Department of the Army: Unauthorized Activity Codes Used to Requisition
New DOD Property (Correspondence, 12/06/2000, GAO/GAO-01-85R).

This report focuses on the military's inventory management activities.
Army activities and contractors are assigned activity codes to
requisition property in the military supply system. Some of these codes
are identified as "unauthorized" to requisition and are primarily used
as a ship-to address. GAO found that 15 percent of Army activity codes
identified as unauthorized to requisition were inappropriately used to
requisition more than $2.6 billion in new government property during the
past five years. These problems exist because activity coordinators are
poorly trained or inexperienced. The Army also lacks internal controls
to prevent such unauthorized requisitions.

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

 REPORTNUM:  GAO-01-85R
     TITLE:  Department of the Army: Unauthorized Activity Codes Used
	     to Requisition New DOD Property
      DATE:  12/06/2000
   SUBJECT:  Inventory control systems
	     Defense procurement
	     Internal controls
	     Logistics
	     Federal agency accounting systems

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GAO-01-85R

Army Unauthorized Activity Codes

United States General Accounting Office Washington, DC 20548

December 6, 2000 The Honorable Duncan L. Hunter House of Representatives

Subject: Department of the Army: Unauthorized Activity Codes Used to
Requisition New DOD Property

Dear Mr. Hunter: This letter is part of our continuing effort to address
inventory management activities within the Department of Defense (DOD) as a
high- risk area. 1 During our recent investigation of the vulnerability of
DOD activity address codes, 2 we determined that Army activity codes
designated as unauthorized to requisition 3 had been inappropriately used to
requisition excess property. Subsequently, you asked that we determine
whether this type of Army activity code had been used to requisition new
government property through the military supply system. As discussed with
your office, we will report separately on our investigations of whether the
Air Force, Navy, Marine Corps, and federal agencies (such as the General
Services Administration) used unauthorized activity codes to requisition
excess and new government property.

We interviewed Army service point personnel and activity code coordinators.
We obtained a list of Army activity codes, identified as unauthorized to
requisition, from the Defense Automatic Addressing System Center and asked
the Center to determine whether any of the codes had been used to
requisition new government property. We obtained a list of all requisitions
associated with these codes from the Defense Automatic Addressing System
Center. We performed our investigative work from March 2000 to August 2000
in accordance with investigative standards established by the President's
Council on Integrity and Efficiency. Our audit work was conducted during the
same period and in accordance with generally accepted government auditing
standards.

In brief, about 15 percent of Army activity codes identified as unauthorized
to requisition, according to Army regulation, were inappropriately used to
requisition over $2.6 billion in

1 In 1990, we began a special effort to review and report on the federal
program areas we identified as high risk because of vulnerabilities to
fraud, waste, abuse, and mismanagement. This effort, supported by the Senate
Committee on Governmental Affairs and the House Committee on Government
Reform, resulted in a much- needed focus on problems that were costing the
government billions of dollars. We identified DOD's inventory management as
a high- risk area at that time because levels of unneeded inventory were too
high and systems for determining inventory requirements were inadequate. 2
Inventory Management: Better Controls Needed to Prevent Misuse of Excess DOD
Property( GAO/ OSI/ NSIAD- 00- 147, Apr. 28,

2000). 3 Army activities and contractors are assigned activity codes to
requisition property in the military supply system. In some

instances, activity codes are identified as unauthorized to requisition and
are primarily used as a ship- to address- to transport an item from one
location to another. These codes are not to be used to requisition property.

GAO- 01- 85R Army Unauthorized Activity Codes Page 2 new government property
during the past 5 years. This situation existed, in part, because

some activity coordinator personnel have inadequate job training or are
inexperienced due to a high level of turnover in these positions. In
addition, there are no safeguards in the Defense Automatic Addressing System
Center to prevent such unauthorized activity codes from being used to
requisition government property. This lack of internal controls creates a
situation in which government property is vulnerable to fraud, waste, and
abuse.

