Better Management and Accountability Are Needed for Government Material Furnished to Defense Contractors

The Department of Defense (DOD) annually gives billions of dollars of material to contractors for use on DOD contracts. GAO and DOD internal audit staffs have issued numerous reports on the continuing problems in accounting for the Government furnished material (GFM) after it has been given to the contractors. It has been pointed out that: (1) DOD does not know precisely how much GFM is in contractors' possession; (2) there are no overall management or financial systems to account for these materials; and (3) contractors' records do not adequately account for GFM. One of the reasons contributing to this accountability gap is that DOD has not adequately enforced the requirements in the Defense Acquisition Regulations. Contractors' accountability for GFM must be established to provide DOD with the basis for overall financial management control over these materials. Corrective action has been taken by DOD on some of the problems noted in the past audit reports. However, overall corrective actions have been slow, narrowly confined, and limited to trial programs. As a result, the Government's investment in billions of dollars worth of GFM has not been adequately protected. The following improvements are needed: (1) the Defense Acquisition Regulations need to be enforced by DOD activities to assure the reliability of contractors' records and property management systems; (2) DOD property administrators need to enforce the provisions of the contract and periodically check the GFM inventory in the hands of contractors; (3) DOD needs to develop a plan of action to accomplish DOD-wide accounting controls as quickly as possible; and (4) DOD needs to establish a central control for coordinating all the actions underway and planned for improving management and accountability for GFM.