DOD Management
Examples of Inefficient and Ineffective Business Processes Gao ID: GAO-02-873T June 25, 2002This testimony reviews two case studies that clearly demonstrate the need for the Department of Defense (DOD) to reform its business operations. These two case studies are microcosms of the broad management challenges facing DOD that were highlighted in GAO's June 2002 testimony (See GAO-02-784T). GAO provided views on the underlying or root causes of DOD's long-standing inability to successfully reform its business operations, including a lack of sustained top-level leadership, cultural resistance to change, and military service parochialism. In addition, GAO found seven key elements necessary for successful reform, including approaching DOD's broad array of management challenges using an integrated, enterprisewide approach.
GAO-02-873T, DOD Management: Examples of Inefficient and Ineffective Business Processes
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United States General Accounting Office:
GAO:
Testimony:
Before the Subcommittee on National Security, Veterans Affairs, and
International Relations, Committee on Government Reform, House of
Representatives:
For Release on Delivery:
Expected at 10:00 a.m.
Tuesday, June 25, 2002:
DOD Management:
Examples of Inefficient and Ineffective Business Processes:
Statement of Gregory D. Kutz:
Director, Financial Management and Assurance:
David R. Warren:
Director, Defense Capabilities and Management:
GAO-02-873T:
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here today to discuss two case studies that clearly
demonstrate the need for the Department of Defense (DOD) to reform its
business operations. These two case studies are microcosms of the broad
management challenges facing DOD that were highlighted in our June 4,
2002, testimony[Footnote 1] before this Subcommittee. At that hearing,
we provided our views of the underlying or root causes of DOD‘s long-
standing inability to successfully reform its business operations,
including a lack of sustained top-level leadership, cultural resistance
to change, and military service parochialism. In addition, we
identified what we believe are seven key elements necessary for
successful reform, including approaching DOD‘s broad array of
management challenges using an integrated, enterprisewide approach.
As discussed in our June 4, 2002, testimony, the failure of past reform
efforts has lead to DOD‘s current business processes and data systems
not being designed and implemented in an integrated fashion. These
current processes and systems have been in place since the 1960s and
1970s and over time have evolved into an overly complex and error-prone
operation including (1) little standardization across DOD components,
(2) multiple systems performing the same tasks, (3) the same data
stored in multiple systems, (4) manual data entry into multiple
systems, and (5) a large number of data translations and interfaces
that combine to exacerbate problems with data integrity.
Today, at your request, we will discuss two case studies and the related
financial and inventory management and systems modernization[Footnote 2]
challenges facing DOD. These case studies examine in detail the
processes and data systems used by DOD to procure, control, and pay for
critical items. The two case studies pertain to (1) the Joint Service
Lightweight Integrated Suit Technology (JSLIST)[Footnote 3] chemical
and biological protective garments”coat and trousers”procured by
contract and (2) computer equipment procured using the government
purchase card. You also requested that we evaluate the economy,
efficiency, and effectiveness of the processes and compare certain
aspects of DOD‘s processes to those of two large leading-edge retail
companies”Sears and Wal-Mart.
Summary:
Both of these case studies highlight significant differences between
DOD‘s business operations and those of two benchmark companies. These
differences offer stark contrasts in the efficiency and cost of doing
business. With regard to our first case study, for the inventory
management process related to JSLIST, stovepiped, nonintegrated systems
and processes result in DOD, the military services, and the military
units not knowing how many items they have and where they are located.
This lack of visibility has resulted in DOD excessing and selling
JSLIST while at the same time procuring hundreds of thousands of new
garments annually. The lack of system integration,[Footnote 4] meaning
the ability to share data across business applications, continues to
force multiple manual data entry into numerous systems. These manual
processes result in errors, add significant administrative cost, and
generally exacerbate asset visibility problems. Although the purchase
card process was somewhat automated, we identified inefficient
duplication of efforts and costly manual entry of data at the Defense
Finance and Accounting Service (DFAS)-Columbus which sometimes resulted
in processing fees well in excess of the cost of the item purchased.
DOD‘s business processes for procuring, controlling, and paying for
JSLIST rely on manual data transmission and entry into nonintegrated
data systems. We identified 128 processing steps performed by 11 DOD
components, such as the Defense Logistics Agency (DLA), DFAS, and the
military services. Of the 128 steps, 100”or 78 percent”involved manual
entry or re-entry of data into one or more of the 13 nonintegrated data
systems supporting the JSLIST processes. In addition to the
inefficiencies associated with this complex, error-prone process, DOD
lacks asset visibility over JSLIST at all levels. According to DOD, by
the end of fiscal year 2001, it had procured 1.6 million JSLIST and
about 1.2 million of these had been issued to the military services.
However, the complex, nonintegrated, error-prone process precludes DOD
from being able to quickly and accurately identify the location and
condition of these JSLIST.
The DOD Inspector General has reported that the inventory system that
DLA uses to control and maintain visibility over JSLIST not yet issued
is of questionable accuracy. Further, at the military units that we
visited, the methods they used to control and maintain visibility over
JSLIST issued to them ranged from automated information systems, to
spreadsheet applications, to paper, to dry eraser board, to none. The
data maintained also varied. Some units maintained specific data
including manufacturer, manufacture date, and production lot number,
while other units maintained little or no data.
Lacking an integrated system with standard data, if DOD needed to
immediately identify the location and condition of JSLIST, it would
have to initiate a labor-intensive, time-consuming data call with no
assurance of accurate results. This lack of visibility has also
resulted in packaged, unused JSLIST”coat and trousers”being declared
excess and sold to the public over the Internet for about $3 each,
while at the same time DOD was procuring hundreds of thousands of
JSLIST annually at a cost of over $200 per set (coat and trousers).
The business practices we identified at Sears and Wal-Mart, recognized
as leading-edge inventory management companies, offer a glimpse of what
improvements in the efficiency and effectiveness of DOD‘s business
processes could yield. For example, we found that both companies had
automated systems that electronically receive and exchange standard
data throughout the entire inventory management process, thereby
reducing the need for manual data entry. As a result, for Sears and Wal-
Mart, financial and logistical information moved through data systems
with automated ordering of inventory from suppliers; receiving and
shipping at distribution centers; and receiving, selling, and
reordering at retail stores. Unlike DOD, with a proliferation of
nonintegrated systems using nonstandard data, Sears and Wal-Mart
require all components and subsidiaries to operate within a standard
systems framework and do not allow individual systems development.
With respect to inventory visibility, we found that the automated
systems allowed both Sears and Wal-Mart to quickly identify the
location of inventory items at their distribution centers and retail
stores. For example, based on our inquiry, Wal-Mart headquarters staff
in Bentonville, Arkansas, was able to readily identify for us the
number of 6.4 ounce tubes of a specific brand of toothpaste on hand at
their Fairfax, Virginia, retail store along with other information such
as daily and weekly sales.
Shifting to our second case study, we found that the purchase card
process was somewhat automated and provided the flexibility to acquire
goods and services on the day that they are needed. However, as we have
found in related audit work,[Footnote 5] purchases of computers with
the purchase card were often not recorded in property records.
Recording these items in the property records is an important step to
ensure accountability and financial control over these assets and,
along with periodic inventory, to prevent theft or improper use of
government property. Without an automated mechanism to record
accountable items acquired with the purchase card in the property
records, the individual receiving the computer must manually inform the
property management office of the acquisition for it to get properly
recorded.
With respect to payment, for certain transactions processed through
DFAS-Columbus, monthly credit card statements are mailed or faxed, and
DFAS-Columbus personnel manually re-enter each purchase. This manual
process occurs because (1) the Navy has chosen not to electronically
submit its purchase card statements, (2) the DFAS-Columbus payment
system is not capable of accepting electronic purchase card statements
from CitiBank, the purchase card contractor, and (3) defense agencies
have not yet implemented electronic purchase card processing. According
to DFAS-Columbus, defense agencies should have this capability this
summer. The charge to DFAS-Columbus customers of processing manually
reentered purchase card statements is over $17 per line rather than
nearly $7 per line for electronic transactions. In one example, a Navy
activity submitted a monthly purchase card statement with 228
transactions for which DFAS charged over $3,900 to process, with the
$17 per line processing fee well in excess of the price of several
items purchased. In contrast, both Sears and Wal-Mart make extensive
use of electronic data receipt and transmission.
