Defense Management: Defense-Wide Working Capital Fund Agencies Apply Most Key Operating Principles but Should Improve Pricing Transparency

As DOD continues to focus its resources on improving military readiness and modernizing its forces, it seeks to minimize costs associated with its business operations. DFAS, DISA, and DLA are financed through the Defense-Wide Working Capital Fund (DWWCF). Collectively, they provide shared services and goods to their customers, including finance and accounting services; information technology services; and fuel provision and inventory management.

Senate Report 115-262, accompanying a bill for the National Defense Authorization Act for Fiscal Year 2019, includes a provision that GAO evaluate the activities DWWCF agencies fund through overhead charges and fees collected from customers. This report evaluates the extent to which DFAS, DISA, and DLA (1) have a process for setting rates to recover costs and provide transparent pricing to customers and (2) clearly delineate roles and responsibilities, measure performance, and assess resource requirements and customer needs. GAO reviewed relevant sections of DOD's Financial Management Regulation and agency documentation and interviewed officials from DFAS, DISA, and DLA and the military departments in comparing the agencies' management practices to the key operating principles for effective management of working capital funds.

The Defense Finance and Accounting Service (DFAS), Defense Information Systems Agency (DISA), and Defense Logistics Agency (DLA) use a combination of approaches to set rates that are intended to recover their costs and equitably allocate costs to customers. However, DFAS, DISA, and DLA have not provided transparent pricing to the military departments, which are their largest customers. Each agency annually develops budget proposals designed to recover projected costs and account for gains or losses from prior years. DFAS, DISA, and DLA have taken steps intended to establish an equitable pricing methodology. For example, DLA changed its pricing method for distribution services to align the rates customers pay with DLA's costs of providing the service. However, customers from the military departments said they lack visibility into the factors that determine their overall costs at one or more of the three defense agencies, including how indirect costs are allocated and included in the rates they are charged. GAO's review of cost and rate documentation provided to the military departments also found that they provide high-level information, such as the rates and estimated workloads, and did not include details about the types of costs included or how they are calculated. Specifically,

(1) DFAS informational briefings do not describe the types of costs included in rates and how those costs are calculated and allocated. As a result, customers from the Army and Navy said they were confused about why declines in their use of DFAS's services have not resulted in reduced costs.

(2) DISA does not include in its documentation the methodology it uses to calculate its rates, making it difficult for officials from the Air Force to determine how they can manage their costs with DISA.

(3) DLA does not provide detailed information on the costs included in its rates, making it difficult for customers from the Navy and Air Force to determine how to lower their costs or, in the case of the Air Force, understand the cost implications of DLA's newly announced pricing initiative.

Because DFAS, DISA, and DLA share only high-level information on their rate-setting methodologies, the military departments have been limited in their abilities to understand and manage the costs they pay for the services they obtain. By providing more complete information on rate setting, including the calculation and use of costs, DFAS , DISA , and DLA could help their customers better manage their costs and make more informed budgeting decisions. Improved transparency could also help customers anticipate how potential changes to the assumptions underlying rates could affect future costs.

GAO also found that DFAS, DISA, and DLA clearly delineate roles and responsibilities, measure performance, and assess resource requirements and customer needs for goods and services, as called for by the three remaining key operating principles for effective working capital fund management. As a result, these agencies are positioned to promote a clear understanding of who will be held accountable for specific tasks or duties, reduce the risk of mismanaged funds, measure their operational performance and identify opportunities to improve performance, and use resources most effectively.

GAO recommends that DFAS, DISA, and DLA provide more complete information to customers on their rate-setting methodologies. DOD concurred with GAO's recommendations.

As the Department of Defense (DOD) continues to focus resources on  improving military readiness and modernizing its force, it seeks to  minimize costs associated with its business operations. One way to do  this is to consolidate into a single shared provider those services that are  used by multiple defense organizations to improve efficiency and reduce  costs. The provision of shared services may be funded through direct  appropriations or through an intragovernmental revolving fund, such as a  working capital fund. Working capital funds operate as a self-supporting  entity that conducts a regular cycle of businesslike activities, and they are  intended to create incentives for customers and managers to control  costs.

To control and account more effectively for the cost of programs and work  performed, the Secretary of Defense may establish working capital funds  to finance inventories of designated supplies and provide working capital  for industrial- and commercial-type activities that provide common  services within or among DOD components. The Defense-Wide Working  Capital Fund (DWWCF) satisfies recurring requirements for finance and  accounting services, management of parts and supplies, inventory and  fuel provision, information technology services, and other services  needed by DOD organizations. The DWWCF finances the activities of  the Defense Finance and Accounting Service (DFAS), the Defense  Information Systems Agency (DISA), and the Defense Logistics Agency  (DLA) (hereafter referred to collectively as the DWWCF agencies), which  provide goods and services to customers that include the military  departments, defense agencies and organizations, and non-DOD federal  agencies, among others. These three DWWCF agencies set rates to  cover costs associated with providing goods and services, which include  costs associated with materials, overhead, and operations. Customers  have raised questions about the transparency of costs charged by the  DWWCF agencies.

Senate Report 115-262 accompanying a bill for the National Defense  Authorization Act for Fiscal Year 2019 contained a provision that we  evaluate the activities DWWCF agencies fund through overhead charges  and fees collected from customers. In this report, we evaluate the extent  to which the defense agencies (1) have a process for setting rates to  recover costs and provide transparent pricing to customers and (2) clearly  delineate roles and responsibilities, measure performance, and assess  resource requirements and customer needs.

For our first objective, we reviewed sections of DOD 7000.14-R, Financial  Management Regulation, specific to working capital funds as well as the  processes that DFAS, DISA, and DLA use to set rates for products and  services. We met with officials from these DWWCF agencies and the  Office of the Under Secretary of Defense (Comptroller) and obtained  documentation outlining the agencies’ rate-setting methodologies and the  types of costs that each agency charges to customers. We also met with  officials from six offices within the three military departments to obtain the  perspectives of the military departments as the three largest customers of  the DWWCF agencies. We talked with officials from the following offices:  Army Budget Office; Deputy Assistant Secretary of the Army (Financial  Operations); the Navy’s Deputy Assistant Secretaries for Budget and for  Financial Policy and Systems; the Air Force’s Deputy Assistant Secretary  for Budget; and the Air Force’s Office of Information Dominance and  Chief Information Officer.

