Defense Inventory

Defense Logistics Agency's Materiel Returns Program Gao ID: NSIAD-93-124 March 30, 1993

The Defense Logistics Agency (DLA) could save millions of dollars in processing costs by (1) eliminating the return of materiel valued at less than the cost to process it into a depot, (2) applying the minimum value to all returns regardless of the amount of stock on hand, and (3) valuing more realistically the materiel being considered for return. DLA's minimum limit of $25 is less than the cost to process a return into a depot, which averaged $40 in fiscal year 1991. In addition, DLA overvalues materiel by including surcharges in determining the worth of returned items, which can add up to nearly half of the acquisition price. Overall, more items are being approved for return than should be. For example, GAO found that DLA had approved the return of three bolts from Germany worth $1.17 even though it already had almost 51,000 bolts on hand, a 15-month supply. Another unreasonable return involved one yard of nylon cord, worth $0.34, returned from an Air Force Air Logistics Center. GAO estimates that if DLA had applied the $40 limit to all returns and had not overvalued materiel, it could have cut about 611,000, or 42 percent, of the returns between June 1991 and May 1992 at a processing cost of about $24.4 million.

GAO found that: (1) DLA could save millions of dollars by eliminating returns of materiel valued at less than the cost to return it to a depot, applying a minimum limit on all returns regardless of the amount of stock on hand, and applying realistic values to returned materiel based on the item's acquisition price; (2) in fiscal year 1991, 46 percent of returned materiel required additional work before DLA could store or reissue the materiel; (3) DLA should consider noneconomic factors when determining whether to approve a return; and (4) DLA inclusion of surcharges in the value of returned materiel can significantly increase the acquisition price and overvalue the materiel.

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.

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