Defense Inventory: Steps the Army Can Take to Improve the	 
Management and Oversight of Excess Ammunition (12-APR-01,	 
GAO-01-372).							 
								 
GAO reviewed the Department of Defense's (DOD) management	 
practices for demilitarizing excess ammunition. Specifically, GAO
evaluated (1) the extent to which the excess ammunition stockpile
has been reduced and whether the liability associated with excess
ammunition has been fully identified, (2) the Army's reliance on 
contracted demilitarization and the impact of doing so on	 
government facilities that use similar environmentally friendly  
processes, and (3) the feasibility of using excess ammunition for
U.S. training needs. GAO found that DOD's reported stockpile of  
excess ammunition has grown rather than decreased, rising from	 
354,000 tons in 1993 to 493,000 tons at the end of 2000. In	 
addition, the reported stockpile does not include all excess	 
ammunition, which understates DOD's ultimate liability for	 
demilitarizing ammunition. In recent years, the Army has devoted 
50 percent of its excess ammunition demilitarization budget to	 
contractors that use environmentally friendly demilitarization	 
processes. While a greater emphasis on contractor		 
demilitarization came about as a result of congressional	 
direction, the Army initiated and subsequently expanded this	 
effort without considering the effect it would have on government
facilities. With increased contractor demilitarization, the Army 
has retained and underutilized environmentally friendly 	 
demilitarization capabilities in government facilities. Finally, 
there are indications that some excess ammunition potentially	 
could be used to meet training needs, but further analysis by the
Army is needed to fully evaluate the potential. 		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-372 					        
    ACCNO:   A00818						        
    TITLE:   Defense Inventory: Steps the Army Can Take to Improve the
             Management and Oversight of Excess Ammunition                    
     DATE:   04/12/2001 
  SUBJECT:   Ammunition 					 
	     Inventory control					 
	     Military training					 
	     Privatization					 
	     Property disposal					 
	     Surplus federal property				 
	     DOD Defense Planning Guidance			 

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GAO-01-372

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

United States General Accounting Office

GAO

April 2001 DEFENSE INVENTORY

Steps the Army Can Take to Improve the Management and Oversight of Excess
Ammunition

GAO- 01- 372

Page i GAO- 01- 372 Defense Inventory Letter 1

Appendix I Scope and Methodology 19

Appendix II Comments From the Department of Defense 21

Appendix III GAO Contacts and Staff Acknowledgments 28

Tables

Table 1: Comparison of Recovery and Reuse Demilitarization Capacity to
Demilitarization Planned in Fiscal Year 2001 13 Table 2: Examples of
Purchases of Ammunition for Training in

Fiscal Year 2000 When the Same Items Were in the Demilitarization Stockpile
15

Figures

Figure 1: Government- owned Excess Ammunition Demilitarization Sites 6
Figure 2: Actual and Projected Growth of Demilitarization

Stockpile in Thousands of Tons, Fiscal Years 1993 Through 2004 8 Contents

Page 1 GAO- 01- 372 Defense Inventory

April 12, 2001 The Honorable James M. Inhofe Chairman, Subcommittee on
Readiness

and Management Support Committee on Armed Services United States Senate

Dear Mr. Chairman: The Operations Support Command, a subordinate command of
the Army Materiel Command, is responsible for the day- to- day operations of
the Department of Defense's (DOD) single manager for conventional
ammunition, including storing, managing, inspecting, and testing ammunition.
1 It is also responsible for demilitarizing 2 excess ammunition for all of
the services. With the end of the Cold War, the services' need for
conventional ammunition was significantly reduced, and by 1993 the Command
reported a backlog of excess ammunition awaiting demilitarization that
amounted to 354,000 tons. Concerned that the quantities of excess ammunition
being stored could impede access to needed ammunition and hinder the Army's
ability to effectively support contingency operations, the Command set a
goal of reducing the backlog to 100,000 tons by fiscal year 2004.

The Army operates ammunition facilities that use open burning and detonating
processes as well as other more environmentally friendly processes to
demilitarize excess ammunition. Open burning and detonating processes have
been the subject of public concern regarding possible health risks to
civilian populations believed to be associated with airborne gases,
particles, and other contaminants carried downwind of the demilitarization
sites. Environmentally friendly processes use demilitarization technologies
that do not release contaminants into the

1 The Commander, U. S. Army Materiel Command, as designated by the Secretary
of the Army, acts as the single manager for conventional ammunition for the
Department of Defense.

2 The Army defines demilitarization as the act of removing the military
offensive or defensive characteristics from munitions or otherwise rendering
munitions innocuous or ineffectual for military use. Demilitarization
includes but is not limited to processes involving resource recovery,
recycling, reutilization, disassembly, conversion, melt out/ steam out/ wash
out, incineration, open burning, and open detonation to name a few.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 372 Defense Inventory

atmosphere. In recent years, the Senate Appropriations Committee has
encouraged the use of contractors to facilitate the demilitarization of
excess ammunition using environmentally friendly demilitarization processes.
To ensure ready access to needed ammunition by reducing the amount of excess
ammunition being stored, Congress increased the amount of funding for
ammunition demilitarization from $35 million in fiscal year 1993 to about
$71 million in fiscal year 1994, with funding averaging about $92 million
annually for fiscal years 1995- 2000. At the same time the Department of
Defense is reporting a stockpile of excess ammunition, it is also reporting
a shortage of ammunition for training, raising the question of whether
excess ammunition could be used for training.

