oversight

Defense Management: The Department of Defense's Annual Corrosion Budget Report Does Not Include Some Required Information

Published by the Government Accountability Office on 2012-09-10.

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

United States Government Accountability Office
Washington, DC 20548




              September 10, 2012

              Congressional Committees

              Subject: Defense Management: The Department of Defense’s Annual Corrosion Budget Report
              Does Not Include Some Required Information

              In 2012, the Department of Defense (DOD) estimates that corrosion costs the Department about
              $20.9 billion annually. Corrosion can negatively affect all military assets, including both
              equipment and infrastructure, and is defined as the deterioration of a material or its properties
              due to a reaction of that material with its environment. 1 Corrosion also affects military readiness
              by taking critical systems out of action and creating safety hazards.

              Section 2228 of Title 10 of the United States Code requires DOD, as part of its annual budget
              submission, to submit a report to Congress on corrosion funding. In the report, DOD is to
              include (1) funding requirements for its long-term corrosion reduction strategy, (2) the return-on-
              investment (ROI) that would be achieved by implementing the strategy, (3) the current and
              previous fiscal year funds requested in the budget compared to funding requirements, (4) an
              explanation if funding requirements are not fully funded in the budget, (5) the amount of funds
              requested for both the current and previous fiscal years in the budget for each project or activity
              described in DOD’s long-term strategy compared to the funding requirements for the project or
              activity, and (6) a copy of the annual corrosion report most recently submitted by the corrosion
              control and prevention executive of each military department as an annex to its report. The
              military departments’ reports are to include recommendations pertaining to the department’s
              corrosion control and prevention program and related funding levels to carry out all of the duties
              of the corrosion control and prevention executive. 2

              Section 2228 also requires us to analyze DOD’s budget submission and report and provide an
              assessment to the congressional defense committees within 60 days after the submission of the
              budget for the fiscal year, 3 which this year occurred on February 13, 2012. DOD submitted its
              annual report to Congress on May 21, 2012, and we received the report on May 23, 2012. Our
              objectives were to (1) determine the extent to which DOD’s corrosion report included the
              mandated elements, (2) assess the extent to which DOD’s Corrosion Prevention and Control
              (CPC) funding request met total estimated CPC funding requirements for activities and


              1
               10 USC § 2228(f)(1). Corrosion includes such varied forms as rusting; pitting; galvanic reaction; calcium or other
              mineral buildup; degradation due to ultraviolet light exposure; and mold, mildew, or other organic decay.
              2
              Pub. L. No. 110-417, § 903 (2008).
              3
              Section 2228(e)(2).




              Page 1                                                                              GAO-12-823R Defense Management
preliminary project proposals as identified in the fiscal year 2013 corrosion report, and (3)
calculate the potential cost avoidance that DOD may achieve by funding CPC at the level
requested in its fiscal year 2013 corrosion budget materials report and the cost avoidance DOD
may miss by not fully funding its requirements. Enclosure I provides briefing slides for
congressional committees detailing the results of our analysis of DOD’s CPC budget request
and the Office of Corrosion Policy and Oversight’s (CPO) accompanying report for fiscal year
2013.

To conduct this work, we analyzed DOD’s report to determine if it included the mandated
elements, including the extent to which one of these elements―the military departments’ annual
corrosion reports―contained recommendations pertaining to the military departments’ CPC
program and corrosion-related funding levels that are required to carry out all of the duties of the
corrosion control and prevention executive. Additionally, we analyzed data on DOD’s fiscal year
2013 CPC funding request and met with officials from the military departments and the
Corrosion Policy and Oversight office. A more detailed description of our objectives, scope, and
methodology is provided in enclosure I. We conducted this performance audit from February
2012 to September 2012 in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.

In summary, we found that DOD’s fiscal year 2013 corrosion budget report to Congress (1)
included some, but not all of the six mandated elements; (2) included a funding request that
equals DOD’s fiscal year 2013 stated requirements for corrosion activities and projects; and (3)
lacked information needed to calculate the potential cost avoidance. First, DOD included three
of the six mandated elements, did not include two of the elements, and one of the elements was
not applicable this year. For example, DOD included the most recent annual corrosion reports of
the military departments, attached in an annex. However, it did not include the funds requested
in the budget compared to the funding requirements for the fiscal year covered by the report or
the previous fiscal year. Second, DOD officials stated that the fiscal year 2013 budget request
and the fiscal year 2013 funding requirements for activities and projects are the same this
year—$9.1 million. According to these officials, DOD does not have any fiscal year 2013
unfunded requirements for corrosion activities and projects. Third, we did not calculate the cost
avoidance DOD could achieve with its fiscal year 2013 budget request, because the analysis
that DOD provided does not support the 14 to1 average ROI for projects cited in its report.
Further, we did not calculate the cost avoidance that DOD might be missing by not funding its
requirements, because DOD officials said that they do not have any unfunded requirements this
year. Without all of the required information on DOD’s corrosion prevention and control activities
and projects, DOD senior leaders and Congress may face challenges in assessing the levels of
funding needed to effectively prevent and control corrosion.

For additional information on the results of our work, see enclosure I.




