DOD Excess Property: Control Breakdowns Present Significant	 
Security Risk and Continuing Waste and Inefficiency (25-JUL-06,  
GAO-06-943).							 
                                                                 
GAO's previous work found problems in security controls over	 
sensitive excess military equipment that resulted in lost and	 
stolen items, some of which were sold to the public, and	 
significant waste and inefficiency in the Department of Defense  
(DOD) excess property reutilization program. GAO was asked to	 
perform follow-up investigations to determine whether (1)	 
unauthorized parties could obtain sensitive excess military	 
equipment that requires demilitarization (destruction) when no	 
longer needed by DOD and (2) system and process improvements are 
adequate to prevent sales of new, unused excess items that DOD	 
continues to buy or that are in demand by the military services. 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-943 					        
    ACCNO:   A57439						        
  TITLE:     DOD Excess Property: Control Breakdowns Present	      
Significant Security Risk and Continuing Waste and Inefficiency  
     DATE:   07/25/2006 
  SUBJECT:   Crime prevention					 
	     Crimes						 
	     Government owned equipment 			 
	     Internal controls					 
	     Inventory control					 
	     Inventory control systems				 
	     Military materiel					 
	     Procurement					 
	     Program abuses					 
	     Security assessments				 
	     Security investigations				 
	     Security policies					 
	     Surplus property					 
	     Corrective action					 
	     F-14 Aircraft					 
	     F-18 Aircraft					 
	     Hornet Aircraft					 
	     Tomcat Aircraft					 

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GAO-06-943

     

     * Report to Congressional Requesters
          * July 2006
     * DOD Excess Property
          * Control Breakdowns Present Significant Security Risk and
            Continuing Waste and Inefficiency
     * Contents
          * Summary of Investigation
          * Background
          * Undercover Acquisitions of Sensitive Excess Military Items
            Identifies National Security Risk
               * Sensitive Excess Military Items Purchased at DOD Excess
                 Property Liquidation Sales
               * Additional Sales of Sensitive Excess Military Items Targeted
                 for Undercover Purchase
               * Sensitive Military Items Obtained Through Inside
                 Penetrations of DRMO Security
                    * DRMO A Penetration
               * DRMO B Penetration
          * Waste Associated with Sales of A-Condition Excess Items that
            Military Services Are Continuing to Use in Operations
               * Undercover Purchases of New, Unused Items that DOD Is
                 Continuing to Buy or that Are in Demand by Military Units
               * Limited DOD Actions to Assure Reutilization of New, Unused
                 Items
          * Corrective Action Briefing
          * Conclusions
          * Agency Comments and Our Evaluation
     * DOD Excess Property Demilitarization Codes
     * Excess Property Condition Codes
     * Comments from the Department of Defense
     * GAO Contact and Staff Acknowledgments

Report to Congressional Requesters

July 2006

DOD EXCESS PROPERTY

Control Breakdowns Present Significant Security Risk and Continuing Waste
and Inefficiency

Contents

Tables

Figures

Abbreviations

July 25, 2006Letter

The Honorable Tom Davis Chairman Committee on Government Reform House of
Representatives

The Honorable Christopher Shays Chairman Subcommittee on National
Security, Emerging Threats and International Relations Committee on
Government Reform House of Representatives

Our May 2005 report1 stated that the Department of Defense (DOD) reported
$466 million in lost, damaged, and missing excess property from fiscal
years 2002 through 2004, including property with demilitarization
restrictions,2 such as chemical and biological protective suits, body
armor, and guided missile warheads. Some of the restricted items had been
sold to the public. Further, our May 2005 report noted that during fiscal
years 2002 and 2003, the military services needlessly spent at least $400
million to purchase new items instead of reusing identical excess items in
new and unused condition (A-condition).3 As a result, the new, unused
excess items were sold for pennies on the dollar. In response to our May
2005 report, at the June 2005 oversight hearing by the Subcommittee on
National Security, Emerging Threats and International Relations, DOD
officials stated that controls were adequate to prevent items requiring
demilitarization from being released to unauthorized parties. In addition,
DOD officials promised to have system enhancements in place in January
2006 to assure that excess items in new and unused condition that the
military services are continuing to use are returned to inventory and
reutilized within DOD to avoid unnecessary purchases.

This report responds to your request that we perform follow-up
investigations to determine whether (1) unauthorized parties could obtain
sensitive excess military equipment that requires demilitarization when no
longer needed by DOD and (2) systems and process improvements are adequate
to prevent liquidation sales of A-condition items that DOD is continuing
to buy or that are in demand by the military services.

Using investigative techniques and acting in an undercover capacity to
disguise our identity, we tested DOD systems and controls to see if we
could obtain sensitive excess military equipment and technology items that
require demilitarization and should not be available to the public. We
used DOD's Federal Logistics (FedLog) system information to identify and
validate the population of military equipment and technology items that
require demilitarization. We then identified public sales of excess
military items that required demilitarization by total destruction when no
longer needed by DOD to prevent these items from falling into the wrong
hands. Next, we tested the systems and controls by making undercover
purchases of military equipment and technology items from DOD's
liquidation sales contractor.4 In making these purchases we used a
fictitious identity to obtain End-Use Certificates (EUC)5 where this
documentation was required as a condition of sale. For sales where we were
outbid, we tracked the bid activity to identify the winning bidders. We
are referring these purchases and numerous other public purchases of items
that should have been demilitarized to federal law enforcement agencies
for further investigation. In addition, we used publicly available
information to develop undercover techniques to penetrate Defense
Reutilization and Marketing Office (DRMO) excess property warehouses.

To determine whether DOD was continuing to sell A-condition items that
were still being purchased or were in demand by the military services, we
monitored DOD's liquidation contractor sales to identify new, unused
items. We targeted items for undercover purchases where our research
identified ongoing or recent procurements and active supply inventory
status of these items. We also monitored DOD actions to implement
improvements in excess property systems, processes, and controls in
response to our May 2005 audit recommendations. We analyzed Defense
Reutilization and Marketing Service (DRMS) data to determine if
reutilization rates of A-condition excess property increased during the
first three quarters of fiscal year 2006. We conducted our investigations
from November 2005 through June 2006 in accordance with quality standards
for investigators as set forth by the President's Council on Integrity and
Efficiency.

Summary of Investigation

We used a fictitious identity posing as a private citizen to purchase
numerous sensitive excess DOD military technology items that should have
been demilitarized instead of being sold to the public. Sensitive excess
military equipment purchased by our investigator at DOD liquidation sales
auctions included ceramic body armor inserts currently used by deployed
troops; a time selector unit used to ensure the accuracy of computer-based
equipment, such as global positioning systems and system-level clocks; a
universal frequency counter used to ensure that the frequency of
communication gear is running at the expected rate; 2 guided missile radar
test sets, at least 12 digital microcircuits used in F-14 fighter
aircraft; and numerous other sensitive electronic parts. We were able to
purchase these items because controls broke down at virtually every step
in the excess property turn-in and disposal process.

