Financial Management: Navy's Implementation of the Defense Property
Accountability System (Correspondence, 12/13/2000, GAO/GAO-01-88R).

As part of its involvement with the Navy Personal Property Working
Group, GAO reviewed the Department of the Navy's implementation of the
Defense Property Accountability System (DPAS). As requested by the
working group, GAO visited six Navy activities to evaluate DPAS
implementation at those selected locations. GAO found that (1) physical
wall-to-wall inventories of personal property were not being done
properly; (2) personal property items were not being included in DPAS at
a component level to ensure accountability; and (3) policies,
procedures, and training were not in place to ensure the sustainability
of the property database.

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

 REPORTNUM:  GAO-01-88R
     TITLE:  Financial Management: Navy's Implementation of the Defense
	     Property Accountability System
      DATE:  12/13/2000
   SUBJECT:  Financial management
	     Accountability
	     Logistics
IDENTIFIER:  Defense Property Accountability System
	     Supply, Ordnance and Logistics Operations Division
	     Navy Personal Property Working Group

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GAO-01-88R

Navy DPAS Implementation

United States General Accounting Office Washington, DC 20548

December 13, 2000 Rear Admiral David Keller, USN Director, Supply, Ordnance
and Logistics Operations Division Office of the Chief of Naval Operations

Subject: Financial Management: Navy's Implementation of the Defense Property
Accountability System

Dear Admiral Keller: As part of our involvement with the Navy Personal
Property Working Group, we reviewed the Department of the Navy's
implementation of the Defense Property Accountability System (DPAS). We
support the Navy's efforts to improve accountability over Navy personal
property as well as the related financial reporting. The Navy's decision to
implement DPAS to provide day- to- day control over its personal property
and to integrate DPAS with procurement and financial reporting systems is an
important initiative.

As requested by the working group, we visited six Navy activities to
evaluate DPAS implementation at these selected locations. We presented our
observations and related suggestions in a briefing to the working group on
June 21, 2000. The issues we identified related to problems with (1)
physical wall- to- wall inventories of personal property not being performed
properly, (2) personal property items not being included in DPAS at a
component level to ensure accountability, and (3) policies, procedures, and
training not being in place to ensure the sustainability of the property
database, including implementation of the barcoding and scanning process.
These issues can be attributed, in part, to the Navy's focus on an
aggressive implementation schedule designed to produce a personal property
value for financial reporting purposes as of September 30, 2000. For
example, the Navy contractor's October 2000 progress report disclosed that
156 sites were converted to DPAS during fiscal year 2000, and the Navy DPAS
Program Manager told us that the Navy plans to convert about 150 more sites
in fiscal year 2001.

This letter provides a summary of the implementation issues we identified at
the locations we visited and the status of the Navy's efforts to address our
suggestions. Since the June 2000 briefing, the Navy has addressed a number
of our suggestions, but several issues remain unresolved. Although the Navy
has largely completed its implementation effort for general fund assets, we
are bringing these issues and recommendations to your attention to help
improve the implementation process at the remaining sites and to help ensure
the future sustainability of the Navy's DPAS implementation effort.

GAO- 01- 88R Navy DPAS Implementation 2 We visited the following activities
in San Diego, California: Expeditionary Warfare Training

Group- Pacific, Fleet Combat Training Center, Fleet Anti- Submarine Warfare
Training Center- Pacific, Navy Center for Tactical Systems Interoperability,
and the Naval Computer and Telecommunications Station. We also visited the
Trident Training Facility in Kings Bay, Georgia. At these locations, we
reviewed compliance with Navy and Department of Defense (DOD) policies and
procedures for performing physical inventories. We also reviewed inventory
documents and interviewed property officials at these locations. In
addition, we discussed DPAS implementation issues with Defense Finance and
Accounting Service (DFAS), Defense Logistics Agency (DLA), and Navy personal
property contractor officials. We requested and received written comments
from the Director, Supply, Ordnance and Logistics Operations Division,
Department of the Navy, which are discussed in the “Agency Comments
and Our Evaluation” section and are reprinted in the enclosure. Our
work was performed from May 2000 through October 2000 in accordance with
generally accepted government auditing standards.

Inventories Were Not Properly Performed

At several locations visited, we found personal property omissions and
discrepancies because physical wall- to- wall inventories were not performed
in accordance with Navy procedures to ensure that accurate and complete data
were converted to DPAS. Further, oversight of the physical wall- to- wall
inventory process by activity management and the working group did not
identify these omissions, discrepancies, and the lack of compliance with
Navy policy. Errors such as these may result in a lack of accountability
over omitted assets and incomplete financial statement reporting. Examples
of inventories not properly performed at the locations we visited included
the following.

