Inventory Management: Better Controls Needed to Prevent Misuse of Excess
DOD Property (Letter Report, 04/28/2000, GAO/OSI/NSIAD-00-147).

Pursuant to a congressional request, GAO reviewed the Department of
Defense's (DOD) inventory management activities, focusing on the: (1)
reliability of using DOD's database systems to determine whether
activity codes are authorized to obtain excess DOD property; and (2)
adequacy of oversight of the management and use of excess DOD property
provided to selected universities and a Florida Army National Guard unit
where ownership of the property remains with DOD.

GAO noted that: (1) inadequate control, as a result of inconsistent and
incorrect data in DOD's databases, has allowed organizations to obtain
excess DOD property to which they may not be entitled; (2) for example,
the Defense Reutilization and Marketing Automated Information System
contains invalid activity code data--and all activity codes are not
recorded in the Defense Automatic Addressing System Center master file;
(3) many central service points for military services and DOD activities
do not validate and reconcile their files to the Defense Automatic
Addressing System Center master file in a timely manner as required by
regulation; (4) consequently, the data maintained by the various central
service points for military services and DOD activities include activity
address codes that are not recorded in the master file; (5) in GAO's
investigation of the University of Alabama at Huntsville, GAO found that
the University had used an invalid activity code to obtain over $3.5
million worth of excess DOD property to which it was not entitled; (6)
the activity code was associated with an expired contract and it had
been deleted several years earlier; (7) in addition, a Florida Army
National Guard unit was able to obtain excess property between 1998 and
1999 by using an invalid activity code that had been deleted in 1990;
(8) Defense Logistics Agency (DLA) officials were unable to determine
why the Defense Reutilization and Marketing Automated Information System
had failed to reject the invalid codes; (9) further, the activity code
used by the University to obtain the excess property was a
nonrequisitioning code, indicating that the activity was not authorized
to use this code to requisition; (10) GAO determined that 65
nonrequisitioning codes had been used to obtain over $101 million in
excess DOD property from fiscal year 1995 to the present and that there
were no edits in the system to prevent it; (11) DOD has not exercised
adequate oversight of the management and use of excess DOD property
provided to selected universities and a Florida Army National Guard
unit; (12) the property obtained by the University had not been
inventoried as required, a significant portion could not be located, and
some of the property had been misused or stolen; (13) the University had
also failed to provide pertinent information to government officials,
which limited the effectiveness of the officials' oversight activities;
and (14) the Florida National Guard unit had failed to follow procedures
in place to obtain and account for excess DOD property it had received
in 1998 and 1999.

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

 REPORTNUM:  OSI/NSIAD-00-147
     TITLE:  Inventory Management: Better Controls Needed to Prevent
	     Misuse of Excess DOD Property
      DATE:  04/28/2000
   SUBJECT:  Federal agency accounting systems
	     Inventory control systems
	     Federal property management
	     Data integrity
	     Property disposal
	     Surplus property
	     Noncompliance
	     Internal controls
	     Logistics
IDENTIFIER:  DLA Defense Reutilization and Marketing Automated
	     Information System
	     DLA Automatic Addressing System Center

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GAO/OSI/NSIAD-00-147

Office of Special Investigations

B-284877

April 28, 2000

The Honorable Duncan L. Hunter
House of Representatives

Dear Mr. Hunter:

This report is part of our continuing effort to address inventory management
activities within the Department of Defense (DOD) as a high-risk area1
because of vulnerabilities to fraud, waste, abuse, and mismanagement.
Throughout the United States and overseas, the Defense Reutilization and
Marketing Service--a component of the Defense Logistics Agency
(DLA)--transfers and disposes of excess DOD property.2 The Defense
Reutilization and Marketing Service carries out these functions through 72
domestic3 and 27 international Defense Reutilization and Marketing Offices
(DRMO). The excess property is available for reuse by DOD agencies and other
associated organizations, such as government contractors. The Defense
Reutilization and Marketing Service may also transfer property to federal
agencies or donate property to qualified organizations. During fiscal years
1996 through 1999, excess property with an acquisition value of $17.8
billion4 was issued through reutilization, transfer, and donation by the
Defense Reutilization and Marketing Service.

DOD has two database systems that provide accounting and management controls
over the transfer and disposal of excess DOD property: (1) the Defense
Reutilization and Marketing Automated Information System,5 which is used to
inventory and manage excess property, and (2) the Defense Automatic
Addressing System Center,6 which maintains the DOD activity address code
master file. As a control mechanism, an activity address code--which is
alphanumeric--identifies government entities and other organizations
authorized to requisition and receive excess DOD property.

