Concerns Raised About Use of Unreconciled Activity Codes to Requisition
New and Excess Government Property (Correspondence, 12/06/2000,
GAO/GAO-01-86R).
Concerns have been raised about the use of unreconciled activity address
codes to requisition new and excess government property. The Department
of Defense's (DOD) regulation 4000.25-6-M requires that all military
services and DOD activities reconcile the activity codes to the Defense
Automatic Addressing System Center's master file. Such reconciliations
could prevent unauthorized personnel from requesting and receiving
government property. GAO found, however, that many military service
points failed to comply with DOD's regulation. Most indicated that they
were unaware of the requirement. As a result of this, 27,879 activity
codes appeared either in the agency record but not the Addressing System
Center's master file or in the Center's file but not the agency record.
In addition, agencies that have their own internal activity code files
do not routinely reconcile to the master file. This failure resulted in
97,450 activity codes being identified as questionable. In both
situations, inventory management is vulnerable to waste, fraud, and
abuse. In fact, preliminary indications are that such questionable
activity codes were used to requisition millions of dollars worth of
excess and new property.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GAO-01-86R
TITLE: Concerns Raised About Use of Unreconciled Activity Codes
to Requisition New and Excess Government Property
DATE: 12/06/2000
SUBJECT: Federal agency accounting systems
Inventory control systems
Internal controls
Logistics
Defense procurement
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GAO-01-86R
Unreconciled Activity Codes
United States General Accounting Office Washington, DC 20548
December 6, 2000 The Honorable Duncan L. Hunter House of Representatives
Subject: Concerns Raised About Use of Unreconciled Activity Codes to
Requisition New and Excess Government 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 because of vulnerabilities to fraud, waste, abuse, and
mismanagement. We recently completed a vulnerability investigation 2 of the
DOD activity address code master file. During that investigation, Defense
Logistics Agency (DLA) personnel told us that many service points 3 do not
reconcile their activity code files to the Defense Automatic Addressing
System Center master file on a yearly basis as required by DOD publication
4000.25- 6- M. 4 This can result in questionable activity codes. These are
activity codes that appear either in the agency record but not the master
file maintained by the Defense Automatic Addressing System Center or in the
Center's master file but not the agency record. The existence of
questionable codes makes it possible for an unauthorized person or activity
to request and receive property. You asked that we determine the extent to
which DOD 4000.25- 6- M is being followed regarding activity code
reconciliation.
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 Military services, DOD
activities, and federal agencies have service points that assign activity
address
codes to organizations that are authorized to requisition property. Service
points provide updated code data (additions, changes, and deletions) to the
master file maintained by the Defense Automatic Addressing System Center. 4
The procedures in DOD publication 4000.25- 6- M are mandatory for military
services and federal
agencies that make changes to the master file. DOD 4000.25- 6- M requires
reconciliation of service and agency activity code files with the master
file each year and certification of reconciliation results to be reported to
DLA.
GAO- 01- 86R Unreconciled Activity Codes Page 2 The objectives of our work
were to (1) determine compliance with DOD 4000.25- 6- M
requirements regarding activity code reconciliation, (2) identify
questionable activity codes and determine whether any such codes were used
to requisition new and excess government property, and (3) determine whether
government activities' internal activity address code files contain
questionable activity code data that were used to requisition new and excess
government property.
To address our objectives, we contacted each of the 62 service point
representatives 5 and obtained information on their knowledge of and
adherence to DOD 4000.25- 6- M. We also interviewed personnel associated
with internal activity code files maintained by some DOD and federal
agencies. Specifically, we interviewed officials of DLA's Defense
Distribution Center, Defense Supply Centers, and Defense Reutilization and
Marketing Service and officials of the General Services Administration (GSA)
and the Department of the Navy to obtain information on the purpose and
history of the internal files.
Where appropriate, we asked service points to reconcile their service/
agency activity codes with the Defense Automatic Addressing System Center's
master file. We also requested the DOD and GSA activities with internal
activity code files to reconcile those files with the Addressing System
Center's master file. Service points and Addressing System Center personnel
provided the reconciliation results to us. We then provided the activity
codes identified as questionable to the Defense Reutilization and Marketing
Service and the Addressing System Center to determine whether any had been
used to requisition excess and new government property during the period
January 1995 to June 2000. We obtained a list of all transactions associated
with the questionable codes.