Page 2                                                                GAO-12-823R Defense Management
Recommendations for Executive Action
To ensure that Congress has the accurate and comprehensive information it needs to exercise
its oversight responsibilities, we recommend for fiscal year 2013 and beyond that the Secretary
of Defense direct the Under Secretary of Defense for Acquisition, Technology and Logistics to
take the following three actions:

•   Provide in the annual corrosion budget report to Congress a more detailed explanation of
    the development of DOD’s funding requirements.
•   Include in the annual corrosion budget report to Congress the funds requested in DOD’s
    budget compared to the funding requirements for the fiscal year covered by the report and
    the preceding fiscal year.
•   Provide in the annual corrosion budget report to Congress an explanation of DOD’s ROI
    methodology and analysis, including both projected and, to the extent available, validated
    ROIs.

Agency Comments and Our Evaluation
We provided a copy of a draft of this report to DOD for comment. In its written comments, which
are reprinted in enclosure II, DOD did not agree with our three recommendations.

DOD did not concur with our recommendation to provide in its annual corrosion budget report to
Congress a more detailed explanation of how it developed its funding requirements. DOD stated
that the report as submitted provides Congress with all of the information it needs to exercise its
oversight responsibilities. Section 2228 of Title 10 of the United States Code required us to
determine the extent to which DOD’s report to Congress included, among other things, funding
requirements for its long-term corrosion reduction strategy. Our review found that DOD’s report
to Congress included $9.1 million as its fiscal year 2013 funding requirements. However, the
supporting analysis DOD provided us did not support the $9.1 million funding requirements. In
addition, DOD’s comments make reference to its corrosion strategic plan and process for
executing projects and activities. Specifically, DOD cites a 2010 GAO report noting that DOD
had established a rigorous process to select corrosion prevention projects. 4 Our
recommendation focused on DOD’s explanation of how it developed its corrosion budget
funding requirements and not DOD’s process for the selection or execution of its corrosion
projects and activities. Therefore, we continue to believe that DOD should provide in its annual
corrosion budget report a more detailed explanation of the development of its funding
requirements for fiscal year 2013 and beyond. Without details on the methodology, Congress
lacks key information about whether DOD’s funding of the CPC program can address the
current and future costs of corrosion prevention and control.

DOD did not concur with our recommendation to provide in its annual corrosion budget report to
Congress the funds requested in the budget compared to the funding requirements for the fiscal
year covered by the report and the preceding fiscal year. Our recommendation is consistent with
Section 2228(e)(1)(c) of Title 10 U.S.C., which requires DOD to include in its annual report the
funds requested in the budget compared to the funding requirements for the fiscal year covered
by the report and the preceding fiscal year. In its comments, DOD stated that the funds


4
 GAO, Defense Management: DOD Has a Rigorous Process to Select Corrosion Prevention Projects But Would
Benefit from Clearer Guidance and Validation of Returns on Investments, GAO-11-84 (Washington,
D.C.: Dec. 8, 2010).




Page 3                                                                     GAO-12-823R Defense Management
requested in the budget are equal to the funding requirement and that the funds requested in
the budget reflect the required corrosion program funding considering overall DOD needs.
However, we found that DOD’s report to Congress did not include the funding requirements
compared to the funding request for either the fiscal year covered by the report (fiscal year
2013) or the preceding fiscal year (fiscal year 2012). Instead, DOD reported the actual funding it
received for CPC compared to the funding request, and only for the preceding fiscal year.
During our review, DOD officials stated that the data for fiscal year 2013 are not included
because, in keeping with the decision to report actual funding, DOD did not know what its
funding for fiscal year 2013 would be at the time it submitted its report. In the fiscal year 2013
corrosion budget report, DOD did not provide the funding requirements for fiscal year 2012, but
instead reported its actual funding compared to the funding request. During our review, DOD
officials stated that the decision to report actual funding as opposed to the funding requirements
for fiscal year 2012 was a senior leadership decision. We continue to believe that DOD should
include this mandated information in its future annual corrosion budget reports. Without all the
required information, DOD senior leaders and Congress may face challenges in assessing the
levels of funding needed to effectively prevent and control corrosion.

DOD did not concur with our recommendation to provide in its annual corrosion budget report to
Congress an explanation of DOD’s ROI methodology and ROI analysis, including both projected
and, to the extent possible, validated ROIs. DOD’s comments referenced the methodology
included in the DOD Corrosion Prevention and Mitigation Strategic Plan, which the military
departments use to estimate the projected ROI of each project. As we acknowledge in this
report, this methodology is clear and meets the guidance established by the Office of
Management and Budget. However, DOD performs an additional analysis to determine the
projected average ROI for projects that it cites in its corrosion budget report to Congress. Our
recommendation is directed at this additional analysis and the methodology that supports the
calculated ROI figure included in DOD’s report to Congress. During our review, CPO officials
stated that the office performed an analysis and determined that the average ROI for projects
was in excess of 14 to 1. Further, they stated that the analysis contained some validated ROIs.
However, the ROI analysis DOD provided only contains the projected ROIs and does not
contain the more up-to-date validated ROIs. Therefore, we cannot confirm whether this ROI is
accurate or whether validated ROIs were included. In addition, DOD’s comments cite GAO
statements from our review of last year’s (fiscal year 2012) corrosion budget report, where we
state that we assessed the data to be sufficiently reliable. 5 We performed the same assessment
this year but came to the opposite conclusion because of the findings above. We continue to
believe that more information on the analysis and methodology that support the ROI for projects
cited in DOD’s annual report would help assure Congress that those numbers are based on the
most up-to-date and accurate information.




