

Source: GAO analysis of DMAG budget data. 

Note: Dollar amounts do not always add due to rounding. 

[End of table] 

For fiscal years 1998 through 2002, DMAG was operating at levels to 
support peacetime workload. Specifically, during the 5-year period, 
the amount of workload received (new orders) from DMAG customers ($983 
million) roughly equaled the amount of work performed (revenue) by 
DMAG ($1,022 million). DMAG carryover remained under $75 million and 
represented on average about 3.7 months of workload. 

Beginning in fiscal year 2003, depot maintenance workload increased in 
response to the buildup in deployed weapon systems and equipment and 
their associated increase in equipment wear and tear in support of 
OIF/OEF. While revenue generated from depot maintenance operations 
more than doubled, from $212 million in fiscal year 2002 to $480 
million in fiscal year 2005, reported new orders more than tripled, 
from $188 million in fiscal year 2002 to $583 million in fiscal year 
2005. Over the period, reported new orders exceeded revenue by about 
$223 million and carryover increased from $49 million at the end of 
fiscal year 2002 to $271 million at the end of fiscal year 2005--
representing about 6.6 months of workload. The maintenance centers, 
according to MCLC (Programs and Resources Department) officials, 
experienced personnel and parts shortages during the early years of 
the buildup in OIF/OEF military operations overseas because (1) in 
some cases, the centers did not have sufficient numbers of personnel 
with the required skill sets needed to address the rapidly increasing 
workload and (2) the DOD supply system and supporting private sector 
commercial production did not keep pace with the increased spare parts 
and raw material requirements that were needed by the maintenance 
centers, such as obtaining steel needed to satisfy an emerging 
requirement to armor critical warfighting equipment. 

MCLC (Programs and Resources Department) officials informed us that by 
fiscal year 2007, the maintenance centers resolved much of their 
personnel and parts shortages that resulted from the increased new 
orders supporting OIF/OEF. To resolve personnel and supply shortages, 
these officials told us that the centers employed multiple strategies 
such as (1) working with local colleges to obtain skilled employees 
and implementing personnel strategies that allowed DMAG the 
flexibility to expand or contract personnel within 48 to 72 hours 
using a combination of full-time, temporary, and contractor personnel 
and (2) working with the Defense Logistics Agency to eliminate or 
significantly reduce spare parts shortages. Our review confirmed that 
personnel and parts shortages, including raw materials issues, are no 
longer a major contributing factor to increased carryover amounts. 

According to MCLC (Programs and Resources Department) officials, DMAG 
resolved much of its personnel and spare parts shortages. However, our 
analysis showed that, since fiscal year 2005, DMAG had not further 
reduced the carryover resulting from the increases in new orders 
between fiscal years 2003 through 2005. As shown in table 4, the DMAG 
carryover averaged $296 million and represented about 6.4 months of 
workload since fiscal year 2005. Further, for fiscal years 2006 
through 2011, the amount of revenue generated by the centers' 
operations ($3,337 million) have roughly equaled the new orders 
accepted by the centers ($3,356 million)--a difference over the 6-year 
period of only $19 million. 

Primary Reasons for Carryover at the End of Fiscal Years 2010 and 2011: 

Our analysis of 60 orders (and related amendments) with the largest 
amounts of carryover for fiscal years 2010 and 2011 (the most recent 
data available) identified three primary reasons for carryover: (1) 
unanticipated increases in quantities or workload requirements to 
customer orders, (2) starting work on new orders later in the fiscal 
year because the centers had not yet completed work on other existing 
orders from the current and prior fiscal year, and (3) accepting 
amendments to existing orders in the last quarter of the fiscal year 
that increased order quantities or the scope of work. Table 5 provides 
summary information on the primary reasons for DMAG carryover based on 
our review of 60 large-dollar carryover orders for the most recent 2-
year period--30 each year. 

Table 5: Summary of Primary Reasons for DMAG Carryover by Number of 
Orders in Each Category (Fiscal Years 2010-2011): 

Carryover reason: Unanticipated increases in quantities or workload 
requirements to customer orders; 
Number of orders impacted: 
Fiscal year 2010: 22; 
Fiscal year 2011: 23; 
Total: 45. 

Carryover reason: Work on new orders began later in fiscal year to 
allow time for maintenance centers to perform work on other current 
and prior year orders; 
Number of orders impacted: 
Fiscal year 2010: 15; 
Fiscal year 2011: 12; 
Total: 27. 

