Auditors find Air Force depot group in deep

Citing hundreds of millions of dollars in losses since 1994 and persistent failure to meet productivity and savings targets, a new report from the General Accounting Office (GAO) calls on the Air Force Depot Maintenance Activity Group (DMAG) to dramatically overhaul its budgeting process and develop more realistic pricing and projection mechanisms.

DMAG lost approximately $600 million between fiscal years 1994 and 1998, on sales of $21.8 billion, the report, "Air Force Depot Maintenance: Budget Difficulties and Operational Inefficiencies (AIMD/NSIAD-00-185)," said. DMAG is charged with repair and overhaul of American airborne assets and also does work for foreign governments.

These losses are particularly troublesome in light of the group's status as an Air Force Working Capital Fund partner, GAO said. Members of the fund are required to price their services at the start of each fiscal year, with the goal of breaking even over time. GAO identifies the group's repeated failure to accurately project material costs, customer demand and worker productivity as a root cause of the losses.

GAO acknowledged that workforce reductions at DMAG resulted in a loss of experienced hands, a point DoD officials also made in their response to the report. But changes underway, such as the establishment of a new Depot Maintenance Accounting and Productivity System, will help in the effort to bring the group's expenditures in line with its goal of self-sufficience, GAO said.

Still, the flaws in DMAG's recent performance are glaring. In fiscal years 1998 and 1999, the group exceeded their cost estimates for materials by more than $300 million annually, although the report places a portion of the blame on wildly fluctuating prices charged by the Air Force Supply management Group.

Overly optimistic productivity estimates resulted in a cumulative $838 million in labor cost overruns from 1992 through 1999 and a general inadequacy in meeting the needs of its customers in a timely fashion. The group also failed to realize 61 percent of the management reformative cost savings they had projected. Since DMAG prices were adjusted down in anticipation of these savings, their absence further exacerbated the operation's fiscal woes.

GAO's recommendations for putting DMAG back on track focus on increasing the accuracy of measurements in three key areas: materials, productivity and costs.

The report recommends that DMAG rely on historical productivity data, rather than nebulous projected gains in the area, to set future targets. DMAG is also advised to enhance its ability to revise cost estimates periodically and use this more accurate data in drafting future budgets.

DoD's point by point responses to the recommendations signaled general agreement with GAO's findings. In several cases, such as the issue of accuracy in costing, the department identified steps that are already underway to address the deficiencies highlighted by the report.

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