Weaknesses in Accounting for Government-Furnished Materials at Defense Contractors' Plants Lead to Excesses

The military services, for the most part, do not account for the estimated billions of dollars in government-furnished material provided to Department of Defense (DOD) production contractors. Even when the services attempt to account for material, the data is incomplete and inaccurate. This has led to furnishing material to contractors in excess of contract allowances. It is DOD policy to rely almost solely on the contractor's property records to account for and control government-furnished material. The policy is not effective. GAO undertook a review of this matter because of: (1) congressional interest in prior audits of material provided to overhaul, maintenance, and repair contractors; (2) the estimated value of the government's investment; and (3) GAO responsibility for approval of executive agency accounting systems. GAO principles and standards for executive agency accounting systems require that government property be under accounting control from the time it is acquired until it is disposed of or consumed.

Review of four production contractors showed that the lack of accounting controls led to DOD providing or initiating shipments of $1.3 million in material above contract allowances. This problem was also noted in reports on overhaul and repair contracts. Providing excess material was caused by clerical/arithmetical errors, lack of coordination among procuring activity personnel, and failure to modify contracts to show changes in government-furnished material authorizations. An effective accounting system would have helped to disclose these errors and identify or prevent excess material from being shipped. In prior reports on weaknesses in accounting for materials furnished to overhaul, maintenance, production, and repair contractors; it was noted that contractors were oversupplied with materials, contractors were given access to DOD supply systems without DOD accounting control over materials obtained, and contractors' property control records were unreliable. The Secretary of Defense should halt the DOD policy of almost total reliance on contractor's property control records and instead establish systems which, together with contractor's records, will provide accounting control over Defense material from receipt to consumption or disposal.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: John F. Simonette Team: General Accounting Office: Financial and General Management Studies Division Phone: (202) 275-1581