Department of the Air Force: Unauthorized Activity Codes Used to
Requisition New and Excess DOD Property (Correspondence, 01/08/2001,
GAO/GAO-01-196R).

GAO examined the military's inventory management activities to determine
if activity codes identified as unauthorized to requisition had been
used to buy property for the Air Force. GAO found that as of June 2000,
the Air Force maintained 4,239 activity codes identified as unauthorized
to requisition government property. However, during the last five years,
193 of these codes were inappropriately used to requisition nearly $23
million in new and excess government property. In addition, safeguards
established to prevent unauthorized activity codes from being used to
requisition government property failed. This situation has created a
condition in which government property is vulnerable to waste, fraud,
and abuse.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-196R
     TITLE:  Department of the Air Force: Unauthorized Activity Codes
	     Used to Requisition New and Excess DOD Property
      DATE:  01/08/2001
   SUBJECT:  Air Force procurement
	     Internal controls
	     Inventory control systems
	     Federal agency accounting systems
	     Logistics

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GAO-01-196R

Air Force Unauthorized Activity Codes

United States General Accounting Office Washington, DC 20548

January 8, 2001 The Honorable Duncan L. Hunter House of Representatives

Subject: Department of the Air Force: Unauthorized Activity Codes Used to
Requisition New and Excess DOD Property

Dear Mr. Hunter: This letter is part of our continuing effort to address
inventory management activities within the Department of Defense (DOD) as a
high- risk area. 1 We recently reported that the Army used unauthorized
activity codes 2 to requisition over $2.6 billion in new government property
and $100 million in excess government property over the past 5 years. As a
consequence, this property was vulnerable to fraud, waste, and abuse.
Subsequently, you asked that we determine whether the other military
services and other federal agencies maintained activity codes that were
unauthorized to requisition and, if so, whether any of these codes were used
to requisition new and excess government property. As discussed with your
office, this letter focuses on the U. S. Air Force's use of unauthorized
activity codes from January 1995 to June 2000. We have reported separately
on our investigations of whether the U. S. Navy and the General Services
Administration used activity codes classified as unauthorized to requisition
new and excess government property. 3

Scope and Methodology

We interviewed Air Force service point personnel and obtained a list of Air
Force activity codes identified as unauthorized to requisition. We provided
the codes to the Defense Automatic Addressing System Center and the Defense
Reutilization and Marketing Service to determine whether any had been used
to requisition new and

1 In 1990, we began a special effort to review and report on the federal
program areas we identified as high risk because of vulnerabilities to
fraud, waste, abuse, and mismanagement. This effort, supported by the Senate
Committee on Governmental Affairs and the House Committee on Government
Reform, resulted in a much- needed focus on problems that were costing the
government billions of dollars. We identified DOD's inventory management as
a high- risk area at that time because levels of unneeded inventory were too
high and systems for determining inventory requirements were inadequate. 2
Department of the Army: Unauthorized Activity Codes Used to Requisition New
DOD Property (GAO01-

85R, Dec. 6, 2000) and Inventory Management: Better Controls Needed to
Prevent Misuse of Excess DOD Property (GAO/ OSI/ NSIAD- 00- 147, Apr. 28,
2000). 3 Department of the Navy: Unauthorized Activity Codes Used to
Requisition New and Excess DOD

Property (GAO- 01- 206R, Jan. 8, 2001) and General Services Administration:
Unauthorized Activity Codes Used to Requisition New and Excess Government
Property (GAO- 01- 221R, Jan. 8, 2001).

GAO- 01- 196R Air Force Unauthorized Activity Codes Page 2 excess government
property from January 1995 to June 2000. We then obtained

information about the requisitioning activity associated with the codes from
the Defense Automatic Addressing System Center and the Defense Reutilization
and Marketing Service. We performed our investigative work from June 2000 to
September 2000 in accordance with investigative standards established by the
President's Council on Integrity and Efficiency. Our audit work was
conducted during the same time period in accordance with generally accepted
government auditing standards.

Results in Brief

As of June 2000, the Air Force maintained 4,239 activity codes identified as
unauthorized to requisition government property. However, during the past 5
years, 193 of these codes were inappropriately used to requisition nearly
$23 million in new and excess government property. In addition, safeguards
established to prevent unauthorized activity codes from being used to
requisition government property failed. This situation has created a
condition in which government property is vulnerable to fraud, waste, and
abuse.

To reduce the likelihood of Air Force organizations and contractors
acquiring government property inappropriately, we are recommending that DOD
review existing activity code assignment procedures and safeguards. We will
also make information on the identity and requisition history of the
unauthorized activity codes available to DOD's Office of the Inspector
General for a determination of whether requisitioned property was legally
obtained and properly inventoried.

