Financial Management: Air Force Budget Request Could Be Enhanced With More Complete Aircraft Data

Published by the Government Accountability Office on 1997-08-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   General Accounting  Office
      Washington, D.C. 20548

      Accounting and Information
      Management Division


      August 21, 1997

      The Honorable Alice C. Maroni
      Acting Under Secretary of Defense (Comptroller)

      The Honorable Robert F. Hale
      Assistant Secretary of the Air Force
      Financial Management and Comptroller

      Subject:    Financial Management: Air Force Budget Reauest Could Be
                  Enhanced With More Comulete Aircraft Data

      As part of our efforts to review implementation of the Chief Financial Officers
      (CFO) Act,’ we compared aircraft quantity data contained in the
      logistical/financial system used by the Air Force for financial statement
      presentation with the number ,of aircraft displayed in the historical data in the
      supporting documents accompanying Air Force’s budget submission. The CFO
      Act charged agency CFOs with monitoring the execution of the agency budget
      and better linking budget and fmancial information. Our objective was to
      determine the relationship between the number of aircraft reported in the
      systems used to produce financial statements and the number of aircraft
      included in annual budget support documents.

      There are signiticant differences between aircraft quantities disclosed in budget
      support documents and those used to produce financial statements. As you
      know, the Air Force uses its Reliability and Maintainability Information System
      (REMIS), a mixed system: to develop the financial information on aircraft
      reported in the financial statements. In reviewing these data, we found that the
      number of active aircraft in REMIS was substantially more than the aircraft

      ‘This responsibility to audit the consolidated financial statements of the United
      States government was mandated by the Chief Financial Officers (CFO) Act as
      expanded by the Government Management Reform Act (GMRA) of 1994.

      2The Federal FIttancial Management Improvement Act of 1996 defines a mixed
      system as an information system that supports both financial and nonfinancial
      functions of the federal government or components thereof.
                                     GAO/AIMD-97-137R Air Force Aircraft Quantities

disclosed in the budget submission. REMIS showed that the Air Force had a
total active inventory of about 6,000 aircraft as of May 1997. In its budget
submission for fiscal year 1997, the Air Force requested funds to operate and
maintain about 5,000 aircraft. Accounting standards require that financial
statements include information on all active aircraft. The budget submission
discloses what the Department of Defense (DOD) terms primary aircraft?
Historical and future years’ data shown in the fiscal year 1998 budget support
documents also used primary aircraft as the principal basis for the Air Force’s
flying hour program.

Air Force officials stated that budget documents have historicaJly disclosed only
quantities for primary aircraft, because those quantities more directly relate to
other important information, such as personnel levels and readiness, which
affect the Air Force’s flying hour program. At the same time, as we have
previously reported, there are costs associated with operating and maintainmg
backup and attrition aircraft.*

Complete aircraft information is important to the Congress as it determines the
level of funding to provide through budget deliberations. In its report on the
National Defense Authorization Act for Fiscal year 1997 (104267), the Senate
Committee on Armed Services directed that additional quantity data on aircraft
categories be included in budget submissions. The report noted that
information on total overall aircraft quantities, to include detailed information
concerning categories of active aircraft, such as backup and attrition, would be
a useful addition to budget documentation. The Air Force could better link
budget and iinancial information-an objective of the CFO Act-and improve the
completeness and utility of Congressional budget justification documents, as
 called for by the Senate Committee on Armed Services, if actual active aircraft
numbers for past years and projected active aircraft for future years were also
 disclosed in the budget documents. This information is readily available to the
Air Force in the same databases that currently are used to produce the financial
 statements and budget documents.

We performed our work at the Pentagon in Washington, DC., and at Laughlin
Air Force Base, Texas; Nellis Air Force Base, Nevada; and Edwards Air Force
Base, California. We interviewed personnel involved with Air Force budgetary

3”Primary Aircraft” is a DOD inventory designation used in budget documents
that excludes categories of active aircraft known as backup and attrition
aircraft (discussed in “Background” section).
4Aircraft Reauirements: Air Force and Naw Need To Establish Realistic Criteria
for Backun Aircraft (GAO/NSLAD-95180, September 29, 1995).