Carryover reason: Amendments accepted in the last quarter of fiscal 
year that increased order quantities or expanded the scope of work on 
existing quantities ordered; 
Number of orders impacted: 
Fiscal year 2010: 18; 
Fiscal year 2011: 7; 
Total: 25. 

Source: GAO analysis of DMAG fiscal years 2010 and 2011 orders and 
amendments with fiscal year-end carryover and interviews with Marine 
Corps maintenance center Albany and Barstow officials. 

Note: The table does not add to 30 each year or 60 in total because 
many orders fell in multiple categories. 

[End of table] 

Unanticipated Increases in Quantities or Workload Requirements to 
Customer Orders: 

Accurately forecasting the scope of work on orders is essential for 
ensuring that the maintenance centers operate efficiently and complete 
work on orders as scheduled. However, we found that for 45 of the 60 
orders for fiscal years 2010 and 2011 that we reviewed, customers 
increased quantities or added unanticipated workload requirements 
throughout the fiscal year that delayed completing work on existing 
orders. MCLC (Programs and Resources Department) officials cited 
unplanned workload requirements as a primary driver for carryover. 
These officials stated that (1) while the maintenance centers do not 
drive workload requirements, the maintenance centers must respond to 
the customers' bona fide needs for the repair of the warfighters' 
equipment to support emergent requirements in the field, and (2) since 
OIF/OEF operations began, DMAG began to accept all orders (and related 
amendments) associated with those operations where viable alternative 
sources of repair could not be found, even though accepting such 
orders may contribute to "over the allowable" carryover. For example, 
the DMAG fiscal year 2010 budget cited the acceptance of unplanned 
workload by the maintenance centers to repair war-ravaged equipment 
and weapon systems returning from overseas contingency operations as 
the reason for the maintenance centers exceeding the allowable 
carryover in fiscal year 2008. Below are two examples in which 
unplanned workload requirements affected carryover. 

* In November 2009, MCLC accepted an order totaling $2.1 million that 
was financed with fiscal year 2010 operation and maintenance, Marine 
Corps appropriated funds to perform depot maintenance work on five 
Light Armored Vehicles (LAV) at the Barstow maintenance center. The 
order was amended three times in fiscal year 2010 to increase 
quantities to 28 vehicles, increase funding to $11.7 million, and 
extend the work completion date into fiscal year 2011. The center 
carried over $7.9 million of the $11.7 million order principally 
because many of the vehicles had excessive corrosion in the hull floor 
plate and side board areas that were much greater than anticipated and 
which required additional welding and plate replacement. Barstow 
officials said that the additional welding, plate replacement, and 
extensive corrosion repair caused the repair cycle time to be extended 
beyond the timelines originally anticipated to complete the work and 
caused work delays on other variants of LAVs concurrently being worked 
on at the center. The center completed work on the order in September 
2011. 

* In December 2010, MCLC accepted an order totaling $1.4 million that 
was financed with fiscal year 2011 operation and maintenance, Marine 
Corps appropriated funds to perform depot maintenance work (inspect 
and repair only as necessary) on 18 rough terrain forklifts at the 
Albany maintenance center. The order was amended nine times in fiscal 
year 2011 to increase the quantity to 118 forklifts, increase the 
total amount of the order to $9.4 million, and extend the work 
completion date into fiscal year 2012. According to center officials, 
the vehicles required more repair work than was initially planned in 
terms of cost and repair cycle time, which necessitated a change in 
the scope of the work. This change was reflected in one of the 
amendments showing that the statement of work changed from an "inspect 
and repair only as necessary" requirement to a "rebuild" requirement, 
which required a more comprehensive type and scope of depot 
maintenance work to be performed and required additional funds to 
finance the work. Because of the change to increase workload 
requirements, the center carried over $4.4 million of the $9.4 million 
into fiscal year 2012. 

Work on New Orders Began Later in Fiscal Year because Work on Existing 
Orders Was Not Completed: 

Completing work on prior-year orders and beginning work on new orders 
for the current year early in the fiscal year is critical to 
maintaining low carryover balances. Our review of 60 orders and 
amendments for fiscal years 2010 and 2011 found that, for 27 orders 
reviewed, work was delayed on new orders because the maintenance 
centers had not yet completed work on other current-and prior-year 
orders. Below are two examples of orders that we reviewed. 