DOD generally agreed with our recommendations and cited a number of specific
actions that have been started or are being planned. Once completed, these
actions should eliminate the control weaknesses we found.

Background

Air Force Instruction 24- 230 4 provides mandatory procedures for
establishing, changing, and terminating Air Force activity address codes.
The instruction applies to all Air Force activities and Air Force
contractors that receive, ship, or maintain custody of government property.
An activity address code is a six- position alphanumeric code that provides
a uniform method for controlling government assets and for recording the
receipt and disposition of property. The first character of an activity code
identifies the service or agency; and the second character designates the
type of material usually accounted for in that account or the type of
activity. The last four characters are numeric combinations assigned by the
Air Force service point.

The DOD Activity Address File is the automated master activity address code
file maintained for military activities, federal agencies, and contractors
by the Defense Automatic Addressing System Center. An activity within a
military service or federal agency that is assigned the responsibility of
controlling activity code data is known as the service point. The Air Force
service point, located at Wright- Patterson Air Force

4 Maintaining the Department of Defense Activity Address Directory (DODAAD).

GAO- 01- 196R Air Force Unauthorized Activity Codes Page 3 Base, Ohio, is
responsible for (1) establishing and executing Air Force procedures

and processes for using and maintaining the master activity address code
file; (2) assigning, changing, or terminating activity codes; and (3)
carrying out research on inquiries that relate to the Air Force portion of
the master file.

According to Air Force service point personnel, three categories of Air
Force activity codes are not permitted to requisition property; and each is
identified by a unique series of alpha characters. Specifically, Air Force
activity codes beginning with FA, FY, and JM are unauthorized to
requisition. FA codes are for administrative purposes only, meaning they are
not permitted to generate bills. FY codes are supplemental ship- to
accounts; 5 and JM codes are used to obtain maps and charts, which,
according to the service point, are free issue items. As of June 2000, there
were 4,239 FA, FY, and JM activity codes.

Unauthorized Activity Codes Requisition Over $22 Million in DOD Property

We obtained a list of the activity codes that the Air Force service point
identified as unauthorized to requisition. We provided these codes to the
Defense Automatic Addressing System Center and the Defense Reutilization and
Marketing Service to determine whether any had been used to requisition new
and excess government property respectively. It was determined that of the
4,239 Air Force activity codes that should not be used to requisition, 193
had been inappropriately used to requisition $19.6 million in new property
and $3.2 million in excess property (representing the property's acquisition
value) from January 1995 to June 2000. 6 Of the $19.6 million in new
property, 98.1 percent was associated with 9 of the 193 activity codes, of
which 1 accounted for $17.5 million. Of the $3.2 million in excess property,
85.4 percent was requisitioned by eight activity codes, with two responsible
for nearly 48 percent of the requisitions. In addition, while the majority
of the unauthorized activity codes were assigned to Air Force activities, we
noted that a number were assigned to private contractors who used them to
requisition property.

Safeguards Fail to Prevent Unauthorized Activity Codes From Requisitioning
DOD Property

The Defense Automatic Addressing System Center and the Defense Reutilization
and Marketing Service implemented safeguards to prevent the use of FY
category activity codes to requisition new and excess government property in
November 1999 and January 1996, respectively. However, despite these
safeguards, FY codes were used to requisition property. For example, from
January to June 2000, 55 FY activity codes were used to requisition about
$28,000 worth of new government property. We asked a Defense Automatic
Addressing System Center official to review the 55 codes and

5 A code may be designated a ship- to address when the address of the
receiving activity is different from the address of the accountable
activity. 6 Headquarters Air Force acknowledged that FA and FY codes are not
to be used to requisition and JM

codes are authorized to order only free issue items (such as maps and
charts) from the National Imagery and Mapping Agency. Headquarters Air Force
agreed that the requisitioning activity noted in this letter reflects a
failure to comply with Air Force Instruction 24- 230. However, in some
instances, the Air Force was aware that certain activities were using FA
category codes to requisition- an exception to the standard procedure; and
the Air Force is evaluating this activity at this time.

GAO- 01- 196R Air Force Unauthorized Activity Codes Page 4 explain the
requisition activity. According to this official, the activity codes
appeared

to requisition directly with the source of supply, bypassing the Center. As
for excess property requisitions, from January 1996 to June 2000, 11 FY
codes were used to requisition $857,891 worth of excess property. In all but
one instance, this requisition activity occurred in 1996. There was one
requisition in 1999 valued at $140.

