Defense Inventory

This report focuses on the inventory that the Air Force had on contract--that is, ordered, but not yet delivered--that was excess to current operating requirements. To determine whether the Air Force was canceling purchases that exceeded current operating requirements, GAO reviewed 160 items with inventory valued at $162.4 million on contracts that exceeded current operating requirements as of September 30, 1997. GAO found that the Air Force did not always cancel purchases that exceeded current operating requirements. The Air Force canceled contracts for $5.5 million of the $162.4 million excess inventory that GAO reviewed, but it could have canceled more. Contracts for the unneeded items are not being canceled primarily because the Air Force's process for canceling contracts takes a long time. GAO recommends that the Air Force strengthen management oversight procedures and internal controls over the process for canceling purchases.

GAO noted that: (1) the Air Force did not always cancel purchases that exceeded current operating requirements; (2) the Air Force cancelled contracts for $5.5 million of the $162.4 million excess inventory that GAO reviewed, but it could have cancelled more; (3) contracts for unnecessary items are not being cancelled primarily because the Air Force process for cancelling contracts takes a long time, during which costs are incurred for which the government is liable; (4) specifically, it takes 60 to 90 days to provide managers with the requirement information needed to make cancellation decisions; (5) also, the Air Force model provides for over 63 months of supply--more time than needed to order and receive items; (6) in addition, the model uses invalid requirements that reduce quantities to be cancelled; (7) once a purchase is considered for cancellation, Air Force managers use a model to determine if the savings from cancelling the contract would exceed the cost of reordering the items at a later date; (8) in several cases that GAO reviewed, the model indicated that it was not cost beneficial to cancel contracts for unneeded inventory items because of potential reprocurement costs; (9) however, the model is flawed because it does not consider parts recovered from retired weapon systems that are available to be reused; (10) as a result, the model understates the amount of purchases that could be cancelled; and (11) in other cases, inaccurate records increased manager workloads by causing items to be unnecessarily reviewed.

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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