We used this information to evaluate the rate-setting process for all three  DWWCF agencies against the principle of working capital fund self- sufficiency, one of four key operating principles for effective working  capital fund management identified by us in a prior report. Each of the  four key operating principles has three underlying components describing  specific actions agencies should take to adhere to the principle. Our  analysis focused on comparing the rate-setting processes of the three  DWWCF agencies against the key operating principle of self-sufficiency  rather than on assessing the results of those processes. Therefore,  although the components of this principle include the recovery of actual  costs and transparent and equitable pricing, we did not independently  verify whether the processes resulted in the recovery of actual costs or in  the equitable allocation of costs among customers.

For our second objective, we obtained documentation from DFAS, DISA,  and DLA on their management practices and discussed the information  with knowledgeable agency officials and, where customers’ perspectives  were needed, officials from the same offices in the military departments  we met with for our first objective. We evaluated the DWWCF agencies’  management practices related to the delineation of roles and  responsibilities, performance measurement, and communication with  customers against the other three key operating principles for effectively  managed working capital funds identified in our prior report, which are  described later in this report and in more detail in appendix I. We  assessed the extent to which these agencies followed each key operating  principle and their associated components.

We conducted this performance audit from September 2018 through  November 2019 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.

Like all DOD working capital funds, the DWWCF received its initial  working capital through an appropriation or a transfer of amounts from  existing appropriations to finance the initial cost of products or services.  Ongoing DWWCF operations and maintenance of a minimum cash  balance are funded through reimbursements to the DWWCF comprised of  customer payments made to DFAS, DISA, and DLA. The flow of funding  and provision of goods and services between the DWWCF agencies, their  customers, and the DWWCF is shown in figure 1.

DFAS, DISA, and DLA use funds from the DWWCF to provide goods and  services across six activity groups, as shown in table 1. Activities of the  DWWCF agencies operate on a break-even basis. As part of the annual  budget submission for each upcoming fiscal year, rates are required to be  established at levels estimated to recover the budgeted costs of goods  and services, including all general and administrative overhead costs,  prior period gains and losses, and applicable surcharges. Predetermined  or “stabilized” rates developed during the budget process are applied to  orders received from DWWCF customers during the fiscal year. The  Office of the Under Secretary of Defense (Comptroller) is responsible for  reviewing, coordinating, and publishing reimbursable rates for DOD.  Where feasible, the Office of the Under Secretary of Defense  (Comptroller) publishes applicable reimbursable rates prior to the  beginning of each new fiscal year.

The military departments are the primary consumers of goods and  services provided by the DWWCF agencies. In fiscal year 2018, the  reported total dollar value of goods and services ordered from DFAS,  DISA, and DLA was approximately $49.4 billion, with the military  departments collectively ordering about $36.3 billion (or 74 percent of the  total dollar value of orders in fiscal year 2018) in goods and services.  Most of the goods and services they purchased fell under two activity  groups—supply chain management and energy management.  Specifically, approximately $29.4 billion (60 percent of the total dollar  value of orders in fiscal year 2018) were for supply chain management  and approximately $10.8 billion (22 percent of the total dollar value of  orders in fiscal year 2018) were for energy management, as shown in  figure 2.

Operating Budgets and Cash Balance Requirements for DWWCF Activities

Prior to the beginning of the fiscal year, Annual Operating Budgets are  issued for each DWWCF activity group managed by DFAS, DISA, and  DLA. Budget formulation for a particular fiscal year begins approximately  18 months prior to the beginning of that fiscal year. Each activity’s Annual  Operating Budget identifies total budgetary resources authorized for use  during the fiscal year. In addition, each DWWCF agency is responsible  for maintaining positive cash balances sufficient to allow their operations  to continue uninterrupted. As of the end of fiscal year 2017, the DWWCF  as a whole held a reported cash balance of about $3.0 billion, which  decreased to $2.6 billion by the end of fiscal year 2018. According to  DWWCF agency officials, it can be challenging to maintain an appropriate  cash balance within the DWWCF because setting accurate rates that  reflect their agencies’ actual costs is difficult. If rates are set too low  during the budget formulation process, higher-than-expected costs or  lower-than-expected sales of goods or services during the fiscal year may  result in losses for the DWWCF, which in turn may lead to insufficient  balances to meet the minimum current or future financing operational  requirements. Similarly, if rates are set too high, lower-than-expected  costs or higher-than-expected customer sales during the fiscal year may  generate excessive gains for the DWWCF. Excessive gains may be  transferred out of the DWWCF into other appropriation accounts or  rescinded by Congress.

In 2017, we described the DWWCF’s reported monthly cash balances  and the extent to which they fell within targeted upper and lower cash  requirements. We found that the DWWCF’s reported monthly cash  balances were outside the targeted upper and lower cash requirements  for 87 of 120 months during that time frame. This was caused by DLA  charging its customers more or less than it cost to purchase, refine,  transport, and store fuel and by DOD transferring funds into or out of the  DWWCF to pay for combat fuel losses or other higher priorities, among  other things. As we noted in our report, DOD revised its cash  management policy to require a positive cash balance throughout the  year and an adequate ending balance to support continuing operations  into the subsequent year. According to this revised policy, in setting the  cash requirement goals, DOD working capital funds are to consider four  elements: (1) the rate of disbursement, which is the average amount  disbursed between collection cycles; (2) the range of operation, or the  difference between the highest and lowest expected cash levels based on  budget assumptions and past experience; (3) risk mitigation, which  requires some amount of cash beyond the range of operations to mitigate  the inherent risk of unplanned and uncontrollable events; and (4)  reserves, which are cash amounts held for known future requirements.

DOD officials said they are in the process of adding additional guidance  to the DOD Financial Management Regulation about when DOD  managers should use available tools to help ensure that monthly cash  balances are within the targeted upper and lower cash requirements, as  we recommended in our 2017 report. For this report, we updated the  2017 analysis to include the DWWCF’s reported monthly cash balances  and targeted upper and lower cash requirements for fiscal years 2017  and 2018, as shown in figure 3. For fiscal year 2017, the monthly cash  balances were above and below the targeted upper and lower cash  requirements one time each, and for fiscal year 2018 the targeted upper  cash requirement was raised and the monthly cash balances were all  within the revised targeted upper and lower cash requirements.

