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Highlights

According to the Department of Defense's (DOD) fiscal year 2006 budget estimates, working capital fund activity groups (depot maintenance, ordnance, and research and development) will have about $6.3 billion of funded work that will be carried over from fiscal year 2006 into fiscal year 2007. The congressional defense committees recognize that these activity groups need some carryover to ensure smooth work flow from one fiscal year to the next. However, the committees have previously raised concern that the amount of carryover may be more than is needed. GAO was asked to determine (1) if the military services' carryover calculations were in compliance with DOD's new carryover policy and (2) if customers were submitting orders to working capital fund activities late in the fiscal year and, if so, the effect this practice has had on carryover.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense 1. In order to improve the business operations of the Department of Defense Working Capital Fund, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to issue written instructions in its DOD Financial Management Regulation 7000.14-R specifying the outlay rates to be used by DOD working capital fund activities for calculating the allowable amount of carryover and continue to issue carryover guidance to the military services in its annual guidance on preparing budget justification book material for Congress.
Closed - Implemented
DOD concurred with our recommendation and updated its Financial Management Regulations in June 2006 to include instructions specifying the outlay rates to be used by DOD working capital fund activities. Further, DOD included in their fiscal years 2007 and 2008/2009 budget justification guidance instructions directing the military services to use the outlay rates in DOD's financial summary tables.
Department of Defense 2. In order to improve the business operations of the Department of Defense Working Capital Fund, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to review the carryover information provided in the military services' annual budget submissions to help ensure the services are calculating their allowable and actual carryover amounts in accordance with DOD policy.
Closed - Implemented
DOD concurred with our recommendation and implemented a more rigorous review of the Services' carryover reporting for the fiscal years 2007 and 2008/2009 budget submissions. Our review of selected carryover reports prepared by the Services' for the fiscal years 2007 and 2008/2009 budget submissions found that the Services were calculating the allowable and actual carryover amounts in accordance with DOD policy.
Department of Defense 3. In order to improve the business operations of the Department of Defense Working Capital Fund, the Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to reiterate the requirements in the DOD Financial Management Regulation 7000.14-R to help ensure that working capital fund activities are in compliance with the regulations governing acceptance of orders, particularly at fiscal year end.
Closed - Implemented
DOD concurred with our recommendation and on August 9, 2006, DOD issued a memorandum to the military services directing them to comply with the requirements in the DOD FMR 7000.14-R for accepting customer orders, particularly at fiscal year end. Specifically, DOD directed Defense Working Capital Fund managers to take the appropriate action to ensure that work commences within a reasonable period of time after the acceptance of customer orders.
Department of Defense 4. In order to improve the business operations of the Department of Defense Working Capital Fund, the Secretary of Defense should direct the Secretary of the Air Force to use the current outlay rate tables that are included in the DOD Financial Summary Tables when calculating the allowable carryover amounts for the Air Force depot maintenance activity group, consistent with DOD policy.
Closed - Implemented
DOD concurred with our recommendation and directed the Air Force to use the outlay rates from the DOD Financial Summary Tables in its budget guidance to the Air Force for the fiscal years 2007 and 2008/2009 budget submissions. Our review of the carryover reports prepared by the Air Force depot maintenance activity group for the fiscal years 2007 and 2008/2009 budget submissions found that the Air Force was calculating the allowable carryover amounts in accordance with DOD policy.
Department of Defense 5. In order to improve the business operations of the Department of Defense Working Capital Fund, the Secretary of Defense should direct the Secretary of the Air Force to use only current year orders for calculating the allowable carryover amounts for the Air Force depot maintenance activity group, as required by DOD carryover policy.
Closed - Implemented
DOD concurred with our recommendation and directed the Air Force to use the current year orders only for calculating the allowable amount of carryover in its fiscal years 2007 and 2008/2009 budget submission. Further,this guidance was also included in the DOD Financial Management Regulations. Our review of the carryover reports prepared by the Air Force depot maintenance activity group for the fiscal years 2007 and 2008/2009 budget submissions found that the Air Force was calculating the allowable carryover amounts in accordance with DOD policy.
Department of Defense 6. In order to improve the business operations of the Department of Defense Working Capital Fund, the Secretary of Defense should direct the Secretary of the Air Force to include all orders when calculating the amount of actual carryover for the Air Force depot maintenance activity group, except those orders that are specifically excluded in DOD Financial Management Regulation 7000.14-R or are excluded by the Under Secretary of Defense (Comptroller) in writing.
Closed - Implemented
DOD concurred with our recommendation and the Undersecretary of Defense (Comptroller) restated the requirements for calculating and reporting carryover during the fiscal years 2007 and 2008/2009 budget review processes. Our review of the carryover reports prepared by the Air Force depot maintenance activity group for the fiscal years 2007 and 2008/2009 budget submissions found that the Air Force was calculating the actual carryover amounts in accordance with DOD policy.
Department of Defense 7. In order to improve the business operations of the Department of Defense Working Capital Fund, the Secretary of Defense should direct the Secretary of the Air Force to include the allowable and actual dollar amounts of carryover for the Air Force depot maintenance activity group in the Air Force's annual budget to Congress, as required by DOD Financial Management Regulation 7000.14-R.
Closed - Implemented
DOD concurred with our recommendation and as part of the fiscal years 2007 and 2008/2009 annual budgets submitted to Congress, the Air Force included the allowable and actual carryover amounts.
Department of Defense 8. In order to improve the business operations of the Department of Defense Working Capital Fund, the Secretary of Defense should direct the Secretary of the Navy to include the allowable and actual amounts of carryover for each of the five Navy research and development subactivity groups in the Navy's annual budget to Congress.
Closed - Implemented
DOD concurred with our recommendation and directed the Navy to comply with our recommendation. Our review of Navy carryover reports for the fiscal year 2008/2009 budget submission to Congress found that the Navy reported its allowable and actual carryover amounts for the five Navy research and development subactivity groups.

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