Defense Inventory: Most Excess Property in Panama Was Disposed of
Properly, but Some Control Weaknesses Existed (Letter Report, 11/09/2000,
GAO/GAO-01-32).

The Panama Canal Treaty called for the United States to transfer control
over the Panama Canal to Panama and withdraw U.S. military forces and
equipment from Panama. The treaty allowed the U.S. government to remove
or dispose of all equipment and supplies acquired by U.S. forces. U.S.
plans for withdrawal from Panama required excess property to be
processed using disposal procedures that gave the military services and
the federal agencies the first opportunity to receive the property.
During 1998 and 1999, the Department of Defense's (DOD) Panama disposal
office processed excess property valued at $136.7 million. Of this
amount, $691,000 worth of property (less than one percent) was
unaccounted for during this time period. Disposal office records show
that the property was written off as lost. DOD recognizes the need to
properly manage and account for its assets and is working on a long-term
strategy to provide in-transit control and visibility over excess
property through information technology. DOD also has developed a new
lesson segment for training its personnel on control procedures, but it
has not taken sufficient steps to ensure that the appropriate field
personnel have received the training.

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

 REPORTNUM:  GAO-01-32
     TITLE:  Defense Inventory: Most Excess Property in Panama Was
	     Disposed of Properly, but Some Control Weaknesses
	     Existed
      DATE:  11/09/2000
   SUBJECT:  Inventory control systems
	     Military inventories
	     Property disposal
	     Property losses
	     Federal property management
	     Internal controls
	     Accountability
	     Reporting requirements
	     Surplus federal property
	     Military withdrawal
IDENTIFIER:  Panama Canal
	     DOD In-transit Accountability System

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GAO-01-32

A

Report to the Chairman, Subcommittee on Readiness and Management Support,
Committee on Armed Services, U. S. Senate

November 2000 DEFENSE INVENTORY

Most Excess Property in Panama Was Disposed of Properly, but Some Control

Weaknesses Existed

GAO- 01- 32

Lett er

November 9, 2000 The Honorable James M. Inhofe Chairman, Subcommittee on
Readiness and Management Support Committee on Armed Services United States
Senate

Dear Mr. Chairman: The Panama Canal Treaty, signed in 1977 by the United
States and the Republic of Panama, called for the United States to transfer
control over the Panama Canal to Panama and withdraw U. S. military forces
and

equipment from Panama by December 31, 1999. A treaty implementing agreement
allowed the U. S. government to remove or dispose of all equipment and
supplies acquired for use by U. S. forces. By December 31, 1999, the United
States had closed all of its 43 facilities in Panama, removed and disposed
of excess personal property 1 ranging from motor vehicles to medical
equipment, and withdrawn its military presence from Panama. The

U. S. Southern Command, 2 the military services, and the Defense Logistics
Agency, through its Defense Reutilization and Marketing Service, 3 were
responsible for disposing of excess equipment and supplies.

U. S. plans for withdrawal from Panama required excess property to be
processed using disposal procedures that gave the military services and the
federal agencies the first opportunity to receive the property. Originally,
it was expected that much of the excess property located in Panama would be
obtained by the U. S. Agency for International Development and

1 Department of Defense (DOD) personal property is defined as military
equipment or general support equipment and supplies used in day- to- day
mission, administrative, or logistical operations. 2 The Southern Command is
a regional unified command that oversees U. S. military operations in 19
countries in Central and South America and it was responsible for carrying
out the treaty implementation plan. Its headquarters was previously located
in Panama but moved to Miami, Florida, in September 1997. 3 The Defense
Reutilization and Marketing Service, a component of the Defense Logistics
Agency, operates offices to reutilize, donate, destroy, or sell excess
property. We refer to its office in Panama as the disposal office.

distributed to charitable organizations in Panama. However, when
negotiations with Panama to retain a U. S. presence at Howard Air Force Base
for drug interdiction activities were unsuccessful, the U. S. Southern
Command used available authority to obtain a waiver so that charitable
organizations were given priority over federal agencies for obtaining

excess personal property. The Command hired a contractor to facilitate the
distribution of some excess personal property to charitable organizations
for humanitarian aid throughout Central and South America. Recently,
questions surfaced in the media concerning the procedures followed for

the disposal of excess personal property in Panama during 1998- 99. As
requested, we reviewed the disposal of excess personal property from U. S.
military facilities in Panama during 1998- 99. Specifically, we evaluated
(1) the methods used for property disposal, (2) the extent of direction and

control the Southern Command exerted over property allocations and
distributions to charitable organizations facilitated by its contractor to
facilitate property distribution, and (3) the extent that DOD records fully

accounted for the disposed excess property. An Army Criminal Investigation
Command inquiry that focused on whether some of the excess property in
Panama may have been improperly obtained by a charitable organization was
being conducted concurrently with our review. We focused our review on
management control issues to avoid overlapping this ongoing investigation.
The scope and methodology of our work are described in appendix I.

Results in Brief During 1998 and 1999, excess property resulting from the
withdrawal of troops from Panama was disposed of by a variety of methods.
The methods included processing the excess property through the Defense
Reutilization and Marketing Service's Panama disposal office, using a
contractor to distribute the property, exchanging the excess property with
the Panamanian government for services, and selling household appliances to
defense personnel. The Panama disposal office processed excess property

with a value of $136. 7 million, with $94.8 million (69 percent) directly
disposed of by the disposal office and about $41.9 million (31 percent)
turned over to the Southern Command's contractor and distributed to
government agencies and charitable organizations. Excess property with a
market value of $2.7 million was exchanged with the Panamanian government
for such things as office space, traffic police services, and veterinarian
services. Also, 3,717 excess household appliances, such as

stoves and refrigerators, were sold to U. S. military and civilian personnel
for transfer to their new duty stations. 4 Because of a larger than expected
volume of excess property that became available during 1999, the Southern
Command changed its control procedures for allocating excess property to
charitable organizations, leaving many of those decisions to its contractor.
Initial procedures required Southern Command staff to (1) review the types
of excess

properties becoming available and charitable organizations' requests for
excess properties; (2) determine which property would be distributed to
defense organizations for transfer either to the Panamanian government or
for humanitarian aid; and (3) determine which charitable organizations would
receive the remaining property, based on equitable distribution and

need, and provide written authorizations to the contractor for distribution
of the property. As a result of the modified procedures, written
authorization existed for only $18.9 million (45 percent) of the $41.9
million of excess personal property processed by the contractor. Whether
greater Command involvement would have affected the allocation of property
among the various charitable organizations is unclear.

