Department of the Navy: Unauthorized Activity Codes Used to	 
Requisition New and Excess DOD Property (08-JAN-01, GAO-01-206R).
								 
GAO examined Navy inventory management activities to determine	 
whether any unauthorized activity codes had been used to	 
requisition new and excess property. GAO found that as of June	 
2000, the Navy maintained 2,002 activity codes identified as	 
unauthorized to requisition government property. However, during 
the last five years, 663 of these codes were used to requisition 
more than $2 billion in new and excess government property.  In  
addition, there were no safeguards in the Defense Automatic	 
Addressing System Center or the Defense Reutilization and	 
Marketing Service to prevent these activity codes from being	 
used. This has created a condition in which government property  
is vulnerable to waste, fraud, and abuse.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-206R					        
    ACCNO:   577646						        
    TITLE:   Department of the Navy: Unauthorized Activity Codes Used 
             to Requisition New and Excess DOD Property                       
     DATE:   01/08/2001 
  SUBJECT:   Federal agency accounting systems			 
	     Internal controls					 
	     Inventory control systems				 
	     Logistics						 
	     Naval procurement					 


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GAO-01-206R

Navy 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 Navy: 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 as a high- risk area 1 within the Department
of Defense (DOD). We recently reported that the U. S. Air Force and the U.
S. Army had used unauthorized activity codes 2 to requisition nearly $3
billion in new and excess government property during the past 5 years. As a
consequence, this property was vulnerable to fraud, waste, and abuse. 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 were used to requisition new and excess
government property. As discussed with your office, this letter focuses on
the U. S. Navy's use of unauthorized activity codes 3 from January 1995 to
June 2000. We have reported separately on our investigation of whether the
General Services Administration used unauthorized activity codes to
requisition new and excess government property. 4

Scope and Methodology

We interviewed Navy service point personnel and obtained a list of Navy
activity codes identified as unauthorized to requisition (i. e., for
shipping purposes only). 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

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 muchneeded 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 Air Force: Unauthorized Activity Codes Used to Requisition
New and Excess DOD Property, (GAO- 01- 196R, Jan. 8, 2001); Department of
the Army: Unauthorized Activity Codes Used to Requisition New DOD Property
(GAO- 01- 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 According to the Marine Corps service point, the Marine Corps does not
create or maintain activity codes that are unauthorized to requisition. 4
General Services Administration: Unauthorized Activity Codes Used to
Requisition New and Excess

Government Property (GAO- 01- 221R, Jan. 8, 2001).

GAO- 01- 206R Navy Unauthorized Activity Codes Page 2 to requisition new and
excess government property, respectively, during the period

January 1995 through 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 period and in accordance with generally accepted
government auditing standards.

Results in Brief

As of June 2000, the Navy maintained 2,002 activity codes identified as
unauthorized to requisition government property (i. e., for shipping
purposes only). However, during the past 5 years, 663 of these codes were
used to requisition over $2 billion in new and excess government property.
In addition, there are no safeguards in the Defense Automatic Addressing
System Center or the Defense Reutilization and Marketing Service to prevent
these activity codes from being used to requisition new and excess
government property. This situation has created a condition in which
government property is vulnerable to fraud, waste, and abuse.

To reduce the likelihood that Navy organizations and contractors acquire
government property inappropriately, we are making recommendations to
address problems in the Navy's assignment and use of activity codes. In
addition, we will make information on the identity and requisition history
of the unauthorized Navy activity codes available to the DOD's Office of the
Inspector General for a determination of whether requisitioned property was
legally obtained and properly inventoried.

DOD 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

An activity address code is a six- position alphanumeric code used to
provide 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 responsible for the property. Navy
activity codes begin with an N, R, Q, or V. The Navy Comptroller Manual 5
provides mandatory procedures for assigning, changing, and terminating Navy
activity address codes. The manual applies to all Navy activities and Navy
contractors.

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 Navy
service point is the Director of the Defense Finance and

5 Navy Standard Operating Procedures 1000- 25, Vol. 2, Ch. 5, Dec. 1997.

GAO- 01- 206R Navy Unauthorized Activity Codes Page 3 Accounting Service-
Cleveland Center, Cleveland, Ohio. The service point is

responsible for assigning, canceling, or changing Navy activity codes. A
Navy activity address code consists of a unit identification code- a five-
character alphanumeric code- preceded by an N, R, Q, or V. 6 A unit
identification code identifies the Navy activity's name and mailing address
and contains an embedded purpose code. According to Navy service point
personnel and the Navy Comptroller Manual, unit identification codes with an
S purpose code are for shipping purposes only and are unauthorized to
requisition government property. 7 As of June 2000, there were 2,002 Navy
activity codes with an S purpose code on record.

Unauthorized Activity Codes Requisition Over $2 Billion in DOD Property

We obtained a list of the activity codes identified by the Navy service
point 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
2,002 activity codes, 663 had been used to requisition over $1.71 billion in
new property and over $338 million in excess property 8 during the period
January 1995 to June 2000. A relatively few activity codes were used to
requisition most of the property, as measured by property value.
Specifically, 12 activity codes accounted for approximately 96 percent ($
1.64 billion) of the new property, and 11 accounted for over 99 percent ($
336 million) of the excess property. Of the 11 activity codes, one was
responsible for about 96 percent ($ 324 million) of the excess property
value. Further, while a majority of the 663 activity codes were assigned to
Navy organizations, contractors working for the Navy were assigned 42 of
them.

Conclusions and Recommendations for Executive Action

Navy activity codes identified as unauthorized to requisition were used to
requisition new and excess government property. In addition, there are no
safeguards in the Defense Automatic Addressing System Center or the Defense
Reutilization and Marketing Service 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 Navy to

verify whether requisitioning authority for Navy activity codes is
categorized accurately and review procedures to ensure that assignments are
appropriate, made in accordance with standard operating procedures, and
routinely inspected to ensure compliance and

6 The Director, Defense Finance and Accounting Service- Cleveland Center, is
also responsible for assigning unit identification codes. 7 However, one
Navy service point official told us that regardless of the purpose code, all
Navy activity codes can

requisition. This official noted that a safeguard is required in the Defense
Automatic Addressing System Center that would prohibit unethical or
fraudulent behavior. 8 These amounts represent the acquisition value of the
property.

GAO- 01- 206R Navy Unauthorized Activity Codes Page 4

coordinate with the Defense Automatic Addressing System Center and the
Defense Reutilization and Marketing Service to incorporate 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 the data used in
its preparation. They agreed with our recommendations. The Navy will review
its internal procedures for categorizing activity codes as active or
otherwise. The Navy will also urge major claimants to be vigilant in
controlling the use of unauthorized activity codes. Finally, the Navy
strongly endorses the recommendation to establish safeguards in the Defense
Automatic Addressing System Center and the Defense Reutilization and
Marketing Service databases that prevent the processing of an unauthorized
activity code.

- - - - As arranged with your office, unless you disclose the content of
this letter earlier, we plan no further disclosure of this letter until 30
days after its issuance. At that time, we will send copies of the letter to
interested congressional committees and members, the Office of the Secretary
of Defense, the Secretary of the Navy, the Director of the Defense Logistics
Agency, and the Director of the Defense Finance and Accounting Service. The
letter will then also be available on GAO's home page, www. gao. gov. If you
have any questions or need additional information, please contact 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
*** End of document ***