Key Operating Principles for Effective Management of Working Capital Funds

In our prior work, we identified four key operating principles to guide the  management of working capital funds. These key operating principles call  for (1) working capital fund self-sufficiency, which includes establishing  transparent pricing; (2) clearly delineated roles and responsibilities; (3)  performance measurement; and (4) built-in flexibility to obtain customer  input and meet customer needs. As we describe later in this report,  each of these key operating principles has three underlying components  describing specific actions agencies should take to adhere to the  principle. For further information about each key principle and its  components, see appendix I.

Defense Agencies Have Processes to Set Rates That Are Designed to Cover Costs but Are Not Transparent in Their Pricing

We found that DFAS, DISA, and DLA have applied two of the three  components of the key operating principle for working capital fund self- sufficiency by setting rates that are designed to cover actual costs and  establishing a management review for rate setting. However, despite  taking steps intended to allocate costs equitably among their customers,  DFAS, DISA, and DLA have not fully applied the third component of the  key operating principle by establishing pricing methodologies that are  transparent to their customers.

Defense Agencies Have Processes to Set Rates That Are Designed to Recover Actual Costs and Have Established Management Review for Rate Setting

DFAS, DISA, and DLA each develop budget proposals annually that are  designed to recover their projected costs, while also accounting for any  gain or loss from previous years. The three DWWCF agencies generally  set rates that are intended to mitigate prior year gains or recover all prior  year losses in the current fiscal year of execution, although they can  spread the return actions over several fiscal years to minimize the impact  on customers from rate fluctuations.

The rate-setting processes used by DFAS, DISA, and DLA include  management reviews. Each agency’s management reviews and approves  the budget proposals for its DWWCF activities during the budget  formulation process. The agencies then send the budget proposals to the  Office of the Under Secretary of Defense (Comptroller) for further review  and approval, and the Office of the Under Secretary of Defense  (Comptroller) issues a memo finalizing the rates to be charged by DFAS,  DISA, and DLA during the fiscal year.

Defense Agencies Use Multiple Approaches in Setting Rates and Allocating Costs

DFAS, DISA, and DLA each use multiple approaches to set rates on an  annual basis and adjust these rates, as appropriate, during DOD’s  programming and budget development process. All three agencies  include direct and indirect costs in their rates, and these costs vary due to  differences in the agencies’ missions, including the goods and services  they provide. In general, the DWWCF agencies describe direct costs as  those costs that can be directly attributed to an output and a customer.  For example, DFAS officials told us that DFAS includes the cost of the  labor that supports civilian pay services for a customer as a direct cost.  DISA officials said that DISA includes the cost of servers as a direct cost.  DLA officials indicated that materiel costs, such as the cost to acquire fuel  or a spare part, are considered direct costs. Alternately, the three  agencies describe indirect costs as costs that cannot be attributed to one  specific output and customer. For example, costs for information  technology systems that support multiple customers, supervisory staff  that support more than one customer, and general and administrative  (overhead) costs such as a DWWCF agency’s general counsel services  or physical facility maintenance are all indirect costs.

DFAS, DISA, and DLA set rates during DOD’s annual programming and  budget development process. The three DWWCF agencies begin the  process of setting rates approximately 18 months prior to the fiscal year in  which the rates will be applied. Setting rates in advance helps ensure that  adequate resources are requested in the customers’ fund accounts to pay  the established rates and prices. The Office of the Under Secretary of  Defense (Comptroller) reviews and approves finalized rates for a  particular fiscal year in a rate memo circulated during the prior fiscal year.  DFAS, DISA, and DLA use a combination of the following three  approaches when setting the rates. Table 2 shows instances in which each of the three DWWCF agencies use the following rate-setting  approaches.

Per Unit: Determines a specific dollar rate per unit that, when  multiplied by the projected workload, will produce revenue sufficient to  recover the full costs, including direct and indirect costs, of providing  the good or service.

Portion of Total Costs: Charges a portion of the agency’s total costs  (both direct and indirect costs) of providing a service based either on  the proportion of total workload projected for a specific customer or a  uniform percentage across all customers.

Percentage Markup on Direct Costs: Adds a fee based on a  percentage of the direct costs of a service as a proxy for expected  indirect costs.

DFAS, DISA, and DLA officials described their approaches to allocating  costs when setting rates. DFAS allocates costs to each of the services it  provides and to each customer using those services through 29  predetermined business rules. DISA groups its services by the costs  associated with providing them and allocates these costs to the services  in each group based on factors such as the cost of equipment used to  provide each service. Similarly, DLA uses various methods to allocate  indirect costs to some or all of DLA’s goods or services based on factors  such as the number of employees supporting the provision of a given  good or service and the total sales of that good or service. In each case,  these costs are then included in the rates DFAS, DISA, and DLA charge  customers for each good or service. See appendixes II through IV for  more information on each agency’s rate-setting approach.

The Defense Agencies Have Adjusted Some Rate-Setting Methodologies to Be More Equitable, but Their Methodologies Are Not Transparent

We found that DFAS, DISA, and DLA have taken steps intended to  establish an equitable pricing methodology. However, customers from the  military departments told us, and our review of related documentation  provided at rate briefings and cost summits found, that the information  they receive regarding the pricing of goods and services is not  transparent. Officials from all three DWWCF agencies described efforts to  more equitably allocate costs associated with a given good or service to  the customers who use that good or service, as described below.

DFAS, for fiscal year 2019, changed its method for allocating the  costs of its facilities to its customers in an effort to more equitably  allocate these costs. Previously, the costs for each DFAS facility were  charged directly to the customers whose work was performed in that  facility. Since the costs of facilities differ and customers do not choose  the location that provides their service, DFAS changed this  methodology so that customers now pay a uniform percentage of their  direct costs to cover the total cost of DFAS facilities.

DISA, for fiscal year 2017, changed the pricing structure for Defense  Information System Network Infrastructure Services in response to  recommendations from two DOD internal reviews. The structure  changed from one designed to encourage adoption of the network  across DOD to a consumption-based model that aligns customer  billing with consumption so that customers have greater control over  their costs. According to DISA officials, this change has enhanced  collaboration between DISA and its customers, providing customers  more frequent inventories of the services they require so that the  customers can determine that the bills for those services reflect their  requirements.

DLA is implementing two changes to the pricing methodology it uses  for distribution services, part of its Supply Chain Management activity  group. The first change, which DLA refers to as distribution price  equitability, was implemented during fiscal year 2017. This pricing  methodology allocates overhead costs to reimbursable distribution  services (special services not included in DLA’s standard rate  structure). Previously, only rate-driven distribution services were  charged for overhead. DLA proposed the second change, market  basket pricing, for implementation in fiscal year 2020. Market basket  pricing changes this pricing from being based solely on the weight of  the items being distributed to a method that considers the level of  effort required by DLA to distribute the items. For example, bulky,  fragile, and hazardous items will be charged higher rates than small,  easy-to-ship items.