The Panama disposal office accounted for all but $691,000 (less than 1
percent) of the $136. 7 million of excess property it processed during 1998
and 1999. Disposal office records show that property valued at $691,000 was
written off as lost. More importantly, however, is an additional $6. 6
million of excess property that the military services reported as being sent
to the Panama disposal office but never recorded as received. Of the $6. 6
million, about $1.5 million involved property requiring special handling

such as firearms, communication equipment, and gun parts. We reviewed 80
shipments containing such property but could only trace the actual
disposition of 39 shipments. The 39 shipments were originally unaccounted
for because disposal transactions were not always recorded correctly in the
Army's inventory records. Also, DOD's In- transit Control System 5 and
inventory control procedures and processes designed to protect excess
property from loss or theft were not always followed in Panama because
personnel were not adequately trained to comply with the processes and

procedures. For the remaining 41 shipments, we could not determine the 4 DOD
did not assign a value to these items. 5 DOD's In- transit Control System
tracks shipments of excess property between military activities and the
Defense Reutilization and Marketing Service's disposal offices.

disposition because records were incomplete or could not be located. The
lack of such information makes the property vulnerable to loss and
undetected theft since no documentation is available to track its location.
The Department recognizes the need to properly manage and account for its
assets and is working on a long- term strategy for developing an information
system that provides in- transit control and visibility.

This report includes a recommendation to the Secretary of Defense that
supply personnel be sufficiently trained on property disposal control
procedures. The Department agreed with the recommendation. Background In
1903, following its declaration of independence from Colombia, Panama

and the United States entered into a treaty that gave the United States
exclusive rights to construct and manage an interoceanic ship canal 50 miles
across the isthmus. In addition to operating the canal, the United States
had sovereignty over the territory along the canal until 1977, when the
United States and Panama signed the Panama Canal Treaty. This treaty
recognized Panama as having sovereignty over the Panama Canal and

required the withdrawal of the U. S. military presence from Panama by
December 31, 1999. Treaty provisions required that the United States
transfer, without charge, all U. S. military real property (e. g., lands,

buildings, structures, and utilities systems) to the Panamanian government.
The withdrawal of the U. S. military presence from Panama was a major
undertaking. In 1979, DOD maintained 4,827 buildings on 43 facilities in
Panama. DOD's treaty implementation plan, approved by the Secretary of

Defense in 1992 and updated in 1993 and 1994, included steps to relocate or
deactivate about 10, 050 military personnel, 3,000 U. S. civilians, and 5,
200 non- U. S. civilian personnel and transfer all Defense facilities to
Panama by the end of 1999. From 1979 through 1999, the United States closed
its 43 facilities in Panama and disposed of the excess property. As of
December 31, 1999, DOD had transferred real property with an estimated

market value of $3.8 billion to Panama.

The Federal Property and Administrative Services Act distinguishes between
foreign excess personal property, such as that located in Panama, and excess
property in general and contains specific provisions, including 40 U. S. C.
512, that pertain to its disposal. 6 The U. S. Southern Command's (SOUTHCOM)
disposal plan recognized the requirements of this and other applicable laws.
7 Once a military activity or the Defense Logistics Agency declares property
excess to its needs, the property enters the disposal process. 8 Excess

property is usually sent to a Defense Reutilization and Marketing Service
disposal office for disposition with the exception of firearms, items with
restricted or secrecy designations, and pharmaceuticals that are to be
destroyed and disposed of by the military component that has the items. Upon
receipt, disposal office personnel examine the property for condition,

verify the quantity and acquisition value, and identify special handling
requirements such as those for military unique items comprised of
technologies, capabilities, and weapons that should not be made available to
the public. An agreement implementing the Panama Canal Treaty allowed the U.
S.

government to remove from Panama or dispose of all equipment and supplies
acquired for use by U. S. forces. SOUTHCOM was responsible for developing a
logistics management plan, which set forth policy and guidance for the
management and disposition of excess equipment and supplies, referred to in
the plan as personal property. A key provision of the plan was that all
excess personal property would be processed using the disposal procedures,
processes, and controls that DOD ordinarily uses.

Federal civil agencies screen the foreign excess property for eventual
return to the United States either for their immediate use or their
donation. 9 6 Basically, foreign excess property is excess property located
outside of the United States, its territories, and possessions (40 U. S. C.
472( f)).

7 Section 608, Foreign Assistance Act, as amended, 22 U. S. C. 2358 and 10
U. S. C. 2547. 8 The Federal Property Administrative Services Act of 1949,
as amended (40 U. S. C. 471- 486 and 511- 514), places responsibility for
the disposition of government real and personal property with the General
Services Administration (GSA) and authorizes DOD to dispose of its foreign
excess personal property.

9 GSA advises that property returned for donation is foreign excess property
until it reaches the United States. At that time, it becomes
“surplus” property and is disposed as such (40 U. S. C. 512(
c)).

Other DOD activities and the U. S. Agency for International Development also
screen the foreign excess property. In this way, both SOUTHCOM and the
Agency obtain foreign excess property for humanitarian assistance purposes.
When this screening is completed, the remaining foreign excess property can
be disposed of by sale, lease, transfer, abandonment, or destruction; it may
be used to discharge claims, or may be used in substantial benefit
transactions.

Excess personal property in Panama requiring disposal represented a wide
range of items. Specifically, the excess items included motor vehicles,
furniture, appliances, maintenance and support equipment, office machines
and equipment, medical equipment and supplies, food, and military unique
items comprised of technologies, capabilities, and weapons that should not
be made available to the public.