We performed our investigative work from March 2000 to September 2000 in
accordance with investigative standards established by the President's
Council on Integrity and Efficiency. Our audit work was conducted during the
same period and in accordance with generally accepted government auditing
standards.
Results in Brief
DLA service points substantially complied with DOD 4000.25- 6- M
requirements by reconciling their activity codes with the master file and
certifying reconciliation results with DLA. Twenty- eight of the 29 DLA
service points complied with the requirement. Conversely, nearly all
military service and other federal agency service points- 31 of 33 service
points- failed to fully comply with the requirement. Most of the
noncomplying service points were unaware of the requirement. 6
Based on our preliminary work, Defense Automatic Addressing Service Center
analysts, in coordination with the noncomplying service points, attempted to
reconcile service point activity codes with the master file. This
reconciliation
5 The service point representatives were identified by the Defense Logistics
Agency. 6 These service points represented military services and federal
agencies, such as the Army, Air Force,
Navy, Coast Guard, GSA, and Postal Service.
GAO- 01- 86R Unreconciled Activity Codes Page 3 process identified 27,879
questionable activity codes. 7 This situation makes the
inventory management system vulnerable to fraud, waste, and abuse.
Preliminary indications are that some of these questionable activity codes
were used to requisition millions of dollars worth of excess property and
new property. The full extent, value, and recipients of requisitioned items
have yet to be determined and will require further review.
Further, a number of government activities maintain their own internal
activity code files for use in validating activity codes during the
requisitioning process, and such files are not routinely reconciled with the
Defense Automatic Addressing System Center's master file. During our
investigation, we reviewed the internal activity code files maintained by
the Defense Distribution Center, Defense Supply Centers, Defense
Reutilization and Marketing Service, GSA, and Department of the Navy. All of
the internal activity code files we reviewed contained questionable codes.
Specifically, 97,450 questionable activity codes were identified. This
situation makes the inventory management system vulnerable to fraud, waste,
and abuse. Again, preliminary indications are that many of these codes were
used to requisition millions of dollars worth of excess property and new
property. Neither the full extent, the value, nor the recipients of the
requisitioned items are known. Determination of that data will require
further review.
We are making recommendations to help DOD and GSA correct the problems that
allow questionable activity codes to be used to requisition new and excess
government property. Based on the amount of requisition activity associated
with these questionable activity codes, we believe a significant
vulnerability exists. We will therefore make information on the identity and
requisition history of the codes available to the appropriate Offices of the
Inspector General for determinations of whether requisitioned property was
properly obtained.
Background
The Defense Automatic Addressing System Center was created in 1965 to
address problems with the routing of transactions. Customers- such as the
military services, DOD activities, federal agencies, and contractors- use
the Addressing System Center through an interactive network of gateways and
databases. The Addressing System Center is linked to over 100 databases and
serves 177,000 customers. To requisition government property (excess and
new), a customer must have an activity address code. Service points are
required to assign activity address codes and provide updated data (activity
code additions, changes, and deletions) to the Addressing System Center. The
Center updates the master activity address code file and provides updated
information on a daily basis to designated DOD activities and federal
agencies so that they can update their records.
7 Questionable activity codes are activity codes that appear either in the
agency record but not the master file maintained by the Defense Automatic
Addressing System Center or in the Defense Automatic Addressing System
Center's master file but not the agency record.
GAO- 01- 86R Unreconciled Activity Codes Page 4
Most Military Service and Other Federal Agency Service Points Do Not Comply
With DOD 4000.25- 6- M Regarding Activity Code Reconciliation and
Certification
DOD 4000.25- 6- M requires that military services and agency heads (1)
designate an activity within their respective service/ agency to act as the
service point and (2) validate/ reconcile their internal activity code files
with the master activity code file each year and certify the reconciliation
with DLA. The master file is maintained by the Defense Automatic Addressing
System Center located at Wright Patterson Air Force Base, Dayton, Ohio.
Of the 62 service points designated by military services, DOD activities,
and federal agencies, all but 1 of the 29 that represented DLA complied with
DOD 4000.25- 6- M regarding activity code reconciliation and certification.
