Defense Inventory: Property Being Shipped to Disposal Is Not Properly
Controlled (Letter Report, 07/01/1999, GAO/NSIAD-99-84).

The Defense Department (DOD) has had problems accounting for excess
property being shipped to disposal and has developed comprehensive
procedures to track the property. However, the procedures are not
working well and property remains vulnerable to loss and theft. DOD
reports that property valued at $2.7 billion was shipped to disposal
during 1998 but was not recorded as received by disposal offices. A GAO
analysis found that more than one-half of the dollar value of property
that was reported as not received involved items that require special
handling, such as communications equipment, aircraft components, and gun
parts. DOD does not consider all property reported as not received as
lost or stolen. DOD officials said that, in many cases, the property in
question is received and disposed of properly but is incorrectly
reported as not received because the systems used to track the property
are unreliable. DOD, however, does not know the status of property being
shipped to disposal. The reports used to manage and track property are
inaccurate because of computer system programming and data input errors.
Also, control procedures are not being followed because personnel either
are not fully aware of the procedures or do not always understand them.
GAO recommends that the military take steps to correct information
system errors and train staff on control procedures.

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

 REPORTNUM:  NSIAD-99-84
     TITLE:  Defense Inventory: Property Being Shipped to Disposal Is
	     Not Properly Controlled
      DATE:  07/01/1999
   SUBJECT:  Inventory control systems
	     Management information systems
	     Military inventories
	     Data integrity
	     Property disposal
	     Property losses
	     Federal property management
	     Internal controls
	     Accountability
	     Surplus federal property
IDENTIFIER:  DOD In-Transit Accountability System
	     Navy Uniform Inventory Control Point System

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    United States General Accounting Office GAO                Report
    to the Chairman, Committee on Armed Services, House of
    Representatives July 1999          DEFENSE INVENTORY Property
    Being Shipped to Disposal Is Not Properly Controlled GAO/NSIAD-99-
    84 United States General Accounting Office
    National Security and Washington, D.C. 20548
    International Affairs Division B-281629
    Letter July 1, 1999 The Honorable Floyd D. Spence Chairman,
    Committee on Armed Services House of Representatives Dear Mr.
    Chairman: As requested, we reviewed the Department of Defense's
    (DOD) management procedures for controlling excess weapon system
    parts, components, equipment, and other inventory items that are
    being shipped to disposal.1 You asked that we determine if this
    property is vulnerable to waste, abuse, or loss. During fiscal
    year 1998, the military services shipped millions of items to
    disposal with a reported acquisition value totaling over $20
    billion. This report discusses (1) types and amounts of excess
    property that is reported as not received2 when shipped to
    disposal and (2) weaknesses in management controls over excess
    property that is being shipped to disposal that makes it
    vulnerable to waste, abuse, or loss. This report focuses on
    property that DOD considers sensitive or pilferable. Sensitive
    property is comprised of military parts and equipment that have
    capabilities and technologies involving weapons, national
    security, or military advantages. Pilferable property has no
    military capability or technology implications but is especially
    subject to theft because it can be readily resold or converted to
    personal use. This is the third in a series of reports responding
    to your request. We previously reported on DOD's needless
    destruction of certain usable aircraft parts and on inappropriate
    sales of parts with military technology and flight safety risks.3
    Our previous reports are summarized in appendix I. This report is
    also part of our continuing effort to address defense 1DOD refers
    to property being shipped from one DOD activity to another as in-
    transit property. 2DOD refers to shipped property that was not
    recorded as received as unaccounted for property. 3Defense
    Inventory:  Management of Surplus Usable Aircraft Parts Can Be
    Improved (GAO/NSIAD-98-7, Oct. 2, 1997) and Defense Inventory:
    Action Needed to Avoid Inappropriate Sales of Surplus Parts
    (GAO/NSIAD-98-182, Aug. 3, 1998). Page 1
    GAO/NSIAD-99-84 Defense Inventory B-281629 inventory management as
    a high-risk area4 because of vulnerabilities to waste, fraud,
    abuse, and mismanagement. The scope and methodology of our work
    are described in appendix II. Results in Brief    DOD has had
    problems accounting for excess property that is being shipped to
    disposal and has developed comprehensive procedures to track the
    property. However, the procedures are not working effectively,
    leaving property vulnerable to loss or theft. In 1998, the Defense
    Logistics Support Command reported accountability over property
    being shipped to disposal as a material weakness because there was
    little enforcement or use of appropriate control procedures. DOD
    reports that during fiscal year 1998, property valued at about
    $2.7 billion was shipped to disposal but was not recorded as
    received by disposal offices. Our analysis of DOD's data for the
    12-month period ending March 31, 1998, shows that over one-half of
    the dollar value of property that was reported as not received
    involved items that require special handling such as
    communications equipment, aircraft components, and gun parts. DOD
    does not consider all property reported as not received as lost or
    stolen. DOD officials stated that in many instances the property
    in question is received and disposed of properly but is
    incorrectly reported as not received because the systems used to
    track the property are not reliable. However, DOD does not know
    the status of property being shipped to disposal because of the
    questionable accuracy of data and lack of adherence to control
    procedures. The reports used to manage and track this property are
    not accurate because of computer system programming and data input
    errors. For example, we identified 30 shipments that were
    correctly entered into a service's information system but, due to
    a programming or data transmission problem, were not entered into
    the DOD In-transit Accountability System. Consequently, the
    reports incorrectly identified some property as not received, did
    not recognize large numbers of disposal transactions reported by
    the services, and contained duplicate information. Also, control
    procedures are not being followed because 4In 1990, we began a
    special effort to review and report on the federal program areas
    we identified as high risk because of vulnerabilities to waste,
    fraud, abuse, and mismanagement. This effort, which was supported
    by the Senate Committee on Government Affairs and the House
    Committee on Government Reform, brought a much needed focus on
    problems that were costing the government billions of dollars. We
    identified DOD's inventory management as a high-risk area at that
    time because levels of unneeded inventory were too high and
    systems for determining inventory requirements were inadequate.