ï¿½ At one location, nuclear training labs were not inventoried and converted
to DPAS because activity officials believed, incorrectly, that the nuclear
training labs were being accounted for by a different command. As a result,
the equipment in the nuclear training labs was not included in any Navy
financial management or accountability system. Navy officials acknowledged
that these nuclear training labs should be included in DPAS for
accountability purposes. After our briefing, these nuclear training labs
were inventoried and included in DPAS.

ï¿½ According to the Navy's implementation plan, physical wall- to- wall
inventories of equipment are to be completed before the data are converted
to DPAS. However, at one location we visited, the activity did not plan to
perform a physical wall- to- wall inventory prior to the DPAS conversion.
After our briefing, the activity postponed its data conversion and performed
the required physical wall- to- wall inventory.

ï¿½ The Department of Defense (DOD) Financial Management Regulation (FMR),
volume 4, chapter 6, describes DOD's accounting standards and policies for
property, plant, and equipment (PP& E). In addition, the Navy's draft
Personal Property Policies and Procedures Manual, dated March 8, 2000,
provides guidance for the management of personal property. This guidance
states that personnel responsible for maintaining property (i. e.,
responsible officers) shall not be involved in conducting the physical

GAO- 01- 88R Navy DPAS Implementation 3 inventory of the personal property
under their responsibility. All five locations that we

visited in San Diego, however, had used officials to inventory property
within their control. Activity personnel at these locations consistently
stated that staffing limitations contributed to the procedures not being
followed. As a result of our briefing, the Navy's personal property
contractor now emphasizes during its presite visits that independent
personnel should be used to perform the inventories. Additionally, the
contractor will verify compliance with this requirement during its
postimplementation review.

According to the Navy DPAS Program Manager, following our June 2000
briefing, the personal property contractor's oversight efforts have been
modified in an attempt to better assess activities' efforts to implement
DPAS. As a result, the Navy's personal property contractor procedures have
changed from a standard checklist format for the postimplementation reviews
to a more site- specific format. While this change is a positive step, it
still relies on after- the- fact assessments of activity efforts instead of
establishing a proactive oversight function early in the process, such as
ensuring that inventories are performed by appropriate personnel in
compliance with the Navy's requirements.

Personal Property Items Included in Systems Other Than DPAS

At two activities, we identified assets that were omitted from DPAS because
they were accounted for in other systems. The Navy will have to review the
specifics of these cases to ensure that its decision to use DPAS as its
personal property accountability system is implemented as efficiently as
possible.

First, we found that some personal property was being converted to DPAS at
the total system level rather than by individual component. The DOD FMR,
volume 4, chapter 6, states that inventories shall be taken to ensure, among
other things, that DOD PP& E assets are at the location identified, as
described, and in the condition listed in the property records.
Additionally, the Navy's draft Personal Property Policies and Procedures
Manual states that a physical inventory should be performed to validate the
existence of items and to verify the accuracy of each item's description,
serial number, property number, make, model, year, and other information. It
also states that if this information is not listed, then it should be added
to the record and that serial- numbered items should be verified and
documented in this manner.

The Navy's personal property contractor identified the need to develop a
consistent methodology to accurately track and record financial data for
training labs by component rather than by total systems. However, during our
visits, we found examples of training labs being recorded as whole systems
rather than by individual, serial- numbered components. For example, one
location used its property record card to verify that a specific training
lab still existed- in total. However, the location failed to inventory the
training lab by component. If location officials had done so, they would
have found that the components listed on the property record card were from
the training lab's original Alpha series dating back to 1973, while the
current training lab had been upgraded three times to its current
configuration of Delta series components. As we stated at the June 2000
briefing, without inventorying and recording the individual components of
these training labs, accountability of these

GAO- 01- 88R Navy DPAS Implementation 4 components cannot be ensured, and
information, including cost data, converted to DPAS

may not be complete or current. At our June briefing, working group
representatives stated that each activity should record the training labs'
individual components in DPAS. However, the Navy contractor's July 20, 2000,
progress report stated that detailed component- level information found in
other systems would be used for component accountability. Although these
systems contain component- level information, the point is to determine how
the Navy wishes to capture and report its component- level data. Using
systems other than DPAS to capture these data will require the Navy to
evaluate those systems' functionality, sustainability, and ability to fit
into an overall DOD and Navy financial management system architecture. This
would include determining how these logistics systems would integrate with
the acquisition and financial reporting systems to meet long- term property
management goals. Further, the use of other systems appears to conflict with
the Navy's goal of reducing the number of systems used for personal property
accountability.

In the second case, at another location that we visited, we found that
equipment that was included in its Consolidated Ship Allowance List (COSAL)
system or Consolidated ShoreBased Allowance List (COSBAL) was not
inventoried and recorded in DPAS. These systems include items such as test
equipment, generators, radars, and telecommunications equipment, which are
not listed on the activity's property books. Navy officials told us that
consistent with their goal of using DPAS to maintain accountability over
personal property, these assets should have been inventoried and recorded in
DPAS. Activity officials stated that because this equipment was already
recorded in these other systems, it was not to be included in DPAS. Navy
officials acknowledged that they should have determined whether activities
had COSAL/ COSBAL property items to be included in DPAS.