2                               GAO/AIMD-97-137R Air Force Aircraft Quantities
and logistical systems, and analyzed databases obtained from those systems.
We developed the information in this letter as part of our work related to
analyzing the Air Force’s budgetary and logistical systems and budget support
documents from August 1996 through May 1997. Our work was performed in
accordance with generally accepted government auditing standards. DOD
provided written comments on a draft of this letter. These comments are
presented and evaluated in the “Agency Comments and Our Evaluation” section
and are reprinted in enclosure I.


The Air Force uses REMIS to obtain aircraft quantity data to support financial
reporting and budget development. REMIS is the approved source for weapon
system data to support reports to the Department of Defense and the Congress.
It is a central, common source of all unclassified maintenance and logistics
information for Air Force weapon systems. For each active or inactive aircraft,
it is to provide up-to-date information on type/model/series, serial number,
equipment location, configuration, utilization, and availability. It also is to
include each individual aircraft’s assigned purpose. Active assignment
categories include mission,5 training, and testing; inactive categories include
bailment,6 loan, and storage. An aircraft’s information is to be entered into the
system upon delivery by the contractor. The system is to be updated when an
aircraft is operated, maintained, or transferred between bases. An aircraft is to
be removed from the system upon being taken out of service.

The Future Years Defense Program (FYDP) is the program and fmancial plan
for the Department of Defense. The FYDP arrays cost and force structure over
at least a 6-year period, including historical, budget, and program years. For
Congressional budget deliberations, DOD submits the FYDP and exhibits
required by volume 2 of the Department of Defense Financial Management
Regulation. The FYDP discloses an authorized level of primary aircraft. The
number of aircraft actually assigned to a unit includes primary aircraft as well
as additional quantities of aircraft referred to as backup and attrition reserve.
“Backup” aircraft are aircraft over and above primary aircraft, to permit depot-
level maintenance, other scheduled or unscheduled maintenance, modification,
inspection, and repair, without reducing the number of aircraft available for a
unit’s mission. “Attrition reserve” are aircraft above the primary and backup

5Aircraft assigned for combat, combat support, and industrial fund airlift

‘Aircraft provided to contractors as government furnished property (GFP) in
support of a government contract.

3                               GAO/AIMD-97-137R Air Force Aircraft Quantities

aircraft that were procured to ensure that the authorized inventory of aircraft
can be met upon damage or loss of an aircraft. The combining of all assigned
aircraft make up the “total active inventory.” REMIS aircraft data are used to
support financial statement reporting. The Defense Finance and Accounting
Service (DFAS)-Denver, which has principal responsibility for preparing the Air
Force’s iinancial statements, includes both active and inactive aircraft data from
REMIS in financial statement reporting. The Air Force also uses REMIS as its
source of aircraft quantity data for preparation of budget submissions. REMIS
data are provided monthly to the Air Force Programming Data System. This
system summarizes programmed Air Force inventory by type/modeYseries as
well as by program element, command, and active or inactive assignment
categories. It also provides subcategories for primary, backup, and attrition
reserve aircraft for each assignment category (mission, training, testing and
other) within the total active aircraft inventory. This system also contains
flying hours for each year of the FYDP by type/model/series, program element,
and command. However, this system and budget submission documents
allocate flying hours to primary authorized aircraft. The Programming Data
System and two other systems make up the Planning, Programming and
Budgeting System. The Air Force uses this system to develop its portion of the

Figure 1 illustrates the reporting of aircraft quantities.
Figure     1: ReDorting               of Aircraft    Quantities

                                                                                                         Diaoloeed in PYDP

          Financial                                                                                      and congressional
          atatarnent                                                                                        backupbooks

                                            7              Total active inventory
                                                                                                        Primary aircreft inventory

     Total overall aircraft inventory                                               Attrition reserve
         (ind. active and inactive)

                                             iTotal it-active inventory

 4                                                         GAO/W-97-137R                   Air Force Aircraft Quantities

The Air Force generally operates and maintains ah of its active aircraft without
making operational distinctions between primary, backup, and attrition aircraft.
However, because its budget support documents only include primary aircraft
quantities, Air Force budget support documents do not disclose to the Congress
the total numbers of active aircraft that will actually be maintained. Air Force
officials told us that the primary aircraft quantities have historically been
reported because they more directly relate to mission requirements, including
personnel levels and flying hours. The Air Force, in calculating its operation
and maintenance (O&M) budget request, applies a rate per flying hour that
includes the costs of operating and maintaining backup and attrition aircraft,
even though it does not identify in the budget supporting documents quantities
of backup and attrition aircraft.