We are recommending actions to address problems in the Army's assignment and
use of activity codes to requisition new government property. In response to
our recommendations, the Army has begun reviewing procedures for the use of
activity codes. In addition, we will make information on the identity and
requisition history of these activity codes available to DOD's Office of the
Inspector General for a determination of whether requisitioned property was
legally obtained and properly inventoried.

Background

Use of Activity Codes for Requisitioning Property To requisition property in
the military supply system, a DOD customer- such as the military services,
DOD activities, federal agencies, and contractors- must have an activity
code. The activity code is a distinct, six- position alphanumeric code that
identifies a specific unit, activity, organization, non- DOD government
element, or private contractor authorized by DOD to requisition material,
receive supplies, or receive billing. The Defense Automatic Addressing
System Center receives activity code transaction data from all services and
agencies and broadcasts it to the individual services and agencies daily.
Each service and agency is responsible for the accuracy of the data it
submits to the Defense Automatic Addressing System Center. Army activities
are primarily assigned activity codes, which are identified as unauthorized
to requisition, for transporting an item from one location to another. The
codes are designed to provide a ship- to address and are not to be used to
requisition. An Army service point official referred to these codes as
nonrequisitioning codes.

Army Procedure for Obtaining an Activity Code Assignment The Army service
point located at the U. S. Army Missile Command, Redstone Arsenal, Alabama,
assigns Army activity codes. 4 The procedure starts when the Army unit
submits a request for activity code assignment to the unit activity address
coordinator and states whether the code will be for requisitioning or
nonrequisitioning purposes. The coordinator validates information submitted
by the unit and, in appropriate cases, verifies with the unit that a
“U” code is not to be used to requisition government property.
The coordinator forwards codes to the Army service point for official code
assignment. In turn, the service point forwards the data to the Defense
Automatic Addressing System Center for inclusion in the master activity code
file.

Unauthorized Army Codes Requisitioned Over $2 Billion in New DOD Property

According to Table E- 329 (Format for Army Additions/ Revisions to the DOD
Activity Address File) of Army Regulation 725- 50, chapter 9, and Army
service point personnel, activity codes with the requisitioning authenticity
classification of “U” are not authorized to requisition

4 The U. S. Army's Logistics Support Analysis Agency manages this process.

GAO- 01- 85R Army Unauthorized Activity Codes Page 3 property. The Defense
Automatic Addressing System Center told us that as of March 2000,

2,723 of the approximately 50,000 Army activity codes were assigned this
classification. According to the Defense Automatic Addressing System Center,
414 of the 2,723 codes (approximately 15 percent) were used to requisition
over $2.6 billion in new government property during the past 5 years. The
majority of these codes were assigned to Army activities. However, 27 of
them were assigned to contractors working for the Army and were used to
requisition over $2 million of the $2.6 billion in new property. Army
personnel we interviewed were unaware that these codes could be used to
requisition government property and indicated that they had assumed
safeguards were in place to prevent such requisitions. However, according to
Defense Automatic Addressing System Center personnel, there are no
safeguards to prevent the use of these codes to requisition government
property. 5 DOD and Army officials said this issue is under review.

Army officials said they believe most of the activity in question involved
requisitioning by Army Total Package Fielding (TPF) entities. 6 TPF is the
Army's standard materiel fielding process. It provides an entire support
package of equipment and materiel to field units. It was designed to relieve
the major commands and subordinate units of logistical burdens associated
with getting materiel to the field. However, according to Army service point
personnel, TPF activity codes with a requisition authenticity classification
of “U” are designed to receive materiel but not to requisition.

Inadequate Procedures for Assigning Activity Codes

According to Army service point personnel, activity code coordinators are
responsible for validating the accuracy of code data and for communicating
proper code usage to activities. However, we were told that activity code
assignment procedures and the role of the activity code coordinator are
often overlooked because personnel in the activity coordinator ranks have
inadequate training and are inexperienced due to high turnover in these
positions. Those unfamiliar with the use and control of codes often fail to
realize the need for accuracy and strict accountability. For example, a
number of the activity code coordinators we interviewed were unfamiliar with
the “U” requisition authenticity classification.