* In November 2009, MCLC accepted an order totaling $2.4 million that 
was financed with fiscal year 2010 funds appropriated for Marine Corps 
operation and maintenance to perform depot maintenance work on 27 High 
Mobility Multi-purpose Wheeled Vehicles (HMMWV) at the Albany 
maintenance center. The order was amended four times from March 2010 
to September 2010 to increase quantities to 45 HMMWVs, increase 
funding to $4.7 million, and extend the work completion date into 
fiscal year 2011. The center carried over almost the entire amount of 
the $4.7 million order because the center was working on other fiscal 
year 2010 HMMWVs. Due to customer requirements, as well as capability, 
utilization, and production constraints, the center could not begin 
work on this order until the center completed work on the other 
orders. The center did not begin work on this order until September 
17, 2010--10 months after the initial order was accepted, and did not 
complete work on the order until August 2011--near the end of fiscal 
year 2011. 

* In November 2010, MCLC accepted an order totaling $1.5 million that 
was financed with fiscal year 2011 funds appropriated for Marine Corps 
operation and maintenance to perform depot maintenance work on three 
LAVs at the Barstow maintenance center. Because the Barstow 
maintenance center was still performing depot maintenance work on a 
fiscal year 2010 LAV order for the same vehicle configuration, the 
Marine Corps Supply Management Center (SMC) (customer) issued an 
amendment in February 2011 to reduce quantities to zero and deobligate 
the entire amount on the fiscal year 2011 order. Our analysis of order 
documentation showed that the customer deobligated the funds because 
the Barstow maintenance center did not require the funds at that time, 
as the center was still performing work on the fiscal year 2010 LAV 
order. Beginning in March 2011, the MCLC accepted amendments to 
increase quantities on the fiscal year 2011 order to 20, increase 
funding to $10.5 million, and changed the scope of the work to include 
the replacement of missing communications equipment. Barstow 
maintenance center began performing depot maintenance work on this 
fiscal year 2011 order in April 2011--7 months into the fiscal year 
and 5 months after the order was originally placed. Because the 
Barstow center was working the fiscal year 2010 order, work was 
delayed on the fiscal year 2011 LAV order causing the center to carry 
over $3.8 million into fiscal year 2012. 

Amendments Accepted in the Last Quarter of the Fiscal Year: 

The timing of the receipt and acceptance of orders from customers 
affect the amount of carryover at year-end. Our examination of 60 
orders for fiscal years 2010 and 2011 determined that, in 25 cases we 
reviewed, amendments to orders accepted in the last quarter of the 
fiscal year contributed to carryover. These amendments either 
increased order quantities or expanded the scope of work on existing 
orders with the maintenance centers. DOD Financial Management 
Regulation[Footnote 6] provides that depots cannot perform work until 
they receive and accept orders from customers. According to MCLC 
(Programs and Resources Department) officials, since some of these 
orders or amendments to these orders were planned and funded in the 
fourth quarter, DMAG could not start work until it received and 
accepted amended orders as specified in the DOD regulation. 

In June 2006, we reported that carryover is greatly affected by orders 
received late in the fiscal year.[Footnote 7] As a result, almost all 
orders accepted late in the fiscal year increase the amount of 
carryover. Further, we reported that the most frequent reason DOD 
activity groups accepted orders at the end of the fiscal year was 
because funds were provided to the customers late in the fiscal year 
to finance existing requirements. DOD customers stated that it is 
common for military services to provide funds to them late in the 
fiscal year after the military services review their programs to 
identify funds that will not be obligated by year-end. When these 
funds are identified, the military services realign the funds to 
programs that can use them. These funds are then used to finance 
orders placed with working capital fund activities at year-end. Our 
discussion with SMC officials--the largest DMAG customer--confirmed 
that the information reported in June 2006 was also applicable for 
fiscal years 2010 and 2011. The officials stated that there is a 
significant advantage to using unobligated funds at fiscal year-end 
that are set to expire on September 30 because the maintenance centers 
can perform more work to satisfy its customers' unfunded requirements. 
Two examples we identified of amended orders received late in the 
fiscal year that increased carryover are presented below. 