Also, all DLA activity codes under the purview of the 29 service points
(approximately 1,500 codes) matched the master file maintained by the
Addressing System Center. However, 31, or 94 percent, of the remaining 33
service points failed to comply with DOD 4000.25- 6- M regarding activity
code reconciliation and certification. These service points represented
military services and federal agencies such as the Army, Air Force, Navy,
Coast Guard, GSA, and Postal Service.
Noncomplying Service Points Have Questionable Activity Codes
We asked each of the noncomplying agencies to reconcile their activity codes
with the Defense Automatic Addressing System Center's master file. 8 It was
determined that 22,538 activity codes were questionable. The actual number
of questionable codes was 27,879; but according to Air Force officials,
5,341 of them had been inadvertently destroyed during the reconciliation
process by inexperienced Air Force programming staff. Most, or 20,993, of
the 22,538 codes were located in the master file and not in the agency
records. The remaining 1,545 activity codes were located in agency records
but not in the Center's master file.
We asked the Defense Automatic Addressing System Center and the Defense
Reutilization and Marketing Service to determine whether any of the 22,538
questionable codes had been used to requisition new or excess government
property. According to the Addressing System Center analysis, 518 of the
questionable codes were used to requisition $2.5 billion in new government
property from January 1995 to June 2000. The Defense Reutilization and
Marketing Service analysis revealed that during that same period, 229 of the
questionable codes were used to requisition excess government property with
an acquisition value of $341 million.
Our preliminary review of questionable activity codes identified by the
Defense Automatic Addressing System Center showed that some invalid codes
had been used to requisition millions of dollars worth of government
property. For example, a GSA activity code identified as questionable was
used to requisition $4 million worth of government property from January
1995 to June 2000. GSA service point personnel told us they had no record of
this code. In another instance, a DOD activity code that
8 In many instances, analysts with the Addressing System Center coordinated
with the service points, performed the reconciliation, and provided the
reconciliation results to us.
GAO- 01- 86R Unreconciled Activity Codes Page 5 the Addressing System
Center's reconciliation process also identified as questionable
was used to requisition $130 million worth of government property from
January 1995 to June 2000. Our preliminary review of the matter showed that
although the code was valid at the beginning of the period during which
property was requisitioned, it was reportedly deleted as of March 28, 1996.
From March 29, 1996, to June 2000, this code was used to requisition $12
million worth of government property. The full extent, value, and recipients
of requisitioned items have yet to be determined and will require further
review.
Our review also revealed that some of the activity codes initially
identified as questionable appeared valid at the time requisitions occurred.
9 A reason for this, according to Addressing System Center staff, is that
once a military service or federal agency deletes an activity code, a record
of it remains in the master file for 3 years to provide an address for
unresolved billing issues. Three years after a code is deleted, all
information on the deleted code is purged and a query of the Center's master
file on that code will result in a “no record on file” message.
Further, once information on an activity code is purged, the Addressing
System Center is unable to create a history of that code. Staff noted that a
code is not supposed to be used to requisition once it is deleted. 10
Internal Activity Address Code Files Contain Questionable Codes
We investigated internal activity address code files maintained by the
Defense Distribution Center, Defense Supply Centers, the Defense
Reutilization and Marketing Service, GSA, and the Department of Navy to
validate activity codes during the requisitioning process. Representatives
of the agencies told us that although originally derived from the Addressing
System Center master file, their internal files were not routinely
reconciled with the master file. The DLA official responsible for
administering the Activity Address Directory agreed that this situation
makes the inventory management system vulnerable to fraud, waste, and abuse.
Further, this official noted that all activity codes, including those
existing within internal address files, should be reconciled with the master
file.
We asked each of the agencies to compare their internal activity address
code files to the Addressing System Center master file. The agencies'
comparisons identified a total of 97,450 questionable codes 11 at the DLA
activities we reviewed, GSA, and the
9 For example, according to Navy service point personnel, a Navy activity
code identified as “no record on file” by the Addressing System
Center was valid when it was used to requisition $99 million worth of
government property during 1995 and 1996. 10 We previously reported an
instance in which requisitions for property were submitted and processed
after the activity code used had been deleted. See Inventory Management:
Better Controls Needed to Prevent Misuse of Excess DOD Property( GAO/ OSI/
NSIAD- 00- 147, Apr. 28, 2000). 11 Initially, 109, 165 questionable activity
codes were identified as existing in the internal address files.