5
 GAO, Defense Management: The Department of Defense’s Fiscal Year 2012 Corrosion Prevention and Control
Budget Request, GAO-11-490R (Washington, D.C.: Apr. 13, 2011).




Page 4                                                                      GAO-12-823R Defense Management
We are sending copies of this report to the appropriate congressional committees. We are also
sending copies to the Secretary of Defense; the Deputy Secretary of Defense; the Under
Secretary of Defense for Acquisition, Technology and Logistics; the Secretaries of the Army,
Navy, and Air Force; and the Commandant of the Marine Corps. The report also is available at
no charge on the GAO website at http://www.gao.gov.

Should you or your staff have questions concerning this report, please contact me on (202) 512-
5257 or merrittz@gao.gov. Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. GAO staff who made key contributions to
this report are Carleen Bennett, Assistant Director; Mark Dowling; Dawn Godfrey; Joanne
Landesman; Charles Perdue; Carol Petersen; Matthew Spiers; Amie Steele; and John Van
Schaik.




Zina D. Merritt
Director
Defense Capabilities and Management

Enclosures - 2




Page 5                                                             GAO-12-823R Defense Management
List of Committees

The Honorable Carl Levin
Chairman
The Honorable John McCain
Ranking Member
Committee on Armed Services
United States Senate

The Honorable Daniel K. Inouye
Chairman
The Honorable Thad Cochran
Ranking Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Howard P. “Buck” McKeon
Chairman
The Honorable Adam Smith
Ranking Member
Committee on Armed Services
House of Representatives

The Honorable C.W. “Bill” Young
Chairman
The Honorable Norman D. Dicks
Ranking Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives




Page 6                                  GAO-12-823R Defense Management
Enclosure I: Briefing for Congressional Committees




      Defense Management: The Department of Defense’s
    Annual Corrosion Budget Report Does Not Include Some
                    Required Information




                   Briefing for Congressional Committees




                                                                     Page 1




          Page 7                                     GAO-12-823R Defense Management
Table of Contents

•   Background
•   Objectives
•   Scope and Methodology
•   Summary
•   Objective 1: Extent Report Included Mandated Elements
•   Objective 2: Extent Funding Request Meets Requirements
•   Objective 3: Potential Cost Avoidance
•   Conclusions
•   Recommendations for Executive Action
•   Related GAO Products


                                                                       Page 2




      Page 8                                         GAO-12-823R Defense Management
Background

•     Defense system maintenance involves the sustainment of about 300 ships, 15,000 aircraft, 900
      strategic missiles and 350,000 ground combat and tactical vehicles and costs about $52 billion
      each year.1 In 2012, the Department of Defense (DOD) estimates that corrosion-related
      maintenance accounts for about $20.9 billion a year.

•     Corrosion affects all military assets and is defined as the unintended destruction or deterioration
      of material due to interaction with the environment. Corrosion takes such varied forms as rusting;
      pitting; galvanic reaction; calcium or other mineral buildup; degradation due to ultraviolet light
      exposure; and mold, mildew, or other organic decay.

•     In addition, corrosion can have negative effects on military equipment and infrastructure in terms
      of readiness and safety. GAO has previously reported that corrosion negatively affects military
      readiness by taking critical systems out of action. It has also impacted safety, resulting in fatal
      accidents due to the degradation of equipment.2



1 Department
           of Defense, Department of Defense Corrosion Prevention and Control Strategic Plan (Washington, D.C.: 2011).
2 GAO,Defense Management: High-Level Leadership Commitment and Actions Are Needed to Address Corrosion Issues, GAO-07-618 (Washington, D.C.: Apr. 30,
    2007).

                                                                                                                                            Page 3




           Page 9                                                                                                GAO-12-823R Defense Management
Page 10   GAO-12-823R Defense Management
Background (cont.)

DOD began targeting funding toward Corrosion Prevention and Control (CPC) in fiscal year (FY)
2006, when it established a separate program funding element for Research, Development, Test and
Evaluation and a separate corrosion line item within an existing program element for Operation and
Maintenance. CPO manages this program element and line item. According to DOD’s report to
Congress, part of this funding goes toward DOD-wide CPC activities, while the rest of the funding
goes toward technology demonstration projects proposed by the military departments.

     •    DOD’s CPC activities include such things as conducting cost of corrosion studies and
          operating DOD’s corrosion website. CPO identifies these as “required activities” that are
          essential to the success and institutionalization of the corrosion program within DOD.

     •    The projects are military department technology demonstration projects for both weapon
          systems and infrastructure that meet CPO’s criteria for funding. The projects are jointly
          funded by CPO and the military departments. CPO typically limits its funding contribution to
          a maximum of $500,000 per project.




                                                                                                  Page 5




         Page 11                                                                GAO-12-823R Defense Management
Background (cont.)

•   The military departments submit

     •    Preliminary project proposals in the fall and
     •    Actual project proposals in the spring for CPO’s funding approval.

•   Projects that meet CPO’s criteria for funding are announced at the end of the fiscal year. Figure 1
    describes the process in detail.



          Figure 1: Project Timeline




                                                                                                 Page 6




         Page 12                                                               GAO-12-823R Defense Management
Background (cont.)