    Page 2
    GAO/NSIAD-99-84 Defense Inventory B-281629 service and disposal
    office personnel either are not fully aware of the procedures or
    do not always understand them. For example, service and disposal
    office personnel did not always know how to research and
    investigate discrepancies between what was shipped to disposal and
    what was received. We reviewed 191 sample shipments of sensitive
    military property reported as not received. No investigations had
    been made for any of these shipments. After further review, we
    were able to satisfactorily determine the status of 114 of these
    shipments (60 percent). We found that disposal offices received
    the shipments but, due to a backlog of property waiting to be
    processed, had not recorded the receipts. However, we were unable
    to trace the actual disposition of the remaining 77 shipments (40
    percent). These included sensitive items such as a wiring assembly
    used for encrypted electronic communications, optical magnifying
    devices for 25-millimeter guns, and assorted components for the
    Bradley fighting vehicle and other weapon systems. We are
    recommending among other things that the Secretary of Defense take
    actions to correct information system errors and provide training
    on control procedures. These actions should be incorporated into a
    congressionally required plan to improve controls over items
    shipped between DOD activities. Background    The Federal Property
    and Administrative Services Act of 1949, as amended, places
    responsibility for the disposition of government real and personal
    property with the General Services Administration. That agency
    delegated disposal of DOD personal property to the Secretary of
    Defense, who in turn delegated it to the Defense Logistics Agency
    (DLA). The Office of the Deputy Under Secretary of Defense
    (Logistics) provides overall guidance for disposing of property.
    The military services are responsible for determining if certain
    property they hold exceeds their needs. Once they do so, the
    Defense Reutilization and Marketing Service (DRMS), a component of
    DLA, carries out disposal functions. Excess property is generally
    sent to 1 of 113 disposal offices5 for redistribution within DOD
    or transfer to other federal agencies. Property that is not
    redistributed or transferred is designated as surplus and can be
    donated to eligible entities such as state and local governments
    among many others. The property that remains after this process
    may be sold to the general public. Disposal offices are not 5DRMS
    operates 85 domestic disposal offices and 28 international
    disposal offices. Page 3
    GAO/NSIAD-99-84 Defense Inventory B-281629 authorized to handle
    weapons, classified material, drugs, firearms, ammunitions, and
    explosives. The military services dispose of these items. DOD
    provides guidance for establishing an internal control system to
    safeguard property that is being shipped. The key management
    information system supporting these controls is the In-transit
    Accountability System. Maintaining control and accountability over
    excess property being shipped is important for two key reasons.
    First, the property includes sensitive military parts and
    equipment that need to be safeguarded. Second, the property is
    valuable and may include pilferable items, such as photographic
    equipment and supplies, hand tools, shop equipment, and clothing.
    During fiscal year 1998, the military services shipped to disposal
    millions of items with a total reported acquisition value
    exceeding $20 billion.6 Inadequate Accountability     DOD's
    problems with accountability over property being shipped to Is a
    Long-standing Problem    disposal date back to the 1970s. In
    response, DOD over time developed comprehensive procedures to
    control that property. However, audits continued to find that
    these procedures were not effective. For example, we reported in
    1991 that some procedures for such shipments had been
    discontinued.7 At the time, DOD agreed that control procedures
    were ineffective but stated that it planned actions to improve
    controls. In its annual Federal Managers' Financial Integrity Act
    report for fiscal year 1995, DRMS identified accountability over
    property shipped to disposal as a material weakness.8 In 1996,
    DRMS reported that use of the In-transit Accountability System
    would provide control over the shipment of excess property and
    that accountability was no longer a material weakness. 6Excess
    property may be valued at salvage prices (3.4 percent of latest
    acquisition cost for fiscal year 1998). However, the standard
    price (i.e., latest acquisition cost and a surcharge covering the
    costs to operate the supply system) is used throughout DOD in its
    logistics systems. Therefore, throughout the remainder of this
    report, the standard price is the value associated with inventory
    being shipped to disposal. 7Property Disposal:  Controls Needed to
    Preclude DOD Release of Unsafe Surplus M151 Jeeps (GAO/NSIAD-91-
    10, Jan. 2, 1991). 8The Federal Managers' Financial Integrity Act
    of 1982 requires that executive agencies establish and maintain
    systems of internal controls that conform to standards established
    by the Comptroller General of the United States. The act also
    requires that agencies evaluate these controls periodically and
    report to the President and Congress annually on their status.
