Defense Inventory: Plan to Improve Management of Shipped Inventory Should
Be Strengthened (Letter Report, 02/22/2000, GAO/NSIAD-00-39).

Pursuant to a legislative requirement, GAO reviewed the Department of
Defense's (DOD) plan for tracking inventory shipments, focusing on
whether the plan: (1) responds to the provisions of the Strom Thurmond
National Defense Authorization Act for Fiscal Year 1999; (2) contains
the management elements needed for guiding effective implementation; and
(3) adequately addresses other underlying weaknesses that led to
ineffective control of inventory shipments.

GAO noted that: (1) DOD's plan is generally responsive to the statute
and represents a necessary first step toward improving DOD's control
over inventory shipments; (2) the plan includes 18 proposed actions to
improve the tracking of inventory shipments; (3) as required by the
statute, the plan also includes statements of objectives for the
actions, performance measures, and schedules for implementation; (4) DOD
intends to complete 14 of the proposed actions between fiscal year 2000
and 2006, while the remaining 4 proposed actions are ongoing, with no
specific completion date provided; (5) the plan only briefly addresses
the issue of resources necessary to implement the proposed actions, and
it does not contain an estimate of the annual costs involved, as
required by the statute; (6) the plan does not contain some key
management elements needed to effectively implement the proposed
actions; (7) the Government Performance and Results Act offers a model
for developing an effective management framework to improve the
likelihood of successfully implementing initiatives and assessing
results; (8) although the statute did not require that DOD's plan
conform to the Results Act, congressional reports and administrative
guidance regarding the Results Act indicate that activities such as
inventory management should be subject to these results-oriented
principles; (9) DOD's plans does not fully reflect these principles;
(10) in most cases, the actions, objectives, and performance measures in
the plan are not specific enough to guide implementation; (11) the
performance measures do not identify how DOD will assess progress using
baseline data, benchmarks, or actual results compared to desired
outcomes; (12) also, the plan does not assign accountability within DOD
or the military services for implementing the individual initiatives;
(13) the plan does not describe the operational processes, skills,
technology, human capital, or other resources required to implement each
of the specific actions; (14) without identifying the resources
required; DOD is not in a position to determine the cost-effectiveness
or feasibility of its proposed actions; and (15) the plan does not
adequately address underlying weaknesses that have led to the lack of
control over inventory shipments, such as: (a) not addressing the
widespread problem of military supply activities that do not
consistently follow existing DOD policies and procedures; (b) not
showing how DOD will address the cultural resistance to change that has
hampered its prior initiatives; and (c) not demonstrating a strong
commitment to change.

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

 REPORTNUM:  NSIAD-00-39
     TITLE:  Defense Inventory: Plan to Improve Management of Shipped
	     Inventory Should Be Strengthened
      DATE:  02/22/2000
   SUBJECT:  Inventory control systems
	     Strategic planning
	     Military inventories
	     Logistics
	     Internal controls
	     Performance measures
IDENTIFIER:  DOD In-Transit Accountability System
	     DOD Global Transportation Network
	     Army Continuing Balance System-Expanded

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Report to Congressional Committees

February 2000

DEFENSE INVENTORY

Plan to Improve Management of Shipped Inventory Should Be
Strengthened
*****************

*****************

GAO/NSIAD-00-39

Letter                                                                     3

Appendixes

Appendix I:  Analysis of Plan Regarding End Items

                                                                         20

Appendix II:  Analysis of Plan Regarding Secondary Items

                                                                         24

Appendix III:  Comments From the Department of Defense

                                                                         31

Related GAO Products

                                                                         36

Table 1:  Does the Plan Comply With the Provisions of the Statute?7

Table 2:  Summary of DOD's 18 Actions Proposed in the Plan8

Table 3:  GAO Analysis of Information Provided in the Plan9

Table 4:  Management Elements Not Adequately Addressed in
the Plan                                        10

CFO     Chief Financial Officer

DOD     Department of Defense

GAO     General Accounting Office

                                                     National Security and 
                                             International Affairs Division

B-283681

February 22, 2000

Congressional Committees

The Department of Defense (DOD) annually ships inventory valued at
billions of dollars to various locations around the world. For years, the
Department has had difficulty tracking this inventory from origin to
destination. Concerns about the vulnerability of these shipments to fraud,
waste, and abuse led the Congress to enact section 349 of the Strom
Thurmond National Defense Authorization Act for Fiscal Year 1999 (P.L. 105-
261), which requires the Department of Defense to develop a comprehensive
plan for tracking inventory while it is being shipped. The Department
refers to these inventory shipments as "in-transit inventory." The statute
required that the Department's plan include actions to address these
tracking problems, statements of objectives for the actions, performance
measures and schedules, and an identification of any resources necessary
for implementing the required actions, together with an estimate of annual
costs. This statute also required that our office review the plan and
provide to the Congress any comments we consider appropriate. This report
is in response to that requirement.

As agreed with your offices, we determined whether the plan (1) responds
to the provisions of the statute, (2) contains the management elements
needed for guiding effective implementation, and (3) adequately addresses
other underlying weaknesses that led to ineffective control of inventory
shipments.

Results in Brief

The Department of Defense's plan is generally responsive to the statute
and represents a necessary first step toward improving the Department's
control over inventory shipments. Specifically, the plan includes 18
proposed actions to improve the tracking of inventory shipments. As
required by the statute, the plan also includes statements of objectives
for the actions, performance measures, and schedules for implementation.
The Department intends to complete 14 of the proposed actions between
fiscal year 2000 and 2006; the remaining four proposed actions are
ongoing, with no specific completion date provided. The plan only briefly
addresses the issue of resources necessary to implement the proposed
actions, and it does not contain an estimate of the annual costs involved,
as required by the statute.

The plan does not contain some key management elements needed to
effectively implement the proposed actions. The Government Performance and
Results Act, commonly referred to as the Results Act, offers a model for
developing an effective management framework to improve the likelihood of
successfully implementing initiatives and assessing results. Although the
statute did not require that DOD's plan conform to the Results Act,
congressional reports and administrative guidance regarding the Results
Act indicate that activities such as inventory management should be
subject to these results-oriented principles. DOD's plan does not fully
reflect these principles. Specifically, in most cases the actions,
objectives, and performance measures in the plan are not specific enough
to guide implementation. The performance measures do not identify how the
Department will assess progress using baseline data, benchmarks (i.e.
interim targets), or actual results compared to desired outcomes. Also,
the plan does not assign accountability within the Department or the
military services for implementing the individual initiatives. Lastly, the
plan does not describe the operational processes, skills, technology,
human capital, or other resources required to implement each of the
specific actions. Without identifying the resources required, the
Department is not in a position to determine the cost-effectiveness or
feasibility of its proposed actions.

The plan does not adequately address underlying weaknesses that have led
to the lack of control over inventory shipments. For example, the plan
does not fully address how the Department will correct errors in the
automated systems the military services use to manage this inventory.
These weaknesses and related data errors, if not corrected, will limit the
Department's ability to control inventory shipments and prepare accurate
financial reports. Moreover, the plan does not address the widespread
problem of military supply activities that do not consistently follow
existing departmental policies and procedures. This lack of adherence
often occurs because personnel are not being adequately trained or are not
fully aware of the procedures. Furthermore, the plan does not show how the
Department will address the cultural resistance to change that has
hampered its prior initiatives. More specifically, the plan does not
demonstrate a strong commitment to change. For example, the Department
states in the plan that it does not believe weaknesses in the visibility
over items being shipped are significant when viewed in the context of the
overall security of its worldwide inventories.

We are recommending that the Department improve the plan by modifying it
to include (1) key management elements for monitoring implementation and
measuring progress and (2) specific actions to address underlying
weaknesses in the controls over inventory being shipped.