In addition, posing as DOD contractor employees6 our undercover
investigators were able to easily penetrate security at two separate
excess property warehouses in June 2006. There, they were able to obtain,
at no cost, numerous sensitive military equipment items valued at about
$1.1 million that should not have been released outside of DOD. The items
we obtained included two launcher mounts for shoulder-fired guided
missiles, several types of body armor, a digital signal converter used in
naval electronic surveillance, an all-band antenna used to track aircraft,
six circuit cards used in computerized Navy systems, and several other
items in use by the military services. The body armor could be used in
terrorist or other criminal activity. Many of the other military items
have weapons applications that also would be useful to terrorists. Our
undercover investigators were able to obtain these items because DRMO
personnel did not confirm their identity and authorization to requisition
excess DOD property items. The DRMO personnel even helped our undercover
investigators load the items into our van.

We also made several undercover purchases of new, unused A-condition
excess DOD items, including wet-weather parkas, cold-weather desert
camouflage parkas, a portable field x-ray processing enclosure,
high-security locks used to secure the back bay of trucks, a gasoline
engine, and a refrigerant recovery system used for servicing automotive
vehicles. The items we purchased at DOD liquidation sales were being
ordered from supply inventory by military units at or near the time of our
purchases. In the case of one supply-depot-stocked item-the portable x-ray
enclosure-no items were in stock at the time of our purchase. At the time
we made our purchase, DOD's liquidation contractor sold 40 of these x-ray
enclosures with a total reported acquisition cost of $289,400 for a
liquidation sales price of $2,914-about a penny on the dollar. In another
example, we purchased a gasoline engine in March 2006 for $355. The Marine
Corps ordered 4 of these gas engines from Defense Logistics Agency (DLA)
supply inventory in June 2006 and paid $3,119 each for them. At the time
of our undercover purchase, 20 identical gasoline engines with a reported
acquisition cost of $62,380 were sold to the public for a total
liquidation sales price of $6,221. Our investigation demonstrated that the
problems we reported in May 2005 have not been fully resolved and that
there is continuing waste and inefficiency in DOD's excess property
reutilization program.

Our May 2005 report included 13 recommendations to address problems in
accountability over sensitive military items and the economy and
efficiency of DOD's excess property reutilization program. Thus, we are
making no new recommendations in this report. We provided a corrective
action briefing to DOD on June 28, 2006, and we provided a draft of our
report to DOD for comment on July 10, 2006. The Deputy Under Secretary of
Defense for Logistics and Materiel Readiness responded that given the time
allotted to comment, the Department was not able to do a detailed review
and has no comments at this time. DOD's comment letter is reprinted in
appendix III.

Background

Over the past several years, we reported7 that serious breakdowns in
management processes, systems, and controls have resulted in substantial
waste and inefficiency in DOD's excess property reutilization program. Our
June 2002 testimony and our November 2003 report documented instances
where DOD sold to the public items such as Joint Service Lightweight
Integrated Suit Technology (JSLIST)8 and other chemical and biological
protective suits and related gear that should have been restricted to DOD
use only. Our November 2003 report also identified several examples that
showed that at the same time DOD excessed biological 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. Our
May 2005 report stated that DOD reported $466 million in lost, damaged,
and missing excess property from fiscal years 2002 through 2004, including
property with demilitarization restrictions, such as chemical and
biological protective suits, body armor, and guided missile warheads. Some
of the restricted items had been sold to the public. We also reported that
during fiscal years 2002 and 2003, the military services purchased at
least $400 million of identical items instead of using available excess
items in new and unused condition.

At the time of our May 2005 report, waste and inefficiency occurred
because condition codes were assigned to excess property that incorrectly
identified it as unusable and DOD lacked adequate systems and processes
for assuring that excess items in A-condition were reused to avoid
unnecessary purchases. We also found that DOD lacked adequate security
over excess items requiring demilitarization, resulting in losses reported
by DRMOs of nearly 150 chemical and biological protective suits, over 70
units of body armor, and 5 guided missile warheads. Losses reported by DLA
supply depots included thousands of sensitive military items, such as
weapons system components and aircraft parts.

Undercover Acquisitions of Sensitive Excess Military Items Identifies
National Security Risk

Our undercover investigators purchased several sensitive excess military
equipment items that were improperly sold to the public at DOD liquidation
sales. These items included 3 ceramic body armor inserts identified as
small arms protective inserts (SAPI), which are the ceramic inserts
currently in demand by soldiers in Iraq and Afghanistan; a time selector
unit used to ensure the accuracy of computer-based equipment, such as
global positioning systems and system-level clocks; 12 digital
microcircuits used in F-14 Tomcat fighter aircraft; guided missile radar
test sets used to check the operation of the data link antenna on the
Navy's Walleye (AGM-62) air-to-ground guided missile; and numerous other
electronic items. In instances where DOD required an EUC as a condition of
sale, our undercover investigator was able to successfully defeat the
screening process by submitting bogus documentation and providing
plausible explanations for discrepancies in his documentation. We
identified at least 79 buyers for 216 sales transactions involving 2,669
sensitive military items that DOD's liquidation contractor sold to the
public between November 2005 and June 2006. We are referring information
on these sales to the appropriate federal law enforcement agencies for
further investigation.

Posing as DOD contractor employees, our investigators also entered DRMOs
in two east coast states, and obtained about $1.1 million in excess
military items that required demilitarization as well several other items
that are currently in use by the military services. DRMO personnel even
helped us load the items into our van. These items included 2 launcher
mounts for shoulder-fired guided missiles, an all-band antenna used to
track aircraft, 16 body armor vests, body armor throat and groin
protectors, 6 circuit card assemblies used in computerized Navy systems,
and 2 Palm V personal data assistant (PDA) organizers.

Sensitive Excess Military Items Purchased at DOD Excess Property
Liquidation Sales

Using a fictitious identity as a private citizen, our undercover
investigator applied for and received an account with DOD's liquidation
sales contractor. The undercover investigator was then able to purchase
several sensitive excess military items that were being improperly sold to
the public. During our undercover purchases, our investigator engaged in
numerous conversations with liquidation sales contractor staff during
warehouse inspections of items advertised for sale and DRMS and DLA
Criminal Investigative Activity (DCIA) staff during the processing of our
EUCs. On one occasion our undercover investigator was told by a DCIA
official that information provided on his EUC application had no match to
official data and that he had no credit history. Our investigator
responded with a plausible story and submitted a bogus utility bill to
confirm his mailing address. Following these screening procedures, the EUC
was approved by DCIA and our undercover investigator was able to purchase
targeted excess military items. Once our initial EUC was approved, our
subsequent EUC applications were approved based on the information on
file. The following discussion presents the case study details of our
undercover purchases of sensitive excess military items that should have
been destroyed when no longer needed by DOD and should not have been sold
to the public. Although these items had a reported acquisition cost of
$461,427, we paid a liquidation sales price of $914 for them-less than a
penny on the dollar.

Small arms protective insert. In March 2006, our undercover investigator
purchased 3 ceramic body armor inserts identified as small arms protective
inserts (SAPI), which are the ceramic inserts currently in demand by
soldiers in Iraq and Afghanistan. SAPI are designed to slide into pockets
sewn into the front and back of military vests in order to protect the
warfighter's chest and back from small arms fire. The SAPI had been
improperly included in a batch lot of items that did not require
demilitarization. The batch lot reportedly contained 609 items, including
shelter half-tents, canteens and canteen covers, small tools, first aid
pouches, insect nets, barracks bags and waterproof bags, small arms cases,
miscellaneous field gear, and the SAPI. We paid $129 for the batch lot,
which had a reported acquisition cost of $1,471. The SAPI have a
demilitarization code of D, which requires them to be destroyed when no
longer needed by DOD rather than being sold to the public. Figure 1 shows
a photograph of one of the SAPI that we purchased.