However, some codes were duplicated in several agency files. After removing
the duplicate codes, 97, 450 questionable activity codes remained. The
Defense Automatic Addressing System Center was asked to identify only those
activity codes that were not on record in the master file; 83,371 codes
matched that description. For the purpose of this investigation, we reviewed
requisition activity associated with these 83, 371 codes. A number of
invalid Military Assistance Program Address Codes (MAPAC) appeared within
the questionable codes identified by the Addressing System Center. The
Addressing System Center also serves as the central processing point for the
Military Assistance Program Address Directory. This directory contains
MAPACs and their associated addresses.
GAO- 01- 86R Unreconciled Activity Codes Page 6 Navy. We then asked the
Defense Reutilization and Marketing Service and the
Addressing System Center whether any of the questionable codes had been used
to requisition government property. According to these activities, since
January 1995, 293 questionable codes were used to requisition $811 million
worth of excess government property. Also, 1,352 questionable codes were
used to requisition $813 million worth of new government material. The full
extent, value, and recipients of requisitioned items have yet to be
determined. That determination will require further review.
Defense Distribution Center The Defense Distribution Center was established
in October 1997 when the Defense Distribution Region East and the Defense
Distribution Region West were consolidated. The distribution center is
responsible for the receipt, storage, issuance, packing, preservation,
worldwide transportation, and in- transit visibility of all items placed
under its accountability by DLA and the military services. It is accountable
for such items as clothing; textiles; electronics; industrial, general, and
construction supplies; and subsistence and medical material.
The Defense Distribution Center's 24 distribution depots, which are located
throughout the United States and Europe, process over 25 million
transactions annually. Each of the 24 depots maintains its own internal
address file to validate activity codes during the requisitioning process.
The depots' comparison of the address files with the Addressing System
Center's master file identified 50,246 questionable activity codes.
Defense Supply Centers DLA's five Defense Supply Centers consolidate
requirements and obtain materials and supplies in sufficient quantities to
meet customers' projected needs. Many of DLA's procured items are delivered
directly from a commercial vendor, and the remainder of the procurements are
stored and distributed through a nationwide complex of depots.
Each supply center has maintained an internal activity address code file as
part of the Material Management System since 1968 when the system was
established. Originally, the internal address file, known as the Standard
Automated Material Management System Combined Address File, was a copy of
the Addressing System Center's master address file. In discussing the
failure of one Defense Supply Center to routinely reconcile its file with
the master file, an official of the activity told us that there needs to be
a complete and thorough review throughout DLA in regard to reconciling
internal address files, noting that nothing has been done in years and that
“they are in bad shape.” As an example, the official noted that
the recent reconciliation performed as a result of our investigation
revealed an outdated activity code that had been assigned to the 1968
Republican National Convention. The comparison that we requested identified
24,246 questionable activity codes.
GAO- 01- 86R Unreconciled Activity Codes Page 7 Defense Reutilization and
Marketing Service
The Defense Reutilization and Marketing Service disposes of excess property
received from the military services. Its inventory changes daily and
includes a variety of items. Property is first offered for reutilization
within DOD, transferred to other federal agencies, or donated to state and
local governments and other qualified organizations. Property that is not
reutilized, transferred, or donated is sold to the public as surplus.
The Reutilization and Marketing Service has maintained an internal activity
address file as part of the Defense Reutilization and Marketing Automated
Information System since 1990. The internal activity address file was
derived from the Addressing System Center's master address file. The
comparison of the Service's internal activity address file with the
Addressing System Center's master file identified 162 questionable activity
codes.
General Services Administration GSA is one of the three central management
agencies in the federal government. It provides products and services to
support the work of the federal government.
GSA created its internal activity address file in 1976. A GSA service point
official recognized that (1) one purpose of the internal address file is to
validate activity codes during the requisitioning process and (2) its
internal address file is to be reconciled with the Addressing System
Center's master file annually. However, even though it has had a mass
reconciliation program in place since 1993, GSA's internal file has never
been reconciled with the master activity address file. When compared to the
master file, 2,947 questionable activity codes were identified in GSA's
internal address file.