DOD sometimes uses contractors to handle disposal processes involving excess
property when doing so is cost- effective or when the disposal process is
overburdened during specific events, such as the final phases of withdrawal
of U. S. forces from Panama.

Disposal Methods Because of changing disposal objectives and increasing
quantities of

excess property, DOD used several methods to dispose of excess property
During the Last 2 Years in Panama during 1998- 99. Disposal records showed
that $136. 7 million 10 of of Military Operations excess personal property
was processed by the disposal office. About in Panama

$94.8 million (69 percent) was disposed of by the disposal office, and $41.9
million (31 percent) was turned over to DynCorp Aerospace Technology (a
contractor) and distributed to government agencies and charitable
organizations. Some of the excess property processed by the disposal office
and DynCorp was distributed for humanitarian aid throughout Central and
South America. Also, an additional $2. 7 million of 10 DOD generally uses
the standard price (i. e., latest acquisition cost and a surcharge

covering the costs to operate the supply system) throughout its logistics
systems to value inventory. Excess property processed by the Panama disposal
office also included values assigned by the military services for items that
they had purchased locally and values assigned by disposal office personnel
to several single items of nonsensitive property under $800 in value that
were accumulated together as a batch lot. We recently testified on problems
that DOD has in valuing its personal property (Department of Defense:
Progress in Financial Management Reform, GAO/ T- AIMD/ NSIAD- 00- 163, May
9, 2000). However, throughout this report, the value associated with excess
inventory is the value recorded in disposal office records unless otherwise
noted.

property (fair market value) was transferred to Panamanian government
organizations in return for services to U. S. personnel, and 3,317 excess
household appliances were sold to U. S. military and civilian personnel for
transfer to their new duty stations. Most Excess Property

During 1998 and 1999, the Panama disposal office processed excess Processed
by Panama equipment and supplies recorded as valued at $136.7 million. Table
1 shows Disposal Office

the value and disposition of the property according to disposal office
records for 1998- 99.

Table 1: Reported Value, Quantity, and Disposition of Excess Personal
Property Processed by the Panama Disposal Office During 1998- 99

Dollars in thousands

Percent of Percent of Disposition Value total No. of Items total

Military units $17,449 12.8 158, 038 8. 5 Other federal agencies 20,070 14.7
302, 094 16. 3 DynCorp (for 41, 948 30.7 373, 197 20. 1 redistribution)
State and local

1,679 1. 2 4,045 0. 2 governments Scrap 10,375 7. 6 84, 256 4. 5

Military items (destroyed) 6,346 4. 6 8,396 0. 5 Inventory losses 691 0. 5
18, 051 1. 0 (write- offs) Public sales 38,153 27.9 908, 467 48. 9

Total $136,711 100.0 1, 856, 544 100. 0

Source: Our analysis of Defense Reutilization and Marketing Service data.

About $94.8 million was disposed of by the disposal office, including about
$17.4 million, which was provided to military activities. These activities
included U. S. military affairs groups located in foreign countries in
support of humanitarian assistance projects, and property was transferred to
the Panamanian government in exchange for services. About $20 million was
provided to other federal agencies, including the U. S. Agency for
International Development office in Panama, and about $1. 7 million was
donated to state and local governmental agencies in the United States. An
additional $41. 9 million was turned over to DynCorp for

disposal under Southern Command's allocation and distribution procedures.

Property Processed by Although the Panama Canal Treaty specified that all U.
S. military forces Contractor

would be withdrawn from Panama, according to DOD the treaty did not preclude
the United States from negotiating an agreement with Panama for the
permanent stationing of U. S. military forces in Panama after 1999.
Accordingly, the United States was negotiating with Panama to retain a
presence at Howard Air Force Base for drug interdiction activities. In late
1998, negotiations were unsuccessful and SOUTHCOM decided that it did

not want all of its excess property to remain in Panama. SOUTHCOM decided to
donate as much of its excess property as possible for humanitarian needs in
countries throughout Central and South America. On February 4, 1999, the
Defense Logistics Agency approved a SOUTHCOM

request to waive normal disposition priorities so that charitable
organizations could be given priority over federal agencies for receiving
excess property in Panama. This action effectively redirected the
distribution of humanitarian aid to locations in Central and South America
other than Panama.

According to Defense Reutilization and Marketing Service plans and related
Panama disposal office documents, the disposal office was prepared to handle
the surge of excess property associated with U. S. forces withdrawing from
Panama. However, disposal office officials told us they did not have the
resources for the added work that would be associated with screening,
holding, and storing the excess property that SOUTHCOM wanted donated to
charitable organizations and disseminated throughout the region. 11 As a
result, SOUTHCOM used DynCorp at about 28 sites to advise and assist
charitable organizations and government agencies that wanted to obtain
excess property. The disposal office required DynCorp to submit written
requests for specific items of excess property to be taken

off the office records. DynCorp was expected to reallocate the property to
recipients designated by SOUTHCOM.

As shown in table 1, disposal office records identified 373,197 items valued
at $41. 9 million as being transferred to DynCorp. This represents 20
percent of the quantities and 31 percent of the dollar value of the excess
property processed by the disposal office during the last 2 years of U. S.
military

11 According to DOD, these activities were outside the mission of the
disposal office.

operations in Panama. DynCorp submitted written requests to the disposal
office for the excess property and reallocated the property as follows (see
app. II): $20. 8 million to six charitable organizations selected by
SOUTHCOM; $20. 2 million to DOD's humanitarian assistance programs, U. S.
military affairs groups located in foreign countries providing humanitarian
aid,

and the Panamanian government in exchange for services; and $491,000 to the
U. S. Agency for International Development office in Panama.

Excess Property Was Widely As noted, a large portion of the excess property
from the Panama disposal Distributed for office was made available for
humanitarian purposes. Records obtained

Humanitarian Aid from SOUTHCOM, DynCorp, and charitable organizations showed
that this property was widely disseminated, going to 29 of the 32 countries
in SOUTHCOM's area of responsibility. 12 For example, the United Methodist
Volunteers in Mission received excess property such as maintenance

equipment, furniture, and appliances to be used in schools, medical clinics,
adult education facilities, churches, and homes. In addition, Catholic
Relief Services received property to provide about 1,000 families in
Honduras

with furniture for their homes. At a humanitarian assistance program
conference hosted by SOUTHCOM from April 4- 5, 2000, various charitable
organizations made presentations describing how they had used the excess

property for humanitarian aid in Central and South America. Examples of how
the recipients used the excess property for humanitarian aid are shown in
appendix III. 12 According to SOUTHCOM, Cuba, Suriname, and Paraguay did not
receive any donated property.