Background

Inventory being transported between two locations typically involves the
following types of material.

o   Warehoused material: material redistributed between storage
  activities, broken items shipped from consolidation points to a
  commercial or other military repair facility, and material returned
  from a commercial or other military repair facility or an end user.

o   Purchased material: new material shipped from a commercial source to
  a storage activity.

o   End-user material: material ordered from a storage activity or
  commercial source by a unit that expects to use it.

Since at least 1990, our office has considered DOD inventory management a
high-risk area because its inventory management systems and procedures are
ineffective. The lack of control/Footnote1/ over inventory shipments and
the resulting vulnerability of inventory to undetected loss and theft have
been major areas of concern. The lack of adequate controls over inventory
shipments substantially increases the risk that millions of dollars will
be spent unnecessarily. For example, we reported in March 1999 that the
Navy was unable to account for over $3 billion in inventory shipments
during fiscal years 1996 through 1998./Footnote2/ We also reported in
February 1998 that DOD did not have receipts for about 60 percent of its
21 million shipments to end users in fiscal year 1997./Footnote3/

Because DOD has not fully corrected these problems, section 349 of the
Strom Thurmond National Defense Authorization Act for Fiscal Year 1999
required DOD to submit a comprehensive plan to the Congress addressing 

how it will ensure visibility over shipments of all end items and
secondary items./Footnote4/ The statute requires that the plan address the
specific mechanisms to be used to enable DOD to identify at any time the
quantity and location of all end items. Regarding shipments of secondary
items, the statute requires that the plan address the following problems
in DOD's inventory management:

o   the vulnerability of secondary items to loss through fraud, waste,
  and abuse;

o   the loss of oversight of secondary items, including any loss of
  oversight when items are being transported by commercial carriers; and

o   the loss of accountability for secondary items due to either a delay
  of delivery of the items or a lack of notification of a delivery of the
  items.

The statute further requires that, for both end items and secondary items,
the plan include (1) actions to address weaknesses in the control over
items being shipped, (2) statements of objectives, (3) performance
measures and schedules, and (4) an identification of any resources
necessary for implementing the required actions together with an estimate
of the annual costs. 

The statute required that DOD submit its plan to the Congress on March 1,
1999. On March 4, 1999, DOD informed the Congress that it needed
additional time to complete its plan due to, among other things, the broad
scope of the requirement. The Under Secretary of Defense for Acquisition
and Technology submitted the plan to the Congress on September 14, 1999.

DOD's Plan Generally Responds to Requirements of the Statute

The plan is generally responsive to the requirements of the statute and is
a necessary first step to improving DOD's oversight of inventory
shipments. It contains 18 proposed actions, along with individual
objectives, performance measures, and implementation schedules. DOD states
in the plan that it is not requesting any additional resources at this
time to cover the costs of implementing the plan, but that additional
resources may be required at a later time. The plan did not identify an
annual cost estimate for implementing each action, as was required by the
statute. In commenting on a draft of this report, DOD officials stated
that they were not able to reliably estimate the individual costs
associated with implementing each specific action because of limitations
in DOD's current accounting systems. DOD's compliance in the plan with the
requirements of the statute is summarized in table 1.

Table****Helvetica:x11****1:    Does the Plan Comply With the Provisions
                                of the Statute?

--------------------------------------------------------------------------
|            :                Provisions of the statute                  |
|------------------------------------------------------------------------|
| Subject    : Actions  : Objecti : Measur : Schedu : Resourc : Annual   |
| area       : (Number)a: ves     : es     : les    : es      : cost     |
|            :          :         :        :        :         : Estimat  |
|            :          :         :        :        :         : es       |
|------------------------------------------------------------------------|
| End items  : Yes (8)  : Yes     : Yes    : Yes    : Yes     : No       |
|------------------------------------------------------------------------|
| Secondary  : Yes (10) : Yes     : Yes    : Yes    : Yes     : No       |
| items      :          :         :        :        :         :          |
|------------------------------------------------------------------------|
| Vulnerabil : Yes (1)  : Yes     : Yes    : Yes    : Yes     : No       |
| ity        :          :         :        :        :         :          |
|------------------------------------------------------------------------|
| Oversight  : Yes (4)  : Yes     : Yes    : Yes    : Yes     : No       |
|------------------------------------------------------------------------|
| Accountabi : Yes (5)  : Yes     : Yes    : Yes    : Yes     : No       |
| lity       :          :         :        :        :         :          |
--------------------------------------------------------------------------

aOf the 18 proposed actions, 8 actions related to the control over end
items and the remaining 10 actions relate to control over secondary items.
DOD's actions for end items are detailed in its plan by military service,
whereas the actions for secondary items are subdivided into the individual
problem areas specified in the statute.

Source: GAO analysis.

A summary of the 18 proposed actions is shown in table 2. A more detailed
listing of the actions, objectives, and performance measures, along with
our analyses, is contained in appendixes I and II.

Table****Helvetica:x11****2:    Summary of DOD's 18 Actions Proposed in
                                the Plan

-----------------------------------------------------------------------
| Actions related to end items:                                       |
|---------------------------------------------------------------------|
|    The Army plans to improve inventory tracking with the            |
| development of the Global Combat Supply System.                     |
|---------------------------------------------------------------------|
|    The Army plans to expand the use of advanced identification      |
| technology in its transportation systems.                           |
|---------------------------------------------------------------------|
|    The Army plans to continue improving its Logistics               |
| Intelligence File and Logistics Integrated Database.                |
|---------------------------------------------------------------------|
|    The Navy will continue to monitor systems that provide end-      |
| item visibility.                                                    |
|---------------------------------------------------------------------|
|    The Air Force is revising its Combat Ammunition System to        |
| maintain visibility of its inventory shipments.                     |
|---------------------------------------------------------------------|
|    The Marine Corps plans to continue deployment and enhancement    |
| of its Asset Tracking Logistics and Supply System.                  |
|---------------------------------------------------------------------|
|    The Marine Corps plans to develop a messaging application        |
| programming interface that facilitates the exchange of data among   |
| the inventory shipment systems that provide source data.            |
|---------------------------------------------------------------------|
|    The Marine Corps plans to field a final Total Asset Visibility   |
| capability that includes an enhanced Logistics Bases Inventory      |
| Visibility System.                                                  |
|---------------------------------------------------------------------|
| Actions related to secondary items:                                 |
|---------------------------------------------------------------------|
|    Provide timely and accurate delivery information.                |
|---------------------------------------------------------------------|
|    Strengthen oversight of shipments directly from commercial       |
| suppliers to DOD activities.                                        |
|---------------------------------------------------------------------|
|    Examine the adequacy of policy, procedures, and training         |
| related to shipment documentation, movement, and delivery, and      |
| revise as necessary.                                                |
|---------------------------------------------------------------------|
|    Complete and implement the DOD plan to integrate automatic       |
| identification technology into DOD logistics operations.            |
|---------------------------------------------------------------------|
|    Examine the adequacy of policy, procedures, and training for     |
| receipt notification processing and revise as necessary.            |
|---------------------------------------------------------------------|
|    Provide for policy and procedures that fully account for         |
| unserviceable items that have been received at a commercial         |
| repair site.                                                        |
|---------------------------------------------------------------------|
|    Implement the recommendations of the Joint Logistics             |
| Commanders' Material Management Group task force to revise the      |
| DOD Disposal In-Transit Control System and enhance procedures and   |
| training.                                                           |
|---------------------------------------------------------------------|
|    Measure the time to record a receipt and make it visible to      |
| all requiring activities, including DOD financial and accounting    |
| systems.                                                            |
|---------------------------------------------------------------------|
|    Bring DOD management information systems associated with         |
| shipment control into compliance with the Chief Financial           |
| Officers Act.                                                       |
|---------------------------------------------------------------------|
|    Improve current discrepancy reporting and investigating for      |
| shipments between DOD and commercial locations.                     |
-----------------------------------------------------------------------

Source: DOD's in-transit visibility plan.

