    DOD Excess Property: Management Control Breakdowns Result in
    Substantial Waste and Inefficiency (07-JUN-05, GAO-05-729T).

    GAO was asked to assess the overall economy and efficiency of the
    Department of Defense (DOD) program for excess property
    reutilization (reuse). Specifically, GAO was asked to determine
    (1) whether and to what extent the program included waste and
    inefficiency and (2) root causes of any waste and inefficiency.
    GAO was also asked to provide detailed examples of waste and
    inefficiency and the related causes. GAO's methodology included
    an assessment of controls, analysis of DOD excess inventory data,
    statistical sampling at selected sites, and detailed case studies
    of many items.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-05-729T
        ACCNO:   A25959
      TITLE:     DOD Excess Property: Management Control Breakdowns Result
    in Substantial Waste and Inefficiency
         DATE:   06/07/2005
      SUBJECT:   Accountability
    	     Defense cost control
    	     Defense economic analysis
    	     Defense procurement
    	     Federal property
    	     Federal property management
    	     Internal controls
    	     Inventory control
    	     Inventory control systems
    	     Program management
    	     Property and supply management
    	     Strategic planning
    	     Surplus federal property
    	     Joint Service Lightweight Integrated
    	     Suit Technology Program

    	     Joint Services Nuclear, Biological, and
    	     Chemical Equipment Assessment Program

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    GAO-05-729T

    United States Government Accountability Office

    GAO Testimony

    Before the Subcommittee on National Security, Emerging Threats and
    International Relations, Committee on Government Reform, House of
    Representatives

    For Release on Delivery Expected at 2:00 p.m. Tuesday, June 7, 2005

    DOD EXCESS PROPERTY

    Management Control Breakdowns Result in Substantial Waste and Inefficiency

    Statement of Gregory D. Kutz
    Managing Director
    Forensic Audits and Special Investigations

                                           A

    GAO-05-729T

    [IMG]

    June 7, 2005

    DOD EXCESS PROPERTY

    Management Control Breakdowns Result in Substantial Waste and Inefficiency

                                     What GAO Found

    DOD does not have management controls in place to assure that excess
    inventory is reutilized to the maximum extent possible. Of $33 billion in
    excess commodity disposals in fiscal years 2002 through 2004, $4 billion
    were reported to be in new, unused, and excellent condition. DOD units
    reutilized only $495 million (12 percent) of these items. The remaining
    $3.5 billion (88 percent) includes significant waste and inefficiency
    because new, unused, and excellent condition items were transferred and
    donated outside of DOD, sold for pennies on the dollar, or destroyed. DOD
    units continued to buy many of these same items. GAO identified at least
    $400 million of fiscal year 2002 and 2003 commodity purchases when
    identical new, unused, and excellent condition items were available for
    reutilization. GAO also identified hundreds of millions of dollars in
    reported lost, damaged, or stolen excess property, including sensitive
    military technology items, which contributed to reutilization program
    waste and inefficiency. Further, excess property improperly stored
    outdoors for several months was damaged by wind, rain, and hurricanes.

    Waste and Inefficiency Related to $3.5 Billion in Fiscal Year 2002-2004
    Disposals of Excess DOD Commodities Reported To Be in New, Unused, and
    Excellent Condition

    Fiscal years 2002-2004

    12%	$495 million DOD reutilization

    88% $3.5 billion

    9%	$363 million DOD special programs ($138 million) Federal agency
    transfers ($145 million) Donations to states ($80 million)

    28%	$1.1 billion Demilitarization, scrap, and hazardous material disposals

    51% $2 billion DOD reutilization Public sales

    Other disposals Source: GAO analysis.

    GAO ordered and purchased at little or no cost several new and unused
    excess commodities that DOD continued to buy and utilize, including tents,
    boots, power supplies, circuit cards, and medical supplies. GAO paid a
    total of $2,898, including tax and shipping cost, for these items, which
    had an original DOD acquisition cost of $79,649.

    Root causes for reutilization program waste and inefficiency included (1)
    unreliable excess property inventory data; (2) inadequate oversight and
    physical inventory control; and (3) outdated, nonintegrated excess
    inventory and supply management systems. Procurement of inventory in
    excess of requirements also was a significant contributing factor.
    Improved management of DOD's excess property could save taxpayers at least
    hundreds of millions of dollars annually.

                     United States Government Accountability Office

    Mr. Chairman and Members of the Subcommittee:

    Thank you for the opportunity to discuss the results of our audit and
    investigation of the economy and efficiency of the Department of Defense
    (DOD) program for reutilization (reuse) of excess property. Our related
    report,1 released today and developed at the request of this Subcommittee,
    Senator Collins, and Representative Schakowsky, describes significant
    breakdowns in management controls that have resulted in substantial waste
    and inefficiency in DOD's excess property reutilization program. Our
    previous, limited work identified several examples of waste and
    inefficiency in DOD's excess property reutilization program. Our November
    2003 report2 identified several examples that showed that at the same time
    DOD excessed biological laboratory equipment items in good or excellent
    condition and sold many of them to the public for pennies on the dollar,
    it was purchasing the same or similar items. In June 2002, we testified3
    that the lack of asset visibility over the Joint Service Lightweight
    Integrated Suit Technology (JSLIST)4 resulted in DOD selling new, unused
    JSLIST for $3 per suit (coats and trousers) while at the same time
    procuring hundreds of thousands of JSLIST annually at a cost of over $200
    per suit. You were concerned that these limited examples could indicate
    systemic problems.

    Our current work focused on whether and to what extent we found waste and
    inefficiency in DOD's excess property reutilization program and the root
    causes of any waste and inefficiency. You also asked us to determine
    whether the Defense Logistics Agency (DLA) was purchasing new items when
    identical items in new, unused, and excellent condition were available at
    Defense Reutilization and Marketing Service (DRMS) field

    1 GAO, DOD Excess Property: Management Control Breakdowns Result in
    Substantial Waste and Inefficiency, GAO-05-277 (Washington, D.C.: May 13,
    2005).

    2 GAO, DOD Excess Property: Risk Assessment Needed on Public Sales of
    Equipment That Could Be Used to Make Biological Agents, GAO-04-15NI
    (Washington, D.C.: Nov. 19, 2003).

    3 GAO, DOD Management: Examples of Inefficient and Ineffective Business
    Processes, GAO-02-873T (Washington, D.C.: June 25, 2002).