Department of the Navy The Navy maintains an internal address file known as
the DOD Activity Address Code Batch Maintenance File. The file is used for
transaction validation purposes. It was created in the 1960s using the
Defense Automatic Addressing System Center's master file as the source
database and has been in its current format for about 10 years. The
Inventory Control Point Management System is the primary user of the file.
According to the Navy, the internal file is updated weekly to maintain file
integrity; and it is reconciled with the Addressing System Center's master
file once a year. However, the Navy indicated there is “no definitive
document” that sets forth the requirement to reconcile the internal
file with the master activity code file. The comparison of the internal file
with the Addressing System Center's master file identified 31,564
questionable activity codes.
Conclusions and Recommendations for Executive Action
Many service points failed to comply with DOD 4000.25- 6- M regarding
activity code reconciliation and certification. Most indicated that they
were unaware of the
GAO- 01- 86R Unreconciled Activity Codes Page 8 requirement. This failure
resulted in 27,879 activity codes that appear either in the
agency record but not the Addressing System Center's master file or in the
Center's master file but not the agency record. In addition, agencies that
have their own internal activity code files, such as GSA, do not routinely
reconcile to the master file. This failure resulted in 97,450 activity codes
being identified as questionable. In both situations, inventory management
is vulnerable to fraud, waste, and abuse. In fact, preliminary indications
are that such questionable activity codes were used to requisition millions
of dollars worth of excess and new property.
We recommend that the Secretary of Defense and the GSA Administrator direct
that actions be taken to ensure that
� military services, DOD activities, and federal agencies regularly (1)
reconcile their activity address codes (to include internal activity address
code files) with the master activity address code file maintained by the
Defense Automatic Addressing System Center and certify results to DLA and
(2) review for the possible elimination of any unmatched codes from their
internal files and
� all personnel responsible for reconciling activity address codes are
appropriately trained regarding the reconciliation and certification
process; with regard to GSA, this would mean that all involved personnel
should understand reconciliation procedures.
Agency Comments and Our Evaluation
DOD and GSA provided separate comments on a draft of this letter. DOD
concurred with the letter and its recommendations and provided us a copy of
a September 11, 2000, memorandum from the Office of the Under Secretary of
Defense to the Assistant Secretaries of the Army, Navy, and Air Force; the
Director, Defense Agencies; and the Director, Field Activities. The
memorandum directs that service points comply with DOD 4000.25- 6- M and
review procedures for updating inventory and management data in the Defense
Automatic Addressing System Center master file in order to ensure that the
system is maintained, up to date, and accurate. In addition, DOD provided
technical corrections; and where appropriate, we have made those
corrections.
GSA had no significant issues with this letter. With regard to our first
recommendation to ensure regular reconciliations, GSA informed us that, as a
result of our work, it has “fine- tuned” its existing
reconciliation program and incorporated it into its regular system schedule.
However, regarding our second recommendation concerning training on the
reconciliation process, GSA commented that it reconciles activity address
codes with the master file using a computer program and that for GSA,
reconciliation is therefore not a personnel/ training issue. GSA asked that
the second recommendation be removed. However, GSA is required to certify
its reconciliation with DLA; therefore, we modified our recommendation to
reflect that GSA personnel need to be knowledgeable of these procedures.
Based on the amount of requisition activity associated with the questionable
activity codes, we believe a significant vulnerability exists. We will make
information on the
GAO- 01- 86R Unreconciled Activity Codes Page 9 identity and requisition
history of the questionable codes available to the appropriate
Offices of the Inspector General. ---- 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 Administrator of GSA; the Director of DLA; the
Secretaries of the Army, Navy, and Air Force; and the Commandant of the
Marine Corps. The letter will also be available on GAO's home page at www.
gao. gov. If you have questions about this report, please call Robert H.
Hast on (202) 512- 7455 or David R. Warren on (202) 512- 8412. John Ryan,
Richard Newbold, Kenneth Feng, Brian Chan, James Loschiavo, and Mark Little
made key contributions to this investigation and letter.
Sincerely yours, Robert H. Hast David R. Warren Managing Director Director
Office of Special Investigations Defense Capabilities and
Management (600656)
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