Property Transferred to the On May 30, 1996, the Army's Office of Deputy
Chief of Staff for Operations

Panamanian Government in and Plans, in coordination with the Office of the
Under Secretary of Exchange for Services Defense for Logistics, authorized
excess property in Panama to be

transferred to Panamanian government organizations in return for services to
U. S. personnel during the final stages of the withdrawal. 13 Subsequently,
14 different exchange packages were authorized during the last 2 years of

operations. Examples included exchanging excess property for office space,
traffic police services, and veterinarian services. For exchange purposes,
the Panama disposal office determined the fair market value of the excess
property being exchanged based on the property's condition.

The fair market value of the property exchanged was estimated at $2. 7
million. 14 The cost and benefit of all exchanges were supported with
documentation. The excess property was transferred to the Panamanian

government either directly from the military units or through the disposal
office. Examples of property exchanged, its fair market value, and services
received are shown in appendix IV. Sale of Excess Household In response to a
SOUTHCOM request, on October 5, 1998, the Defense Appliances

Logistics Agency permitted excess household appliances to be sold to
military personnel and authorized U. S. civilians. Table 2 shows the number
and disposition of excess household appliances.

13 The Army was DOD's Executive Agent for the Panama Canal Treaty
implementation. 14 That portion of this property processed by the disposal
office was valued at $4. 6 million; the value of excess property transferred
directly to the Panamanian government by military units was not readily
available.

Table 2: Disposition of Household Appliances Sold to U. S. military and

Moved to a Service No. of items

civilian military facility in

Turned in to available

personnel Puerto Rico disposal office

Army 5,165 2,483 800 1, 882 Navy 163 163 0 0 Air Force 3, 773 1,071 0 2, 702

Total 9, 101 3,717 800 4, 584

Source: SOUTHCOM.

Ordinarily, these types of excess properties would have been turned in to
the Panama disposal office. Instead, because of the waiver, authorized
civilian and military personnel could buy refrigerators, washers, dryers,
stoves, and other household appliances and have the property shipped to
their new duty stations. Payments from the sales were deposited in the U. S.
Treasury and the quantities of properties that otherwise would have been
processed by the Panama disposal office were reduced.

SOUTHCOM Exerted The larger than expected amount of excess property to be
disposed of by

Less Control Than DynCorp limited SOUTHCOM's plans to ensure that property
was provided to organizations with the greatest need and that clear plans
existed for how Planned for Some

excess property was to be used. However, available data indicated that the
Property Disposed of

property designated for humanitarian aid achieved SOUTHCOM's objective by
DynCorp

for dissemination, although recipients for a small amount of the property
could not be identified. According to disposal office records, over 373,000
items were given to DynCorp for reallocation. This amount was more than
double the services' initial estimate of 174,000 items that SOUTHCOM had
planned for DynCorp

to reallocate. The forecast made in February 1999 was subsequently found to
have underestimated the number of excess items included in categories for
maintenance and support equipment, office machines and equipment, medical
equipment and supplies, military unique items, food, and other items (see
table 3).

Table 3: Quantities of Forecasted and Actual Types of Properties Processed
by DynCorp No. of items

No. of actual Category forecasted Percent items Percent

Motor vehicles 350 0. 2 267 0. 1 Furniture and appliances 130,043 74. 7
82,024 22. 0 Maintenance and support 4,595 2. 6 207,082 55. 5 equipment
Office machines and equipment 5,735 3. 3 21,265 5. 7

Medical equipment and supplies 992 0. 6 9, 218 2. 5 Food and other items
32,282 18. 5 53,321 14. 3 Military unique items 0 0 20 0. 0

Total 173,997 100 373,197 100

Source: Forecasts provided by SOUTHCOM. Actual quantities obtained from
Defense Reutilization and Marketing Service data.

SOUTHCOM's initial procedures for the distribution of excess property for
humanitarian aid required SOUTHCOM staff to (1) review the types of excess
properties becoming available and charitable organizations' requests for
excess properties; (2) determine which property would be distributed to
defense organizations for transfer to either the Panamanian

government or for humanitarian aid; and (3) determine which charitable
organizations would receive the remaining property, based on equitable
distribution and need, and provide written authorizations to the contractor
for distribution of the property. However, the procedures were not always
followed because the volume of excess property exceeded projections.

To process the unanticipated volume of excess property, in March 1999,
SOUTHCOM modified its procedures by allowing DynCorp to determine the
equitable distribution of property having a unit price of less than

$1, 000. In addition, SOUTHCOM did not provide written authorizations, as
required by its procedures, to the contractor for distribution of property
having a unit price of more than $1, 000. Given limited documentation, we
could not confirm the degree of SOUTHCOM's involvement in these decisions.
SOUTHCOM officials said their allocation decisions for much of this property
were communicated verbally to DynCorp. As a result of the

modified procedures, written authorizations existed for only 45 percent of
the dollar value of property processed by the contractor (see table 4).

Table 4: Authorizations Related to Contractor- Processed Excess Property

Dollars in thousands

Value of Value of property

Value of property over property under

with written $1, 000 without

$1, 000 allocated by allocation

documented Recipients

DynCorp authorization

allocation authorization Total a

Charitable organizations: Food for the Poor $359. 1 $4, 028.8 $2,873. 6 $7,
261.5

Catholic Relief 981. 1 2,555.1 629. 2 4, 165.5

Corazon a Corazon 378. 7 1,313.1 1, 969. 4 3, 661.3

Salesian Missions 643. 7 2,110.3 804. 1 3, 558.1

United Methodists 128. 9 915.7 211. 7 1, 256.4

National Cristina 35. 5 539.1 303. 2 877.7 Subtotal $2,527. 0 $11,462.1
$6,791. 2 $20,780. 5

Military activities 2,537. 3 7,006.6 10,689. 8 20, 233.7

Agency for International Development- Panama 18. 4 434.3 38. 8 491.4

Unknown 143. 3 0 299. 5 442.8 $5,226. 0

$18,903.0 $17,819. 3

41, 948.4 Total (12%) (45%) (43%) (100%)

a Totals may not add due to rounding. Source: Defense Reutilization and
Marketing Service and SOUTHCOM data.