    4 JSLIST is a universal, lightweight, two-piece garment (coat and
    trousers) that when combined with footwear, gloves, and protective mask
    and breathing device, forms the warfighter's protective ensemble.
    Together, the ensemble is to provide maximum protection to the warfighter
    against chemical and biological contaminants without negatively impacting
    the ability to perform mission tasks. JSLIST is the current model
    protective suit used by the military forces.

    offices (DRMO). As DOD's combat support agency, DLA has a mission to
    provide best-value logistics support to America's armed forces. In
    carrying out its mission, DLA manages inventory valued at about $83
    billion, consisting of more than 5 million items of food, fuel, clothing
    and other textiles, medical supplies, industrial use items, and spare and
    repair parts supporting over 1,400 weapon systems. Within DLA, DRMS is
    responsible for excess property disposals. Federal regulations5 require
    executive agencies to ensure that personal property not needed by their
    activity is offered for use elsewhere within the agency. In accordance
    with federal regulations, DOD 4160.21-M, Defense Materiel Disposition
    Manual, chapter 5, calls for reutilization of excess property to the
    extent feasible to fill existing needs and to satisfy additional needs
    before initiating new procurement or repair.

    In performing our work, we reviewed applicable laws and regulations; DOD
    policies and procedures; and current and planned systems, processes, and
    management controls. To identify potential waste and inefficiencies, we
    analyzed the universe of recorded commodity purchase and disposal
    transactions and compared DOD commodity purchases to disposals of
    identical items in new, unused, and excellent condition (A condition). To
    assure ourselves that DOD data were sufficiently reliable for the purpose
    of our work, we performed a number of electronic and statistical tests of
    DOD databases and excess inventory and data used in our work. We conducted
    our work, including follow-up work related to this testimony, from
    November 2003 through May 2005 in accordance with U.S. generally accepted
    government auditing standards and investigative standards prescribed by
    the President's Council on Integrity and Efficiency. We obtained DOD
    comments on a draft of our report, and we briefed DOD officials on new
    findings included in this testimony.

    Today, my testimony will focus on (1) summarizing the results of our audit
    and updating our analysis for fiscal year 2004 excess commodity disposal
    activity; (2) describing additional case study acquisitions of new, unused
    excess DOD commodity items from December 2004 through April 2005; and (3)
    discussing management control breakdowns that contributed to reutilization
    program waste and inefficiency and the results of our investigations of
    selected excess property losses noted in our audit report.

    5 Federal Management Regulation, 41 C.F.R. ch. 102 (2004).

    Summary	DOD does not have effective management processes, systems, and
    controls in place to assure that it is reutilizing excess inventory to the
    maximum extent possible and safeguarding excess items from damage, loss,
    and theft, as required by federal regulations, DOD policy, and GAO
    internal control standards.6 Our analysis of DRMS excess commodity
    disposal activity identified substantial waste and inefficiency related to
    DOD's excess property reutilization program. For example, of the $33
    billion in reported excess commodity disposals in fiscal years 2002
    through 2004, $4 billion related to items in new, unused, and excellent
    condition. Of the $4 billion, we determined that $3.5 billion (88 percent)
    included substantial waste and inefficiency because new, unused, and
    excellent condition items were being transferred or donated outside of
    DOD, sold on the Internet for pennies on the dollar, or destroyed rather
    than being reutilized. As discussed in our report,7 our analysis of fiscal
    year 2002 and 2003 data on commodity purchases and disposal activity found
    that DOD purchased at least $400 million of identical commodities instead
    of reutilizing available A-condition excess items. Further, the extent of
    reutilization waste and inefficiency may be greater due to incomplete and
    inaccurate data that are key to identifying excess items for
    reutilization. In addition, the DRMS reported $466 million in excess
    property losses from fiscal years 2002 through 2004, such as missing,
    damaged, and stolen property, adding to reutilization program waste.

    Our monitoring of DRMS disposal activity found continuing reutilization
    program waste and inefficiency. We ordered several excess DOD items at
    little or no cost and purchased other items at minimal cost. Overall, we
    paid $2,898 for items with a listed acquisition cost of $79,649. For
    example,

    o 	As discussed in our report, from May through October 2004, we ordered
    and purchased at little or no cost several new and unused excess commodity
    items that DOD continued to buy and utilize, including tents; boots; power
    supplies; circuit cards; gasoline burners; and a medical instrument chest,
    suction device, and medical supplies and bandages.

    6 Federal Property Management Regulations, 41 C.F.R. ch. 101 (2004) and
    the Federal Management Regulation, 41 C.F.R. ch. 102 (2004), issued by the
    General Services Administration; DOD 4160.21-M, Defense Materiel
    Disposition Manual; and GAO, Standards for Internal Control in the Federal
    Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).

    7 GAO-05-277.

    We paid a total of $1,471, including tax, buyer's premium, and shipping
    cost, for these items, which had an original DOD acquisition cost of
    $68,127.

    o 	In addition, from December 2004 through April 2005, we purchased over
    the Internet several additional new, unused excess commodity items that
    DOD units are continuing to purchase and utilize. These items included
    military badges, medals, and insignias; Cooper Trendsetter SE automobile
    tires; and military dress uniforms. Although these items had an original
    DOD acquisition cost of $11,522, we paid a total of $1,427 for them,
    including tax, buyer's premium, and shipping cost.

    Our analysis, statistical tests of excess inventory accuracy, case
    studies, and interviews showed that the root causes for the billions of
    dollars in waste and inefficiency related to management control breakdowns
    across DOD, including weaknesses in DOD's excess property reutilization
    program, stemmed from

    o  unreliable excess property inventory data;

    o 	inadequate oversight, accountability, and physical control of excess
    property; and

    o 	inadequate processes and outdated, nonintegrated inventory systems that
    do not provide adequate visibility of excess property available for
    reutilization at the time military units order and purchase commodity
    items.

    In addition, as we have reported for many years,8 long-standing DOD
    logistics management weaknesses that resulted in purchases that exceeded
    actual requirements resulted in the disposal of unused items due to
    obsolescence and contributed indirectly to reutilization program waste and
    inefficiency. Further, DOD reutilization program waste and inefficiency is
    symptomatic of the inventory and supply chain management issues that have
    been considered high risk by GAO since 1990.

    8 GAO, Defense Inventory: Analysis of Consumption of Inventory Exceeding
    Current Operating Requirements Since September 30, 2001, GAO-04-689
    (Washington, D.C.: Aug. 2, 2004), and Major Management Challenges and
    Program Risks: Department of Defense, GAO-03-98 (Washington, D.C.: January
    2003).