The Plan Does Not Contain Some Key Management Elements

The plan does not contain some key management elements necessary for
achieving effective implementation or for appropriate congressional
oversight. Although the statute did not specifically require DOD's plan to
conform to the Results Act, we found that the plan could be enhanced if it
contained more of the results-oriented principles embodied in the Results
Act. Table 3 summarizes our analysis of the quality of the information DOD
provided in its plan. Overall, we found that the plan addresses most of
the basic requirements of the statute, but lacks detail in defining

o   specific actions that include steps for achieving goals;

o   results-oriented objectives that are directly linked to the actions;

o   performance measures that include clearly stated performance targets,
  information on the use of baseline data, and benchmarks (i.e., interim
  measures) for monitoring progress;

o   specific schedules that include completion dates and interim
  milestones for actions that are long term;

o   accountability within DOD and the military services for implementing
  each action; and 

o   resources required, including an estimated annual cost, for
  implementing each action.

Table****Helvetica:x11****3:    GAO Analysis of Information Provided in
                                the Plan

                                   Continued from Previous Page
-------------------------------------------------------------------------------
|      : Act :  : Objec :  :   Performance   :  : Sche :  : Accou :  : Resou  |
|      : ions:  : tives :  :    measures     :  : dules:  : ntabi :  : rces   |
|      :     :  :       :  :                 :  :      :  : lity  :  :  and   |
|      :     :  :       :  :                 :  :      :  :       :  : annua  |
|      :     :  :       :  :                 :  :      :  :       :  :   l    |
|      :     :  :       :  :                 :  :      :  :       :  : cost   |
|      :     :  :       :  :                 :  :      :  :       :  : estim  |
|      :     :  :       :  :                 :  :      :  :       :  : ates   |
|-----------------------------------------------------------------------------|
| Acti : Nee :  : Need  :  : Nee : Bas : Int :  : Comp :  : Needs :  : Need   |
| on   : d   :  : to    :  : d   : eli : eri :  : leti :  :  to   :  : to     |
| item : to  :  : be    :  : to  : ne  : m   :  : on   :  : be    :  : be     |
|      : be  :  : more  :  : be  : dat : ste :  : date :  : assig :  : ident  |
|      : mor :  : speci :  : mor : a   : ps  :  :      :  : ned   :  : ified  |
|      : e   :  : fic   :  : e   : nee : Nee :  : need :  :       :  :        |
|      : spe :  :       :  : spe : ded : ded :  : ed   :  :       :  :        |
|      : cif :  :       :  : cif :     :     :  :      :  :       :  :        |
|      : ic  :  :       :  : ic  :     :     :  :      :  :       :  :        |
|-----------------------------------------------------------------------------|
| End  :     :  :       :  :     :     :     :  :      :  :       :  :        |
| Items:     :  :       :  :     :     :     :  :      :  :       :  :        |
|-----------------------------------------------------------------------------|
| 1    : X   :  : X     :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 2    : X   :  : X     :  : X   : X   : X   :  : X    :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 3    : X   :  : X     :  : X   : X   : X   :  : X    :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 4    : X   :  : X     :  : X   : X   : X   :  : X    :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 5    : X   :  : X     :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 6    :     :  : X     :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 7    :     :  : X     :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 8    :     :  : X     :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
|      : Act :  : Objec :  :   Performance   :  : Sche :  : Accou :  : Resou  |
|      : ions:  : tives :  :    measures     :  : dules:  : ntabi :  : rces   |
|      :     :  :       :  :                 :  :      :  : lity  :  :  and   |
|      :     :  :       :  :                 :  :      :  :       :  : annua  |
|      :     :  :       :  :                 :  :      :  :       :  :   l    |
|      :     :  :       :  :                 :  :      :  :       :  : cost   |
|      :     :  :       :  :                 :  :      :  :       :  : estim  |
|      :     :  :       :  :                 :  :      :  :       :  : ates   |
|-----------------------------------------------------------------------------|
| Acti : Nee :  : Need  :  : Nee : Bas : Int :  : Comp :  : Needs :  : Need   |
| on   : d   :  : to    :  : d   : eli : eri :  : leti :  :  to   :  : to     |
| item : to  :  : be    :  : to  : ne  : m   :  : on   :  : be    :  : be     |
|      : be  :  : more  :  : be  : dat : ste :  : date :  : assig :  : ident  |
|      : mor :  : speci :  : mor : a   : ps  :  :      :  : ned   :  : ified  |
|      : e   :  : fic   :  : e   : nee : Nee :  : need :  :       :  :        |
|      : spe :  :       :  : spe : ded : ded :  : ed   :  :       :  :        |
|      : cif :  :       :  : cif :     :     :  :      :  :       :  :        |
|      : ic  :  :       :  : ic  :     :     :  :      :  :       :  :        |
|-----------------------------------------------------------------------------|
| Secondary items       :  :     :     :     :  :      :  :       :  :        |
|-----------------------------------------------------------------------------|
| 1    :     :  :       :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 2    :     :  :       :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 3    : X   :  : X     :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 4    : X   :  :       :  :     : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 5    : X   :  :       :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 6    : X   :  :       :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 7    : X   :  :       :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 8    :     :  :       :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 9    : X   :  :       :  : X   : X   : X   :  :      :  : X     :  : X      |
|-----------------------------------------------------------------------------|
| 10   : X   :  :       :  : X   : X   : X   :  : X    :  : X     :  : X      |
-------------------------------------------------------------------------------

Source: GAO analysis.

Table 4 provides our analysis of these elements and the extent to which
they were addressed in the plan. More detail regarding our analysis is
provided in appendix I for end items and appendix II for secondary items.

Table****Helvetica:x11****4:    Management Elements Not Adequately
                                Addressed in the Plan