* In fiscal year 2010, MCLC accepted an order and amendments to the 
order totaling $31.2 million that was financed with fiscal year 2010 
operation and maintenance, Marine Corps appropriated funds to inspect 
and repair only as necessary 389 HMMWVs at the Albany maintenance 
center. The order was amended eight times in fiscal year 2010 to 
increase quantities from 25 vehicles to 389 vehicles, increase funding 
from $2.0 million to $31.2 million, and extend the work completion 
date into fiscal year 2011. During the fiscal year, the Albany center 
completed about 90 percent of the work on the order through the 
seventh amendment. However, on September 30, 2010--the last day of the 
fiscal year--MCLC received and accepted an amendment to the order 
increasing funding by $4.9 million and the quantity by 61 vehicles. 
The funding cited on this order was set to expire that same day. The 
entire amount of this amendment carried over into fiscal year 2011. 
According to a SMC official, the amendment was issued to the Albany 
maintenance center on September 30, 2010, because funding on a HMMWV 
order with the Barstow maintenance center was identified by the center 
as excess to requirements 2 days before the end of the fiscal year. 
The funding was set to expire at the end of the fiscal year and, if 
not obligated on another order by September 30, 2010, could not be 
used for new requirements. As a result, the funding from the Barstow 
maintenance center that was to expire on September 30, 2010, was 
applied to the Albany order. The center carried over $7.6 million into 
fiscal year 2011 on this order and completed work on the order in 
March 2011. 

* In planning the fiscal year 2011 workload, SMC expected to issue 
orders to MCLC for the Albany and Barstow maintenance centers to 
perform depot maintenance on 179 Logistics Vehicle Systems' front 
power units. In order to repair the vehicles, MCLC issued a commercial 
subcontract to the original equipment manufacturer to purchase cabs 
and other operating material and supplies needed to support work at 
the Albany and Barstow maintenance centers for the 179 vehicles. 
Subsequent to the subcontract being awarded, the Marine Corps 
maintenance strategy changed on the Logistics Vehicle Systems to 
reduce the need for the cabs purchased on the contract. In return, SMC 
(the customer) decided to decrease the scope of work from a planned 
179 vehicles to 47 vehicles. Through May 2011, the MCLC accepted 
orders with amendments totaling $8.9 million to support work on the 47 
vehicles. Because costs associated with terminating the contract with 
the original equipment manufacturer for the excess cabs and other 
operating material and supplies would be nearly as much as having the 
contractor complete the order, the Marine Corps decided to have the 
contractor complete the order and transfer ownership of the excess 
cabs and other operating material and supplies to MCLC headquarters. 
In June 2011, MCLC informed SMC that $9.8 million, in addition to the 
$8.9 million provided earlier, would need to be returned in order to 
pay for the cost of the contracted cabs and other operating material 
and supplies ordered from the contractor and to complete work on the 
remaining 47 vehicles. On September 15 and 29, 2011, SMC issued 
amendments to fund the additional $9.8 million using fiscal year 2011 
Marine Corps operation and maintenance funds that became available 
when other programs identified excess funds that would expire on 
September 30, 2011. Because funding was provided late in the fiscal 
year, the centers carried over $9.4 million of the $18.7 million in 
orders on this program into fiscal year 2012. The orders are to be 
closed in fiscal year 2012 when deliveries from the contractor are 
complete and ownership of the excess cabs and other operating material 
and supplies are transferred to MCLC headquarters. 

Conclusions: 

Reliable carryover information is essential for Congress and DOD to 
effectively perform their oversight responsibilities, including 
reviewing and making well-informed decisions on the Marine Corps' DMAG 
budget. However, our review found that for the 8-year period from 2004 
through 2011, the Marine Corps budgets show it underestimated the 
amount of new orders to be received from DMAG customers. As a result, 
while the Marine Corps budgets showed that DMAG's carryover would be 
under the allowable amount, subsequent Marine Corps financial records 
showed the actual reported carryover exceeded the allowable amount for 
the most recent 6 years. The carryover information can be a management 
tool for (1) controlling the amount of work that can carry over from 
one fiscal year to the next, and (2) identifying problems in other 
areas such as developing budgets on the amount of new orders for depot 
maintenance work. However, because the Marine Corps has underestimated 
the amount of new orders in its budgets, current reported data on 
carryover is of limited utility for decision-making purposes. 