    Our investigations of selected reports of losses of excess DOD commodity
    items identified a pervasive lack of physical accountability over excess
    inventory, which leaves DOD vulnerable to the risk of theft and fraud,
    waste, and abuse. The lack of accountability makes it impossible to
    complete an investigation. Specifically, the failure to verify and
    accurately document transactions and events at the beginning of the
    disposal process and report and investigate losses when they occur
    obscures or eliminates the audit trail. Because DRMO personnel did not
    always verify turn-in documentation at the time they received excess items
    and recorded them in excess inventory, in many cases it is not possible to
    determine whether discrepancies represent sloppy recordkeeping, the loss
    or theft of excess property, or where or when the loss or theft occurred.
    This lack of accountability encourages theft and fraud because there is
    little likelihood of detection.

    We found that DRMS investigative reports are generally inconclusive with
    regard to the causes of the lost property. For example, the investigative
    reports on the loss of 75 chemical and biological protective suits at the
    Jackson DRMO and 20 units of body armor at the Meade DRMO each stated that
    the items were recorded in inventory, placed in the DRMO warehouse, and
    subsequently disappeared. According to the investigative reports, no
    determination was made as to what happened to these items. Our followup
    investigations on DLA supply depot reports of missing aircraft parts at
    two DLA depots found that depot personnel did not aggressively research
    events related to the missing items because they assumed that the missing
    items related to recordkeeping errors, such as the failure to record
    inventory issues.

    In commenting on the recommendations in our audit report, DOD concurred
    that actions are needed to improve the reutilization program and noted a
    number of improvement initiatives that were taken during fiscal year 2004
    and early in fiscal year 2005. While these actions have made some marginal
    improvements in the reutilization program, DOD has not yet addressed the
    fundamental, conceptual weaknesses that have resulted in substantial waste
    and inefficiency in the excess property reutilization program.

      Analysis of Reutilization Program Identifies Billions of Dollars in Waste and
      Inefficiency

    Overall, our analysis of the $33 billion in reported excess commodity
    disposals in fiscal years 2002 through 2004 showed that $4 billion related
    to items in new, unused, and excellent condition. Of the $4 billion, we
    determined that $3.5 billion (88 percent) included substantial waste and
    inefficiency because new, unused, and excellent condition items were being
    transferred or donated outside of DOD, sold on the Internet for pennies on
    the dollar, or destroyed rather than being reutilized. As discussed in our
    report, our analysis of $18.6 billion9 in fiscal year 2002 and 2003 excess
    commodity disposal activity identified $2.5 billion in excess items that
    were reported to be in new, unused, and excellent condition (A condition).
    Although federal regulations and DOD policy require reutilization of
    excess property in good condition, to the extent possible, our analysis
    showed that DOD units only reutilized $295 million (12 percent) of these
    items. The remaining $2.2 billion (88 percent) of the $2.5 billion in
    disposals of A-condition excess commodities were not reutilized, but
    instead were transferred, donated, sold, or destroyed. Similarly, our
    analysis of $14.3 billion in fiscal year 2004 disposal activity identified
    $1.5 billion in excess commodity items that were reported to be in A
    condition. Of the $1.5 billion in A-condition excess items, DOD units
    reutilized $200 million (13 percent) and transferred, donated, sold, or
    destroyed the remaining $1.3 billion (87 percent). We also found that
    during fiscal years 2002 and 2003, DOD purchased at least $400 million
    (over $200 million each year) of identical items instead of reutilizing
    available excess items in A condition. To illustrate continuing
    reutilization program waste and inefficiency, we purchased several new and
    unused excess DOD commodity items that were being purchased by DLA, were
    currently in use by the military services, or both. Our analysis of
    transaction data and our tests of controls for inventory accuracy indicate
    that the magnitude of waste and inefficiency could be much greater due to
    military units improperly downgrading condition codes of excess items that
    are in new, unused, and excellent condition to unserviceable and the
    failure to consistently record national stock numbers (NSN)10 needed to
    identify like items.

    9 The reported acquisition value at the time the items were turned in as
    excess.

    10 An NSN is a 13-digit number that identifies standard use inventory
    items. The first 4 digits of the NSN represent the Federal Supply
    Classification, such as 8430 for men's footwear, followed by a 2-digit
    North Atlantic Treaty Organization (NATO) code (to indicate user
    countries) and a 7-digit designation for a specific item, such as a cold
    weather boot.

    Fiscal Year 2002-2004 Excess Commodity Disposal Activity

    DRMS is responsible for disposing of unusable items, often referred to as
    "junk," as well as facilitating the reutilization of usable items.
    Although the majority of DOD's excess property disposals relate to items
    in unserviceable condition, DOD also disposed of billions of dollars of
    serviceable items, including excess commodities in A condition from fiscal
    years 2002 through 2004. Our analysis of DRMS data showed that $28.1
    billion of the $33 billion in excess DOD commodity disposals from fiscal
    year 2002 through fiscal year 2004 consisted of items listed in
    unserviceable condition, including items needing repair, items that were
    obsolete, and items that were downgraded to scrap. The remaining $4.9
    billion in excess commodity disposals consisted of items reported to be in
    serviceable condition, including $4 billion in excess commodities reported
    to be in A condition. However, of the $4 billion, DOD units reutilized
    only $495 million (12 percent) of these items during the 3-year period.
    The data reliability issues noted above and our interviews, case studies,
    and statistical sample results indicate that the magnitude of waste and
    inefficiency associated with disposals of A-condition items could be much
    greater. As shown in figure 1, items that were not reutilized by DOD were
    transferred to federal agencies or special programs, donated to states,
    sold to the public, or destroyed by demilitarization or through scrap and
    hazardous materials contractors.

    Figure 1: Waste and Inefficiency in Fiscal Year 2002 through Fiscal Year
    2004 Disposals of Excess DOD Commodities Reported To Be in New, Unused,
    and Excellent Condition

    Fiscal years 2002-2004

    12%	$495 million DOD reutilization

    88% $3.5 billion

    9%	$363 million DOD special programs ($138 million) Federal agency
    transfers ($145 million) Donations to states ($80 million)

    28%	$1.1 billion Demilitarization, scrap, and hazardous material disposals

    51%	$2 billion Public sales

    DOD reutilization

    Other disposals

                                 Source: GAO analysis.

    We found that the percentage of DOD reutilization of excess property was
    higher in fiscal year 2002 than in fiscal years 2003 and 2004. According
    to DRMO officials, reutilization was higher in fiscal year 2002 because
    excess items were pulled back to support deployment to Afghanistan and
    Iraq. In fiscal year 2003, procurement to support the war on terrorism
    began to keep up with the demand for supplies, and reutilization of excess
    property decreased. DRMS officials attribute the fiscal year 2004 increase
    in DOD reutilization to the establishment of the Joint Services Nuclear,
    Biological, and Chemical Equipment Assessment Program (JEAP) to inspect
    excess military clothing, tents, and other textile items and reissue items
    in good condition. The increase in disposal activity in fiscal years 2003
    and 2004 relates to turn-ins of property used in support of Operation
    Enduring Freedom and Operation Iraqi Freedom. Table 1 shows disposal
    activity related to A-condition excess commodities for fiscal years 2002
    through 2004.

