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Carryover Could Be Improved' which was released on June 27, 2013. 

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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

June 2013: 

Army Industrial Operations: 

Budgeting and Management of Carryover Could Be Improved: 

GAO-13-499: 

GAO Highlights: 

Highlights of GAO-13-499, a report to congressional requesters. 

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 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. 

Figure: Industrial Operations’ New Orders, Revenue, Carryover, and 
Months of Carryover: 

[Refer to PDF for image: multiple line graph] 

Fiscal year: 2006; 
New orders (actual): $5.425 billion; 
Revenue (actual): $4.592 billion; 
Carryover (actual): $2.281 billion; 
Months of carryover (actual): 6.0. 

Fiscal year: 2007; 
New orders (actual): $6.850 billion; 
Revenue (actual): $5.286 billion; 
Carryover (actual): $3.800 billion; 
Months of carryover (actual): 8.6. 

Fiscal year: 2008; 
New orders (actual): $6.991 billion; 
Revenue (actual): $6.471 billion; 
Carryover (actual): $3.900 billion; 
Months of carryover (actual): 7.2. 

Fiscal year: 2009; 
New orders (actual): $6.393 billion; 
Revenue (actual): $6.229 billion; 
Carryover (actual): $3.919 billion; 
Months of carryover (actual): 7.6. 

Fiscal year: 2010; 
New orders (actual): $6.34 billion; 
Revenue (actual): $6.157 billion; 
Carryover (actual): $3.984 billion; 
Months of carryover (actual): 7.8. 

Fiscal year: 2011; 
New orders (actual): $7.529 billion; 
Revenue (actual): $5.469 billion; 
Carryover (actual): $5.776 billion; 
Months of carryover (actual): 12.7. 

Fiscal year: 2012; 
New orders (actual): $6.189 billion; 
Revenue (actual): $6.283 billion; 
Carryover (actual): $4.960 billion; 
Months of carryover (actual): 9.5. 

Source: GAO analysis of Army Industrial Operations budgets. 

[End of figure] 

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. 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-13-499]. For more 
information, contact Asif A. Khan at (202) 512-9869 or khana@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Adjusted Carryover Was under the Allowable Amount for 5 of the Last 7 
Fiscal Years: 

Budgeted Information on Carryover Underestimated Actual Carryover 
Information, but the Army Began Taking Action to Align These in Fiscal 
Year 2012: 

Carryover Increased at the End of Fiscal Years 2011 and 2012 and Was 
Caused by Several Factors: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

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 Army Industrial Operations' Actual Adjusted 
Carryover and Allowable Carryover (Fiscal Years 2006 through 2012): 

Table 2: Comparison of Budgeted and Actual Army Industrial Operations' 
Carryover (Fiscal Years 2006 through 2012): 

Table 3: Army Industrial Operations' Budgeted New Orders Compared to 
Actual New Orders (Fiscal Years 2006 through 2012): 

Table 4: Army Industrial Operations' Budgeted New Orders Compared to 
Actual New Orders by Appropriation Category Funding the Orders (Fiscal 
Years 2006 through 2012): 

Table 5: Army Industrial Operations' Budgeted Revenue Compared to 
Actual Revenue (Fiscal Years 2006 through 2012): 

Table 6: Analysis of Key Causes for Carryover for Eight Army 
Industrial Operations Workloads: 

Table 7: Key Dates and Contract Terms for Five Army Industrial 
Operations Workloads: 

Figures: 

Figure 1: Army Industrial Operations' New Orders, Revenue, and Total 
Carryover (Fiscal Years 2006 through 2012): 

Figure 2: Mine Resistant Ambush Protected Vehicle Being Converted to a 
Route Clearance Vehicle: 

Figure 3: Overview of Impact of Parts Shortages on Completing HMMWV 
Work Orders at Red River and Letterkenny: 

Figure 4: Assault Breacher Vehicle: 

Figure 5: Force Provider: 

Figure 6: High Mobility Multi-purpose Wheeled Vehicle: 

Figure 7: Black Hawk Helicopter: 

Abbreviations: 

ABV: Assault Breacher Vehicle: 

AMC: Army Materiel Command: 

AWCF: Army Working Capital Fund: 

DOD: Department of Defense: 

HMMWV: High Mobility Multi-purpose Wheeled Vehicle: 

LCMC: Life Cycle Management Command: 

LMP: Logistics Modernization Program: 

OUSD: Office of the Under Secretary of Defense: 

RCV: Route Clearance Vehicle: 

[End of section] 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

June 27, 2013: 

The Honorable Jeanne Shaheen: 
Chairman: 
The Honorable Kelly Ayotte: 
Ranking Member: 
Subcommittee on Readiness and Management Support: 
Committee on Armed Services: 
United States Senate: 

The Honorable Claire McCaskill: 
United States Senate: 

The Army operates 13 Industrial Operations activities that provide 
depot maintenance and ordnance services.[Footnote 1] The depot 
maintenance services include the repair and overhaul of a wide range 
of vehicles and other military assets, including helicopters, such as 
the Apache and Black Hawk; combat vehicles, such as the Abrams tank 
and High Mobility Multi-purpose Wheeled Vehicles (HMMWV); and air 
defense systems, such as the Patriot missile. The ordnance services 
include manufacturing, renovating, and demilitarizing an array of 
defense-related munitions and components, such as howitzers, large-
caliber ammunition, rockets, bombs, missiles, and incendiary devices. 
Many of these military assets and munitions were used to support the 
Army's efforts in Iraq and Afghanistan. 

When Army Industrial Operations work has been ordered and funded 
(obligated) by customers (such as the Army) but has not been completed 
at the end of a fiscal year, it is referred to as carryover. 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. Further, excessive amounts of carryover 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. 

You asked us to review issues related to the Army Industrial 
Operations' carryover. Our objectives were to determine whether, and 
to what extent, Army Industrial Operations' (1) actual carryover 
exceeded the allowable amount of carryover from fiscal years 2006 
through 2012; (2) budget information on carryover from fiscal years 
2006 through 2012 approximated actual information, 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 for 
those 2 fiscal years. 

To address the first and second objectives, we obtained and analyzed 
Army Industrial Operations reports that contained information on 
budgeted and actual carryover and the allowable amount of carryover 
for fiscal years 2006 through 2012. We analyzed carryover beginning 
with fiscal year 2006 because the Army's fiscal year 2006 budget 
reported a consolidation of the Army Working Capital Fund's (AWCF) 
depot maintenance and ordnance activity groups into a consolidated 
Industrial Operations activity group, making a comparison to prior 
fiscal years difficult. We met with responsible officials from the 
Army to obtain their views on the causes for variances between actual 
carryover and (1) the allowable amount and (2) budgeted carryover. We 
also met with these officials to discuss actions the Army has taken 
and is taking to reduce the amount of carryover. Further, we 
identified and analyzed any adjustments made by the Army that 
increased the allowable carryover amounts or reduced the amount of 
carryover. We reviewed DOD's guidance for exceptions to the carryover 
policy and discussed any exceptions with the Office of the Under 
Secretary of Defense (OUSD) (Comptroller) and Army headquarters 
officials to obtain explanations for the exceptions. 

To address the third objective, we met with responsible Army officials 
to identify contributing factors that caused the carryover. Further, 
to corroborate the information provided by these officials, we 
selected eight weapon system workloads with high dollar amounts of 
fiscal year 2011 carryover from four Army depots. The carryover 
associated with these workloads represented about 35 percent of 
Industrial Operations' carryover for fiscal year 2011 and was one of 
the top five workloads with carryover at each of the four depots. We 
obtained and analyzed orders and amendments associated with these 
workloads and discussed the information in these documents with the 
depots to determine the causes for the carryover. Additionally, we 
discussed and obtained documentation on the actions the Army is taking 
to better manage and reduce carryover. A more detailed discussion of 
our scope and methodology is contained in appendix I. 

