Federal Property Disposal: Information on DOD's Personal Property
Disposal Process (Briefing Report, 07/08/97, GAO/NSIAD-97-155BR).

Pursuant to a congressional request, GAO reviewed the Department of
Defense's (DOD) personal property disposal process, focusing on: (1) the
way the disposal process works; (2) DOD's rate of return when it sells
this property and the private sector's rate of return on certain sales;
and (3) the best business practices and innovative techniques DOD is
using or considering for use in disposing of unwanted personal property.

GAO noted that: (1) the DOD disposal process, which is governed by
numerous laws and regulations, starts when DOD activities turn in items
to the Defense Reutilization and Marketing Offices (DRMO) for disposal;
(2) upon receipt, DRMO personnel inspect the items for condition,
acquisition value, and special handling requirements such as those for
pilferable or militarily sensitive items; (3) items are accumulated for
14 to 28 days and then processed together; (4) the Defense Reutilization
and Marketing Service's (DRMS) disposition priorities are to reutilize
property within DOD, transfer items to other federal agencies and
organizations with equivalent priority for the purpose of obtaining
excess property, and donate the remaining items to eligible entities
such as state and local governments, among many others; (5) items that
remain after these priorities have been served are sold to the general
public or disposed of, primarily through service contracts; (6) DRMS'
overall rate of return on the reported acquisition value of all usable
property it sold in fiscal year 1996 was 1.97 percent; (7) when compared
with the private sector's rate of return for similar items, DRMS' rates
are low; (8) there are many reasons for DRMS' lower rate of return; (9)
for example, many of the aircraft parts it disposes of only have
military application, and those with commercial application are not
certified by the Federal Aviation Administration, a requirement for
commercial use; (10) another factor lowering DRMS' rate of return is
that the best items are reutilized, transferred, or donated, leaving the
least marketable items available for sale; (11) the volume of items DRMS
disposes of annually also make it difficult for DRMS to develop
expertise or to tailor disposal strategies for individual items like the
private sector does; (12) moreover, the quantities, constant influx of
items, and time limits on the various phases of the process drive DRMS'
emphasis on moving items through the process quickly to make room for
incoming items; (13) DOD is seeking to improve its process by using more
commercial practices and making greater use of the private sector in
disposing of property; and (14) among the key initiatives it is
employing or considering include contracting with private auctioneering
companies to conduct property sales, using the Internet to advertise
available property, selling the property to private contractors that wi*

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

 REPORTNUM:  NSIAD-97-155BR
     TITLE:  Federal Property Disposal: Information on DOD's Personal 
             Property Disposal Process
      DATE:  07/08/97
   SUBJECT:  Surplus federal property
             Property disposal
             Sales
             Profits
             Privatization

             
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Cover
================================================================ COVER


Briefing Report to Congressional Requesters

July 1997

FEDERAL PROPERTY DISPOSAL -
INFORMATION ON DOD'S PERSONAL
PROPERTY DISPOSAL PROCESS

GAO/NSIAD-97-155BR

Federal Property Disposal

(709226)


Abbreviations
=============================================================== ABBREV

  DLA - Defense Logistics Agency
  DOD - Department of Defense
  DRMO - Defense Reutilization and Marketing Office
  DRMS - Defense Reutilization and Marketing Service
  FMS - Foreign Military Sales
  GAO - U.S.  General Accounting Office
  GSA - General Services Administration

Letter
=============================================================== LETTER


B-276848

July 8, 1997

The Honorable John R.  Kasich
Chairman, Committee on the Budget
House of Representatives

The Honorable Collin C.  Peterson
The Honorable Peter A.  DeFazio
House of Representatives