Scope and Methodology:
To trace the information flow and document key data systems used to
procure, control, and pay for JSLIST, we reviewed and analyzed
procedures and system documentation. Further, we discussed business
processes with managers and observed processing at key DOD
organizations, including the JSLIST Program Office, DLA, DFAS-Columbus,
and the Defense Contract Management Agency. We discussed and observed
JSLIST production with managers at the Southeastern Kentucky
Rehabilitation Industries and discussed JSLIST inventory and issue to
the warfighter at selected military units. To trace the information
flow and identify key data systems related to a computer bought using
the government purchase card, we reviewed established procedures and
discussed processes with managers of key organizations, including DOD‘s
Purchase Card Program Office, DFAS-Columbus, and two selected military
service units.
To compare certain aspects of DOD‘s JSLIST inventory management and
business processes related to a computer bought using the government
purchase card, we discussed best business practices used by two leading
retailers”Sears and Wal-Mart. We selected Sears and Wal-Mart based on
our review of the study Achieving World-Class Supply Chain Alignment:
Benefits, Barriers, and Bridges, by the Center For Advanced Purchasing
Studies, Tempe, Arizona: 2001. We discussed and observed best practices
used by these companies to manage their supply chain and compared these
practices to the DOD business processes to identify opportunities to
improve DOD‘s business processes. We briefed DOD managers, including
officials from DOD‘s JSLIST Program Office, DLA, and DFAS, on the
details of our review, including our objectives, scope, and methodology
and our findings and conclusions. DOD officials generally agreed with
our findings and conclusions. We relied upon our past work and that of
the DOD Inspector General in regard to accuracy and reliability of the
information systems DOD uses to support JSLIST processing. Further, we
did not audit the financial data provided by DOD or contained in its
inventory systems. Details on where we performed our audit work are
included in appendix I. We conducted our audit work from July 2001
through June 2002 in accordance with U.S. generally accepted government
auditing standards, and we performed our investigative work in
accordance with the standards prescribed by the President‘s Council on
Integrity and Efficiency.
Case Study One: Joint Service Lightweight Integrated Suit Technology:
We found that DOD‘s processes for procuring, controlling, and paying for
JSLIST rely on manual data transmissions and entry into as many as 13
nonintegrated data systems. Much of the data required to procure and
field JSLIST are transmitted using e-mails, faxes, telephones, and hard-
copy documents that must be read and manually entered into automated
systems. This reliance on manual data results in slow, error-prone
business processes.
In addition to these inefficiencies, the use of manual, stovepiped, and
nonintegrated processes and systems have limited DOD‘s ability to know
how many JSLIST it has and where they are located. This lack of
visibility was due to several factors. First, not all military units
maintained the same JSLIST data. For example, some military units
tracked key data such as manufacturer, manufacture date, and production
lot number, while other units maintained little or no data. Second,
military units maintained inventory data in nonstandard, stovepiped
systems that did not share data with other DOD systems. The methods
used to control and maintain visibility over JSLIST ranged from stand-
alone automated systems, to spreadsheet applications, to pen and paper.
One military unit we visited did not have any inventory system for
tracking JSLIST. DOD‘s inability to quickly identify and locate JSLIST
has contributed to some military units declaring them excess to their
immediate needs, while at the same time DOD had been attempting to
expedite the issuance of the JSLIST to military units in response to
the events of September 11, 2001.
Discussions with two leading private sector companies identified
innovative best practices that offer opportunities for DOD to improve
its business processes. Unlike DOD, Sears and Wal-Mart have highly
automated inventory management processes and use standard data and
systems and electronic data transmission and entry. From the corporate
level, these two entities maintain continuous visibility over inventory
from their suppliers to the store shelf.
Background:
During Operation Desert Shield/Desert Storm, DOD noted that its chemical
and biological equipment (1) could cause unacceptable heat stress to the
wearer, (2) could limit freedom of movement and impair job performance,
(3) was bulky, and (4) was not fully interoperable across the services.
Furthermore, most of the existing suits were no longer manufactured and
those still in service would expire by 2007, given the 14-year expected
life. To address these issues, DOD developed new, lightweight individual
protective equipment such as the JSLIST, which DOD began procuring in
1997. An improved, multipurpose overboot is in procurement and new
protective gloves are under development to improve manual dexterity
and/or reduce heat stress on the wearer. Similarly, since the existing
masks may cause some breathing difficulty, DOD is developing a new mask
but does not expect to begin procurement until fiscal year 2006.
[Footnote 6]
JSLIST is a universal, lightweight, two-piece garment”coat and trousers”
designed to provide maximum protection against chemical and biological
contaminants. Figure 1 shows the entire ensemble, which in addition to
the coat and trousers includes footwear, gloves, protective mask, and
breathing device. Our study did not include these other components.
Figure 1: Photograph of the Joint Service Lightweight Integrated Suit
Technology (JSLIST) Ensemble:
[Refer to PDF for image]
Source: JSLIST Program Office.
[End of figure]
Together, the ensemble is designed to provide maximum protection to the
warfighter against chemical and biological contaminants without
negatively affecting the ability to perform mission tasks. The focus of
our review was to map the flow of data associated with the procurement,
inventory control, and payment for JSLIST.
According to DOD, for each JSLIST coat and trousers set they pay
approximately $204. DOD began procuring JSLIST in fiscal year 1997 and
expects to purchase about 4.4 million garments at a cost of about $1
billion over a 14-year period ending in fiscal year 2011. According to
DOD, this amount includes the JSLIST procurement cost and a DLA
surcharge for services, such as clarifying requirements, developing
contract specifications and negotiating production levels with the
contractors, developing and maintaining delivery schedules, and storing
JSLIST[Footnote 7] until issued to the military services. According to
the JSLIST Program Office, by the end of fiscal year 2001, DOD had
procured approximately 1.6 million JSLIST, and about 1.2 million had
been issued to the military services. According to the Joint Service
Set-Aside Project office, the JSLIST are expected to last about 14
years. The Joint Service Set-Aside Project office is responsible for
testing JSLIST after 5 years in inventory, which represents the
manufacturer‘s warranty period. Officials indicated that they have
started to test JSLIST that were procured in 1997 and to date none have
failed.
Figure 2 shows the private and public sector organizations involved in
the production of JSLIST and the relationship among the various
entities.
Figure 2: Private and Public Sector Organizations Involved in the
Production of the JSLIST:
Source: JSLIST Program Office.
[End of figure]
This figure is an illustration of the private and public sector
organizations involved in the production of the JSLIST, as follows:
Department of Defense:
JSLIST: Joint Program Office:
* Defense Logistics Agency: Manages inventory;
* Joint Service Integration Group: Develop requirements;
* Joint Service Materiel Group: Develop materiel solutions;
* Marine Corps Logistics Base-Albany: Manages joint service
surveillance;
* Army;
* Navy;
* Air Force;
* Marine Corps;
* Natick Engineering Support: Technical support;
* Defense Supply Center-Philadelphia: Manages procurement contract.
Non Department of Defense:
* Creative Apparel Associates;
- Southeastern Kentucky Rehabilitation Industries (National Industries
of the Severely Handicapped);
* Peckham Vocational Industries (National Industries of the Severely
Handicapped);
- National Center for the Employment of the Disabled (National
Industries of the Severely Handicapped);
* Battelle: Testing and technical support (interfaces with DOD JSLIST
Joint Program Office);
* Tex-Shield: Manufactures protective liner;
- Blucher Manufacturers carbon spheres;
- Bradford: Manufactures outer shell;
* Group Home Foundation: (National Industries of the Severely
Handicapped).
Source: JSLIST Program Office.
[End of figure]
These organizations include 8 private manufacturing companies, 1 private
testing and technical support firm, and 11 DOD organizations. Of the 8
private sector companies, 5 actually manufacture the JSLIST garments and
the other 3 provide the component parts”the outer shell, carbon spheres,
and protective liner. All these organizations play a role in JSLIST
production ranging from requirements development to issuance of JSLIST
to the warfighter.
At this Subcommittee‘s June 2000 hearing on individual chemical and
biological protective equipment, the DOD Inspector General testified
that the DLA had weak inventory controls over the Battle Dress
Overgarment (BDO)”the JSLIST predecessor. DLA had major problems
identifying and removing from inventory defective BDO protective suits.
As a result, some of the defective suits had been shipped to U.S.
forces in high-threat areas. The DOD Inspector General also pointed out
that DLA had ’materially misstated“ the number of protective suits
being stored. According to DLA, misplacement of items in the wrong
storage areas and incorrect counts when the material was received
contributed to the inventory inaccuracy.
Extensive Manual Processes Used to Procure, Control, and Pay for
JSLIST:
Our analysis of the data flows for the different JSLIST processes
documented 128 steps. Of these 100 steps”78 percent”were manual,
meaning that much of the data are transmitted using e-mails, faxes,
telephones, and paper documents that must be read, interpreted, and
entered into the 13 nonintegrated systems. The remaining 28 steps”22
percent”were by automated means. Appendix II provides a brief
description of each system and identifies the function performed and the
DOD system owner.