We obtained the financial and logistical data in this report from 
official budget documents and the Army's logistical system. To assess 
the reliability of the data, we analyzed carryover and related data, 
interviewed Army officials knowledgeable about the carryover data, and 
reviewed customer orders to determine whether they were adequately 
supported by documentation. On the basis of procedures performed, we 
have concluded that these data were sufficiently reliable for the 
purposes of this report. We conducted this performance audit from May 
2012 to June 2013 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: 

Army Industrial Operations provides services for a variety of 
customers, including the Army, the Navy, the Air Force, non-DOD 
agencies, and foreign countries. The majority of the work is for the 
Army. Industrial Operations relies on sales revenue from customers to 
finance its continuing operations. Operating under the working capital 
fund concept, Industrial Operations 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 Army, use appropriated funds 
(including operation and maintenance or procurement appropriations) to 
finance orders placed with Industrial Operations. Industrial 
Operations provides the Army an in-house industrial capability to (1) 
conduct depot-level maintenance, repair, and upgrade; (2) produce 
munitions and large-caliber weapons; and (3) store, maintain, and 
demilitarize material for DOD. Industrial Operations comprises 13 
government-owned and operated installation activities, each with 
unique core competencies. These include five maintenance depots 
(Anniston, Alabama; Corpus Christi, Texas; Letterkenny, Pennsylvania; 
Red River, Texas; and Tobyhanna, Pennsylvania), three arsenals (Pine 
Bluff, Arkansas; Rock Island, Illinois; and Watervliet, New York), two 
munitions production facilities (Crane, Indiana, and McAlester, 
Oklahoma), and three storage sites (Blue Grass, Kentucky; Sierra, 
California; and Tooele, Utah). The preponderance of the workload 
performed by Industrial Operations relates to depot-level maintenance. 

Army Materiel Command (AMC) serves as the management command for 
Industrial Operations. Industrial Operations activities report under 
the direct command and control of the Army's Life Cycle Management 
Commands (LCMC), each aligned in accordance with the nature of its 
mission. For example, the work performed at Anniston and Red River is 
aligned with the Army's Tank, Automotive and Armaments Command LCMC 
mission of developing, acquiring, fielding, and sustaining ground 
systems, such as the HMMWV and Abrams tank, whereas the work performed 
at Letterkenny and Corpus Christi is aligned with the Army's Aviation 
and Missile Command LCMC mission of developing, acquiring, fielding, 
and sustaining aviation, missile, and unmanned vehicle systems, such 
as the Patriot missile and Black Hawk helicopter. 

Carryover and Its Use: 

Carryover consists of both the unfinished portion of Army Industrial 
Operations work started but not completed and work that was accepted 
but has not yet begun. Some carryover is appropriate at the end of the 
fiscal year in order for working capital funds such as Industrial 
Operations 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 Industrial 
Operations' 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 
subsequent years. 

DOD's Carryover Policy: 

DOD's Financial Management Regulation 7000.14-R, volume 2B, chapter 9, 
provides that the allowable amount of carryover each year is to be 
based on the amount of new orders received that year and the outlay 
rate of the customers' appropriations financing the work.[Footnote 2] 
The DOD carryover policy further provides that the work on the current 
fiscal year's orders is expected to be completed by the end of the 
following fiscal year. DOD's Financial Management Regulation also 
provides that (1) nonfederal orders, non-DOD orders, foreign military 
sales, work related to base realignment and closure, and work-in-
progress are to be excluded from the carryover calculation and (2) the 
reported actual carryover, net of exclusions (adjusted carryover), 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.[Footnote 3] To 
the extent that adjusted carryover exceeded the allowable carryover, 
DOD and the congressional defense committees may reduce future 
budgets. According to DOD Financial Management Regulation, this 
carryover policy allows for an analytical-based approach that holds 
working capital fund activities to the same outlay standard as the 
general fund and allows for meaningful budget execution analysis. 
Requests for exceptions to the carryover policy (i.e., waivers) must 
be submitted to the Director for Revolving Funds, OUSD (Comptroller) 
separate from the budget documents. OUSD (Comptroller) officials 
informed us that they review requests for exceptions to the carryover 
policy on a case-by-case basis. Depending on the request, they may ask 
for additional information to evaluate the request. 

Implementation of the Logistics Modernization Program: 

The Army implemented the Logistics Modernization Program (LMP) at two 
Army Industrial Operations activities in fiscal year 2009 and 10 Army 
Industrial Operations activities in fiscal year 2011.[Footnote 4] 
According to the Army's budget, LMP provides the Army a modernized 
logistics and finance system that delivers a fully integrated suite of 
software and business processes, providing streamlined data on 
maintenance, repair and overhaul, finance, acquisition, spare parts, 
and materiel. LMP changed the point in time when Industrial Operations 
activities recognized revenue. The point in time when revenue is 
recognized is important because when an Industrial Operations activity 
performs work it earns revenue and the carryover is reduced. Prior to 
the implementation of LMP, the Army activities recognized revenue on 
parts and material when the activities received the items and assigned 
them to orders. This procedure led, in some cases, to Industrial 
Operations activities buying material or spare parts and recognizing 
revenue and reducing carryover before the parts and material were 
actually used in repairing weapon systems. Under LMP, revenue is 
recognized when the material and parts are brought to the assembly 
area for installation on the weapon systems--much later in the repair 
process for weapon systems that have long repair cycle times. 

Adjusted Carryover Was under the Allowable Amount for 5 of the Last 7 
Fiscal Years: 

From fiscal years 2006 through 2012, the Army reported that Industrial 
Operations' actual carryover, adjusted for waivers/exclusions 
(adjusted carryover), was under the allowable amounts in 5 of the 7 
fiscal years.[Footnote 5] From fiscal years 2006 through 2012, 
Industrial Operations' total actual carryover increased from $2.3 
billion to $5 billion, reaching a high of $5.8 billion--12.7 months of 
work--at the end of fiscal year 2011.[Footnote 6] Table 1 shows the 
Army Industrial Operations actual adjusted carryover, allowable 
carryover, and the amount over (or under) the allowable carryover for 
fiscal years 2006 through 2012. 

Table 1: Comparison of Army Industrial Operations' Actual Adjusted 
Carryover and Allowable Carryover (Fiscal Years 2006 through 2012): 

Fiscal year: 2006; 
Actual adjusted carryover: $2.141 billion; 
Allowable carryover: $2.115 billion; 
Actual over (under) allowable amount: $26. 

Fiscal year: 2007; 
Actual adjusted carryover: $3.03 billion; 
Allowable carryover: $2.752 billion; 
Actual over (under) allowable amount: $277. 

Fiscal year: 2008; 
Actual adjusted carryover: $2.862 billion; 
Allowable carryover: $3.654 billion; 
Actual over (under) allowable amount: ($792 million). 

Fiscal year: 2009; 
Actual adjusted carryover: $3.146 billion; 
Allowable carryover: $3.327 billion; 
Actual over (under) allowable amount: ($181 million). 

Fiscal year: 2010; 
Actual adjusted carryover: $3.452 billion; 
Allowable carryover: $4.076 billion; 
Actual over (under) allowable amount: ($624 million). 

Fiscal year: 2011; 
Actual adjusted carryover: $4.321 billion; 
Allowable carryover: $4.684 billion; 
Actual over (under) allowable amount: ($363 million). 

Fiscal year: 2012; 
Actual adjusted carryover: $4.573 billion; 
Allowable carryover: $4.768 billion; 
Actual over (under) allowable amount: ($194 million). 

Source: GAO analysis of Army Industrial Operations data. 

Note: Actual over (under) allowable dollar amounts for fiscal years 
2007 and 2012 do not add because of rounding. 

[End of table] 

While actual adjusted carryover was under the allowable amount in the 
most recent 5-year period, total carryover increased by about 117 
percent from fiscal years 2006 through 2012. The total carryover 
increased from about 6 months of work in fiscal year 2006 to 9.5 
months in fiscal year 2012, and reached its highest point in fiscal 
year 2011 at 12.7 months of work. Figure 1 depicts Army Industrial 
Operations' actual new orders, revenue, and total carryover and shows 
the total amount of work that carried over without the adjustments. 

Figure 1: Army Industrial Operations' New Orders, Revenue, and Total 
Carryover (Fiscal Years 2006 through 2012): 

[Refer to PDF for image: multiple line graph] 

Fiscal year: 2006; 
New orders (actual): $5.425 billion; 
Revenue (actual): $4.592 billion; 
Carryover (actual): $2.281 billion; 
Months of carryover (actual): 6.0. 

Fiscal year: 2007; 
New orders (actual): $6.850 billion; 
Revenue (actual): $5.286 billion; 
Carryover (actual): $3.800 billion; 
Months of carryover (actual): 8.6. 

Fiscal year: 2008; 
New orders (actual): $6.991 billion; 
Revenue (actual): $6.471 billion; 
Carryover (actual): $3.900 billion; 
Months of carryover (actual): 7.2. 

Fiscal year: 2009; 
New orders (actual): $6.393 billion; 
Revenue (actual): $6.229 billion; 
Carryover (actual): $3.919 billion; 
Months of carryover (actual): 7.6. 

Fiscal year: 2010; 
New orders (actual): $6.34 billion; 
Revenue (actual): $6.157 billion; 
Carryover (actual): $3.984 billion; 
Months of carryover (actual): 7.8. 