Since our briefing, the Navy DPAS Program Manager has said that the Navy
contractor asks activities during the presite visits if they have COSAL/
COSBAL personal property items and instructs them to include this property
in DPAS. However, Navy officials indicated that they plan to continue to use
COSAL and COSBAL for other property- related functions, such as maintenance
schedules and requirements analyses. As in the case described previously
regarding component- level information maintained in separate systems, the
Navy will need to evaluate COSAL and COSBAL functionality, sustainability,
and ability to fit into an overall DOD and Navy financial management system
architecture.

Program Sustainability May Be Hindered

To meet the aggressive fiscal year 2000 DPAS implementation schedule, the
Navy and/ or individual activities did not perform certain prescribed
procedures and did not ensure that certain key elements of the DPAS
implementation effort were in place as planned. While the Navy has moved
forward quickly to obtain a fiscal year 2000 balance for its personal
property, little will be gained if this balance is not properly maintained
for future years. Sustainability measures include ensuring that policies,
procedures, and training are in place so that additions, deletions, and
modifications to the personal property database are properly recorded. The
following problems could hinder the long- term sustainability of the
program.

GAO- 01- 88R Navy DPAS Implementation 5

ï¿½ During the fiscal year 2000 DPAS implementation process, the Navy
distributed, in draft, its Personal Property Policies and Procedures Manual.
This manual builds on the DOD FMR and contains the Navy's policies and
procedures for the management of personal property, including financial and
accountability requirements. According to activity officials, draft policies
lack the needed command support and, therefore, may not be fully complied
with or may even be ignored. In a recent follow- up conversation, a Navy
official told us that the manual has now been reformatted into a Secretary
of Navy (SECNAV) Instruction (SECNAV Instruction 7320), which is a more
formal document. Although the actual instruction is not final or signed, we
are aware that you, in your capacity as team leader of the Navy Personal
Property Working Group, signed a cover letter dated August 21, 2000, stating
that it should be used as the Navy guidance in recording and accounting for
personal property.

ï¿½ To provide more Navy- specific guidance on DPAS, the Navy and its personal
property contractor recognized the need to develop and use a Navy DPAS Users
Guide during the DPAS training to bridge the gap between the technical
implementation of DPAS and overall Navy personal property policies. However,
during the fiscal year 2000 DPAS implementation process, the Navy did not
finalize or use its DPAS Users Guide as part of the activities' initial DPAS
training. As a result, there is no Navy- specific source of information
available to help activity officials with the day- to- day issues
encountered in using DPAS. In fact, as of October 19, 2000, the Navy's DPAS
Users Guide had not been finalized. Another training- related issue
discussed at the June 2000 briefing was the Navy's desire to have the DPAS
training redesigned to be more tailored to its needs and to discuss Navy
personal property policies. However, according to a DPAS Program Office
official, the DPAS Program Office's position is that DPAS is a DOD- wide
system and the training should not be redesigned and taught to reflect one
service's preferences. The Program Office official stated, however, that
Navy- specific training could be offered at additional cost to the Navy.

ï¿½ Equipment barcoding and scanning was de- emphasized as an essential part
of the DPAS conversion process. In an April 2000 briefing, equipment
barcoding had been listed as a key step in DPAS implementation that should
be completed along with wall- to- wall inventories prior to the conversion
of the property inventory data to DPAS. However, a message sent by you
stated that although barcoding should be completed prior to DPAS conversion,
it was not required as long as it was completed prior to the next triennial
wall- to- wall inventory. In a follow- up discussion on this issue, the Navy
DPAS Program Manager agreed that barcoding and scanning were still important
and should be tied in with the new scanner technology to introduce
consistency in barcoding throughout the Navy. However, both Navy and DPAS
Program Office officials noted that contractor problems with the scanner
development have delayed the process, precluded the development of the
needed interface with DPAS, and contributed to the delays in implementing
the barcoding and scanning requirements. As of October 19, 2000, Navy and
DPAS Program Office officials had not established a plan with specific tasks
and milestone dates for resolving these issues.

GAO- 01- 88R Navy DPAS Implementation 6

ï¿½ During our visits to activities, officials stated that they did not have
adequate time to properly convert to DPAS and that the implementation
schedule left no time for dealing with delays from problems that arose. As a
result, activity officials stated that they converted data records known to
be inaccurate or incomplete in order to meet deadlines. These known errors
were not identified in a way to ensure they could be tracked and eventually
corrected. At our briefing, we discussed using a specific series of data
codes to identify these problem data when they were converted so that these
records could be researched and properly entered at a later date. In a later
discussion, the Navy DPAS Program Manager stated that the Navy's contractor
is to emphasize in its presite visits the importance of researching and
ensuring the accuracy of the property data prior to the DPAS conversion. The
Program Manager indicated that such action would preclude the need for using
special data codes. However, it is important to recognize that the Navy
continues to lack procedures that would facilitate the identification and
correction of these data at a later date.