Although in its budget submission, the Air Force associates flying hours with
primary aircraft quantities, all active aircraft are generally flown and
maintained. Operationally, individual aircraft cannot be identified as primary,
backup, and attrition reserve on the flight line. While backup and attrition
aircraft do not change the number of flying hours needed to meet mission
requirements, the flying hour operation and maintenance funds are actually used
to maintain the total active inventory of aircraft. In its 1997 FYDP and budget
submission, for example, the Air Force identified about 5,000 primary aircraft,
while it actually operated and maintained about 6,000 aircraft.

Total numbers of active aircraft, including numbers of backup and attrition
aircraft are important information for the Congress in considering Air Force
aircraft O&M budget requests. In September 1995, GAO, reporting on the need
for the Air Force and Navy to establish more realistic criteria for backup and
attrition aircraft,7 concluded that operation and maintenance costs could be
reduced by storing attrition aircraft in excess of short-term needs.

In its report on the National Defense Authorization Act for fiscal year 1997, the
Senate Committee on Armed Services directed that additional quantity data on
aircraft categories be reported. The report noted that information on total
overall aircraft quantities, to include detailed information concerning categories
of active aircraft, such as backup and attrition, as well as categories of inactive
aircraft, would be a useful addition to budget documentation. The Committee
report also noted that such information could help streamline the budget review

7Aircraft Reauirements: Air Force and Naw Need to Establish Realistic Criteria
for Backun Aircraft (GAO/NSIAD-95180, September 29, 1995).

5                              GAO/AIMD-97-137R Air Force Aircraft Quantities
process and reduce the amount of time that is now wasted in reviewing the
budget by people at all levels manually collating data from different sources.

Relating budget support documents to financial information contained in agency
1ogisticaYiinancia.l systems would better achieve the objectives of the CFO Act.
For example, historical information on aircraft quantities shown in budget
support documents could be better related to information used to produce a
year’s financial statements if the budget documents included all active aircraft
quantities. Specifically, the fiscal year 1997 budget support documents, which
were submitted in March 1996, include the fiscal year 1995 historical data that
relate to the active aircraft quantities used to support the September 30, 1995,
financial statements. They did not completely relate because, while accounting
standards require that financial statements fully disclose all amounts, the budget
documents display primary aircraft quantities. The same format was used for
the fiscal year 1998 budget support documents.


Budget documentation would be more informative if it included aircraft data on
the total quantities to be operated and maintained with the requested funds
along with its presentations of primary aircraft. Further, linkage between
financial reports and the budget, as envisioned by the CFO Act, would enhance
the usefulness and quality of the data considered in budget deliberations,
because numbers representing the previous fiscal year’s budget execution and
supporting the financial statements would be subject to the rigor of annual
financial audit.


We recommend that the Under Secretary of Defense (Comptroller) prepare and
include new aircraft budget data exhibits-with the annual submission of
documents supporting budget requests to appropriate Senate and House
Committees-that display total active aircraft quantities for the previous fiscal
year-end for active forces, as well as national guard and reserve components,
for each aircraft type/model/series, including categories for mission aircraft,
training aircraft, dedicated test aircraft, and other aircraft (with appropriate
subcategories for primary, backup, and attrition reserve).

We also recommend that the Under Secretary of Defense (Comptroller) improve
the disclosure of aircraft quantities in future annual budget submissions by
modifying the format of FYDP documents, as well as aircraft budget data
exhibits required by volume .2 of the Department of Defense Financial
Management Regulation, to include total numbers of active aircraft along with

6                               GAO/AIMD-97-137R Air Force Aircraft Quantities

any presentations of primary aircraft quantities presented in FYDP documents
or congressional backup books.