Fiscal year: 2011; 
New orders (actual): $7.529 billion; 
Revenue (actual): $5.469 billion; 
Carryover (actual): $5.776 billion; 
Months of carryover (actual): 12.7. 

Fiscal year: 2012; 
New orders (actual): $6.189 billion; 
Revenue (actual): $6.283 billion; 
Carryover (actual): $4.960 billion; 
Months of carryover (actual): 9.5. 

Source: GAO analysis of Army Industrial Operations budgets. 

Note: The carryover amounts are the total carryover amounts and are not 
adjusted for waivers. 

[End of figure] 

In September 2011, the Army requested and OUSD (Comptroller) approved 
three waivers that had not been requested by the Army in prior years. 
The Army and OUSD (Comptroller) followed the procedures for requesting 
and approving waivers contained in the DOD Financial Management 
Regulation. The Army provided OUSD (Comptroller) a memo requesting the 
waivers and provided justifications for the waivers. OUSD 
(Comptroller) approved the Army's waiver request. The effect of these 
waivers was that the Army reported that its Industrial Operations' 
adjusted carryover was under the allowable amount by $363 million at 
the end of fiscal year 2011. Absent these waivers, Industrial 
Operations would have been over the allowable amount by about $1 
billion for fiscal year 2011. The Army requested and OUSD 
(Comptroller) approved two similar waivers in fiscal year 2012, and 
the Army reported that Industrial Operations was under the allowable 
amount by $194 million for fiscal year 2012. Without the new waivers 
that it received in fiscal year 2012, Industrial Operations would have 
been over the allowable amount by $1.2 billion for fiscal year 2012. 

According to the Army's waiver request and OUSD (Comptroller) approval 
memorandums, the new waivers consisted of (1) excluding the HMMWV 
fiscal year 2011 orders and related carryover from the carryover 
calculation for fiscal year 2011 because Industrial Operations did not 
receive the HMMWV orders until late in the fiscal year, precluding the 
Army from executing any significant amount of work during fiscal year 
2011; (2) using outlay rates published in the Inflation Guidance 
instead of the outlay rates published in the DOD Financial Summary 
Tables for operation and maintenance-funded orders for calculating the 
allowable carryover for fiscal years 2011 and 2012 because the outlay 
rates in the Inflation Guidance more accurately reflect the nature of 
the carryover work; and (3) allowing the Army to use second year 
outlay rates for all procurement-funded orders for calculating the 
allowable carryover for fiscal years 2011 and 2012 because the scope 
and complexity of procurement-funded orders require longer lead time 
to perform the work. 

We discussed the new waivers with Army headquarters officials and the 
circumstances that led to the requests for the new waivers. According 
to these officials, fiscal year 2011 was an abnormal year. 
Specifically, in fiscal year 2011, Industrial Operations received more 
orders than it had ever received in a single year--$7.5 billion in new 
orders. Further, Industrial Operations received $839 million in orders 
for the HMMWV work late in the fiscal year--June 2011--allowing little 
time to perform work on these orders by the end of the fiscal year. 
The Army also implemented LMP at 10 Industrial Operations activities 
in fiscal year 2011, which changed the business rules for recognizing 
revenue and therefore resulted in carryover being higher than it would 
have been under the prior system. However, Army officials could not 
tell us the dollar impact that the implementation of LMP had on 
carryover. Because new orders increased and revenue decreased due to 
the change in business rules, carryover grew to $5.8 billion, or 12.7 
months of work, at the end of fiscal year 2011. It was for these 
reasons that the Army requested the new waivers. 

Army officials stated that fiscal year 2012 was also an abnormal year 
because Industrial Operations needed to work off the $5.8 billion 
carryover balance that existed at the end of fiscal year 2011. To 
reduce the carryover, Industrial Operations worked multiple shifts and 
overtime on some production lines during fiscal year 2012. As a 
result, the amount of carryover decreased to just under $5 billion at 
the end of fiscal year 2012--9.5 months of work. Army officials also 
informed us that they anticipate carryover further decreasing at the 
end of fiscal year 2013. According to Industrial Operations' fiscal 
year 2014 budget, the amount of carryover at the end of fiscal year 
2013 is expected to be under $4 billion. 

Budgeted Information on Carryover Underestimated Actual Carryover 
Information, but the Army Began Taking Action to Align These in Fiscal 
Year 2012: 

The Army's budget estimates for its Industrial Operations carryover 
were consistently less than the actual carryover amounts each year 
from fiscal years 2006 through 2012. For the 7-year period, the 
Industrial Operations actual carryover exceeded budgeted carryover by 
at least $1.1 billion each year. This was primarily because (1) the 
Army underestimated its Industrial Operations new orders received from 
customers for each of the 7 years and (2) for fiscal year 2011, 
Industrial Operations performed over $1 billion less work than 
budgeted. Reliable budget information on carryover is critical because 
decision makers use this information when reviewing Industrial 
Operations budgets. Table 2 compares the dollar amounts of the Army's 
budgeted and actual Industrial Operations carryover and the difference 
between these amounts for fiscal years 2006 through 2012. 

Table 2: Comparison of Budgeted and Actual Army Industrial Operations' 
Carryover (Fiscal Years 2006 through 2012): 

Fiscal year: 2006; 
Budgeted carryover: $1.149 billion; 
Actual carryover: $2.281 billion; 
Difference: ($1.132 billion). 

Fiscal year: 2007; 
Budgeted carryover: $1.282 billion; 
Actual carryover: $3.800 billion; 
Difference: ($2.519 billion). 

Fiscal year: 2008; 
Budgeted carryover: $2.370 billion; 
Actual carryover: $3.9 billion; 
Difference: ($1.53 billion). 

Fiscal year: 2009; 
Budgeted carryover: $2.811 billion; 
Actual carryover: $3.919 billion; 
Difference: ($1.109 billion). 

Fiscal year: 2010; 
Budgeted carryover: $2.602 billion; 
Actual carryover: $3.984 billion; 
Difference: ($1.382 billion). 

Fiscal year: 2011; 
Budgeted carryover: $3.295 billion; 
Actual carryover: $5.776 billion; 
Difference: ($2.481 billion). 

Fiscal year: 2012; 
Budgeted carryover: $2.968 billion; 
Actual carryover: $4.96 billion; 
Difference: ($1,992 billion). 

Source: GAO analysis of Army's Industrial Operations budgets. 

Note: Dollar amounts do not always add because of rounding. 

[End of table] 

Army's Budget Significantly Underestimated New Orders: 

One factor we found that contributed to actual carryover exceeding 
budgeted carryover by over $1 billion annually over the 7-year period 
was that the Army significantly underestimated the amount of new 
orders to be received from its Industrial Operations customers. As 
shown in table 3, from fiscal years 2006 through 2012, Army Industrial 
Operations budgeted to receive about $35.6 billion in new orders, but 
Industrial Operations reports showed that it actually received about 
$45.7 billion in new orders. As a result, Industrial Operations 
underestimated new orders received from customers by about $10.1 
billion over the 7-year period. 

Table 3: Army Industrial Operations' Budgeted New Orders Compared to 
Actual New Orders (Fiscal Years 2006 through 2012): 

Fiscal year: 2006; 
Budgeted: new orders: $3.188 billion; 
Actual new orders: $5.425 billion; 
Dollar variance: $2.237 billion; 
Percentage variance: 70%. 

Fiscal year: 2007; 
Budgeted: new orders: $4.562 billion; 
Actual new orders: $6.85 billion; 
Dollar variance: $2.288 billion; 
Percentage variance: 50%. 

Fiscal year: 2008; 
Budgeted: new orders: $6.3 billion; 
Actual new orders: $6.991 billion; 
Dollar variance: $691 million; 
Percentage variance: 11%. 

Fiscal year: 2009; 
Budgeted: new orders: $5.016 billion; 
Actual new orders: $6.393 billion; 
Dollar variance: $1.377 billion; 
Percentage variance: 27%. 

Fiscal year: 2010; 
Budgeted: new orders: $5.715 billion; 
Actual new orders: $6.340 billion; 
Dollar variance: $625 million; 
Percentage variance: 11%. 

Fiscal year: 2011; 
Budgeted: new orders: $6.163 billion; 
Actual new orders: $7.529 billion; 
Dollar variance: $1.366 billion; 
Percentage variance: 22%. 

Fiscal year: 2012; 
Budgeted: new orders: $4.672 billion; 
Actual new orders: $6.189 billion; 
Dollar variance: $1.517 billion; 
Percentage variance: 32%. 

Fiscal year: Total; 
Budgeted: new orders: $35.616 billion; 
Actual new orders: $45.718 billion; 
Dollar variance: $10.102 billion; 
Percentage variance: 28%. 

Source: GAO analysis of Army Industrial Operations budgets. 

