Working Capital Funds Update.

Jack O'Toole, Ralph Proctor, and Cheryl Dare Office of the Under Secretary of Defense (Comptroller), Revolving Funds Directorate

Jack O'Toole, Ralph Proctor, and Cheryl Dare--all Senior Budget Analysts--gave the Defense Working Capital Funds (DWCF) update. Mr. O'Toole began with a brief background of DWCF. He stated that President Hoover commissioned the Working Capital Funds (WCF) in the late 1940s with the concept that WCF will tell you how much things cost. These "businesslike" funds currently have $60 billion flowing through them annually, with two major segments: Operating Program and Capital Program. Mr. O'Toole stated that the Navy has the best-run WCF in the Department of Defense (DoD).

Mr. Proctor followed by presenting the changing size of DoD and DWCF regarding fund levels and personnel. The following selected data depict the decreasing numbers of DWCF relative to DoD totals:

                      Funding Levels ($ in billions)
     FY 1993 FY 2000
DoD   $267.4  $279.9
DWCF    82.5    73.7
                     DoD/DWCF Personnel (in thousands)
          FY 1993 FY 2000
Civilians
DoD           891     661
DWCF          322     205
            36.1%   31.0%
Military    62.8%   20.7%

Mr. Proctor displayed the eleven recommendations of the DWCF Reform Task Force that were approved for implementation by the Deputy Secretary of Defense on January 3l and February 15, 2000. The recommendations are as follows:

* Change in pricing structure -- Components can propose through the budget alternative methods for recovering costs. More definitive guidance on plant capacity and mobilization requirements will be available.

* Extend quarterly rate adjustments to the Central Design Agents.

* Create a more flexible workforce (this requires legislation).

* Reevaluate the DWCF criteria. Review existing activities for cost-accounting procedures. Apply any revised criteria to activities that do not meet established guidelines.

* Realign statutes for public and private partnering.

* Direct Fund Completed Workload. The Air Force is tasked with developing test procedures. This would require keeping revenue and cost data separate from regular operations.

* Improved financial reporting. A new 1307 report will allow users to prepare ad hoc reports from DFAS data.

* Direct fund activities slated for closure.

* Change in DLR Inventory Accounting (the Air Force has the lead in this area).

* Develop non-financial performance measures.

* DWCF Education. New handbook will be available soon.

Ms. Dare continued the update by reporting on inventory augmentation (wholesale stockage levels). She mentioned that one of the things being considered is to reinstate inventory augmentation in the revolving funds arena. Ms. Dare noted that the spare parts situation ("SPARES") needs to be improved in order to support the weapons systems to maintain a high level of readiness. The inventory augmentation changes, if implemented, would require the Office of the Secretary of Defense to issue a change to the financial management regulation.

Mr. O'Toole concluded the seminar update on the WCF by stating that by the end of this year, there will be a Web site set up on the Internet by the Office of the Under Secretary of Defense (Comptroller) containing current information for DWCF. Although the Web site has not been activated as yet, it will probably be linked to the Comptroller Web site.

A short question-and-answer period completed the session.

Darrell Guth is an accountant serving as the Chief of the Defense Working Capital Fund Divisions, DFAS Lexington. He holds a BS in accounting from Bradley University Peoria, lL, and a master of accounting science degree from the University of Illinois. He is a certified public accountant and an active member of the Bluegrass Chapter of the ASMC.