Recommendations for Executive Action: 

We recommend that the Secretary of Defense direct the Secretary of the 
Navy and Commandant of the Marine Corps to take the following two 
actions to improve the budgeting and management of Marine Corps' DMAG 
carryover: 

* Augment DMAG budget development and review procedures to require a 
comparison of recent years' trends in budgeted carryover amounts that 
are over or under the allowable amounts to the actual carryover 
amounts to identify any differences, reasons for any such differences, 
and make any appropriate adjustments to budget estimates on carryover. 

* Augment DMAG budget development and review procedures to require a 
comparison of recent years' trends in budgeted orders to actual orders 
to identify any differences, reasons for any such differences 
(including work for which DMAG had not received letters of intent), 
and make any appropriate adjustments to budget estimates on new orders 
to be received from customers. 

Agency Comments and Our Evaluation: 

DOD provided written comments on a draft of this report. In its 
comments, DOD concurred with both of our recommendations and cited 
actions planned to address them. Specifically, the Office of the Under 
Secretary of Defense (Comptroller) stated that it will evaluate if 
actual year end carryover trends were included as a factor for the 
carryover estimates in the fiscal year 2014 budget. It stated that a 
review of the fiscal year 2012 actual carryover to the budgeted 
carryover will be part of the budget analysis including an evaluation 
of deviations from the allowable amount of carryover. Further, the 
Office of the Under Secretary of Defense (Comptroller) stated it will 
evaluate if customer order trends were included as a factor in 
developing customer order estimates in the fiscal year 2014 budget. It 
stated that a review of the fiscal year 2012 actual customer orders to 
the fiscal year 2012 budgeted customer orders will be part of the 
analysis. 

While DOD concurred with the two recommendations in our draft report 
and commented on its plans to perform additional carryover and 
customer order trend analyses as part of the fiscal year 2014 budget 
process, DOD's comments did not clearly provide that it will augment 
its budgeting process to incorporate carryover and customer order 
trend analyses beyond the fiscal year 2014 budget process as we 
recommended. In discussing DOD's comments with Office of the Under 
Secretary of Defense (Comptroller) officials, they clarified that, in 
accord with the intent of our recommendations, they intended to take 
the cited corrective actions to improve the DMAG budgeting for 
carryover and customer orders for all fiscal years beginning in fiscal 
year 2014. Specifically, they stated that DOD intended to ascertain 
how prior year DMAG carryover and new order trends were incorporated 
into the carryover estimates and use the data in evaluating Marine 
Corps DMAG budgets in not only the fiscal year 2014 budget, but in all 
future budgets. 

We are sending copies of this report to the appropriate congressional 
committees. We are also sending copies to the Secretary of Defense; 
the Secretary of the Navy; and the Commandant of the Marine Corps. The 
report also is available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. 

Should you or your staff have any questions concerning this report, 
please contact me at (202) 512-9869 or khana@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. Key contributors to this report 
are listed in appendix III. 

Sincerely yours, 

Signed by: 

Asif A. Khan: 
Director, Financial Management and Assurance: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine if (1) the depot maintenance activity group (DMAG) 
reported actual carryover exceeded the allowable amount of carryover 
from fiscal years 2004 through 2011 and any actions the Marine Corps 
is taking to reduce carryover, and (2) budget information on DMAG 
carryover from fiscal years 2004 through 2011 approximated reported 
actual results, we obtained and analyzed DMAG reports that contained 
information on budgeted and reported actual carryover and the 
allowable amount of carryover for fiscal years 2004 through 2011. We 
analyzed carryover since fiscal year 2004 because prior to fiscal year 
2004, DOD had a different policy for determining the allowable amount 
of carryover. We met with responsible officials from Navy and Marine 
Corps headquarters and the Marine Corps Logistics Command (MCLC) 
(Programs and Resources Department) to determine the reasons for 
significant variances between (1) reported actual carryover and the 
allowable amount or (2) budgeted and reported actual carryover. We 
also met with these officials to discuss the actions the Marine Corps 
has and is taking to reduce the amount of carryover. 