    These controls must provide reasonable assurance (i.e., a
    satisfactory level of confidence, given considerations of costs,
    benefits, and risks) that resources are accounted for. When the
    head of the agency decides that the internal controls do not
    comply with established standards, the agency's annual report must
    identify weaknesses and describe how and when they will be
    corrected. Page 4
    GAO/NSIAD-99-84 Defense Inventory B-281629 However, in 1998, the
    Defense Logistics Support Command reported accountability over the
    shipment of excess property as a material weakness because there
    had been little enforcement or use of the In-transit
    Accountability System. Amounts and Types of  DOD reports of
    shipped property for fiscal years 1997 and 1998 indicate Excess
    Property                 unacceptably large amounts of property
    identified as not received at disposal offices. For fiscal year
    1997, DOD reported that the services Reported as Not
    shipped excess property valued at about $19.9 billion to disposal.
    Received                        According to the report, property
    worth about $2.2 billion (11 percent) was not recorded as received
    by disposal offices. For fiscal year 1998, DOD reported that the
    services shipped excess property valued at about $20.5 billion to
    disposal and that property worth about $2.7 billion (13 percent)
    was not recorded as received by disposal offices (see table 1).
    Table 1:  Value of Property Reported by DOD as Not Received
    (fiscal year 1998) Dollars in millions Total sent to      Amount
    not         Percent not DOD component
    disposal         received           received Air Force
    $6,151.3           $209.9                  3.4 Army
    6,250.4          1,675.5                 26.8 Navya
    5,242.5            676.2                 12.9 Other DOD
    2,867.6            104.5                  3.6 Total
    $20,511.8          $2,666.1                13.0 aIncludes Marine
    Corps. Source:  DOD In-transit Accountability System. We analyzed
    In-transit Accountability System data for the 12-month period
    ending March 31, 1998. About $1.8 billion of the property shipped
    to disposal by the services was not recorded as received. Table 2
    shows the categories, number of items, and dollar value of
    property reported as not received. Page 5
    GAO/NSIAD-99-84 Defense Inventory B-281629 Table 2:  Categories of
    Property Reported by DOD as Not Received (12 months ending Mar.
    31, 1998) Dollars in millions Category                      Number
    of shipments            Number of items            Value Sensitive
    military items                           16,656
    283,171          $339.0 Pilferable items
    141,197           3,068,674           692.5 Nonsensitive items
    175,453          26,009,763           746.1 Total
    333,306          29,361,608         $1,777.6 Source:  DOD In-
    transit Accountability System. Over one-half of the dollar value
    of the shipments in table 2 involved pilferable items and
    sensitive military items comprised of technologies, capabilities,
    and weapons that should not be made available to the public. Our
    review focused on excess sensitive and pilferable items.
    Nonsensitive items were excluded from our review because DRMS has
    an initiative related to disposing of excess nonsensitive property
    that is designed to reduce the number of unmatched transactions in
    the In-transit Accountability System. DRMS and service officials
    told us that In-transit Accountability System reports of property
    not received do not automatically equate to lost or stolen
    property. They said that in many instances, the property was
    incorrectly identified as not received by the In-transit
    Accountability System. However, DOD's management controls do not
    provide sufficient confidence that property is actually received.
    Management Control              DOD does not know the status of
    property being shipped to disposal Weaknesses Leave
    because of the questionable accuracy of data and lack of adherence
    to control procedures. The reports used to manage and track this
    property are Property Vulnerable to  not accurate because of
    computer system programming and data input Loss or Undetected
    errors. Using judgmentally selected samples of items, we
    identified Theft                           weaknesses in the In-
    transit Accountability System relating to (1) inaccuracies in the
    In-transit Accountability System data and (2) failure to determine
    what happened to items that were shipped but not reported as
    received. These conditions leave property vulnerable to loss or
    undetected theft. The problems were caused primarily by
    programming and data input errors and personnel not following or
    being familiar with required procedures. Page 6
    GAO/NSIAD-99-84 Defense Inventory B-281629 Shipment Control
    Military procedures require that excess property that is
    sensitive, Procedures                       pilferable, or more
    than $800 in value be controlled from the time it leaves a
    military unit's shipping activity until it arrives at a disposal
    office. Implementing the controls is a shared responsibility. The
    military units are supposed to provide information to the In-
    transit Accountability System when the property is shipped. The
    disposal office provides information to the In-transit
    Accountability System when the property is received. The system
    then compares information on the property received from the
    disposal office with information received from the military unit.
    If there is a discrepancy, the military unit is notified. The unit
    is supposed to research the discrepancy, coordinate with the
    disposal office, document its research, and provide information on
    the results to the In-transit Accountability System (see app. III
    for more detail). Procedures also require disposal offices, upon
    receiving property, to provide information to the In-transit
    Accountability System on the type, quantity, and date of receipt.
    To reduce the cost, handling, and administrative time needed to
    process property through the disposal system, the services or
    disposal offices can accumulate nonsensitive property under $800
    in value together as a batch lot. Batch-lotted property is not
    reported to the In-transit Accountability System and, therefore,
    cannot be accounted for under the shipment control procedures. The
    procedures, however, do not allow property considered pilferable,
    sensitive, or over $800 in value to be placed in batch lots.