This report reviews the Department's management practices for demilitarizing
excess ammunition. Specifically, we evaluated (1) the extent to which the
excess ammunition stockpile has been reduced and whether the liability
associated with excess ammunition has been fully identified; (2) the Army's
reliance on contracted demilitarization and the impact of doing so on
government facilities that use similar environmentally friendly processes;
and (3) the feasibility of using excess ammunition for U. S. training needs.
The scope and methodology of our work are described in appendix I. This is
the third and final report in response to your request that we evaluate the
Department of Defense's ammunition management practices. 3

The Department of Defense's reported stockpile of excess ammunition has
grown rather than decreased, rising from about 354,000 tons in 1993 to
493,000 tons at the end of 2000; moreover, the reported stockpile does not
include all excess ammunition, which understates the Department's ultimate
liability for demilitarizing ammunition. Although the Operations Support
Command demilitarized 745, 000 tons of ammunition from the stockpile during
this 8- year period, the stockpile grew for a number of reasons beyond the
Command's control. For example, the military services reduced force
structure and, consequently, needed less ammunition; introduced new weapon
systems that made some ammunition obsolete; replaced older ammunition with
newer and better versions; and the

3 See our reports Defense Management: Army Could Achieve Efficiencies by
Consolidating Ammunition Management (GAO/ NSIAD- 99- 230, Sept. 30, 1999)
and

Defense Logistics: Unfinished Actions Limit Reliability of the Munitions
Requirement Determination Process (GAO- 01- 18, Apr. 5, 2001). Results in
Brief

Page 3 GAO- 01- 372 Defense Inventory

Operations Support Command decreased use of open burning and detonating
methods of demilitarizing ammunition and increased use of environmentally
friendly methods (which demilitarize less ammunition). As a result of these
factors, in 1998 the Operations Support Command extended its goal to reduce
the stockpile of excess ammunition to 100,000 tons from 2004 to the year
2010. In addition, all excess ammunition needing demilitarization has not
been included in the stockpile because, for planning and budgeting reasons,
the Command considers only the ammunition under its control along with
forecasts of quantities to be added to the stockpile over several years. We
found excess ammunition recorded in other inventory records; for example,
excess ammunition held overseas was not included in the stockpile. According
to the Army, if all known and forecasted excess ammunition were recognized,
the demilitarization liability for the Department of Defense could be as
much as $3 billion. However, this liability is not reflected in the
Department's financial statement, even though federal financial accounting
standards 4 require recognition and reporting of liabilities associated with
disposal.

In recent years, the Army Materiel Command has required the Operations
Support Command to devote 50 percent of its excess ammunition
demilitarization budget to contractors that use environmentally friendly
demilitarization processes. While a greater emphasis on contractor
demilitarization came about as a result of congressional direction, the Army
initiated and subsequently expanded this effort without considering the
effect it would have on government facilities. With increased contracted
demilitarization, the Army has retained and underutilized environmentally
friendly demilitarization capabilities in government facilities. These
government facilities' environmentally friendly demilitarization processes
are projected to operate at only 20 percent of their demilitarization
capacity in fiscal year 2001. With increased reliance on contracted
demilitarization, the Army has incurred additional costs in some instances
that would not have been required if the demilitarization had been performed
in government facilities. We visited one government facility that shipped
ammunition to a contractor site for demilitarization and found that the
facility could have used its environmentally friendly demilitarization
processes to demilitarize the ammunition and avoided $50,000 in shipping
costs. We also identified one instance where additional costs were incurred
when a contractor undertook ammunition

4 Statements of Federal Financial Accounting Standards No. 5, Accounting for
Liabilities of the Federal Government and No. 6 Accounting for Property,
Plant, and Equipment.

Page 4 GAO- 01- 372 Defense Inventory

demilitarization for the Command, then contracted a portion of the work to
three government facilities. According to information obtained from the
contractor and one of the three government facilities involved, the Command
could have demilitarized the ammunition for less had it overseen the work
itself.

We found indications that some excess ammunition potentially could be used
to meet training needs, but further analysis by the Army is needed to fully
evaluate the potential. Our analysis showed that the Army has recently
purchased 10 types of ammunition, particularly small caliber ammunition,
when quantities of the same items were also in the stockpile and identified
in the Army's records as being of sufficient quality (either new or in like-
new condition) for training purposes. For example, inventory records showed
that the stockpile included over 400,000 usable 60- millimeter cartridges
that the Army uses in training exercises with the M2 and M19 mortar cannons.
In fiscal year 2000, the Army bought over 9,000 60- millimeter cartridges
without checking the stockpile for these items. According to the Department
of Defense, its policy is to require the military services to routinely
check all potential alternative sources, including excess ammunition
awaiting demilitarization before purchasing ammunition. Presently, the
Command checks the stockpile for usable ammunition only when a critical
shortage occurs or if needed ammunition cannot be purchased. The Command
believes it is unnecessary to routinely compare planned purchases to the
stockpile because, when the excess ammunition has been offered to the active
and reserve forces before it was placed in the stockpile, they have declined
to take it. However, our work showed that the services' needs may change
over time and usable excess ammunition potentially could be recalled from
the stockpile to prevent concurrent procurement and demilitarization.