To facilitate our review, we compared the requisitions of property recorded
in the Defense Reutilization and Marketing Automated Information System
against the Defense Automatic Addressing System Center master file on a
particular day and identified 55 questionable activity codes. We viewed
these 55 codes as questionable because they did not appear in Defense
Automatic Addressing System Center records as being active but were
considered valid by the Defense Reutilization and Marketing Automated
Information System. We selected two entities with questionable codes for
further investigation--the University of Alabama at Huntsville (a government
contractor) and a Florida Army National Guard unit. Pertinent information on
the 55 activity codes has been provided to the DOD Inspector General and DLA
for review and appropriate action.

This report responds to your request that we investigate whether the
transfer and disposal of excess DOD property is vulnerable to fraud and
abuse because of inaccurate information in DOD's database systems.
Specifically, this report discusses (1) the reliability of using DOD's
database systems to determine whether activity codes are authorized to
obtain excess DOD property and (2) the adequacy of oversight of the
management and use of excess DOD property provided to selected universities
and a Florida Army National Guard unit where ownership of the property
remains with DOD.

Inadequate control, as a result of inconsistent and incorrect data in DOD's
databases, has allowed organizations to obtain excess DOD property to which
they may not be entitled. For example, the Defense Reutilization and
Marketing Automated Information System contains invalid activity code data;
and all activity codes are not recorded in the Defense Automatic Addressing
System Center master file. We found that many central service points7 for
military services and DOD activities do not validate and reconcile their
files to the Defense Automatic Addressing System Center master file in a
timely manner as required by regulation.8 Consequently, the data maintained
by the various central service points for military services and DOD
activities include activity address codes that are not recorded in the
master file.

In our investigation of the University of Alabama at Huntsville, we found
that the University had used an invalid activity code to obtain over
$3.5 million9 worth of excess DOD property to which it was not entitled. The
activity code was associated with an expired contract and it had been
deleted several years earlier. In addition, a Florida Army National Guard
unit was able to obtain excess property between 1998 and 1999 by using an
invalid activity code that had been deleted in 1990. In commenting on the
results of our investigation, DLA officials were unable to determine why the
Defense Reutilization and Marketing Automated Information System had failed
to reject the invalid codes. Further, the activity code used by the
University to obtain the excess property was a nonrequisitioning code,
indicating that the activity was not authorized to use this code to
requisition.10 DLA officials indicate that this type of code should not be
used to obtain property from a DRMO. However, we determined that
65 nonrequisitioning codes had been used to obtain over $101 million11 in
excess DOD property from fiscal year 1995 to the present and that there were
no edits in the system to prevent it.

DOD has not exercised adequate oversight of the management and use of excess
DOD property provided to selected universities and a Florida Army National
Guard unit. When a university obtains excess DOD property for use on a
government contract, the property remains under DOD ownership. The
university must account for the property, and it is prohibited from using
the property for purposes other than those stated in the contract. However,
in our investigation of the University of Alabama at Huntsville, we found
that the property obtained by the University had not been inventoried as
required, a significant portion could not be located, and some of the
property had been misused or stolen. The University had also failed to
provide pertinent information to government officials, which limited the
effectiveness of the officials' oversight activities. Internal DOD studies
have identified mismanagement of excess property by other universities. In
our investigation of a Florida Army National Guard unit, we found that the
unit had failed to follow procedures in place to obtain and account for
excess DOD property it had received in 1998 and 1999.

We are making recommendations (1) to help DOD and the military services
correct the problems that allow organizations to obtain excess DOD property
without proper authorization and (2) to help ensure the proper management
and use of excess DOD property provided to universities for government
contracts.

The Federal Property and Administrative Services Act of 1949,12 as amended,
places responsibility for the disposition of government real and personal
property with the General Services Administration. That agency delegated
disposal of DOD property to the Secretary of Defense, who in turn delegated
it to DLA. The Office of the Deputy Under Secretary of Defense (Logistics)
provides overall guidance for disposing of property, and DLA's Defense
Logistics Support Command is responsible for disposal policy. 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 carries out disposal functions through DRMOs. Excess
property is generally sent to DRMOs for redistribution within DOD and
government contractors or transferred to other federal agencies. Property
that is not redistributed or transferred is designated as surplus and can be
donated to qualified organizations. The property that remains after this
process may be sold to the public.

The Defense Automatic Addressing System Center was created in 1965 to
address problems with the routing of transactions. Customers--such as the
military services, DOD activities, federal agencies, and contractors--use
the Defense Automatic Addressing System Center through an interactive
network of gateways and databases. The center is linked to over
100 databases and serves over 177,000 customers. To requisition property
from a DRMO, a DOD customer must have an activity code. Service points are
required to assign activity address codes and provide updated data (activity
code additions, changes, and deletions) to the Defense Automatic Addressing
System Center. The Center updates the master activity address code file and
provides updated information on a daily basis to designated service and
agency activities so that they may update their records. DLA applies certain
edits through the system to validate the codes.

