This is the accessible text file for GAO report number GAO-08-663R entitled 'Defense Management: Observations on DOD's FY 2009 Budget Request for Corrosion Prevention and Control' which was released on April 15, 2008. This text file was formatted by the U.S. Government Accountability Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products' accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. Because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately. GAO-08-663R: United States Government Accountability Office: Washington, DC 20548: April 15, 2008: Congressional Committees: Subject: Defense Management: Observations on DOD's FY 2009 Budget Request for Corrosion Prevention and Control: This letter formally transmits the attached briefing in response to section 371 of the National Defense Authorization Act for Fiscal Year 2008 (see enclosure 1). The act requires GAO to provide an analysis of DOD's budget submission for corrosion control and prevention and a DOD report that was to be submitted with defense budget materials to the congressional defense committees within 60 days after submission of the budget for a fiscal year. On April 3, 2008, we provided the briefing to staff of your committees to satisfy the mandate and 60-day reporting requirement. We are sending copies of this letter 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 (Comptroller); the Under Secretary of Defense (Acquisition, Technology, and Logistics); the Secretaries of the Army, Navy, and Air Force; and the Commandant of the Marine Corps. This letter will also be available at no charge on our Web site at http://www.gao.gov. Should you or your staff have any questions concerning this report, please contact me at (202) 512-8365 or solisw@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report were Tom Gosling, Assistant Director, and Allen Westheimer. Signed by: William M. Solis: Director, Defense Capabilities and Management: List of Congressional Committees: The Honorable Carl Levin: Chairman: The Honorable John McCain: Ranking Member: Committee on Armed Services: United States Senate: The Honorable Daniel Inouye: Chairman: The Honorable Ted Stevens: Ranking Member: Subcommittee on Defense: Committee on Appropriations: United States Senate: The Honorable Ike Skelton: Chairman: The Honorable Duncan L. Hunter: Ranking Member: Committee on Armed Services: House of Representatives: The Honorable John P. Murtha: Chairman: The Honorable C.W. Bill Young: Ranking Member: Subcommittee on Defense: Committee on Appropriations: House of Representatives: [End of section] Enclosure: Observations on DOD抯 FY 2009 Budget Request for Corrosion Prevention and Control: Briefing for Congressional Defense Committees: April 3, 2008: Section 371 of the National Defense Authorization Act for Fiscal Year 2008[A]: * Requires the Secretary of Defense, for each budget for a fiscal year beginning with FY09, to submit, with defense budget materials, a report on: - Funding requirements for DOD抯 long-term corrosion prevention and control strategy. - Return on investment that would be achieved by implementing this strategy. - Funds requested in the budget compared with funding requirements.旳n explanation if requirements are not fully funded in the budget. * Requires GAO to provide an analysis of DOD抯 budget submission for corrosion control and prevention and an analysis of the report described above to the congressional defense committees within 60 days after submission of the budget for a fiscal year. [A] Pub. L. No. 110-181, �1 (2008) amended 10 U.S.C. �28 to include, among other things, the reporting requirements for the Secretary of Defense and the Comptroller General. Engagement Objectives: In response to the mandate, GAO: 1. Analyzed DOD抯 fiscal year 2009 budget request for OSD抯 Corrosion Prevention and Control Program Element (CPC PE). 2. Compared the budget request with requirements and analyzed the projected return on investment (ROI) for funded and unfunded requirements. 3. Obtained information on DOD抯 process for developing its CPC PE budget submission.This briefing is intended to satisfy the mandate to review DOD抯 FY09 budget request for corrosion prevention and control. Scope and Methodology: * Scope: DOD's fiscal year 2009 budget submission and requirements for the CPC PE. * Methodology: Analyzed DOD budget and requirements data, as well as corrosion strategy documents. We calculated the potential ROI for DOD抯 funded and unfunded FY09 requirements based on DOD validated requirements data and overall ROI averages. Interviewed officials at the Under Secretary of Defense (Comptroller) and the Corrosion Policy and Oversight Office, within the Under Secretary of Defense for Acquisition, Technology, and Logistics (USD/ATL). * Limitations/data reliability: DOD had not yet submitted its required corrosion report. Also, we did not independently validate DOD抯 CPC requirements or projected ROI. Generally Accepted Government Auditing Standards (GAGAS) Statement: We conducted this performance audit from February 2008 to April 2008 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. Objective 1: DOD抯 