    Shipments of such property must be reported to the In-transit
    Accountability System. All property in the shipments we reviewed
    were considered sensitive or pilferable. Inaccurate Reporting Data
    DRMS' and services' automated systems used to track excess
    property Input and System Problems shipped to disposal had
    programming and data input problems that caused the In-transit
    Accountability System reports to contain inaccurate information.
    Because of these problems, accountability reports did not
    recognize large numbers of disposal transactions reported by the
    services and contained duplicate or inaccurate information. Also,
    the Navy's information system was not programmed to forward
    discrepancy notices to shipping activities for review. This
    situation reduces the value of reports generated as a management
    tool, thus increasing the vulnerability to undetected property
    loss. One type of discrepancy recorded by the In-transit
    Accountability System involved property that was recorded as
    received at the disposal offices, but Page 7
    GAO/NSIAD-99-84 Defense Inventory B-281629 that was not recorded
    as having been shipped. This situation occurred primarily because
    transactions processed by the services' information systems did
    not show up in the In-transit Accountability System. We reviewed a
    selection of 33 shipments that the In-transit Accountability
    System identified as received by the Oklahoma City disposal office
    but that had no corresponding shipment record. Of these shipments,
    30 had been correctly entered into the Air Force's information
    system but had not been recorded in the In-transit Accountability
    System. DRMS personnel were investigating whether the cause of the
    problem was programming or data transmission. Records showed that
    the other three shipments were manually processed and not entered
    into either the military service's information system or the In-
    transit Accountability System. The shipments involved Army gun
    barrels. The unit typed the shipping documents and did not enter
    the shipments into an information system or report the
    transactions to the In-transit Accountability System. Procedures
    require units that do not have computer connections to the In-
    transit Accountability System to either arrange for shipments to
    be processed by a unit with those capabilities or to mail a copy
    of the shipment documents for input into the system. The personnel
    lacked training and did not know they were supposed to provide
    data to the information system. Officials at the four disposal
    offices we visited stated that they routinely received and
    processed excess property accompanied by handwritten or typed
    shipping documents. The In-transit Accountability System also
    contained duplicate information. For example, shipments to the
    Texarkana, Texas, disposal office had been recorded twice. The
    system reported the shipments both as sent but not received and as
    received but not sent. The system created two discrepancies for
    the same shipment because service and disposal office personnel
    entered different stock numbers for the same shipment. According
    to disposal office officials, this discrepancy occurs frequently
    on shipments for which the military services have not obtained
    national stock numbers9 and to which they assigned local stock
    numbers. Since the disposal office's system cannot recognize local
    stock numbers, personnel there routinely enter a national stock
    number that closely resembles a description of the item being
    shipped. But because local and national stock 9National stock
    number refers to a 13-digit stock number used by DOD and other
    agencies to identify items of supply. It consists of a four-digit
    federal supply class that designates the general commodity
    grouping of the item and a nine-digit item identification number
    that differentiates one supply item from another. Page 8
    GAO/NSIAD-99-84 Defense Inventory B-281629 numbers are different,
    the system cannot match the shipment with the receipt, and a
    double discrepancy occurs. In addition, Navy information systems
    were not programmed to forward discrepancy notices for review by
    shipping activities. Consequently, items were not being
    researched. The In-transit Accountability System electronically
    notifies the Naval Inventory Control Point system that a shipment
    to a disposal office has not been received. The Navy system
    searches for a corresponding shipment transaction and informs the
    accountability system that the shipment has been made. Once this
    happens, the discrepancy notice is cleared from the Navy's system.