DLA created the Defense Reutilization and Marketing Automated Information
System database in 199013 to provide accounting and management capability
for all property in the inventory. In general terms, the system provides for
the automated administrative processing of most DRMO operations and
operational management. The system is used (1) to process the receipt of
property into the inventory and the storage and handling of property under
the DRMO's control and (2) to track the disposition of property through
reutilization, transfer, and donation; sales; hazardous waste disposal;
abandonment; or destruction. The Defense Reutilization and Marketing Service
headquarters is responsible for maintaining and updating the Defense
Reutilization and Marketing Automated Information System. To do this, it
receives updated Defense Automatic Addressing System Center information on a
daily basis.

Excess DOD Property

Inconsistent and incorrect data in DOD's databases have allowed
organizations to improperly obtain excess DOD property. For example, the
Defense Reutilization and Marketing Automated Information System contains
invalid activity code data. In addition, all codes are not recorded in the
agency's Defense Automatic Addressing System Center master file because many
central service points do not validate and reconcile their files to the
system in a timely manner as required by regulation. Consequently, the data
maintained by the various central service points include activity codes that
are not recorded in the Defense Automatic Addressing System Center master
file. In our investigation of the University of Alabama at Huntsville, the
University used an invalid activity code to obtain over $3.5 million in
excess DOD property to which it was not entitled. Further, the activity code
used by the University to obtain the excess property was a nonrequisitioning
code,14 indicating that the activity was not authorized to use this code to
requisition.15 DLA officials indicate that this type of code should not be
used to obtain property from a DRMO. However, we determined that 65
nonrequisitioning codes were used to obtain over $101 million16 in excess
DOD property from fiscal year 1995 to the present and there were no edits in
the system to prevent it. In addition, the Florida Army National Guard unit
we investigated was able to obtain nearly $24,000 worth of excess property
between 1998 and 1999 by using an activity code that had been deleted in
1990.

The two DLA database systems used to determine whether military services,
DOD activities, federal agencies, and other organizations are authorized to
obtain excess DOD property do not always contain the same information
regarding valid and invalid activity codes. The Defense Reutilization and
Marketing Automated Information System database contains invalid code data;
and all codes are not recorded in the Defense Automatic Addressing System
Center master file.

DRMO staff we interviewed incorrectly assumed that activity codes are valid
if accepted by the Defense Reutilization and Marketing Automated Information
System. This is not the case. Our investigation revealed
55 questionable codes that had acquired DOD property valued at about
$8.5 million from January 1998 through February 1999. These activity codes
are questionable because they did not appear in Defense Automatic Addressing
System Center master file records as being active but were considered valid
by the Defense Reutilization and Marketing Automated Information System.
Regarding the 55 questionable codes, we found the following:

ï¿½ Thirteen activity codes were valid but were not in the database.

ï¿½ Seventeen military entities with valid activity codes improperly used
their unit identification codes17 as activity codes to acquire DOD
property.18

ï¿½ Twenty-five activity codes were not valid because they had been deleted or
reassigned or could not be located. The acquisition value of the property
transferred to the 25 codes from January 1998 to February 1999 totaled
approximately $453,000.

Officials of the Defense Logistics Support Command told us that since 1993,
the Defense Reutilization and Marketing Automated Information System has had
an edit feature that confirms the validity of requisitioning activities'
address codes by checking them against the codes in the Defense Automatic
Addressing System Center master file. All organizations requesting excess
property--either by walking into a DRMO or requisitioning the property
electronically--are verified in this way. However, DLA officials told us
that many of the central service points have not validated and reconciled
their files on a yearly basis, as required. 19 We were told that since 1996,
the Marine Corps has been the only military central service point to meet
this requirement, which indicates that the activity codes maintained by many
central service points are inconsistent with the codes contained in the
Defense Automatic Addressing System Center master file. With regard to
walk-in customers, we discovered instances in which DRMO staff did not
furnish a copy of the completed shipping document to the accountable
officer, as required by DOD regulation.20

We advised DLA officials that we had discovered a number of instances in
which organizations were using invalid activity codes to requisition excess
DOD property and that the Defense Reutilization and Marketing Automated
Information System was reporting the codes as valid. These officials
reviewed the transactions we had cited and subsequently advised us that they
were unable to determine why the Defense Reutilization and Marketing
Automated Information System had failed to reject the invalid codes.

Our investigation of the invalid activity code assigned to the University of
Alabama at Huntsville disclosed that the University used the code to obtain
over $3.5 million worth of excess DOD property to which it was not entitled.
In addition, between January 1999 and May 1999, the University improperly
used another code to obtain nearly $80,000 in DOD property.