In response to your request, we obtained information on the
Department of Defense's (DOD) personal property disposal process. 
Our specific objectives were to determine (1) the way the disposal
process works, (2) DOD's rate of return when it sells this property
and the private sector's rate of return on certain sales, and (3) the
best business practices and innovative techniques DOD is using or
considering for use in disposing of unwanted personal property.  On
March 25, 1997, we briefed your staff on the information we have
obtained.  This report documents the information presented at that
briefing. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The Federal Property and Administrative Services Act of 1949
(P.L.  81-152), as amended, placed responsibility for the disposition
of government real and personal property with the General Services
Administration (GSA).  GSA delegated disposal of DOD personal
property to the Secretary of Defense, who in turn delegated it to the
Defense Logistics Agency (DLA).  Under DLA, the Defense Reutilization
and Marketing Service (DRMS) carries out the disposal function. 
Personal property not disposed of by DRMS, for example, nuclear
devices and cryptographic equipment, which are disposed of by the
military services themselves, are not discussed in this report. 

DRMS has about 170 Defense Reutilization and Marketing Offices (DRMO)
worldwide that receive and dispose of personal property for DOD
activities.  In fiscal year 1996, DRMS disposed of millions of items
with a reported acquisition value (the amount originally paid for the
item or most recently paid for a like item) of almost $24 billion. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

The DOD disposal process, which is governed by numerous laws and
regulations, starts when DOD activities turn in items to the DRMOs
for disposal.  Upon receipt, DRMO personnel inspect the items for
condition, acquisition value, and special handling requirements such
as those for pilferable or militarily sensitive items.  Items are
accumulated for 14 to 28 days and then processed together.  DRMS'
disposition priorities are to (1) reutilize property within DOD,
transfer items to other federal agencies and organizations with
equivalent priority for the purpose of obtaining excess property and
(2) donate the remaining items to eligible entities such as state and
local governments, among many others.  Items that remain after these
priorities have been served are sold to the general public or
disposed of, primarily through service contracts. 

DRMS' overall rate of return on the reported acquisition value of all
usable property it sold in fiscal year 1996 was 1.97 percent.  When
compared with the private sector's rate of return for similar items,
DRMS' rates are low.  Airline companies, for example, report
receiving 40 to 50 percent of the manufacturer's list price for
aircraft parts.\1 There are many reasons for DRMS' lower rate of
return.  For example, many of the aircraft parts it disposes of only
have military application, and those with commercial application are
not certified by the Federal Aviation Administration, a requirement
for commercial use.  Another factor lowering DRMS' rate of return is
that the best items are reutilized, transferred, or donated, leaving
the least marketable items available for sale.  The volume and types
of items DRMS disposes of annually (about 4 million line items) also
make it difficult for DRMS to develop expertise or to tailor disposal
strategies for individual items like the private sector does. 
Moreover, the quantities, constant influx of items, and time limits
on the various phases of the process drive DRMS' emphasis on moving
items through the process quickly to make room for incoming items. 

DOD is seeking to improve its process by using more commercial
practices and making greater use of the private sector in disposing
of property.  Among the key initiatives it is employing or
considering include contracting with private auctioneering companies
to conduct property sales, using the Internet to advertise available
property, selling the property to private contractors that will then
dispose of it and share the proceeds with DOD, and restructuring
DRMS' organization to operate and compete more like a private
enterprise. 


--------------------
\1 Commercial Practices:  Opportunities Exist to Enhance DOD's Sales
of Surplus Aircraft Parts (GAO/NSIAD-94-189, Sept.  23, 1994). 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

We interviewed DLA and DRMS officials and reviewed documentary
information provided by them on the DOD personal property disposal
process and on the initiatives underway or planned to use best
commercial practices and innovative techniques to improve DOD's
property disposal operations.  We also obtained quantitative data and
statistics, produced by DOD systems, on disposal operations and the
rate of return achieved on property sales.  We did not independently
verify the reliability of that data.  In addition, we used
information on rates of return for aircraft parts obtained from
private sector airline officials during a prior GAO evaluation since
aircraft parts represent a significant percentage of the acquisition
value of DOD's personal property sales. 