This report includes recommendations that the Secretary of Defense require
the Secretary of the Army to (1) identify and include the liability
associated with demilitarizing excess ammunition in financial statements;
(2) develop a plan in consultation with Congress that includes procedures
for assessing the appropriate mix of public/ private sector capacity needed
to demilitarize excess ammunition and the cost- effectiveness of using
contractors versus government facilities to demilitarize excess ammunition;
and (3) comply with DOD's policy to routinely compare planned purchases of
ammunition for training with usable ammunition in the stockpile and require
the single manager for conventional ammunition to prepare periodic reports
to the Office of the Under Secretary of Defense for Acquisition, Technology
and Logistics, showing the quantities and types of ammunition reclaimed from
the stockpile. DOD generally agreed

Page 5 GAO- 01- 372 Defense Inventory

with the recommendations and indicated actions planned that it believed
would address them. However, additional actions will likely be needed to
fully address the recommendations.

Under the national military strategy, the military services are required to
maintain enough ammunition for wartime needs and for peacetime needs, such
as training. The Defense Planning Guidance 5 lays out general guidelines for
the services to determine how much ammunition they need to conduct
operations under the strategy. Ammunition that exceeds these requirements is
to be shared among the services or disposed of through sale to other
nations, recycling, or demilitarization. In 1977, the Army, through its
Operations Support Command (formerly Industrial Operations Command), assumed
single manager responsibility for managing, storing, and disposing of the
services' ammunition. The Command's Defense Ammunition Center provides the
Command and the military services a variety of ammunition related services,
including training, technical assistance, and logistics support. The Army
demilitarizes excess ammunition at its ammunition depots, plants, and
centers. The Army has used open burning and detonating processes as well as
the more environmentally friendly processes to demilitarize excess
ammunition. Open burning and detonating processes, which may release
airborne gases, particles, and other contaminants that are carried downwind
of the demilitarization sites, have been the topic of public concerns
regarding possible health risks to civilian populations. Environmentally
friendly processes use demilitarization technologies that do not release
contaminants into the atmosphere. The government- owned locations that
demilitarize excess ammunition using environmentally friendly processes are
shown in figure 1.

5 The Secretary of Defense and his staff prepare the Defense Planning
Guidance that sets forth policy, articulates strategic objectives, and
reflects the national military strategy. It includes the Secretary of
Defense's force and resource guidance to the military departments, other
combat support agencies, and the unified commands. Background

Page 6 GAO- 01- 372 Defense Inventory

Figure 1: Government- owned Excess Ammunition Demilitarization Sites

Source: Defense Ammunition Center.

During the 1980s, the amount of excess ammunition needing to be
demilitarized was generally stable, holding at about 100,000 tons. However,
in the early 1990s, with the end of the Cold War and other worldwide
changes, a general reshaping of military resources and budgets began as the
United States shifted from a strategy of preparing for a global war to a
strategy of preparing for regional conflicts and crises. As a consequence,
the services' ammunition requirements were significantly reduced, and by
1993 the Operation Support Command's reported backlog of ammunition awaiting
demilitarization was 354,000 tons. Because excess and needed ammunition were
being stored together, the Command was concerned that the excess ammunition
could impede access to needed ammunition and hinder the Command's ability to
effectively support contingency operations. To address this concern,
Congress increased the amount of funding available for ammunition
demilitarization from $35 million in fiscal year 1993 to almost $71 million
in fiscal year 1994 and to an average of nearly $92 million annually in
fiscal years 1995- 2000. In addition, the Command set a goal of reducing the
backlog to 100, 000 tons by 2004. In October 1998, the Army extended its
goal to reduce the demilitarization stockpile to less than 100,000 tons in
fiscal year 2004 to the end of fiscal year 2010.

Letterkenny Sierra Hawthorne

Tooele Crane Blue Grass Anniston Red River McAlester Milan

Iowa Pine Bluff Lone Star

Page 7 GAO- 01- 372 Defense Inventory

On May 10, 1993, the Chairman of the Senate Appropriations Subcommittee on
Defense requested that DOD increase its use of environmentally safe
destruction processes and technologies and phase out its use of open burning
and detonating destruction processes as soon as possible. The Chairman also
requested that DOD look to the private sector for environmentally friendly
processes that could be used to help demilitarize excess ammunition. In
1994, the Senate Appropriations Committee directed the Army to accelerate,
where possible, the award of contracts that make use of environmentally
friendly demilitarization processes. The Operations Support Command enacted
a variety of initiatives to help the demilitarization program respond to the
congressional requests. These initiatives included optimizing work assigned
to government facilities; increasing the use of environmentally friendly
technology at government facilities to recover, recycle, and reclaim usable
elements of ammunition; and awarding contracts to commercial firms that used
environmentally friendly processes to demilitarize portions of the
stockpile.

DOD's reported stockpile of excess ammunition has grown, and it does not
include all excess ammunition; as a result, the government's financial
liability for demilitarizing excess ammunition is understated. To reduce the
stockpile, the Operations Support Command enacted a variety of initiatives,
and for fiscal years 1993 through 2000, it demilitarized 745,000 tons of
excess ammunition from the stockpile. Despite these efforts, the reported
stockpile grew from 354,000 tons in 1993 to 493, 000 tons at the end of 2000
and is projected to be at 403,000 tons in 2004 (see fig. 2). Excess
Ammunition

Stockpile Has Grown and Does Not Include All Excess Ammunition

Page 8 GAO- 01- 372 Defense Inventory

Figure 2: Actual and Projected Growth of Demilitarization Stockpile in
Thousands of Tons, Fiscal Years 1993 Through 2004

Note: Includes only reported stockpile amounts. Source: Operations Support
Command, updated on March 27, 2001.

