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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