With so many manual processes, substantial data entry is required. We
also found that even data transmitted electronically are manually
verified before being entered into another data system. Such practices
are highly inefficient and prone to error. DOD has acknowledged that in
today‘s environment, current processes are slow and susceptible to
errors. The following three sections highlight the data flows for the
procurement, inventory control, and payment process. They provide a
simplified representation of the actual processes and data flows, and
the methods used for data transmission.
Procurement:
In mapping the data flow for JSLIST, we found the procurement process to
be the least automated. Figure 3 demonstrates the extensive use of
manual processes between the JSLIST Program Office, the Defense Supply
Center-Philadelphia, the contractors, and the Defense Distribution
Center. Figure 3 does not include all of the processes that are
associated with the procurement process.
Figure 3: Overview of the JSLSIT Procurement Process and the Use of
Manual Processes:
[Refer to PDF for image]
This figure is an illustration of the JSLSIT procurement process and
the use of manual processes, as follows:
1) JSLIST Program Office: sends requirements (email) to:
2) Defense Supply Center - Philadelphia;
3) Contract (mail): goes to:
Defense Contract Management Agency; then to:
MOCAS (Mechanization of Contract Administration System);
4) Defense Supply Center - Philadelphia;
Contract and delivery schedules (mail) to:
5) Contractors;
JSLIST and shipping documents (truck) to:
6) Defense Distribution Center – (Albany);
Shipping Document (fax) from Contractors to:
Defense Supply Center - Philadelphia.
Source: GAO.
[End of figure]
As shown, most of the data transmissions are manual”e-mail, fax, and
regular mail. For example, JSLIST garments requirements data”which
show the number and specific sizes that are to be manufactured”are
emailed from the JSLIST Program Office to DLA‘s Defense Supply Center,
Philadelphia, which is responsible for negotiating the terms of the
contract with the five manufacturers. The contractor” via fax”notifies
the Defense Supply Center, Philadelphia, that the JSLIST garments have
been produced and shipped to the Defense Distribution Center for
storage. The contractors also send shipping documents, including the
Material Inspection and Receiving Report (DD Form 250), with the JSLIST
shipment to the Defense Distribution Center.
Inventory Control:
The inventory control process is slightly more automated than the
procurement process. This is due to DLA‘s use of the Distribution
Standard System (DSS) and the Standard Automated Material Management
System (SAMMS). However, as shown in figure 4, the military service
units still use extensive manual data entry in their efforts to control
the JSLIST garments that have been distributed to them.
Figure 4: Overview of the Inventory Control Process for the JSLIST:
[Refer to PDF for image]
This figure is an illustration of the inventory control process for the
JSLIST, as follows:
1) Contractors: JSLIST and Shipping Documents (Truck);
2) Defense Distribution Center (Albany);
* Manual Entry from Shipping Documents to DSS;
* Electronic transmission to Defense Supply Center (Philadelphia);
* To SAMMS;
3) Defense Distribution Center (Albany): JSLIST and Shipping documents
(truck);
* Army Units;
- SARSS (Manual entry0;
- Excel Spreadsheet (manual entry);
- Paper (manual entry);
* Air Force Units;
- MICAS (Manual entry);
* Navy Units;
- Dry Erase Board (manual entry);
- None (manual entry).
DSS – Defense Standard System;
MICAS – Mobile Inventory Control Accountability System;
SARSS – Standard Army Retail Supply System;
SAMMS – Standard Automated Material Management System.
Source: GAO.
[End of figure]
According to DLA personnel, DSS contains data on the number of JSLIST
procured, the number in DLA‘s warehouse facilities, and the number of
JSLIST that have been distributed to the military services. The data
must be manually entered into DSS from the shipping documents that are
received from the contractors. Once entered into DSS, shipping receipt
data are electronically passed from DSS to SAMMS at the Defense Supply
Center-Philadelphia. DLA also pointed out, however, that once JSLIST are
distributed to the military services, DSS does not maintain any
inventory control. At this point, JSLIST data are removed from DSS and
DLA loses visibility of JSLIST. As shown in figure 4, military services
use various methods to maintain inventory control. Of the three Army
units that we visited, one used an automated system”Standard Army
Retail Supply Systems (SARSS), one used a spreadsheet application, and
one used paper and pen. Of the two Navy units visited, one used a dry
eraser board, with handwritten notes and one did not maintain an
inventory of JSLIST. Both of the Air Force units visited used the
Mobility Inventory Control Accountability System (MICAS) to control
their JSLIST inventory. Since MICAS is a stand-alone system that
operates independently at each location, data cannot be shared between
the various locations, nor does it have the capability to provide data
to higher command levels.
Payment Process:
The payment process is the most automated. DFAS”the central
organization in the payment process”uses more automated processes
than any other organization visited. As shown in figure 5, electronic
exchange of data was used more often in the payment process than in the
procurement and inventory control processes.
Figure 5: Overview of the Payment Process for the JSLIST:
[Refer to PDF for image]
This figure is an illustration of the payment process for the JSLIST,
as follows:
1) Contractor(s): invoice (mail) to;
2) DFAS;
3) Defense Supply Center - Philadelphia: Requisition Requirement
Delivery Schedule data (SAMMS) to:
2) DFAS;
4) Defense Contract Management Agency: Contract Data (MOCAS) to:
2) DFAS;
5) EFT payment to:
1) Contractor(s).
EFT – Electronic Funds Transfer;
MOCAS – Mechanization of Contract Administration System;
SAMMS – Standard Automated Material Management System.
Source: GAO.
[End of figure]
As shown in figure 5, once the invoice is received from the
contractor”via the mail”DFAS electronically obtains shipping data from
the SAMMS, and contract data from the Mechanization of Contract
Administration System (MOCAS). Invoice, contracting, and shipping data
are all needed for DFAS to process the payment to the contractor by
electronic funds transfer through the Standard Accounting and Budgeting
Reporting System (SABRS).
Once the data enters DFAS, the payment process is automated and each
DFAS division involved in the payment process has the ability to use the
same data. For example, payment data are transmitted to the JSLIST
Program Office via the SABRS. However, DFAS still relies on some manual
processing. In DFAS‘ Entitlement Division, individuals manually check to
ensure that required invoice data are in the Electronic Document
Management system, and then manually enter these data into MOCAS
system. This system helps supports the contract administration aspects
of the JSLIST program. We have previously reported[Footnote 8] on long-
standing problems in contract pay through MOCAS. For example, for
fiscal year 1999, DFAS data showed that almost $1 of every $3 in
contract payment transactions was for adjustments to previously
recorded payments”$51 billion of adjustments out of $157 billion in
transactions.
We have also reported[Footnote 9] that the manual entry of data into
systems is prone to keypunch errors, errors caused when data entry
personnel are required to interpret sometimes illegible documents, and
inconsistencies among data in the systems. DOD has acknowledged that
the systems used to support its business operations do not provide
relevant, reliable, and timely information. As discussed in our June 4
testimony,[Footnote 10] the department has begun efforts to develop an
enterprise architecture that should detail the target or ’to be“
environment for DOD‘s business operation systems and show how these
systems will interact. Managed properly, an integrated system
development effort can clarify and thus help to optimize the
interdependencies and interrelationships among an organization‘s
business operations and the underlying data systems supporting these
operations.
Lack of Asset Visibility Affects Mission Readiness:
DOD and the military services lack asset visibility and control over
JSLIST. There is no DOD-wide system that contains the data
needed”number of JSLIST, manufacturer, manufacture date, and production
lot number”to locate specific JSLIST garments that are in the
possession of the military services. As a result, if the JSLIST
garments had to be recalled for any reason, there is no assurance that
DOD can readily or accurately locate the 1.2 million JSLIST that have
been issued to the military services. In essence, DOD is faced with the
same predicament today as it had in June 2000, when hearings by this
Subcommittee chronicled DOD‘s inability to identify the location of the
BDOs”the predecessor of JSLIST. BDOs needed to be recalled and removed
from the inventory because they were found to be defective, but even
after a data call DOD was unable to retrieve all of the BDOs.
Our September 2001 report[Footnote 11] noted that as of April 2001, DOD
had not found about 250,000 of the defective BDO suits. DOD was not
certain if the suits had been used, were still in supply, or were sent
to disposal. That report also pointed out that DOD could not (1)
monitor the status of its protective equipment inventory because the
military services and DLA used at least nine different nonintegrated
data systems, (2) determine whether all of its older chemical suits
would adequately protect service members because some of the inventory
systems did not contain essential data needed to determine usability of
inventoried chemical suits, and (3) easily identify, track, and locate
defective suits because inventory records did not always include
contract and lot numbers. These shortcomings are consistent with the
long-term problems in DOD‘s inventory management that we have
identified as a high-risk area due to a variety of problems, including
ineffective and wasteful management systems and procedures.[Footnote
12] To improve DOD‘s control and accountability of chemical and
biological equipment, we made several recommendations, one of which was
to implement a fully integrated inventory management system.