According to the Operations Support Command, there are multiple factors that
affect the number of tons in the reported stockpile from year to year. These
factors include transferring ammunition from the stockpile to meet critical
needs of the military services, the amount of demilitarization funding
received from Congress, and the amount of excess ammunition that gets turned
in to the stockpile. For example, the increase in the stockpile in fiscal
year 1999 was largely due to the 289,000 tons entering the stockpile that
year. According to the Command, the downward trend for fiscal years 2001
through 2004 is due to a combination of forecasted increases in
demilitarization funding and forecasted decreases in quantities of
ammunition becoming excess. Several factors outside the Command's control
contributed to the growth of the stockpile:

? downsizing of forces, which resulted in the need for less ammunition;

? replacing weapon delivery systems, which created obsolete ammunition;

? replacing older ammunition with newer, better versions, which created
obsolete ammunition;

354 413

355 375 396 415 518

493 465 449 433

403 0 100

200 300

400 500

600 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Fiscal year

Page 9 GAO- 01- 372 Defense Inventory

? transferring certain ammunition that was not planned for the stockpile
(such as non- self- destruct antipersonnel land mines) to the stockpile; and

? reducing reliance on open burning and detonating processes to demilitarize
ammunition in conjunction with public pressure to use more environmentally
friendly methods.

The Operations Support Command recognized that these factors would prevent
it from meeting its goal of reducing the stockpile to 100,000 tons by 2004.
Current Command projections show that the stockpile will instead be at about
403,000 tons by 2004. In October 1998, the Army extended its goal to reduce
the demilitarization stockpile to less than 100,000 tons in fiscal year 2004
to the end of fiscal year 2010.

In addition, the Operations Support Command's reported stockpile does not
include all excess ammunition needing demilitarization. The reported
stockpile only includes excess ammunition located at storage sites belonging
to the Command (see fig. 1). Our analysis of the services' inventory records
showed that there are additional quantities of excess ammunition needing
demilitarization that were not included in the demilitarization stockpile.
Specifically, we identified additional demilitarization liabilities
associated with 94,030 tons of ammunition located overseas and 54,770 tons
of unusable or unneeded ammunition at other military storage sites in the
United States.

Army Materiel Command officials explained that, in managing the
demilitarization program, the Army estimates what ammunition is expected to
require demilitarization in a reasonable time. Therefore, to plan and
budget, it uses the quantities in the reported demilitarization stockpile
plus forecasts of excess ammunition it expects the services to turn in to
the stockpile. The officials agreed that the services' inventory records
showed additional quantities of excess ammunition needing demilitarization
that were not included in the demilitarization stockpile and estimated that
if all known and forecasted excess ammunition were recognized, the
demilitarization liability for the Army could be as much as 2.9 million
tons. The Command estimates the cost to demilitarize a ton of ammunition to
be about $1,034. Using this estimate, the disposal liability could
potentially be as great as $3 billion, but DOD's financial statement does
not reflect any demilitarization liability even though federal financial
accounting standards 6 require recognition and reporting of liabilities

6 Statements of Federal Financial Accounting Standards No. 5, Accounting for
Liabilities of the Federal Government and No. 6 Accounting for Property,
Plant, and Equipment.

Page 10 GAO- 01- 372 Defense Inventory

associated with disposal. DOD's omission of its demilitarization liability
is representative of the needed financial management reforms on which we
testified before the Government Management, Information, and Technology
Subcommittee of the House Committee on Government Reform, stating that DOD
still faces significant challenges to implement the federal accounting
standards requiring recognition and reporting of liabilities associated with
disposal. 7

In recent years, the Operations Support Command has worked to allocate 50
percent of its excess ammunition demilitarization budget to contractors that
used environmentally friendly demilitarization processes. However, at the
same time the Command retained and underutilized environmentally friendly
demilitarization capabilities at government facilities. The Army could have
benefited from examining whether it was maximizing its demilitarization
capabilities with the most cost- effective mix of public and private
environmentally friendly capabilities. We noted that in some instances the
Army incurred additional costs in contracting with the private sector for
ammunition demilitarization and retained underutilized environmentally
friendly demilitarization processes at its facilities.

From 1993 to 1996 the Operations Support Command awarded 18 demilitarization
contracts to private firms to demilitarize 76,527 tons of ammunition at a
cost of about $48.2 million. During this 4- year period, the private sector
received about 16 percent of the Command's demilitarization budget. Although
congressional instructions did not specify how much demilitarization work
should go to the private sector, in February 1996, the Army Materiel Command
required that the demilitarization budget for 1997 be split 50/ 50 between
government facilities and private companies. Army Materiel Command officials
said the directive was issued to force the Operations Support Command to
move a larger portion of its demilitarization workload to private firms and
that the 50/ 50 split seemed appropriate (even though the government
facilities having environmentally friendly processes were being underused at
the time). The Operations Support Command adopted this policy for fiscal
year 1997 and subsequent years. While the actual ratio varied each year,
over time the Command planned to spend its ammunition demilitarization funds
equally between government facilities and private

7 Department of Defense: Progress in Financial Management Reform

(GAO/ T- AIMD/ NSIAD- 00- 163, May 9, 2000). The Army Increased

Its Reliance on Contracted Demilitarization Without Assessing Impact on
Government Facilities

Page 11 GAO- 01- 372 Defense Inventory

firms. 8 For fiscal years 1997 and 1998, the Command awarded 21 contracts to
private companies to demilitarize 56,739 tons of ammunition at a cost of
about $45.8 million. During this 2- year period, the private sector received
about 25 percent of the Command's demilitarization budget.