•   As part of the project selection process, CPO requires that an estimated return-on-investment
    (ROI) cost-benefit analysis be submitted for each actual project proposal.
•   The estimated ROI is the ratio of the present value of benefits to the present value of the actual
    project proposal’s total cost. The total cost for each project is based on both the funding
    requested from CPO and the funding provided by the military department.
    •     CPO’s guidance uses a 7 percent annual discount rate to estimate the present value of
          benefits and costs, which adheres to guidance for public investments in the Office of
          Management and Budget’s Circular A-94. According to CPO officials, this is a conservative
          estimate to avoid overstating the project’s eventual ROI.
    •     Estimated ROIs and savings vary for each actual project proposal submitted by the military
          departments.
•   CPO officials informed us that a military department point of contact estimates the ROI that is
    included in the actual project proposals. A senior official within each military department reviews
    the actual project proposal, including the estimated ROI, before the proposal is submitted to CPO.
•   DOD is required to include the expected ROI that would be achieved by funding its requirements
    in its annual report to Congress.


                                                                                                 Page 7




       Page 13                                                                 GAO-12-823R Defense Management
Page 14   GAO-12-823R Defense Management
Background (cont.)

•    In last year’s report reviewing DOD’s fiscal year 2012 CPC budget request and budget report, we
     recommended that the Secretary of Defense take the following two actions to ensure that
     Congress has the information it needs to exercise its oversight responsibilities:9


         •   Direct the Under Secretary of Defense for Acquisition, Technology and Logistics to include all
             required elements in DOD’s future corrosion reports.

         •   Direct the Secretary of each military department to provide the required information on
             funding levels necessary to carry out all duties of the corrosion control and prevention
             executive. As the military departments develop the elements needed to provide the full
             funding levels, they should include these elements in their annual reports.

•    DOD concurred with the recommendations in that report.




9 GAO,Defense Management: The Department of Defense’s Fiscal Year 2012 Corrosion Prevention and Control Budget Request , GAO-11-490R (Washington,
    D.C.: Apr. 13, 2011).

                                                                                                                                            Page 9




             Page 15                                                                                               GAO-12-823R Defense Management
Page 16   GAO-12-823R Defense Management
Scope and Methodology

 To determine the extent to which DOD’s annual corrosion budget report included the six
 mandated elements, as well as the extent to which one of these elements―the military
 departments’ annual corrosion reports―included recommendations pertaining to the military
 departments’ CPC program and corrosion-related funding levels required to carry out all of the
 duties of the corrosion control and prevention executive, we
 •      Independently reviewed the annual report using two analysts, compared and reconciled
        their observations, and recorded the analysts’ consensus observations;
 •      Discussed our preliminary analyses with CPO and military department officials to seek
        additional information in those cases where we determined that a report did not include the
        mandated elements; and
 •      Considered the element to be “included” when the report explicitly discussed all parts of the
        mandated element and “not included” when the report did not explicitly address any part of
        the element. If the report included some aspects of an element, but not all, then we
        considered the element “partially included.”




                                                                                             Page 11




     Page 17                                                                GAO-12-823R Defense Management
Scope and Methodology (cont.)

•        To determine the extent to which DOD’s CPC funding request met DOD’s total estimated CPC
         funding requirements for activities and projects, we analyzed DOD’s FY 2013 corrosion report
         and interviewed DOD officials.

•        To determine the cost avoidance11 that DOD may achieve by funding CPC at the level requested
         in its FY 2013 corrosion budget materials report and the cost avoidance DOD may potentially
         miss by not fully funding its requirements,

           •     We reviewed DOD’s FY 2013 corrosion report, interviewed DOD officials, and requested
                 further documentation and details about how DOD determined the ROI cited in its report.

           •     We did not independently validate DOD’s estimated CPC activity ROI or the assumptions
                 that support the projected or validated ROIs of individual projects. We did compare projected
                 ROIs to validated ROIs where available to determine if DOD was using the most up-to-date
                 ROIs.

11   In the past, we have calculated the cost avoidance DOD could achieve with its budget request by taking the requests for both projects and activities and
        multiplying those amounts by the respective ROIs reported by DOD. In the past, we have also calculated the cost avoidance DOD might be missing by not
        fully funding its requirements by taking the shortfalls for both projects and activities and multiplying them by the respective ROIs reported by DOD.


                                                                                                                                                      Page 12




               Page 18                                                                                                      GAO-12-823R Defense Management
Scope and Methodology (cont.)

We conducted this performance audit from February 2012 through September 2012 in accordance
with generally accepted government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our audit objectives.




                                                                                              Page 13




        Page 19                                                               GAO-12-823R Defense Management
Summary – Objective 1

Objective 1 – Determine the extent to which DOD’s corrosion report included the six mandated
elements.

Of the six mandated elements, DOD’s FY 2013 corrosion report included three elements, did not
include two elements, and one element was not applicable this year.
       Figure 2: GAO Assessment of DOD's Fiscal Year 2013 Corrosion Budget Report

       Six mandated elements                                                                                               GAO assessment
       Funding requirements for the long-term strategy                                                                    Included
       The return-on-investment (ROI) that would be achieved by implementing the strategy                                 Included
       For the fiscal year covered by the report and the preceding year, the funds requested in the budget compared to
                                                                                                                          Not included
       the funding requirements.
       An explanation if the funding requirements are not fully funded in the budget.                                     Not applicablea
       For the fiscal year covered by the report and the preceding year, the amount of funds requested in the budget for
                                                                                                                          Not includedb
       each project or activity compared to the funding requirements for the project or activity.
       A copy of the annual corrosion report most recently submitted by the corrosion control and prevention executive of
       each military department, to include (1) recommendations pertaining to the military department’s CPC program
       and (2) corrosion-related funding levels required to carry out all of the duties of the corrosion control and      Included
       prevention executive (in an annex to the report).
       a
         DOD cited various reasons why the funding requirements may not be fully funded in the budget, but no
       explanation was needed since the funding requirements are fully funded in the budget, according to CPO officials.
       b
         For the fiscal year covered by the report, DOD cannot provide this information, because it does not know what
       projects it will perform at the time of its report.
       Source: GAO analysis of DOD data.