Our visits to DLA‘s Defense Distribution Center, Albany, GA, and
selected military service units found that these weaknesses remain
today. DOD does not have reliable asset visibility for JSLIST
throughout the department. This problem can be attributed to several
factors. First, according to the DOD Inspector General in testimony
before this Subcommittee in June 2000, DSS”a relatively new and modern
system is ’chronically inaccurate.“ The DOD Inspector General pointed
out that its physical count of chemical protective suits disclosed that
420,000 suits were not on-hand as recorded in the inventory balance in
DSS. Even if DSS were accurate, it only provides visibility and control
over JSLIST located in DLA‘s warehouse facilities. DSS does not contain
any data that can be used from a departmentwide perspective to identify
the location of the 1.2 million JSLIST garments that have been
distributed to the military services.
Second, once JSLIST are issued to the military service units, the lack
of standard data and nonintegrated systems hinders asset visibility.
Our visits to Army, Navy, and Air Force military units disclosed that
all units did not maintain key data such as manufacturer, manufacture
date, and production lot number. These data would be essential if
JSLIST had to be recalled. Without these data, DOD would have to
initiate a worldwide data call, with no assurance of the accuracy of
the result. Of the three Army units visited, only one maintained these
data, while neither of the two Navy units maintained these key data.
Both Air Force units maintained the manufacturer, manufacture date, and
production lot number.
In addition, the units we visited used stovepiped, nonintegrated
systems to track their JSLIST. As shown in figure 4, the method used
varied from an automated system to no tracking of any kind. Of the Army
units, one unit used the Standard Army Retail Supply System, another
unit used a stand-alone spreadsheet application, and the third unit
used paper and pen to control its JSLIST inventories. At the two Navy
units visited, one used a marker and dry eraser board and the other
Navy unit did not maintain a JSLIST inventory”manual or automated. Both
Air Force units used MICAS to control JSLIST. According to Air Force
personnel, this is a standard system used to maintain comprehensive
control of assets from receipt to disposal. Information must be entered
manually into MICAS. Air Force personnel also stated that they are able
to identify and locate service personnel that have JSLIST in their
possession by using MICAS. The Air Force personnel noted that MICAS was
designed for use at the unit level, but the Air Force plans to upgrade
the system to provide more visibility over JSLIST to higher command
levels.
Personnel at the Army and Navy units were interested in the potential
for using MICAS. We provided these personnel with a point of contact in
the MICAS program office. As of May 2002, one Army unit decided to try
MICAS in a stand-alone mode to test its suitability and one Navy unit
decided not to consider the use of MICAS it only used JSLIST for
training and therefore it determined that a system was not needed. The
other Army and Navy units are considering the use of MICAS.
Because of DOD‘s weaknesses locating and recalling defective BDOs, we
inquired of the Defense Threat Reduction Agency”responsible for funding
the JSLIST program”if they had the means to locate all JSLIST
departmentwide if a similar situation were to occur. A program official
stated that they could account for the JSLIST up to the point they are
distributed to the military services. As noted previously, once suits
are distributed, accountability becomes more difficult because each
service has a separate logistics, supply, and maintenance management
system for tracking items. Further, the official noted that these
systems are not connected.
The program official also stated that the requirement to track location,
manufacturer, manufacture date, and production lot number of each
JSLIST would be the responsibility of DLA‘s Business System
Modernization (BSM) program. BSM is an 8-year (fiscal year 2000 through
fiscal year 2007), four-phased program that is intended to modernize
DLA‘s business functions such as materiel management, distribution, and
cataloguing by replacing obsolete, nonintegrated data systems with a
web/network-based logistics system using commercial, off-the-shelf
products. The project is estimated to cost nearly $900 million. As
discussed in our June 2001 report,[Footnote 13] BSM is intended to
modernize DLA‘s current materiel management business function from
being a mere provider and manager of physical inventory to becoming
primarily a manager of supply chains”linking customers with appropriate
suppliers and tracking physical and financial assets.
However, we believe reliance on BSM to provide adequate visibility over
JSLIST is ill advised for several reasons. First, as pointed out in our
June 2001 report, BSM was being implemented without the benefit of a DLA
architecture or a DOD-wide logistics management architecture. Further,
we noted that DLA did not have the management controls in place to
develop, implement, and maintain an architecture. As discussed in our
June 4 testimony,[Footnote 14] without an architecture to guide and
constrain information technology investments, DOD runs the serious risk
that its system efforts will perpetuate the existing system environment
that suffers from system duplication, limited interoperability, and
unnecessarily costly operation and maintenance.
Second, even if DLA successfully implements the inventory control phase
of BSM by March 2005, the majority of JSLIST may have already been
procured and issued to the military services without asset visibility,
including a record of critical tracking data, such as manufacturer,
manufacture date, and production lot number. As of the end of fiscal
year 2001, about 1.6 million JSLIST had been purchased and about 1.2
million garments had already been issued to the military services. At
the expected procurement rate of 330,000 to 350,000 JSLIST annually,
DOD will have purchased about 3 million of the 4.4 million of the
JSLIST by fiscal year 2005.
Lack of Visibility Contributed to Excessing and Selling JSLIST:
DOD‘s lack of asset visibility over the JSLIST has resulted in poor
inventory control. While DOD expedited the issue of the JSLIST garments
to the military services in response to the events of September 11,
2001, Army, Navy, and Air Force units have sent JSLIST to the Defense
Reutilization Marketing Office (DRMO) as being excess to their
immediate needs. From January 2001 through June 2002, 1,934 JSLIST
coats and trousers valued at about $207,000[Footnote 15] were turned
into DRMO. Of the 1,934 coats and trousers declared excess, 1,813 were
turned-in after September 11, 2001. Table 1 shows the disposition of
the 1,934 coats and trousers.
Table 1: Disposition of JSLIST Coats and Trousers Declared Excess:
Number of coats and trousers excessed: 429
Acquisition price: $45,745
Disposition: Public auction.
Number of coats and trousers excessed: 917
Acquisition price: $96,206
Disposition: Scrapped[A].
Number of coats and trousers excessed: 275
Acquisition price: $30,141
Disposition: Reutilized[B].
Number of coats and trousers excessed: 313
Acquisition price: $34,891
Disposition: Pending[C].
[A] Not usable property.
[B] Reissued to another DOD component, federal agency or program.
[C] Items still in the property screening phase and eligible for
reutilization.
[End of table]
As shown in the table 1, 275 of the coats and trousers were reissued to
other government entities. One of the purposes of DRMO is to reallocate
inventory that is excess to one organization‘s needs to an organization
that has insufficient inventory to meets its needs. We do not have any
information regarding the rationale as to why 917 coats and trousers
were scrapped and 313 are considered pending, which means they are
eligible for reutilization.
According to DLA, the 429 coats and trousers that were sent to a DOD
contractor, Government Liquidation,[Footnote 16] and reportedly sold,
at internet auction for approximately $1,100”or less than $3 each. As
of June 18, 2002, none of the JSLIST reportedly sold by Government
Liquidation had been released and remained at the company‘s warehouse
in Kapolei, Hawaii.
We met with personnel at Hickam Air Force Base, Hawaii, and the Navy
Explosives Ordnance Disposal Unit, Barbers Point, Hawaii, to determine
why the JSLIST were excessed and sent to DRMO.
* Officials from the Air Force unit stated that JSLIST was sent to DRMO
because (1) they did not belong to their unit and had been in their
warehouse for at least 3 years, (2) the boxes containing JSLIST were
marked ’training only,“ and (3) although still in vacuum-sealed
packages, they thought JSLIST had exceeded their expiration date.
They also indicated that prior to turning JSLIST in to DRMO, they
checked with the Base Supply Office and were informed that no one else
on the base needed JSLIST.
* The Navy unit stated that JSLIST were sent to DRMO because they had
more than the 32 required to meet their immediate needs. Prior to
turning JSLIST in to DRMO, the Navy unit did not consult with the
Supply Office to determine if they could be used elsewhere. They
indicated that they thought this was a DRMO responsibility. Believing
that the garments were in excellent condition, they coded them ’E“
upon turning them in to DRMO. However, an item code of ’E“ signifies
that the goods are damaged.