To eliminate the administrative burden associated with awarding and
monitoring 21 contracts, beginning in fiscal year 2000 the Operations
Support Command awarded two 5- year contracts, potentially worth an
estimated total of $300 million, to General Dynamics Armament Systems and
PB/ Nammo Demil LLC. Subsequently, General Dynamics Armament Systems was
awarded a task order under the contract to demilitarize 12,000 tons of
ammunition at a price of $34.8 million for the first year and PB/ Nammo
Demil LLC was awarded a task order under the contract to demilitarize 12,000
tons of ammunition at a price of $25.9 million for the first year. 9 PB/
Nammo Demil LLC entered into agreements with three government facilities for
a portion of this work. In addition, the firm subcontracted with other
companies in the United States and overseas for the remainder of the work.

According to Army Materiel Command and Operations Support Command officials,
when implementing congressional direction to involve the private sector in
environmentally friendly demilitarization of excess ammunition, the Army did
not emphasize cost- effectiveness in terms of dollars saved and costs
avoided. As a result, the Army incurred additional costs in contracting with
the private sector for ammunition demilitarization. For example, according
to the contracts, the Command is required to pay for packaging, crating,
handling, and transportation costs to move ammunition from a government
facility to the contractor demilitarization site. The Command considers
these costs necessary to doing business with contractors.

Since 1997 the Operations Support Command paid from $8 million to $14
million a year for packaging, crating, and handling excess ammunition and
for transporting the ammunition, mostly from government facilities to
contractor sites for demilitarization using environmentally friendly
demilitarization processes. According to Command officials, a small

8 The Army Materiel Command further required that 10 percent of its
ammunition demilitarization budget be allocated for demilitarizing
ammunition located overseas. 9 Modifications to the order increased its
total potential value for the first year to $28. 6 million.

Page 12 GAO- 01- 372 Defense Inventory

percentage was spent to move excess ammunition from one government facility
to another, but the majority of these expenditures were for moving
ammunition from government sites to contractor sites. In some cases,
government facilities with excess ammunition in storage had environmentally
friendly demilitarization processes and facilities that could have been used
to demilitarize the ammunition without incurring the shipping cost, leaving
the funds available to demilitarize additional ammunition. For example, at
one facility we visited, the Command paid $50,000 during fiscal year 2000 to
ship excess ammunition from a storage site at the McAlester Army Ammunition
Plant to contractor demilitarization sites when the McAlester plant had
environmentally friendly capabilities to demilitarize the ammunition. The
Command could have avoided $50,000 in shipping costs by allocating this work
to McAlester.

Other costs were incurred under the Operations Support Command's two
contracts awarded in May 1999 that could have been avoided had the work been
assigned to a government facility. For example, in one instance where the
Command contracted for ammunition demilitarization, the contractor, in turn,
entered into agreements with three government facilities to have them
perform the demilitarization work. In essence, the government paid a
contractor to have the ammunition demilitarized by government employees.
This occurred when the contractor entered into three separate agreements for
demilitarization services with government facilities at McAlester, Oklahoma;
Crane, Indiana; and Tooele, Utah. The total value of the agreements for the
first year was $8.6 million (including about $1.9 million to upgrade the
demilitarization capabilities at the three government facilities). In
addition, information provided by the contractor and by one government
facility indicates that one government facility could have demilitarized the
ammunition for less cost than was incurred by the Command's contract with
this firm.

The Operations Support Command attributed the decision not to use the
available environmentally friendly capacity at government facilities for
demilitarization purposes to the Army Materiel Command's interpretation of
congressional instructions to use the private sector to destroy excess
ammunition and the Materiel Command's mandate that 50 percent of the
demilitarization budget go to private firms. While increasing reliance on
contracted demilitarization, the Operations Support Command has retained
environmentally friendly processes that are not being fully utilized.
Projections for fiscal year 2001 show that 16,550 tons of incineration
capacity at four government facilities will not be used. These same
projections show that government facilities will operate at only

Page 13 GAO- 01- 372 Defense Inventory

20 percent of their overall capacity to recover and reuse 81,100 tons of
excess ammunition (see table 1).

Table 1: Comparison of Recovery and Reuse Demilitarization Capacity to
Demilitarization Planned in Fiscal Year 2001

Location Recovery and

reuse capacity (tons)

Recovery and reuse demilitarization

planned (tons) Percent of capacity to be used

Anniston 1,000 0 0 Blue Grass 4, 000 26 1 Crane 13,300 2, 765 21 Hawthorne
13,500 5, 725 42 Iowa 5,000 772 15 Letterkenny 1,000 115 12 Lone Star 2,000
1,158 58 Milan 1, 800 0 0 McAlester 9, 300 4,248 46 Pine Bluff 3, 500 0 0
Red River 1, 000 0 0 Sierra 24,000 1, 099 5 Tooele 1, 700 274 16

Total 81,100 16,182 20

Source: Operations Support Command.

Currently, the Army is conducting a congressionally mandated study of
potential alternative disposal methods that do not release contaminants into
the atmosphere. The study will address the possibility of phasing out open
burning and detonating processes in favor of environmentally friendly
processes, technologies currently in existence and under development, and
the cost and feasibility of constructing facilities employing these
technologies. According to Operations Support Command officials, the results
of this study, which will not be available until September 2001, could
potentially lead to expanding the government's environmentally friendly
capabilities.