The University was assigned the activity code for a contract that was
awarded in November 1986 to provide engineering support services to the U.S.
Army Missile Command.21 Although Army records indicate that the assigned
code was a nonrequisitioning code, the University reportedly used the code
to requisition excess DOD property to facilitate the requirements of the
contract. The 1986 contract expired in fiscal year 1991, and the University
received a follow-on contract that same fiscal year.22 However, Army central
service point records do not indicate that the activity code assigned to the
1986 contract was reassigned to the follow-on contract. In 1993, the Army
central service point deleted the activity code for the 1986 contract from
its files and the Defense Automatic Addressing System Center master file.23
Nevertheless, we found that this code was still recorded in the Defense
Reutilization and Marketing Automated Information System database as a valid
code. Consequently, the University was able to use the activity code
provided for the 1986 contract to requisition excess property for the fiscal
year 1991 contract. Specifically, between October 1994 and November 1998,
the University requisitioned more than $3.5 million in excess DOD property
using this invalid code.

In early 1999, a DRMO official questioned the validity of the activity code
used by the University of Alabama at Huntsville and contacted the
responsible Army contracting officer for guidance. In response, the
contracting officer provided the University another activity code to obtain
excess DOD property. This code was also assigned to the U.S. Army Aviation
Missile Command (formerly the U.S. Army Missile Command). Army regulations
regarding the acquisition of government property require that contractors
and military commands use different activity codes.24 From January 1999
until May 1999, the University improperly used the activity code it had
received in 1999 to obtain nearly $80,000 in excess DOD property.

$101 Million in Excess DOD Property

According to the Defense Automatic Addressing System Center, there are
currently 2,723 nonrequisitioning Army activity codes on record.25 According
to the Defense Reutilization and Marketing Service, organizations used 65 of
these codes to obtain over $101 million worth of excess DOD property from
DRMOs from fiscal year 1995 to the present.

The Army activity code used by the University of Alabama at Huntsville to
obtain over $3.5 million of excess DOD property was a nonrequisitioning
category code, indicating that the activity was not authorized to
requisition.26 According to DLA officials, this code category should not be
used to obtain property from a DRMO. However, Defense Reutilization and
Marketing Service staff note that there is only one edit in place in the
Defense Reutilization and Marketing Automated Information System that is
designed to prevent excess DOD property from being requisitioned or issued
through the use of activity codes that are valid only for nonrequisitioning
purposes. This particular edit pertains to one specific Air Force code. In
all other cases, if an activity code appears in the Defense Automatic
Addressing System Center master file as valid, the Defense Reutilization and
Marketing Automated Information System will consider the code valid for
requisitioning and issuing purposes; and no further edits are applied.
According to Defense Automatic Addressing System Center personnel, the
automatic addressing system database contains no edit mechanism to prevent
an organization from using a nonrequisitioning code to acquire excess DOD
property.

Unit

Our investigation of the questionable activity code used by a Florida Army
National Guard unit revealed that the unit had been using an invalid code to
obtain excess DOD property. In 1990, the Army deleted the activity code
associated with Company D of the Florida Army National Guard. However, the
Defense Reutilization and Marketing Automated Information System accepted
this code, and the National Guard unit used it to obtain nearly $24,000
worth of excess DOD property from June 1998 to June 1999.

Property

DOD has not exercised adequate oversight of the management and use of excess
DOD property provided to selected universities and a Florida Army National
Guard unit. Universities did not coordinate requests for DOD excess
property; nor did they inventory and track excess DOD property in their
possession, as required by the Office of Naval Research--the entity
responsible for administrative oversight of university contracts. In our
investigation of the University of Alabama at Huntsville, we found that the
property obtained by the University had not been inventoried as required, a
significant portion could not be located, and some of the property had been
misused or stolen. Furthermore, internal reviews of the program have
reported similar problems with the use of excess DOD property at the
University of Hawaii, the University of Denver, and the University of Rhode
Island. In our investigation of a Florida Army National Guard unit, we found
that the unit had failed to follow procedures in place to obtain and account
for excess DOD property it received in 1998 and 1999.

Property

When a university obtains excess property for use on a government contract,
the property remains under government ownership and must be accounted for by
the university.27 The Office of Naval Research28 has administrative contract
oversight for DOD contracts with universities. According to Office of Naval
Research officials, property acquired from a DRMO by a university must not
be used for purposes other than what the contract states. Office of Naval
Research officials also advised that university contractors must obtain
authorization from the Office of Naval Research before obtaining DRMO
property and are required to coordinate requests for excess property through
that office. Office of Naval Research officials noted that they would then
determine, in concert with the government project manager, whether it was
appropriate for the university to acquire the property for use on a
particular contract. That determination is to be made in accordance with the
DOD requirement that requisitioned property be authorized by the DOD
contract for which the property will be used.29 If approved, the Office of
Naval Research would advise the university to acquire the property.