                                        Continued from Previous Page
------------------------------------------------------------------------
| Elements of a   : Summary of GAO analysis                            |
| management      :                                                    |
| framework       :                                                    |
|----------------------------------------------------------------------|
| Actions could   : We found that 12 of the 18 proposed actions        |
| be more         : could be more specific to address the problem      |
| specific.       : areas. In general, the actions are stated as       |
|                 : goals and do not identify specific steps to        |
|                 : attain those goals. For example, for one action    |
|                 : related to end items, DOD states that the "Navy    |
|                 : will continue to monitor systems that provide      |
|                 : end item visibility to prevent gaps in             |
|                 : visibility." In another example, DOD states that   |
|                 : it will "bring DOD management information          |
|                 : systems associated with in-transit items into      |
|                 : compliance with the Chief Financial Officers'      |
|                 : Act." Neither of these actions identify the        |
|                 : steps DOD will follow to accomplish these goals    |
|                 : or the specific problem areas they will address.   |
|                 :                                                    |
|                 :                                                    |
|----------------------------------------------------------------------|
|                 :                                                    |
|----------------------------------------------------------------------|
|                 :                                                    |
|----------------------------------------------------------------------|
|                 :                                                    |
|----------------------------------------------------------------------|
|                 :                                                    |
|----------------------------------------------------------------------|
| Elements of a   : Summary of GAO analysis                            |
| management      :                                                    |
| framework       :                                                    |
|----------------------------------------------------------------------|
| Objectives      : For all 8 actions related to end items and 1 of    |
| could be more   : the 10 actions related to secondary items, the     |
| specific.       : statements of objectives could be more clearly     |
|                 : stated and specific. For example, DOD's plan       |
|                 : includes only one objective for end items. This    |
|                 : objective is for each of the military services     |
|                 : to achieve 100 percent visibility of end items     |
|                 : at all times. This objective, however, could be    |
|                 : more directly linked to the eight proposed         |
|                 : action items. Similarly, the objective for         |
|                 : action 3 related to secondary items (to "ensure    |
|                 : that shippers, carriers, and consignees are in     |
|                 : full compliance with policy and procedures         |
|                 : related to shipment documentation, movement, and   |
|                 : delivery") is not directly linked to the           |
|                 : proposed action. The proposed action is to         |
|                 : "examine the adequacy of policy, procedures, and   |
|                 : training related to shipment documentation,        |
|                 : movement, and delivery and revise as necessary".   |
|                 : There is no link, however, to identify how DOD's   |
|                 : proposed action of reviewing policies,             |
|                 : procedures, and training will ensure that          |
|                 : shippers, carriers and consignees are in full      |
|                 : compliance.                                        |
|----------------------------------------------------------------------|
| Performance     : In all cases but one, the performance measures     |
| measures could  : could be strengthened by including quantifiable    |
| be more         : goals for measuring progress and a method for      |
| specific by     : comparing actual results with desired outcomes.    |
| including       : Performance measures in the plan are not results-  |
| baseline data   : oriented and do not include clearly stated         |
| and benchmarks. : performance targets or provisions for using        |
|                 : baseline data or benchmarks. For example, most     |
|                 : of DOD's performance measures for the actions      |
|                 : regarding secondary items identify data that DOD   |
|                 : plans to collect. These performance measures,      |
|                 : however, do not identify how the data will be      |
|                 : used, the level of performance DOD hopes to        |
|                 : attain, or the interim measures for assessing      |
|                 : progress.                                          |
|----------------------------------------------------------------------|
| Schedules need  : Four of the 18 proposed actions are ongoing and    |
| completion      : no completion date is specified. For the other     |
| dates and       : 14 proposed actions, the completion dates extend   |
| interim         : from fiscal years 2000 through 2006 without any    |
| milestones.     : identification of interim milestones DOD will      |
|                 : use to monitor progress. For example, for action   |
|                 : 5 regarding end items, the Air Force plans to      |
|                 : revise its Combat Ammunition System by fiscal      |
|                 : year 2006. However, the Air Force does not         |
|                 : identify interim milestones it will use to         |
|                 : ensure the action is on schedule and will likely   |
|                 : be completed on time.                              |
|----------------------------------------------------------------------|
| Accountability  : DOD's plan does not assign accountability for      |
| needs to be     : any of the 18 proposed actions. DOD states in      |
| assigned.       : the plan that the Deputy Under Secretary of        |
|                 : Defense for Logistics will oversee                 |
|                 : implementation of the plan, but does not assign    |
|                 : accountability to the military services, the       |
|                 : United States Transportation Command, or the       |
|                 : Defense Logistics Agency for implementing          |
|                 : specific proposed actions. Consequently, DOD       |
|                 : cannot ensure that the actions will be             |
|                 : implemented as intended.                           |
|----------------------------------------------------------------------|
| Resources need  : DOD's plan does not describe the operational       |
| to be           : processes, skills, technology, human capital,      |
| identified.     : information, or other resources required for any   |
|                 : of the 18 proposed actions. DOD states in the      |
|                 : plan that it is not requesting additional          |
|                 : resources at this time, but that additional        |
|                 : funding may be required at a later date.           |
|----------------------------------------------------------------------|
| Annual cost     : DOD's plan does not provide an annual cost         |
| estimates need  : estimate for implementing the 18 proposed          |
| to be           : actions, as required by the statute. DOD has not   |
| identified.     : identified the costs associated with               |
|                 : implementing the proposed actions, such as the     |
|                 : number of staff or staff days required. As a       |
|                 : result, it is unclear whether DOD has identified   |
|                 : the resources that will be required or whether     |
|                 : it is devoting adequate resources to correcting    |
|                 : the problems. DOD officials stated that            |
|                 : inadequate resources have contributed to the       |
|                 : Department's inability to correct its in-transit   |
|                 : visibility weaknesses.                             |
------------------------------------------------------------------------

Source: GAO analysis.

Plan Could Be Improved By More Fully Addressing Underlying Weaknesses

While the plan addresses many of the weaknesses regarding DOD's lack of
control over items being shipped, it does not adequately address the
underlying problems that have been consistently highlighted in prior GAO
and DOD audit reports. For example, GAO reported in January 1999 that the
Department's plans for improving financial management do not clearly
address how data should be shared among DOD's various functional areas,
such as accounting and property management (which includes inventory
management)./Footnote5/ Defining how data should be shared among functions
is vital to ensure that DOD's financial systems facilitate accurate
financial reporting and maintain proper controls over assets.
Specifically, DOD has had difficulties for many years in obtaining timely
and accurate information on the location, movement, and status of material
being shipped. The underlying causes of this lack of visibility include
(1) uncorrected errors in the systems DOD uses to manage its inventory
shipments, (2) military supply activities' failure to consistently follow
existing DOD policies, and (3) a DOD-wide cultural resistance to change.

Weaknesses in Inventory Management Systems
------------------------------------------

The plan does not fully address how DOD will correct the errors in the
automated logistics systems it uses to manage inventory shipments.
Examples of these logistics systems weaknesses are presented below:

o   DOD states in its plan that the Global Transportation Network will be
  the primary DOD-wide tool to collect and provide visibility information
  for items being shipped. However, this system has not been fully
  developed, and it relies on more than 20 DOD automated logistics
  systems to provide inventory shipment data that our reports and DOD
  audit reports have found inaccurate. Unless substantive improvements
  are made in these systems, DOD's inventory records and financial
  reports will continue to be inaccurate. For example, the Army Audit
  Agency reported in 1998 that shipment visibility problems have existed
  in recent years primarily due to interface problems among its inventory
  management systems and related weaknesses in its logistics processes.
  As a result, the Army did not have reliable data on the value of
  inventory being shipped, and it reported that a significant number of
  its inventory shipment records were invalid. Similarly, the Air Force
  Audit Agency reported in September 1998 that the Air Force did not
  accurately account for its items being shipped and did not know the
  value of this inventory. This report further stated that these
  weaknesses in the lack of control over Air Force inventory while it is
  being shipped impairs DOD's ability to (1) maintain central visibility
  over assets; (2) safeguard assets from physical deterioration, theft,
  or loss; and (3) prevent the purchase of assets already on hand.

o   The Army Audit Agency reported in 1996 that approximately 69 percent
  of the material shipments recorded in the Army's Continuing Balance
  System-Expanded (the Army's primary system for visibility of end items)
  had been received at the shipping destinations, but that the receipt
  documents had not been properly processed to close the shipping
  transaction./Footnote6/ A number of reasons were cited in the Army
  Audit Agency report for the invalid shipment records, including system
  interface problems, use of duplicate unit identification codes, and
  shipments that were redirected to another destination after the
  shipment was initiated. In February 1998 we reported that DOD did not
  have receipts for about 60 percent of its 21 million shipments in
  fiscal year 1997./Footnote7/

Lack of Adherence to Policies and Procedures
--------------------------------------------

Our prior reports and DOD audit reports have consistently identified the
primary cause of DOD's lack of visibility over inventory shipments as the
failure of military supply activities to follow DOD policies and
procedures for ensuring that items being shipped are accounted for.
Specifically, DOD supply activities have failed to properly process
receipt documents and follow up on items that are reported as not
received. While DOD states in the plan that it intends to review its
policies and procedures in these areas, the plan does not include any
actions to ensure the military services comply with the standard DOD-wide
policies and procedures.

In March 1999, we reported that Navy units had not always reported as
required that they received requested items and that the Navy's shipping
and receiving activities had not adequately investigated unreported
receipts./Footnote8/ Similarly, our July 1999 report on property being
shipped to disposal sites states that DOD does not know the status of this
property because the accuracy of inventory shipment data is questionable
and control procedures are not adhered to./Footnote9/ We found that these
control procedures were not being followed because service and disposal
office personnel were not adequately trained and did not always understand
the procedures. (A listing of related GAO products discussing these
problems is provided at the end of this report.)