While we found that DFAS, DISA, and DLA have taken steps intended to  establish an equitable pricing methodology, military department officials  from the offices we contacted said that they lack visibility into the factors  that determine their costs at one or more of the three defense agencies.  Specifically, they said they had a limited understanding of the types of  indirect costs that are included in the rates they are charged and how  those costs are allocated, the specific changes that have been made to  the methods used to set rates, or how changes in the customer’s use of  the services, which would also change an agency’s workload, would  affect overall costs. DFAS, DISA, and DLA have produced documentation  for their customers to explain their rates and have developed ways to  communicate with their customers—for instance, through the use of  customer liaisons. However, officials from the military departments told us  this documentation does not contain the level of detail they need to fully  understand the rates. For example,

DFAS. Navy and Army officials we spoke with regarding DFAS said  that their departments lack visibility into how DFAS’s rates and bills  are calculated because DFAS informational briefings do not describe  the types of costs included in rates and how those costs are  calculated and allocated to customers. As a result, officials said they  are confused by why declines in their use of DFAS’s services have  not resulted in reduced costs. These officials said that this information  would make it easier for them to determine how to manage their costs  and verify that costs are equitably allocated and reflect usage.

DISA. Air Force officials we interviewed regarding DISA told us that  DISA does not provide sufficient pricing transparency because,  although DISA has provided some documentation of its rates, this  documentation does not explain the methodology used to calculate  the rates and the costs included in those calculations. Although Army  officials who discussed DISA said that DISA rate briefings provide the  level of information necessary for customers, the Air Force officials  said that this lack of information on how DISA calculates rates makes  it difficult for the Air Force to determine how it can manage its costs  with DISA or whether the rates it pays reflect the costs of the services  it uses.

DLA. Navy and Air Force officials we interviewed regarding DLA told  us that DLA does not provide sufficient pricing transparency despite  the rate briefings DLA conducts for its customers. Although the Army  officials who discussed DLA said that the rate briefings provide  sufficient information for customers, the Navy officials told us that the  lack of detailed information on the costs included in DLA’s rates  makes it difficult for the Navy to determine how to lower its costs.  They also said this lack of information prevents them from determining  whether the rates they pay actually reflect the costs of the services  they use, as intended. Similarly, the Air Force officials told us that  DLA’s communication regarding its market basket pricing initiative,  discussed during the DLA briefings, was confusing and did not include  all the information they needed to prepare their budget, such as when  the change would be implemented and how the initiative would affect  the Air Force’s costs. Officials noted that, despite initially being told by  DLA that the Air Force would experience a reduction in its distribution  costs as a result of this initiative, they subsequently learned through a  Resource Management Decision that the Air Force’s costs would  increase instead.

DFAS, DISA, and DLA officials told us they make efforts to communicate  with their customers and to improve the transparency of their rates. For  example, DFAS officials noted that they have one-on-one discussions  with each of their customers during the customer rate briefings. DISA  officials said that they respond to customer questions regarding rates and  share information on the costs included in those rates. DLA officials said  they discuss rates at a variety of customer forums and share  documentation of changes to their rate-setting methodologies, such as  market basket pricing, with customers. Officials from the military  departments acknowledged these efforts by the DWWCF agencies to  share information. However, as described in the examples above, officials  told us that one or more of the agencies have not provided them with the  information needed to fully understand their costs, to have assurance that  costs are being allocated fairly, or to identify actions they could take to  affect their overall bills, in some cases, despite requests for more detailed  cost information. In addition, DFAS, DISA, and DLA provided us copies of  documents that they present at rate briefings and cost summits to share  information about their pricing methodologies with their customers. In our  review of those documents, we found that they contained high-level  information, such as the rates themselves and the estimated workloads,  and did not contain detailed information about the types of costs included  in the rates and how those costs are calculated. For example, although  DLA provides its cost recovery rate for the materiel supply chains in its  rate briefing documentation, the documentation does not provide  information on the specific costs that go into that rate. As a result, based  on these documents, we also were not able to fully understand the  agencies’ costs and how those costs are allocated among their  customers.

By providing more complete and transparent information on  methodologies used to calculate rates, the costs used in those  calculations, and how changes in workload affect a customer’s rates,  DFAS, DISA, and DLA could improve their communication with their  customers and allow their customers to better understand and make  decisions to help them manage the costs of the goods and services that  they obtain. Such information would also better inform customers of any  changes to the assumptions underlying rates and the impact those  changes might have on their future costs.

DWWCF Agencies Delineate Roles and Responsibilities, Measure Performance, and Assess Resource Requirements and Customer Needs

We found that DFAS, DISA, and DLA have applied all of the components  of the three remaining key operating principles for effective management  of working capital funds. These principles relate to delineating roles and  responsibilities, measuring performance, and assessing resource  requirements and customer needs. By implementing these principles,  the DWWCF agencies are better positioned to:

Promote a clear understanding of who will be held accountable for  specific tasks or duties, reduce the risk of mismanaged funds and  tasks or functions “falling through the cracks,” and educate customers  about whom to contact if they have questions.

Measure their operational performance, assess their performance  against strategic goals, and identify opportunities to improve  performance.

Enable customers to provide input about working capital fund services  or voice concerns about their needs, enable agencies to prioritize  customer demand, and enable agencies to use resources most  effectively.

DWWCF Agencies Clearly Delineate Roles and Responsibilities

We found that all three DWWCF agencies have fully applied the three  components of the principle for clearly delineating roles and  responsibilities in that they define key areas of authority and  responsibility, segregate duties to reduce fraud, and have a management  review and approval process.

Define key areas of authority and responsibility. DFAS, DISA, and  DLA define key areas of authority and responsibility and provide  customers with clear information on who to contact if they encounter  issues or have questions. DFAS defines the responsibilities of key offices,  such as those responsible for tracking revenue, in its Doing Business with  DFAS catalog of services. This document lists points of contact, specific  to each customer, who can provide support and address customers’  questions. DFAS also maintains service level and audit agreements with  its customers, called mission work agreements, to document the specific  level of effort and service it will provide. DISA’s instructions define the  roles and responsibilities for key officials and offices involved in managing the agency’s DWWCF activities. DISA also provides contact information  for its customer account representatives in its DWWCF Rate Book and on  its website. DLA’s customer assistance handbook explains the roles of  different offices within DLA and contains contact information for each of  DLA’s activity groups and for customer-specific representatives. DLA also  defines roles and responsibilities of interagency groups in the  performance-based agreements it signs with the military departments and  services. For example, an agreement between the Department of the  Army and DLA defines roles and responsibilities for the Partnership  Agreement Council, the organization that addresses and prioritizes issues  related to improving logistics coordination between DLA and the Army.