Whether greater SOUTHCOM involvement would have affected the allocation of
property among the various organizations is unclear. As shown in table 5,
while amounts differed, excess property was broadly distributed among the
charitable organizations.

Table 5: Quantities and Types of Properties Processed by DynCorp Medical

Office Food

Military Maintenance

equipment Furniture

machines and

unique Motor

and support and

and and

other Recipients

items vehicles equipment

supplies appliances

equipment items Total

Charitable organizations

Food for the Poor 0 34 27,140 609 3, 846 2,918 1, 481 36, 028

Catholic Relief 0 14 48,327 257 20, 996 2,867 13, 952 86, 413

Corazon a Corazon 5 23 8,632 316 6, 967 1,371 4, 166 21, 480

Salesian Missions 0 30 10,819 29 11, 245 2,022 2, 815 26, 960

United Methodists 0 7 1, 621 0 3, 936 307 1, 713 7,584

National Cristina 0 8 3,978 0 1, 225 65 364 5,640 Subtotal 5 116 100,517
1,211 48, 215 9,550 24, 491 184, 105

Military activities 15 141 105,745 8,007 29, 909 11, 714 28, 581 184, 112

Agency for International 0 7 67 0 3, 364 0 82 3,520

Development Unknown 0 3 753 0 536 1 167 1,460 Total 20 267 207,082 9,218 82,
024 21, 265 53, 321 373, 197

Source: Defense Reutilization and Marketing Service. The amounts shown in
table 5 represent property recorded in the disposal office's records as
transferred to DynCorp. Appendix II provides a summary of property processed
by DynCorp by dollar values and types of properties. Of the nearly $42
million in property recorded in the disposal office's records as transferred
to DynCorp, all but about $443,000 (1 percent) was subsequently accounted
for in the contractor's books. DynCorp had no record of transactions
involving this property. Since we could not determine who actually received
the property, we cited the recipient as unknown. Also, as shown in table 5,
DynCorp distributed 20 military unique items identified in DOD's records as
having military technologies or capabilities. 15 This included 15 military
radios that were turned over to SOUTHCOM and, in turn, given to the Panama
police in exchange for police services. Also, one charitable organization,
Corazon a

15 Military activities assign a code the first time they buy spare parts,
vehicles, and other military weapons and equipment to indicate whether the
items contain technology conferring a military capability.

Corazon, was given five military unique items, the most valuable being three
landing crafts that were to be used to transport property and supplies to
Honduras.

At the time of our review, the Army Criminal Investigation Command was
investigating whether some of the excess property may have been improperly
obtained by a charitable organization. As part of the investigation, the
Investigation Command and Panama impounded about $3 million of excess
property that had been given to one organization. The property was stored in
2 private warehouses in Panama. Because the investigation was ongoing, we
focused our review on management control

issues to avoid overlapping this investigation. Disposal Office

The Defense Reutilization and Marketing Service records accounted for
Records Accounted for

most property declared excess by the military services and recorded as
received by the Panama disposal office, with only a small portion written
Most Property It

off as lost after being transferred to the disposal office. However, about
Received, but DOD $6. 6 million of the property recorded by the services as
having been turned

Components Left Some in to the Panama disposal office was not recorded as
received by the office.

We also found that disposal transactions involving property with military
Property Vulnerable to

capabilities were not always recorded correctly in the Army's inventory Loss
or Theft

records and that DOD's in- transit and inventory control procedures,
designed to protect excess property from loss or theft, were not always
followed in Panama because personnel were insufficiently trained. DOD is
addressing internal control weaknesses, but it has not established

performance measures, milestones, and timetables to help monitor the
progress being made to reduce the vulnerability to undetected loss or
misplacement of property being shipped to disposal.

Some Excess Property Not As noted earlier, the Panama disposal office's
records accounted for the

Properly Controlled excess property turned in to it by the military services
during 1998 and 1999 ($ 136.7 million). However, the disposal office could
not account for excess

property valued at about $691, 000 (less than 1 percent of the total), and
made inventory adjustments to write off this missing property. 16 Most of
these write- offs occurred from October through December 1999, when the

16 This is in addition to the approximately $443, 000 in property recorded
by the disposal office as transferred to the SOUTHCOM contractor for which
the contractor had no record.

disposal office processed inventory adjustments for losses totaling
$421,000, including $127, 000 worth of property (e. g., radios, tools, and
computer equipment) in new or like new condition. In each instance, the
reason for the inventory loss was recorded in disposal office records as
unknown and the write- off was made in accordance with Defense Reutilization
and Marketing Service policies and procedures. Disposal office officials
explained that they frequently accepted accountability over

excess property, but they did not physically move it to the disposal office.
They said that the disposal office could not store all of the excess
property and that leaving the property at the facility where it was located
saved the time and expense of transporting the property. The officials told
us that they believed most of the losses involved property that was not
physically

moved to the disposal office. However, there was no way to verify if this
was the case. DOD's In- transit Control System reports on property shipped
to disposal offices for the 24- month period ending December 31, 1999,
showed there was no record of the Panama disposal office receiving about
$6.6 million of the property reported as shipped by the services. Almost
$1.5 million of the amount involved property requiring special handling such
as firearms, communication equipment, and gun parts. Table 6 shows the
categories, number of items, and dollar value of property reported as not
received for the 24- month period.

Table 6: Categories of Property Reported as Sent to, but Not Received by the
Panama Disposal Office

Dollars in thousands

No. of No. of

Percent of Category shipments items Value total value

Military items 348 1, 923 $1, 478. 6 22. 4 Nonsensitive items 3, 399 101,
444 5,122. 2 77.6

Total 3, 747 103, 367 $6, 600. 8 100.0

Source: Defense In- transit Reports.