    Table 1: Fiscal Year 2002 through 2004 Disposals of Excess DOD Commodities
    in New, Unused, and Excellent Condition

                                  Dollars in millions

                                        Fiscal year Fiscal year Fiscal year
                        Disposal method        2002        2003    2004     Total
                      DOD reutilization        $145        $150    $200      $495
                                              (14%)       (10%)    (13%)    (12%)
                       Special programs          45          46          47
               Federal agency transfers          58          45          42
                    Donations to states          28          26          26
            Subtotal, special programs,        $131        $117    $115      $363

                     transfers, and donations (12%) (8%) (8%) (9%)

               Demilitarization, scrap, and      $102   $532      $480     $1,114
               hazardous material disposals     (10%)   (37%)    (32%)      (28%)
                               Public sales      $672   $645      $703     $2,020
                                                (64%)   (45%)    (47%)      (51%)
                            Total disposals  $1,050    $1,444    $1,498    $3,992
                                             (100%)    (100%)    (100%)    (100%)
                      Source: GAO analysis.

    Unnecessary Commodity Purchases

    Our analysis of fiscal year 2002 and 2003 DLA commodity purchases and DRMS
    excess property inventory data identified numerous instances in which the
    military services ordered and purchased items from DLA at the same time
    identical items-items with the same NSN-that were reported to be in new,
    unused, and excellent condition were available for reutilization. We found
    that DOD purchased at least $400 million of identical items during fiscal
    years 2002 and 2003-over $200 million each year-instead of using available
    excess A-condition items. The magnitude of unnecessary purchases could be
    much greater because NSNs needed to identify identical items were not
    recorded for all purchase and turn-in transactions. For example, we
    determined that DLA buyers and item managers did not record NSNs for 87
    percent (about $4.9 billion) of the nearly $5.7 billion in medical
    commodity purchases by military units during fiscal years 2002 and 2003.
    Further, as discussed later, improper downgrading of condition codes to
    unserviceable could also result in an understatement of the magnitude of
    unnecessary purchases. While our statistical tests found a few instances
    of inaccurate serviceable condition codes, most condition code errors
    related to the improper downgrading of condition to unserviceable.

    Fiscal Year 2004 and 2005 Requisitions and Purchases Demonstrate
    Continuing Waste and Inefficiency

    To determine whether the problems identified in our analysis were
    continuing, we monitored DRMS commodity disposal activity from May 2004
    through April 2005. We found that DOD continued to transfer, donate, and
    sell excess A-condition items instead of reutilizing them. To illustrate
    these problems, we requisitioned several excess new and unused items at no
    cost and purchased other new and unused commodities at minimal cost. We
    based our case study selections on new, unused items that DOD continued to
    purchase. As discussed in our report,11 we used the GSA Federal Disposal
    System, available to all federal agencies, to requisition several new and
    unused excess DOD commodity items during our audit in fiscal year 2004 and
    the first half of fiscal year 2005, including a medical instrument chest,
    two power supply units, and two circuit cards, at no charge. These items
    had an original DOD acquisition cost of $55,817, and we paid only $5
    shipping cost to obtain all of them. We also purchased, at minimal cost,
    several excess DOD commodity items in new and unused condition over the
    Internet at govliquidation.com-the DRMS liquidation contractor's Web
    site.12 The items we purchased included tents, boots, three gasoline
    burners (stove/heating unit), a medical suction apparatus, and bandages
    and other medical supply items with a total reported acquisition cost of
    $12,310. We paid a total of $1,466 for these items, about 12 cents on the
    dollar, including buyer's premium, tax, and shipping cost.

    From December 2004 through April 2005, we purchased several new, unused
    excess DOD commodity items, including over 8,000 military badges, medals,
    and insignias; 8 new, unused Cooper Trendsetter SE tires; and Class A
    military uniforms. Although these items had a total reported acquisition
    cost of $11,522, we paid a total of $1,427 for these items, including tax,
    buyer's premium, and shipping cost.

    New, unused DOD badges, medals, and insignias. On December 6, 2004, we
    purchased 8,526 excess DOD badges, medals, and insignias that are used to
    indicate rank, the unit or program to which a military member or civilian
    employee is assigned, or service awards. These items had a reported
    acquisition cost of $9,518. We paid a total of $1,102, including buyer's
    premium and tax, for these items-about 12 cents on the dollar. Units and
    program areas designated by the badges and insignias include

    11 GAO-05-277.

    12 Government Liquidation, LLC is the DRMS commercial venture partner
    (contractor) for public sales of excess DOD property.

    Army Rangers, Mountain, and Airborne; Air Force Air Traffic Controller;
    and DOD Scientific Consultant. Rank insignias include Air Force Chief
    Master Sergeant and Air Force Technical Sergeant; Navy Captain, Midshipman
    Lieutenant, and Midshipman Lieutenant Commander; and Army Command Sergeant
    Major and Master Sergeant. The listed condition code of these items ranged
    from A4 (serviceable, usable condition) to H7 (unserviceable, condemned
    condition). However, our inspection of the badges and insignias that we
    purchased showed that none of them had been used, and many of them were in
    original manufacturer packages. Further, DOD is continuing to purchase and
    use most of these items. The photograph in figure 2 shows examples of some
    of the badges, medals, and insignias that we purchased.

    Figure 2: Examples of Excess DOD Badges, Medals, and Insignias Purchased
    over the Internet in December 2004

    Source: GAO.

    New, unused excess DOD tires. We purchased eight new, unused Cooper
    Trendsetter SE 13-inch steel-belted radial tires on February 18, 2005.
    According to the Army project officer, these tires are used on
    overthe-road passenger vehicles, and one customer ordered them for use on
    a

    forklift. DOD units are continuing to purchase and use these same tires.
    The most recent purchase of 50 of these tires was made in April 2005. The
    eight tires had a total reported acquisition value of $404. We paid $113
    for the tires, including buyer's premium and tax, and an additional $154
    shipping cost. The tires were listed in A4 condition (usable, with some
    wear). However, we found that the tires still had manufacturer labels on
    the tread and blue paint over the whitewalls, indicating that they were
    new and unused. The tires were turned in as excess by the North Island
    Naval Air Station's Aircraft Intermediate Maintenance Detachment.
    According to the Army Tank Automotive and Armaments Command Project
    Officer,13 the NSN listed on the turn-in document was incorrect. We found
    that inaccurate item descriptions, including NSNs, prevent items from
    being selected for reutilization. Figure 3 is a photograph of the excess
    DOD tires that we purchased over the Internet in February 2005.

