Summary

The Air Force's Depot Maintenance Industrial Fund, which provided about $3.6 billion worth of maintenance services to its customers during fiscal year 1991, was supposed to break even on these sales. The fund, however, has suffered losses and has experienced a steady increase in its backlog of work mainly because managers repeatedly based the fund's prices and the size of its work force on productivity estimates that were not attained. To eliminate the losses and achieve profits, the fund has resorted to improper or questionable practices, such as charging customers for work that was not done. These practices (1) cause financial reports and budget documents to provide a misleading picture of the fund's performance and (2) make it hard for the Defense Department and Congress to oversee the fund and the appropriation requests of fund customers. GAO's analysis of the fund's projected work loads and capabilities for fiscal years 1992 and 1993 shows that customers' fiscal year 1993 budget requests include at least $365 million for work that is unlikely to be started before fiscal year 1994. Its analysis of the Air Force's plan for reducing the fund's fiscal year 1991-95 costs by $1.1 billion shows that the Air Force is unlikely to succeed mainly because (1) fund managers lack the information needed to manage effectively and (2) the Air Force's plan makes unrealistic assumptions about the savings that can be achieved through competition.

GAO found that: (1) DMIF suffered losses and experienced a steady increase in its backlog of work because managers used overly optimistic productivity assumptions in their budget estimates; (2) work-force productivity was adversely affected by frequent changes in the size and mix of the workload; (3) the DMIF backlog grew from $843 million at the end of fiscal year (FY) 1987 to $1,348 million at the end of FY 1991; (4) DMIF lost $93.4 million during FY 1990 and FY 1991 because Air Force Materiel Command (AFMC) headquarters directed DMIF managers not to bill Air Force customers for some work; (5) the decision not to charge Air Force customers for work performed caused financial reports to provide a misleading picture of DMIF performance, and was inconsistent with a Department of Defense (DOD) initiative to develop industrial fund sales prices that approximate the costs incurred in providing goods and services to customers; and (6) DMIF recent profits were due almost entirely to improperly charging customers for work that was not performed, transfers of more than $85 million from Air Force operation and maintenance appropriations to DMIF, an AFMC policy that authorized DMIF maintenance activities to increase prices over those previously approved by DOD, and the addition of surcharges to DMIF FY 1992 sales prices in order to recover some of the fund's prior year losses.