Figure 1: Example of Small Arms Protective Inserts Purchased in March 2006

Time selector unit. In March 2006, our undercover investigator purchased
an excess DOD time selector unit used to ensure the accuracy of
computer-based equipment, such as global positioning systems and
system-level clocks. According to our Chief Technologist, this technology
is important because it prevents users in the battlefield from exposing
their position to get timing signals from outside sources. We paid $65 for
the time selector unit, which had an original acquisition cost of
$343,695. Also, although the unit was listed as being in F7 condition
(unserviceable, reparable condition), it appeared to be in working order.

The time selector unit had a demilitarization code of D, which required it
to be destroyed when no longer needed by DOD. The unit also had a FedLog
controlled inventory item code (CIIC) of 7, which indicates it is a
classified

item that requires protection in the interest of national security, in
accordance with DOD 5200.1-R, Information Security Program.9

Although the link on the national stock number (NSN)10 included on DOD's
liquidation contractor's Internet sale Web site showed this item was
assigned a demilitarization code of D, it was sold to the public as a
trade security controlled item-demilitarization code B. As such, we were
required to complete an application and obtain an approved EUC. Our
undercover investigator submitted bogus information on his EUC
application. A DCIA official contacted our undercover investigator and
told him that the information on his application did not match official
data and he had no credit history. After responding with a plausible story
and submitting a bogus utility bill to document our mailing address, our
EUC for the time selector unit was approved in April 2006. Figure 2 shows
a photograph of the excess DOD time selector unit we purchased.

Figure 2: Excess DOD Time Selector Unit Purchased in March 2006

Digital microcircuits. Our undercover investigator purchased a total of 82
excess DOD digital microcircuits, including 12 microcircuits used on the
F-14 Tomcat fighter aircraft. Because of their sensitive technology, the
microcircuits had a demilitarization code of D, which requires their total
destruction when they are no longer needed by DOD. The 12 microcircuits
also had a CIIC of 7, which indicates they are classified items that
require protection in the interest of national security, in accordance
with DOD 5200.1-R. In violation of DOD demilitarization policy for D coded
items, the microcircuits were improperly included in a batch lot with
several other electronic items that did not require demilitarization.
Further, only 12 of the 82 demilitarization code D microcircuits that we
purchased were listed on the liquidation sale advertisement. We paid
approximately $58 for the entire batch lot, which included a total of 591
items with a reported acquisition cost of $112,700. Because several items
in the batch lot had demilitarization codes that designated them as trade
security control items restricted by the U.S. Munitions List or the
Commerce Control List of the U.S. Department of Commerce, an EUC was
required for approval of our purchase. Our EUC for the digital
microcircuits was approved in May 2006 based on our bogus information
already on file. Figure 3 shows an enlarged photograph of one of the
microcircuits that were improperly sold to our undercover investigator.

Figure 3: Enlarged Photograph of One of the Excess DOD Microcircuits
Purchased in April 2006

Guided weapon radar test sets. Two guided weapon radar test sets were
included in the batch lot with the digital microcircuits that our
undercover investigator purchased from DOD's liquidation sales contractor
in April 2006. The test sets, which were advertised for sale as radar test
sets, are used to check the operation of the data link antenna on the
Navy's Walleye (AGM-62) air-to-ground guided missile delivered by the
F/A-18 Hornet fighter aircraft. The Walleye is designed to deliver a
self-guided high-explosive weapon from an attack aircraft to a surface
target. Because of their sensitive technology the test sets have a
demilitarization code of B, which requires an EUC for trade security
purposes. Figure 4 shows a photograph of the guided weapon test sets that
we purchased and obtained using bogus EUC documentation.

Figure 4: Guided Weapon Radar Test Sets Purchased in April 2006

Universal frequency counter. The new, unused universal frequency counter
purchased by our undercover investigator was manufactured (initially
calibrated) in February 2003. DOD awarded a contract to Fluke Corporation
in 2002 for 67 of these items, which are designed to count the speed at
which an electrical system fluctuates. According to a manufacturer
official, this item's military application is to ensure the frequency of
communication gear is running at the expected rate. The universal
frequency counter has a demilitarization code of B, which requires trade
security control under the U.S. Munitions List. We paid a total of $475
for this item, which had a reported acquisition cost of $1,685. In April
2006, when we purchased the universal frequency counter, DOD's liquidation
sales contractor sold a total of 15 of these items for $5,506, or about
$367 per unit. The 15 items had a reported total acquisition value of
$25,275, or $1,685 per unit. The bogus paperwork that we submitted with
our EUC application was approved by DCIA in May 2006. Figure 5 shows a
photograph of the unit that we purchased.

Figure 5: Example of the Universal Frequency Counter Purchased in April
2006

Directional coupler. In March 2006, our undercover investigator purchased
an excess military item advertised as a directional coupler from DOD's
liquidation sales contractor. We paid $186 for the sales lot, which
contained a total of 8 electronic equipment and supply items with a listed
acquisition cost of $1,200. According to FedLog, the directional coupler
advertised had an actual acquisition cost of $1,876. This directional
coupler is used in the F-14 Tomcat fighter aircraft to monitor, measure,
isolate, or combine electronic signals. Because of its technology, this
directional coupler has a demilitarization designation code of D, which
required it to be destroyed when no longer needed by DOD. The directional
coupler also had a CIIC of 7, which indicates it is a classified item that
requires protection in the interest of national security, in accordance
with DOD 5200.1-R. However, after receiving the item, we discovered that
it was not the item identified by the national stock number in the sales
advertisement. As a result, it appears that DOD not only lost
accountability over the actual item identified in its excess property
inventory, but advertised and recorded a public sale of a sensitive
military item on the U.S. Munitions List, which was required to be
disposed of by destruction in accordance with DOD demilitarization
policy.11

Additional Sales of Sensitive Excess Military Items Targeted for
Undercover Purchase

We observed numerous sales of additional excess sensitive military items
that were improperly advertised for sale or sold to the public, including
fire control components for weapon systems, body armor, and weapon system
components. The demilitarization codes for these items required either key
point or total destruction rather than disposal through public sale.
Although we placed bids to purchase some of these items, we lost to higher
bidders. We identified at least 79 buyers for 216 public liquidation sales
transactions involving 2,669 sensitive military items. We are referring
these sales to federal law enforcement agencies for further investigation
and recovery of the sensitive military equipment. The following discussion
highlights the details of sales of sensitive military equipment items that
we observed or targeted for purchase but did not obtain because we were
outbid during the respective sales auctions.