Note: Dollar amounts do not always add because of rounding. 

[End of table] 

We analyzed the appropriations funding new orders to determine which 
appropriation had the largest variance. The Army's total budgeted new 
order amounts for the 7-year period were within 15 percent of the 
total actual new order amounts for the operation and maintenance and 
other appropriations categories. The largest differences for these two 
appropriation categories occurred in fiscal years 2006 and 2007, when 
Industrial Operations budget assumptions in support of the Global War 
on Terrorism underestimated the amount of orders actually 
received.[Footnote 7] However, over the same period, our analysis of 
budgeted and actual orders showed that actual new orders funded by the 
procurement appropriation category exceeded budgeted new orders by 
about $5.8 billion, or 118 percent. Actual amounts funded by the 
procurement appropriation category exceeded budgeted amounts by over 
50 percent in all but one year, with actual amounts exceeding budgeted 
amounts by more than 100 percent in 4 of the 7 years. Table 4 shows 
Army Industrial Operations' budgeted new orders compared to actual new 
orders by appropriation category funding the orders for fiscal years 
2006 through 2012. 

Table 4: Army Industrial Operations' Budgeted New Orders Compared to 
Actual New Orders by Appropriation Category Funding the Orders (Fiscal 
Years 2006 through 2012): 

Fiscal year: 2006; 
Operation and Maintenance: 
Budget: $1.599 billion; 
Actual: $2.502 billion; 
Percentage variance: 57%; 
Procurement: 
Budget: $284 million; 
Actual: $1.182 billion; 
Percentage variance: 316%; 
Other appropriations: 
Budget: $1.305 billion; 
Actual: $1.741 billion; 
Percentage variance: 33%. 

Fiscal year: 2007; 
Operation and Maintenance: 
Budget: $2.264 billion; 
Actual: $3.474 billion; 
Percentage variance: 53%; 
Procurement: 
Budget: $767 million; 
Actual: $1.462 billion; 
Percentage variance: 91%; 
Other appropriations: 
Budget: $1.532 billion; 
Actual: $1.914 billion; 
Percentage variance: 25%. 

Fiscal year: 2008; 
Operation and Maintenance: 
Budget: $3.828 billion; 
Actual: $3.056 billion; 
Percentage variance: (20%); 
Procurement: 
Budget: $642 million; 
Actual: $1.726 billion; 
Percentage variance: 169%; 
Other appropriations: 
Budget: $1.831 billion; 
Actual: $2.209 billion; 
Percentage variance: 21%. 

Fiscal year: 2009; 
Operation and Maintenance: 
Budget: $2.671 billion; 
Actual: $2.909 billion; 
Percentage variance: 9%; 
Procurement: 
Budget: $573 million; 
Actual: $1.543 billion; 
Percentage variance: 169%; 
Other appropriations: 
Budget: $1.771 billion; 
Actual: $1.942 billion; 
Percentage variance: 10%. 

Fiscal year: 2010; 
Operation and Maintenance: 
Budget: $2.866 billion; 
Actual: $3.130 billion; 
Percentage variance: 9%; 
Procurement: 
Budget: $1.034 billion; 
Actual: $1.238 billion; 
Percentage variance: 20%; 
Other appropriations: 
Budget: $1.815 billion; 
Actual: $1.972 billion; 
Percentage variance: 9%. 

Fiscal year: 2011; 
Operation and Maintenance: 
Budget: $2.783 billion; 
Actual: $3.299 billion; 
Percentage variance: 19%; 
Procurement: 
Budget: $1.283 billion; 
Actual: $2.295 billion; 
Percentage variance: 79%; 
Other appropriations: 
Budget: $2.097 billion; 
Actual: $1.936 billion; 
Percentage variance: (8%). 

Fiscal year: 2012; 
Operation and Maintenance: 
Budget: $2.723 billion; 
Actual: $3.076 billion; 
Percentage variance: 13%; 
Procurement: 
Budget: $352 million; 
Actual: $1.338 billion; 
Percentage variance: 280%; 
Other appropriations: 
Budget: $1.596 billion; 
Actual: $1.774 billion; 
Percentage variance: 11%. 

Fiscal year: Total; 
Operation and Maintenance: 
Budget: $18.734 billion; 
Actual: $21.446 billion; 
Percentage variance: 14%; 
Procurement: 
Budget: $4.936 billion; 
Actual: $10.784 billion; 
Percentage variance: 118%; 
Other appropriations: 
Budget: $11.946 billion; 
Actual: $13.487 billion; 
Percentage variance: 13%. 

Source: GAO analysis of Army Industrial Operations budgets. 

Note: Dollar amounts do not always add because of rounding. 

[End of table] 

Army headquarters and AMC officials stated that they recognized that 
Army Industrial Operations had difficulty in accurately budgeting for 
new orders, particularly for procurement-funded orders and carryover. 
In discussing this matter with Army headquarters officials, the 
officials stated that Industrial Operations develops its budgets based 
on information from customers. However, Industrial Operations 
underestimated the amount of new orders because (1) the customers did 
not always notify Industrial Operations of their plans to provide some 
orders, (2) the customers did not always commit to providing some 
orders, and (3) customer requirements subsequently changed from the 
time they prepared their budgets to the time the orders were placed 
with Industrial Operations. The Army officials we spoke with stated 
that improved communications between Industrial Operations and 
customers is needed to help better ensure that budgeted orders 
approximate actual orders. Specifically, they stated that customers 
and Industrial Operations need to work together so that Industrial 
Operations receives reliable new order information to be included in 
its budgets. 

To improve the management of carryover, the Army formed a working 
group in April 2012. Among other things, the working group identified 
that improved planning and communication was needed on budgeting for 
orders. The working group identified a number of actions that have the 
potential for remedying the budgeting and actual carryover and order 
variances, including the following: 

* Holding a series of monthly or quarterly meetings to better manage 
carryover, including issues related to orders received from customers. 
For example, beginning in July 2012, AMC and the LCMCs and their 
individual activities began to hold quarterly meetings that provide 
information on the status of Industrial Operations' carryover, orders, 
and revenue. Production issues for specific workloads and strategies 
to reduce carryover are discussed at these meetings. Strategies aimed 
at increasing revenue and reducing carryover include working a second 
shift at the activities or actions to obtain long lead time parts. 

* Establishing a policy on acceptance of unscheduled new orders. 

* Requiring the program managers (customers) to clearly identify 
planned depot work in their procurement budgets so Industrial 
Operations can better determine the dollar amount of budgeted orders 
funded with procurement appropriations. 

In addition, AMC has taken or plans to take the following actions 
intended to improve the management and budgeting of Industrial 
Operations' carryover and orders. 

* AMC reviewed orders received by Industrial Operations from customers 
in the fourth quarter of fiscal year 2012 and disapproved some orders 
that were unplanned and not included in the Industrial Operations 
fiscal year 2012 budget because the orders would increase fiscal year 
2012 carryover. Specifically, AMC disapproved $97 million of orders 
received from Industrial Operations' customers. 

* During fiscal year 2013, the Army plans to better align the 
customers' budgets with the Industrial Operations budgets. AMC 
identified three points during the budget and requirements process at 
which budget information on orders can be updated with the most 
current workload data. At these points, AMC, the LCMCs, and the 
Industrial Operations activities will meet with their customers, 
including the Office of the Assistant Secretary of the Army 
(Acquisition, Logistics and Technology), the Army National Guard, and 
the Army Reserve, and review the customers' requirements and update 
the Industrial Operations budgets for any orders to be received. 

If fully and effectively implemented, these actions should help 
address the order and carryover budgeting issues. However, the Army 
has not yet developed a timetable for implementing the actions 
identified by the working group. 

Army Earned Less Revenue Than Budgeted in Fiscal Year 2011: 

Our analysis of Army Industrial Operations budget documents showed 
that Industrial Operations earned less revenue than budgeted in fiscal 
year 2011, contributing to actual carryover exceeding the budgeted 
amount by $2.5 billion for fiscal year 2011. Even though the total 
budgeted and actual revenue was nearly equal from fiscal years 2006 
through 2012, Industrial Operations' budget data also showed that 
Industrial Operations' actual revenue for fiscal year 2011 fell below 
budgeted revenue by about $1 billion and below the previous year's 
results by $688 million. Table 5 shows a comparison between budgeted 
and actual revenue for fiscal years 2006 through 2012. 

Table 5: Army Industrial Operations' Budgeted Revenue Compared to 
Actual Revenue (Fiscal Years 2006 through 2012): 

Fiscal year: 2006; 
Budgeted revenue: $3.992 billion; 
Actual revenue: $4.592 billion; 
Dollar variance: $600 million; 
Percentage variance: 15%. 