Conclusions and Recommendations for Executive Action

Army activity codes identified as unauthorized to requisition were used to
requisition over $2.6 billion in new government property during the past 5
years. This was due, in part, to inexperienced or inadequately trained Army
activity code coordinator personnel. In addition, there were no safeguards
in the Defense Automatic Addressing System Center to prevent the
unauthorized activity codes from being used to requisition government
property. This lack of internal controls creates a situation in which
government property is vulnerable to fraud, waste, and abuse.

5 According to Defense Automatic Addressing System Center staff, the Army
decided to denote the unauthorized to requisition classification in the
first line of the address rather than request a Department of Defense
Activity Address Directory change. They noted that the “U” in
the first line of the address to indicate that the code was unauthorized to
requisition was a unilateral decision by the Army and that no other service
or agency was made aware of its purpose. 6 Of the 414 unauthorized codes
used to requisition new property, 151 (or 36 percent) were TPF codes,
according to information

provided by the Defense Automatic Addressing System Center. These 151 codes
were used to requisition $1. 78 billion in new property, according to data
provided by the Center. The remaining codes were assigned to a variety of
entities, such as military property custodians and senior Army instructors
at high schools, professors of military science at universities, and
military museums. Due to the level of requisition activity associated with
Army TPF entities and the entities' noncompliance with Army regulation, we
will conduct a limited review to test the reliability of the TPF process
regarding accountability of requisitioned materiel. We will report our
findings to you at a later date.

GAO- 01- 85R Army Unauthorized Activity Codes Page 4 To correct these
problems, we recommend that the Secretary of Defense direct the Secretary

of the Army to

ï¿½ verify whether the requisitioning authority for all Army activity codes is
categorized accurately;

ï¿½ review procedures, including personnel training requirements, for
assigning activity codes to ensure that assignments are appropriate, made in
accordance with regulation, and routinely inspected to ensure compliance;
and

ï¿½ incorporate safeguards in appropriate databases to ensure that activity
codes established as unauthorized to requisition are not used to requisition
government property.

Agency Comments and Our Evaluation

DOD and the Army provided comments on a draft of this letter and the
database used in its preparation. They partially concurred with the letter,
stating that while it is technically accurate, they believe the level of
vulnerability is minimal. Based on a limited review of the database, DOD and
Army officials indicated that there is no evidence of fraud, waste, or
abuse. For instance, they noted that many of the activity codes in question
were authorized “receiving activities.” They explained that
transactions were generated as a management tool by the Army's Weapon
Systems Project Managers to reposition material in preparation for fielding
new equipment to tactical units. However, they acknowledged that it was an
error to use these particular activity codes to requisition material.
According to one official, the Project Managers were probably unfamiliar
with the activity codes in question. The officials concurred with the intent
of the letter's recommendations and noted that, as a result of our letter,
the Army is reviewing procedures for the use of these types of activity
codes.

We included DOD and Army comments where appropriate. However, based on the
amount of requisition activity associated with these Army codes, we continue
to believe that a significant vulnerability exists. We will make information
on the identity and requisition history of the codes available to DOD's
Office of the Inspector General. We also modified our recommendations to
explicitly include a review of personnel training requirements.

-- -- -

GAO- 01- 85R Army Unauthorized Activity Codes Page 5 As arranged with your
office, unless you announce its contents earlier, we plan no further

distribution of this letter until 30 days after the letter's date. At that
time, we will send copies of this letter to interested congressional
committees, the Office of the Secretary of Defense, the Secretary of the
Army, and the Director of the Defense Logistics Agency. The letter will also
be available on GAO's home page at www. gao. gov. If you have any questions,
please call Robert H. Hast at (202) 512- 7455 or David R. Warren at (202)
512- 8412. John Ryan, Richard Newbold, Mark Little, Brian Chan, and James
Loschiavo made key contributions to this investigation and letter.

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

(600659)
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