Optical fire control items. Our investigative team identified a January
2006 sale of excess U.S. Army Armament Command optical instrument prisms
and optical lenses. DOD data showed that these optical instruments are
components of the fire control sighting mechanism used in the M-901A
Improved Armored Anti-tank vehicle. The M-901A fires the TOW 2 series
missiles. Our Chief Technologist advised us that both the prisms and
lenses are high-quality optical sighting equipment used in the fire
control system of the M-901A. We made an undercover visit to one of DOD's
liquidation contractor sales facilities to inspect the prisms in January
2006. Our inspection of the items listed for sale disclosed that the
property label on the boxes listed 11 optical instrument prisms with an
acquisition cost of $93,093. Although the demilitarization code of Q
listed on the property label for the prisms identified them as requiring
trade security control as an item on the Commerce Control List, the NSN
listed for the prisms in fact related to a demilitarization code of D,
which required their total destruction when no longer needed by DOD. Upon
further inspection, we found that the items labeled as prisms were in
sealed manufacturer packages that listed them as optical instrument
lenses, not prisms. The NSN associated with the 11 lenses indicated that
they had a total acquisition cost of $1,859 and a demilitarization code of
D, requiring their total destruction rather than disposal by public sale.
The mislabeling of these items indicates that DOD may have lost
accountability over both the prisms and the lenses. Both the prisms and
the lenses have a controlled CIIC code of 7, which indicates they are
classified items that require protection in the interest of national
security, in accordance with DOD 5200.1-R. We bid $550 for the lenses and
lost to a higher bidder, who paid $909 for them. Figure 6 is a photograph
of one of the boxes labeled as containing prisms that actually contained
lenses.

Figure 6: Optical Instrument Lenses Used in Fire Control Technology on the
M-901A Anti-tank Vehicle Sold to the Public in January 2006

Body armor. Our investigative team also identified a March 2006
liquidation sale of body armor fragmentation vests. Upon our visit to the
sales warehouse, we identified a total of four body armor fragmentation
protective vests in two separate sales lots. According to the NSN, all of
the items sold had a demilitarization code of E, which required either key
point or total destruction of the item when no longer needed by DOD. We
did not bid on this sale, but have included it in our referrals to federal
law enforcement agencies for follow-up investigations. Figure 7 shows a
photograph of the actual body armor vest that that we observed for sale in
March 2006.

Figure 7: Example of Excess Body Armor Vest Sold to the Public in March
2006

During our undercover operations, we also noted 13 advertised sales
events, including 179 items that were subject to demilitarization
controls, where the items were not sold. In 5 of these sales involving 113
sensitive military parts, it appears that DOD or its liquidation sales
contractor caught the error in demilitarization codes and pulled the items
from sale. One of these instances involved an F-14 fin panel assembly that
we had targeted for an undercover purchase. During our undercover
inspection of this item prior to sale, a contractor official told our
investigator that the government was in the process of changing
demilitarization codes on all F-14 parts and it was likely that the fin
panel assembly would be removed from sale. Of the remaining 8 sales lots
containing 66 sensitive military parts, we could not determine whether the
items were not sold because DOD or its contractor caught the
demilitarization coding errors or because minimum bids were not received
during the respective sales events.

Sensitive Military Items Obtained Through Inside Penetrations of DRMO
Security

Our investigators used publicly available information to develop
fictitious identities as DOD contractor personnel and enter DRMO
warehouses (referred to as DRMO A and DRMO B) in two east coast states on
separate occasions in June 2006, to requisition excess sensitive military
parts and equipment valued at about $1.1 million. Our investigators were
able to search for and identify excess items without supervision. In
addition, DRMO personnel assisted our investigators in locating other
targeted items in the warehouse and loading these items into our van. At
no point during either visit did DRMO personnel attempt to verify with the
actual contractor that our investigators were, in fact, contractor
employees.

During the undercover penetration, our investigators obtained numerous
sensitive military items that were required to be destroyed when no longer
needed by DOD to prevent them from falling into the wrong hands. These
items included two guided missile launcher mounts for shoulder-fired
missiles, several types of body armor, an all-band antenna used to track
aircraft, six circuit card assemblies used in Navy computerized systems, a
digital signal converter used in naval electronic surveillance, and two
Palm V personal digital assistants (PDA) that were certified as having
their hard drives removed.

Shortly after leaving the second DRMO, our investigators received a call
from a contractor official whose employees they had impersonated. The
official had been monitoring his company's requisitions of excess DOD
property and noticed transactions that did not appear to represent
activity by his company. He contacted personnel at DRMO A, obtained the
phone number on our excess property screening letter, and called us. Upon
receiving the call from the contractor official, our lead investigative
agent explained that he was with GAO and we had performed a government
test.

DRMO A Penetration

The following discussion presents the details of our case study
requisitions of sensitive military items we obtained during our
penetration of the first east coast DRMO.

Guided missile launcher mounts. Posing as DOD contractor employees, our
undercover investigators entered DRMO A in June 2006 and requisitioned two
excess DOD shoulder-fired guided missile launcher mounts with a total
reported acquisition cost of $6,246. The missile launcher mounts provide
the electrical connection between the round and the tracker and contain a
remote firing mechanism for the wire-guided Dragon missiles. While the
Dragon has been replaced by newer technology missiles, it is a
man-portable, shoulder-fired, medium antitank weapon system that can
defeat armored vehicles, fortified bunkers, concrete gun emplacements, and
other hardened targets. Under department demilitarization policy, missile
launcher mounts have a demilitarization code of C, which requires removal
and/or demilitarization of installed key point(s) or lethal parts,
components, and accessories to prevent them from falling into the wrong
hands. The missile launcher mounts also have a CIIC code of 7, which
indicates they are classified items that require protection in the
interest of national security, in accordance with DOD 5200.1-R. Figure 8
shows a photograph of one of the guided missile launcher mounts obtained
by GAO.

Figure 8: Guided Missile Mount Obtained from DRMO A during the June 2006
Undercover Penetration

Kevlar body armor fragmentation vests. Our undercover investigators
obtained six Kevlar body armor fragmentation vests with a total reported
acquisition cost of $2,049 from DRMO A during our June 2006 security
penetration. This body armor has a woodland camouflage pattern and was
designed for use by ground troops and parachutists. Although the Kevlar
fragmentation vest has been replaced by newer technology, it is still
considered a sensitive military item and has a demilitarization code of E,
which identifies it as critical items/materiel determined to require
demilitarization, either key point or total destruction. The Kevlar
fragmentation vests also have a CIIC code of 7, which indicates they are
classified items that require protection in the interest of national
security, in accordance with DOD 5200.1-R. Figure 9 shows a photograph of
one of the fragmentation vests obtained during our undercover penetration.

Figure 9: One of the Kevlar Body Armor Fragmentation Vests Obtained from
DRMO A during the June 2006 Undercover Penetration

Digital signal converter. During the undercover penetration at DRMO A, our
investigators also obtained a DOD digital signal converter with a reported
acquisition cost of $882,586. The digital signal converter is used as part
of a larger surveillance system on the Navy's E2C Hawkeye early warning
and control aircraft. Under department demilitarization policy, this
digital signal converter has a demilitarization code of D that requires it
to be destroyed when no longer needed by DOD. This signal converter also
has a CIIC code of 7, which indicates it is a classified item that
requires protection in the interest of national security, in accordance
with DOD 5200.1-R. Figure 10 shows a photograph of the digital signal
converter our investigators obtained from DRMO A.