                                                                                                                                            Page 14




       Page 20                                                                                                             GAO-12-823R Defense Management
Summary – Objective 1 (cont.)

•   DOD’s corrosion report included three elements: corrosion funding requirements for FY
    2013, the ROI for projects and activities, and the annual military departments’ reports in an
    annex. However, the report would have benefited from additional information in some areas. For
    example, while the report included a funding requirement of $9.1 million, the analysis and
    documentation that DOD provided did not support how it determined this funding requirement.
•   DOD’s corrosion report did not include two elements: the funds requested in the budget
    compared to the funding requirements for the fiscal year covered by the report and the preceding
    fiscal year; and the amount of funds requested in the budget compared to the funding
    requirements for each project or activity in the strategy for the fiscal year covered by the report
    and the preceding fiscal year.
•   One element was not applicable this year: an explanation of the reasons the funding
    requirements are not fully funded in the budget. DOD’s corrosion report contains such an
    explanation; however, as reported by CPO officials, the funding requirements are fully funded in
    the budget request for FY 2013. Therefore, no explanation is necessary.
•   Without all the required information, DOD senior leaders and Congress may face challenges in
    assessing the levels of funding needed to effectively prevent and control corrosion.




                                                                                               Page 15




       Page 21                                                                 GAO-12-823R Defense Management
Summary – Objective 2

Objective 2 – Assess the extent to which DOD’s CPC funding request met total estimated CPC
funding requirements for activities and projects as identified in the FY 2013 DOD corrosion
report.

DOD requested $9.1 million for CPC in its FY 2013 budget. According to DOD officials, the FY 2013
funding requirements are also $9.1 million, so the funding request meets the funding requirements for
FY 2013.




                                                                                              Page 16




       Page 22                                                                GAO-12-823R Defense Management
Summary – Objective 3
Objective 3 – Calculate the potential cost avoidance that DOD may achieve by funding CPC at
the level requested in its FY 2013 corrosion budget materials report and the cost avoidance
DOD may potentially miss by not fully funding its requirements.

          •     We did not calculate the cost avoidance DOD could achieve with its FY 2013 budget
                request, because the analysis DOD provided does not support the average ROI for projects
                cited in its report and does not contain the most up-to-date information, as recommended
                by GAO guidance.12

          •     According to DOD officials, DOD’s funding requirements are the same as the budget
                request. Therefore, we also did not calculate a cost avoidance for what DOD might be
                missing.

          •     Without assurance that DOD’s average ROI for projects is based on the most complete and
                up-to-date data, Congress will not have the complete information it needs to make well-
                informed decisions about CPC’s budget.




12 GAO,
      GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.:
    March 2009).


                                                                                                                                          Page 17




              Page 23                                                                                              GAO-12-823R Defense Management
Objective 1 – Extent report included mandated elements
DOD’s corrosion report included three of six mandated elements

DOD’s corrosion report included corrosion funding requirements for FY 2013, the estimated ROI for
projects and activities, and the most recent annual corrosion reports of the military departments.
       1. Funding requirements for the long-term strategy―Included. For FY 2013, DOD reported
          CPC funding requirements of $9.1 million – approximately $4.6 million for corrosion activities
          and approximately $4.5 million for technology demonstration projects. According to DOD
          officials, DOD senior leadership decided to align the funding requirements to the President’s
          budget request in FY 2013. This resulted in funding requirements considerably less than in
          past years. DOD officials told us that there was supporting analysis for how DOD calculated
          its FY 2013 funding requirements, but the analysis DOD provided us did not support the $9.1
          million funding requirements.

            The report would have benefited from additional information on how DOD calculated its
            funding requirements. Without details on the methodology, Congress lacks key information
            about whether DOD’s funding of the CPC program can address the costs of corrosion
            prevention and control. GAO guidance states that cost estimating assumptions should be
            complete, realistic and backed up by historical data.13


13 GAO-09-3SP.



                                                                                                Page 18




           Page 24                                                              GAO-12-823R Defense Management
Objective 1 – Extent report included mandated elements
DOD’s corrosion report included three of six mandated elements (cont.)

2.       The return-on-investment that would be achieved by implementing the strategy―Included.
         DOD reported an average ROI in excess of 14 to 1 for technology demonstration projects and 2
         to 1 for corrosion activities.

            •    CPO officials stated that the office performed an analysis and determined that the average
                 ROI for projects was in excess of 14 to 1. Further, they stated that the analysis contained
                 some validated ROIs. However, the ROI analysis DOD provided only contains the projected
                 ROIs and does not contain the more up-to-date validated ROIs. Also, documentation does
                 not explain how the department determined its reported projected ROI in excess of 14 to 1.
                 Therefore, we cannot confirm whether this ROI is accurate or whether validated ROIs were
                 included.14

            •    DOD officials stated that, due to the nature of the CPC activities, it is difficult to quantify an
                 ROI for activities. The 2 to 1 ROI for activities cited in DOD’s report is an estimate that
                 officials believe is conservative.