Segregate duties to reduce error or fraud. DFAS, DISA, and DLA  segregate duties across their organizations and document this  segregation. DFAS documents the segregation of responsibilities for  tracking and recording transactions for each of its service offerings in its  Doing Business with DFAS catalog of services. For example, DFAS’s  Retired and Annuitant Pay section tracks the number of individuals  serviced under those pay systems, and DFAS’s Central Revenue Office  records these transactions in DFAS’s billing system. DISA describes its  processes for segregating duties in the documentation of its working  capital fund disbursements and collections processes. For example, when  DISA charges a customer agency, an accounts receivable technician  records the billing information and a certifying officer verifies and certifies  the transaction. DLA documents its segregation of key roles and  responsibilities for authorizing, processing, and reviewing transactions  according to DOD and DLA guidance. For example, the DOD manual that  outlines sales accountability and documentation processes for energy  commodities assigns responsibility to DLA Energy for ensuring that DLA  customers meet the criteria or have received waivers to purchase fuel  through DLA, while DLA Transaction Services provides activity codes to  authorized customers to manage their transactions. Additionally,  individual fuel handlers at DLA Energy stock points are required to record  customer data for sales and credits on a source document.

Establish a management review and approval process. DFAS, DISA,  and DLA have established management review and approval processes  to promote the appropriate tracking and use of funds. DFAS documents  its processes for tracking and reviewing transactions in its Doing  Business with DFAS document. DISA describes the review of  transactions in its documentation of its funds disbursements and  collections processes. Each of DLA’s activity groups tracks transactions  and funding using DLA’s accounting system of record—the Enterprise  Business System. However, each group uses its own unique order  validation process that is documented for each DLA activity group.

We found that all three DWWCF agencies are applying the three  components of the key operating principle for measuring performance in  that they have established performance measures and goals, aligned  performance measures with strategic goals, and established a  management review of DWWCF performance.

Establish performance measures and goals. DFAS, DISA, and DLA  have each established performance measures and goals. DFAS uses  financial and mission-focused performance measures, called business  models, which include metrics for service timeliness and accuracy,  among others. DISA has operational performance metrics, such as  service downtime, and collects customer feedback on service provision  through its Mission Partner Engagement Office. DLA establishes  performance measures and corresponding thresholds in the performance- based agreements it signs with its customers from the military  departments and services. These performance measures include materiel  availability and backorders, among other measures.

Align performance measures with strategic goals. DFAS, DISA, and  DLA have performance measures that are aligned with their strategic  goals. Each DWWCF agency is responsible for maintaining positive  cash balances sufficient to allow their operations to continue  uninterrupted. To achieve this, all three agencies monitor their monthly  cash balances and whether each of its activity groups is experiencing  gains or losses. DFAS, DISA, and DLA also have aligned operational  performance measures with their strategic goals as illustrated by the  following examples.

DFAS’s Fiscal Year 2017-2021 Strategic Plan identifies achieving  cost, schedule, and performance targets that support delivery of best  value services. DFAS monitors the timeliness and accuracy of its  services reflecting this strategic outcome in its performance  measurement. For example, DFAS measures the percentage of  commercial payments it processes accurately and the percentage of  military pay problem cases that it resolves in a timely manner.

DISA’s Strategic Plan 2019-2022 states that optimizing enterprise  services and capabilities to minimize costs while delivering high  availability, among other benefits, is a strategic objective. To that end,  DISA monitors data center and equipment availability through  performance measures such as the average number of minutes of  facility downtime per fiscal year.

DLA’s Strategic Plan 2018-2026 identifies strengthening readiness  and lethality as its highest priority line of effort. DLA monitors how its  own performance affects readiness of critical weapon systems using  its Service Readiness Dashboard, which includes a measure for the  number of weapon systems that are non-mission capable due to DLA  supply items being unavailable.

Defense-Wide Working Capital Fund   Midyear Rate Changes  Agency officials said that rates are generally  fixed for the entire fiscal year, but the Office of  the Under Secretary of Defense (Comptroller)  can approve midyear rate changes if required.  For example, we previously reported that the  Defense Logistics Agency (DLA) collected  about $3.7 billion more from the sale of fuel  than it cost in fiscal year 2015 because of  lower fuel prices. Conversely, during fiscal  year 2018, DLA’s cost of procuring fuel  increased significantly due to increases in the  price of the fuel procured from the market. As  a result, in April 2018, DOD increased the rate  from $90.30 per barrel to $115.92 per barrel  to cover its costs.

Establish management review of working capital fund performance.  DFAS, DISA, and DLA regularly monitor and have management reviews  of agency performance against these financial and mission-related  performance measures. Officials from each agency said they review the  financial performance of the agencies’ activities throughout the year the  programs and budgets will be executed to identify how differences  between budgeted rates and actual costs affect the fund’s gains, losses,  and cash balances. This allows them to coordinate with the Office of the  Under Secretary of Defense (Comptroller) to propose price changes when  needed, although officials said that a midyear rate change is rare (see  sidebar). The agencies also regularly review their non-financial  performance based on the previously described measures to identify  areas for improvement.

Defense Agencies Build in Flexibility to Obtain Customer Input and Meet Customer Needs

We found that all three DWWCF agencies are applying the three  components of the key operating principle of building in flexibility to obtain  customer input and meet customer needs by communicating with  customers regularly and in a timely manner, developing processes to  assess resource needs, and establishing processes to prioritize requests  for service.

Communicate with customers regularly and in a timely manner.  DFAS, DISA, and DLA each routinely communicate with customers  through annual rate briefings, customer forums, surveys, and other  meetings. These meetings enable these agencies to provide high-level  rate information to their customers and discuss the goods and services  that their customers will need in the coming budget year. For example,  DFAS communicates with the military services’ budget offices through an  annual briefing at a meeting hosted by the Office of the Under Secretary  of Defense (Comptroller) and surveys finance officers and end-user  customers on their satisfaction with military pay services. Similarly, DISA  holds routine meetings at the working group and senior official levels to  discuss service offerings, among other things. In addition to its biannual  cost summits where DLA discusses its pricing strategies with  representatives from the military services, the Office of the Under  Secretary of Defense (Comptroller), and the Office of the Under Secretary  of Defense for Acquisition and Sustainment, DLA also holds an annual  demand planning summit with the military services to discuss their  projected requirements for the upcoming budget year.