We reviewed a judgmental sample of 80 shipments that involved property coded
as containing military technologies or capabilities- 59 shipments reported
as sent to the Panama disposal office by Army units and 21 shipments
reported as sent to the disposal office by Air Force units. We were able to
trace the actual disposition and account for 39 shipments. We

found that (1) for 13 shipments the services had shipped the property to
other military units but had incorrectly recorded the shipments as sent to
the Panama disposal office and (2) for 26 shipments the Panama disposal
office had shipped the property to U. S. locations but had not recorded the
receipts. Two of the shipments we could account for involved 50- caliber
machine guns and 9- millimeter handguns.

For the remaining 41 shipments, we could not determine the disposition
because records were incomplete or could not be located. These shipments
included a telephone used for classified communications, assorted circuit

card assemblies used to control weapon systems, and gun parts. The absence
of notification of receipt or other evidence of disposition for the 41
shipments does not necessarily mean the shipments were not received or

otherwise disposed. However, the lack of such information makes the property
vulnerable to loss and undetected theft since no documentation is available
to track its location. Disposal Transactions Were DOD requires all shipments
of property to be documented in inventory Not Always Recorded

records and its more sensitive items, such as firearms, to be serial
Correctly in Inventory numbered and the serial number of an item being
shipped to be recorded

Records on shipping documents and in inventory records. DOD also requires

shipping discrepancies to be researched and resolved. Our analysis of the
same 80 judgmentally selected shipments showed that the military activities
in Panama did not always follow internal control procedures.

Specifically, (1) personnel had made unsupported accounting adjustments to
write off the property and balance their accounts (2 shipments), (2)
discrepancies between shipments and receipts were not researched or
investigated (80 shipments), and (3) serial numbers were incorrectly
recorded in the supply system and on shipping documents (2 shipments).

Unsupported Accounting Army supply personnel made unsupported accounting
adjustments to write

Adjustments off property and balance their books. Specifically, records on 2
shipments,

involving 51 handguns and 2 machine guns, showed that these firearms were
sent to the Panama disposal office (which was not authorized to accept
them). However, we found that Army personnel manually prepared

shipping documents and shipped the firearms to other Army units but did not
record the shipments in the Army's supply system. Instead of recording the
shipments to reflect what had actually happened, personnel simply entered a
“shipped to disposal office” transaction code to write off the
property and balance the books. Personnel were unaware that these

transactions were automatically sent to DOD's In- transit Control System,

causing the system's reports to be erroneous and diminishing its value as a
tool for tracking excess property. Army officials told us that recording
shipments to other Army units as shipments to a disposal office was not
appropriate and that they would increase management oversight. Subsequently,
these officials provided documentation showing the receiving units accounted
for these items.

Discrepancies Were Not The DOD In- transit Control System automatically
reports a discrepancy if Researched property is not recorded as received
within 60 days after it was recorded as being sent to the disposal office.
Procedures require that the sending unit research such discrepancies.
Although DOD's In- transit Control System

reported that each of our 80 sample items was not received within 60 days
after it was recorded as being shipped, there was no evidence of research on
any of our sample items. Personnel told us they did not always understand or
were not fully aware of the procedures for researching and investigating the
discrepancies, indicating a need for training. Serial Numbers Not Always

Personnel did not follow DOD regulations to protect excess firearms and
Recorded Correctly

other property with restricted or secrecy designations. Regulations require
the serial number of each item to be annotated on a shipping document and
entered into the supply system. Records on one of our sample shipments, a
telephone used for classified communications, showed that personnel had
entered the model number of the item into the supply system instead of the
serial number. Without the serial number, Army officials could not determine
what had happened to the item. Also, we counted 85 serial numbers that had
been entered in the supply system to identify the 51 handguns recorded as
shipped to the disposal office. At our request, the

property book officer performed a reconciliation to determine what had
happened to the 51 handguns. The property book officer's extensive research
showed that the 85 serial numbers related to 3 separate shipments involving
a total of 85 handguns, including the 51 handguns in our sample shipment.
While all 85 handguns could be accounted for, the shipping

documents and the supply system records were not accurate.

Internal Control Issues Are We previously reported that DOD's management
controls over excess

Being Addressed, but property being shipped to disposal were not effective,
leaving the property

vulnerable to loss or theft. 17 We recommended that DOD include actions in
Further Action Is Required a plan it was developing on visibility over
shipped property to address lack of adherence to internal control
procedures, insufficiently trained personnel, and data accuracy problems. In
response, DOD established a Joint Group for Materiel Management that is
working on both short- and long- term solutions to these problems. In the
short- term, for example, the group has developed a lesson segment entitled
“Introduction to In- transit Visibility and Accountability of Excess
Assets-Identifying Ownership Responsibilities and Risks” to augment
training plans and programs. 18 The

group also developed standardized edits to prevent transmission of records
containing invalid information and a method to identify follow- up
transactions on higher priority items to help the services prioritize the
workload. 19 DOD is also working on a long- term strategy to provide in-
transit control and visibility over excess property through information
technology. However, DOD has not implemented our recommendation that it
establish

performance measures, milestones, and timetables to help monitor the
progress being made to reduce the vulnerability to undetected loss or
misplacement of property being shipped to disposal.

Conclusions The Southern Command largely achieved its goal of timely
disposal of excess personal property, including making property available
for

humanitarian aid throughout Central and South America. However, because of a
larger than expected volume of excess property that became available during
1999, the Command changed its control procedures for allocating excess
property to charitable organizations, leaving many of

17 Defense Inventory: Property Being Shipped to Disposal Is Not Properly
Controlled (GAO/ NSIAD- 99- 84, July 1, 1999). 18 DOD noted that the web-
based lesson (http:// www. almc. army. mil) has been linked to the Defense
Reutilization and Marketing Service web- site, thus providing a one- stop
shopping hub for property disposal and in- transit education. This
information has also been provided in writing to the 10 largest military
generators of excess property. Additional training is the

responsibility of each DOD agency or military service. 19 The Joint Group
for Materiel Management Sub- group's final report can be found on the web at
http:// www. dla. cio/ jgmm.

those decisions to the contractor it retained to facilitate property
distributions. As a result of the modified procedures, written authorization
existed for only $18.9 million (45 percent) of the $41.9 million of excess
personal property processed by the contractor. Whether greater Command
involvement would have affected the allocation of property among the various
charitable organizations is unclear.