Figure 10: Digital Signal Converter Obtained from DRMO A during the June
2006 Undercover Penetration

All-band antenna. Our undercover investigators identified and
requisitioned a new, unused all-band antenna during their June 2006
security penetration at DRMO A. According to manufacturer information, the
antenna is a high-powered portable unit that is used by the Air Force to
track aircraft. The antenna can be tripod-mounted or mounted on a portable
shelter. The new, unused all-band antenna, which was purchased by DOD in
2003, had a reported acquisition cost of $120,000. A manufacturer
representative told our investigator that this antenna is currently in
production. Under department demilitarization policy, this all-band
antenna has a demilitarization code of D that requires it to be destroyed
when no longer needed by DOD. This antenna also has a CIIC code of 7,
which indicates it is a classified item that requires protection in the
interest of national security, in accordance with DOD 5200.1-R. Figure 11
shows a photograph of the all-band antenna obtained during our undercover
penetration of security at DRMO A.

Figure 11: All-band Antenna Obtained from DRMO A during the June 2006
Undercover Penetration

DRMO B Penetration

Posing as employees for the same DOD contractor identity used during our
June 2006 penetration at DRMO A, our investigators entered DRMO B a day
later for the purpose of testing security controls at that location. DRMO
officials appeared to be unaware of our security penetration at DRMO A the
previous day. During the DRMO B undercover penetration, our investigators
obtained the following items, most of which had demilitarization
requirements.

Body armor fragmentation vests. Our undercover investigators obtained 10
body armor fragmentation vests with a total reported acquisition cost of
$290 from DRMO B. Although the protective capability of this body armor
has been superseded by newer technology, it would still provide firearm
protection to terrorists or criminals. These fragmentation vests have a
demilitarization code of E, which identifies them as critical
items/materiel determined to require demilitarization, either key point or
total destruction. Figure 12 shows a photograph of one the 10
fragmentation vests obtained during our undercover penetration.

Figure 12: Body Armor Fragmentation Vest Obtained from DRMO B during the
June 2006 Undercover Penetration

Throat and groin protection armor. Our undercover investigators also
obtained a Kevlar throat protector related to the camouflage body armor.
The throat protector had a reported acquisition cost of $3.35 and a
demilitarization code of D, which requires it to be destroyed when no
longer needed by DOD. The groin protector, which is designed to hold a
ceramic insert, had a reported acquisition cost of $37.85 and a
demilitarization code of D. Figure 13 shows a photograph of the throat and
groin protection armor obtained during our undercover penetration at DRMO
B.

Figure 13: Throat and Groin Protection Armor Obtained from DRMO B during
the June 2006 Undercover Penetration

Circuit card assemblies. Our undercover investigators obtained six circuit
card assemblies with a reported acquisition cost of $77,011 from DRMO B.
The circuit card assemblies, which were turned in by the Naval Air Warfare
Center, had a demilitarization code of D which requires them to be
destroyed when no longer needed by DOD. A Lockheed Martin representative,
who confirmed that his company manufactured the circuit cards we obtained,
told our investigator that the circuit card assemblies are used in a
variety of computerized Navy systems. The circuit cards also have a CIIC
code of 7, which indicates they are classified items that require
protection in the interest of national security, in accordance with DOD
5200.1-R. Figure 14 shows a photograph of the circuit card assemblies
obtained during our undercover penetration at DRMO B.

Figure 14: Circuit Card Assemblies Obtained from DRMO B during the June
2006 Undercover Penetration

Palm V Organizer PDAs. During our undercover security penetration at DRMO
B in June 2006, our investigators noticed two Palm V Organizer PDAs and
accessories. The Palm PDAs had tags affixed to them which read
"Certificate of Hard Drive Disposition/This certified hard drive was
removed from CPU" and "Computer Casing Empty." Because PDAs do not have
hard drives, after successfully requisitioning them, we asked our
information technology (IT) security expert to test them to confirm that
all sensitive information had been properly removed. Our IT expert used
National Institute of Standards and Technology (NIST) utilities

recommended for forensic analysis to run the tests.12 Based on the tests,
our IT expert determined that the RAM on both devices had been wiped clean
of any trace of residual data, leaving only the normal information that a
user would expect to find on an unused Palm V PDA. Figure 15 shows a
photograph of one of the Palm V PDAs and related accessories obtained from
DRMO B.

Figure 15: Example of Excess DOD Palm V Organizers and Accessories
Obtained from DRMO B during the June 2006 Undercover Penetration

Waste Associated with Sales of A-Condition Excess Items that Military
Services Are Continuing to Use in Operations

Because significant numbers of new, unused A-condition excess items still
being purchased or in use by the military services are being disposed of
through liquidation sales, it was easy for our undercover investigator to
pose as a liquidation sales customer and purchase several of these items
for a fraction of what the military services are paying to obtain these
same items from DLA supply depots. For example, we paid $1,146 for several
wet weather and cold weather parkas, a portable field x-ray enclosure,
high- security locks, a gasoline engine that can be used as part of a
generator system or as a compressor, and a refrigerant recovery system
used to service air conditioning systems on automobiles. The military
services would have paid a total acquisition cost of $16,300 for these
items if ordered from supply inventory, plus a charge for processing their
order.13 It was easy for us to purchase new, unused items that are in
demand by the military services because of the limited scope of DOD's
actions to address this problem.

Undercover Purchases of New, Unused Items that DOD Is Continuing to Buy or
that Are in Demand by Military Units

Our undercover investigator used a fictitious identity to obtain a DOD
liquidation sales customer account and purchase several new, unused excess
DOD items that the military services are continuing to order from supply
inventory or use in operations. The following discussion describes
examples of the new, unused excess DOD items that we purchased.

Wet-weather parkas. In March 2006, our undercover investigator purchased
10 new, unused excess DOD wet-weather parkas with the manufacturer's tags
still attached from DOD's liquidation sales contractor. Although Army
combat units have begun using an upgraded version of the parkas, they are
a nondeteriorative item, and Army training units and other military
services are continuing to use them in military operations. However, after
the New Jersey Army National Guard turned in the unused items as excess to
their needs, the parkas were transferred to DOD's liquidation contractor
for sale instead of being returned to supply inventory for reissue. We
paid $87 for the 10 wet-weather parkas, which had a total reported
acquisition cost of a $359. Figure 16 shows a photograph of one of the
wet-weather parkas our undercover investigator purchased at the public
liquidation sale.

Figure 16: Example of New, Unused Wet-Weather Parkas Purchased in March
2006

Cold-weather parkas. In May 2006, our undercover investigator purchased 10
excess DOD cold-weather desert camouflage parkas from DOD's liquidation
sales contractor. Although the parkas were listed as being in H condition
(unserviceable, condemned condition), they were advertised as new. We paid
a total of $373 for these 10 parkas, which had a total reported
acquisition cost of $1,468. After receiving the parkas, we noted that all
of them appeared to be unused and 7 of them still had the manufacturer's
tags attached. According to a Defense Supply Center, Philadelphia
official, these cold-weather parkas are nondeteriorative and are currently
stocked and issued to the military services. The cold-weather parkas,
which were ordered in support of Operation Enduring Freedom, were turned
in as excess by the Al Udeid Air Base, in Qatar. Instead of being returned
to inventory for reissue, the new, unused parkas were transferred to DOD's
liquidation sales contractor. Figure 17 shows a photograph of one of the
excess new, unused parkas that we purchased.