    However, regulations require verification of receipts and research
    of discrepancies. The Navy is working to correct this system
    error. Disposal Office Personnel Did     We also noted that In-
    transit Accountability System reports were Not Correctly Record
    Receipts     inaccurate and control procedures were not always
    properly implemented because receiving personnel at the disposal
    offices either were not familiar with receipt recording procedures
    or did not follow them. Specifically, we found the following
    problems: * At the Texarkana disposal office we physically
    inspected 33 batch lots and found pilferable property in 5 of
    them. The items were a firearms part, hand tools, a typewriter,
    and a wrench set. At the Oklahoma City disposal office, 4 of the
    54 batch lots we inspected included pilferable property. We also
    identified a likely case of theft involving excess pilferable
    property. In June 1998, the Air Force shipped a camera lens,
    valued at $424, to the Oklahoma City disposal office. Disposal
    office personnel did not enter receipt of the lens into the
    tracking system. Instead, the lens was placed together with office
    supplies in a batch lot. Our inspection of the batch lot showed
    that the camera lens was missing. After a comprehensive search,
    disposal office personnel concluded that the camera lens had been
    stolen. * At the Philadelphia disposal office, a military
    sensitive item, a night-vision image intensifier, was among 26
    batch lots we inspected. Disposal office personnel stated that
    they checked the demilitarization codes and acquisition dollar
    value of property before it is placed in batch lots. However, they
    did not know that the procedures also required a check for
    pilferable and sensitive property. Based on our discussions with
    DRMS officials, DRMS sent a memorandum to all disposal offices
    addressing our findings. The memorandum directs the disposal
    offices to comply with requirements covering batch lots and Page 9
    GAO/NSIAD-99-84 Defense Inventory B-281629 requires managers to
    periodically review the requirements with disposal office
    employees. In addition, the officials revised the DRMS'
    operational compliance guide to include a periodic self-assessment
    by disposal offices to ensure that pilferable and sensitive
    property is not included in batch lots. Following this action, we
    reviewed 106 batch lots at the San Diego disposal office and found
    no discrepancies. Failure to Follow                  Our review of
    191 judgmentally selected shipments showed that the Procedures
    Results in Loss  services and disposal offices did not follow
    procedures for researching of Accountability
    discrepancies between what was reported as sent to disposal and
    what was received. Service and disposal office personnel were not
    adequately trained and did not always understand or were not fully
    aware of the procedures. Consequently, service and disposal
    personnel did not know how to research and investigate
    discrepancies. As with the reporting problems, this situation made
    property vulnerable to loss. Procedures require that the sending
    unit research such discrepancies. If the unit and the disposal
    office cannot resolve the discrepancy, the unit is required to
    alert its security office or criminal investigators.10 If a unit
    does not respond to a discrepancy report after two notices, DRMS
    takes no further action but leaves the discrepancy on its records
    for 2 years. Although the property we selected for review had
    military capabilities, technologies, or value that warranted
    protecting, the discrepancies were not being researched and
    investigated. We researched available records and found that 114
    shipments had been properly disposed. In most cases, we found that
    the disposal offices had received the shipments but did not record
    the receipts in a timely manner. The In-transit Accountability
    System automatically reports a discrepancy if property is not
    recorded as received within 60 days after being shipped. Officials
    pointed to a backlog of property waiting to be processed as the
    reason for the delays. However, for the other 77 shipments, we
    were unable to determine what happened to the property.
    Specifically: * Records on 27 shipments of sensitive property sent
    by the Army to the Texarkana, Texas, disposal office showed no
    evidence of receipt or 10The criminal investigative agency in the
    Air Force is the Office of Special Investigations, in the Army it
    is the Criminal Investigative Division, and in the Navy it is the
    Naval Criminal Investigative Service. Other agencies that may
    become involved include the Defense Criminal Investigative
    Service; the DLA Command Security Office; the U.S. Customs
    Service, Office of Special Investigations; and the Federal Bureau
    of Investigation. Page 10
    GAO/NSIAD-99-84 Defense Inventory B-281629 disposition of the
    property. The missing property included optical magnifying devices
    for 25-millimeter guns and assorted components for the Bradley
    fighting vehicle and other weapon systems. * Records on 48
    shipments of sensitive property sent by the Air Force to the
    Oklahoma City, Oklahoma, disposal office showed no evidence of
    receipt or disposition. The missing property included aircraft
    lighting panels that displayed name plates or tags identifying the
    panels as part of a specific weapon system. Procedures require the
    name plates or tags to be removed and destroyed. * Records on two
    shipments of sensitive property sent by the Navy to the San Diego,
    California, disposal office showed no evidence of receipt or
    disposition. One missing item was a sensitive wiring assembly used
    for encrypted electronic communications. Results Act Goals and
    The weaknesses in management controls over excess property shipped
    to Related Reporting         disposal also undermine DOD's ability
    to measure progress towards Requirements              achieving
    the selected goals set out in its fiscal year 2000 Performance
    Plan. The plan was prepared in response to the requirements of the
    Government Performance and Results Act.11 The plan contains a
    performance indicator for achieving 90-percent visibility over
    material by fiscal year 2000 and 100-percent visibility by 2004.
    Visibility refers to knowing on a real-time basis how many units
    of specific items are on hand, where the items are located, and
    their condition. Officials stated that they were evaluating ways
    to enforce their control procedures and to increase management
    oversight of the accountability of excess property shipped to
    disposal. The officials stated that the accountability problem
    with property shipped to disposal is part of a larger problem
    involving visibility over all shipped property. DOD was required
    by the Strom Thurmond National Defense Authorization Act for
    Fiscal Year 1999 to develop, by March 1, 1999, a comprehensive
    plan to ensure visibility over shipped items.12 According to 11The
    Results Act requires federal agencies (including DOD) to develop
    departmentwide strategic and performance plans and reports. They
    must set strategic goals, measure performance, and report on the
    degree to which goals were met. This is expected to provide
    Congress and other decisionmakers with objective information on
    the relative effectiveness and efficiency of federal programs.
    Annual performance plans are included as appendix J to the
    Secretary of Defense's Annual Report to the President and the
    Congress. 12The Authorization Act requires that the Comptroller
    General review the plan and submit to Congress any appropriate
    comments. Page 11
    GAO/NSIAD-99-84 Defense Inventory B-281629 DOD officials, the plan
    will be available later in 1999 and will address improvements
    needed in accountability over excess inventory shipped to
    disposal. Conclusions                     DOD management controls
    over excess property being shipped to disposal are not working
    effectively, leaving the property vulnerable to loss or undetected
    theft. DOD believes that property is not being lost and that most
    record discrepancies are due to administrative errors. However,
    such administrative problems are systemic and widespread. In
    addition, DOD does not know the status of property being shipped
    to disposal because of the questionable accuracy of data and lack
    of adherence to control procedures. Further, control procedures
    over property shipped to disposal are not being followed because
    service and disposal personnel either are not fully aware of the
    procedures or do not always understand them. Underlying causes of
    these conditions appear to be the heavy flow of property to
    disposal, insufficient management attention, and a lack of
    training. These conditions make it impossible to report accurate
    performance measures results for inventory that is being shipped.