Page 14 GAO- 01- 372 Defense Inventory

DOD's conventional ammunition policies and procedures require the military
services to routinely check excess ammunition awaiting demilitarization
before purchasing new ammunition. Available information indicates that the
stockpile may contain ammunition that may be usable for training purposes,
but more analysis is required to evaluate the condition of the ammunition.
Although neither the services nor the Operations Support Command
systematically compares the contents of the excess ammunition stockpile to
the training needs of the active and reserve forces, the Command checks the
stockpile for such items if a critical shortage occurs or if the needed
ammunition cannot be purchased. For example, in the last 2 years quantities
of 155- millimeter, 105- millimeter, and 30- millimeter ammunition have been
pulled from the stockpile and given to the active forces.

The Department of Defense Single Manager of Conventional Ammunition
(Implementing Joint Conventional Ammunition Policies and Procedures)
5160.65- M requires the military services to routinely check all alternative
sources before purchasing ammunition for its weapon systems. Excess
ammunition awaiting demilitarization in the stockpile is an alternative
source. However, the Command believes that a routine comparison of planned
purchases to the stockpile is unnecessary because (1) when the excess
ammunition has been offered to these groups before it was placed in the
stockpile, they declined it, and (2) it would have to spend money to conduct
an evaluation of the condition of the excess ammunition. Also, a Command
official responsible for managing the stockpile stated that a 1996 Army
analysis of the excess ammunition in the stockpile found that there were no
items in the stockpile that could be used for training.

According to a Defense Ammunition Center official, the services' needs may
change over time and usable excess ammunition potentially could be recalled
from the stockpile to prevent concurrent procurement and demilitarization.
Our analysis showed that the Army has recently purchased 10 types of
ammunition, particularly small caliber ammunition, when quantities of the
same items were also in the stockpile and identified in the Army's records
as being of sufficient quality (either new or in like- new condition) for
training purposes. Examples of excess ammunition that the Army purchased in
fiscal year 2000 for training exercises at the same time there were
quantities in the stockpile reported to be in usable condition are shown in
table 2. Further Analysis

Needed to Determine Usability of Excess Ammunition for Training Purposes

Page 15 GAO- 01- 372 Defense Inventory

Table 2: Examples of Purchases of Ammunition for Training in Fiscal Year
2000 When the Same Items Were in the Demilitarization Stockpile

Description of item Quantity in stockpile in usable condition

Quantity purchased in fiscal

year 2000

7.62mm cartridges used in M60 or M73 machine guns 8,676 27,163,329 .30
caliber cartridges used in various rifles and guns 9,600 16,154 .45 caliber
cartridges used in automatic pistols and submachine guns 20,855 240,413 .50
caliber cartridges used in machine guns 1,083,282 11,100 60 mm cartridges
used in mortar M2 and mortar M19 421,781 9, 161 105mm cartridges used in
gun, cannon M68 92,776 6, 148 105mm cartridges used in gun, cannon M68
132,456 10,957 155mm propellant charges 428,249 2, 951 M228 fuze hand
grenades 5, 020 1,298,064 M18 red smoke hand grenades 1,050 16,067

Source: GAO analysis of stockpile data provided by the Defense Ammunition
Center and purchases provided by Operations Support Command.

A disposal liability of potentially up to $3 billion is not reflected in
DOD's financial statements. If all excess ammunition is not accurately
reflected in DOD's financial statements and made available for congressional
budget deliberations, then DOD and Congress cannot clearly understand the
present and future financial liability associated with demilitarizing the
excess ammunition. Additionally, indications are that the allocation of 50
percent of the excess ammunition demilitarization budget to contractors may
have increased the cost of demilitarizing excess ammunition. Also, excess
capacity involving environmentally friendly demilitarization processes
exists at government facilities. While it may be appropriate to rely on the
private sector to enhance demilitarization capabilities, the continued use
of the private sector to demilitarize excess ammunition at the same time the
government facilities have excess capacity raises the question of whether
the Army is sponsoring too much capacity. At the same time, an on- going
study effort examining the potential to expand environmentally friendly
demilitarization capabilities at government facilities raises additional
questions about the appropriate mix of public/ private sector capacity
needed to demilitarize excess ammunition. Whether excess ammunition in the
demilitarization stockpile could be used for training needs is unclear
because the Command does not Conclusions

Page 16 GAO- 01- 372 Defense Inventory

systematically compare the contents of its stockpile to the training needs
of the active and reserve forces. DOD requires such a comparison before
purchasing ammunition. Records indicate that the Army is buying ammunition
when potentially usable ammunition is available in the stockpile, suggesting
that checking the stockpile could be cost- effective by avoiding concurrent
procurement and demilitarization and could put the Army in a better position
of buying what it actually needs.

To improve the financial reporting, economy, and efficiency of
demilitarizing excess ammunition, we recommend that the Secretary of Defense
require the Secretary of the Army to

1. identify and include the total liability (domestic and overseas)
associated with demilitarizing excess ammunition in the Department's annual
consolidated balance sheet;

2. develop a plan in consultation with Congress that includes procedures for
assessing the appropriate mix of public/ private sector capacity needed to
demilitarize excess ammunition and the cost- effectiveness of using
contractors versus government facilities to demilitarize excess ammunition,
with specific actions identified for addressing the capacity issue; and

3. comply with DOD's policy to routinely compare planned purchases of
ammunition for training with usable ammunition in the stockpile and require
the single manager for conventional ammunition to prepare periodic reports
to the Office of the Under Secretary of Defense for Acquisition, Technology
and Logistics, documenting such comparisons and showing the quantities and
types of ammunition reclaimed from the stockpile.