The Panama disposal office accounted for all but $691,000 (less than 1
percent) of the $136. 7 million of excess property it processed during 1998
and 1999. Disposal office records show that property valued at $691,000 was
written off as lost. However, over $6 million in excess property, which
service records showed as being shipped to disposal, some of which contained
military capabilities, was never recorded as received. DOD's problems with
management controls and accountability over property

being shipped to disposal are long- standing and are not unique to closing
its facilities in Panama. DOD recognizes the need to properly manage and
account for its assets and is working on a long- term strategy to provide
in- transit control and visibility over excess property through information

technology. DOD also has developed a new lesson segment for training its
personnel on control procedures, but it has not taken sufficient steps to
ensure that the appropriate field personnel have received the training. In
addition, DOD has not implemented our previous recommendation to establish
performance measures, milestones, and timetables to help

monitor the progress being made. Since DOD's ability to focus management
attention on its efforts to reduce the vulnerability of property being
shipped to disposal to undetected loss or misplacement continues to be
limited, we believe our prior recommendation needs to be implemented. Also,
lack of adherence to control procedures continues to be a problem because
DOD personnel are insufficiently trained.

Recommendation for To improve accountability for excess property, we
recommend that the Executive Action

Secretary of Defense direct the military services and DOD activities to
resolve identified weaknesses in accountability over property being shipped
to disposal by establishing a program to ensure that supply personnel are
sufficiently trained on property disposal control procedures, including in-
transit tracking and follow- up. In keeping with our prior recommendation,
the program should include appropriate performance

measures, milestones, and timetables to help monitor the progress being
made.

Agency Comments and The Deputy Under Secretary of Defense for Logistics and
Materiel Our Evaluation

Readiness provided written comments on a draft of this report. They are
included in appendix V. DOD concurred with the recommended improvements to
accountability for property being shipped to disposal. The Deputy Under
Secretary stated that DOD plans to complete these actions during the second
quarter of fiscal year 2001. DOD also provided technical comments, which we
incorporated in the report as appropriate. We are sending copies of this
report to the appropriate congressional

committees; the Honorable William Cohen, Secretary of Defense; the Honorable
Louis Caldera, Secretary of the Army; the Honorable Richard Danzig,
Secretary of the Navy; the Honorable F. W. Peters, Acting Secretary of the
Air Force; Lieutenant General Henry T. Glisson, Director, Defense

Logistics Agency; and the Honorable Jacob Lew, Director, Office of
Management and Budget. Please contact me at (202) 512- 8412 if you or your
staff have any questions concerning this report. Major contributors to this
report are listed in appendix VI.

Sincerely yours, Barry W. Holman, Director Defense Capabilities and
Management

Appendi Appendi xes x I

Scope and Methodology To determine the methods used for property disposal in
Panama during 1998- 99, we met with officials and performed work at the
Office of the Deputy Under Secretary of Defense (Logistics), Washington, D.
C.; Army, Navy, Marine Corps, and Air Force Headquarters, Washington, D. C.;
the U. S. Southern Command (SOUTHCOM), Miami, Florida; the U. S. Agency

for International Development, Washington D. C.; the Center for Treaty
Implementation and the Agency for International Development Office, Panama
City, Panama; and U. S. Army South Headquarters, San Juan, Puerto Rico. We
reviewed policies, procedures, disposal histories, and related records
obtained during visits to the Defense Reutilization and Marketing Office,
Jacksonville, Florida, which maintained records from the

Panama disposal office. We also reviewed reports by the Army Audit Agency on
the adequacy of the Department of Defense's (DOD) plans and controls over
the disposition of excess property in Panama and lessons learned from Panama
Canal Treaty implementation. 1

To determine the extent of direction and control that SOUTHCOM exerted over
property allocations and distributions to charitable organizations
facilitated by its contractor and targeted for humanitarian aid in locations
outside of Panama, we met with officials at SOUTHCOM and DynCorp

Aerospace Technology's after action team, Miami, Florida; the United States
Agency for International Development; the SOUTHCOM Center for Treaty
Implementation and the Agency for International Development Office in
Panama. Using DOD data, we determined the amount of property disposed by the
Panama disposal office and DynCorp. We analyzed the

records to determine the amount of excess property provided to recipients,
including military services, federal agencies, state and local governments,
and charitable organizations. We also attended a humanitarian assistance
program conference hosted by SOUTHCOM from April 4- 5, 2000, and met with
officials from selected charitable organizations that had received

excess property from Panama. To determine whether property declared excess
by the military services was fully accounted for, we obtained computer data
showing the excess property received and processed by the Panama disposal
office from January 1998 through December 1999 from the Defense
Reutilization and Marketing Service, Battle Creek, Michigan. We analyzed the
data to 1 United States Army Audit Agency, Closeout Plans Republic of Panama
(AA- 98- 293,

Aug. 24, 1998) and Lessons Learned- Panama Canal Treaty Implementation (AA-
00- 749, June 26, 2000).

determine the value and disposition of the property. We also obtained data
from DOD's In- transit Control System that showed discrepancies between
shipment and receipt data for that time period and analyzed the data to

identify shipments of military property that had been reported as not
received. Using the data, we judgmentally selected 80 shipments reported by
the system as not received at the Panama disposal office to determine
whether the material was missing and whether any discrepancies were

researched. These shipments were selected based on the capabilities of the
property and included 59 Army shipments of excess property with military
capabilities and 21 Air Force shipments of excess property with military
capabilities to the Panama disposal office. We did not independently verify
the overall accuracy of the system data; however, we used it as a starting
point for selecting shipments, which we then tracked back to records and
documents on individual transactions. We used the same computer programs,
reports, records, and statistics that DOD and the military services had used
to manage excess property. For example, we used the value of excess property
recorded in disposal office records. We did not independently determine the
reliability of all these sources. For historical perspective and
illustrations of past problems, we reviewed the results of prior defense
studies and Army Audit Agency reports.