To determine if there was growth in DMAG carryover during the period 
of Operation Iraqi Freedom/Operation Enduring Freedom (OIF/OEF) and 
the reasons for any such growth, we analyzed reported order, revenue, 
and carryover amounts and months of carryover from fiscal years 1998 
through 2011 to determine the extent to which OIF/OEF impacted DMAG 
workload and carryover. We selected the period from fiscal years 1998 
through 2011 to highlight any changes in reported actual carryover 
information from the period before and during OIF/OEF. We reviewed and 
analyzed Marine Corps documentation including the DMAG budgets to 
determine the reasons for the growth in carryover. Further, we met 
with responsible officials from MCLC (Programs and Resources 
Department) to discuss reasons for variances between reported actual 
carryover from one year to the next. 

To determine the reasons for fiscal years 2010 and 2011 carryover, we 
met with responsible officials from the Navy and Marine Corps 
headquarters and MCLC (Programs and Resources Department) to identify 
contributing factors that led to the carryover. We also performed 
walkthroughs of the Albany and Barstow maintenance centers' operations 
and discussed with officials reasons for workload carrying over from 
one fiscal year to the next for fiscal years 2010 and 2011. Further, 
in order to more fully understand the reasons for carryover at the 
maintenance centers, we obtained and analyzed 60 orders (30 orders for 
fiscal year 2010 and 30 orders for fiscal year 2011) that had the 
largest dollar amount of carryover. Carryover amounts associated with 
these orders represented 49 percent and 68 percent of DMAG's total 
carryover for fiscal years 2010 and 2011, respectively. We selected 60 
orders because they were the largest and most recent orders at the 
time of our audit. We reviewed the orders with amendments for each of 
the orders and discussed the information in these documents with MCLC 
(Programs and Resources Department) and maintenance center Albany and 
Barstow officials to determine the reasons for the carryover. We 
summarized and categorized the results. 

Financial information in this report was obtained from official Navy 
and Marine Corps budget documents and accounting reports. To assess 
the reliability of the data, we (1) reviewed and analyzed the factors 
used in calculating carryover for the completeness of the elements 
included in the calculation, (2) interviewed Navy and Marine Corps 
officials knowledgeable about the carryover data, (3) reviewed GAO 
reports on depot maintenance activities, and (4) reviewed fiscal years 
2010 and 2011 customer orders submitted to DMAG to determine whether 
they were adequately supported by documentation. In reviewing these 
orders, we obtained the status of the carryover at the end of the 
fiscal year. On the basis of procedures performed, we have concluded 
that these data were sufficiently reliable for the purposes of this 
report. We performed our work at the Headquarters of the Office of the 
Under Secretary of Defense (Comptroller), the Office of the Assistant 
Secretary of the Navy (Financial Management and Comptroller), and 
Marine Corps Deputy Commandant (Programs and Resources), Washington, 
D.C.; Marine Corps Logistics Command, Albany, Georgia; the maintenance 
center at Albany, Georgia and the maintenance center at Barstow, 
California. We conducted this performance audit from July 2011 through 
June 2012 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Office of The Under Secretary Of Defense: 
Comptroller: 
1100 Defense Pentagon: 
Washington, DC 20301-1100: 

May 16, 2012: 
 
Mr. Asif A. Khan: 
Director: 
Financial Management and Assurance: 
Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548:  

Dear Mr. Khan:  

This is the Department of Defense (DoD) response to the GAO draft 
report (GAO-12-539), "Marine Corps Depot Maintenance: Budgeting and 
Management of Carryover Could Be Improved," dated April 16, 2012, (GAO 
Code 197100). Comments on the draft report recommendations are 
included in the enclosure.  

Actions to improve the budgeting for and management of carryover noted 
in the draft report are underway.  

Sincerely, 

Signed by: 

John P. Roth: 

Enclosure: As stated. 

[End of letter] 
 
GAO Draft Report Dated April 16, 2012: 
GAO-12-539 (GAO Code 197100): 

"Marine Corps Depot Maintenance: Budgeting And Management Of Carryover 
Could Be Improved" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: The GAO recommends that the Secretary of Defense 
direct the Secretary of the Navy and Commandant of the Marine Corps to 
augment the Depot Maintenance Activity Group (DMAG) budget development 
and review procedures to require a comparison of recent years' trends 
in budgeted carryover amounts to identify any differences, reasons for 
any such differences, and make any appropriate adjustments to budget 
estimates on carryover (p. 29). 