Fiscal year: 2007; 
Budgeted revenue: $4.784 billion; 
Actual revenue: $5.286 billion; 
Dollar variance: $502 million; 
Percentage variance: 10%. 

Fiscal year: 2008; 
Budgeted revenue: $6.673 billion; 
Actual revenue: $6.471 billion; 
Dollar variance: ($202 million); 
Percentage variance: (3%). 

Fiscal year: 2009; 
Budgeted revenue: $5.930 billion; 
Actual revenue: $6.229 billion; 
Dollar variance: $299 million; 
Percentage variance: 5%. 

Fiscal year: 2010; 
Budgeted revenue: $6.309 billion; 
Actual revenue: $6.157 billion; 
Dollar variance: ($152 million); 
Percentage variance: (2%). 

Fiscal year: 2011; 
Budgeted revenue: $6.505 billion; 
Actual revenue: $5.469 billion; 
Dollar variance: ($1.035 billion); 
Percentage variance: (16%). 

Fiscal year: 2012; 
Budgeted revenue: $5.134 billion; 
Actual revenue: $6.283 billion; 
Dollar variance: $1.149 billion; 
Percentage variance: 22%. 

Fiscal year: Total; 
Budgeted revenue: $39.325 billion; 
Actual revenue: $40.486 billion; 
Dollar variance: $1.161 billion; 
Percentage variance: 3%. 

Source: GAO analysis of Army Industrial Operations budgets. 

Note: Dollar amounts do not always add because of rounding. 

[End of table] 

Army officials stated that the implementation of LMP at the Industrial 
Operations activities in fiscal years 2009 and 2011 contributed to the 
fiscal year 2011 actual revenue falling below the prior year and 
budgeted amounts. First, in the first quarter of fiscal year 2011, LMP 
was implemented at 10 of the 13 Industrial Operations activities. At 
the deployment activities, revenue was lower in fiscal year 2011 
because of production delays caused by the workforce being unfamiliar 
with the revised LMP requirements. Second, when the fiscal year 2011 
Industrial Operations budget was developed in the summer of 2009, 2 of 
the 13 Industrial Operations activities had just deployed LMP and 10 
of the 13 had not yet deployed LMP. The LCMCs and the activities did 
not fully understand the impact LMP would have on revenue recognition 
at the time of their budget submissions, resulting in actual revenue 
being less than budgeted. 

Carryover Increased at the End of Fiscal Years 2011 and 2012 and Was 
Caused by Several Factors: 

Much of the growth in Army Industrial Operations' carryover occurred 
in the past 2 fiscal years. During this period, carryover grew from 
$2.3 billion at the end of fiscal year 2006 to a high of $5.8 billion 
at the end of fiscal year 2011. Carryover grew in fiscal year 2011 
because Industrial Operations received more orders ($7.5 billion) than 
work it performed ($5.5 billion). At the end of fiscal year 2012, 
carryover totaled about $5 billion. 

We analyzed eight workloads that accounted for $2 billion of the $5.8 
billion in carryover at the end of fiscal year 2011. The carryover 
associated with these workloads represented about 35 percent of 
Industrial Operations' carryover for fiscal year 2011. In analyzing 
these workloads, we found three primary causes for the carryover: (1) 
the scope of work was not well defined, (2) parts needed to perform 
the work were not available, and (3) revenue recognition business 
rules were changed as part of the implementation of LMP. As an 
additional cause, the Industrial Operations activities accepted some 
orders in the third and fourth quarters of fiscal year 2011, which 
provided them little time to resolve any scope of work or parts issues 
in fiscal year 2011. Table 6 summarizes the results of our analysis of 
the key causes of carryover related to the eight workloads we analyzed. 

Table 6: Analysis of Key Causes for Carryover for Eight Army 
Industrial Operations Workloads: 

Workloads: Ammunition Rack; 
Key causes for carryover: 
Scope of work not well defined: [Empty]; 
Parts not available: [Check]; 
Change in revenue recognition rules: [Empty]. 

Workloads: Assault Breacher Vehicle; 
Key causes for carryover: 
Scope of work not well defined: [Empty]; 
Parts not available: [Check]; 
Change in revenue recognition rules: [Empty]. 

Workloads: Aviation Ground Power Unit; 
Key causes for carryover: 
Scope of work not well defined: [Check]; 
Parts not available: [Check]; 
Change in revenue recognition rules: [Empty]. 

Workloads: Black Hawk; 
Key causes for carryover: 
Scope of work not well defined: [Empty]; 
Parts not available: [Empty]; 
Change in revenue recognition rules: [Check]. 

Workloads: Force Provider; 
Key causes for carryover: 
Scope of work not well defined: [Empty]; 
Parts not available: [Check]; 
Change in revenue recognition rules: [Check]. 

Workloads: High Mobility Multi-purpose Wheeled Vehicle; 
Key causes for carryover: 
Scope of work not well defined: [Empty]; 
Parts not available: [Check]; 
Change in revenue recognition rules: [Empty]. 

Workloads: Patriot Radar; 
Key causes for carryover: 
Scope of work not well defined: [Empty]; 
Parts not available: [Check]; 
Change in revenue recognition rules: [Empty]. 

Workloads: Route Clearance Vehicle; 
Key causes for carryover: 
Scope of work not well defined: [Check]; 
Parts not available: [Check]; 
Change in revenue recognition rules: [Empty]. 

Source: GAO analysis of eight Army Industrial Operations workloads. 

[End of table] 

Scope of Work Not Well Defined: 

In order for the Army Industrial Operations activities to perform work 
in a timely manner and minimize carryover, the activities should have 
a well-defined scope of work, including approved technical data and 
documented processes. Industrial Operations officials informed us that 
the lack of a well-defined scope of work was one of the causes of 
carryover. Our analysis of eight Industrial Operations workloads 
corroborated the information provided by Industrial Operations 
officials and found that work on two workloads was delayed and 
carryover increased because the scope of work was not well defined. 

For example, in July 2010, Letterkenny accepted its first order to 
convert 3 Mine Resistant Ambush Protected vehicles to a different 
operational purpose. The converted vehicle is referred to as a Route 
Clearance Vehicle (RCV).[Footnote 8] Under the accepted work order, 
Letterkenny was expected to design and engineer 3 prototype vehicles, 
establish a technical data package to convert the vehicles, and 
develop a statement of work and a bill of materials. The 3 vehicles 
were expected to be completed by December 2010--about 6 months later. 
However, the depot experienced problems designing the modified 
vehicle, reaching agreement with its customer on the new design, and 
performing tests on the first vehicle. The final technical data 
package to convert the additional vehicles and the development of the 
statement of work and the bill of materials were delayed until the new 
design was agreed upon and the first vehicle was tested. As the depot 
continued to work with its customer on the design of the 3 pilot 
vehicles, in July 2011, Letterkenny accepted its second order under 
this program for the production of 10 vehicles. One month later, the 
depot accepted a third order for over 300 production vehicles for $211 
million. Because of the delays in completing the 3 prototype vehicles 
that were to identify the specifications of the work to be performed, 
the depot carried over about $211 million in work orders into fiscal 
year 2012. 

Moreover, the depot had a total of three pilot vehicles and 292 
production vehicles on order at the end of fiscal year 2012.[Footnote 
9] One pilot vehicle ordered was almost complete as of September 30, 
2012. The depot carried over about $209 million in work orders into 
fiscal year 2013. A photo of a Mine Resistant Ambush Protected vehicle 
that is being converted to an RCV is shown in figure 2. 

Figure 2: Mine Resistant Ambush Protected Vehicle Being Converted to a 
Route Clearance Vehicle: 

[Refer to PDF for image: photograph] 

Source: Army Material Command. 

[End of figure] 

Parts Not Readily Available to Perform Repair Work: 

Without the right mix and sufficient quantity of spare parts, the Army 
Industrial Operations activities are impaired in their ability to 
complete their funded workloads in a timely and efficient manner. 
Industrial Operations officials informed us that parts shortages was 
one of the causes of carryover. Our analysis of Industrial Operations 
data corroborated these officials' views and found that parts 
shortages at the activities contributed to carryover for seven of the 
eight workloads we reviewed. Parts were not available for work to 
proceed in a timely manner because (1) the depots accepted orders 
funded with procurement appropriations in fiscal year 2011 but 
contracts to purchase parts needed to perform the work were not 
awarded until fiscal years 2012 or 2013 and (2) the HMMWV work 
outpaced the ability of the supply chain to provide the parts. The 
delay in receipt of parts extended the time needed for the activities 
to complete work on the orders which, in turn, increased the amount of 
work that carried over into the following fiscal year or fiscal years. 
For example, as summarized in figure 3 and discussed in more detail 
below, parts shortages impaired Industrial Operations' depots at Red 
River and Letterkenny from completing their HMMWV work orders. 