    Recommendations                 We recommend that the Secretary of
    Defense include actions in the statutorily-required plan for
    visibility over shipped inventory that would address the following
    areas of concern: * Lack of adherence to internal control
    procedures for safeguarding excess property shipped to disposal to
    include researching and investigating discrepancies between what
    was reported as sent to disposal and what was received. *
    Insufficiently trained personnel. * Data accuracy problems
    contained in the In-transit Accountability System reports. * The
    need for performance measures, milestones, and timetables to help
    monitor the progress being made to reduce the vulnerability of
    property being shipped to disposal to undetected loss or
    misplacement. Agency Comments and  In commenting on a draft of
    this report, DOD concurred with the report. Our Evaluation
    DOD stated that it has convened an Integrated Process Team to
    address in-transit control visibility. The team will address our
    report recommendation, including the responsibilities of the
    various types of Page 12
    GAO/NSIAD-99-84 Defense Inventory B-281629 organizations that
    generate excess personal property as well as the responsibilities
    of the disposal activities. DOD's comments are included in
    appendix IV. DOD also provided detailed technical comments and we
    revised the report to reflect them where appropriate. 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.W. Peters,
    Acting Secretary of the Air Force; Lieutenant General Henry T.
    Glisson, Director, DLA; and the Honorable Jacob Lew, Director,
    Office of Management and Budget. Please contact me at (202) 512-
    8412 if you or your staff have any questions concerning this
    report. Major contributors to this report are listed in appendix
    V. Sincerely yours, David R. Warren, Director Defense Management
    Issues Page 13                                       GAO/NSIAD-99-
    84 Defense Inventory Contents Letter
    1 Appendix I
    16 Summary of Prior GAO Reports Appendix II
    19 Scope and Methodology Appendix III
    21 Control Procedures for Excess Property Shipped to Disposal
    Appendix IV
    23 Comments From the Department of Defense Appendix V
    24 GAO Contacts and Staff Acknowledgments Tables
    Table 1: Value of Property Reported by DOD as Not Received (fiscal
    year 1998)
    5 Table 2: Categories of Property Reported by DOD as Not Received
    (12 months ending Mar. 31, 1998)
    6 Page 14                                    GAO/NSIAD-99-84
    Defense Inventory Contents Abbreviations DLA         Defense
    Logistics Agency DOD         Department of Defense DRMS
    Defense Reutilization and Marketing Service Page 15
    GAO/NSIAD-99-84 Defense Inventory Appendix I Summary of Prior GAO
    Reports
    Appendix I 1. Defense Inventory: Management of Surplus Usable
    Aircraft Parts Can Be Improved (GAO/NSIAD-98-7, Oct. 2, 1997). We
    reviewed selected aspects of the Department of Defense's (DOD)
    disposal process, focusing on whether (1) during the disposal
    process DOD destroyed usable aircraft parts that did not have
    military technology and flight safety implications and (2) the
    military services recalled aircraft parts from the disposal
    process to preclude unnecessary purchases or repairs. We noted
    that management of the aircraft parts disposal process could be
    improved.  DOD destroyed some usable aircraft parts and sold them
    as scrap.  These parts were in new or repairable condition and did
    not have military technology or flight safety implications.  The
    parts could possibly have been sold intact at higher than scrap
    prices.  This situation occurred for several reasons.  For
    example, disposal offices destroyed parts because the
    demilitarization codes the military services had assigned to the
    parts were inaccurate.  The codes indicated the parts contained
    military technology when they did not.  Our work showed that the
    Oklahoma City disposal office destroyed 62 of 71 sample items,
    even though they did not have technology implications, because the
    assigned codes required their destruction.  Personnel responsible
    for assigning and reviewing the codes had not been sufficiently
    trained and guidance was not adequate.  In addition, policies and
    practices designed to prevent the inadvertent or unauthorized
    release of parts with military technology and flight safety
    implications did not distinguish between parts with or without
    such implications.  Parts without military technology and flight
    safety concerns were destroyed along with parts that had these
    characteristics. Our work also showed that DOD could have
    purchased or repaired fewer aircraft parts if it had recalled the
    needed parts from the disposal process. For example, the Army
    could have reduced current and planned purchases by about $200,000
    by using Cobra helicopter parts scheduled for destruction.  DOD
    regulations require the military services to know which parts they
    have placed in the disposal process.  However, interface problems
    between service and disposal office computer systems precluded the
    services from knowing what parts were at the disposal offices.