Cultural Resistance to Change
-----------------------------

Although each of the military services has a number of ongoing initiatives
to improve in-transit visibility, the plan does not address how the
Department will successfully overcome its long-standing cultural
resistance to change. The plan itself expresses this resistance when it
states in the executive summary that DOD does not believe that weaknesses
in its visibility over inventory shipments are significant when viewed in
the context of the overall security of its worldwide inventories. At the
same time the Department acknowledged, in commenting on our March 1999
report, that the Navy reported over $3 billion in inventory shipments for
fiscal years 1996-98 that remain unaccounted for, including some
classified and sensitive items such as aircraft guided munitions, missile
launchers, military night vision devices, and communications
equipment./Footnote10/ In addition, DOD's statement that these visibility
weaknesses are not significant is inconsistent with the military services'
Federal Managers' Financial Integrity Act reports and the reports of
various defense audit agencies, which identify DOD's lack of control over
inventory shipments as a serious weakness.

Our prior work has shown that a key factor for implementing change is top
management commitment and that cultural changes within DOD have been
difficult to effect. Consequently, DOD's prior initiatives to improve
inventory management have progressed slowly. DOD's statement in the plan
raises questions as to whether such a commitment exists on this issue.

Conclusions

DOD's plan for improving its control over inventory being shipped
generally responds to the requirements of the statute and represents a
necessary first step for improving the management of this inventory.
However, the likelihood of the plan achieving its goal could be enhanced
by adding key management elements that are consistent with principles
embodied in the Results Act, such as specific actions, results-oriented
objectives, detailed performance measures, completion dates that include
interim milestones, accountability for oversight and implementation, and
an identification of required resources. The plan could also be enhanced
by addressing underlying weaknesses such as problems and errors in the
military services' automated inventory shipment systems, the failure of
the military supply activities to follow existing DOD policies and
procedures, and a perceived lack of commitment among DOD managers. By
making these improvements to the plan, the Congress and DOD management
will be able to better measure progress and focus actions on weaknesses
that need to be addressed. Without these improvements and the necessary
implementation, DOD's in-transit inventory will continue to remain
vulnerable to fraud, waste, and abuse.

Recommendations

To increase the likelihood that DOD's plan will enhance control over
inventory shipments, we recommend that the Secretary of Defense direct the
Under Secretary of Defense for Acquisition and Technology to revise the
Department's plan to include

o   actions that more specifically address inventory shipment visibility
  weaknesses and the specific steps necessary for attaining DOD's goals;

o   statements of objectives that are directly linked to each action;

o   performance measures that contain quantifiable goals, methods for
  comparing actual results with desired outcomes, baseline data, interim
  measures, and clearly stated performance targets;

o   implementation schedules that contain specific completion dates and
  interim milestones for monitoring long-range actions;

o   accountability for overseeing and implementing each action;

o   an identification of the resources necessary for implementing each
  action, together with an estimate of the annual costs;

o   actions to address the errors in the systems that the military
  services use to manage inventory shipments;

o   actions to address the problem of military supply activities failing
  to consistently follow existing DOD policies and procedures, including
  adequate training for supply personnel; and 

o   actions that address how the Department will successfully overcome
  its long-standing cultural resistance to change to ensure consistent
  implementation by the military services.

We also recommend that the Secretary of Defense submit the Department's
detailed implementation plans, scheduled to be completed in April 2000, to
the Congress to facilitate appropriate congressional oversight.

Agency Comments and Our Evaluation

DOD provided written comments on a draft of this report. They are
reprinted in appendix III. DOD also provided detailed technical comments
that we included in the report where appropriate.

For the most part, the Department concurred with the report and its
recommendations. However, with regard to our recommendation that DOD
revise its plan to improve inventory tracking, DOD believes the level of
detail we are recommending is not appropriate for a plan submitted to the
Congress. The Department stated it intends to develop Department-level
implementation plans that will include the specific information that we
recommended DOD include in a revised plan. The Department intends to
complete these implementation plans in April 2000. We endorse this effort
because these detailed plans would be helpful to DOD as it implements the
planned actions. Furthermore, they will be useful to the Congress in
carrying out its oversight of DOD inventory management programs.
Therefore, we have added a new recommendation to the report that calls for
DOD to provide copies of the April 2000 implementation plans to the
appropriate congressional committees. We also plan to review DOD's
implementation plans when they are completed.

DOD also commented that, because of the limits in its current accounting
systems, the Department is not able to reliably estimate the individual
costs associated with implementing each specific action. We have
consistently reported that DOD's accounting systems contain numerous
weaknesses, and we recognize these limitations. However, DOD's current
budget and accounting systems contain sufficient data to estimate the
resources needed to implement the plan. Therefore, we made no revisions to
our recommendation on this issue.

Finally, DOD also stated it does not perceive the same long-standing
cultural resistance to change cited in our report. We found, however, that
prior DOD initiatives to correct in-transit visibility weaknesses have
been hindered by the military services' reluctance to implement 

Department-wide corrective actions. We continue to believe DOD's plan
should include a strategy to address this parochialism within the military
services. Therefore, we made no revisions to our recommendation on this
issue.

Scope and Methodology

Our analysis of DOD's plan was based on the requirements of section 349 of
the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999
(P.L. 105-261), information contained in the plan, discussions with DOD
officials, and prior work regarding DOD's control over its inventory
shipments. Specifically, to ascertain the extent DOD's plan responds to
the legislative mandate, we compared the plan to each of the key
requirements set forth in the statute.

To determine whether the plan contains an appropriate management framework
for implementation, we used the requirements of the Government Performance
Results Act, commonly referred to as the Results Act,/Footnote11/ as a
model for the types of information the plan should contain. We compared
the contents of the plan and the requirements of the Results Act.
Additionally, we reviewed the plan in terms of outcome-oriented Results
Act principles and identified areas in which it could be improved to
achieve successful implementation. Congressional reports and
administrative guidance regarding the Results Act indicate that activities
such as inventory management should be subject to the outcome-oriented
principles of the Results Act. We did not assess the merits of DOD's
proposed actions or the likelihood of success for these actions.

To determine whether the plan adequately addressed the underlying
weaknesses that led to DOD's ineffective control of its items being
shipped, we reviewed the results of prior DOD internal studies, DOD
Inspector General reports, related GAO reports and testimonies, and other
related documentation. Specifically, we reviewed the plan to identify any
gaps in DOD's coverage of these weaknesses and to establish the degree to
which the plan addressed these weaknesses.

We performed our work at DOD activities in the Washington, D.C., area and
discussed the contents of the plan and its implementation with appropriate
DOD officials.

We conducted our review from August 1999 to November 1999 in accordance
with generally accepted government auditing standards.

We are sending copies of this report to the appropriate congressional
committees; the Honorable William Cohen, Secretary of Defense; the
Honorable Louis Caldera, Secretary of the Army; the Honorable Richard
Danzig, Secretary of the Navy; the Honorable F. Whitten Peters, Secretary
of the Air Force; General James L. Jones, Commandant of the Marine Corps;
Lieutenant General Henry T. Glisson, Director, Defense Logistics Agency;
and the Honorable Jacob Lew, Director, Office of Management and Budget.

If you or your staff have any questions regarding this report, please
contact me or Charles I. Patton, Jr., at (202) 512-8412. Key contributors
to this report were Lawson Gist, Jr.; David Schmitt; and Patricia Blowe.