Figure 3: Overview of Impact of Parts Shortages on Completing HMMWV 
Work Orders at Red River and Letterkenny: 

[Refer to PDF for image: illustration] 

Modernization of HMMWV fleet: 
Army undertakes modernization of HMMWV fleet to permit heavier 
payloads and additional operational capabilities. Engine, transmission,
and transfer case are replaced, and doors, three-piece frame rails, 
and parking breaks are upgraded. 

Dollar amount of carryover: 
9/30/2011: $837 million; 
9/30/2012: $356 million. 

Work locations: 
Letterkenny Depot, Chambersburg, PA; 
Red River Depot, Texarkana, TX. 

Modernization effort challenges: 
Challenges to the HMMWV modernization fleet include personnel, 
logistics, and part supply. 

Repair line challenges: 
Challenges included: 
* Reestablishing production line (Letterkenny Depot); 
* Reestablishing supply chain (Letterkenny and Red River Depots); 
* Hiring and training contract personnel (Letterkenny and Red River 
Depots). 

Needed parts not available: 
Parts not available included: 
* Door; 
* Rear half shaft; 
* Gunner protection kit; 
* Windshield. 

Modernization outcomes: 

Modernization complete: 
767 HMMWVs completed at the end of fiscal year 2012. 

Modernization unfinished: 
4,254 HMMWVs assembled but missing parts at the end of fiscal year 
2012. 

Source: GAO analysis of Letterkenny and Red River data. 

[End of figure] 

Contracts to Purchase Parts Were Awarded 1 or 2 Fiscal Years after 
Depots Accepted Orders: 

Our analysis of Army order and contract data associated with five 
workloads found that contracts for critical parts were not awarded 
until 1 or 2 fiscal years after the orders were accepted by the 
depots. This resulted in almost all the fiscal year 2011 funds 
carrying over on these workloads at the end of fiscal year 2011 and 
funds on these orders continuing to carry over at the end of fiscal 
year 2012. Table 7 shows the workload, description of the parts 
ordered, date the first fiscal year 2011 order was accepted, contract 
award date for buying critical parts, and key contract terms. 

Table 7: Key Dates and Contract Terms for Five Army Industrial 
Operations Workloads: 

Workload: Ammunition Rack; 
Description of parts ordered: Ammunition rack upgrade kits; 
Order acceptance date[A]: April 2011; 
Contract award date: September 2012; 
Key contract terms: Six months to first delivery. 

Workload: Assault Breacher Vehicle; 
Description of parts ordered: Conversion assembly kits; 
Order acceptance date[A]: August 2011; 
Contract award date: December 2011; 
Key contract terms: Production of three per month. 

Workload: Aviation Ground Power Unit; 
Description of parts ordered: Engines; 
Order acceptance date[A]: June 2011; 
Contract award date: June 2012; 
Key contract terms: Production of eight per month. 

Workload: Force Provider; 
Description of parts ordered: Storage and transportation containers; 
Order acceptance date[A]: January 2011; 
Contract award date: August 2012; 
Key contract terms: Delivery begins within 30 days. 

Workload: Route Clearance Vehicle; 
Description of parts ordered: Conversion parts; 
Order acceptance date[A]: July 2011; 
Contract award date: November 2012; 
Key contract terms: First delivery February 2013. 

Source: GAO analysis of Army order and contract data. 

[A] Date the first fiscal year 2011 order was accepted by the depot. 
Some workloads had multiple orders in fiscal year 2011. 

[End of table] 

Work on the five fiscal year 2011 workloads shown above was delayed to 
fiscal year 2012 or 2013 because of the timing of the award of 
contracts for critical parts needed to complete the Army Industrial 
Operations work orders. For four of the five workloads, the award of 
the contracts to purchase parts occurred 1 or more years after the 
depot received the order to perform the work. Further, as illustrated 
in the following examples, work was delayed in fiscal year 2012 on 
some of these fiscal year 2011 orders because of the terms of the 
contracts--the contractor can only produce a certain number per month. 

* In August 2011, Anniston accepted five orders totaling $44 million 
for the conversion of 20 M1A1 Abrams tanks to Assault Breacher 
Vehicles (ABV). In order to perform the work, Anniston had to remove 
the old turrets, fabricate new turrets, and convert the tank hulls to 
address the vehicles' new function--to breach mine fields and barrier 
obstacles. Anniston officials told us that they could not begin work 
on the orders until they received material (government-furnished 
equipment) that was being procured by the program manager. However, 
the contract to procure the government-furnished equipment was not 
awarded until December 2011--fiscal year 2012--and the contractor 
could only produce three kits per month. Anniston began work on the 
ABV orders in May 2012 so that the work fell in line with the delivery 
of the government-furnished equipment. As a result, the first vehicle 
on the order was not completed until October 2012--fiscal year 2013--
and the production of the vehicles at Anniston was limited to three 
per month to match the supplier's ability to manufacture the needed 
kits. The depot carried over the entire amount into fiscal year 2012 
and $25 million into fiscal year 2013. 

During fiscal year 2012, Anniston accepted five more ABV Army orders 
totaling $48.3 million to produce 22 ABVs and almost all the work--
$46.3 million--carried over into fiscal year 2013. Similar to the 
orders accepted in fiscal year 2011, Anniston had to maintain a low 
monthly production quantity because one of the contractors could only 
deliver three material kits per month. A photo of an ABV is shown in 
figure 4. 

Figure 4: Assault Breacher Vehicle: 

[Refer to PDF for image: photograph] 

Source: Army Material Command. 

[End of figure] 

* Letterkenny received four orders in the second quarter of fiscal 
year 2011 totaling $156 million for 17 Force Provider modules. 
[Footnote 10] Letterkenny procures equipment to fill approximately 43 
of the 101 containers that make up each new build module. The 43 
containers hold approximately 346 different types of new equipment 
comprising thousands of individual components. Letterkenny carried 
over almost the entire amount into fiscal year 2012--$156 million. 

In fiscal year 2012, Letterkenny accepted three more orders totaling 
$18 million for six new Force Providers. However, a contract was not 
awarded to buy containers until August 2012--over a year after 
receiving the first fiscal year 2011 order. Letterkenny received about 
700 containers from August through December 2012. In the meantime, 
work essentially stopped on the new build program in July and August 
2012 because of the lack of sufficient containers to complete 13 of 
the 17 modules on the fiscal year 2011 orders and 6 modules on the 
fiscal year 2012 orders. Without the containers, the depot could not 
complete work on the fiscal years 2011 and 2012 orders and reduce 
carryover on the orders. The depot carried over $79 million into 
fiscal year 2013 associated with the fiscal year 2011 and 2012 new 
build orders. A photo of a Force Provider is shown in figure 5. 

Figure 5: Force Provider: 

[Refer to PDF for image: photograph] 

Source: Army Material Command. 

[End of figure] 

Required Parts Exceeded Available Supplies, Which Impaired Depots' 
Ability to Perform HMMWV Work: 

The work that Red River and Letterkenny performed on the HMMWV in 
fiscal years 2011 and 2012 outpaced the ability of the supply chain to 
provide the parts. In June 2011, Red River and Letterkenny accepted 
orders to overhaul 7,971 HMMWVs.[Footnote 11] At the end of fiscal 
year 2011, the amount of the orders was $839 million, and of that 
amount, $837 million carried over into fiscal year 2012. In order to 
perform the work on these vehicles, Letterkenny had to reestablish its 
production line since it was previously shut down because of the lack 
of HMMWV work. Further, both depots had to hire contractor personnel 
to staff the production line and establish a supply chain so that the 
depots could obtain the parts to perform the work. Both depots 
encountered problems with obtaining sufficient quantities of parts, 
such as doors, gunner protection kits, windshields, turret bearings, 
and half shafts, to perform the work. This parts problem was 
exacerbated at Red River when the depot went to a double shift on 
disassembling and assembling HMMWVs in April 2012. As a result of the 
parts shortage, at the end of fiscal year 2012, Red River and 
Letterkenny completed 767 of the vehicles ordered in fiscal year 2011. 
In addition, the depots assembled another 4,254 vehicles but the 
vehicles were missing parts. The depots carried over $356 million of 
these orders into fiscal year 2013. A photo of a HMMWV is shown in 
figure 6. 

Figure 6: High Mobility Multi-purpose Wheeled Vehicle: 

[Refer to PDF for image: photograph] 

Source: Army Material Command. 