Our physical inspection of the JSLIST garments in the Government
Liquidators warehouse found that all but 30 were marked ’training only.“
These 30 were turned in by the Navy unit and appeared to be in good
condition. The ’training only“ JSLIST should not be used in a combat
environment because they are considered to be defective for that
purpose. However, since they were still in vacuum-sealed packages, they
appeared suitable for training purposes. When JSLIST are issued to the
warfighter, they generally receive a number of sets”coat and
trousers”based upon their assignment. For example, at one of the Air
Force units we visited, each member is to have five JSLIST sets”four
for operations and one for training. Without a ’training only“ JSLIST,
one that would have otherwise been available for operations must be
used for training.
On June 19, 2002, we told the JSLIST Program Manager about this
situation. He stated that he was not aware that JSLIST garments were
being excessed and sold and acknowledged that DOD does not have
visibility over the JSLIST garments. He also stated that military
service units were ’clamoring“ for JSLIST garments for training
purposes. Further, he stated that none of these garments should have
been turned in to DRMO. We suggested that he take action to terminate
the sale of these garments. He indicated that he would initiate
immediate action to do so.
Best Business Practices Offer Opportunities for DOD to Improve
Efficiency and Effectiveness of its Business Operations:
Private sector companies, driven by today‘s globally competitive
business environment, have developed innovative best business practices
to cut costs and meet customer needs by streamlining their logistics
operations. Best business practices refer to the processes, practices,
and systems identified in public and private organizations that
performed exceptionally well and are widely recognized as improving an
organization‘s performance and efficiency in specific areas. Some of
the most successful improvement efforts include a combination of
practices that are focused on improving the entire logistics
pipeline”an approach known as supply chain management. DOD has
acknowledged that best business practices of private industry offer
opportunities for making significant improvements to its business
operations. As evidenced by the information presented today,
implementation of fundamental private sector supply chain management
practices by DOD would substantially improve it efficiency and
effectiveness.
Our discussions with two leading-edge retail companies”Sears and Wal-
Mart”identified business practices that are vastly different than those
employed by DOD. Unlike DOD, which has a proliferation of nonintegrated
systems, nonstandard data, extensive use of manual processes, and
limited visibility over inventory, Sears and Wal-Mart are at the other
end of the spectrum. Sears and Wal-Mart are highly automated, use
standard data, and make extensive use of electronic data interchange
(EDI).[Footnote 17] Further, each entity is able to maintain visibility
of its inventory throughout the various levels of its organization.
Sears, a leading retailer of apparel, home and automotive products, and
services, had reported annual revenue of over $41 billion and net
income of approximately $735 million for its fiscal year 2001. Sears
operates 867 mall-based retail stores, most with co-located Sears Auto
Centers, and an additional 1,318 specialty stores including hardware,
outlet, tire and battery stores as well as independently owned stores,
primarily in smaller and rural markets. Wal-Mart Stores, Inc., is the
world‘s largest retailer with reported annual net revenue of over $193
billion and net income of almost $6.3 billion for its fiscal year 2001.
The company operates 4,189 retail stores in all 50 states and 9 foreign
countries. Of these stores, 2,348 are regular stores, 1,294 are
supercenters, 528 are Sam‘s Clubs, and 19 are neighborhood markets.
Wal-Mart and Sears Are Highly Automated:
As previously discussed, the processes DOD uses to procure, control, and
pay for the JSLIST garments are characterized by numerous manual
interventions with support from as many as 13 nonintegrated automated
information systems. With 78 percent of the data used to support the
JSLIST program involving some form of manual entry, DOD‘s logistics
processes are slow and susceptible to error. As a result, DOD‘s business
processes do not provide relevant, reliable, and timely financial and
logistical information. In contrast, Sears and Wal-Mart have systems
that provide relevant, reliable, and timely information.
As noted in our June 4 testimony[Footnote 18] before this Subcommittee,
systems have proliferated within DOD. At the time of the hearing, DOD
acknowledged that it used at least 1,127 systems in the processing of
financial information.
For the most part, these systems are not integrated with each other. In
the past, DOD‘s system development efforts have been stovepiped within
the department‘s organizational entities, with system development money
spread across DOD and no central control. In addition, standard data
were not always used across organization boundaries. These limitations
preclude DOD and the Congress from receiving the relevant information
that is needed in the decision-making process.
This is clearly demonstrated by the use of 13 nonintegrated systems
associated with JSLIST. In our discussions with Wal-Mart officials, they
noted that Wal-Mart does not permit its subsidiaries or components to
develop their own system solutions. System funding and development is
viewed from a corporate perspective. Therefore, stovepiped efforts that
exist in DOD would not occur within Wal-Mart. Wal-Mart also noted that
when an acquisition is made, the new entity is required to convert to
the Wal-Mart system”this brings about the standardization of data.
Standardization of data and integration of systems is important because
it aids in financial accounting and inventory management, including
asset visibility.
In dealing with suppliers, both Sears and Wal-Mart make extensive use of
EDI”which means that data are received and transmitted to and from
suppliers electronically. In essence, using EDI virtually eliminates
the need for human intervention and thereby helps to reduce the risks
of errors being made. Sears and Wal-Mart representatives stated that
the more manual intervention in the process, the less likely the
information will be relevant, reliable, and timely. Sears‘ personnel
pointed out that over 99 percent of vendors‘ purchase orders are
processed using EDI. According to Sears‘ representatives, if a supplier
does not have EDI capability, they are required to contract with a
third party to submit the data to Sears electronically. Similar to
Sears, Wal-Mart also makes extensive use of EDI. According to Wal-Mart
representatives, about 85 percent of their suppliers use EDI.
Visibility Over Inventory:
As previously discussed, DOD cannot readily determine the location of
the 1.2 million JSLIST that have been issued to the military services
because of nonstandard systems and the lack of standard data across DOD”
manufacturer, manufacture date, and production lot number”that would
be needed to quickly locate and remove JSLIST from inventory, if
recalled. These data should also be maintained to locate the JSLIST
and, if necessary move them where needed in the event of a chemical or
biological attack. Unlike DOD, Sears and Wal-Mart have integrated
systems with standard data across the organizations and as a result
have visibility over inventory regardless of location.
For example, at our request, Wal-Mart headquarters staff in Bentonville,
Arkansas immediately identified for us the number of 6.4 ounces tubes
of a brand-name toothpaste on the shelf at one of their retail stores
in Fairfax, Virginia. In addition to identifying 25 tubes of this
toothpaste at Fairfax, Virginia, at approximately 1:15 PM, on June 12,
2002, Wal-Mart‘s system showed daily and weekly product sales and the
date of the last shipment and the quantity received. Figure 6 compares
Wal-Mart‘s and DOD‘s visibility over their respective inventories.
Figure 6: DOD and Wal-Mart Visibility Over Inventory:
[Refer to PDF for image]
This figure illustrates DOD and Wal-Mart visibility over inventory, as
follows:
Private Sector: Wal-Mart:
Corporate Office: full visibility to:
Distribution Center: full visibility to:
Retail Centers: full visibility to: Toothpaste (inventory).
Department of Defense:
DOD: No visibility to inventory object (JSLIST);
Defense Logistics Agency: Partial visibility to inventory object
(JSLIST);
Military Services: No visibility to inventory object (JSLIST);
Military Units: Partial visibility to inventory object (JSLIST).
Source: GAO.
[End of figure]
According to Wal-Mart representatives, the level of visibility they
have over inventory items as shown in figure 6, is critical to quickly
remove from the shelf any recalled items. Wal-Mart views the efficient
and effective removal of recalled items essential to maintaining
credibility with its customers.
Wal-Mart also demonstrated control and visibility over its inventory at
the Bentonville, Arkansas Distribution Center. The information in the
system showed the specific location and number of a certain brand of 27-
inch televisions in the warehouse. We selected 4 of the 202 televisions
listed and verified that all 4 were at the specific location indicated
in the system.
In addition to using technology to streamline their inventory processes,
Sears and Wal-Mart personnel identified several other keys to their
success. For example, they stated there needs to be an understanding
throughout the organization of what it is trying to achieve. Clearly,
all must understand the goals and objectives and it is imperative that
all parties work in a cooperative manner. At DOD, as discussed in our
June 4 testimony,[Footnote 19] this has not always been the case.
Cultural resistance to change and military service parochialism have
played a significant role in impeding past attempts to implement broad-
based management reforms at DOD. If the barriers to change are not
removed, DOD will continue to be faced with the business-as-usual
mentality and its current endeavors to bring about substantive change
to the department‘s current flawed business operations will be
unsuccessful. If this occurs, as it has in the past, billions of dollars
will have been spent without any marked improvement in departmental
operations.