14 For   more information on the validated ROIs of projects versus the projected ROIs of projects, see Objective 3.


                                                                                                                                     Page 19




                Page 25                                                                                               GAO-12-823R Defense Management
Objective 1 – Extent report included mandated elements
DOD’s corrosion report included three of six mandated elements (cont.)

3.        Copies of the most recent annual reports of the military departments – Included. DOD’s
          report includes the annual corrosion reports of all three military departments.

            •     The Army and the Navy reports included recommendations pertaining to the CPC efforts of
                  their respective departments.

            •     The Air Force’s annual report does not include recommendations pertaining to the CPC
                  efforts of the department.

            •     All of the military departments identified some, but not all, of the funding necessary to
                  perform the duties of the corrosion control and prevention executive.15




15 In    our review of DOD’s FY 2012 corrosion report, we recommended that the military departments include in their annual reports the required information on
        funding levels necessary to carry out all duties of the corrosion control and prevention executive. See GAO-11-490R.

                                                                                                                                                          Page 20




                Page 26                                                                                                         GAO-12-823R Defense Management
Objective 1 – Extent report included mandated elements
DOD’s corrosion report included three of six mandated elements (cont.)

Army Report
Recommendations pertaining to the CPC efforts of the Army
   •  The Army’s report contains recommendations that the Army corrosion control and
      prevention executive has made to various Army entities to address corrosion issues. For
      example:
       • Alternatives to using cancer-causing agents, such as hexavalent chromium and
          cadmium coatings, which combat corrosion, need to be proliferated Army-wide.
       • To address a unique corrosion issue on UH-60 Black Hawk helicopter tail-rotor
          quadrants, precautionary re-balancing of the tail-rotors was recommended to an Army
          Reserve National Guard Aviation unit.
Funding required to perform the duties of the corrosion control and prevention executive
   •     The report identifies some of the funding requirements to perform some of the corrosion
         control and prevention executive’s duties as the Army’s principle point of contact to DOD’s
         Director, Corrosion Policy and Oversight, and to develop the Army’s annual report on
         corrosion.
   •     The Army‘s report does not include the funding required for all of the duties of the corrosion
         control and prevention executive because, according to Army officials, the legislative
         language does not clearly define these duties.
                                                                                                Page 21




        Page 27                                                                 GAO-12-823R Defense Management
Objective 1 – Extent report included mandated elements
DOD’s corrosion report included three of six mandated elements (cont.)


Navy Report
Recommendations pertaining to the CPC efforts of the Navy
   •   The Navy’s report contains recommendations in its Executive Summary, such as
        • Increasing the level of funding for CPC programs and projects, which could provide an
          opportunity to realize significant cost avoidance and potential budgetary savings.
        • Advocating for a DOD policy requiring CPC to be addressed in the early stages of the
          acquisition process.

Funding required to perform the duties of the corrosion control and prevention executive
   •     According to Navy officials, the Navy’s corrosion-related funding requirements and its report
         do not include the funding required for all of the duties of the corrosion control and
         prevention executive. However, the Navy’s annual report for 2011 reported that the
         corrosion control and prevention executive had requested $973,000 to perform his duties in
         FY 2012.
   •     Like the Army officials, the Navy officials believe the legislative language does not clearly
         define the duties of the corrosion control and prevention executive. As a result, the Navy is
         having difficulty identifying all of its corrosion control and prevention executive’s duties.


                                                                                               Page 22




       Page 28                                                                GAO-12-823R Defense Management
Objective 1 – Extent report included mandated elements
DOD’s corrosion report included three of six mandated elements (cont.)


Air Force Report
Recommendations pertaining to the CPC efforts of the Air Force
         •    Although the Air Force included recommendations in its 2010 annual report, its 2011 report
              does not include recommendations. This is because of internal reorganization that resulted
              in the loss of Air Force corrosion expertise, according to the Air Force official who
              coordinated with CPO at the time of our review.16 Further, this official said that at the time of
              the report the Air Force did not have a good grasp on its overall corrosion issues, and
              therefore it was not in a position to make recommendations.

         •    By not including recommendations in its 2011 annual corrosion report, the Air Force has not
              provided Congress the information it needs to determine if the Air Force is taking steps to
              effectively mitigate corrosion.

         •    Subsequent to issuing its annual report, the Air Force developed a long-term corrosion
              strategic plan, in June 2012, that contains several goals that may aid in addressing some of
              its corrosion issues.17
16 TheAir Force’s corrosion control and prevention executive position was vacant from late 2010 through the time the Air Force issued its 2011 annual report. The
     Air Force filled the position in April 2012.
17 TheAir Force developed this strategic plan as a result of the direction in House Report 112-78, accompanying H.R. 1540, a bill for the fiscal year 2012 National
    Defense Authorization Act.


                                                                                                                                                          Page 23




             Page 29                                                                                                           GAO-12-823R Defense Management
Objective 1 – Extent report included mandated elements
DOD’s corrosion report included three of six mandated elements (cont.)


Air Force Report (cont.)
Funding required to perform the duties of the corrosion control and prevention executive

    •     The report identifies some funding for tactical corrosion actions/activities by aircraft and
          weapon system.