[End of figure] 

Changed Revenue Recognition Business Rules under LMP: 

As discussed previously, the implementation of LMP changed the revenue 
recognition business rules and resulted in increased carryover in 
fiscal years 2011 and 2012. The point in time when revenue is 
recognized is important because when an Army Industrial Operations 
activity performs work, it earns revenue, thereby reducing carryover. 
As discussed earlier, the Army implemented LMP at two Industrial 
Operations activities in fiscal year 2009 and 10 Industrial Operations 
activities in fiscal year 2011. While the Army could not determine the 
extent of the change on Industrial Operations' carryover resulting 
from implementation of LMP, officials at Army headquarters, LCMCs, and 
the depots stated that they believed carryover increased because of 
the change in revenue recognition rules. 

For example, Corpus Christi reported in fiscal year 2011 that it 
accepted orders totaling about $455 million to repair and upgrade 57 
Black Hawk helicopters. The established repair process time for the UH-
60L Black Hawk averaged approximately 1 year in fiscal year 2011. The 
change in the business rules for recognizing revenue on parts and 
material because of the implementation of LMP in May 2009 caused 
revenue on the fiscal year 2011 orders to be recognized, or earned, in 
fiscal year 2012. Prior to the implementation of LMP, the depot's 
business rules recognized revenue on parts and material on the Black 
Hawk when they were turned into the supply system during the 
disassembly process and replacement parts were requisitioned and 
received--usually within the first 90 days. Under LMP, revenue for 
parts and material is not recognized until parts and material are 
brought to the assembly area for installation on the aircraft. Final 
assembly of the aircraft occurs about 266 days after acceptance of the 
orders. As a result, at least in part due to the change in revenue 
recognition rules under LMP, at the end of fiscal year 2011, Corpus 
Christi documentation showed that it carried over into the next fiscal 
year $425 million associated with these orders--93 percent of the 
order amounts. A photo of a Black Hawk helicopter is shown in figure 7. 

Figure 7: Black Hawk Helicopter: 

[Refer to PDF for image: photograph] 

Source: Army Material Command. 

[End of figure] 

Army Has Actions Under Way and Planned to Improve Management of 
Carryover: 

Because of the size of the carryover at the end of fiscal year 2011, 
the Army recognized that it needed to improve its management of 
carryover, and in April 2012, the Army formed a working group. The 
working group identified, among other things, that it was the Army 
Industrial Operations activities' responsibility to ensure that they 
have the necessary resources for performing the work. The working 
group identified the following six elements that the Industrial 
Operations activities should review when receiving orders for work to 
be performed: 

* Skilled labor. Are there adequate labor hours available with the 
required skills to execute the work? 

* Parts. Is there sufficient stock on hand or in the supply pipeline 
to complete the program schedule on time? 

* Tools and equipment. Are all required special tools, fixtures, jigs, 
and stands on hand or being acquired? 

* Process. Is there approved technical data, including a defined scope 
of work, documented processes, and internal process capacity, 
available to complete the work? 

* Requirements. Is there an understanding of the total Army 
requirements as well as the required depot production for the workload 
after considering back orders, average monthly demand, potential surge 
requirements, and alternate source of repair? 

* Funding. Is there available funding and rate of required funding to 
support production? 

Further, the working group determined that if the Industrial 
Operations activities determine that they do not have the capability 
to perform any of the six elements, the activities should be required 
to send orders to their management for review and approval. Also, for 
any areas for which resources are not available, the activities should 
be required to develop a plan on how they will resolve the issue, such 
as obtaining parts that are not in the supply system. 

To convey the working group's results, the Army plans to issue two 
policy memos during fiscal year 2013. According to Army officials and 
documentation we reviewed, one policy memo will address (1) the LCMCs' 
and activities' responsibilities for acceptance of orders and 
performing the work (regardless of the appropriation funding the 
orders) and (2) the six elements discussed above. The second policy 
memo will address orders funded with procurement appropriations. 
According to Army officials, this second policy memo will discuss 
various aspects of procurement-funded orders, including different 
types of work such as pilot programs, prototypes, fabrication, and 
data requirements. According to the Army, this action should result in 
a better alignment of the work to the customer delivery schedule and 
prevent the acceptance of workloads that are not executable in a 
specific fiscal year. We agree that these actions are needed for 
orders placed with Industrial Operations. If properly implemented, the 
Army's actions should help address our concerns that (1) the scope of 
work was not well defined and (2) parts were not available to perform 
the work. However, the Army has not issued the planned policy memos. 
The memos should contain specific timetables for implementing their 
planned actions and establish procedures to include steps to be 
followed by Industrial Operations in evaluating orders received from 
customers. 

Conclusions: 

The work that Army Industrial Operations performs supports combat 
readiness by restoring equipment to a level of combat capability 
commensurate with a unit's future mission. Reliable budgeted 
information on Industrial Operations, including carryover information, 
is essential for Congress and DOD to perform their oversight 
responsibilities, including reviewing and making well-informed 
decisions on Industrial Operations budgets. The Army reported in its 
budgets to Congress that Industrial Operations' adjusted carryover was 
under the allowable amount at the end of fiscal years 2011 and 2012. 
However, budget estimates for carryover were consistently less than 
the actual amounts each year from fiscal years 2006 through 2012 
primarily because of Industrial Operations underestimating new orders 
from customers, particularly procurement-funded orders. Budget 
estimates could be improved by addressing the major factors that 
caused variations between budgeted and actual amounts, including 
improved communication between customers and Industrial Operations. 
The Army recognized that it needed to improve the budgeting and 
management of carryover and formed a working group in April 2012. The 
working group identified a number of actions that are under way and 
planned to help remedy this situation. However, the Army has not yet 
implemented these planned actions and does not have a timetable for 
implementation. 

Recommendations for Executive Action: 

We recommend that the Secretary of Defense direct the Secretary of the 
Army to take the following three actions to improve the budgeting and 
management of Army Industrial Operations' carryover: 

* Issue the planned working group policy memos and establish a 
timetable for implementing these actions for improving the management 
of carryover. 

* Implement the working group's planned actions to improve the 
budgeting for new orders to be received by Army Industrial Operations. 

* 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 Comments: 

DOD provided written comments on a draft of this report. In its 
comments, which are reprinted in appendix II, DOD concurred with the 
three recommendations and cited actions planned or under way to 
address them. Specifically, DOD commented that by the end of fiscal 
year 2013, the Army will issue policy memorandums with actions to be 
implemented by the beginning of the second quarter of fiscal year 
2014. The memorandums will address the following: (1) the 
responsibilities and criteria of the Industrial Operations activities 
to accept new orders whether budgeted or unbudgeted and (2) new 
procurement-funded orders to better align the work to customer 
delivery schedules. Further, DOD stated that the Army's fiscal year 
2014 budget guidance included direction for program managers to 
identify planned depot workload in procurement budgets beginning in 
the fiscal year 2014 President's Budget cycle and that the same 
direction will be included in subsequent budget cycle guidance. 
Finally, DOD indicated that the Army will establish procedures to 
implement the policy memorandum on the acceptance of new orders 
beginning with the second quarter of fiscal year 2014. 

We are sending copies of this report to the appropriate congressional 
committees, the Secretary of Defense, and the Secretary of the Army. 
In addition, the report is available at no charge on the GAO website 
at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about 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. 

Signed by: 

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

[End of section] 

Appendix I: Scope and Methodology: 

To determine whether, and to what extent, Army Industrial Operations' 
actual carryover exceeded the allowable amount of carryover from 
fiscal years 2006 through 2012, we obtained and analyzed Industrial 
Operations reports that contained information on actual carryover and 
the allowable amount of carryover for fiscal years 2006 through 2012. 
We analyzed carryover beginning with fiscal year 2006 because the 
Army's fiscal year 2006 budget reported a consolidation of the Army 
Working Capital Fund's depot maintenance and ordnance activity groups 
into Industrial Operations, making a comparison to prior fiscal years 
difficult. We met with responsible officials from Army headquarters 
and Army Materiel Command (AMC) to obtain their views on the causes 
for variances between actual carryover and the allowable amount. 
Further, we identified and analyzed any adjustments made by the Army 
that increased the allowable carryover amounts or reduced the amount 
of carryover. We reviewed the Department of Defense's guidance for 
exceptions to the carryover policy and discussed any exceptions with 
Office of the Under Secretary of Defense (OUSD) (Comptroller) and Army 
headquarters officials to obtain explanations for the exceptions. 