Wal-Mart officials also noted that another key element in their success
has been the use of individual performance metrics and incentives
throughout the organization. Whether it is the manager of a given store
or someone working in the warehouse, performance metrics have been
established and each person is evaluated against those metrics on a
routine basis. If the person‘s performance exceeds the metrics, he or
she is rewarded. For example, hourly workers can receive wage increases
for exceeding corporate productivity and inventory accuracy goals.
Store managers have metrics such as store profitability and inventory
shrinkage and receive bonuses for achieving the metrics. For DOD we
previously identified[Footnote 20] the lack of incentives as one of the
major underlying causes for the failure of past reform efforts within
the department.
Case Study Two: Government Purchase Cards:
Using computers acquired by government purchase cards as a case study,
we found that inefficient billing procedures at DFAS-Columbus have
increased the costs being incurred by some DOD customers for the
payment of monthly purchase card statements. For certain transactions
processed through DFAS-Columbus, monthly credit card statements are
mailed or faxed and each purchase is manually re-entered because (1) the
Navy has chosen not to electronically submit its purchase card
statements, (2) the payment system is not capable of accepting
electronic purchase card statements from CitiBank, the purchase card
contractor, and (3) defense agencies have not implemented electronic
purchase card processing. DFAS-Columbus charges customers over $17 per
line if the data are manually entered and about $7 per line if the data
are transmitted electronically. According to the DFAS-Columbus
Commercial Pay Services Business Manager, across all DFAS Centers
[Footnote 21] purchase card statements are processed electronically for
about 90 percent of the Air Force‘s statements, about 80 percent of the
Army‘s statements, and about 50 percent of the Navy‘s statements.
Background:
The purchase card is a governmentwide commercial credit card issued
under a government contract to federal agency employees to more
efficiently purchase needed goods and services directly from vendors.
The purchase card can be used for both micropurchases and payment of
other purchases. The Federal Acquisition Regulation, Part 13,
’Simplified Acquisition Procedures,“ establishes criteria for using
purchase cards to place orders and make payments. In addition, the
Department of the Treasury, DOD and the military services have issued
regulations, policy, and guidelines governing the use of the purchase
card.
Prior to DOD‘s implementation of the purchase card program in 1994,
buying goods and services was a labor- and paper-intensive process”
requisitions were prepared and sent to procurement offices. The
procurement offices issued purchase orders, goods and services were
delivered, receiving reports were prepared, and payments were then made.
The purchase card program was designed to simplify the purchase process
by eliminating the need to process purchase requests through
procurement offices and avoiding the administrative and documentation
requirements of the traditional contracting processes. In mapping the
flow of data for the use of the purchase card to procure, control, and
pay for a computer item, we identified 19 systems. Appendix III
provides a brief description of each system identified, the function
performed by the system, and the system owner.
When scanning the purchase card to obtain authorization through the bank
network, merchants are to verify the validity of the transactions using
a point of sale scanning device. This device can perform up to 50
authorization checks such as verifying the expiration date and account
number, ensuring the card has not been reported lost or stolen, and
determining that the purchase amount is within the prescribed dollar
limits. In fiscal year 2001, DOD reported that it used the purchase
card in procuring goods and services valued at over $6.1 billion.
Although we support a well-controlled purchase card program to
streamline the government‘s acquisition process, significant breakdowns
in internal controls have contributed to fraudulent, improper, and
abusive purchases and theft and misuse of government property. Our
March 13, 2002,[Footnote 22] testimony highlighted the vulnerability of
two Navy units to fraudulent, improper, and abusive use of government
purchase cards. Currently, we have additional efforts ongoing to review
internal controls over purchase card processes used by selected Army,
Air Force, and Navy units.
Inefficient Billing Process Increases Costs:
At DFAS-Columbus, we observed that much of the purchase card payment
process is manual. Certified monthly purchase card statements are
manually received from Navy working capital fund activities and defense
agencies. Upon receipt of the monthly statements, DFAS-Columbus
accounting technicians manually enter line-by-line transaction data
into the Computerized Accounts Payable System (CAPS) for payment. The
data entered include information such as document number, year,
activity and funding code, cost code, and dollar amount for each
individual transaction. The manual entry of the data is the result of
CAPS not being capable of accepting purchase card statements
electronically from CitiBank”the government contractor providing
purchase card services to the Navy.
Further, DFAS-Columbus personnel informed us that even if CAPS had the
capability, Navy working capital fund purchase card transactions would
have to be entered manually because the Navy has decided not to
electronically submit purchase card statements.
According to DFAS-Columbus officials, DFAS charges $17.13 for each line
on the monthly statement that must be manually entered into the payment
system. However, the processing fee is reduced to $6.96 per document
line, if the monthly statement is electronically processed. Since DFAS
is a working capital fund activity, the fee charged should represent
the actual cost being incurred in providing the service. We did not
audit these fees to determine if they represented actual costs. As
noted previously, in our discussions with Sears and Wal-Mart, we were
informed that the use of EDI is critical. For example, at Sears, over
99 percent of the purchase orders are transmitted via EDI, which
greatly reduces the amount of manual entry that is needed and also
reduces the risk that errors will be made in the reentry of data.
The following examples show the cost of manual entry of purchase card
transactions.
* On February 13, 2002, DFAS-Columbus received a certified purchase
card monthly statement detailing 271 purchases totaling nearly $24
million from the Defense Commissary Agency, Fort Lee, Virginia. At
$17.13 per document line, the DFAS fee for manually processing this
invoice was over $4,600. If the Defense Commissary Agency could have
submitted the invoice electronically, the DFAS fee would have been
about $1,890, or less than half the charge of manual processing.
* On January 29, 2002, DFAS-Columbus received a certified purchase card
monthly statement detailing 228 lines on the monthly statement for
purchases costing nearly $957,000 from the Navy Fleet Material Support
Office in Mechanicsburg, Pennsylvania. Since the 228 lines had to be
manually entered into CAPS, the Navy incurred a processing fee of
$3,900. However, if the monthly statement had been electronically
processed, the Navy would have paid DFAS approximately $1,590.
As shown in table 2, we found instances in which the amount of the
purchase was less than the amount charged for processing the one line
from the monthly statement.
Table 2: Selected Line Items From a Purchase Card Monthly Statement and
Related DFAS Processing Fee:
Vendor: Staples;
Amount of purchase: $4.37;
Processing fee: $17.13.
Vendor: Culligan Water Conditioning;
Amount of purchase: $5.50;
Processing fee: $17.13.
Vendor: Office Depot;
Amount of purchase: $8.59;
Processing fee: $17.13.
Source: Certified purchase card monthly statement dated January 21,
2002, from the Fleet Industrial Supply Center, Norfolk, VA, and DFAS-
Columbus.
[End of table]
DFAS-Columbus officials informed us that purchase card statements from
Navy working capital fund activities that are paid by DFAS-Columbus are
manually processed for two reasons. First, the Navy has chosen not to
electronically send purchase card statement paid from Navy working
capital fund activities. Second, DFAS-Columbus has not yet made the
necessary enhancements to the payment system to receive electronic
invoices from the Citidirect system”the system used by the contractor
providing the Navy purchase cards. Third, defense agencies have not
implemented electronic purchase card processing. According to DFAS-
Columbus personnel, monthly statements they receive from defense
agencies, including the Defense Contract Management Agency, Defense
Commissary Agency, and the Defense Information Systems Agency are to
be received electronically beginning this summer.
Further, our November 2001 report[Footnote 23] discussed concerns we
had with the failure to record accountable items in the property
records. Accountable property includes easily pilferable or sensitive
items such as computers and related equipment, digital cameras, and
cell phones. Our report pointed out that at two Navy activities we
identified instances where computer monitors and laptop computers were
not recorded in their property records and could not be found.
Recording these items in the property records is an important step to
ensure accountability and financial control over these assets. In
addition, our also report expressed concern about the use of the
government purchase card to procure computers that could be more
economically and efficiently procured through bulk purchases. We made
recommendations to the Commander of the Naval Supply Systems Command
aimed at correcting both of these problems.
Conclusion:
The JSLIST and purchase card case studies clearly demonstrate that DOD‘s
current business operations are inefficient and ineffective.
Specifically, these case studies are real-time examples of the high
cost of nonintegrated systems that require substantial manual
intervention in nearly every step of the process. In addition, mission
performance is also affected by these processes as shown by DOD‘s lack
of visibility over the JSLIST. These case studies are small examples of
the broader financial and inventory management and systems
modernization challenges facing DOD that were highlighted in our June
2, 2002 testimony[Footnote 24] before this Subcommittee.