The Director of Strategic and Tactical Systems in the Office of the Under
Secretary of Defense for Acquisition, Technology and Logistics provided
written comments to a draft of this report. DOD's comments are reprinted in
appendix II. DOD also provided separate technical comments that we have
incorporated in this report where appropriate. DOD generally agreed with our
recommendations and pointed out that it is taking actions that it believes
will address our recommendations. However, additional actions will likely be
needed to fully address the recommendations. Recommendations for

Executive Action Agency Comments and Our Evaluation

Page 17 GAO- 01- 372 Defense Inventory

In commenting on our recommendation for dealing with the liability
associated with demilitarizing excess ammunition, DOD stated that
determining an accurate demilitarization liability is a difficult task and
that it believes that a reasonable estimate of the demilitarization
stockpile plus the forecast of new generations expected to be added to the
stockpile for the next 5 years should meet the intent of our recommendation.
However, this proposal does not recognize a liability for excess ammunition
overseas (even though a portion of the demilitarization budget each year is
used to demilitarize ammunition overseas) nor does the proposal recognize
any demilitarization liability for excess Army- owned war reserve
ammunition, excess retail ammunition, and excess ammunition not stored at an
Army installation. Therefore, we believe DOD should recognize the total
liability associated with demilitarizing excess ammunition rather than its
proposal to recognize only a portion of its demilitarization liability and
have revised our recommendation accordingly.

In commenting on our recommendation for a plan and procedures for assessing
the public/ private sector mix of demilitarization capacity, DOD stated that
the Army is preparing a report to Congress, due September 30, 2001, on the
feasibility of replacing open burning and detonation with closed disposal
technologies. DOD said that this report could also be used to address the
mix of public/ private sector capacity needed to demilitarize excess
ammunition. DOD also stated that the Army has a computer- modeling tool that
can be used to identify the costs associated with changing the public/
private sector percentages. We recognize that the report and computer-
modeling tool can provide information that the Army can use to determine the
mix of public/ private sector capacity needed to demilitarize excess
ammunition, but DOD's response does not address the substance of our
recommendation which is to state how it plans to rationalize the public/
private mix and minimize excess capacity at government facilities.
Accordingly, we have made no change to our recommendation.

Our draft report included a recommendation that DOD determine the
feasibility of establishing a process to periodically compare planned
purchases of ammunition for training with usable ammunition in the
stockpile. DOD stated that an existing regulation and procedures require the
Army to screen excess ammunition for use prior to procurement. 10

10 According to DOD, this action is directed in DOD 4160. 21- M, DOD 5160.
65M, and AMC- R- 755- 8.

Page 18 GAO- 01- 372 Defense Inventory

However, our work showed that the Operations Support Command checks the
stockpile for ammunition only if a critical shortage occurs or if the needed
ammunition cannot be purchased. This suggests the need for additional
oversight to ensure such assessments occur on a more frequent basis.
Therefore, we have revised our recommendation to require the Army to comply
with DOD's policy to routinely compare planned purchases of ammunition for
training with usable ammunition in the stockpile and to require the single
manager for conventional ammunition to prepare periodic reports documenting
such analyses and showing the quantities and types of ammunition reclaimed
from the stockpile.

We are sending copies of this report to the appropriate congressional
committees; the Honorable Donald H. Rumsfield, Secretary of Defense; the
Acting Secretary of the Army, Joseph W. Westphal; the Acting Secretary of
the Navy, Robert B. Pirie, Jr.; the Acting Secretary of the Air Force,
Lawrence J. Delaney; and the Director, Office of Management and Budget
Mitchell E. Daniels, Jr.

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 III.

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

Appendix I: Scope and Methodology Page 19 GAO- 01- 372 Defense Inventory

To determine the extent to which the excess ammunition stockpile has been
reduced and whether the liability associated with excess ammunition has been
fully identified, we reviewed the composition of the Army's reported
stockpile of excess ammunition and obtained inventory records showing the
condition and location of the services' ammunition. We also reviewed
policies and procedures governing the demilitarization of excess ammunition
and the requirements for reporting the financial liability of ammunition
awaiting demilitarization. We met with officials and performed work at the
U. S. Army Operations Support Command, Rock Island Arsenal, Rock Island,
Illinois; the U. S. Army Defense Ammunition Center, McAlester, Oklahoma;
Army, Navy, Marine Corps, and Air Force Headquarters, Washington, D. C.; and
the Office of the Under Secretary of Defense (Acquisition and Technology),
Washington, D. C.

To assess the extent that the Army used contractors to demilitarize excess
ammunition and its impact on the utilization of environmentally friendly
demilitarization processes at government facilities, we met with officials
at the Operations Support Command; McAlester Army Ammunition Plant,
McAlester, Oklahoma; and PB Nammo Demil LLC, New York, N. Y. We selected the
McAlester plant because it was one of three government facilities having an
agreement with PB Nammo Demil LLC to perform demilitarization work. We
reviewed the Command's contracts with private firms and assessed packaging,
crating, and handling expenses associated with transporting ammunition to
contractor sites. We also obtained and reviewed contractor agreements with
government facilities to have them perform the demilitarization work and
evaluated information provided by the contractor and by one government
facility to determine if the government facility could have demilitarized
the ammunition for less cost than was incurred by the Command's contract
with this firm. We obtained Army data on the government facilities'
capabilities to demilitarize excess ammunition and compared the Army's
demilitarization plans to these capabilities. This allowed us to identify
and calculate excess capacity situations. We also obtained information from
the Army Materiel Command and the Operations Support Command involving an
on- going study of the possibility of phasing out open burning and
detonating processes in favor of environmentally friendly processes,
technologies currently in existence and under development, and the cost and
feasibility of constructing facilities employing these technologies.