After obtaining the excess DOD property, a university is required to record
the items and identify them as government property. While the Office of
Naval Research provides general guidance and parameters to universities on
maintaining a property control system, the contractor is responsible for
record maintenance. Office of Naval Research officials stated that using
property for purposes other than what is stated in the contract is a
violation of property control, protection, preservation, and maintenance
policies concerning government property management. In addition, university
contractors are required to submit a DD Form 1662 annually, which lists the
acquisition value of government property provided under contract.

Tracked, and Used Excess DOD Property

The University of Alabama at Huntsville has a long-standing history of
mismanagement of excess DOD property. Historically, the University has not
followed government regulations or its own written policy governing the
acquisition, tracking, and use of excess DOD property.

The University did not adhere to the requirement in Federal Acquisition
Regulation (FAR) 45.505 to inventory and track DRMO property. Moreover, it
did not follow the "Obtaining Excess Property or Surplus Property" provision
of its Government Property Control System Manual. The screener30--who
"screens for" or inspects, requests, and obtains excess DOD property--failed
to provide copies of DD-1348-1 requisition forms to the Research
Administration Office prior to obtaining property. The manual states

"… excess property that is identified as usable on a contract can be
requested by completing DD Form 1348 [DD-1348-1]. This form should be
submitted to the Research Administration Office with justification as to how
it will be used on a designated contract. Research Administration will
forward the request to the Property Administrator at the Office of Naval
Research for approval."

Further, the University's Associate Vice President for Research confirmed
that the Research Administration Office was responsible for ensuring that
all material was properly acquired and inventoried.

The University of Alabama at Huntsville screener in charge of obtaining
excess DOD property stated that he was aware of the University's Government
Property Control System Manual but had never read the section entitled,
"Obtaining Excess Property or Surplus Property." The screener added that he
would meet independently with University researchers who requested specific
items and then go to the DRMOs to fulfill these requests, without obtaining
approvals from the Research Administration Office or the Office of Naval
Research. When we spoke to the screener's then supervisor, the Associate
Vice President for Research, about this matter, the supervisor told us that
the screener was sometimes "ambitious" in his acquisitions of excess DOD
property. However, he stated that he believed that as long as the property
could be used on any government contract, the "spirit" of the acquisition
procedures was met. The supervisor added that acquisition and reporting
procedures at the University were "fuzzy" and "loose" and that it was
impractical to attribute excess DOD property to a particular contract
because the University "had so many government contracts."

The University of Alabama at Huntsville neither inventoried nor tracked the
excess DOD property it obtained and dismissed the need to do so. Because the
screener failed to provide the University's Research Administration Office
copies of the DD-1348-1 forms as required, the property was not included in
the government-furnished material inventory. The screener told us, however,
that no one ever told him to inventory the excess DOD property. Although the
screener kept the DD-1348-1 forms, no one had asked to see them until 1997.
At that time, the University's Research Administrator noticed University
staff driving around the campus in trucks she had never seen before and
asked the screener about them. The screener provided the Research
Administrator with the DD-1348-1 forms he had used to acquire the vehicles
from a DRMO.31 In addition, safes and shredders were improperly located at
various offices, laboratories, and workshops on campus; and University
personnel used sleeping bags as packing material and new garments as shop
rags.

Moreover, the University of Alabama at Huntsville ignored the requirement in
FAR 45.505-14 to report annually the total acquisition cost of government
property provided under each contract. The DD-1662s (DOD Property in the
Custody of Contractors) for the fiscal year 1991 contract completed by the
University for fiscal years 1996 and 1997 are silent on the existence of DOD
property. The DD-1662s for fiscal years 1998 and 1999 list only two items
with a total acquisition value of $2,500. However, DLA records show that the
University acquired DOD property and material from DRMOs with an acquisition
value of about $1.1 million in fiscal year 1996; about
$2 million in fiscal year 1997; $52,631 in fiscal year 1998; and $78,624 in
fiscal year 1999. Based on our investigation, we provided this information
to the Office of Naval Research for review and appropriate action.

In August 1996, the Office of Naval Research reviewed the University's
management of excess DOD property and found that it was unsatisfactory in
the areas of property management, physical inventories, and movement and
disposition of government property.32 A follow-up review in September 1997
concluded that all shortcomings had been addressed. However, at the time of
this review, the Office of Naval Research was not aware that the University
had obtained a vast amount of excess DOD property. The follow-up review did
not take this into consideration, thus hampering the effectiveness of the
oversight of the Office of Naval Research.