In commenting on a draft of this report (see enclosure I), the Department of
Defense concurred with our recommendation to prepare new aircraft budget
data exhibits displaying total active aircraft quantities. DOD did not concur
with our recommendation to modify formats for budget submissions and the
FYDP to include total active aircraft data DOD stated that the number of
backup and attrition reserve aircraft do not drive funding and will not clarify
the budget request. Also, the Department asserted that adding total active
aircraft quantities would increase the preparation and review time, add little or
no value, and introduce extraneous information that will be misleading. DOD
added that the aircraft data to be provided to the Congress under our first
recommendation will display the total inventory of aircraft.

We continue to believe that DOD should implement our second
recommendation for several reasons. First, concerning the benefits of the
additional disclosure, DOD stated that providing data on backup and attrition
aircraft will not clari@ the budget request but introduce extraneous information
that will be misleading. DOD stated that mission requirements drive the
riumber of flying hours and therefore funding and that current budget exhibits
display the number of primary aircraft which are needed to meet mission
requirements. While we agree with DOD that primary ah-craft authorization
levels should be displayed and represent a measure of those forces needed to
meet mission requirements, operation and maintenance funds are used to
support all active aircraft-primary, backup, and attrition. Including backup and
attrition aircraft quantities would provide a more representative measure of
those resources actually used to execute flying hours. This type of enhanced
information could be useful to the Congress, especially in determining the
appropriate level of O&M funding to support the flying hours needed with the
fewest aircraft necessary to meet mission requirements.

In addition, we believe value is added to budget exhibits if they include total
active aircraft quantities. Including this data would provide visibility of backup
and attrition aircraft that are currently not displayed in these exhibits. These
additional active aircraft are flown and supported with operation and
maintenance funds, but are not included in the quantities currently displayed in
budget support documents. DOD routinely discloses changes in primary aircraft
levels, but does not show how these changes might affect the number of
backup and attrition aircraft. Implementation of our recommendation would
show whether changes in the number of primary aircraft quantities also affected
the number of backup or attrition aircraft.

7                               GAO/AIMD-97-137R Air Force Aircraft Quantities

Second, regarding the additional effort involved, the Air Force maintains an
aircraft database that already includes total active aircraft quantities for
historical, budget, and program years, along with subcategories for primary,
backup, and attrition quantities. Because Air Force program officials review
and update these data in the normal course of preparing their budget, including
them should not unreasonably increase preparation and review time.

Lastly, DOD stated that implementing our first recommendation would provide
the total aircraft inventory. Our first recommendation contemplated a “point in
time” display of active aircraft. Our second recommendation to display total
active inventory in existing budget exhibits is intended to provide
decisionmakers visibility of the services’past and future force structure,
including the number of aircraft actually assigned, operated, and maintained.
Budget support documents generally cover historical, execution, and budget
years, while the FYDP includes data on programmed force levels for additional
future years. Each of.these documents should be as complete as possible to
facilitate congressional review.

This report contains recommendations to you. Within 60 days of the date of
this letter, we would appreciate receiving your written statement on actions
taken to address these recommendations.

We are sending copies of this letter to the Chairmen and Ranking Minority
Members of the Senate Committee on Armed Services, the House Committee on
National Security, the Senate Committee on Appropriations, the House
Committee on Appropriations, and the Director of the Office of Management
and Budget. Copies will be made available to others upon request.

Please contact me at (202) 512-9095if you or your staff have any questions
concerning this letter. Cleggett Ftmkhouser, Harold Reich, West Coile, and Iris
Tao were major contributors to this letter.

 Director, Defense Audits


 8                              GAO/AIMD-97-137R Air Force Aircraft Quantities
ENCLOSURE                                                                                     ENCLOSURE


                              UNDER     SECRmARY          OF DEFENSE
                                      1100 DEFENSE PENTAGON
                                    WASHINGTON.   DC 20301-t 100

       Assistant Comptroila General
       Accounting and Infotmation
         Managcmalt Division
       U.S. General Accounting Of&
       washingto& DC 20548

        (GAO) draft report “FINANCIAL MANAGEMENT Ait Force Budget Request Couid Be
        EnhancedWitb Mote Complete A&aft Data,” dated July 8.1997 (GAO Co& 918879KXD
        case 1404). The Departmellt pattiaily concurs withthedlaftrepott.