To determine the feasibility of using excess ammunition for training needs,
we met with officials at the U. S. Defense Ammunition Center and discussed
the Center's capability to compare the contents of the excess ammunition
stockpile to the services' needs for ammunition to perform Appendix I: Scope
and Methodology

Appendix I: Scope and Methodology Page 20 GAO- 01- 372 Defense Inventory

training operations. We compared the services' fiscal year 2000 training
ammunition purchases to ammunition awaiting disposal to verify that
ammunition matching the services' training needs is located in the
stockpile. We did not look at opportunities to dispose of excess ammunition
in the stockpile through sale to other nations.

We used the same computer programs, reports, records, and statistics that
DOD and the military services had used to manage excess ammunition. For
example, we used Operations Support Command's inventory records to show the
reported amounts of excess ammunition in the stockpile. 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 audit reports.

We performed our review from August 2000 through February 2001 in accordance
with generally accepted government auditing standards.

Appendix II: Comments From the Department of Defense

Page 21 GAO- 01- 372 Defense Inventory

Appendix II: Comments From the Department of Defense

Note: GAO comments supplementing those in the report text appear at the end
of this appendix.

See comment 1.

Appendix II: Comments From the Department of Defense

Page 22 GAO- 01- 372 Defense Inventory

See comment 1. See comment 1.

Appendix II: Comments From the Department of Defense

Page 23 GAO- 01- 372 Defense Inventory

See comment 3. Now on p. 12. See comment 2.

See comment 1.

Appendix II: Comments From the Department of Defense

Page 24 GAO- 01- 372 Defense Inventory

See comment 7. See comment 6. See comment 5.

Now on p. 15. See comment 4.

Now on p. 13.

Appendix II: Comments From the Department of Defense

Page 25 GAO- 01- 372 Defense Inventory

See comment 9. Now on p. 15.

See comment 8. See comment 1.

Appendix II: Comments From the Department of Defense

Page 26 GAO- 01- 372 Defense Inventory

The following are GAO's comments on the Department of Defense's (DOD) letter
dated March 26, 2001.

1. DOD's comment and our evaluation are included in the body of the report.

2. The examples of costs that could have been avoided that we cite in our
report relate to contracts awarded for fiscal year 2000. The examples
illustrate the need for DOD to develop a plan that includes procedures for
assessing the appropriate mix of public/ private sector capacity by
considering the cost- effectiveness of using contractors versus government
facilities to demilitarize excess ammunition. Such a plan would help better
ensure that cost- effective decisions are made. Our report also recognized
that factors beyond the Army's control have affected its efforts to
demilitarize excess ammunition. Further, our recommendation states that the
plan should be developed in consultation with Congress.

3. Our analysis suggests the Army has excess environmentally friendly
demilitarization capacity considering the capacity available at government
facilities and under contract. This suggests the need to rationalize the
capacity being supported by DOD.

4. The example cited by DOD illustrates the need for it to examine why the
Army continues to incur costs to maintain 24,000 tons of capacity at this
site with only 2,200 tons of ammunition available on site to be
demilitarized.

5. Our analysis indicates that in recent years DOD's funding plan for
ammunition demilitarization has significantly exceeded its funding level.
The intent behind the plan called for in our recommendation is not to
arbitrarily restrict use of the private sector percentages. Rather, we
believe there is a need for DOD to develop a plan and business case analysis
of the appropriate mix of public/ private sector capacity by considering the
cost- effectiveness of using contractors versus government facilities to
demilitarize excess ammunition.

6. Our report focuses on excess capacity involving environmentally friendly
demilitarization process that exists at government facilities and highlights
that the Army has not determined the most cost- effective mix of public/
private sector capacity for environmentally GAO Comments

Appendix II: Comments From the Department of Defense

Page 27 GAO- 01- 372 Defense Inventory

friendly demilitarization methods. Our report recognizes DOD's efforts to
decrease emphasis on open burning and detonating methods.

7. Our report does not state that there is no apparent benefit to using
private industry. Our report stresses the need for a greater emphasis on
cost effectiveness in deciding the appropriate mix of public and private
environmentally friendly capabilities instead of assigning a predetermined
amount of demilitarization funds to the private sector as the Army presently
does.

8. The applicable section of the report was modified to include DOD's
position that its regulations and procedures require the Army to screen
excess ammunition for use prior to procurement.

9. Our analysis was based upon data from the Army's Defense Ammunition
Center, which we shared with the Army during the course of our review. Our
report emphasized that potentially usable ammunition was available in the
stockpile and recognized that further analysis was needed to determine the
usability of the excess ammunition.

Appendix III: GAO Contacts and Staff Acknowledgments

Page 28 GAO- 01- 372 Defense Inventory

Ronald L. Berteotti (214) 777- 5702 Roger L. Tomlinson (214) 777- 5777

In addition to those named above, Jimmy Palmer, Joanna McFarland, and John
Brosnan made key contributions to this report. Appendix III: GAO Contacts
and Staff

Acknowledgments GAO Contacts Acknowledgments

(709541)

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