The integrated, automated processes used by Wal-Mart and Sears offer a
glimpse of the cost savings and improved mission performance that DOD
could achieve with successful reform. Unlike DOD, market forces and a
strong system of accountability drive Sears and Wal-Mart to operate as
efficiently and effectively as possible. As we have previously stated,
for DOD to succeed in its reform efforts, strong leadership from the
Secretary will be necessary to develop a system of accountability and
incentives and to cut through the deeply embedded cultural resistance
to change and service parochialism. In addition, continued
congressional oversight such as the hearing today will be critical to
successfully reforming DOD‘s business operations. The Secretary has
recognized the importance of reform and estimated that DOD could save 5
percent of its budget”or about $15 billion to $18 billion annually”by
successfully transforming DOD‘s business processes.
Mr. Chairman, this concludes our statement. We would be pleased to
answer any questions you or other members of the Subcommittee may
have at this time.
Contacts and Acknowledgments:
For further information about this testimony, please contact Gregory D.
Kutz at (202) 512-9095 or kutzg@gao.gov, or David R. Warren at (202)
512-8412 or warrend@gao.gov. Other key contributors to this testimony
include Lon Chin, Francine Delvecchio, Ted Hu, Richard Newbold, Sanford
Reigle, John Ryan, Darby Smith, and Earl Woodard.
[End of section]
Appendix I: Locations Visited:
In mapping the information flow for the procurement, inventory control,
and payment of the Joint Service Lightweight Integrated Technology Suit,
we visited the following locations.
* JSLIST Program Office, Quantico, Virginia.
* Defense Supply Center, Philadelphia, Pennsylvania.
* Defense Finance and Accounting Service, Columbus, Ohio.
* Defense Contract Management Agency, Cincinnati, Ohio.
* Defense Distribution Center, Albany, Georgia.
* Joint Set-Aside Project, Marine Corps Logistics Base, Albany,
Georgia.
* Air Force‘s 919th Special Operations Wing, Eglin Air Force Base,
Florida.
* Air Force‘s 16th Special Operations Wing/Logistics, Hurlburt Field,
Florida.
* Air Force‘s Chemical Training Unit, Hickam Air Force Base, Hawaii.
* Army‘s 101st Airborne Division, Fort Campbell, Kentucky.
* Army‘s 5th Special Operations Forces, Fort Campbell, Kentucky.
* Army‘s 160th Special Operations Aviation Regiment, Fort Campbell,
Kentucky.
* Navy‘s Disaster Preparedness, Naval Air Station, Pensacola, Florida.
* Navy‘s Explosive Ordnance Disposal Unit, Eglin Air Force Base,
Florida.
* Navy‘s Explosive Ordnance Disposal Unit, Barbers Point, Hawaii.
In mapping the information flow for the procurement, inventory control,
and payment of a computer item using a government purchase card, we
visited the following locations.
* DOD Purchase Card Program Office, Falls Church, Virginia.
* Defense Finance and Accounting Service, Columbus, Ohio.
* Air Force Materiel Command, Wright-Patterson Air Force Base, Ohio.
* Army Soldier Biological and Chemical Command, Natick, Massachusetts.
In order to compare DOD business processes with those of leaders in the
retail industry we visited:
* Sears, Roebuck, and Company, Hoffman Estates, Illinois.
* Wal-Mart Incorporated, Bentonville, Arkansas.
[End of section]
Appendix II: Key Data Systems Used to Procure, Control, and Pay for
JSLIST Protective Garments:
This section includes general information describing each of the 13
information systems used to support the procurement, inventory control,
and payment processes for the JSLIST protective chemical/biological
equipment purchased through contracts.
System owner: DLA;
System name: Distribution Standard System (DSS);
Process supported: Inventory control;
System description: Supports management of all business processes of
the department‘s warehouse operations, including the processing of
material requisition orders, reporting shipping information to
customers, and providing visibility of asset quantity, condition, and
location.
System owner: DLA;
System name: Standard Automated Materiel Management System (SAMMS);
Process supported: Procurement, Inventory control and Payment;
System description: Supports wholesale consumable item inventory
management processes at defense supply centers, including processing
requisitions, forecasting requirements, generating purchase requests,
and maintaining stock levels, technical data, item identification, and
asset visibility.
System owner: DFAS;
System name: Electronic Document Access (EDA);
Process supported: Procurement and Payment;
System description: Stores documents such as contracts, contract
modifications, government bills of lading, and payment vouchers as
electronic images and provides personnel from multiple DOD communities
access to these documents.
System owner: DFAS;
System name: Electronic Document Management (EDM);
Process supported: Procurement and Payment;
System description: Converts and stores paper documents such as
contracts, invoices, and receiving reports as electronic images
providing document imaging, electronic folders, and workflow processing
to DFAS personnel at a single location.
System owner: DFAS;
System name: Program Budget Accounting System – Funds Distribution
(PBAS-FD);
Process supported: Payment;
System description: Records and controls obligation and expenditure
authority for all organizational levels except the allotment holder
allowing DOD financial managers to electronically receive and issue
funds for the Office of the Secretary of Defense, Army, and Navy.
System owner: DFAS;
System name: Standard Accounting, Budgeting, and Reporting System
(SABRS);
Process supported: Payment;
System description: Standardizes all Marine Corps transactions and
provides a transaction driven general ledger in compliance with the
U.S. Standard General Ledger Charts of Accounts.
System owner: DFAS and DCMA;
System name: Mechanization of Contract Administration Services (MOCAS);
Process supported: Procurement and Payment;
System description: Supports the administration and payment of supply
and service contracts by contract administration offices, payment
offices, procurement offices, funding stations, and consignees.
System owner: Air Force;
System name: Mobility Inventory Control Accountability System (MICAS);
Process supported: Inventory control;
System description: Provides comprehensive asset control and shelf life
management, including receiving, accounting, controlling, tracking,
issuing, deploying, and reporting of chemical and biological equipment.
System owner: Army;
System name: Standard Army Retail Supply System (SARSS-O);
Process supported: Inventory control;
System description: Supports retail supply operations and maintains the
accountable record of material received, stored and issued.
System owner: Army Standard Property Book
System name: System – Redesign (SPBS-R);
Process supported: Inventory control;
System description: Automates overall property accountability and asset
visibility functions, including the creating of master hand receipts
and the passing of asset data on item shortages and overages to other
Army systems.
System owner: Navy;
System name: Shipboard Non-Tactical Automated Data Processing System
(SNAP);
Process supported: Inventory control;
System description: Provides numerous applications for shipboard use,
including processing of material requirements, requisitions, and
receipts; tracking inventory stock location, balances, demand and
usage; providing individual custody records; and reconciling
requirements, requisition, inventory, and financial data.
System owner: Navy;
System name: Standard Automated Logistics Tool Set (SALTS);
Process supported: Inventory control;
System description: Provides means to move logistics and administrative
data from a single point of entry to databases and data services world-
wide, including DLA‘s SAMMS, Army‘s Total Asset Visibility system, and
Air Force‘s Air Force Logistics Information File.
System owner: Marine Corps;
System name: Defense Equipment Management Program;
Process supported: Inventory control;
System description: Maintains total asset visibility over chemical and
biological protection equipment held for future testing and tracking
results using a spreadsheet application.
[End of table]
[End of section]
Appendix III: Key Data Systems Used to Procure, Account, Control, and
Pay for Computer Items Using the Purchase Card:
This section includes general information describing each of the 19
information systems used to support the procurement, inventory control,
and payment processes for computer equipment purchased using the
government purchase card.
System owner: DFAS;
System name: Central Procurement Accounting System (CPAS);
Process supported: Procurement and Payment;
System description: Provides DFAS and Air Force financial service
offices with on-line access to current status information of
procurement programs, allotments, initiations, commitments,
obligations, and disbursements for central procurement appropriations.
System owner: DFAS;
System name: Computerized Accounts Payable System (CAPS);
Process supported: Payment;
System description: Provides standard installation center level vendor
pay system using a personal computer-based application with interfaces
with DOD standard procurement, disbursing and accounting systems.
System owner: DFAS;
System name: Defense Business Management System (DBMS);
Process supported: Procurement;
System description: Supports the major accounting functions of general
ledger accounting, budgetary accounting and funds control, job order
and cost accounting, accounts receivable and payable, and accounting
and managerial reporting for DFAS, DLA depot and supply centers,
Defense Contract Audit Agencies, and the Defense Commissary Agencies.
System owner: DFAS;
System name: Defense Industrial Financial Management System (DIFMS);
Process supported: Procurement;
System description: Provides about 17 Navy, Marine Corps, and Air Force
field-level and headquarters-level activities with transaction-driven
funds control, accounting for budget execution, and management
information, including cash, labor, other cost, material, cost summary,
job order and customer order, billing, general ledger accounts, fixed
asset accounting, and cost competition data.