To determine whether, and to what extent, Army Industrial Operations' 
budget information on carryover from fiscal years 2006 through 2012 
approximated actual information, and if not, whether the Army took 
actions to align the two, we obtained and analyzed Industrial 
Operations reports that contained information on budgeted and reported 
actual new orders, revenue, and actual carryover data for fiscal years 
2006 through 2012. We also analyzed the new order data by the 
appropriations financing the orders to determine whether there were 
variances by appropriations for budgeted and reported actual new order 
amounts for the 7-year period. We met with responsible officials from 
Army headquarters and AMC to obtain their views on causes for 
variances between budgeted and reported actual new order, revenue, and 
carryover amounts. We also met with these officials to discuss actions 
the Army was taking to improve budgeting and management of carryover. 

To determine whether, and to what extent, Army Industrial Operations' 
carryover increased during fiscal years 2011 and 2012, and causes for 
the carryover for those 2 fiscal years, we met with responsible 
officials from Army headquarters, AMC, the Office of the Assistant 
Secretary of the Army (Acquisition, Logistics and Technology), the 
Life Cycle Management Commands (LCMC), and four depots that had orders 
with high dollar amounts of fiscal year 2011 carryover to identify 
contributing factors that caused the carryover. We also performed walk-
throughs of the Army's Anniston, Corpus Christi, Letterkenny, and Red 
River depots' operations to observe the work being performed by the 
depots and discussed with officials causes for workload carrying over 
from one fiscal year to the next. Further, to corroborate the 
information provided by Industrial Operations officials, we selected 
eight weapon system workloads with high dollar amounts of fiscal year 
2011 carryover from four Army depots. The carryover associated with 
these workloads represented about 35 percent of Industrial Operations' 
total carryover at the end of fiscal year 2011 and was one of the top 
five workloads with carryover at each depot. We followed up on the 
status of carryover on these eight workloads at the end of fiscal year 
2012. We obtained and analyzed orders and amendments associated with 
these workloads and discussed the information in these documents with 
the depots to determine the causes for the carryover. We discussed the 
carryover information on these workloads with officials in the program 
management offices at the Office of the Assistant Secretary of the 
Army (Acquisition, Logistics and Technology) to determine their roles 
and responsibilities in providing orders to the depots and their 
impact on carryover. We also discussed and obtained documentation on 
the actions the Army is taking to better manage and reduce carryover. 

We obtained the financial and logistical data in this report from 
official budget documents and the Army's logistical system. 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 Army officials 
knowledgeable about the carryover data, (3) reviewed GAO reports on 
depot maintenance activities, and (4) reviewed customer orders 
submitted to Industrial Operations 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. We 
also reviewed the Commander's Critical Item Reports for fiscal years 
2011 and 2012 that provide information on inventory items (spare 
parts) needed by the depots. In reviewing the reports, we determined 
whether needed inventory items were associated with customer orders 
that had carryover for the workloads that we reviewed. 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 OUSD (Comptroller), the Office of 
the Assistant Secretary of the Army (Acquisition, Logistics and 
Technology), and the Office of the Assistant Secretary of the Army 
(Financial Management and Comptroller), Washington, D.C.; AMC, 
Huntsville, Alabama; the Aviation and Missile Command LCMC, 
Huntsville, Alabama; the Tank, Automotive and Armaments Command LCMC, 
Warren, Michigan; the Anniston Army Depot, Anniston, Alabama; the 
Corpus Christi Army Depot, Corpus Christi, Texas; the Letterkenny Army 
Depot, Chambersburg, Pennsylvania; the Red River Army Depot, 
Texarkana, Texas; and the Office of the Assistant Secretary of the 
Army (Acquisition, Logistics and Technology) at Huntsville, Alabama, 
and Warren, Michigan. 

We conducted this performance audit from May 2012 to June 2013 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: 

July 7, 2013: 

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

Dear Mr. Khan: 

Enclosed is the Department of Defense (DoD) response to the Government 
Accountability Office (GAO) draft report (GAO-13-499), "Army 
Industrial Operations: Budgeting and Management of Carryover Could Be 
Improved," dated May, 2013 (GAO Code 197119). 

Sincerely, 

Signed by: 

John P. Roth: 

Enclosure: As stated: 

GAO Draft Report Dated May 13, 2013: 
GAO-13-499 (GAO Code 197119): 

"Army Industrial Operations: Budgeting And Management Of Carryover 
Could Be Improved" 

Department Of Defense Comments To The GAO Recommendation: 

Recommendation 1: The GAO recommends that the Secretary of Defense 
direct the Secretary of the Army to issue the planned working group 
policy memos and establish a timetable for implementing these actions 
on improving the management of carryover. 

DoD Response: Concur. The Army is already preparing to issue, by the 
end of FY 2013, two policy memorandums with actions therein to be 
implemented by the beginning of second quarter FY 2014. This is as a 
result of the working group recommendations coordinated with the 
Office of the Secretary of Defense (OSD). 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 2: The GAO recommends that the Secretary of Defense 
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. 

DoD Response: Concur. As coordinated with the OSD, the Army has 
implemented the working group plan to improve budgeting for new 
orders. The Army continues to hold senior-level quarterly meetings to 
review Army Industrial Operations (JO) carryover, orders, and revenue 
status. The Army Materiel Command, the Life Cycle Management Commands, 
and the Army I0 activities are committed to coordinating with 
customers throughout the budget and requirements process to ensure the 
most current workload data is identified. Additionally, the Army's FY 
2014 Budget Guidance included direction for program managers to 
identify planned depot workload clearly in procurement budgets 
beginning in the FY 2014 President's Budget cycle. The same direction 
will be included in subsequent budget cycle guidance. 

Recommendation 3: The GAO recommends that the Secretary of Defense 
direct the Secretary of the Army to establish procedures to include 
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. 

DoD Response: Concur. As coordinated with the OSD, the Army is already 
in the process of establishing procedures to implement the policy 
memorandum on the acceptance of new orders. By the beginning of second 
quarter of FY 2014, Army 10 activities will use the procedures to 
determine acceptance of new orders. Acceptance of new orders will be 
based on the available resources such as parts and materials, skilled 
labor, tools, equipment, technical data, and funding to perform the 
work. 

[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 13 Industrial Operations' activities are the Anniston Army 
Depot, Anniston, Alabama; the Blue Grass Army Depot, Richmond, 
Kentucky; the Corpus Christi Army Depot, Corpus Christi, Texas; the 
Crane Army Ammunition Activity, Crane, Indiana; the Letterkenny Army 
Depot, Chambersburg, Pennsylvania; the McAlester Army Ammunition 
Plant, McAlester, Oklahoma; the Pine Bluff Arsenal, Pine Bluff, 
Arkansas; the Red River Army Depot, Texarkana, Texas; the Rock Island 
Arsenal-Joint Manufacturing and Technology Center, Rock Island, 
Illinois; the Sierra Army Depot, Herlong, California; the Tobyhanna 
Army Depot, Tobyhanna, Pennsylvania; the Tooele Army Depot, Tooele, 
Utah; and the Watervliet Arsenal, Watervliet, New York. 

[2] 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. 

[3] See DOD Financial Management Regulation 7000.14-R, Defense Working 
Capital Fund Activity Group Analysis, vol. 2B, ch. 9, p. 9-43 (June 
2010), for orders excluded from the carryover calculation. 

[4] One Industrial Operations activity implemented LMP in fiscal year 
2003. 

[5] Actual carryover adjusted for waivers/exclusions will be referred 
to as adjusted carryover in this report. The adjusted carryover amount 
is used when comparing it to the allowable amount. Also, waivers/ 
exclusions will be referred to as waivers in this report. 

[6] The number of months of work is a calculation to show the average 
time required to work off the year-end carryover amount. It is 
calculated by dividing total revenue earned during the year by 12 
months to determine the average revenue earned by month. The total 
carryover at year-end is then divided by the average revenue earned by 
month to determine the number of months of carryover. The calculated 
amount represents the total number of months to perform the work, 
which includes labor, material, and overhead costs. 

[7] Our analysis of the AWCF budget guidance for fiscal year 2006 
showed that the Army assumed that the fiscal year 2006 new orders 
amount would approximate 50 percent of the fiscal year 2005 operation 
and maintenance supplemental budget. For fiscal year 2007, the Army 
assumed that the fiscal year 2007 orders would be approximately 25 
percent less than the fiscal year 2006 program. These assumptions 
resulted in the budgeted orders for fiscal years 2006 and 2007 being 
lower than the actual reported orders for these 2 fiscal years. 

[8] The RCV is a vehicle for route clearance and explosive ordnance 
disposal. 

[9] The production vehicle quantities decreased from fiscal years 2011 
through 2012 because the unit funded cost per vehicle increased. 

[10] The Force Provider is a transportable base camp system that 
provides housing and operational space for a variety of missions. 

[11] The customer reduced the quantity from 7,971 to 6,957 HMMWVs in 
October 2012. 

[End of section] 

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