    The military services had not instituted alternative ways to
    obtain this information on a routine basis. Problems with the
    disposal process were likely not unique to the three disposal
    yards we visited because DOD, military service, and Defense
    Logistics Agency policies and procedures generally apply to
    activities being Page 16
    GAO/NSIAD-99-84 Defense Inventory Appendix I Summary of Prior GAO
    Reports performed at all locations.  Our past reviews and DOD
    internal studies identified similar problems at these and other
    locations over the past 10 years or earlier. 2. Defense Inventory:
    Action Needed to Avoid Inappropriate Sales of Surplus Parts
    (GAO/NSIAD-98-182, Aug. 3, 1998). We reviewed DOD's disposal
    process for surplus parts with both military technology and flight
    safety risks, focusing on DOD's efforts to (1) identify and
    destroy parts with military technology and (2) implement a flight
    safety program to prevent aircraft parts with potential flight
    safety risks from being sold through the disposal process. We
    noted that while DOD recognized the dangers associated with
    selling surplus parts with military technology to the public and
    had taken certain actions to address the problem, DOD's disposal
    offices inadvertently sold surplus parts with military technology
    intact.  These sales occurred for three reasons.  First, the
    military services assigned the wrong demilitarization codes to the
    parts.  Because guidance was inadequate, codes assigned to parts
    with military technology incorrectly indicated that the parts did
    not contain the technology.  DOD has been considering ways to
    address this situation but has not yet reached a final decision.
    Second, an initiative intended to correct inaccurately assigned
    demilitarization codes did not ensure that data systems were
    updated with the corrected codes.  As a result, disposal offices
    continued to sell parts with military technology intact after the
    codes for the parts were determined to be inaccurately assigned.
    Personnel responsible for correcting the inaccurately assigned
    codes did not always update their data systems with the corrected
    codes.  Third, the methods that the disposal offices used to
    demilitarize some parts did not adequately destroy the military
    technology contained in the parts.  Guidance to disposal offices
    on how to destroy the military technology inherent in some items
    was not adequate. DOD and its components had not aggressively
    pursued implementation of initiatives to prevent the sale of
    potentially dangerous flight safety critical aircraft parts
    through the disposal system.  DOD and the components had not set
    timelines for implementing the flight safety program.  Also, none
    of the components had fully implemented all of the program
    initiatives, but some have made greater progress than others.  For
    example, at the time our fieldwork was completed, the Army had
    identified over 4,500 aircraft parts with flight safety
    implications, whereas the Navy had not identified any aircraft
    parts with these implications.  DOD planned to increase its Page
    17                                         GAO/NSIAD-99-84 Defense
    Inventory Appendix I Summary of Prior GAO Reports interaction and
    involvement in the program, but the military services and the
    Defense Logistics Agency continued to have problems accomplishing
    flight safety program initiatives. Page 18
    GAO/NSIAD-99-84 Defense Inventory Appendix II Scope and
    Methodology
    Appendix I I To determine DOD's policies and practices to account
    for excess property that is shipped between the military services
    and disposal offices, we met with officials and performed work at
    the Office of the Deputy Under Secretary of Defense (Logistics),
    Washington, D.C.; Army, Navy, and Air Force Headquarters,
    Washington, D.C.; the Defense Logistics Agency, Fort Belvoir,
    Virginia; and the Defense Reutilization and Marketing Service,
    Battle Creek, Michigan.  We also reviewed policies, procedures,
    disposal and transaction histories, and related records obtained
    from the Defense Supply Center, Philadelphia, Pennsylvania; the
    Naval Inventory Control Point, Philadelphia, Pennsylvania; the
    Oklahoma City Air Logistics Center, Tinker Air Force Base,
    Oklahoma; Defense Distribution Depots located in San Diego,
    California, Texarkana, Texas, Susquehanna, Pennsylvania, and
    Oklahoma City, Oklahoma; and the U.S. Army Reserve, Oklahoma City,
    Oklahoma.  We also interviewed personnel and collected information
    from six disposal offices located in Oklahoma City, Oklahoma;
    Philadelphia and Mechanicsburg, Pennsylvania; San Diego and North
    Island, California; and Texarkana, Texas. To identify the reported
    types and amounts of excess DOD property shipped to disposal that
    are identified as not received, we obtained data from DOD's In-
    transit Accountability System showing discrepancies between
    shipment and receipt data.  We analyzed the data to identify
    shipments of pilferable, sensitive, and nonsensitive items that
    were reported by the In-transit Accountability System as not
    received. At the Defense Reutilization and Marketing Service, we
    obtained computerized records from the In-transit Accountability
    System showing property that was not received between February
    1997 and March 1998, giving us the most current and complete
    shipping data available.  Using the data, we judgmentally selected
    for review 191 shipments reported by DOD as not received at
    disposal to determine whether the material was missing and whether
    any discrepancies were researched.  We selected these shipments
    based on the military sensitivity of the items in the shipments.
    We selected and reviewed 56 Air Force shipments of excess military
    sensitive items sent to the Oklahoma City disposal office, 84
    shipments of excess Navy military sensitive items sent to the San
    Diego disposal office, and 51 shipments of excess Army military
    sensitive items sent to the Texarkana disposal office.  We
    selected these locations because, according to DOD records, large
    quantities of excess military parts and equipment, including our
    sample items, were sent to these locations but were never recorded
    as received.  We did not independently verify the overall accuracy
    of the In-transit Accountability System database from which we
    obtained Page 19                                       GAO/NSIAD-
    99-84 Defense Inventory Appendix II Scope and Methodology data but
    used it as a starting point for selecting shipments which we then
    tracked back to records and documents on individual transactions.