    Figure 3: New, Unused Excess Cooper Trendsetter SE Tires Purchased over
    the Internet in February 2005

    Source: GAO.

    13 The Army has product management responsibility for these tires.

    New, unused Class A military uniforms. We purchased several Class A
    military uniforms over the Internet on April 7, 2005. The uniforms were
    listed as being in H7 (unserviceable, condemned) condition. Although the
    uniforms that we purchased over the Internet from DOD's liquidation
    contractor had a listed acquisition cost of $1,600, we paid a total of
    $58, including buyer's premium and sales tax, to acquire them-about 4
    cents on the dollar. After receiving our purchase we determined that we
    had in fact purchased 27 new, unused uniform coats; 4 pairs of new, unused
    uniform trousers; 54 jackets in excellent condition; 45 pairs of trousers
    in excellent condition; and 5 women's uniform skirts and 1 pair of slacks
    in excellent condition. DOD is continuing to purchase and issue two of the
    four types of trousers that we purchased over the Internet. According to
    the DLA clothing and textiles product manager for dress uniforms, the Army
    switched from a matte finish gold button to a shiny sta-briteTM gold
    button on October 1, 2003. Although the Army ordered and paid for the new
    replacement buttons for existing dress uniforms, it later determined that
    hiring a contractor to replace the buttons or sending the coats back to
    the manufacturers for button replacement would be very expensive. The Army
    decided to use the coats with the older buttons to fill Reserve and Junior
    Reserve Officer Training Corps (ROTC and JROTC) orders until current
    supplies are exhausted. However, our monitoring of DOD liquidation sales
    found that many class A uniforms with the older buttons are being sold
    over the Internet for pennies on the dollar instead of being issued to
    ROTC and JROTC. In addition, we observed the new sta-briteTM buttons being
    sold over the Internet in May 2005. Figure 4 is a photograph of one of the
    excess new, unused Class A uniforms with the matte finish buttons that we
    purchased over the Internet in April 2005.

    Figure 4: New, Unused Excess Class A Uniforms Purchased in April 2005

    Source: GAO.

    We also purchased an earlier sales lot of the same Class A military
    uniforms over the Internet on February 16, 2005. Our winning bid was $81
    for 166 uniform jackets and trousers, which had a listed acquisition cost
    of $10,424. However, when we arrived at the Great Lakes sales location
    near Chicago to pick up the uniforms, DOD liquidation contractor personnel
    were unable to locate them. Contractor personnel explained that our
    purchase may have been mistakenly given to another customer. To
    compensate, we were offered other items available for sale. However, these
    items were not in A condition. Instead of accepting them, we requested and
    received a refund. As discussed later, another of our Internet purchases
    was damaged due to a leaky roof at the Norfolk liquidation sales location.

      Management Control Breakdowns Resulted in Reutilization Program Waste and
      Inefficiency

    The $3.5 billion in DOD waste and inefficiency that we identified in our
    analysis of fiscal year 2002 through 2004 excess property disposal
    activity stemmed from management control breakdowns across DOD. Key
    factors in the overall DRMS management control environment that
    contributed to waste and inefficiency in the reutilization program
    included (1) unreliable excess property inventory data; (2) inadequate
    DRMS oversight, accountability, physical control, and safeguarding of
    property; and (3) outdated, nonintegrated excess inventory and supply
    systems. In addition, for many years our audits of DOD inventory
    management14 have reported that continuing unresolved logistics management
    weaknesses have resulted in DOD purchasing more inventory than it needed.
    DOD reutilization program waste and inefficiency is symptomatic of the
    inventory and supply chain management issues that have been considered
    high risk by GAO since 1990. Our analysis of fiscal year 2002 through
    fiscal year 2003 excess commodity turn-ins showed that $1.4 billion (40
    percent) of the $3.5 billion of A-condition excess items consisted of new,
    unused DLA supply depot inventory. Our analysis of fiscal year 2004 excess
    commodity turn-ins showed that $1.3 billion (48 percent) of the $2.7
    billion of A-condition excess items consisted of new, unused DLA supply
    depot inventory.

    Unreliable Data Impair the Economy and Efficiency of the Reutilization
    Program

    Our interviews, case studies, screening visits, and statistical tests of
    excess commodity inventory led us to conclude that unreliable data are a
    key cause of the ineffective excess property reutilization program. GAO's
    internal control standards15 require assets to be periodically verified to
    control records. In addition, DRMS policy16 requires DRMO personnel to
    verify turn-in information, including item description, quantity,
    condition code, and demilitarization code, at the time excess property is
    received and entered into DRMO inventory. However, we found that DRMS and
    DLA supply depot management have not enforced this requirement. Further,
    Army, Navy, and Air Force officials told us that unreliable data are a
    disincentive to reutilization because of the negative impact on their

    14 GAO-04-689 and GAO-03-98.

    15 GAO, Standards for Internal Control in the Federal Government,
    GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).

    16 DRMS-I 4160.14, vol. II, Instructions for Warehousing for DRMS and the
    Defense Reutilization and Marketing Offices, ch. 2, "Receipt and Storage,"
    S: 1 (A) (9).

    Problems with Excess Inventory Items Noted by Military Services and Other
    Users

    operations. DLA item managers told us that because military units have
    lost confidence in the reliability of data on excess property reported by
    DRMS, for the most part they have requested purchases of new items instead
    of reutilizing excess items. Military users also cited examples of damage
    to excess items during shipment that rendered the items unusable. In
    addition, other reutilization users advised us of problems related to
    differences in quantities and the types of items ordered and received that
    could have a negative impact on their operations.

    Military service officials also told us about the types of problems they
    have experienced with property acquired from DRMOs. Army, Navy, and Air
    Force medical officials, in particular, told us that they do not reutilize
    excess medical items stored at DRMOs because items can become damaged
    during shipment to and movement within the DRMO warehouses. Other users of
    excess DOD property, including special program, federal agency, and state
    officials gave us numerous examples of problems they encountered with
    requisitions of excess DOD property. Several officials noted that these
    problems have caused them to lose confidence in the reutilization process.
    The following examples are typical of what we were told.

    o 	An Army official told us that he requisitioned 20 excess padlock sets.
    When he received the padlocks the keys were missing. After his second
    attempt to requisition excess DOD padlocks with keys failed, he threw the
    padlocks in a dumpster because they were useless to him and it would cost
    too much to return them to the DRMO.

    o 	An Army official told us that items may be in new, unused condition
    when they leave the DRMO, but are damaged during shipment. The official
    cited his experience with an order of thin copper sheets for use in
    testing electronic equipment. The sheeting was shipped on a pallet that
    was too small and other material was stacked on top of it.

    o 	A Fairchild Air Force Base official told us that the 92nd Logistics
    Readiness Squadron requisitioned 80 sleeping bags from the Hawaii DRMO but
    only received 56 of them. The official told our investigators that the
    sleeping bags were sealed in heavy-duty plastic bags and were in excellent
    condition. However, some of the boxes the sleeping bags were shipped in
    had been damaged by rain and handling by the time he received them.