FY09 Budget Request for CPC PE: President抯 FY09 budget request includes about $14.1 million for the CPC PE. This amount excludes any funding that the military services may contribute. Table: CPC PE Funding (FY 2006-2009), Dollars in millions: O&M: FY06 (estimated): $8.136; FY07 (estimated): $7,346; FY08 (estimated): $7.869; FY09 (requested): $8.962. RDT&E: FY06 (estimated): $7.402; FY07 (estimated): $7.124; FY08 (estimated): $18,917; FY09 (requested): $5.102. Total: FY06 (estimated): $15.538; FY07 (estimated): %14.460; FY08 (estimated): $26.786; FY09 (requested): $14.064. [End of table] According to data provided by OSD,of the $14.1 million requested for FY09, about $10.7 million is expected to fund corrosion projects. The remaining $3.4 million is expected to fund corrosion activities. While DOD will not make final selections of CPC projects until summer 2008, examples of potential projects include: * Air Force temporary corrosion barrier coatings; * Army primer and topcoat powder coatings; * Navy ultra high solids shipboard coatings; * Army non-metallic cooling towers. Activities may include such things as cost studies, development of a corrosion guidebook for acquisition programs, and training. In addition to the CPC PE funding provided by OSD, the military services provided an average of about $8.5 million for corrosion projects per year for FY06-08. Table: Military Service Contributions for CPC PE Projects (FY06-08), Dollars in millions: Army: FY06: $5.4; FY07: $5.0; FY08: $4.9; 3-year average: $5.1. Navy: FY06: $2.4; FY07: $2.3; FY08: $2.7; 3-year average: $2.5. Air Force: FY06: $1.6; FY07: $1.2; FY08: $0.1; 3-year average: $1.0. Total: FY06: $9.4; FY07: $8.5; FY08: $7.7; 3-year average: $8.5. [End of table] Objective 2: CPC Requirements and ROI: * Corrosion office updates and validates requirements annually. The office submitted FY09 requirements to USD/ATL in December 2007. * DOD validated total CPC PE requirements of $33.8 million for FY09. This amount includes $28.5 million for projects and $5.3 million for activities. * As part of the project selection process, DOD requires that an 揜OI� cost-benefit analysis be submitted with project plans. Projects costs are to consist of the up-front investment cost and annual operating and support costs. Benefits are to consist of annual savings or cost avoidance over the useful life of the project. As of June 2007,the ROI calculations are required to use a net present value approach. * ROI varies by individual project and activity and may span several years. Based on historical averages for FY05-08, DOD calculates an overall ROI of 40-1 for projects and 2-1 for activities. Using DOD requirements data and overall ROI averages,[A] we calculate that: * FY09 budget request, if approved, would result in a total ROI of $435 million. * If all FY09 validated requirements were funded, the total ROI would be $1.15 billion. * Therefore, the total ROI for unfunded requirements梩hat is, projects and activities not included in the budget request梚s $715 million ($1.15 billion minus $0.435 billion). [A] We did not validate DOD抯 overall ROI averages. We noted that until last year, DOD allowed the submission of project plans to include ROI calculations that did not use a net present value approach in their ROI calculations. Using this approach would inflate the ROI since the time- value of costs and savings are not considered. However, DOD corrosion officials told us that less than 5% of the projects did not use the net present value ROI approach. Objective 3: Process for Developing CPC PE Budget: * According to USD/ATL, global commitments, constrained budgets, and competing requirements preclude fully funding CPC requirements. * 2006 Program Objective Memorandum (POM) cycle included about $14 million for the CPC PE in FY09. This funding level was set with the expectation that the services would provide more CPC funding in their budgets. * Corrosion officials told us they submitted a $14.1 million budget request in accordance with USD/ATL guidance capping FY09 funding requests at POM levels. * Comptroller officials told us that while program offices may consider ROI benefits in developing budget submissions, requirements for systems and services, rather than ROI, drive funding levels in DOD抯 annual budget request. Agency Views: To obtain agency views, we discussed a draft of this briefing with officials from the Corrosion Policy and Oversight Office. They concurred with the facts presented. On the basis of their comments and supporting documentation they provided, we modified the briefing regarding their revised methodology for calculating ROI. [End of enclosure] GAO's Mission: The Government Accountability Office, the audit, evaluation and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO's commitment to good government is reflected in its core values of accountability, integrity, and reliability. Obtaining Copies of GAO Reports and Testimony: The fastest and easiest way to obtain copies of GAO documents at no cost is through GAO's Web site [hyperlink, http://www.gao.gov]. 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