In July 1998, the University of Alabama at Huntsville's Office of Internal
Audit reported the following to the University president: (1) the University
lacked internal controls for receiving and transporting excess DOD property,
(2) no segregation of duties for receiving and documenting the property was
in place, and (3) inventory records were minimal. The audit report
recommended that the University take a comprehensive inventory of all
federal government surplus property in its possession and that any unused
property be disposed of in accordance with government property guidelines.
The screener and his supervisor told us that they had been briefed on the
audit findings and recommendations. For its part, the University's Research
Administration Office ignored recommendations for changes that the internal
auditors had made until we began our investigation.

In August 1999, University internal auditors inventoried the excess DOD
property obtained by the screener but could not locate most of the property
from 977 DRMO transactions. Indeed, of the 256,648 items obtained from
DRMOs, the University could account for only 54,561 of the items. The
202,087 missing items included raw materials and consumables (such as
building materials, aluminum bars, and cable); equipment (such as a
camcorder, oscilloscope, microscope, grinding machine, laser printer,
refrigerator, sander, drill machine, generator, typewriters, and copiers);
and clothing (such as coats, jackets, combat boots, socks, and undershirts).
Also among the missing items were a coffee urn and 10 bunk beds. In
addition, the University's screener told us that some excess DOD property
had been stolen from the University. The University's Office of Public
Safety provided incident reports indicating that material "obtained from
federal sources [DRMOs]" had been stolen on a number of occasions. Some
stolen items were described as aluminum sheeting and bars.

During the course of this investigation, we reviewed studies conducted by
the Office of Naval Research and the Office of Command Security, Defense
Reutilization and Marketing Service that identified mismanagement of excess
DOD property by other universities. Many of the same issues that we found at
the University of Alabama at Huntsville surfaced, such as the lack of prior
approvals, inventories, and a direct relationship between contract
requirements and the property obtained. A brief summary of the findings at
the University of Hawaii, the University of Denver, and the University of
Rhode Island follows.

ï¿½ University of Hawaii personnel screened for and obtained over
$3 million in excess DOD property. However, Office of Naval Research
personnel had not authorized the University of Hawaii to receive any
property from the DRMO in Hawaii. The Defense Reutilization and Marketing
Service's Office of Command Security determined that conditions conducive to
crime existed at the University of Hawaii because no records had been kept
of items received from the DRMO. They determined that property could have
been stolen or diverted without the knowledge of University personnel. In
this case, DRMO officials allowed University personnel to screen for
property based on its recognition of screeners without obtaining the proper
approvals from the Office of Naval Research.

ï¿½ Both the University of Rhode Island and the University of Denver acquired
excess DOD property through expired contracts. Neither received prior
approval from the Office of Naval Research before making acquisitions and
both were in possession of government property whose use was questionable
for carrying out the contracted research. The major difference between the
two is that the Office of Naval Research was able to reconcile the
University of Rhode Island inventory of property because the records were in
good condition. They were legible, source documentation was complete, and
there was a clearly defined audit trail. The Office of Naval Research
accounted for 100 percent of the University of Rhode Island property and had
it returned to the DRMO or transferred to another agency. In the University
of Denver case, however, a full reconciliation of the property record was
impossible because the inventory forms were illegible and had no unit prices
and no serial numbers.

Obtain and Account for Excess DOD Property

DOD regulations state that an Army National Guard unit may not obtain excess
DOD property without prior approval from the appropriate U.S. Property and
Fiscal Officer.33 The Property and Fiscal Officer processes requests for
excess property and then forwards the request for approval. The Property and
Fiscal Officer authorizes screeners to inspect, request, and obtain excess
DOD property. Screeners then itemize the screened property on a tally sheet
and forward the tallies to the Property and Fiscal Officer for approval
before property is removed from the DRMO. If the Property and Fiscal Officer
approves the property request, a completed property requisition is faxed to
the unit, which uses it to obtain the property from the DRMO. The Property
and Fiscal Officer is to maintain an inventory of all property obtained by
National Guard units.

However, Company D of the Florida Army National Guard in Cocoa, Florida,
failed to follow these procedures to obtain and account for nearly $24,000
worth of excess DOD property it received from June 1998 to June 1999.
Company D failed to notify the Property and Fiscal Officer as required and
did not obtain permission to take possession of the property. Consequently,
the items obtained by Company D were not on record with the Property and
Fiscal Officer because he had maintained no inventory or control of the
property. Further, DRMO staff ignored the requirement to advise the Property
and Fiscal Officer of the property acquisition.34 In this case, Company D of
the Florida Army National Guard provided the DRMO an authorization-to-screen
letter on agency letterhead with the signatures of the authorizing official
and the screener. DRMO officials told us that receiving an
authorization-to-screen letter with the required signatures is all a DRMO
needs to release the property. These officials said that a DRMO is not a
compliance agency and staff do not routinely contact the authorizing
official to confirm a letter's authenticity. Although we located the
property and determined it was being used appropriately, this situation
clearly illustrates system vulnerability.