    Statistical Samples Identified Problems with Excess Inventory Accuracy

    Our statistical tests found significant problems with controls for
    assuring the accuracy of excess property inventory. Estimated error rates
    for the five DRMOs we tested ranged from 8 percent at one DRMO to 47
    percent at another,17 and estimated error rates for the five DLA supply
    depots we tested ranged from 6 percent to 16 percent,18 including errors
    related to physical existence of turn-ins and condition code.19 Our
    condition code tests determined whether the condition code was accurately
    recorded as serviceable or unserviceable. We estimated that errors related
    to condition code accuracy ranged from 6 percent to 26 percent at the 5
    DRMOs we tested.20 Overall, we found that DRMO errors were caused by
    erroneous turn-in documentation prepared by military units and the failure
    of DRMO personnel to verify turn-ins at the time they were received and
    correct errors before recording the receipts in excess inventory. Most DLA
    supply depot errors related to untimely recording of transactions for
    changes in inventory status and inaccurate quantities. We did not find
    problems with condition codes at the DLA depots.

    An example from our Norfolk DRMO statistical sample illustrates how
    erroneous inventory data can result in waste and inefficiency. On June 30,
    2004, the Navy's Environmental Health Center in Portsmouth, Virginia,
    turned in six new, unused Level III biological safety cabinets21 with a
    total acquisition cost of $120,000. The Navy unit turned in the Level III
    cabinets as excess because of erroneous specifications that resulted in
    ordering cabinets that were too large and cumbersome to meet deployment
    needs.

    17 Sampling errors for our DRMO estimates did not exceed 10 percentage
    points at the 95percent confidence level.

    18 Sampling errors for our DLA supply depot estimates did not exceed 7
    percentage points at the 95-percent confidence level.

    19 Our physical existence tests included whether turn-ins recorded in
    inventory could be located, whether inventory changes were recorded within
    7 days, and the accuracy of item descriptions (including item name(s) and
    NSN(s)) and quantities. Although some transactions included more than one
    type of error, we only counted one failure for a transaction.

    20 Sampling errors for our DRMO estimates did not exceed 11 percentage
    points at the 95percent confidence level.

    21 The technical name for these safety cabinets is closed loop containment
    isolators.

    The Navy unit improperly used a local stock number (LSN) 22 to describe
    the safety cabinets on the turn-in document and a demilitarization code
    that indicated there were no restrictions on the disposal of these items.
    However, Level III safety cabinets are subject to trade security
    controls,23 and therefore they are required to be identified by an NSN or
    other information that accurately describes the item, the end item
    application, and the applicable demilitarization code.24 Further, the DOD
    risk assessment performed in response to a recommendation in our November
    2003 report25 called for Level III biological safety cabinets to be
    destroyed when no longer needed by DOD. Although Norfolk DRMO personnel
    advised DRMS officials of the need to correct the turn-in document errors
    in July 2004, as of the end of our audit in February 2005, the information
    had not been corrected and the safety cabinets had not been posted to the
    DRMS reutilization Web page to indicate that they were available for
    reutilization.

    Our in-house scientists who often meet with DOD scientists at the U.S.
    Army Biological Warfare Research Center at the Dugway Proving Ground
    learned that the DOD scientists were planning to purchase a Level III
    safety cabinet and informed them of the availability of the six Level III
    safety cabinets at the Norfolk DRMO. The DOD scientists told us that they
    were unaware the Navy had excessed the safety cabinets and said that they
    could use all six of them. We subsequently confirmed that as a result of
    our efforts, the DOD scientists at Dugway had requisitioned the six Level
    III safety cabinets for reutilization.

    22 An LSN consists of the four-digit federal supply classification number,
    a two-digit NATO code (user country code), and up to a seven-character
    description, such as "monitor" for a computer monitor and "boots" for cold
    weather boots.

    23 Commerce Control List, 15 C.F.R. pt. 774, supp. 1, category 2,
    Materials Processing, para. f (2), Protective and Containment Equipment
    (2005).

    24 DOD 4160.21-M-1, Defense Demilitarization Manual, ch.1, S: D (6), and
    app. 5 (B), and DRMS-I 4160.14, vol. VII, ch. 3, "MLI/CCLI - Disposal
    Processing and Demilitarization," para. A (2)(d).

    25 GAO-04-15NI.

    Weaknesses in Reutilization Program Oversight and Physical Inventory
    Control

    Excess Property Losses

    We found hundreds of millions of dollars in potential waste and
    inefficiency associated with the failure to safeguard excess property
    inventory from loss, theft, and damage. As previously discussed, our
    statistical tests of excess commodity inventory at five DRMOs and five DLA
    supply depots identified significant numbers of missing items. Because the
    DRMOs and DLA supply depots had no documentation to show that these items
    had been requisitioned or sent to disposal contractors, they cannot assure
    that these items have not been stolen. According to DRMS data, DRMOs and
    DLA supply depots reported a total of $466 million in excess property
    losses related to damage, missing items, theft, and unverified adjustments
    over a period of 3 years. However, as discussed below, we have indications
    that this number is not complete. Also, because nearly half of the missing
    items reported involved military and commercial technology that required
    control to prevent release to unauthorized parties, the types of missing
    items were often more significant than the number and dollar value of
    missing items.

    Weaknesses in accountability that resulted in lost and stolen property
    contributed to waste and inefficiency in the excess property reutilization
    program. As shown in table 2, our analysis of reported information on
    excess property losses at DRMOs and DLA supply depots found that reported
    losses for fiscal years 2002 through 2004 totaled $466 million. Because 43
    percent of the reported losses related to military technology items that
    required demilitarization controls,26 these weaknesses also reflect
    security risks. GAO Standards for Internal Control in the Federal
    Government27 require agencies to establish physical control to secure and
    safeguard assets, including inventories and equipment, which might be
    vulnerable to risk of loss or unauthorized use. Our investigations of
    reported losses found that the failure to verify and accurately document
    transactions and events at the beginning of the disposal process and
    report and investigate losses as they occur obscures or eliminates the
    audit trail. Weaknesses in accountability leave DOD vulnerable to the risk
    of theft, and fraud, waste, and abuse with little risk of detection.