Figure 17: New, Unused Cold-Weather Parka Purchased by GAO in May 2006

Portable field x-ray processing enclosure. In April 2006, our undercover
investigator purchased a portable field x-ray processing enclosure with a
reported acquisition cost of $7,235. We paid $87 for this item. We
received the x-ray enclosure in May 2006, after approval of our bogus Food
and Drug Administration (FDA) certificate. DOD's liquidation sales
contractor requires buyers of medical and laboratory equipment items that
are subject to federal regulation to submit FDA certificates as a
condition of sale. On the FDA certificate, the buyer certifies that he or
she is a licensed medical practitioner or person regularly and lawfully
engaged in the manufacture or refurbishing of the medical device listed
and agrees to assure that items resold will not be adulterated or
misbranded within the meaning of those terms in the Federal Food, Drug and
Cosmetic Act (codified at 21 U.S.C. Ch. 9). A manufacturer official told
our undercover investigator that the x-ray enclosure that we purchased is
manufactured and sold to DOD on an as-needed basis. The official stated
that there is no shelf-life issue associated with this product. In
addition, a Defense Supply Center, Philadelphia official assigned to the
X-ray Equipment and Supplies/Biomedical Systems Office of the Technical,
Quality, and Packaging Staff responsible for x-ray equipment and supply
items advised us that the x-ray enclosure is currently used by the
military services, and the Army is the primary user. The supply center
official noted that the enclosure is a depot-stocked item. However, after
checking the inventory system, the official told us that there were
currently none of these items in stock. The supply center official
confirmed that the enclosure has no shelf-life issues.

At the time we purchased the x-ray enclosure, 40 identical x-ray
enclosures with a reported acquisition cost of $289,400 were sold for a
total liquidation sales price of $2,914. Figure 18 is a photograph of the
excess DOD portable x-ray enclosure that we purchased over the Internet.
The enclosure is stored in an oversized foot-locker-type container
approximately 5 feet in length.

Figure 18: New, Unused Portable Field X-ray Processing Enclosure Purchased
in April 2006

High-security locks. Our undercover investigator purchased 20 new, unused
high-security locks from the DOD liquidation sales contractor in April
2006. The locks, which were in the original manufacturer's boxes, had a
total reported acquisition cost of $1,675, and we paid a total of $59 for
them. We contacted the manufacturer, whose representative told us that his
company sold DLA 100 of these locks in September 2005. The representative
explained that the locks are used to secure the back bay of logistics
trucks. He said that his company was not aware of any problems with the
locks. A U.S. Marine Corps unit in Albany, Georgia, turned the locks in as
excess, and they were not returned to inventory for reissue. At the time
we purchased the 20 locks, DOD's liquidation sales contractor had
advertised a total of 19 lots consisting of 480 locks for sale. Six of the
19 lots, with a reported total acquisition cost of $18,423, sold for $365.
Figure 19 shows a photograph of one of the excess DOD high-security locks
that we purchased in April 2006.

Figure 19: New, Unused DOD High-Security Lock Purchased in April 2006

Gasoline engine. Our undercover investigator purchased a new, unused
Teledyne 4-cylinder gasoline engine in March 2006. The engine, which was
manufactured in the 1990s, is part of a generator unit. It can also be
used with a compressor. According to FedLog data, the engines are required
to be issued until current supplies are exhausted. The item manager for
this engine told our undercover investigator that DLA currently has about
1,500 of these engines in stock and they are still being issued, primarily
to Army National Guard and Reserve units. He said that the Air Force and
the Marine Corps also use them. He noted that the Marine Corps ordered 4
of these engines in June 2006. We paid $355 for the gasoline engine, which
had a reported acquisition cost of $3,119-the amount the Marine Corp paid
for each item, plus a service charge. At the time we purchased this unit,
a total of 20 identical gasoline engines with a total reported acquisition
cost of $62,380 were sold for a total liquidation sales price of $6,221.
Figure 20 shows a photograph of the gasoline engine that we purchased.

Figure 20: New, Unused DOD Gasoline Engine Purchased in March 2006

Refrigerant recovery system. In April 2006, our undercover investigator
purchased a new, unused excess DOD refrigerant recovery system Model
ST-100A. This is a portable system designed to recover and recycle R-12,
R-22, R-500, and R-502 refrigerants at the rate of 2 to 3 pounds per
minute. According to a manufacturer representative, the unit that we
purchased is designed to recover refrigerants from small systems, such as
those in automotive vehicles. We paid a total of $185 for the new, unused
refrigerant recovery system, which had a reported acquisition cost of
$2,445. According to a Refrigerant Recovery Systems, Inc., representative,
this item is still being purchased and used by DOD. The refrigerant
recovery system that we purchased was likely turned in as excess by the
Army Risk Assessment Modeling System (ARAMS) Project Office located in
Chesapeake, Virginia. ARAMS turned in nine identical excess recovery
systems in January 2006 that appeared to have been sold during the
liquidation sales event at which we made our undercover purchase. These 9
refrigerant recovery systems, which had a listed acquisition cost of
$22,004, sold for a total liquidation sale price of $1,140.

When our undercover investigator went to pick up the refrigerant recovery
system that we purchased, he found that it was stored outside and exposed
to weather. As a result, the box the unit was stored in had become wet and
the filters included with the unit had become soaked. Figure 21 is a
photograph of the excess DOD refrigerant recovery system that we
purchased.

Figure 21: New, Unused Refrigerant Recovery System Purchased in April 2006

Limited DOD Actions to Assure Reutilization of New, Unused Items

Although DLA and DRMS implemented several initiatives to improve the
overall reutilization rate for excess A-condition items, our analysis of
DRMS data found that the reported reutilization rate as of June 30, 2006,

remained the same as we had previously reported-about 12 percent.14 This
is primarily because DLA reutilization initiatives are limited to using
available excess A-condition items to fill customer orders and to maintain
established supply inventory retention levels. As a result, excess
A-condition items that are not needed to fill orders or replenish supply
inventory are disposed of outside of DOD through transfers, donations, and
public sales, which made it easy for us to purchase excess new, unused DOD
items. The disposal of items that exceed customer orders and inventory
retention levels is an indication that DOD bought more items than it
needed. In addition, several of the items we purchased at liquidation
sales events were being ordered from supply inventory by military units at
or near the time of our purchase, and for one supply-depot-stocked
item-the portable field x-ray enclosure-no items were in stock at the time
we made our undercover purchase, indicating continued waste and
inefficiency.

DLA and DRMS initiatives resulted in a reported $38.1 million in excess
property reutilization savings through June 2006. According to DLA data as
of June 30, 2006, interim supply system initiatives using the Automated
Asset Recoupment Program, which is part of an old legacy system, achieved
reutilization savings of nearly $2.3 million since July 2005, while
Business System Modernization supply system initiatives, implemented in
January 2006 as promised at the June 2005 hearing, have resulted in
reutilization savings of nearly $1.1 million. In addition, DRMS reported
that excess property marketing initiatives implemented in late March 2006
have resulted in reutilization savings of a little over $34.8 million
through June 2006. These initiatives include marketing techniques using
Web photographs of high-dollar items and e-mail notices to repeat
customers about the availability of A-condition items that they had
previously selected for reutilization.