Develop process to assess resources needed to meet changes in  customer demand. DFAS, DISA, and DLA each take steps to  communicate with customers regarding future demand and requirements.  All three agencies have customer-specific representatives that obtain  information on future requirements and facilitate communication between  the agencies and their customers. DFAS uses client executive liaisons to  resolve issues and collect information about customer needs for its goods  and services. DISA uses its Mission Partner Engagement Office to  address customer concerns and conduct surveys about customer needs.  DLA has national account managers that represent each military service  and facilitate DLA’s engagement with the services regarding requirements  and customer service representatives with select customers to meet their  specific needs for DLA’s goods and services.

Establish process to prioritize requests for services. DFAS, DISA,  and DLA each have processes to adjust resources in response to the  needs of their customers. This primarily occurs during the budget  formulation process. DFAS officials told us that labor accounts for about  75 percent of the agency’s costs, and management can decide to adjust  its workforce resources depending on customer needs, often by shifting  personnel and workload among customers, temporarily hiring additional  staff, or reducing staffing levels through attrition. DISA’s Strategic  Resourcing Council is responsible for addressing issues such as  resourcing strategies for existing and emerging programs. DLA uses its  Enterprise Operations Planning Council, a group of DLA executives  responsible for actively balancing customer needs and supply chain  constraints, to ensure that resources are aligned with customer  requirements during the budget formulation process.

The agencies whose operations are financed through the Defense-Wide  Working Capital Fund have applied all but one of the components of the  key operating principles for effective management of working capital  funds—establishing a transparent and equitable pricing methodology, a  component of the principle of ensuring self-sufficiency by recovering the  agency’s actual costs. Transparent pricing helps ensure that customers  understand their costs and can make choices to manage these costs.  Officials from the military departments—the largest customers of DFAS,  DISA, and DLA—said they lack visibility into the types of costs included in  their rates and some do not understand how changes to rate-setting  methodologies or defense agency workload can affect their overall costs.  By providing this information to customers, DFAS, DISA, and DLA would  better equip them to reduce their costs and improve efficiency. Further,  DOD would have greater assurance that the DWWCF was operating as  intended.

We are making the following three recommendations to DOD:  The Secretary of Defense should ensure that the Director of the Defense  Finance and Accounting Service provides customers with more complete  information on the agency’s rate-setting methodologies in rate  documentation, briefings, and other forums where rates are discussed,  including the costs included in rates, how those costs are calculated, and  how changes in DFAS’s workload affect customers’ overall costs.  (Recommendation 1)

The Secretary of Defense should ensure that the Director of the Defense  Information Systems Agency provides customers with more complete  information on the agency’s rate-setting methodologies in rate  documentation, briefings, and other forums where rates are discussed,  including the costs included in rates, how those costs are calculated, and  how changes in DISA’s workload affect customers’ overall costs.  (Recommendation 2)

The Secretary of Defense should ensure that the Director of the Defense  Logistics Agency provides customers with more complete information on  the agency’s rate-setting methodologies in rate documentation, briefings,  and other forums where rates are discussed, including the costs included  in its rates, how it calculates those costs, and how and when proposed  changes to its rate-setting methodologies will affect customers’ overall  costs. (Recommendation 3)

We provided a draft of this report to DOD for review and comment. In an  email accompanying its written comments, DOD concurred with our  recommendations. In the department’s written comments, DFAS, DISA,  and DLA stated that they intend to take steps to provide their clients with  additional information on rates. These steps include reaching out to  customers to better understand their information needs and providing  additional information on potential pricing methodology changes. DOD’s  comments are reprinted in appendix V. DOD also provided technical  comments during this review, which we incorporated, as appropriate.

We are sending copies of this report to the appropriate congressional  addressees and the Secretary of Defense. In addition, the report will be  available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  Elizabeth Field at (202) 512-2775 or fielde1@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 listed in appendix VI.

Appendix I: Key Operating Principles for Managing Working Capital Funds

Examples of evidence supporting principle  the agency’s actual costs  Transparent and equitable pricing  methodologies allow agencies to ensure that  rates charged recover agencies’ actual costs  and reflect customers’ service usage. If  customers understand how rates are  determined or changed including the  assumptions used, customers can better  anticipate potential changes to those  assumptions, identify their effect on costs, and  incorporate that information into budget plans.  A management review process can help to  ensure the methodology is applied consistently  over time and provides a forum to inform  customers of decisions and discuss as  needed.

Published price sheets for services are readily  available. Documentation of pricing formulas  supports equitable distribution of costs.

Pricing methodology and accompanying  process ensures that, in aggregate, charges  recover the actual costs of operations.

Management review process allows fund  managers to receive and incorporate feedback  from customers. Discussions with customers  confirm an understanding of the charges and  that they are viewed as transparent and  equitable.

Appropriate delineation of roles and responsibilities promotes a clear understanding of who will be held accountable for specific tasks or duties, such as authorizing and reviewing transactions, implementing controls over WCF management, and helping ensure that related responsibilities are coordinated. In addition, this reduces the risk of mismanaged funds and tasks or functions “falling through the cracks.” Moreover, it helps customers know who to contact in the event they have questions.

Written roles and responsibilities specify how  key duties and responsibilities are divided  across multiple individuals/offices and are  subject to a process of checks and balances.  This should include separating responsibilities  for authorizing transactions, processing and  recording them, and reviewing the transactions.

Written description of all WCF roles and  responsibilities in an accessible format such as  a fund manual. Discussions with providers and  clients confirm a clear understanding.

A routine review process exists to ensure  proper execution of transactions and events.

Performance goals and measures are  important management tools applicable to all  operations of an agency, including the  program, project, or activity level. Performance  measures and goals could include targets that  assess fund managers’ responsiveness to  customer inquiries, the consistency in the  application of the funds’ rate-setting  methodology, the reliability of cost information,  and the billing error rates. Performance  measures that are aligned with strategic goals  can be used to evaluate whether, and if so  how, WCF activities are contributing to the  achievement of agency goals. A management  review process comparing expected to actual  performance allows agencies to review  progress towards goals and potentially identify  ways to improve performance.