    26 DOD 4160.21-M-1, Defense Demilitarization Manual, ch. 1. 27
    GAO/AIMD-00-21.3.1.

             Table 2: Reported DRMS Excess Property Losses and Adjustments

    Dollars in millions

                                 Fiscal year   Fiscal year    Fiscal year
                       Location          2002          2003     2004        Total
                          DRMOs           $81           $47      $62         $190
              DLA supply depots            67            95      114          276
                          Total          $148          $142     $176         $466

    Source: Unaudited DRMS data.

    DRMO losses. Our statistical samples identified missing turn-ins at two of
    the five DRMOs we tested and missing quantities at all five DRMOs tested,
    including many items that were in new, unused, and excellent condition.
    Because DRMO officials did not have documentation to show whether these
    items had been reutilized, transferred, sold, or destroyed, there is no
    assurance of whether the missing items reflected bookkeeping errors or if
    they related to theft. Missing items in our statistical samples included
    turnins of 72 chemical and biological protective suits, 21 pairs of
    chemical and biological protective gloves, 47 wet weather parkas that were
    subject to demilitarization controls, and 7 sleeping bags, a cold weather
    coat, computer equipment, and various other items. Reported DRMO losses
    included 76 units of body armor, 75 chemical and biological protective
    suits (in addition to those identified in our Columbus DRMO sample),28 5
    guided missile warheads,29 and hundreds of military cold weather parkas
    and trousers and camouflage coats and trousers. Three DRMOs-
    Kaiserslautern, Meade, and Tobyhanna-accounted for $840,147, or about 45
    percent, of the nearly $1.9 million in reported fiscal year 2004 losses of
    military clothing and equipment items requiring demilitarization.

    Our follow-up investigations found a pervasive lack of physical
    accountability over excess inventory, which leaves DOD vulnerable to the
    risk of theft and fraud, waste, and abuse. In many cases, it is not
    possible to determine whether discrepancies represent sloppy recordkeeping
    or the

    28 The missing chemical and biological protective suits are not the
    current JSLIST, and the missing body armor is not the ceramic technology
    currently in use by deployed troops.

    29 In accordance with DOD 4160.21-M, ch. 4, "Property Requiring Special
    Processing," S: B, and DRMS-I 4160.14, vol. VII, "Instructions for
    Demilitarization for DRMS and the Defense Reutilization and Marketing
    Offices," ch. 1, para. G, such items are required to be inert before
    turn-in to a DRMO.

    loss or theft of excess property due to the failure to verify turn-in
    documents and correct errors at the time excess items were received at the
    DRMOs.

    In the case of our Columbus DRMO sample, we found that inventory records
    were not adjusted for missing quantities in our sample. Instead, DRMO
    personnel recorded the entire amount of the listed quantities as being
    transferred to either the liquidation sales contractor or the Joint
    Service Nuclear Biological and Chemical Equipment Assessment Program
    (JEAP) for inspection and reissue of military clothing and equipment. Our
    review of transaction data for Columbus DRMO transfers showed that JEAP
    did not confirm most of the items reported as transferred. For example,
    JEAP confirmed receiving only 7 of the 17 turn-ins of clothing and textile
    items. Further, the Columbus DRMO recorded a transaction to show that the
    72 chemical and biological protective suits identified as missing during
    our statistical tests of Columbus DRMO inventory were transferred to JEAP
    on November 10, 2004. However, our follow-up with JEAP officials found
    that they have no record of receiving the protective suits. The Columbus
    DRMO's apparent manipulation of the inventory data avoided reporting the
    missing items as losses.

    Our follow-up investigations of other selected DRMO losses found the
    following.

    o 	An Air Force turn-in of 75 chemical and biological protective suits was
    received, placed in the Shaw RIPL (a receipt in place location under
    authority of the Jackson DRMO) warehouse on May 28, 2002, and subsequently
    disappeared. DRMO personnel told DRMS investigators that the 75 protective
    suits may have been included in a November 15, 2002, shipment to the
    Jackson DRMO in South Carolina. However, because DRMO personnel recorded
    box counts instead of turn-in document numbers and item counts, there is
    no detailed record of the items that were shipped between the two excess
    property warehouses.

    o 	Twenty units of body armor reported lost at the Meade DRMO initially
    had been ordered by Israel on November 8, 2000. Our investigators
    confirmed that the body armor was never picked up for shipment to Israel.
    According to the loss report, the items were relocated from the shipping
    area to the demilitarization storage area of the DRMO on May 8, 2002. A
    loss investigation was initiated by the Area Manager for the Meade DRMO in
    March 2004. However, because the Meade DRMO

    contractor had improperly destroyed inventory records after 2 years, attempts to
               determine the events surrounding the loss were fruitless.

    o 	Our investigation of 18 reports on a total of 52 units of body armor
    missing from the Hood DRMO during fiscal years 2002 and 2003 determined
    that these items were stored outside in an unsecure area resulting in the
    theft of at least 48 units of body armor. A DRMS investigative report
    noted that items requiring demilitarization had been stored in this area
    over a 2-year period, even though the security fence had barbed wire that
    was cut or missing and the high ground level outside the fence provided
    easy access. According to a DRMO official, a work order for the fence
    repair had been submitted but the repairs had not been made.

    o 	The Naval Operational Logistics Support Center-Ammo, which was
    responsible for a turn-in of guided missile warheads, the DRMO that
    received these items, and the Demilitarization Center each recorded a
    different quantity for the turn-in. However, quantity discrepancies were
    not resolved at any point during the turn-in and disposal process. As a
    result, there is no audit trail to determine whether or where, when, or
    how the reported loss or a recordkeeping error occurred. For example, the
    Navy unit reported a turn-in of 24 warheads that had been used in testing
    but were certified as inert. DRMO personnel counted canisters and loose
    components and determined there were 32 warheads. The Anniston
    Demilitarization Center reported that a total of 27 warheads were received
    for destruction.

    DLA supply depot losses. Our statistical samples showed missing items at
    four of the five DLA supply depots that we tested. Because depot officials
    did not have documentation showing that these items had been reutilized or
    sold, there is no assurance that the missing items did not relate to
    theft. Missing items in our DLA depot statistical samples included several
    sensitive items, such as classified radio frequency amplifiers and circuit
    boards, aircraft parts, and computer equipment that required trade
    security or demilitarization controls.

