Summary

In response to a congressional request, GAO evaluated certain issues concerning a Department of Defense (DOD) proposal to convert the Naval Civil Engineering Laboratory (NCEL) from industrial funding to another funding method, focusing on: (1) the DOD rationale and justification for the proposal; (2) employment and operational impacts; and (3) any additional costs and savings involved in the conversion.

GAO found that: (1) DOD had not performed an analysis to support its argument that an industrial fund accounting system was more costly to operate or that the benefits did not justify the added costs; (2) DOD could not justify its argument that Congress lost oversight through industrial funding; (3) the revised criteria for industrial funding were more definitive but still subject to interpretation; and (4) NCEL officials believed that NCEL met the revised criteria for industrially funded activities. GAO also found that: (1) neither DOD nor the Navy could identify any employment impacts directly attributable to the conversion; (2) the conversion could cause an imbalance between NCEL customer-financed material and labor costs and appropriations for overhead costs; (3) NCEL would no longer qualify for the Asset Capitalization Program, which would decrease available funding sources for modernization efforts; (4) under the Navy's proposed implementation plan, the Naval Facilities Engineering Command (NAVFAC) would gain control over NCEL overhead funds, which would disrupt relationships between NCEL and its customers and cause NAVFAC to fund overhead costs for non-NAVFAC activities; (5) although NCEL officials believed that costs would result from the need to modify its industrial fund accounting and financial management system to accommodate appropriation accounting requirements, the Navy could avoid those costs by selecting an alternative funding method that would not require separate systems; and (6) DOD did not show that the conversion would result in any savings, except for a one-time shift of funds from one year to another.