Corrective Action Briefing

On June 28, 2006, we briefed DOD, DLA, DRMS, and military service
management on the results of our investigations. We discussed the causes
of the control breakdowns we identified with regard to security of
sensitive excess military equipment and provided our perspectives on ways
to address the following problems.

o Some military units and DLA supply depots recorded incorrect
demilitarization codes to excess military property items and in some cases
improperly included these items in batch lots before sending these items
to DRMOs.

o DRMO personnel failed to verify the recorded demilitarization codes when
they processed receipts of excess military property.

o The limited scope of DLA and DRMS compliance reviews is not sufficient
to detect problems with incorrect demilitarization codes.

o DOD's excess property liquidation sales contractor failed to verify
demilitarization codes of items received and return items requiring
mutilation or destruction to the DRMO for proper disposal.

The managers told us that they shared our concern about the breakdowns in
security controls that allowed sensitive military items requiring
demilitarization to be sold to the public. They asked us for pertinent
documentation obtained during our investigations to support their
follow-up inquiries and corrective action plans. We have provided this
information. In addition, the managers told us that the DRMOs rely on
access controls executed by the DOD installations at which the DRMOs are
located to preclude access by unauthorized parties. During our briefing,
we also pointed out that because the reutilization and marketing program
permits public access to DRMOs and liquidation sales locations, it is most
important to confirm the identities and requisitioning authority of the
individuals who enter the DRMOs to screen and requisition excess property.
With regard to reutilization program economy and efficiency issues, the
DOD managers maintained that forecasting the correct inventory level is
difficult and that some amount of excess purchasing is necessary to assure
that inventory is available when needed. They also stated that there is a
cost associated with retaining excess inventory for extended periods of
time. We provided DOD documentation to show that the excess A-condition
items that we purchased were continuing to be ordered and used by the
military services at the time of our undercover purchases.

Conclusions

Our security tests clearly show that sensitive military equipment items
are still being improperly released by DOD and sold to the public, thus
posing a national security risk. The sensitive nature of these items
requires particularly stringent internal security controls. Our tests,
which were performed over a short duration, were limited to our
observations, meaning that the problem may likely be more significant than
what we identified. Although we have referred the sales of items
identified during our investigation to federal law enforcement agencies
for follow-up, the solution to this problem is to enforce controls for
preventing improper release of these items outside DOD. Further,
liquidation sales of items that military units are continuing to purchase
at full cost from supply inventory demonstrates continuing waste and
inefficiency in DOD's excess property reutilization program.

Agency Comments and Our Evaluation

We provided a draft of our report to DOD for comment on July 10, 2006. The
Deputy Under Secretary of Defense for Logistics and Materiel Readiness
responded that given the time allotted to comment, the Department was not
able to do a detailed review and has no comments at this time. However,
the Deputy Under Secretary also stated that the department continues to
implement changes to our procedures based on recommendations in our May
13, 2005, report.15

We are sending copies of this letter to interested congressional
committees, the Secretary of Defense, the Deputy Under Secretary of
Defense for Logistics and Personnel Readiness, the Under Secretary of
Defense Comptroller, the Secretary of the Army, the Secretary of the Navy,
the Secretary of the Air Force, the Director of the Defense Logistics
Agency, the Director of the Defense Reutilization and Marketing Service,
and the Director of the Office of Management and Budget. We will make
copies available to others upon request. In addition this report will be
available at no charge on the GAO Web site at http://www.gao.gov .

Please contact me at (202) 512-7455 or [email protected] , if you or your
staffs have any questions concerning this report. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on the
last page of this report. Major contributors to this report are
acknowledged in appendix IV.

Gregory D. Kutz Managing Director Forensic Audits and Special
Investigations

Appendix I

DOD Excess Property Demilitarization Codes

Department of Defense (DOD) property is assigned a demilitarization code
to identify the required disposition of items when they are no longer
needed by DOD. Demilitarization codes are contained in the Defense
Demilitarization Manual, DOD 4160.21-M-1 (1995), which implements DOD
policy to apply appropriate controls (e.g., restrictions to use by
authorized parties, destruction when no longer needed by DOD) over items
that have a significant military technology application to prevent
improper use or release of these items outside of DOD. These items include
materiel that the Secretary of Defense has designated as requiring
demilitarization, articles on the U.S. Munitions List (22 C.F.R. pt. 121),
and certain articles subject to export controls because they are on the
Commerce Control List establish by the U.S. Department of Commerce (15
C.F.R. S: 774, Supp. 1). Appendix 3 of the Manual provides the
demilitarization codes to be assigned to federal supply items and coding
guidance. The codes indicate whether property is available for reuse
without restriction or whether specific restrictions apply, such as
removal of classified components, destruction of sensitive military
technology, or trade security control. The table below defines the DOD
demilitarization codes.

Table 1: DOD Excess Property Demilitarization Codes

                                        

Demilitarization code               Required disposal action               
A                     Demilitarization not required                        
B                     Military List Item (MLI) Non-Significant Military    
                         Equipment (SME) Demilitarization not required. Trade 
                         Security Controls required at disposition.           
C                     MLI (SME) - Remove and/or demilitarize installed key 
                         point(s) as prescribed in the Defense                
                         Demilitarization Manual, or lethal parts,            
                         components, and accessories.                         
D                     MLI (SME) - Total destruction of item and components 
                         so as to preclude restoration or repair to a useable 
                         condition by melting, cutting, tearing, scratching,  
                         crushing, breaking, punching, neutralizing, etc. (As 
                         an alternate, burial or deep water dumping may be    
                         used when coordinated with the DOD Demilitarization  
                         Program Office.)                                     
E                     MLI (Non SME) - Additional critical items/materiel   
                         determined to require demilitarization, either key   
                         point or total destruction. Demilitarization         
                         instructions to be furnished by the DOD              
                         Demilitarization Program Office.                     
F                     MLI (SME) - Demilitarization instructions to be      
                         furnished by the Item/Technical Manager.             
G                     MLI (SME) - Demilitarization required - Ammunition,  
                         Explosives, and Dangerous Articles (AEDA).           
                         Demilitarization, and if required, declassification  
                         and/or removal of sensitive markings or information, 
                         will be accomplished prior to physical transfer to a 
                         DRMO. This code will be used for all AEDA items,     
                         including those which also require declassification  
                         and/or removal of sensitive markings or information. 
P                     MLI (SME) - Security Classified Item -               
                         Declassification and any additional demilitarization 
                         and removal of any sensitive markings or information 
                         will be accomplished prior to accountability or      
                         physical transfer to a DRMO. This code will not be   
                         assigned to AEDA items. Items received at a DRMO     
                         with Demilitarization code P will not be processed   
                         for disposal without the required certificate of     
                         declassification and a certificate of                
                         demilitarization.                                    
Q                     CCLI - Commerce Control List Item. Demilitarization  
                         not required. CCLI are non-MLI and are dual-use      
                         (military, commercial, and other strategic uses)     
                         items under the jurisdiction of the Bureau of        
                         Industry and Security, U.S. Department of Commerce,  
                         through Export Administration Regulations (codified  
                         at 15 C.F.R., Ch. VII, Sub Ch C).                    
X                     Indicates that demilitarization requirements of MLI  
                         applicability not determined by the Inventory        
                         Control Point. Local determination of                
                         demilitarization requirement is necessary prior to   
                         disposal action.                                     