Conclusions

The Navy has demonstrated a strong commitment to improve asset
accountability and financial reporting of personal property. Successful DPAS
implementation is an important step in Navy efforts to improve asset
accountability and financial reporting of personal property. This will
require all Navy activities to fully implement the system as intended. The
problems observed at the six sites we visited indicate that management
controls over the implementation process can be strengthened in order to
provide reasonable assurance that implementation objectives are met. We are
offering recommendations to strengthen the management controls over the
implementation process and increase the level of oversight provided to
activities preparing for and undergoing DPAS implementation in order to
improve adherence to Navy policies.

Recommendations for Executive Action

We recommend that, under your leadership, the Navy Personal Property Working
Group increase the level of oversight provided to activities preparing for
and undergoing DPAS implementation to improve adherence to Navy policies.
Such oversight should include directing and determining that the following
actions are completed.

ï¿½ Perform the required physical wall- to- wall inventories in accordance
with prescribed Navy procedures, including that the inventories (1) are
conducted by individuals independent of the asset accountability function
and (2) take place prior to the DPAS conversion, as required by the Navy
implementation plan.

ï¿½ Enter accurate and complete data into DPAS during implementation. To the
extent that any data of questionable accuracy are converted, such data
should be clearly identified as problematic for subsequent research and
correction.

ï¿½ In cases where the Navy plans to use systems other than DPAS, such as
COSAL/ COSBAL, develop a strategy to evaluate the systems' functionality,

GAO- 01- 88R Navy DPAS Implementation 7 sustainability, and ability to fit
into an overall DOD and Navy financial system

architecture, including integrating these logistical systems with
acquisition and financial reporting systems to meet long- term property
management goals.

ï¿½ Finalize and distribute the Navy's guidance and operating procedures for
the inventory of, accounting for, and reporting of its personal property,
including the SECNAV Instruction related to personal property and the Navy's
DPAS Users Guide.

ï¿½ In conjunction with the DPAS Program Office, the Working Group should (1)
establish a plan with specific tasks and milestones for implementing
barcoding and scanning capabilities to help maintain the Navy's
accountability over its personal property and (2) determine the feasibility
of developing and implementing Navy- specific DPAS implementation training.

Agency Comments and Our Evaluation

In commenting on a draft of this letter, the Director, Supply, Ordnance, and
Logistics Operations Division, Department of the Navy, stated that the Navy
generally concurred with our findings and that following our June briefing,
the Navy had begun initiating corrective actions and incorporating our
recommendations into all subsequent Navy DPAS implementation efforts. The
Navy actions taken or planned appear to be responsive to our
recommendations.

---- We are sending a copy of this letter to Charles P. Nemfakos, Senior
Civilian Official for the Office of the Assistant Secretary of the Navy
(Financial Management and Comptroller), and to Nelson Toye, Deputy Chief
Financial Officer, Office of the Under Secretary of Defense (Comptroller).

If you have any questions about this letter or wish to discuss these issues
further, please call me at (202) 512- 9095 or Evelyn Logue, Assistant
Director, at (202) 512- 3881. Rebecca S. Beale, Robert M. Crowl, Christopher
M. Rice, and Jeffrey M. Yoder were major contributors to this assignment.

Sincerely yours, Gregory D. Kutz Director Financial Management and Assurance

Enclosure

Enclosure GAO- 01- 88R Navy DPAS Implementation 8

Comments From the Department of the Navy

Note: GAO's comment supplementing those in the report text appears at the
end of this enclosure.

Enclosure GAO- 01- 88R Navy DPAS Implementation 9

See comment 1.

Enclosure GAO- 01- 88R Navy DPAS Implementation 10

Enclosure GAO- 01- 88R Navy DPAS Implementation 11 The following is GAO's
comment on the Department of the Navy's letter dated December 8,

2000.

GAO Comment

1. The Director pointed out that DOD has classified trainers as national
defense equipment assets, which under DOD policy and current accounting
standards do not require cost or component- level tracking. The Director
stated that if trainers subsequently are reclassified as personal property
by DOD, then for accountability purposes, the components of those trainers
that exceed DOD's accountability threshold should be tracked. Further, we
understand that the Federal Accounting Standards Advisory Board is currently
reviewing the accounting standards for national defense equipment. As a
result, we have deleted the specific reference to training labs in our
recommendation regarding the use of other systems to track assets.

(924007)
*** End of document. ***