DOD controls are inadequate to ensure authorized requisition and proper use
of excess DOD property. One control weakness is that the central service
points for the military services and DOD activities are not periodically
updating their inventory and management data in the Defense Automatic
Addressing System, especially with regard to DOD activity address codes. In
addition, the Defense Reutilization and Marketing Automated Information
System fails to reject invalid activity codes. Another control weakness is
that DOD does not have a department-wide system to prevent organizations
from using nonrequisitioning activity codes to acquire excess property.
Finally, controls and procedures to help ensure the proper management and
use of excess DOD property provided to universities for government contracts
appear to be inadequate.

We recommend that the Secretary of Defense direct

ï¿½ the military services and DOD activities to comply with regulations that
require them to (1) periodically update the inventory and management data in
the Defense Automatic Addressing System Center master file, especially with
regard to activity address codes, and (2) ensure that their central service
points validate and reconcile their activity code files to the Defense
Automatic Addressing System Center master file in a timely manner;

ï¿½ the Director, Defense Logistics Agency, to determine why the Defense
Reutilization and Marketing Automated Information System failed to reject
invalid activity codes and take corrective measures so that the system will
reject invalid activity codes in the future;

ï¿½ the Deputy Under Secretary of Defense (Logistics) and the military
services to develop and implement a system to prevent organizations from
using nonrequisitioning activity codes to acquire excess DOD property by
including the appropriate edits in the Defense Reutilization and Marketing
Automated Information System and the Defense Automatic Addressing System;
and

ï¿½ the Director, Defense Logistics Agency, and the Chief, Office of Naval
Research, to assess the adequacy of controls and procedures to help ensure
the proper management and use of excess DOD property provided to
universities for government contracts.

DOD provided comments on a draft of this report. DOD concurred with our
recommendations and provided clarification on the appropriate agencies
responsible for addressing the issues discussed in our report. DOD also
provided technical corrections; and where appropriate, we have made those
corrections.

We conducted our work from March 1999 to March 2000. We obtained activity
code data from DLA on requisitioned excess DOD property recorded in the
Defense Reutilization and Marketing Automated Information System. We then
compared this data to DLA's Defense Automatic Addressing System Center
master activity address code file on a particular day and identified 55
questionable codes. We researched DLA records to determine why organizations
using these questionable activity codes were allowed to obtain excess DOD
property. We selected two of these organizations for further investigation:
the University of Alabama at Huntsville and a Florida Army National Guard
unit.

We obtained a list of all DRMO transactions associated with the questionable
code used by the University of Alabama at Huntsville from October 1994
through November 1998. We interviewed DRMO staff and obtained copies of
pertinent property requisition forms. We interviewed University personnel
and reviewed pertinent records. We inspected the University facility in an
effort to locate property obtained from DRMOs. We interviewed current and
former Army contracting staff and reviewed pertinent contract records at the
Army Aviation Missile Command. We interviewed current and former Office of
Naval Research staff and also obtained and reviewed pertinent Office of
Naval Research records.

We worked with Defense Reutilization and Marketing Service headquarters
staff to compile and analyze data pertaining to the Florida Army National
Guard unit activity code. We obtained a list of all transactions involving
this code as well as photocopies of property requisition forms and
authorization-to-screen letters. We interviewed DRMO and Office of the U.S.
Property and Fiscal Officer staff concerning policies and procedures and to
ascertain their knowledge of this case. We also interviewed all Florida Army
National Guard (Company D) personnel involved in this matter. Finally, we
reviewed the Company's property records to locate the excess DOD property
obtained from DRMOs and conducted a physical inspection of that property.

We worked with Defense Automatic Addressing System Center staff and Defense
Reutilization and Marketing Service staff to compile and analyze data
pertaining to nonrequisitioning activity codes used to obtain government
property from DRMOs. We also worked with Defense Automatic Addressing System
Center staff to obtain information pertaining to central service point
activities. In addition, we interviewed and obtained pertinent documentation
from central service point members.

WWe performed our investigative work in accordance with investigative
standards established by the President's Council on Integrity and Efficiency
and our audit work in accordance with generally accepted government auditing
standards.

As arranged with your office, unless you announce its contents earlier, we
plan no further distribution of this report until 30 days after the date on
this letter. At that time, we will send copies of this report to interested
congressional committees and members; the Office of the Secretary of
Defense; the Director of DLA; the Secretaries of the Army, Navy, and Air
Force; and the Commandant of the Marine Corps. We will also make copies
available to others upon request. If you have questions about this report,
please call Robert H. Hast on (202) 512-7455 or David R. Warren on
(202) 512-8412. John Ryan, Richard Newbold, Carin Wyche, Mark Little, and
Roger Tomlinson made key contributions to this report.