               The budget documentssubmittal by the Deparuncnt use work load dam to suppon the
        funding 1evels’requcst~L primary a&aft invenuxy is one of the basic building blocks to
        determine the personnel and number of flying hours quited. The Depanment is using the
        most meaningful data to date a&aft to nguited funding lcvek ‘Iherefote, we do not believe
        that there is any value addai to programming and budgeting documents by including total
        active airaafs inventory wherever ptimary active aircmft are shown. We do agtee to submit a
        separateexhibit displaying total active inventory.

             chlr detailed comtueutsare euclosed. The oepattmetlt cqpleam      the opporumity to

                                           Acting Under Secretary of Dcfknse


9                                               GAO/AIMD-97-137R Air Force Aircraft Quantities
ENCLOSURE                                                                                        ENCLOSURE

                              GAO Dm   REPORT -DATED JULY 8.1997
                                 OSD CASE 1404, GAO CODE 918879


                              DEPARTMENT OF DEFENSE COMMENTS ON
                                  THE GAO RECOMMENDATIONS

            RECOMMENDAnON               The GAO recommendedthat the Under !Wretary of Defense
            (Compuoller) prepsre and include new a&aft budget data exhibits, with the annual
            submissioIl of committee staff budget backup books to DOD% senate and House
            Authorization and Appropriation Commitkes, that display total active a&raft quantities
            for active forces, Guard, and Reserve, for each a&raft typdmodeYserica, including
            (with appropriate subcategoriesfor primary, backup, and attrition reserve). @. 8,‘GAO
            DOD RF’SPONSE: Concur. The Department will provide sepamteexhibits to display
            total abaft quslltitia.

            RECOMMENTIATION 2: The GAO recommexldedthat the under sectetary of Defense
            (Com$roUer) improve the di&sure of a&raft quantities in futuz annual budget
            submissions by modifying the format of Future Years DefenseProgram (FyDp)
       ’    documents,as well as a&raft budget data exhibits required by Volume 2 of the &jJ
            Fmancial mt            Resulati~ to include total numb of active &craft along with
            any presmiations of primary a&aft quantities presentedin FYDP documents or
            congressionalbackup books. (p. 8IGAO Draft Report)

            DOD RESPONS&z Nonconcur. Displaying total a&raft in every budget exhibit now
            containing primary aircmft quantities will increasethe time to prepare and review the
            President’s budget and adds little or no vaiue. The primary a&aft inventory is only one
            of the buiidhg blocks for developing budgetary nxpdrements. The Department budgets
            for the numbexof flying bars neededto meet mission requhments. Squadrons are
            sizedandmmnrAtomeetthemissionrequirementsbasedonprimaryaircrak                   Mission
            requiremems drive the tmmk of flying hours and, therefoz, funding. Backup a&craft
            and accommodatethose airaaft that are unavailable due to maintenance cycles,
            breakdowns. crashes.etc. However. backup a&raft do not change the number of flying
            hours rquird    Therefore, the addition of backup aud au&ion we         aircraft will not
            clarify the budget requestbut inuoduce exaaneousinformatioll that will be misleading.

10                                                 GAO/AlMD-97-13’7% Air Force Aircraft Quantities
ENCLOSURE                                                                                   ENCLOSURE

            The aim-aft data to be providai to Congressunder recommendation 1 will display the
            total inventory of aimaft.

            TheDcparmmtalson-                with the recommendationto inch& total aim&
            inventory in the PYDP. The FYDP is a planning tool which reco& decisions during the
            Planning, Programming, Budgeting System procesa. Inclusion or exclusion of certain
            data types arc determined by, and must be consistentwith, current DOD programming
            needs. The FWDP records those akraft neededfor 0peratioIlSand the O&M ns0urces


11                                             GAO/AIMD-97-137R Air Force Aircraft Quantities
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