*****************

*****************

David R. Warren, Director
Defense Management Issues

List of Congressional Committees

The Honorable John Warner
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Floyd Spence
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives

The Honorable Ted Stevens
Chairman
The Honorable Daniel Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Jerry Lewis
Chairman
The Honorable John Murtha
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives

--------------------------------------
/Footnote1/-^ DOD uses the term "visibility" to describe its ability to
  track the identity, status, and location of items being shipped from one
  location to another.
/Footnote2/-^ Defense Inventory: Navy's Procedures for Controlling In-
  Transit Items Are Not Being Followed (GAO/NSIAD-99-61, Mar. 31, 1999).
/Footnote3/-^ Department of Defense: In-Transit Inventory (GAO/NSIAD-98-
  80BR, Feb. 27, 1998).
/Footnote4/-^ End items are major equipment items such as ships, tanks,
  and aircraft. Secondary items include spare parts, clothing, medical
  supplies, and other such items to support DOD operating forces worldwide.
/Footnote5/-^ Financial Management: Analysis of DOD's First Biennial
  Financial Management Improvement Plan (GAO/AIMD-99-44, January 29, 1999).
/Footnote6/-^ Financial Reporting of Equipment In Transit, U.S. Army Audit
  Agency, AA 96-156 (Alexandria, VA: June 17, 1996).
/Footnote7/-^ Department of Defense In-Transit Inventory (GAO/NSIAD-98-
  80R, Feb. 27, 1998).
/Footnote8/-^ Defense Inventory: Navy's Procedures for Controlling In-
  Transit Items Are Not Being Followed (GAO/NSIAD-99-61, Mar. 31, 1999).
/Footnote9/-^ Defense Inventory: Property Being Shipped to Disposal Is Not
  Properly Controlled (GAO/NSIAD-99-84, July 1, 1999).
/Footnote10/-^Defense Inventory: Navy's Procedures for Controlling In-
  Transit Items Are Not Being Followed (GAO/NSIAD-99-61, Mar. 31, 1999).
/Footnote11/-^ The Results Act provides the primary guiding principles
  agencies should use to develop a successful management framework. Its
  key elements require each agency to (1) define its mission and goals,
  (2) develop quantifiable performance measures that will indicate how
  well goals are being achieved, and (3) include a description of required
  resources (i.e., staff operational roles, skills, schedules, and other
  costs). Additionally, the Results Act requires agencies to report actual
  performance against performance goals, the reasons certain goals were
  not met, and future actions they plan to take to meet these goals.

ANALYSIS OF PLAN REGARDING END ITEMS
====================================

This appendix provides the Department of Defense's (DOD) eight proposed
actions, statement of objective, and performance measures to address the
lack of control over shipments of end items (i.e., ships, tanks, and
aircraft), and our analysis of these elements. DOD's actions for end items
are detailed in its plan by military service. The page references in
brackets refer to the page numbers in DOD's plan where the actions,
objectives, and performance measures are discussed.

In its plan DOD identifies one objective for all eight proposed actions.
DOD states that each military service has the same objective, which is to
achieve 100 percent visibility of end items at all times. We believe that
this objective and five of the eight proposed actions could be stated more
specifically to define the mechanisms the Department will use to identify
the quantity and location of end items. The proposed actions for the Army
and the Marine Corps include plans to improve the systems for controlling
items being shipped, whereas the proposed actions for the Air Force and
Navy do not. Also, DOD's performance measures for all eight proposed
actions are not stated as results-oriented goals. These performance
measures could be more specific by including baseline data, interim
measures, and performance targets. In addition, DOD does not provide a
completion date for three of the proposed actions and states that the
actions are ongoing. Lastly, DOD did not assign accountability for
implementing each action and did not identify the resources required or an
estimated annual cost for implementing any of the proposed eight actions.

DOD's Overall Objective:

All military departments have the same goal--to achieve 100 percent
visibility of end items at all times.

Army

Action 1:Improve tracking with the development of a Global Combat Supply
System-Army/Footnote1/ (estimated completion date--fourth quarter of
fiscal year 2002). [page 2-7]

Action 2:Expand the use of advanced identification technology in Army
transportation systems (estimated completion date--ongoing). [page 2-7]

Action 3:Continue to improve the Logistics Intelligence File/Footnote2/
and Logistics Integrated Database, with potential application of the
Logistics Intelligence File and the Army Total Asset Visibility to
identify more closely the location of in-transit end items (estimate
completion date--on-going). [page 2-7]

DOD's Proposed Performance Measures:

o   Number of discrepancies between the Standard Property Book System
  Redesign transactions submitted and the Army's Logistics Support
  Activity confirmation of receipts. [page 2-7]

o   Number of discrepancies between the Continuing Balance System-
  Expanded balance and the Standard Property Book System-Redesign
  balance. [page 2-7]

GAO Analysis:

These actions are broadly stated goals and do not specify the steps 
necessary to improve the Army's systems used for controlling inventory 
shipments. For example, the Army states in action 2 that it plans to
expand  its use of advanced identification technology, but it does not
identify howthis technology will be used to improve the Army's
transportation systems.

The three proposed actions and the two performance measures are not
directly related. In addition, the performance measures do not specify
baseline data, interim steps, or measurable goals for monitoring progress
toward achieving the objective. For example, DOD plans to determine the
numberof discrepancies among the various Army systems for tracking
visibility over end items, but does not include interim targets or goals
for monitoring the Army's progress in correcting weaknesses in its
systems. The Army's primary tracking system for end-item visibility is the
Continuing Balance System-Expanded, but no measures have been included in
the plan to assess the Army's progress in correcting the invalid data in
this system. DOD has not identified the data sources that it will use to
compile this data or how the data will be utilized to rectify the number
of discrepancies. Also, two of the three proposed actions do not include a
completion date.  Without a completion date, it will be difficult for DOD
to measure progress or determine when the actions are completed.

Navy

Action 4:The Navy will continue to monitor systems that provide end-item
visibility to prevent gaps in visibility. [page 2-7]

DOD's Proposed Performance Measure:

o   The Navy will continue to maintain 100 percent asset visibility in
  its end-item reporting systems. [page 2-7]

GAO Analysis:

This action is too generic to determine how the Navy will improve
visibility of end items being shipped. This action does not identify the
specific steps the Navy will follow to monitor its systems or attain 100
percent visibility.

Similarly, DOD's proposed performance measure is simply a goal and does
not include baseline data or interim steps for implementing the Navy's
initiatives. DOD does not identify what data sources or analyses it will
use to measure shipment visibility for Navy end items. Without identifying
the data sources and strategies for analysis, DOD is unable to ensure that
it is collecting the right data for controlling end-item shipments.
Lastly, DOD does not identify the projected completion date and will be
unable to measure progress toward attaining its goal.

Air Force

Action 5:The Air Force is revising the Combat Ammunition System to
maintain asset visibility of in-transit shipments (estimated completion
date--fiscal year 2006). [page 2-8]

DOD's Proposed Performance Measure:

o   The plan being developed will include performance measures and its
  status will be briefed quarterly to senior Air Force managers. [page 2-8]

GAO Analysis:

This action item is not comprehensive regarding the Air Force's visibility
systems for controlling items being shipped. The Combat Ammunition System
is only one of many systems the Air Force relies on to support visibility
of end items. However, the plan does not include actions to enhance the
other systems. For example, the Air Forces uses its Reliability and
Maintainability Information System to provide asset accountability and
control. GAO has previously reported that this system contains inaccurate
data that limits the usefulness of this system. 

DOD has not developed performance measures for this proposed action.
Therefore, the department has no baseline data or interim steps to measure
progress.