    We obtained DRMS data on DLA supply depot reports of excess property
    losses, including missing and damaged property and unverified adjustments.
    We investigated reported losses of selected aircraft parts at two DLA
    supply depots-Oklahoma City and Warner Robins-that reported the largest
    amount of depot losses. DLA Directive 5025.30, DLA One Book, includes a
    section on Inventory Adjustment Research (dated

    October 21, 2004), which sets inventory accuracy goals for DLA supply
    depots and requires causative research-an in-depth investigation-of
    adjustments for selected items30 and suspected fraud, waste, and abuse to
    determine why they occurred. A Financial Liability Investigation of
    Property Loss is required if the adjustment meets specific criteria,
    including (1) gains or losses of classified or sensitive material; (2) an
    adjustment in excess of $2,500 for pilferable material; and (3) a loss
    where there is a suspicion of fraud, theft, or negligence. However, we
    found that DLA depot personnel did not thoroughly investigate most
    adjustments related to reported losses of sensitive items with
    demilitarization controls that we selected for investigation. Supply depot
    officials told us that they assumed the losses represented inventory
    recordkeeping errors, even though causative research results were
    inconclusive.

    Property Damage	In addition to reported losses, we found significant
    instances of property damage at DRMS liquidation contractor sales
    locations. Because the terms and conditions of liquidation sales specify
    that all property is sold "as is" and assigns all risk of loss to buyers,
    the buyers have no recourse when property is damaged after being sold or
    is not in the advertised condition. As a result, customers who have lost
    money on bids related to damaged and unusable items might not bid again,
    or they may scale back on the amount of their bids in the future,
    affecting both the volume of excess DOD items liquidated and sales
    proceeds. On October 7, 2004, we purchased numerous usable items in
    original manufacturer packaging, including 35 boxes of bandages, 31 boxes
    of gauze sponges and surgical sponges, 12 boxes of latex gloves, and 2
    boxes of tracheostomy care sets. We paid a total of $167, including
    buyer's premium, tax, and transportation cost, for these items, which had
    a reported total acquisition cost of $3,290. However, these items had
    become damaged due to rain and a leaky roof at the Norfolk, Virginia,
    liquidation sales location.

    The majority of property damage that we observed at liquidation contractor
    sales locations is primarily the result of DRMS management decisions to
    send excess DLA supply depot property to two national liquidation sales
    locations without assuring that its contractor had sufficient human
    capital

    30 DOD 4000.25-2-M, Military Standard Transaction Reporting and
    Accountability (MILSTRAP), (Change 2, Apr. 28, 2003), Ch. 7, "Physical
    Inventory Control," Section C7.9.3.2, identified selected items as
    classified and sensitive items regardless of dollar value, pilferable
    items, controlled inventory items, with an extended value greater than
    $2,500, and all adjustments with an extended value of greater than $16,000
    or greater than 25 percent unit variance and greater than $5,000.

    resources and warehouse capacity to process, properly store, and sell the
    volume of property received. For example, excess DOD property sent to the
    Huntsville, Alabama, liquidation sales location was stored outside
    unprotected from weather, including sun, wind, rain, and hurricanes during
    the summer and fall of 2004. The liquidation contractor's failure to
    record these items in sales inventory at the time they were received, when
    combined with lost and illegible property labels due to weather damage,
    resulted in a significant loss of accountability for many of these items.

    Outdated, Nonintegrated Systems Impair Economy and Efficiency

    Inefficient, nonintegrated excess inventory and supply management systems
    lack controls necessary to prevent waste and inefficiency in the
    reutilization program. For example, because the DRMS Automated Inventory
    System (DAISY) and DLA's Standard Automated Materiel Management System
    (SAMMS) are outdated and nonintegrated, they do not share information
    necessary to (1) identify and alert DLA item managers of excess property
    that is available to fill supply orders and (2) prevent purchases of new
    items when A-condition excess items are available for reutilization. We
    have continued to report31 that long-standing weaknesses with DLA's
    inventory systems related to outdated, nonintegrated legacy systems and
    processes result in DOD and military units not knowing how many items they
    have and where these items are located. DLA has acknowledged serious
    deficiencies in its automated inventory management systems. Although DLA
    has an effort under way to replace SAMMS with the Business Systems
    Modernization (BSM) and DRMS has a Reutilization Modernization Program
    (RMP) under way to upgrade DAISY, so far these have been separate,
    uncoordinated efforts and they do not adequately address identified
    process deficiencies. While the systems improvement efforts are intended
    to integrate supply and excess inventory systems to support the
    reutilization program, they are not focused on resolving longstanding
    problems related to unreliable condition code data and incomplete data on
    NSNs. The accuracy of these two data elements is critical to the ability
    to identify like items that are available for reutilization at the time
    purchases are made.

    31 GAO, DOD Business Systems Modernization: Billions Continue to Be
    Invested with Inadequate Management Oversight and Accountability,
    GAO-04-615 (Washington, D.C.: May 27, 2004); DOD Business Systems
    Modernization: Longstanding Management and Oversight Weaknesses Continue
    to Put Investments at Risk, GAO-03-553T (Washington, D.C.: Mar. 31, 2003);
    and DOD Management: Examples of Inefficient and Ineffective Business
    Processes, GAO-02-873T (Washington, D.C.: June 25, 2002).

    Concluding Comments	To effectively address problems with reutilization
    program waste and inefficiency, DRMS and DLA will need to exercise strong
    leadership and accountability to improve the reliability of excess
    property data; establish effective oversight and physical inventory
    control; and develop effective integrated systems and processes for
    identifying and reutilizing excess property. In addition, the military
    services will need to provide accurate information on excess property
    turn-in documentation, particularly data on condition codes, and item
    descriptions, including NSNs that are key to identifying items for
    reutilization. Improved management of DOD's excess property and a strong
    reutilization program would help save taxpayers hundreds of millions of
    dollars annually.

    Mr. Chairman and Members of the Subcommittee, this concludes my prepared
    statement. We would be pleased to answer any questions that you may have.

      Contacts and Acknowledgments

    (192164)

    For more information regarding this testimony, please contact Gregory D.
    Kutz at (202) 512-9505, or kutzg@gao.gov or Keith A. Rhodes at (202)
    5126412, or rhodesk@gao.gov. Individuals making key contributions to this
    testimony included Mario Artesiano, Stephen P. Donahue, Gayle L. Fischer,
    Jason Kelly, Richard C. Newbold, Ramon Rodriguez, and John Ryan. Numerous
    other individuals contributed to our audit and investigation and are
    listed in our companion report. Technical expertise was provided by Sushil
    K. Sharma, PhD, DrPH.

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