    •     The Air Force official stated that the department cannot identify all the funding required to
          perform the duties of the corrosion control and prevention executive because the position
          was vacant from late 2010 until late April 2012. Also, the Air Force shares the concern of
          the Army and Navy regarding the lack of clarity in the legislative language defining the
          duties of the corrosion control and prevention executive.




                                                                                                   Page 24




        Page 30                                                                  GAO-12-823R Defense Management
Page 31   GAO-12-823R Defense Management
Objective 1 – Extent report included mandated elements
DOD corrosion report did not include two of six mandated elements (cont.)

5.    The funds requested in the budget compared to the funding requirements for each project
      or activity for the fiscal year covered by the report (FY 2013) and the preceding fiscal year
      (FY 2012)19 – Not Included
      •         CPO officials stated that they will not be able to meet this requirement for the year covered
                by the report, because they do not know what projects will actually be submitted by the
                military departments until after they submit their budget report. We acknowledge that, due
                to its timeline for accepting projects, DOD cannot provide these data for the year covered
                by the report.
      •         CPO officials could not explain why this information was not included for the prior year.
                They stated that the information is available and could be included. They added that it may
                have been omitted either to make the report more concise or because CPO does not know
                the final amount of funding provided by the military departments for each project.
      •         Without the comparison of funding requirements to the funding request for the year of the
                report and the prior fiscal year, as well as the breakdown by project and activity for the prior
                fiscal year, Congress may not have all of the data it needs to exercise oversight and make
                well-informed decisions regarding CPC funding.
19 DOD  did not include these data in last year’s corrosion report and this was the subject of one of our recommendations. Therefore, we are not making another
     recommendation this year. See GAO-11-490R.

                                                                                                                                                        Page 26




            Page 32                                                                                                         GAO-12-823R Defense Management
Objective 1 – Extent report included mandated elements
One of the six mandated elements was not applicable this year

6. An explanation if the funding requirements are not fully funded in the budget – Not
   Applicable. DOD’s corrosion report contains an explanation for why the requirements are not
   fully funded in the budget request.20 However, as reported by CPO officials, the funding
   requirements are fully funded in the budget request for FY 2013. Therefore, no explanation is
   necessary.




20 Theexplanation that DOD provides is that global commitments, constrained budgets, and the valid requirements of other programs may preclude fully funding
     DOD’s CPC requirements.



                                                                                                                                                    Page 27




           Page 33                                                                                                       GAO-12-823R Defense Management
Objective 2 – Extent funding request meets requirements
According to officials, the funding request meets requirements for FY 2013

•    CPO officials stated that both the funding requirements and funding request for CPC in FY 2013
     are $9.1 million; therefore, the request meets the requirements. As previously stated, DOD senior
     leadership decided to align the funding requirements with the President’s budget request in FY
     2013. This resulted in funding requirements considerably lower than in past years (see table 1).
•    For the past four years, DOD has identified a budget shortfall, because its funding requirements
     exceeded its funding request. However, this year DOD did not report a shortfall.
Table 1: DOD’s Reported CPC Funding Requirements for Activities and Preliminary Project Proposals, Budget Requests, and
     Budget Shortfalls, Fiscal Years 2009 to 2013 (Dollars in Millions)
          Fiscal Year             Activity                Preliminary              Sum of activities          CPC budget           Reported budget
                                  Requirements            project proposal         and preliminary            request              shortfalla
                                                          requirements             project proposalsa

          2009                                     3.4                    28.5                       32.0                  14.2                    17.8
          2010                                     6.2                    21.5                       27.7                  13.1                    14.5
          2011                                     6.5                    40.6                       47.0                  12.0                    35.1
          2012                                     8.3                    34.9                       43.2                  11.1                    32.1
          2013                                     4.6                     4.5                         9.1                  9.1                        0

     Source: GAO analysis of DOD data.
     a Totals for a fiscal year may not add due to rounding. The reported budget shortfall is the total estimated CPC funding requirements for activities and

     preliminary project proposals minus the CPC budget request.


                                                                                                                                                           Page 28




           Page 34                                                                                                            GAO-12-823R Defense Management
Objective 3 – Potential Cost Avoidance
Cost avoidance not calculated for fiscal year 2013


     In the past, we calculated the cost avoidance DOD could achieve with its budget request by taking
     the requests for both projects and activities and multiplying those amounts by the respective ROIs
     reported by DOD.

          •   The military departments have made progress in validating ROIs over the past two years.
              The DOD Corrosion Prevention and Mitigation Strategic Plan21 states that a projected ROI
              must be included when a project is submitted, and that a follow-on review including a
              validated ROI should be submitted about 5-6 years after the project is funded.
          •   We reported in 2010 that the military departments had completed the required ROI
              validations for 10 of 28 projects funded in FY 2005.22
          •   As of May 2012, the military departments have completed the required ROI validations for 25
              of 28 projects funded in FY 2005, and provided over 35 validated ROIs in total.23



21 Department   of Defense, Department of Defense Corrosion Prevention and Control Strategic Plan (Washington, D.C.: 2011).
22 GAO,  Defense Management: DOD Has a Rigorous Process to Select Corrosion Prevention Projects But Would Benefit from Clearer Guidance and Validation of
       Returns on Investments, GAO-11-84 (Washington, D.C.: Dec. 8, 2010).
23 Four of the 25 validations from FY 2005 resulted in an unknown ROI. The 35 total validated ROIs are for funded projects ranging from fiscal years 2005-2008.