    For each sample shipment, we researched shipment records, analyzed
    inventory records, reviewed disposal office documentation and
    receipt records, and held discussions with service and disposal
    office personnel at the locations selected.  We also examined 219
    batch lots of property at the disposal offices to determine
    whether the batch lots contained pilferable or sensitive property.
    To determine whether military units properly reported disposal
    transactions, we reviewed an additional 33 transactions that were
    identified by the In-transit Accountability System as received at
    the Oklahoma City disposal office but were not identified as
    having a corresponding shipment.  We also selected these shipments
    on the basis of the military sensitivity of the items in the
    shipments. We reviewed the In-transit Accountability System
    reports for other issues that negatively impacted DOD's management
    controls.  For example, to determine whether duplicate
    transactions were included in the In-transit Accountability System
    reports, we compared discrepancies involving shipments of excess
    property to the Texarkana disposal office with discrepancies
    involving receipts of excess property at the Texarkana disposal
    office for fiscal year 1998. We used the same computer programs,
    reports, records, and statistics that DOD, the military services,
    the Defense Logistics Agency, and the Defense Reutilization and
    Marketing Service use to control excess property that is shipped
    between the military services and the disposal offices.  We did
    not independently determine the reliability of all these sources.
    For historical perspective and illustrations of past problems, we
    reviewed the results of prior DOD internal studies and DOD
    Inspector General reports.  We also used documentation and data
    obtained during prior work on disposal operations. We performed
    our review between July 1998 and March 1999 in accordance with
    generally accepted government auditing standards. Page 20
    GAO/NSIAD-99-84 Defense Inventory Appendix III Control Procedures
    for Excess Property Shipped to Disposal
    Append IIix I Inventory Control Point (1) Release Order (2a)
    Shipping notice                      Shipping Activity (8) First
    (9) Second (2) DD Form1348-1A      (3) Signed 1348-1A
    follow-up       follow-up (4) Defense Reutilization and (2b)
    Shipping notice                                              (10)
    Results of Marketing Office                    research (5)
    Receipt notice (6)
    (7) Match                             Department of Defense case
    closed
    Discrepancies In-transit Accountability System Manual Process
    Electronic Process (1) Inventory manager determines that an item
    is excess and prepares an inventory release order (A5J).  The A5J
    is sent electronically to the shipping activity where the item is
    stored. (2) The shipping activity fills out a Shipping and
    Receiving Document (DD Form 1348-1A), which accompanies the item
    to the disposal office. (2a) The shipping activity notifies the
    Inventory Control Point that the item was shipped.  This
    notification clears the inventory manager's records of
    accountability for that item. (2b) The shipping notification is
    also sent to the DOD In-transit Accountability System, and a
    suspense file is established by document number, national stock
    number, and number of items shipped. (3) The disposal office
    inspects the shipment, signs the DD 1348-1A, and returns the form
    to the shipping activity.  The shipping activity is required to
    keep this form for 2 years. Page 21
    GAO/NSIAD-99-84 Defense Inventory Appendix III Control Procedures
    for Excess Property Shipped to Disposal (4) The disposal office
    inspects and counts the number of items received and enters the
    receipt information into its inventory system.  The receipt notice
    is sent electronically to the DOD In-transit Accountability
    System, and a suspense file is established for the document
    number, national stock number, and number of items received. (5)
    The system compares document numbers, national stock numbers, and
    quantities for each notification of shipment and each notification
    of receipt. (6) If an exact match of document number, national
    stock number, and quantity occurs, the file is closed. (7) A
    discrepancy occurs if there are quantity differences, no shipping
    notification exists for a receipt notification, or no receipt
    notification exists for a shipping notification. (8) A first
    follow-up request (AFX) is sent to the shipping activity to
    investigate the reason for the discrepancy and resolve it.  A
    report of the investigation is to be sent to the In-transit
    Accountability System within 10 working days. (9) If no report of
    investigation is received within 20 days, a second follow-up
    request (AFZ) is sent to the shipping activity to investigate the
    reason for the discrepancy and resolve it.  If no investigative
    report is received, the file remains active for 1 year and is then
    moved to the history file as unresolved.  The history file is
    maintained for 2 years. Page 22
    GAO/NSIAD-99-84 Defense Inventory Appendix IV Comments From the
    Department of Defense Appendix IV Page 23             GAO/NSIAD-
    99-84 Defense Inventory Appendix V GAO Contacts and Staff
    Acknowledgments
    Appendix V GAO Contacts            Charles I. Patton, Jr., (202)
    512-4412 Ronald L. Berteotti, (214) 777-5702 Acknowledgments
    In addition to those named above, Roger L. Tomlinson, Jackie L.
    Kriethe, Frederick T. Lyles, Jr., Thomas E. Baril, Jr., and Robert
    C. Sommer made key contributions to this report. (709363)
    Letter    Page 24                                      GAO/NSIAD-
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