Performance indicators and metrics for WCF  management (not just for the services  provided) are documented.

Indicators or metrics to measure outputs and  outcomes are aligned with strategic goals and  WCF priorities.

WCF managers regularly compare actual  performance with planned or expected results  and make improvements as appropriate. In  addition, performance results are periodically  benchmarked against standards or “best in  class” in a specific activity.

4. Build in flexibility to obtain customer

Opportunities for customers to provide input  about WCF services, or voice concerns about  needs, in a timely manner enable agencies to  regularly assess whether customer needs are  being met or have changed. This also enables  agencies to prioritize customer demands and  use resources most effectively, enabling them  to adjust WCF capacity up or down as  business rises or falls.

Established forum, routine meetings, and/or  surveys solicit information on customer needs  and satisfaction with WCF performance.

Established communication channels regularly  and actively seek information on changes in  customer demand and assess the resources  needed to accommodate those changes.

Established management review process that  allows for trade-off decisions to prioritize and  shift limited resources needed to accommodate  changes in demand across the organization.

DFAS reported receiving total  Defense-Wide Working Capital Fund  orders for services valued at  approximately $1.4 billion in fiscal  year 2018. DFAS employs around  12,000 civilian personnel and  provides services to DOD and other  federal entities through a single  activity group—Finance and  Accounting Services.

Approach to Allocating Costs: The Defense Finance and Accounting  Service (DFAS) establishes rates for each of the services it provides.  DFAS first links direct costs to each service and to each customer  benefitting from that service. Then, DFAS applies 29 predetermined  business rules to allocate indirect costs, which include mission-related  indirect costs and general and administrative costs. These business rules  identify costs associated with specific combinations of mission-related  indirect costs necessary to provide a service and then apply a “fair-share”  percentage of general and administrative indirect costs, which allows  DFAS to determine the rates it needs to charge to recover all costs.  General and administrative costs associated with supporting the entire  DFAS organization are allocated at a uniform percentage within DFAS’s  rates for all systems, services, and customers based on total direct costs.

Services Provided: DFAS provides  centralized finance, accounting,  human resources, and financial  systems management services.  DFAS categorizes its services into  three types: rate-based services  (which include military and civilian  pay services and accounting  services), direct systems  reimbursements (i.e., legacy  accounting systems), and support- to-others (i.e., reimbursable services  that are outside of DFAS’s core  mission or reflect emerging mission  workload).

Indirect Costs: DFAS differentiates  between two types of indirect costs:  (1) indirect costs that are necessary to support DFAS’s direct mission but are not direct costs because they support multiple types of work or customers (e.g., information technology network infrastructure, senior operations management, and facilities costs) and (2) general and administrative costs that support DFAS as a whole and are not linked to specific services (e.g., costs for DFAS’s internal review office and other headquarters-related costs). rate for each service that includes direct and indirect costs as allocated by its predetermined business rules. For civilian pay services, the number of units sold is based on the number of active civilian pay accounts in a given month (e.g., the number of civilian leave and earnings statements generated). For accounting services, the number of units sold is based on the number of labor hours DFAS employees recorded supporting a given task and customer. 2. Portion of Total Costs: DFAS charges a portion of the agency’s total legacy systems costs (direct costs and both mission-related and general and administrative indirect costs) of providing a service based on the proportion of total workload projected for a specific customer. DFAS uses this approach for its direct systems reimbursement services, as described below.

Direct Systems Reimbursement. DFAS charges customers a percentage of the total costs—including direct and both types of indirect costs—of each legacy accounting system based on each customer’s portion of total system usage. 3. Percentage Markup on Direct Costs: DFAS adds a percentage markup to its direct costs in support of non-core or emerging mission workload to recover general and administrative indirect costs of the associated support. DFAS uses this approach for its support-to-others services, as described below.

Support-to-Others. DFAS charges customers the actual direct cost of providing a support-to-others service plus the general and administrative percentage markup.

DISA reported receiving total  Defense-Wide Working Capital Fund  (DWWCF) orders for services  valued at approximately $7.5 billion  in fiscal year 2018. DISA employs  around 8,700 military and civilian  personnel and provides its services  through two activity groups:  Computing Services and  Telecommunications Services and  Enterprise Acquisition Services.

Services Provided: Computing  Services operates the DISA Data  Centers, which provide mainframe  and server processing operations,  data storage, and other information  technology services and support  across the Department of Defense  (DOD). Telecommunications  Services provides secure  telecommunications services,  including the Defense Information  Systems Network. Enterprise  Acquisitions Services provides  contracting services for information  technology and telecommunications  acquisitions from the commercial  sector and contracting support to the  Defense Information Systems  Network programs and other  customers through DISA’s Defense  Information Technology Contracting  Organization.

Approach to Allocating Costs: The Defense Information Systems  Agency (DISA) groups its services by the costs associated with providing  them. These costs are specific to the service being provided and are  influenced by factors such as the cost of equipment used to provide the  service. Computing Services has a large collection of billing rates, tailored  to the services provided to a customer, such as mainframe and server  processing; storage; and other services. Approximately half of DISA’s  business in Telecommunications Services is for the Defense Information  Systems Network, for which DISA sets a standard rate to recover costs.  The remaining half is for reimbursable services that cover services such  as commercial satellite phones, instant message services, global  videoconferencing services, and support for secure portable electronic  devices (both smartphones and tablets). The commercial satellite  communications program recovers costs through a management fee that  is added to the direct contract costs. According to DISA officials, cost  reimbursable services are those services that are not included in DISA’s  standard offerings and thus do not have a standard rate. DISA recovers  the cost for these services, including direct, indirect (overhead), and  general and administrative costs, and the total cost is negotiated with  customers up front.

Approaches Used to Calculate Rates for DISA Services: DISA uses  three approaches for calculating rates:  1. Per Unit: DISA determines a specific dollar rate per unit that, when multiplied by the projected workload, will produce revenue sufficient to recover the full costs, including direct and indirect costs, of providing the good or service. DISA uses this approach for most Computing Services and some Telecommunications Services.

Computing Services. DISA calculates most of its Computing Services rates by dividing the total costs of providing a service by total projected units. Total costs of a service comprise direct and indirect costs, including general and administrative costs.

Indirect Costs: These include costs  that are associated with a particular  service, such as facilities costs, and  those that are associated with  support provided to all services,  such as personnel support. Contract  management costs are included for  all services but are recovered  differently.