At the time we were conducting our review, the Army Criminal Investigation
Command was investigating whether some of the excess property in Panama may
have been improperly distributed to a charitable organization. Accordingly,
we focused our review on management issues related to internal controls over
excess property to avoid issues that the

Investigation Command was addressing. For example, we did not evaluate the
process that SOUTHCOM used to select charitable organizations to receive
excess property or the appropriateness of the donations to the
organizations.

We performed our review from January through August 2000 in accordance with
generally accepted government auditing standards.

Dollar Value and Types of Excess Property

Appendi x II

Processed by Dyncorp Amounts in thousands

Medical Office

Food Maintenance

equipment Furniture

machines and

Military Motor

and support and

and and

other Recipients items vehicles

equipment supplies

appliances equipment

items Total a

Charitable organizations

Food for the Poor 0 $1, 058.1 $1,531.7 $1,832. 9 $444.1 $794. 9 $1,599.7 $7,
261.4

Catholic Relief 0 206. 2 1,937.8 417. 8 623.4 553. 6 426.7 4, 165.5

Corazon a Corazon $489.5 532. 7 1,834.3 412. 1 144.0 83. 8 164.7 3, 661.3

Salesian Missions 0 412. 4 1,406.8 8. 3 1,171.2 200. 8 358.4 3, 558.1

United Methodists 0 104.9 275. 0 0 641.8 26. 1 208.5 1, 256.4

National Cristina 0 166. 7 482.1 0 159.2 23. 3 46.4 877.7 Subtotal $489.5
$2, 481.0 $7,467.7 $2,671. 1 $3, 183.7 $1,682. 5 $2,804.4 $20,780. 5

Military activities b 23. 6 2, 369.2 2, 840. 9 7,094. 7 2,345.7 1, 577. 9
3,981.6 20, 233.7

Agency for International 0 112. 0 59. 5 0 281.8 0 38.1 491.4

Development Unknown 0 108. 6 204.1 0 99.9 0. 4 29.9 442.8 Total $513.1 $5,
070.8 $10, 572. 2 $9,765. 8 $5, 911.1 $3,260. 8 $6,854.0 $41,948. 4

a Totals may not add due to rounding. b This includes DOD's humanitarian
assistance programs, U. S. military affairs groups located in foreign
countries providing humanitarian aid, and to the Panamanian government in
exchange for services. Source: Our analysis of Defense Reutilization and
Marketing Service data.

Examples of How Some Excess Property

Appendi x I II

From Closing Facilities in Panama Were Used The ways that donated excess
property from closed U. S. facilities in Panama were used for humanitarian
assistance projects are shown in figures 1 through 3.

Figure 1: Machinery Used for Instruction at the Salesian Polytechnical
Industrial Institute in Santiago, Dominican Republic

Source: SOUTHCOM.

Figure 2: Furniture Used for the Offices of the Youth Center in Cristo Rey,
Santo Domingo

Source: SOUTHCOM.

Figure 3: Desks for a Classroom in the Salesian Mission's Provincial House
in Santo Domingo

Source: SOUTHCOM.

Examples of Exchange Packages Agreed Upon by the United States and the

Appendi x V I Government of Panama The following provide examples of
donations of U. S. property at closing facilities in Panama in exchange for
services provided by Panama: One- stop pet out- processing: The government
of Panama established a

one- stop pet out- processing center at an estimated cost of $75,000 for U.
S. personnel to obtain pet export permits. In exchange for this service, the
United States provided excess office equipment, furniture, and two vehicles
with a total fair market value of $61,510. The United States also provided
office space and telephones for the center. Traffic police: The Panama
National Police agreed to provide a

policeman to direct traffic at the intersection of the Fort Clayton and
Albrook Air Force Base back gates at an estimated cost of $13, 000 a year
from April 20, 1998, through September 30, 1999. In exchange, the United
States provided excess office equipment and appliances with a total fair
market value of $30,000. Office space: The government of Panama agreed to
lease office and

storage space and a gym for U. S. embassy personnel from April 1, 2000, to
October 31, 2004, for a total cost of $702, 240. In exchange for the lease,
the U. S. government provided excess office equipment, furniture,
appliances, exercise equipment, and moving equipment (forklifts,

dollies, etc.) with a fair market value of $539,791. Facilities and Support:
The Government of Panama's National Maritime

Service agreed to provide facilities and transportation support for the U.
S. Coast Guard at a cost of $140, 000. In exchange for these services, the
U. S. government provided excess office equipment, furniture, appliances,
and two vehicles with a total fair market value of $66,775.

Appendi x V Comments From the Department of Defense

Appendi x VI

GAO Contacts and Staff Acknowledgments GAO Contacts Ronald L. Berteott (214)
777- 5702 Roger L. Tomlinson (214) 777- 5777 Acknowledgments In addition to
those named above, Jeff Kans, Jimmy Palmer, Jeffrey Kaser, Paulina Treviso,
and Joanna McFarland made key contributions to this report.

(709469) (709517) Lett er

GAO United States General Accounting Office

Page 1 GAO- 01- 32 Defense Inventory

Contents Letter 3 Appendixes Appendix I: Scope and Methodology 24

Appendix II: Dollar Value and Types of Excess Property Processed by Dyncorp
26

Appendix III: Examples of How Some Excess Property From Closing Facilities
in Panama Were Used 27

Appendix IV: Examples of Exchange Packages Agreed Upon by the United States
and the Government of Panama 30

Appendix V: Comments From the Department of Defense 31 Appendix VI: GAO
Contacts and Staff Acknowledgments 32

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Appendix I Scope and Methodology

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Appendix II

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Appendix III

Appendix III Examples of How Some Excess Property From Closing Facilities in
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Appendix III Examples of How Some Excess Property From Closing Facilities in
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Appendix IV

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Appendix V

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Appendix VI

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