Source: DRMS Automated Information System (DAISY) C-A-T (Codes and Terms)
reference guide (12th ed. 2006), DRMS-I 4160.14, vol. IV, Supp. 1, "Codes
Index" (November 2004), and DOD-4160.21-M-1, Defense Demilitarization
Manual (1995).

Appendix II

Excess Property Condition Codes

The Department of Defense's (DOD) condition code is a two-digit
alphanumeric code used to denote the condition of excess property from the
supply and the disposal perspective. The DOD supply condition code is the
alpha character in the first position and shows the condition of property
in the Defense Logistics Agency supply depot inventory, or is assigned by
the unit turning in the excess property. The General Services
Administration (GSA) disposal condition code, in the second position,
shows whether the property is in new, used, or repairable condition,
salvageable, or should be scrapped.

Table 2: Excess Property Condition Codes

                                        

     DOD Codes         DOD Supply Condition Code            GSA Disposal      
                                                           Condition Code     
                 Serviceable property                   
A1, A4        A - Issuable without qualification -   1 - Excellent -       
                 New, used, repaired or reconditioned   Property is in new or 
B1, B4        property which is issuable without     unused condition and  
                 restriction, including material with a can be used           
C1, C4        shelf life of more than 6 months.      immediately without   
                                                        repairs.              
D1, D4, D7    B - Issuable with qualification - New,                       
                 used, repaired or reconditioned        4 - Usable - Property 
                 property which is issuable, but is     shows some wear, but  
                 restricted from issue to specific      can be used without   
                 units, activities, or geographical     significant repair.   
                 areas by reason of its limited                               
                 usefulness or short service life       7 - Repairable -      
                 expectancy, including materials with a Property is unusable  
                 shelf life of 3 through 6 months.      in its current        
                                                        condition, but can be 
                 C - Priority issue - Property is       economically          
                 issuable to selected customers but     repaired.             
                 must be issued before Condition A and  
                 B material to avoid loss as a usable   
                 asset, including materials with less   
                 than 3 months shelf life.              
                                                        
                 D - Test/Modification required -       
                 Property is in serviceable condition   
                 but requires test, alteration,         
                 modification, or conversion or         
                 disassembly.                           
                 Unserviceable property                 
E7            E - Limited restoration required -     7 - Repairable -      
                 Property requires only a limited       Property is unusable  
F7            expense or effort to restore to        in its current        
                 serviceable condition.                 condition, but can be 
G7                                                   economically          
                 F - Reparable - Property is            repaired.             
H7            economically reparable but requires    
                 repairs, overhaul, or reconditioning   
                 to make it serviceable property.       
                                                        
                 G - Incomplete - Property requires     
                 additional parts or materials to       
                 complete the item prior to issue.      
                                                        
                 H - Condemned - Property has been      
                 determined to be unserviceable and     
                 does not meet repair criteria,         
                 including items whose shelf life has   
                 expired and cannot be extended.        
                 Salvage property                       
FX, GX, HX    F - Reparable; G - Incomplete; H -     X - Salvage -         
                 Condemned                              Property has value in 
(VX- Salvaged                                        excess of its basic   
military                                             materiel content but  
munitions)                                           repair is impractical 
                                                        and/or uneconomical.  
                 Scrap property                         
FS, GS, HS    F - Reparable; G - Incomplete; H -     S - Scrap - Property  
                 Condemned                              has no value except   
                                                        for its basic         
                                                        materiel content      

Source: DRMS Automated Information System (DAISY) C-A-T (Codes and Terms)
reference guide (12th ed. 2006), DRMS-I 4160.14, vol. IV, Supp. 1, "Codes
Index" (November 2004).

Appendix III

Comments from the Department of Defense

Appendix IV

GAO Contact and Staff Acknowledgments

GAO Contact

Gregory D. Kutz, 202-512-7455

Acknowledgments

Staff making key contributions to this report include Mario Artesiano,
Donald L. Bumgardner, Matthew S. Brown, Paul R. Desaulniers, Stephen P.
Donahue, Lauren S. Fassler, Gayle L. Fischer, Cinnimon Glozer, Jason
Kelly, John Ledford, Barbara C. Lewis, Richard C. Newbold, John P. Ryan,
Lori B. Ryza, Lisa Warde, and Emily C. Wold.

Technical expertise was provided by Keith A. Rhodes, Chief Technologist,
and Harold Lewis, Assistant Director, Information Technology Security,
Applied Research and Methods.

(192188)

www.gao.gov/cgi-bin/getrpt? GAO-0-9436 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Gregory D. Kutz at (202) 512-7455 or
[email protected].

Highlights of GAO-0-9436 , a report to congressional requesters

July 2006

DOD EXCESS PROPERTY

Control Breakdowns Present Significant Security Risk and Continuing Waste
and Inefficiency

GAO's previous work found problems in security controls over sensitive
excess military equipment that resulted in lost and stolen items, some of
which were sold to the public, and significant waste and inefficiency in
the Department of Defense (DOD) excess property reutilization program. GAO
was asked to perform follow-up investigations to determine whether (1)
unauthorized parties could obtain sensitive excess military equipment that
requires demilitarization (destruction) when no longer needed by DOD and
(2) system and process improvements are adequate to prevent sales of new,
unused excess items that DOD continues to buy or that are in demand by the
military services.

What GAO Recommends

GAO briefed DOD and military service management on the results of its
investigations and provided perspectives on ways to resolve the control
breakdowns that resulted in public sales of sensitive excess military
equipment and new, unused excess items that the military services are
continuing to use. In addition, GAO asked DOD to comment on a draft of its
report. In its comments, DOD stated that given the time allotted to
comment, the department was not able to do a detailed review and has no
comments at this time. DOD also commented that it continues to implement
changes to procedures based on GAO's May 2005 report (GAO-05-277).

GAO investigators posing as private citizens to disguise their identity
purchased several sensitive military equipment items from DOD's
liquidation sales contractor, indicating that DOD has not enforced
security controls for preventing sensitive excess military equipment from
release to the public. GAO investigators at liquidation sales purchased
ceramic body armor inserts currently used by deployed troops, a cesium
technology timing unit with global positioning capabilities, a universal
frequency counter, 2 guided missile radar test sets, 12 digital
microcircuits used in F-14 fighter aircraft, and numerous other items. GAO
was able to purchase these items because controls broke down at virtually
every step in the excess property turn-in and disposal process. GAO
determined that thousands of military items that should have been
demilitarized (destroyed) were sold to the public. Further, in June 2006,
GAO undercover investigators posing as DOD contractor employees entered
two excess property warehouses and obtained about $1.1 million in
sensitive military equipment items, including 2 launcher mounts for
shoulder-fired guided missiles, several types of body armor, a digital
signal converter used in naval surveillance, an all-band antenna used to
track aircraft, and 6 circuit cards used in computerized Navy systems. At
no point during GAO's warehouse security penetration were its
investigators challenged on their identity and authority to obtain DOD
military property. The table below shows examples of sensitive military
equipment obtained during GAO's undercover operations.

Sensitive Military Equipment Obtained during GAO's Undercover Tests

GAO investigators posing as private citizens also bought several new,
unused items currently being purchased or in demand by the military
services from DOD's excess property liquidation sales contractor. Although
military units paid full price for these items when they ordered them from
supply inventory, GAO paid a fraction of this cost to purchase the same
items, demonstrating continuing waste and inefficiency.
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