DOD Response: Concur. The Office of the Under Secretary of Defense 
(Comptroller) will evaluate if actual year end carryover was included 
as a factor for the FY 2014 budget. Discussions will be held during 
the review process to ascertain how prior year trends were 
incorporated into the carryover estimates which also include 
documented customer requirements and Overseas Contingency Operations. 
In addition, a review of the FY 2012 actual carryover to the FY 2012 
budgeted carryover will be part of the budget analysis to include an 
evaluation of deviations from allowable ceilings. 

Recommendation 2: The GAO recommends that the Secretary of Defense 
direct the Secretary of the Navy and Commandant of the Marine Corps to 
augment DMAG budget development and review procedures to require a 
comparison of recent years' trends in budgeted orders to actual orders 
to identify any differences, reasons for any such differences 
(including work for which DMAG had not received letters of intent), 
and make any appropriate adjustments to budget estimates on new orders 
to be received from customers. 

DOD RESPONSE: Concur. The Office of the Under Secretary of Defense 
(Comptroller) will evaluate if actual year end customer order trends 
were included as a factor for the FY 2014 budget. Discussions will be 
held during the review process to ascertain how these prior year 
trends were incorporated into the customer order estimates in relation 
to documented current and future funded workload; and how much in 
customer orders is attributable to workload without letters of intent. 
In addition, a review of the FY 2012 actual customer orders to the FY 
2012 budgeted customer orders will be part of the analysis. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Asif A. Khan, (202) 512-9869 or khana@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Greg Pugnetti, Assistant 
Director; Steve Donahue; Keith McDaniel; and Hal Santarelli made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] The two maintenance centers are the Albany maintenance center, 
Albany, Georgia; and the Barstow maintenance center, Barstow, 
California. 

[2] Since the September 11, 2001, terrorist attacks, the Department of 
Defense has been engaged in overseas military operations around the 
world. These operations include Operation Enduring Freedom that takes 
place principally in and around Afghanistan, but also covers 
additional operations in the Horn of Africa, the Philippines, and 
elsewhere, and Operation Iraqi Freedom that focuses principally on 
Iraq. Customers have issued orders to DMAG since operations began for 
the overhaul and repair of military equipment in support of these 
operations. 

[3] The outlay rate for appropriations is contained in the DOD 
Financial Summary Tables, which are published each year. The outlay 
rate figures may vary from year to year. 

[4] See DOD Financial Management Regulation 7000.14-R, vol. 2B, ch. 9, 
Defense Working Capital Funds Activity Group Analysis, § 090204(c)(3) 
(June 2010), for orders excluded from the carryover calculation. 

[5] For the purposes of this report, peacetime levels are defined as 
the average new orders, revenue, and carryover reported by DMAG for 
fiscal years 1998 through 2002. The fiscal year 2005 DMAG budget that 
contains fiscal year 2003 actual data was the first year the DMAG 
reported increased workload in response to OIF/OEF. 

[6] See DOD Financial Management Regulation 7000.14-R, vol.11B, ch.11, 
Reimbursements and Revenue Recognition, § 110103 (Oct. 2002). 

[7] GAO, Defense Working Capital Fund: Military Services Did Not 
Calculate and Report Carryover Amounts Correctly, [hyperlink, 
http://www.gao.gov/products/GAO-06-530] (Washington D.C.: June 27, 
2006). 

[End of section] 

GAO’s Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the 
performance and accountability of the federal government for the 
American people. GAO examines the use of public funds; evaluates 
federal programs and policies; and provides analyses, recommendations, 
and other assistance to help Congress make informed oversight, policy, 
and funding decisions. GAO’s commitment to good government is 
reflected in its core values of accountability, integrity, and 
reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO’s website [hyperlink, http://www.gao.gov]. Each 
weekday afternoon, GAO posts on its website newly released reports, 
testimony, and correspondence. To have GAO e-mail you a list of newly 
posted products, go to [hyperlink, http://www.gao.gov] and select 
“E-mail Updates.” 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of 
production and distribution and depends on the number of pages in the 
publication and whether the publication is printed in color or black 
and white. Pricing and ordering information is posted on GAO’s 
website, [hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 
MasterCard, Visa, check, or money order. Call for additional 
information. 

Connect with GAO: 

Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov]. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]; 
E-mail: fraudnet@gao.gov; 
Automated answering system: (800) 424-5454 or (202) 512-7470. 

Congressional Relations: 

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-4400
U.S. Government Accountability Office, 441 G Street NW, Room 7125
Washington, DC 20548. 

Public Affairs: 
Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, DC 20548.