Conclusions and Recommendations for Executive Action

Air Force activity codes identified as unauthorized to requisition were
inappropriately used to requisition new and excess government property. In
addition, safeguards in place failed to prevent this activity. This lack of
internal controls creates a situation in which government property is
vulnerable to fraud, waste, and abuse.

Accordingly, we recommend that the Secretary of Defense direct the Secretary
of the Air Force to

verify whether the requisitioning authority for all Air Force activity codes
is categorized accurately and review procedures to ensure that activity code
assignments are appropriate, made in accordance with Air Force Instruction
24- 230, and routinely inspected to ensure compliance and

evaluate current safeguards in appropriate databases to ensure that
unauthorized activity codes are not used to requisition government property.

Agency Comments and Our Evaluation

DOD provided oral comments on a draft of this letter and generally agreed
with our recommendations. They cited specific actions in response to our
recommendations that had been taken, were underway, or were planned. They
also provided clarification to improve the technical accuracy of certain
information we had been provided.

Regarding our recommendation to verify the accuracy of requisitioning
activity codes and review requisitioning procedures, the following actions
were cited:

The Air Force will review procedures to ensure that activity code
assignments are appropriate. Air Force Instruction 24- 230 will be
rescinded; and more specific policy will be developed.

The Defense Automatic Addressing System Center will be asked to edit all
incoming transactions containing FA activity codes and to cancel invalid
requisitions. The Center will also be asked to provide a monthly management
oversight report to identify those FA activities requiring management
attention.

The Air Force will re- emphasize the proper use of FY activity codes. In
addition, during the course of responding to us, the Air Force noted that
some activities had withdrawn assets from Defense Reutilization and
Marketing Offices that may not

GAO- 01- 196R Air Force Unauthorized Activity Codes Page 5 have been
authorized. To address this issue, the Air Force will work with the

Center to determine whether additional edits are required. In addition,
Headquarters Air Force Materiel Command will be directed to ensure that FY
requisitions entered through the web or called into item managers are not
honored.

The Air Force will direct the Defense Automatic Addressing System Center to
implement an edit to cancel all requisitions with a JM activity code that
are not routed to the National Imagery and Mapping Agency depot. The Center
will also be asked to provide a monthly management oversight report to
identify those JM activities requiring management attention. In addition,
the Air Force will direct all major commands to re- emphasize the
appropriate use of JM series activity codes.

Regarding our recommendation to evaluate current system safeguards to ensure
that unauthorized codes are not used to requisition government property, the
following actions were cited:

The Air Force will propose significant changes to the DOD Activity Address
Directory Administrator and work through the DOD Activity Address Code
Committee to strengthen internal controls at the Defense Automatic
Addressing System Center and within Air Force systems, especially in view of
the DODmandated process changes involving the use of the IMPAC cards, 7 web,
and EMALL 8 requisitioning, which could create opportunities for
acquisitions without authorization. In the interim, Air Force- directed
Center edits would be used to ensure that Air Force activities processing
requisitions through the Center would use the appropriate activity code when
requisitioning new property or withdrawing excess property from Defense
Reutilization and Marketing Offices.

The Air Force provided clarification on the use of FA, FY, and JM category
activity codes to improve the technical accuracy of certain information we
had been provided. We included the additional information in this letter
where appropriate. In addition, we asked the Air Force to consider directing
the Defense Reutilization and Marketing Service to implement an edit to
cancel requisitions for property utilizing FA and JM (with the exception of
maps and charts) activity codes. The Air Force is currently evaluating the
feasibility of implementing such an edit.

- - - - As arranged with your office, unless you disclose its contents
earlier, we plan no further distribution of this letter until 30 days after
its issuance. At that time, we will send copies of the letter to interested
congressional committees, the Office of the Secretary of Defense, the
Secretary of the Air Force, and the Director of the Defense Logistics
Agency. The letter will then also be available at GAO's home page,

7 IMPAC is the International Merchant's Purchase Authorization Card, in
essence, a government credit card. 8 DOD is working to streamline and
automate purchasing processes that are currently paper- based and

serial- processing intensive. Toward that end, DOD EMALL (electronic mall)
was established in 1998 on the foundation of the Defense Logistics Agency
Research and Development Program's DLA EMALL.

GAO- 01- 196R Air Force Unauthorized Activity Codes Page 6 www. gao. gov. If
you have any questions, please call Robert H. Hast at (202) 512- 7455

or David R. Warren at (202) 512- 8412. John Ryan, Richard Newbold, Brian
Chan, James Loschiavo, Marc Schwartz, and David Epstein made key
contributions to this investigation and letter.

Sincerely yours, Robert H. Hast David R. Warren Managing Director Director,
Defense Capabilities Office of Special Investigations and Management

(600769)
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