Marine Corps

Action 6:Continue deployment and enhancement of the Asset Tracking
Logistics and Supply System (ATLASS II+) to migrate from a mainframe
batched processing system into a client-server environment (estimated
completion date--fourth quarter of fiscal year 2002). [page 2-8]

Action 7:Develop a messaging application programming interface that
facilitates the exchange of data among in-transit visibility source
systems, to specifically include the Asset Tracking Logistics and Supply
System and a functional capability similar to the Transportation
Coordinator's Automated Information for Movement System II (TC AIMS II).
Use automated identification technology with the two systems to capture
all asset movement at the source (estimated completion date--fourth
quarter of fiscal year 2003). [page 2-8]

Action 8:Field a final Marine Corps Total Asset Visibility capability that
includes an enhanced Logistics Bases Inventory Visibility System with
information from the Logistics Intelligence File to maintain asset
visibility in all stages including in-transit, in-process, and in-storage
(estimated completion--fourth quarter of fiscal year 2004). [page 2-8]

DOD's Proposed Performance Measure:

o   Completion of the above actions will allow for real-time in-transit
  visibility, including the status of customer requisitions to retail and
  wholesale sources of supply. [page 2-8]

GAO Analysis:

DOD provides one performance measure for these three proposed actions, and
the performance measure and the actions are not directly related. This
proposed performance measure is simply a statement of intent and does not
include baseline data or interim steps for implementing the Marine Corps'
initiatives. DOD does not identify what data sources or analyses it will
use to measure visibility for Marine Corps end items being shipped.
Without identifying the data sources and strategies for analysis, DOD is
unable to make certain that it is collecting the right data for ensuring
visibility over end items being shipped.

--------------------------------------
/Footnote1/-^ An integrated retail supply system that combines the
  functions of the Standard Property Book System-Redesign.
/Footnote2/-^ Logistics Intelligence File tracks the status of an item
  from the time the unit submits the requisition through various
  departments in the pipeline until the receiving unit transmits a receipt
  document.

ANALYSIS OF PLAN REGARDING SECONDARY ITEMS
==========================================

This appendix provides DOD's 10 proposed actions, statements of
objectives, and performance measures to address the lack of control over
secondary items being shipped (e.g., spare parts, clothing, and medical
supplies), and our analysis of these elements. DOD's actions for secondary
items are detailed in its plan by the following problem areas specified in
the statute:

o   the loss of oversight of secondary items, including any loss of
  oversight when items are being transported by commercial carriers; 

o   the loss of accountability for secondary items due to either a delay
  of delivery of the items or a lack of notification of a delivery of the
  items; and

o   the vulnerability of secondary items to loss through fraud, waste,
  and abuse.

The page references in brackets refer to the page numbers in DOD's plan
where the actions, objectives, and performance measures are discussed.

Of the 10 proposed actions, 7 were not adequately specific to address the
problems. In addition, 1 of the 10 objectives was not directly related to
the action. Also, the proposed performance measures generally lacked
criteria for measuring progress, baseline data, and interim measures for
accomplishing the objectives. Lastly, DOD did not assign accountability
for implementing each action and did not identify the resources required
or an estimated annual cost for implementing any of the proposed 10 actions.

Loss of Oversight of Secondary Items

Action 1:Provide timely and accurate delivery information by the following
times:

o   Near term: obtain carrier electronic data interchange (EDI) messages.
  [page 3-2]

o   Long term: complete development and fielding of the Transportation
  Coordinator's Automated Information for Movement System II. [page 3-2]

Objectives:

o   For the near-term action, the goal is for 28 air, motor, and rail
  carriers and 7 ocean carriers to submit electronic data interchange
  status messages (estimated completion date--fourth quarter of fiscal
  year 1999). [page 3-2]

o   For the long-term action, the goal is worldwide deployment to 443
  locations; 7,337 sites; and 14,584 users (estimated completion date--
  ongoing; initial module fielding fiscal year 2001). [page 3-2]

DOD's Proposed Performance Measure:

o   Percent of shipments with delivery information. [page 3-2]

Action 2:Strengthen oversight of shipments directly from commercial
suppliers to DOD activities by

o   developing a vendor in-transit implementation plan that identifies
  schedules and milestones for fielding in-transit techniques for vendors
  that perform direct deliveries (estimated completion--fourth quarter of
  fiscal year 1999) and

o   completing the direct vendor delivery pilot with a DOD pharmaceutical
  vendor to provide the Global Transportation Network information via
  electronic data interchange (estimated completion--third quarter of
  fiscal year 2000). [page 3-2]

Objective:

o Ensure visibility of direct shipments from commercial sources to DOD
  consignees, including items in-transit to and from contractor repair
  facilities. [page 3-3]

DOD's Proposed Performance Measures:

o   Successful fielding of the direct vendor delivery in-transit
  visibility pilot effort. [page 3-3]

o   Development and implementation of the vendor in-transit
  implementation plan, which will include other metrics for expanding in-
  transit visibility of vendor shipments. [page 3-3]

o   Percent of commercial contracts with shipping notification and
  documentation requirements. [page 3-3]

Action 3:Examine the adequacy of policy, procedures, and training related
to shipment documentation, movement, and delivery and revise as necessary
(estimated completion date--third quarter of fiscal year 2000). [page 3-3]

Objectives:

o   Ensure that shippers, carriers, and consignees are in full compliance
  with policy and procedures related to shipment documentation, movement,
  and delivery. [page 3-3]

o   Ensure timely and accurate information from shippers, carriers, and
  consignees. [page 3-3]

DOD's Proposed Performance Measure:

o   Percent of shipments with shipment notification. [page 3-3]

o   Percent of shipments arriving with proper documentation. [page 3-3]

Action 4:Complete and implement the DOD plan to integrate automatic
identification technology into DOD logistics operations (estimated
completion date--fourth quarter fiscal year 2002. [page 3-3]

Objective:

o Improve the accuracy and speed of identification as items move through
  shipping and receiving nodes as well as transportation nodes. [page 3-4]

DOD's Proposed Performance Measure:

o   Data timeliness that uses the following standards:

    -     Sustainment airlift cargo arrivals and departures at all nodes
      are visible in the Global Transportation Network within 1 hour of
      the event. [page 3-4]

    -     Sustainment sealift cargo arrivals and departures at all nodes
      are visible in the Global Transportation Network within 4 hours of
      the event. [page 3-4]

    -     Shipments both originating and terminating in an operating
      theater or in the Continental United States are visible in the
      Global Transportation Network within 2 hours of the event. [page 3-4]

GAO Analysis:

For the 4 actions DOD proposes regarding the loss of oversight of
secondary items, actions 3 and 4 could be more specific. For example,
action 3 does not identify what steps or criteria DOD will use to examine
and revise its policies, procedures, and training related to shipment
documentation, movement, and delivery. Similarly, action 4 does not
identify how DOD will integrate its automatic identification technology
into its logistics operations.

The objective for action 3 does not provide a link to identify how
examining the adequacy of DOD's policies, procedures, and training will
ensure full compliance. 

The proposed performance measures for actions 1 through 3 do not include
measurable data elements or a structure for assessing progress, such as
comparing historic and current data. These performance measures do not
include baseline data or interim steps for monitoring progress or ensuring
that valid information is collected. With the exception of the performance
measures for action 4, DOD did not include near- or long-term goals or
specific performance indicators for assessing whether implementation is on
target.

