Air Force Supply Management

The Air Force supply management activity group supports combat readiness by procuring critical material and making repair parts available to its customers, such as military units. The group provides about two million types of inventory, ranging from weapons systems to fuels to dental supplies. During fiscal year 1997, the group was responsible for inventory with a reported value of about $24.5 billion. This report evaluates (1) the accuracy and consistency of the Air Force supply management activity group's accounting and budgetary reports; (2) the group's price-setting process; and (3) the Air Force Working Capital Fund's cash management practices, including the practice of advance billing customers to maintain an adequate cash balance.

GAO noted that: (1) the Air Force has had difficulties producing reliable financial information on the supply management activity group's operations, setting prices for inventory the group sells to customers, and generating sufficient cash to help discontinue the Air Force Working Capital Fund's practice of advance billing its customers since 1993; (2) these weaknesses impair the Air Force's ability to: (a) ensure that customers can purchase inventory items when needed; and (b) achieve the goals of the working capital funds, which are to focus management attention on the full costs of carrying out operations and to manage those costs effectively; (3) at the core of many of the supply management activity group's financial management weaknesses is its inability to produce reliable information on its cost of goods sold and net operating results; (4) this financial information is critical since the activity group must set prices that reflect the expected costs of providing inventory items to customers; (5) if these data are inaccurate, the activity group's prices may not cover its full cost of operations or generate enough cash to pay its bills, which has been the case in recent years; (6) until the Air Force can: (a) develop accurate information on the supply management activity group's net operating results and cost of goods sold; (b) use this information to develop an effective price-setting process; and (c) acquire and use management tools for projecting cash outlays--its customers will remain susceptible to wide price fluctuations and a corresponding depletion of funds; (7) further, the Air Force Working Capital Fund will have to continue to advance bill customers so that it has enough cash to pay its bills; and (8) finally, senior managers and those responsible for providing oversight will continue to lack the information they need to make informed decisions on Air Force supply operations.

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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