                                                                                                                                                     Page 29




              Page 35                                                                                                     GAO-12-823R Defense Management
Page 36   GAO-12-823R Defense Management
    Conclusions

•    DOD included some, but not all, of the information in its FY 2013 corrosion budget report to
     Congress that is mandated by Section 2228(e) of Title 10, as amended. For example, DOD’s report
     did include the annual corrosion reports of the military departments attached in an annex. However,
     the report did not include the funds requested in the budget compared to the funding requirements
     for the fiscal year covered by the report and the preceding fiscal year. Additionally, the analysis and
     documentation that DOD provided did not support how it determined its FY 2013 funding
     requirements.

•    Unlike in prior years, when DOD only reported on projected ROIs for corrosion projects, the military
     departments are now validating ROIs, which provides DOD with more up-to-date data for its
     corrosion report. However, the analysis DOD provided did not support the ROI for projects in excess
     of 14 to 1 cited in its report and did not include the most up-to-date information.

•    Without complete and detailed information, Congress may be limited in its efforts to provide
     oversight and make well-informed decisions about whether DOD’s funding of the CPC program will
     enable the Department to effectively address corrosion prevention and mitigation.




                                                                                                   Page 31




         Page 37                                                                  GAO-12-823R Defense Management
Recommendations for Executive Action

To ensure that Congress has the accurate and comprehensive information it needs to exercise its
oversight responsibilities, we recommend for FY 2013 and beyond that the Secretary of Defense direct
the Under Secretary of Defense for Acquisition, Technology and Logistics to take the following three
actions:
    •   Provide in the annual corrosion budget report to Congress a more detailed explanation of the
        development of DOD’s funding requirements.
    •   Include in the annual corrosion budget report to Congress the funds requested in DOD’s budget
        compared to the funding requirements for the fiscal year covered by the report and the
        preceding fiscal year.

    •   Provide in the annual corrosion budget report to Congress an explanation of DOD’s ROI
        methodology and analysis, including both projected and, to the extent available, validated ROIs.




                                                                                              Page 32




        Page 38                                                               GAO-12-823R Defense Management
Related GAO Products

•   Defense Management: The Department of Defense’s Fiscal Year 2012 Corrosion Prevention and
    Control Budget Request. GAO-11-490R. Washington, D.C.: April 13, 2011.
•   Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and
    Enhance Revenue. GAO-11-318SP. Washington, D.C.: March 1, 2011.
•   Defense Management: DOD Needs to Monitor and Assess Corrective Actions Resulting from Its
    Corrosion Study of the F-35 Joint Strike Fighter. GAO-11-171R. Washington, D.C.: December 16,
    2010.
•   Defense Management: DOD Has a Rigorous Process to Select Corrosion Prevention Projects,
    but Would Benefit from Clearer Guidance and Validation of Returns on Investment. GAO-11-84.
    Washington, D.C.: December 8, 2010.
•   Defense Management: Observations on the Department of Defense’s Fiscal Year 2011 Budget
    Request for Corrosion Prevention and Control. GAO-10-607R. Washington, D.C.: April 15, 2010.
•   Defense Management: Observations on Department of Defense and Military Service Fiscal Year
    2011 Requirements for Corrosion Prevention and Control. GAO-10-608R. Washington, D.C.: April
    15, 2010.
•   Defense Management: Observations on DOD’s Fiscal Year 2010 Budget Request for Corrosion
    Prevention and Control. GAO-09-732R. Washington, D.C.: June 1, 2009.
                                                                                          Page 33




       Page 39                                                            GAO-12-823R Defense Management
Related GAO Products (cont.)

•   Defense Management: Observations on DOD’s Analysis of Options for Improving Corrosion
    Prevention and Control through Earlier Planning in the Requirements and Acquisition Processes.
    GAO-09-694R. Washington, D.C.: May 29, 2009.
•   Defense Management: Observations on DOD’s FY 2009 Budget Request for Corrosion
    Prevention and Control. GAO-08-663R. Washington, D.C.: April 15, 2008.
•   Defense Management: High-Level Leadership Commitment and Actions Are Needed to Address
    Corrosion Issues. GAO-07-618. Washington, D.C.: April 30, 2007.
•   Defense Management: Additional Measures to Reduce Corrosion of Prepositioned Military Assets
    Could Achieve Cost Savings. GAO-06-709. Washington, D.C.: June 14, 2006.
•   Defense Management: Opportunities Exist to Improve Implementation of DOD’s Long-Term
    Corrosion Strategy. GAO-04-640. Washington, D.C.: June 23, 2004.
•   Defense Management: Opportunities to Reduce Corrosion Costs and Increase Readiness. GAO-
    03-753. Washington, D.C.: July 7, 2003.
•   Defense Infrastructure: Changes in Funding Priorities and Strategic Planning Needed to Improve
    the Condition of Military Facilities. GAO-03-274. Washington, D.C.: February 19, 2003.


                                                                                            Page 34




       Page 40                                                              GAO-12-823R Defense Management
Enclosure II: Comments from the Department of Defense




Page 41                                                 GAO-12-823R Defense Management
Page 42   GAO-12-823R Defense Management
(351704)




Page 43    GAO-12-823R Defense Management
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