Loss of Accountability for Secondary Items

Action 5:Examine the adequacy of policy, procedures, and training for
receipt notification processing and revise as necessary (estimated
completion date--third quarter of fiscal year 2000). [page 3-5]

Objectives:

o   Ensure that consignees are in full compliance with receipt
  acknowledgment policies and procedures. [page 3-5]

o   Reconcile system and system interface problems that deter receipt
  acknowledgment. [page 3-5]

o   Ensure proper financial accountability of receipts. [page 3-5]

DOD's Proposed Performance Measure:

o   Percent of shipments closed with a receipt acknowledgment or a
  closure notification. [page 3-5]

Action 6:Provide for policy and procedures that fully account for
unserviceable items that have been received at a commercial repair site
(estimated completion date--third quarter of fiscal year 2000). [page 3-5]

Objective:

o Maintain proper accountability of unserviceable assets shipped to
  commercial facilities for repair. [page 3-5]

DOD's Proposed Performance Measure:

o   Number and value of unserviceable items shipped to commercial sites
  without receipt notification as percentages of total numbers and values
  of unserviceable items shipped to commercial sites. [page 3-5]

Action 7:Implement the recommendations of the task force established under
the Joint Logistics Commanders' Materiel Management Group to revise the
DOD Disposal In-Transit Control System and enhance associated procedures
and training (estimated completion--ongoing; recommendations due by second
quarter of fiscal year 2000). [page 3-5]

Objectives:

o   Ensure visibility of items shipped to disposal. [page 3-5]

o   Ensure the proper documentation of shipments of controlled items to
  disposal. [page 3-5]

DOD's Proposed Performance Measure:

o   For items in-transit to disposal, the following apply [pages 3-5 and
  3-6]:

    -     discrepant receipt numbers and values as percentages of total
      numbers and values of shipments to disposal,

    -     discrepant receipts and mismatches resolved within established
      timeframes, and

    -     duration of unresolved discrepancies.

Action 8:Measure the time to record a receipt and make it visible to all
requiring activities, including DOD financial and accounting systems
(estimated completion date--fourth quarter of fiscal year 2001). [page 3-6]

Objective:

o Ensure that consignees are in full compliance with receiving policies
  and procedures, especially as they relate to timeliness. [page 3-6]

DOD's Proposed Performance Measure:

o Percent of receipts processed within established time. [page 3-6]

Action 9:Bring DOD management information systems associated with in-
transit items into compliance with the Chief Financial Officers (CFO) Act
(estimated completion date--fiscal year 2005). [page 3-6]

Objective:

o Ensure systems and internal controls associated with in-transit
  inventory meet CFO accountability standards.

DOD's Proposed Performance Measure:

o   Percent of systems that are compliant with the Chief Financial
  Officers Act. [page 3-6]

GAO Analysis:

With the exception of action 8, DOD's actions could be more specific to
address how DOD will correct weaknesses related to the loss of
accountability for shipments of secondary items. For example, actions 5
and 6 do not identify the procedures DOD will use to determine whether its
policies, procedures, and training are adequate. Similarly, action 7 does
not identify how implementing the recommendations of the Joint Logistics
Commanders' Materiel Management Group will correct accountability
weaknesses.

The proposed performance measures for these 5 actions identify the type of
data to be collected, but do not identify how this data will be used to
measure performance. The performance measures lack baseline data and do
not specify interim steps for assessing progress.

Vulnerability of Secondary Items to Loss Through Fraud, Waste, and Abuse

Action 10:Improve current in-transit discrepancy reporting and
investigating for shipments between DOD locations and between commercial
locations and DOD locations by

o   examining the effectiveness and efficiency of current procedures and
  systems for discrepancy reporting and make necessary changes (estimated
  completion--third quarter of fiscal year 2000);

o   enhancing the preparation and submission of discrepancy reports
  through automated, on-line capabilities; and

o   developing a program for monitoring discrepancies (estimated
  completion date--first quarter of fiscal year 2001). [page 3-7]

Objective:

o Ensure that discrepancies in item, quantity, and location are reported
  and investigated in accordance with established policies and
  procedures. [page 3-8]

DOD's Proposed Performance Measure:

o   The quantity and value of receipts with a discrepancy. [page 3-8]

o   Percent of discrepancies resolved. [page 3-8]

GAO Analysis: 

This action is an important first step to improving discrepancy reporting
and follow up procedures for shipments reported as not received at the
intended destination. However, the plan does not go far enough to identify
how DOD will use its discrepancy reporting procedures to eliminate the
vulnerability of shipments of secondary items to loss through fraud,
waste, and abuse. The DOD Inspector General has found that these
discrepancy reports are primarily used to grant customers credit for the
value of lost material instead of determining the causes for lost items.
This proposed action could be enhanced by including actions for using the
discrepancy reporting process to identify and eliminate the causes of lost
inventory.

The proposed performance measures for this action identify the types of
data to be collected, but do not identify how this data will be used to
measure performance. The performance measures lack baseline data and do
not specify interim steps for assessing progress.

COMMENTS FROM THE DEPARTMENT OF DEFENSE
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The following are GAO's comments on the Department of Defense's (DOD)
letter dated January 21, 2000.

GAO Comments

   1.As DOD stated in its cover letter, our draft report acknowledged that
       the statute did not require that DOD's plan conform to the Results
       Act. However, congressional reports and administrative guidance
       regarding the Results Act indicate that activities such as
       inventory management should be subject to the results-oriented
       principles contained in this Act. The Results Act offers a model
       for developing an effective management framework to improve the
       likelihood of successfully implementing initiatives and assessing
       results. We believe that the likelihood of the plan achieving its
       goal will be enhanced by adding key management elements, consistent
       with principles embodied in the Results Act, such as specific
       actions, results-oriented objectives, detailed performance
       measures, completion dates that include interim milestones,
       accountability for oversight and implementation, and an
       identification of required resources.

   2.We are aware of the limitations in DOD's accounting systems, and we
       understand the difficulties of estimating specific annual costs
       associated with each of DOD's proposed actions. However, DOD's
       prior initiatives to correct in-transit visibility weaknesses have
       been hindered by funding limitations. We believe that DOD's
       implementation plans must accurately reflect the estimated annual
       costs for implementing its proposed actions to ensure that these
       actions are feasible and can be implemented as scheduled within
       current funding levels.

   3.Although DOD has begun a number of initiatives to correct in-transit
       visibility weaknesses in response to several of our recent reports,
       it has not addressed the Department's long-standing inability to
       implement far-reaching, department-wide improvements in this area.
       Prior GAO reports have consistently highlighted the military
       services' reluctance to implement DOD-wide initiatives aimed at
       correcting in-transit visibility weaknesses. This resistance to
       change is among the most prominent reasons that defense inventory
       management has for many years been deemed a high risk area within
       the federal government. We believe, therefore, that DOD's
       implementation plans must include a strategy for ensuring that the
       Department's initiatives will be embraced and fully implemented
       throughout the Department.

RELATED GAO PRODUCTS
====================

Defense Inventory: Property Being Shipped to Disposal Is Not Properly
Controlled (GAO/NSIAD-99-84, July 1, 1999). 

DOD Financial Management: More Reliable Information Key to Assuring
Accountability and Managing Defense Operations More Efficiently
(GAO/T-AIMD/NSIAD-99-145, Apr. 14, 1999).

Defense Inventory: DOD Could Improve Total Asset Visibility Initiative
With Results Act Framework (GAO/NSIAD-99-40, Apr. 12, 1999).

Defense Inventory: Navy Procedures for Controlling In-Transit Items Are
Not Being Followed (GAO/NSIAD-99-61, Mar. 31, 1999).

Performance and Accountability Series: Major Management Challenges and
Program Risks--Department of Defense (GAO/OCG-99-4, Jan. 1999).

High-Risk Series: An Update (GAO/HR-99-1, Jan. 1999).

Department of Defense: Financial Audits Highlight Continuing Challenges to
Correct Serious Financial Management Problems
(GAO/T-AIMD/NSIAD-98-158, Apr. 16, 1998).

Department of Defense: In-Transit Inventory (GAO/NSIAD-98-80R, Feb. 27,
1998).

Inventory Management: Vulnerability of Sensitive Defense Material to Theft
(GAO/NSIAD-97-175, Sept. 19, 1997).

Defense Inventory Management: Problems, Progress, and Additional Actions
Needed (GAO/T-NSIAD-97-109, Mar. 20, 1997).

High-Risk Series: Defense Inventory Management (GAO/HR-97-5, Feb. 1997).

High-Risk Series: Defense Financial Management (GAO/HR-97-3, Feb. 1997).

(709440)

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