Sincerely yours,
Robert H. Hast
Acting Assistant Comptroller General
for Special Investigations
David R. Warren, Director
Defense Management Issues
National Security and International
Affairs Division

(600610/709498)
  

1. In 1990, we began a special effort to review and report on the federal
program areas we identified as high risk because of vulnerabilities to
fraud, waste, abuse, and mismanagement. This effort, supported by the Senate
Committee on Governmental Affairs and the House Committee on Government
Reform, resulted in 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.

2. Excess DOD property is any property that exceeds the needs of a military
service.

3. The number of domestic Defense Reutilization and Marketing Offices
includes annexes.

4. The total acquisition value for fiscal year 1996 was $4.08 billion; for
fiscal year 1997,
$4.25 billion; for fiscal year 1998, $5.05 billion; and for fiscal year
1999, $4.42 billion.

5. Referred to as DAISY.

6. Referred to as DAASC.

7. Military services, DOD activities, and federal agencies have central
service points that assign activity address codes to organizations that are
authorized to requisition property from the Defense Reutilization and
Marketing Service. These central service points are required to assign
activity codes and provide updated code data (additions, changes, and
deletions) to the Defense Automatic Addressing System Center.

8. Department of Defense 4000.25-6-M (Chap. 1).

9. This amount represents the acquisition value of the property.

10. Army Regulation 725.50, Table E-329 (Format for Army Additions/Revisions
to the Department of Defense Activity Address File).

11. This amount represents the acquisition value of the property.

12. 40 U.S.C. sect. 484.

13. The system was not available to all DRMOs until 1993.

14. Army activity codes designated as "XU" are not authorized to
requisition. The "U" indicates that the activity is not authorized to
requisition.

15. Army Regulation 725.50, Table E-329 (Format for Army Additions/Revisions
to the DOD Activity Address File).

16. This amount represents the acquisition value of the property.

17. A unit identification code is an alphanumeric code used to identify
organizational entities within DOD.

18. Program officials were unable to explain why the Defense Reutilization
and Marketing Automated Information System accepted unit identification
codes as valid activity codes. They are currently researching this issue.

19. DOD 4000.25-6-M (Chap. 1).

20. DOD 4160.21-M (Chap. 5).

21. Contract number DAAH01-87-D-0021.

22. Contract number DAAH01-91-D-R002 was awarded in December 1990 to provide
engineering support services to the U.S. Army Missile Command, and it
expired in December 1998. Contracting office officials describe this as a
follow-on contract to the 1986 contract.

23. Although the Army record is silent on the reason for the deletion, we
believe it was related to a 1993 audit by the Army Audit Agency. From
January 1993 through September 1993, the Army Audit Agency reviewed the U.S.
Army Missile Command's acquisition and use of government-furnished property.
This review was designed to determine, among other things, whether the
command adequately controlled government material furnished to contractors.
The audit determined that control was lacking and one of the findings noted
inadequate control over activity codes. The Army auditors found that the
command had lost accountability over material furnished to contractors and
Army personnel circumvented established internal controls by extending
contractor activity codes past contract completion dates. The audit report
recommended that the command improve controls over the use of activity codes
by (1) discontinuing the procedure of extending activity codes beyond the
expiration of the contract, (2) comparing the expiration dates of all codes
with the contract expiration date to identify those with different
expiration dates, and
(3) changing the activity code expiration date to agree with the expiration
date of the contract. The report indicated that in August 1993, the
expiration dates of all activity codes were changed to reflect the
expiration date of the contract.

24. Army Regulation 725.50 (Chap. 9).

25. This total includes Army contractor codes.

26. Army Regulation 725.50, Table E-329 (Format for Army Additions/Revisions
to the DOD Activity Address File).

27. FAR 52.245-5.

28. FAR 42.003 provides that subsection G.11 of OMB Circular A-21 lists the
cognizant federal agency responsible for the administration of contracts
with educational institutions. Here, the Office of Naval Research is
identified in Circular A-21 as the cognizant federal agency.

29. DOD 4160.21-M (Chap. 5).

30. The screener was the University employee authorized to select and remove
excess DOD property. He was hired in 1992 to work in the machine shop and
eventually became the machine shop supervisor.

31. By letter dated Apr. 15, 1997, the procurement contracting officer (U.S.
Army Missile Command) authorized the University to use these vehicles on any
Army contract. However, according to Office of Naval Research officials,
this information should have been provided to the administrative contracting
officer, in this case an Office of Naval Research official. According to an
Office of Naval Research official, this notification did not occur.

32. The Office of Naval Research tests university record-keeping systems
during periodic analyses of property control systems.

33. PAM 710-2-1.

34. DOD 4160.21-M (Chap. 5).
*** End of document. ***