System owner: DFAS;
System name: Electronic Document Management (EDM);
Process supported: Payment;
System description: Converts and stores paper documents such as
contracts, invoices, and receiving reports as electronic images
providing document imaging, electronic folders, and workflow processing
to DFAS personnel at a single location.
System owner: DFAS;
System name: Vendor Pay Integrated Accounts Payable System (IAPS);
Process supported: Payment;
System description: Provides rapid and timely vendor payments to Air
Force vendors by processing commitment transactions electronically to
the GAFS; compares invoice, receiving report and contract data to
create a payment vouchers; and concurrently passes electronic funds
transfer data to both disbursing and accounting systems.
System owner: DFAS;
System name: Program Budget Accounting System – Funds Distribution
(PBAS-FD);
Process supported: Procurement and Payment;
System description: Records and controls obligation and expenditure
authority for all organizational levels except the allotment holder
allowing DOD financial managers to electronically receive and issue
funds for the Office of the Secretary of Defense, Army, and Navy.
System owner: DFAS;
System name: Standard Accounting, Budgeting, and Reporting System
(SABRS);
Process supported: Payment;
System description: Standardizes all Marine Corps transactions and
provides a transaction driven general ledger in compliance with the
U.S. Standard General Ledger Charts of Accounts.
System owner: DFAS;
System name: Standard Finance System Redesign – Subsystem 1 (SRD-1);
Process supported: Payment;
System description: Incorporates military pay, travel, accounts
payable, accounting, and disbursing functions into an on-line,
interactive menu-driven system for DFAS to produce cash payments,
vouchers, and reports.
System owner: Navy;
System name: Standard Accounting and Reporting System (STARS);
Process supported: Payment;
System description: Consolidates all Department of Navy general fund
accounting, contractor and vendor commercial entitlements,
transportation payments, and travel payments for the Navy, the Marine
Corps, and the Army; and the Navy departmental reporting and funds
distribution.
System owner: DLA;
System name: Defense Property Accountability System (DPAS);
Process supported: Inventory control;
System description: Provides a transaction-driven subsidiary ledger to
the general ledger designed to achieve physical and financial control
over real and personal property.
System owner: Air Force;
System name: Automated Business Services System (ABSS);
Process supported: Procurement;
System description: Enables Air Force officials to electronically
request assets or services, coordinate approval officials‘ actions,
send electronic documents worldwide, and provide data interface to all
standard Air Force accounting and contracting systems.
System owner: Air Force;
System name: General Accounting and Finance System (GAFS);
Process supported: Procurement;
System description: Provides Air Force a standard accounting system for
appropriated funds accommodating the standard appropriation accounting
records, such as funding authority, commitments, obligations, and
balances of available funds.
System owner: Air Force;
System name: Information Processing Management System (IPMS);
Process supported: Inventory control;
System description: Provides inventory accountability, configuration
management, and life cycle management for Air Force information
technology assets, including hardware and software.
System owner: Army;
System name: Purchase Card Management System (PCMS);
Process supported: Procurement;
System description: Provides Army Materiel Command and Army-Natick
users a personal computer web-based system to log and track purchase
card requests, obtain required approvals, create timely commitments and
obligations, and track and record property and equipment.
System owner: Army;
System name: Standard Operations and Maintenance, Army Research and
Development System (SOMARDS);
Process supported: Payment;
System description: Provides Army a standard accounting and reporting
system for reimbursable customer and direct mission funds control data;
reporting for labor, reimbursable billings, advances, and general
operation expenses; general ledger reporting; and month-end and year-
end close and purge processes.
System owner: Army;
System name: Standard Property Book System – Redesign (SPBS-R);
Process supported: Inventory control;
System description: Automates overall property accountability and asset
visibility functions, including the creating of master hand receipts
and the passing of asset data on item shortages and overages to other
Army systems.
System owner: CitiBank;
System name: CitiDirect;
Process supported: Payment;
System description: Delivers to the Navy and Marine Corp purchase
cardholders and approval officials‘ a web-based reporting and
communication tool to log purchases, review and adjust card
transactions, and certify account and billing statements.
System owner: U.S. Bank;
System name: Customer Automation and Reporting Environment (CARE)
system;
Process supported: Payment;
System description: Delivers to Air Force and Army purchase
cardholders‘ and approval officials‘ a web-based reporting and
communication tool to log card purchases, review and adjust card
transactions, and certify account and billing statements.
[End of table]
[End of section]
Footnotes:
[1] U.S. General Accounting Office, DOD Financial Management: Important
Steps Underway But Reform Will Require a Long-term Commitment,
[hyperlink, http://www.gao.gov/products/GAO-02-784T] (Washington, D.C.:
June 4, 2002).
[2] Financial management, inventory management, and systems
modernization are three of the six agency-specific high-risk areas
related to DOD. For further details see U.S. General Accounting Office,
Major Management Challenges and Program Risk: Department of Defense,
[hyperlink, http://www.gao.gov/products/GAO-01-244], (Washington, D.C.:
Jan. 2001).
[3] JSLIST is a universal, lightweight, two-piece garment (coat and
trousers) that when combined with footwear, gloves, and protective mask
and breathing device, forms the warfighter‘s protective ensemble.
Together, the ensemble is to provide maximum protection to the
warfighter against chemical and biological contaminants without
negatively impacting the ability to perform mission tasks.
[4] An integrated financial system coordinates a number of functions to
improve efficiency and control. For example, integrated financial
systems are designed to avoid the unnecessary duplication of data entry
because transactions are entered only once. Systems can also be
interfaced which means they have the ability to share data
electronically.
[5] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Two Navy Units Vulnerable to Fraud and Abuse, [hyperlink,
http://www.gao.gov/products/GAO-01-995T], (Washington, D.C.: July 30,
2001) and Purchase Cards: Continued Control Weaknesses Leave Two Navy
Units Vulnerable to Fraud and Abuse, [hyperlink,
http://www.gao.gov/products/GAO-02-506T], (Washington, D.C.: Mar 13,
2001).
[6] U.S. General Accounting Office, Chemical and Biological Defense:
Improved Risk Assessment and Inventory Management Are Needed,
[hyperlink, http://www.gao.gov/products/GAO-01-667] (Washington, D.C.:
Sept. 28, 2001).
[7] DLA stores JSLIST at its distribution centers in Albany, Georgia;
San Joaquin, California; and Yokuska, Japan.
[8] U.S. General Accounting Office, Canceled DOD Appropriations:$615
Million of Illegal or Otherwise Improper Adjustments, [hyperlink,
http://www.gao.gov/products/GAO-01-697] (Washington, D.C.: July 26,
2001).
[9] U.S. General Accounting Office, Financial Management: Seven DOD
Initiatives That Affect the Contract Payment Process, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-98-40] (Washington, D.C.: Jan. 30,
1998).
[10] [hyperlink, http://www.gao.gov/products/GAO-02-784T].
[11] [hyperlink, http://www.gao.gov/products/GAO-01-667].
[12] [hyperlink, http://www.gao.gov/products/GAO-01-244].
[13] U.S. General Accounting Office, DLA Should Strengthen Business
System Modernization Architecture and Investment Activities,
[hyperlink, http://www.gao.gov/products/GAO-01-631] (Washington, D.C.:
June 29, 2001).
[14] [hyperlink, http://www.gao.gov/products/GAO-02-784T].
[15] Reported acquisition price.
[16] Government Liquidation, LLC (GL) is under contract with the
Department of Defense for the sale of surplus property. GL operates an
online sales channel that allows surplus buyers to purchase available
assets over the Web in a ’convenient and open environment.“ GL manages
over 2 million square feet of warehouse space and maintains offices on
over 150 military bases throughout the continental U.S., Alaska,
Hawaii, Puerto Rico, and Guam.
[17] Electronic data interchange (EDI) is the automated exchange of
predefined and standardized business data among information systems of
two or more organizations.
[18] [hyperlink, http://www.gao.gov/products/GAO-02-784T].
[19] [hyperlink, http://www.gao.gov/products/GAO-02-784T].
[20] [hyperlink, http://www.gao.gov/products/GAO-02-784T].
[21] DFAS Centers are located in Columbus, OH; Cleveland, OH; Denver,
CO; Indianapolis, IN; and Kansas City, MO.
[22] [hyperlink, http://www.gao.gov/products/GAO-02-506T.
[23] U.S. General Accounting Office, Purchase Card: Control Weaknesses
Leave Two Navy Units Vulnerable to Fraud and Waste, [hyperlink,
http://www.gao.gov/products/GAO-02-32] (Washington, D.C.: Nov. 2001).
[24] [hyperlink, http://www.gao.gov/products/GAO-02-784T].
[End of section]
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