Telecommunications Services. DISA’s mobility program, which provides support for portable electronic devices, recovers costs by charging a rate per device per month. Similarly, DISA’s cross- domain services, which provide the ability for customers to transfer information across different security domains (unclassified and classified systems) at a price for each filter supported. 2. Portion of Total Costs: DISA charges a portion of its total costs, including direct and indirect costs, of providing a service based on the proportion of total workload projected for a specific customer. DISA uses this approach for several of its Telecommunications Services.

DISA’s Telecommunications Services charges customers a portion of the total costs for the Defense Information Systems Network based on each customer’s portion of total network usage. Total costs includes bandwidth, circuits, maintenance, sustainment costs, network support and operations labor, outage monitoring, and contract management, among others.

This approach is also used for DISA’s Global Video Services (video teleconferencing capabilities) and Organizational Messaging Services (command and control messaging). 3. Percentage Markup on Direct Costs: DISA adds a percentage markup on its direct costs as a proxy for indirect costs. DISA uses this approach to calculate some rates for its Computing Services and for its Telecommunications Services and Enterprise Acquisition Services activity groups.

Computing Services.There are some services within the Computing Services activity group which DISA charges on a reimbursable basis, such that customers pay the direct cost of the service provided plus an additional percentage of the direct cost to cover general and administrative costs.

Telecommunications Services and Enterprise Acquisition Services. DISA charges the customer for the full cost of the contract plus an additional percentage of the direct costs to cover DISA’s indirect costs associated with contract management through the Defense Information Technology Contracting Organization. This fee ranges from 1.75 to 2.5 percent of the contract amount and is based on the expected support costs for associated information technology systems, billing support personnel and systems, financial management, and space and facility costs. This standard contracting fee may change from year to year, but it remains fixed within any given year.

DLA reported receiving total  Defense-Wide Working Capital Fund  (DWWCF) orders for goods and  services valued at approximately  $40.6 billion in fiscal year 2018. DLA  employs around 26,000 military and  civilian personnel. DLA provides its  services through three activity  groups: Energy Management,  Supply Chain Management, and  Document Services.

Approach to Allocating Costs: The Defense Logistics Agency (DLA)  allocates direct costs to the individual good or service for which the costs  were incurred. For indirect costs, DLA determines whether each cost is  associated with providing specific goods or services (such as labor that  supports a specific materiel supply chain) or is associated with supporting  DLA as a whole (such as the DLA general counsel). DLA uses various  methods to allocate these indirect costs, taking into account factors such  as the number of employees supporting the provision of a given good or  service and the total sales of that good or service.

Services Provided: DLA provides  fuel and other energy commodities  through its Energy Management  activity group; consumable materiel  (i.e., supplies and parts), distribution  services for this materiel, and  disposition services for excess  property through its Supply Chain  Management activity group; and  printing, electronic document  management and invoicing, and  other document services through its  Document Services activity group.

Indirect Costs: These include costs  for information technology systems,  facilities, and labor that support the  provision of multiple goods and  services. Costs for information  technology systems and labor that  provide enterprise-level support to  all of DLA (such as DLA’s  accounting system and  headquarters staff), among other  costs, are also included. The indirect  costs included in rates vary among  the different goods and services that  DLA provides. rates that are calculated by dividing the total processing costs (excluding transportation costs) for items in each weight category by the projected number of units shipped for each category.a uniform percentage across all customers. DLA uses this approach  for disposition and some document services, as described below.

Disposition. DLA charges each customer a portion of the total direct and indirect costs of providing disposition services based on the customer's portion of total disposition service usage. When applicable, DLA subtracts the revenue it generates through the sale of excess property, reimbursements it receives from customers for hazardous waste management, and funding it receives for Overseas Contingency Operations from the total costs before assigning costs to customers.

Document Services Electronic Document Access and Wide Area Workflow (Invoicing). For Electronic Document Access, DLA charges all customers a uniform percentage of its total costs for providing that service. For Wide Area Workflow, DLA charges each customer a portion of the total costs based on the customer’s portion of total system usage. 3. Percentage Markup on Direct Costs: DLA adds a percentage markup on the cost to acquire each good (i.e., the product cost) as a proxy for non-aqcuisition costs associated with that good (i.e., non- product costs). DLA uses this approach for its weapons systems and troop support materiel supply chains.

Materiel Supply Chains.To calculate the cost recovery percentage, DLA divides the projected non-product costs for each materiel supply chain by the projected product costs of that materiel supply chain. The rate charged is the sum of the product cost of the good and an additional percentage of this product cost corresponding to the markup percentage.

Appendix V: Comments from the Department of Defense

Appendix VI: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Alex Winograd (Assistant  Director), Karyn Angulo, Martin de Alteriis, Garrick Donnelly, Christopher  Gezon, Felicia Lopez, Keith McDaniel, Susan Murphy, Suzanne Perkins,  Carol Petersen, Richard Powelson, Lauren Shaman, Kevin Walsh, and  Doris Yanger made key contributions to this report.

Document Services: DOD Should Take Actions to Achieve Further  Efficiencies. GAO-19-71. Washington, D.C.: October 11, 2018.

Defense-Wide Working Capital Fund: Action Needed to Maintain Cash  Balances within Required Levels. GAO-17-465. Washington, D.C.: June  30, 2017.

Bulk Fuel: Actions Needed to Improve DOD’s Fuel Consumption Budget  Data. GAO-16-644. Washington, D.C.: September 12, 2016.

Department of Justice: Working Capital Fund Adheres to Some Key  Operating Principles but Could Better Measure Performance and  Communicate with Customers. GAO-12-289. Washington, D.C.: January  20, 2012.

Intragovernmental Revolving Funds: Commerce Departmental and  Census Working Capital Funds Should Better Reflect Key Operating  Principles. GAO-12-56. Washington, D.C.: November 18, 2011.

Federal User Fees: A Design Guide. GAO-08-386SP. Washington, D.C.:  May 29, 2008.

The Department of Defense tries to minimize costs by consolidating some services—such as IT or payroll—used by multiple DOD agencies. The Defense-Wide Working Capital Fund finances 3 agencies within DOD that charge their customers—including the military departments—when providing goods and services.

We found the agencies set prices designed to recover their costs and break even. However, their largest customers said they don’t receive detailed information about costs included in final prices they are charged or know how prices are determined.

We recommended the agencies share more pricing information with customers.