We conducted our work from November 1996 through March 1997 in
accordance with generally accepted government auditing standards. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :4

In its comments on a draft of this report, DOD agreed with the
information presented.  We also made the suggested clarification
changes referred to in its response where appropriate in the report. 
DOD's comments are included as appendix I. 


---------------------------------------------------------- Letter :4.1

We are sending copies of this report to the Chairmen, Senate
Committee on Armed Services, House Committee on National Security,
and Senate and House Committees on Appropriations; the Secretary of
Defense; the Administrator of the General Services Administration;
the Director of the Defense Logistics Agency; the Commander of the
Defense Reutilization and Marketing Service; and the Director, Office
of Management and Budget.  Copies will also be made available to
others upon request. 

If you or your staff have any questions concerning this report,
please contact me on (202) 512-8412 or my Assistant Director, Kenneth
R.  Knouse, Jr., on (202) 512-9280.  The major contributors to this
report are listed in appendix II. 

David R.  Warren, Director
Defense Management Issues


Briefing Section I DOD'S DISPOSAL
PROCESS
============================================================== Letter 



   (See figure in printed
   edition.)


   HOW IT WORKS
------------------------------------------------------------ Letter :5

\a Property not needed by DOD activities is considered to be excess
and is available for reutilization by other DOD activities, transfer
to other federal agencies, and transfer to organizations that have
been given priority equal to that of the federal government for the
purpose of obtaining excess personal property. 

\b Property not needed by the federal government or organizations
with equal priority is considered surplus and is available for
donation to eligible organizations or for sale. 



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)


Briefing Section II DRMS' DISPOSAL
STATISTICS
============================================================== Letter 



   (See figure in printed
   edition.)


   AVERAGE DISPOSITIONS
------------------------------------------------------------ Letter :6

\a Some property declared excess by one activity within DOD is
reutilized by other DOD activities. 

\b Includes personal property (1) transferred (2.1%) to other federal
agencies or organizations given priority equal to that of the federal
government, (2) donated (2.1%) to eligible organizations, and (3)
sold (.3%) to foreign military sales customers--the system through
which government-to-government sales of military equipment are made. 

   Note:  Totals for line item
   dispositions do not add due to
   rounding.

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)


   DISPOSITION BY REPORTED
   ACQUISITION VALUE
------------------------------------------------------------ Letter :7

\a According to DRMS personnel, the "other" category was
significantly larger in fiscal years 1992 and 1993 than in subsequent
years because it was used as a "catch all" category. 

\b Fiscal year 1993 disposals were larger than other years because of
DOD base closures and drawdowns (force reductions). 


Briefing Section III RATE OF
RETURN ON SALES
============================================================== Letter 



   (See figure in printed
   edition.)


   OVERALL RATE OF RETURN
------------------------------------------------------------ Letter :8



   (See figure in printed
   edition.)


   HIGHER RATE OF RETURN OVERSEAS
   DURING FY 1996
------------------------------------------------------------ Letter :9



   (See figure in printed
   edition.)


   AIRLINES' PROCEEDS FOR AIRCRAFT
   PARTS ARE HIGHER THAN DOD'S
----------------------------------------------------------- Letter :10



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)


   SOME REASONS DOD HAS LOWER
   RATES OF RETURN THAN THE
   PRIVATE SECTOR
----------------------------------------------------------- Letter :11


Briefing Section IV DRMS'
IMPROVEMENT EFFORTS
============================================================== Letter 



   (See figure in printed
   edition.)


   DOD RECOGNIZES IMPROVEMENT
   NEEDED
----------------------------------------------------------- Letter :12



   (See figure in printed
   edition.)


   DRMS' VISION FOR THE FUTURE
----------------------------------------------------------- Letter :13



   (See figure in printed
   edition.)


   KEY INITIATIVES
----------------------------------------------------------- Letter :14



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Charles I.  (Bud) Patton, Jr.
Kenneth R.  Knouse, Jr.
F.  Earl Morrison
Yolanda C.  ElSerwy
Nancy T.  Lively


*** End of document. ***